Kroger Reports Second Quarter 2023 Results and Reaffirms Guidance
Second Quarter Highlights
- Identical Sales without fuel increased 1.0% with underlying growth of 2.6%(1)
- Operating Loss of ($479) million; EPS of ($0.25)
- Includes a $1.4 billion charge ($1.54 loss per share) for nationwide opioid settlement framework
- Adjusted FIFO Operating Profit of $989 million; Adjusted EPS of $0.96
- Achieved strong Adjusted Free Cash Flow leading to a record low net total debt to adjusted EBITDA ratio
- Executed its go-to-market strategy to deliver value for customers
- Grew digital sales 12%
- Increased total and loyal customer households
CINCINNATI, Sept. 8, 2023 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported its second quarter 2023 results, reaffirmed 2023 guidance and updated investors on how Leading with Fresh and Accelerating with Digital continues to position Kroger for long-term sustainable growth.
Comments from Chairman and CEO Rodney McMullen
"The strength and diversity of Kroger's business model is delivering consistent results in what remains a challenged environment.
By investing in price and providing more personalized offers, we are helping customers stretch their budgets and manage the ongoing effects of reduced government benefits, inflation and higher interest rates. Kroger is funding these investments by collaborating with vendors to deliver exceptional value, managing costs and growing alternative profit businesses.
We are growing households as our associates are providing a full, fresh and friendly shopping experience across our seamless ecosystem. While we expect the environment to remain challenged going forward, we are committed to delivering exceptional value for our customers and investing in our associates, and by doing so, we expect to generate attractive returns for shareholders."
Second Quarter Financial Results
2Q23 ($ in millions; except EPS) | 2Q22 ($ in millions; except EPS) | |
ID Sales* (Table 4)(1) | 1.0 % | 5.8 % |
Earnings (Loss) Per Share** | ($0.25) | $1.00 |
Adjusted EPS (Table 6) | $0.96 | $0.90 |
Operating (Loss) Profit** | ($479) | $954 |
Adjusted FIFO Operating Profit (Table 7) | $989 | $1,110 |
FIFO Gross Margin Rate*(2) | Increased 35 basis points | |
OG&A Rate*(2) | No change | |
* Without fuel and adjustment items, if applicable. (1) Identical sales without fuel would have grown 2.6% in the 2nd quarter of 2023 if not for the reduction in pharmacy sales from the previously communicated termination of our agreement with Express Scripts effective December 31, 2022. (2) In the 2nd quarter of 2023, the terminated agreement had a positive effect on the FIFO Gross Margin Rate, excluding fuel, and a negative effect on the OG&A Rate, excluding fuel and adjustment items. The overall net effect on operating profit was slightly positive. |
** Includes a $1.4 billion ($1.54 loss per share) charge related to nationwide opioid settlement framework. |
Total company sales were $33.9 billion in the second quarter, compared to $34.6 billion for the same period last year. Excluding fuel, sales increased 1.1% compared to the same period last year.
Gross margin was 21.8% of sales for the second quarter. The FIFO gross margin rate, excluding fuel, increased 35 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 our customers. The improvement in the FIFO gross margin rate, excluding fuel, was primarily attributable to Our Brands performance, lower supply chain costs, sourcing benefits and the effect of our terminated agreement with Express Scripts, partially offset by higher shrink and increased promotional price investments.
The LIFO charge for the quarter was $4 million, compared to a LIFO charge of $148 million for the same period last year.
Fuel operating profit declined $192 million compared to the same period last year, primarily due to the cycling of historically high fuel results from a year ago.
The Operating, General & Administrative rate was flat, excluding fuel and adjustment items, compared to the same period last year. This OG&A result was driven by continued execution of cost savings initiatives and lower incentive plan costs partially offset by planned investments in associates, an increase to our self-insurance reserves and the effect of our terminated agreement with Express Scripts.
