Kroger narrows guidance range amid latest Q3 results
In reporting third quarter 2024 results, Kroger narrowed its guidance range and updated investors on how Kroger is positioned for long-term sustainable growth.
"Kroger achieved strong sales results in the third quarter led by our pharmacy and digital performance, which reflects the strength and diversity of our model,” said chairman and CEO Rodney McMullen.
McMullen added, “We continued to grow total households this quarter by delivering exceptional value for customers, with low prices, personalized offers and great quality Our Brands products, all through a seamless shopping experience. We appreciate our associates for their continued efforts to elevate the customer experience, delivering on our key priorities of full, fresh and friendly.”
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McMullen continued, “While we expect the macroeconomic environment to remain uncertain near-term, the strength of our model gives us confidence in our ability to deliver value for customers and invest in our associates, while generating attractive and sustainable returns for shareholders."
McMullen also commented on Kroger’s pending merger with Albertsons, stating, “As we await the courts' rulings in the regulatory challenge to the merger, we remain 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."
Kroger closed the sale of its specialty pharmacy business on Oct. 4, 2024, for $464 million. The sale reduced total company sales in the third quarter by approximately $340 million, compared to the same period last year, and annualized sales will be approximately $3 billion lower going forward. KSP was a low margin business. As a result, the sale of the business increased both Kroger's gross margin and operating, general and administrative costs as a rate of sales. It had no material effect on operating profit, the company said.
Kroger’s total company sales were $33.6 billion in the third quarter, compared to $34 billion for the same period last year. The decrease in sales was attributable to the sale of Kroger Specialty Pharmacy during the quarter and to lower fuel sales, which was primarily the result of a lower average retail price per gallon compared to last year, the company said. Excluding fuel and Kroger Specialty Pharmacy, sales increased 2.7% compared to the same period last year.
Kroger’s gross margin was 22.9% of sales for the third quarter. The FIFO gross margin rate, excluding fuel, increased 51 basis points compared to the same period last year. This result reflected Kroger's ability to improve margin, while maintaining competitive pricing and helping customers manage their budgets. The increase in rate was primarily attributable to the sale of Kroger Specialty Pharmacy, Our Brands performance and lower shrink, partially offset by lower pharmacy margins, Kroger said.
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Third quarter highlights:
- Identical sales without fuel increased 2.3%
- Operating profit of $828 million; EPS of 84 cents
- Adjusted FIFO operating profit of $1,017 million and Adjusted EPS of 98 cents
- Achieved strong Adjusted Free Cash Flow
- Executed its go-to-market strategy to deliver value for customers
- Grew digital sales 11%
- Our Brands sales growth outpaced total grocery sales growth
- Increased total households and loyal households
As of Dec. 5, 2024, Kroger's guidance is as follows:
- Adjusted net earnings per diluted share: $4.35–$4.45
- Adjusted free cash flow: $2.5–$2.7 billion
- Capital expenditures: $3.6–$3.8 billion
- Adjusted effective tax rate: 22.5%
Commenting on Kroger’s full-year 2024 guidance, Todd Foley, interim chief financial officer at Kroger, said, "Kroger delivered another quarter of strong results that reflect the resilience of our value creation model. As we head into the final quarter of the year, we are narrowing the ranges of identical sales without fuel, adjusted FIFO Operating Profit and adjusted EPS guidance. Our business is more diverse than ever and our model gives us confidence in our ability to deliver on our guidance, and continue to generate attractive and sustainable returns for shareholders."