Kroger Reports Fourth Quarter and Full-Year 2023 Results, Announces Guidance for 2024

Fourth Quarter Highlights

• Identical Sales without fuel decreased 0.8%; underlying Identical Sales without fuel increased 0.1%⁽¹⁾
• Operating Profit of $1,194 million; EPS of $1.01
• Adjusted FIFO Operating Profit of $1,307 million and Adjusted EPS of $1.34, which include a benefit of $187 million and $0.20 from the 53^rd week, respectively
• Executed its go-to-market strategy to deliver value for customers
  • Grew digital sales more than 10%, excluding the 53^rd week
  • Increased both loyal households and customer visits

Fiscal 2023 Highlights

• Identical Sales without fuel increased 0.9%; underlying Identical Sales without fuel increased 2.3%⁽¹⁾
• Operating Profit of $3.1 billion; EPS of $2.96
• Adjusted FIFO Operating Profit of $5.0 billion and Adjusted EPS of $4.76, which include a benefit of $187 million and $0.20 from the 53^rd week, respectively
• Delivered Adjusted EPS growth of 8% excluding the 53rd week
• Delivered $1.3B in Operating Profit from Alternative Profit Businesses
• Increased associate wages resulting in average hourly wage of nearly $19 and rate of nearly $25 with comprehensive benefits factored in, which is a 33% increase in rate in the last five years
• Achieved strong Adjusted Free Cash Flow leading to a net total debt to adjusted EBITDA ratio of 1.33, excluding the 53^rd week

CINCINNATI, March 7, 2024 /PRNewswire/ — The Kroger Co. (NYSE: KR) today reported its fourth quarter and fiscal year 2023 results, provided 2024 guidance and updated investors on how Leading with Fresh and Accelerating with Digital continues to position Kroger for long-term sustainable growth.

Comments from Chairman and CEO Rodney McMullen

“Kroger achieved strong 2023 results, in line with our long-term growth model and built upon three consecutive years of historic growth.

As customers manage macroeconomic pressures, we are lowering prices and offering even more ways to save with personalized promotions and rewards. Our unique seamless shopping experience provides customers the products they want, when and how they want them, with zero compromise on quality, convenience and selection.

We respect and appreciate our associates who are delivering a full, fresh and friendly customer experience. Over the last five years, we’ve made historic investments in associate wages, benefits and career development opportunities, including significant investments to help stabilize associates’ future pension benefits.

We are increasing customer visits and growing loyal households through the strength of our retail business, which positions Kroger for more ways to drive sustainable future growth. We expect to continue our momentum in 2024 by delivering value for customers, investing in associates and generating attractive and sustainable shareholder returns.”

Fourth Quarter Financial Results

Total company sales were $37.1 billion in the fourth quarter, including $2.7 billion from the 53rd week, compared to $34.8 billion for the same period last year. Excluding fuel and the 53rd week, sales decreased 0.5% compared to the same period last year.

Gross margin was 22.7% of sales for the fourth quarter. The FIFO gross margin rate, excluding fuel and the 53rd week, increased 13 basis points compared to the same period last year. The improvement in rate was primarily attributable to strong Our Brands performance, sourcing benefits and lower supply chain costs, partially offset by increased price investments and higher shrink.

The LIFO credit for the quarter was $18 million, compared to a LIFO charge of $234 million for the same period last year. The credit was due to lower year over year product cost inflation than expected.

The Operating, General & Administrative rate increased 40 basis points, excluding fuel, the 53^rd week and adjustment items, compared to the same period last year. This increase in rate was driven by planned investments in associate wages, an adjustment for self-insurance expenses and the decision to contribute an additional $40 million to multi-employer pension plans, helping stabilize associates’ future benefits and reduce future obligations, partially offset by continued execution of cost savings initiatives and lower incentive plan costs.

Fiscal 2023 Financial Results

Total company sales were $150.0 billion in 2023 including $2.7 billion from the 53^rd week, compared to $148.3 billion for the same period last year. Excluding fuel and the 53^rd week, sales increased 1.1% compared to the same period last year.