Nationwide Opioid Settlement Framework
Included in Kroger's results this quarter was a $1.4 billion charge related to a nationwide opioid settlement framework. The timing of the settlement payments will be over 11 years, most of which are tax deductible.
This settlement and the payment terms will not affect Kroger's ability to complete its proposed merger with Albertsons and the Company still expects to reduce its net total debt to adjusted EBITDA ratio to 2.50 within 18 – 24 months post-close.
For more information, please refer to the separate press release issued this morning.
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 1.31, compared to 1.63 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 2023 Guidance*
Reaffirmed
- Identical sales without fuel of 1.0% – 2.0%, with underlying growth of 2.5% – 3.5% after adjusting for the effect of Express Scripts
- Adjusted net earnings per diluted share of $4.45 – $4.60, including an estimated benefit from the 53rd week of approximately $0.15
- Adjusted FIFO Operating Profit of $5.0 – $5.2 billion
- Adjusted effective tax rate of 23%**
- Capital expenditures of $3.4 – $3.6 billion
- Adjusted Free Cash Flow of $2.5 – $2.7 billion***
* Without adjusted items, if applicable. Kroger is unable to provide a full reconciliation of the GAAP and non-GAAP measures used in 2023 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 2023 GAAP financial results. |
** The adjusted tax rate reflects typical tax adjustments and does not reflect changes to the rate from the completion of income tax audit examinations, changes in tax laws, which cannot be predicted, or the effect of certain non-deductible charges related to opioid settlements. |
*** Adjusted free cash flow excludes planned payments related to the restructuring of multi-employer pension plans or payments related to opioid settlements. |
Comments from CFO Gary Millerchip
"Kroger's second quarter results demonstrate the resiliency of our value creation model. While industry-wide disinflation continues to impact food at home sales, our team is doing an excellent job managing the effect on our business.
Looking forward, we believe inflation will continue to decelerate and the environment will remain challenging for consumers. We therefore expect identical sales without fuel will be at the low end of our full-year guidance range and slightly negative in the second half of the year. This outlook includes an approximately 150 basis points negative impact due to the termination of our agreement with Express Scripts.
As demonstrated by our year-to-date results, we believe we have the flexibility within our business model to navigate this environment and remain on track to deliver our 2023 adjusted FIFO operating profit and adjusted net earnings per diluted share guidance."
Second Quarter 2023 Highlights
Leading with Fresh
- Celebrated the 10th anniversary of our $1B Home Chef brand
- Recognized by Store Brands magazine for the quality of Our Brands products with six Editors' Picks awards
- Accelerated Fresh Produce Initiative with a total of 1,940 stores now certified, driving higher identical sales without fuel in certified stores
- Celebrated five awards earned by Murray's Cheese varieties at the American Cheese Society Competition
Accelerating with Digital
- Increased delivery sales by 24% over last year driven by our delivery solutions including Kroger Boost and Customer Fulfillment Centers
- Announced a new in-house advertising platform for Kroger Precision Marketing allowing for greater flexibility to serve clients and improve outcomes for brands
- Increased digitally engaged households by approximately 1.2 million compared to last year
Associate Experience
- Named as one of the Best Places to Work for Disability Inclusion by Disability:IN for the fourth consecutive year
- Celebrated 64 female leaders named as Top Women in Grocery Honorees by Progressive Grocer
- Announced commitment to extend its world-class educational benefit and financial counseling services to Albertsons Cos. associates, upon completion of its proposed merger
- Received eight Brandon Hall Group – Excellence in Human Capital Management Awards®
Live Our Purpose
- Announced commitment to donate 10 billion meals as a combined company by 2030, upon completion of its proposed merger with Albertsons Companies
- Supported disaster response efforts for those impacted by the Maui wildfires
- Launched revamped Kroger Health Savings Club to make medications more affordable and accessible
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 second quarter 2023 ended on August 12, 2023.
