On September 12^th The Kroger Company (KR) posted results for Q2 of FY 2024 ending August  17^th 2024. Kroger returned to profit, beat on earnings and raised 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 announced the intention to acquire/merge with competitor Albertsons Corporation 23 months ago in a transaction valued at $25 Billion. This would in theory create a merged enterprise with 5,000 stores but has incurred FTC opposition despite the offer to divest 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 Haggen that acquired divested stores in early 2015 to facilitate the acquisition of Safeway by Albertsons but filed for bankruptcy nine months later. Workers’ unions and Attorneys General of nine states are opposing the transaction with the inevitability of prolonged litigation. At present a Federal Court in Oregon is considering a preliminary injunction filed by the FTC to block the transaction.

For the 2^nd quarter of FY 2024, Kroger reported earnings of $466 million on revenue of $33,912 million with a diluted EPS of $0.64. For the corresponding Q2 of FY 2023, Kroger posted a loss of $(180 million) on sales of $33,853 million with a negative diluted EPS of $(0.25).  Comparing Q2 of 2024 with the corresponding quarter of 2023, revenue was 0.2 percent higher. Gross margin increased fractionally from 21.8 percent to 22.6 percent for Q2 2024. Operating margin increased from -1.4 percent to 2.4 percent for the most recent quarter. For Q2 2024 S & G was lower by $1,049 million compared to Q2 2023 (Albertson’s acquisition expenses?). The P&L for Q2 2024 noted a $121 million loss on investments compared to a gain of $367 million in Q2 2023.

In commenting on Q2 results, Rodney McMullen CEO stated "Kroger achieved solid results in the second quarter demonstrating the strength and resiliency of our model. We are growing households and increasing customer visits by offering a compelling combination of affordable prices and personalized promotions on great quality products, all through a unique seamless experience.  He added “Our long-term model is to consistently invest to lower prices so more customers shop with us, which in turn fuels our alternative profit businesses and drives greater efficiencies This flywheel enables Kroger to deliver exceptional value for customers and investing in our associates, and by doing so, we are well-positioned to generate attractive and sustainable returns for shareholders."  

In relation to the proposed merger with Albertson’s, McMullin commented "As we near the close of the FTC's preliminary injunction hearing, we are confident in the facts and the strength of our position. The food industry has always been competitive and will continue to be after this merger. We are committed to closing this merger because bringing Kroger and Albertsons together will provide meaningful and measurable benefits – lower prices, secure jobs and expanded access to fresh, affordable food – for customers, associates, and communities across the country."

The Company guidance for FY 2024 comprised:- 

• Identical Store Sales growth of 0.8 to 1.8 percent excluding fuel, (was 0.6 to 1.0 percent)
• Adjusted EPS of $4.60 to $4.80 (was $4.50 to $4.60) 
• Adjusted FIFO Operating Profit of $4.6 billion to $4.8 billion, (was $4.9 to $5.0 billion)
• Capital expenditure of $3,600 to $3,800 million

Comparable same-store sales for Q2 attained 1.2 percent (excluding fuel) compared to Q2 FY 2023; digital sales were up by 11.0 percent;

On August 17^th Kroger posted total assets of $51,443 million of which $3,539 million comprised goodwill and intangibles. Long-term debt and lease obligations amounted to $20,891 million.  

The Kroger Company had an intraday market capitalization of $39,910 million on September 13^th 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 $53.25. KR trades with a forward P/E of 11.7. On September 11^th 2024 KR closed at $51.50 pre-release but closed at $55.20 on September 12^th post-release.

Twelve-month trailing operating margin was 2.0 percent and profit margin 1.4 percent.  The Company generated a return on assets of 6.0 percent and 18.6 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