Gross margin was 22.2% of sales for 2023. The FIFO gross margin rate, excluding fuel and the 53^rd week, increased 18 basis points compared to the same period last year. This improvement in rate was primarily attributable to strong Our Brands performance, sourcing benefits, lower supply chain costs and the effect of our terminated agreement with Express Scripts, partially offset by increased price investments and higher shrink.

The LIFO charge for 2023 was $113 million, compared to a LIFO charge of $626 million for the same period last year. This was driven by lower product cost inflation compared to the same period last year.

The Operating, General & Administrative rate increased 21 basis points, excluding fuel, the 53rd week and adjustment items, compared to the same period last year. This increase in rate was driven by planned investments in associates, investments in strategic growth initiatives and the effect of our terminated agreement with Express Scripts, partially offset by the continued execution of cost savings initiatives and lower incentive plan costs.

Capital Allocation Strategy

Kroger expects to continue to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth, as well as maintaining its current investment grade debt rating. The Company expects to continue to pay its quarterly dividend and expects this to increase over time, subject to board approval. Kroger has paused its share repurchase program to prioritize de-leveraging following the proposed merger with Albertsons.

Kroger’s net total debt to adjusted EBITDA ratio is 1.33, excluding the 53^rd week, compared to 1.56 a year ago (Table 5). The company’s net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.

Full-Year 2024 Guidance*

• Identical Sales without fuel of 0.25% – 1.75%
• Adjusted FIFO Operating Profit of $4.6 – $4.8 billion
• Adjusted net earnings per diluted share of $4.30 – $4.50
• Adjusted Free Cash Flow of $2.5 – $2.7 billion**
• Capital expenditures of $3.4 – $3.6 billion
• Adjusted effective tax rate of 23%***

Comments from Interim CFO Todd Foley

“Kroger’s 2023 results provide another proof point of the strength and resilience of our value creation model, which supported another year of strong free cash flow and net earnings growth.

In 2024, we expect to grow revenue by delivering value for customers and enhancing our seamless shopping experience. We plan to balance investments in our business, including lowering prices and increasing associate wages, with productivity and cost savings initiatives, improvement on long-term initiatives in gross margin and growth in our alternative profit businesses.

This strength in our model gives us confidence in our ability to deliver on our 2024 guidance and maintain our strong track record of delivering for our customers, investing in our associates and generating attractive and sustainable returns for shareholders.”

Fourth Quarter 2023 Highlights

Leading with Fresh  

• Launched new Murray’s Cheese monthly subscription club
• Introduced more than 700 new Our Brands items in 2023, including expansion of Mercado and Smart Way lines
• Innovated to make customer favorites even better with reinvented deli and bakery items

Accelerating with Digital

• Grew digital business to $12 billion in annual sales
• Increased delivery sales by 24% over last year, excluding the 53^rd week, led by Kroger Boost and Customer Fulfillment Centers
• Increased digitally engaged households by 18% compared to last year

Associate Experience

• Invested approximately $500 million in incremental wages in 2023, for a total of $2.4 billion in incremental investments since 2018
• Named by Computerworld to the 2024 List of Best Places to Work in IT
• Supported continuing education with almost 7,000 associates, 94% of whom are hourly, taking advantage of Kroger’s education assistance program in 2023

Live Our Purpose

• Recognized as one of Newsweek’s “Most Responsible Companies” for 2024
• Investing in innovation which enhances food recovery through Zero Hunger | Zero Waste foundation grants to organizations including Feeding America and The Farmlink Project
• Announced collaboration between Kroger Health and Soda Health to provide more access to food, health products, pharmacy and nutrition services

About Kroger

At The Kroger Co. (NYSE: KR), we are dedicated to our Purpose: to Feed the Human Spirit™. We are, across our family of companies nearly half a million associates who serve over eleven million customers daily through a seamless digital shopping experience and retail food stores under a variety of banner names, serving America through food inspiration and uplift, and creating #ZeroHungerZeroWaste communities by 2025. To learn more about us, visit our newsroom and investor relations site.

