Kroger posts solid Q1 results, reaffirms 2023 guidance
In the face of headwinds from inflation, Kroger reported strong first quarter results, thanks largely to its Leading with Fresh and Accelerating with Digital strategy.
In reporting Q1 results, Kroger reaffirmed its 2023 guidance for identical sales without fuel and adjusted EPS, while also updating investors on how Leading with Fresh and Accelerating with Digital continues to position Kroger for long-term sustainable growth.
Rodney McMullen, chairman and CEO said, “Kroger achieved solid first quarter results guided by the execution of our Leading with Fresh and Accelerating with Digital strategy. As more customers are feeling the effects of inflation and economic uncertainty, we are growing customer households by providing fresher products at affordable prices with personalized rewards."
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McMullen continued, "Our amazing associates are bringing this strategy to life every day by delivering a full, fresh and friendly shopping experience with zero compromise on quality, selection and convenience. Looking forward, Kroger's go-to-market strategy positions us well in a wide range of economic environments to continue to deliver for our customers, invest in our associates and achieve sustainable and attractive returns for shareholders."
The grocer reported an increase in identical sales without fuel increased 3.5% with underlying growth of 5%. The company also reported that digital sales grew 15% and noted that customer households and trips increased.
The retailer's operating profit was $1.5 billion, while adjusted FIFO operating profit was $1.7 billion. Kroger's EPS was $1.32; adjusted EPS was $1.51.
Kroger reported total sales of $45.2 billion in the first quarter, compared to $44.6 billion for the same period last year. Excluding fuel, sales increased 3.5% compared to the same period last year.
Kroger's gross margin was 22.3% of sales for the first quarter. The FIFO gross margin rate, excluding fuel, increased 21 basis points compared to the same period last year. This increase in rate was achieved while also investing in price to maintain a competitive price position and deliver greater value for customers, Kroger said. The improvement in the FIFO gross margin rate, excluding fuel, was primarily attributable to Our Brands performance, sourcing benefits, lower supply chain costs and the effect of Kroger's terminated agreement with Express Scripts. The improvement was partially offset by higher shrink and increased promotional price investments, the company said.
Kroger said it 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.
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In reaffirming its full-year 2023 guidance, the grocer said it expects adjusted net earnings per diluted share of $4.45 to $4.60, including an estimated benefit from the 53rd week of approximately 15 cents; adjusted FIFO operating profit of $5 to $5.2 billion; and adjusted free cash flow of $2.5 to $2.7 billion.
Gary Millerchip, chief financial officer said, "Kroger's first quarter results demonstrate the durability of our business model in a more challenged operating environment. The investments we have made over recent years to deliver for our customers and strengthen our value creation flywheel give us the confidence to reaffirm our full-year identical sales without fuel and adjusted net earnings per diluted share guidance."
Millerchip added, "We delivered strong Adjusted Free Cash Flow in the quarter and as a result of improvements in working capital, we are raising our guidance to a range of $2.5 to $2.7 billion for the fiscal year 2023. Kroger remains committed to delivering attractive and sustainable total shareholder returns for our investors."