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 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," "believe," "committed," "confidence," "continue," "deliver," "expect," "future," "guidance," "outlook," "positions," "strategy," "will," and "target". 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 announced in October 2022, including, among others, 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, and/or with the required regulatory approvals; COVID-19 pandemic related factors, risks and challenges; 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, including non-traditional 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 and/or deflationary trends and such trends in certain commodities, products and/or operating costs; the geopolitical environment including the war in Ukraine; 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 September 8, 2023 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Friday, September 8, 2023.
2nd Quarter 2023 Tables Include:
- Consolidated Statements of Operations
- Consolidated Balance Sheets
- Consolidated Statements of Cash Flows
- Supplemental Sales Information
- Reconciliation of Net Total Debt and Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA
- Net Earnings Per Diluted Share Excluding the Adjustment Items
- Operating Profit Excluding the Adjustment Items
1 Identical sales without fuel would have grown 2.6% in the 2nd quarter of 2023 if not for the reduction in pharmacy sales from the previously communicated termination of our agreement with Express Scripts effective December 31, 2022. In the 2nd quarter of 2023, the terminated agreement had a positive effect on the FIFO Gross Margin Rate, excluding fuel, and a negative effect on the OG&A Rate, excluding fuel and adjustment items. The overall net effect on operating profit was slightly positive. |
Table 1. | ||||||||||||||||||||||
THE KROGER CO. | ||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||
(in millions, except per share amounts) | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||
SECOND QUARTER | YEAR-TO-DATE | |||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
SALES | $ 33,853 | 100.0 % | $ 34,638 | 100.0 % | $ 79,018 | 100.0 % | $ 79,238 | 100.0 % | ||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||
MERCHANDISE COSTS, INCLUDING ADVERTISING, | ||||||||||||||||||||||
WAREHOUSING AND TRANSPORTATION (a), | ||||||||||||||||||||||
AND LIFO CHARGE (b) | 26,475 | 78.2 | 27,392 | 79.1 | 61,555 | 77.9 | 62,343 | 78.7 | ||||||||||||||
OPERATING, GENERAL AND ADMINISTRATIVE (a) | 6,935 | 20.5 | 5,417 | 15.6 | 14,328 | 18.1 | 12,414 | 15.7 | ||||||||||||||
RENT | 206 | 0.6 | 191 | 0.6 | 470 | 0.6 | 448 | 0.6 | ||||||||||||||
DEPRECIATION AND AMORTIZATION | 716 | 2.1 | 684 | 2.0 | 1,674 | 2.1 | 1,574 | 2.0 | ||||||||||||||
OPERATING PROFIT (LOSS) | (479) | (1.4) | 954 | 2.8 | 991 | 1.3 | 2,459 | 3.1 | ||||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||||||||
INTEREST EXPENSE | (93) | (0.3) | (127) | (0.4) | (247) | (0.3) | (303) | (0.4) | ||||||||||||||
NON-SERVICE COMPONENT OF COMPANY-SPONSORED | ||||||||||||||||||||||
PENSION PLAN COSTS | 8 | - | 11 | - | 17 | - | 26 | - | ||||||||||||||
GAIN (LOSS) ON INVESTMENTS | 367 | 1.1 | 103 | 0.3 | 290 | 0.4 | (429) | (0.5) | ||||||||||||||
NET EARNINGS (LOSS) BEFORE INCOME TAX EXPENSE | (197) | (0.6) | 941 | 2.7 | 1,051 | 1.3 | 1,753 | 2.2 | ||||||||||||||
INCOME TAX EXPENSE (BENEFIT) | (18) | (0.1) | 209 | 0.6 | 268 | 0.3 | 356 | 0.5 | ||||||||||||||
NET EARNINGS (LOSS) INCLUDING NONCONTROLLING INTERESTS | (179) | (0.5) | 732 | 2.1 | 783 | 1.0 | 1,397 | 1.8 | ||||||||||||||
