In reporting its third quarter 2023 results, Kroger updated investors on how Leading with Fresh and Accelerating with Digital continue to position the company for long-term sustainable growth.
"Kroger's third quarter results highlight the strength and diversity of our business model in a challenged operating environment, as strong fuel performance and growth in our alternative profit businesses supported continued adjusted net earnings per diluted share growth,” said Rodney McMullen, chairman and CEO.
McMullen continued, “As consumer spending tightens, we are focused on providing customers with exceptional value. By maintaining our long-term commitment to lower prices, personalized promotions and rewards, we are growing households and increasing loyalty, positioning Kroger for sustainable future growth. We appreciate our associates and continue to invest in wages, benefits and training, which is resulting in continued improvements in our customer experience.”
McMullen added, “Our model's strength allows us to navigate many economic environments. We remain committed to balancing investments in associates and greater value for our customers while continuing to generate attractive and sustainable returns for our shareholders."
Kroger reported that identical sales without fuel decreased by .6%; underlying identical sales without fuel increased by 1%.
Kroger's adjusted FIFO operating profit was $1,022 million; Adjusted EPS was 95 cents.
The retailer achieved strong Adjusted Free Cash Flow leading to a net total debt to adjusted EBITDA ratio of 1.40, compared to a target range of 2.3 to 2.5.
Kroger’s total company sales were $34 billion in the third quarter, compared to $34.2 billion for the same period last year. Excluding fuel, sales decreased by .5% compared to the same period last year.
Kroger's operating profit was $912 million; EPS of 88 cents.
The retailer said it grew digital sales by 11%.
Kroger’s gross margin was 22% of sales for the third quarter. The FIFO gross margin rate, excluding fuel, increased 3 basis points compared to the same period last year. The increase in the FIFO gross margin rate, excluding fuel, was primarily attributable to Our Brands performance, sourcing benefits and the effect of Kroger’s terminated agreement with Express Scripts. The increase was partially offset by higher shrink and advertising costs and increased price investments, Kroger said.
Kroger increased delivery sales by 20% over last year, led by Kroger Boost and Customer Fulfillment Centers. The retailer increased digitally engaged households by 13% compared to last year.
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.
In updating its full year 2023 guidance, Gary Millerchip, chief financial officer of Kroger said, "Kroger delivered another quarter of consistent adjusted net earnings per diluted share growth, demonstrating the strength of our value creation model. Looking to the rest of the year, we are updating our full-year guidance to reflect the impact of near-term economic pressures and food-at-home disinflation."
Kroger now expects full-year identical sales without fuel to be in the range of .6% to 1% (with underlying growth of 2.1% to 2.5% after adjusting for the effect of Express Scripts), and adjusted FIFO net operating profit to be in the range of $4.9 to $5 billion.
"At the same time, we are confident in our ability to navigate these near-term headwinds and we are raising the lower end of our full-year adjusted net earnings per diluted share guidance range," Millerchip said.
Kroger now expects adjusted EPS to be between $4.50 to $4.60.