Kroger’s fourth quarter 2023 ended on February 3, 2024. 

Note: Fuel sales have historically had a low gross margin rate and operating expense rate as compared to corresponding rates on non-fuel sales. As a result, Kroger discusses the changes in these rates excluding the effect of fuel.

Please refer to the supplemental information presented in the tables for reconciliations of the non-GAAP financial measures used in this press release to the most comparable GAAP financial measure and related disclosure. As noted above, Kroger is unable to provide a full reconciliation of the GAAP and non-GAAP measures used in its guidance without unreasonable effort because it is not possible to predict certain of our adjustment items with a reasonable degree of certainty. This information is dependent upon future events and may be outside of our control and its unavailability could have a significant impact on GAAP financial results.

This press release contains certain statements that constitute “forward-looking statements” about Kroger’s financial position and the future performance of the company. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. Such statements are indicated by words or phrases such as “achieve,” “committed,” “continue,” “create,” “deliver,” “expect,” “future,” “guidance,” “model,” “positions,” “strategy,” “target,” “trends,” and variations of such words and similar phrases. Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. These include the specific risk factors identified in “Risk Factors” in our annual report on Form 10-K for our last fiscal year and any subsequent filings, as well as the following:

Kroger’s ability to achieve sales, earnings, incremental FIFO operating profit, and adjusted free cash flow goals may be affected by: the risks relating to or arising from our proposed nationwide opioid litigation settlement, including our ability to finalize and effectuate the settlement, the scope and coverage of the ultimate settlement and the expected financial or other impacts that could result from the settlement; our proposed transaction with Albertsons, including, among other things, our ability to consummate the proposed transaction and related divestiture plan, including on the terms of the merger agreement and divestiture plan, on the anticipated timeline, with the required regulatory approvals, and/or resolution of pending litigation challenging the merger; labor negotiations; potential work stoppages; changes in the unemployment rate; pressures in the labor market; changes in government-funded benefit programs; changes in the types and numbers of businesses that compete with Kroger; pricing and promotional activities of existing and new competitors, and the aggressiveness of that competition; Kroger’s response to these actions; the state of the economy, including interest rates, the current inflationary environment and future potential inflationary, disinflationary and/or deflationary trends and such trends in certain commodities, products and/or operating costs; the geopolitical environment including wars and conflicts; unstable political situations and social unrest; changes in tariffs; the effect that fuel costs have on consumer spending; volatility of fuel margins; manufacturing commodity costs; supply constraints; diesel fuel costs related to Kroger’s logistics operations; trends in consumer spending; the extent to which Kroger’s customers exercise caution in their purchasing in response to economic conditions; the uncertainty of economic growth or recession; stock repurchases; changes in the regulatory environment in which Kroger operates; Kroger’s ability to retain pharmacy sales from third party payors; consolidation in the healthcare industry, including pharmacy benefit managers; Kroger’s ability to negotiate modifications to multi-employer pension plans; natural disasters or adverse weather conditions; the effect of public health crises or other significant catastrophic events; the potential costs and risks associated with potential cyber-attacks or data security breaches; the success of Kroger’s future growth plans; the ability to execute our growth strategy and value creation model, including continued cost savings, growth of our alternative profit businesses, and our ability to better serve our customers and to generate customer loyalty and sustainable growth through our strategic pillars of fresh, our brands, personalization, and seamless; and the successful integration of merged companies and new partnerships. Our ability to achieve these goals may also be affected by our ability to manage the factors identified above. Our ability to execute our financial strategy may be affected by our ability to generate cash flow.

Kroger’s adjusted effective tax rate may differ from the expected rate due to changes in tax laws, the status of pending items with various taxing authorities, and the deductibility of certain expenses.

Kroger assumes no obligation to update the information contained herein unless required by applicable law. Please refer to Kroger’s reports and filings with the Securities and Exchange Commission for a further discussion of these risks and uncertainties.

Note: Kroger’s quarterly conference call with investors will broadcast live at 10 a.m. (ET) on March 7, 2024 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, March 7, 2024.