NET INCOME ATTRIBUTABLE TO | ||||||||||||||||||||||
NONCONTROLLING INTERESTS | 1 | - | 1 | - | 1 | - | 3 | - | ||||||||||||||
NET EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO. | $ (180) | (0.5) % | $ 731 | 2.1 % | $ 782 | 1.0 % | $ 1,394 | 1.8 % | ||||||||||||||
NET EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO. | ||||||||||||||||||||||
PER BASIC COMMON SHARE | $ (0.25) | $ 1.01 | $ 1.08 | $ 1.92 | ||||||||||||||||||
AVERAGE NUMBER OF COMMON SHARES USED IN | ||||||||||||||||||||||
BASIC CALCULATION | 719 | 716 | 718 | 720 | ||||||||||||||||||
NET EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO. | ||||||||||||||||||||||
PER DILUTED COMMON SHARE | $ (0.25) | $ 1.00 | $ 1.07 | $ 1.89 | ||||||||||||||||||
AVERAGE NUMBER OF COMMON SHARES USED IN | ||||||||||||||||||||||
DILUTED CALCULATION | 719 | 725 | 725 | 730 | ||||||||||||||||||
DIVIDENDS DECLARED PER COMMON SHARE | $ 0.29 | $ 0.26 | $ 0.55 | $ 0.47 | ||||||||||||||||||
Note: | Certain percentages may not sum due to rounding. | |||||||||||||||
Note: | The Company defines First-In First-Out (FIFO) gross profit as sales minus merchandise costs, including advertising, warehousing and transportation, but excluding the Last-In First-Out (LIFO) charge. | |||||||||||||||
The Company defines FIFO gross margin as FIFO gross profit divided by sales. | ||||||||||||||||
The Company defines FIFO operating profit as operating profit excluding the LIFO charge. | ||||||||||||||||
The Company defines FIFO operating margin as FIFO operating profit divided by sales. | ||||||||||||||||
The above FIFO financial metrics are important measures used by management to evaluate operational effectiveness. Management believes these FIFO financial metrics are useful to investors and analysts because they measure our day-to-day operational effectiveness. | ||||||||||||||||
(a) | Merchandise costs ("COGS") and operating, general and administrative expenses ("OG&A") exclude depreciation and amortization expense and rent expense which are included in separate expense lines. | |||||||||||||||
(b) | LIFO charges of $4 and $148 were recorded in the second quarters of 2023 and 2022, respectively. For the year to date period, LIFO charges of $102 and $240 were recorded for 2023 and 2022, respectively. | |||||||||||||||
Table 2. | ||||||||||
THE KROGER CO. | ||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
(in millions) | ||||||||||
(unaudited) | ||||||||||
August 12, | August 13, | |||||||||
2023 | 2022 | |||||||||
ASSETS | ||||||||||
Current Assets | ||||||||||
Cash | $ 263 | $ 251 | ||||||||
Temporary cash investments | 2,157 | 851 | ||||||||
Store deposits in-transit | 1,141 | 1,087 | ||||||||
Receivables | 1,820 | 1,869 | ||||||||
Inventories | 6,828 | 7,315 | ||||||||
Prepaid and other current assets | 642 | 536 | ||||||||
Total current assets | 12,851 | 11,909 | ||||||||
Property, plant and equipment, net | 24,894 | 24,118 | ||||||||
Operating lease assets | 6,697 | 6,771 | ||||||||
Intangibles, net | 885 | 917 | ||||||||
Goodwill | 2,916 | 3,076 | ||||||||
Other assets | 1,959 | 1,950 | ||||||||
Total Assets | $ 50,202 | $ 48,741 | ||||||||
LIABILITIES AND SHAREOWNERS' EQUITY | ||||||||||
Current Liabilities | ||||||||||
Current portion of long-term debt including obligations | ||||||||||
under finance leases | $ 716 | $ 789 | ||||||||
Current portion of operating lease liabilities | 669 | 656 | ||||||||
Trade accounts payable | 7,597 | 7,446 | ||||||||
Accrued salaries and wages | 1,182 | 1,356 | ||||||||
Other current liabilities | 6,373 | 6,319 | ||||||||
