On June 20th The Kroger Company (KR) posted results for Q1 of FY 2024 ending May 25th 2024. Kroger beat on earnings but was light on sales compared to consensus estimates although reconfirming FY 2024 guidance.
Kroger is the second largest retailer of groceries in the U.S. and is a pure supermarket play subject to the pressures of escalation in food costs, logistics and labor and the impact of inflation in common with all national and regional competitors. Kroger has announced the intention of acquiring competitor Albertsons Cos. This would create a merged enterprise with 5,000 stores subject to FTC and DOJ approval but with inevitable divestment of some assets. To comply with anticipated regulatory pressure Kroger and Albertsons have proposed selling 413 stores in 18 states to C&S Wholesale Grocers for $1,900 million. This strategy is in question given the history of the bankruptcy of Hagen that divested stores to facilitate the acquisition of Safeway by Albertsons. The FTC, workers’ unions and numerous states have opposed the transaction with the possibility of prolonged litigation.
For the 1st quarter of FY 2024, Kroger reported earnings of $947 million on revenue of $45,269 million with a diluted EPS of $1.30. For the corresponding Q1 of FY 2023, Kroger earned $962 million on sales of $45,165 million with a diluted EPS of $1.33. Comparing Q1 of 2024 with the corresponding quarter of 2022, revenue was 0.2 percent higher. Gross margin increased fractionally from 22.3 percent to 22.4 percent for Q1 2024. Operating margin declined from 3.3 percent to 2.9 percent for the most recent quarter.
In commenting on quarterly results, Rodney McMullen CEO stated, "Kroger is off to a solid start in 2024 led by better-than-expected performance of our grocery business” He added “Kroger is delivering exceptional value at a time when many customers need it more than ever, by providing affordable prices with personalized promotions. We appreciate our associates who are elevating the customer experience and improving store execution. Together, this is growing households and increasing customer visits”
He concluded “The long-term investments we have made to strengthen and diversify our model enables us to manage economic cycles and gives us the confidence to deliver on our full year outlook. By delivering value for customers and investing in our associates, Kroger remains well-positioned to generate attractive and sustainable returns for our shareholders."
The Company retained FY 2024 Guidance:-
- Identical Store Sales growth of 0.6 to 1.0 percent excluding fuel, (was 2.5 to 3.5 percent)
- Adjusted EPS of $4.50 to $4.60 (was $4.45 to $4.60)
- Adjusted FIFO Operating Profit of $4.9 billion to $5.0 billion, (was $5.0 to $5.2 billion)
- Capital expenditure of $3,400 to $3,600 million
- Adjusted free cash flow of $2,500 to $2,700 million
Comparable same-store sales for Q1 attained 0.5 percent (excluding fuel) compared to Q1 FY 2023; digital sales were up by 8.0 percent;
On March 25th Kroger posted total assets of $51,441 million of which $3,537 million comprised goodwill and intangibles. Long-term debt and lease obligations amounted to $20,867 million.
The Kroger Company had an intraday market capitalization of $37,820 million on June 20th 2024. The Company has traded over the past fifty-two weeks in a range of $42.10 to $58.34 with a 50-day moving average of $54.01. KR trades with a forward P/E of 11.7. On June 18th 2023 KR closed at $52.00 pre-release and fell to $50.91 on June 20th post-release at10H30.
Twelve-month trailing operating margin was 2.0 percent and profit margin 1.4 percent. The Company generated a return on assets of 6.2 percent and 20.1 percent on equity
At the end of FY 2023 The Kroger Company operated 2,726 stores with 2,252 pharmacies and 1,613 fuel centers, under 25 banners in 35 states and D.C. Kroger operates 34 food plants and 45 distribution centers with five Ocado fully automated fulfillment centers with as many as twenty planned.