Total current liabilities | 16,537 | 16,566 | ||||||||
Long-term debt including obligations under finance leases | 12,075 | 12,488 | ||||||||
Noncurrent operating lease liabilities | 6,369 | 6,449 | ||||||||
Deferred income taxes | 1,452 | 1,522 | ||||||||
Pension and postretirement benefit obligations | 419 | 439 | ||||||||
Other long-term liabilities | 2,746 | 1,638 | ||||||||
Total Liabilities | 39,598 | 39,102 | ||||||||
Shareowners' equity | 10,604 | 9,639 | ||||||||
Total Liabilities and Shareowners' Equity | $ 50,202 | $ 48,741 | ||||||||
Total common shares outstanding at end of period | 719 | 716 | ||||||||
Total diluted shares year-to-date | 725 | 730 | ||||||||
Table 3. | ||||||||||||
THE KROGER CO. | ||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
(in millions) | ||||||||||||
(unaudited) | ||||||||||||
YEAR-TO-DATE | ||||||||||||
2023 | 2022 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net earnings including noncontrolling interests | $ 783 | $ 1,397 | ||||||||||
Adjustments to reconcile net earnings including noncontrolling | ||||||||||||
interests to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 1,674 | 1,574 | ||||||||||
Operating lease asset amortization | 330 | 329 | ||||||||||
LIFO charge | 102 | 240 | ||||||||||
Stock-based employee compensation | 92 | 103 | ||||||||||
Company-sponsored pension plans | (6) | (20) | ||||||||||
Deferred income taxes | (278) | (40) | ||||||||||
Gain on the sale of assets | (43) | (13) | ||||||||||
(Gain) loss on investments | (290) | 429 | ||||||||||
Other | 84 | 66 | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||
Store deposits in-transit | (14) | (5) | ||||||||||
Receivables | 227 | (10) | ||||||||||
Inventories | 630 | (774) | ||||||||||
Prepaid and other current assets | 68 | 115 | ||||||||||
Trade accounts payable | 478 | 330 | ||||||||||
Accrued expenses | (434) | (407) | ||||||||||
Income taxes receivable and payable | 252 | (41) | ||||||||||
Operating lease liabilities | (378) | (373) | ||||||||||
Other | 1,087 | (473) | ||||||||||
Net cash provided by operating activities | 4,364 | 2,427 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Payments for property and equipment, including payments for lease buyouts | (1,954) | (1,430) | ||||||||||
Proceeds from sale of assets | 89 | 37 | ||||||||||
Other | 70 | 5 | ||||||||||
Net cash used by investing activities | (1,795) | (1,388) | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Payments on long-term debt including obligations under finance leases | (708) | (486) | ||||||||||
Dividends paid | (376) | (307) | ||||||||||
Proceeds from issuance of capital stock | 36 | 119 | ||||||||||
Treasury stock purchases | (47) | (975) | ||||||||||
Other | (69) | (109) | ||||||||||
Net cash used by financing activities | (1,164) | (1,758) | ||||||||||
NET INCREASE (DECREASE) IN CASH AND TEMPORARY | ||||||||||||
CASH INVESTMENTS | 1,405 | (719) | ||||||||||
CASH AND TEMPORARY CASH INVESTMENTS: | ||||||||||||
BEGINNING OF YEAR | 1,015 | 1,821 | ||||||||||
END OF PERIOD | $ 2,420 | $ 1,102 | ||||||||||
Reconciliation of capital investments: | ||||||||||||
Payments for property and equipment, including payments for lease buyouts | $ (1,954) | $ (1,430) | ||||||||||
Payments for lease buyouts | - | 10 | ||||||||||
Changes in construction-in-progress payables | 183 | (74) | ||||||||||
Total capital investments, excluding lease buyouts | $ (1,771) | $ (1,494) | ||||||||||
Disclosure of cash flow information: | ||||||||||||
Cash paid during the year for interest | $ 308 | $ 379 | ||||||||||
Cash paid during the year for income taxes | $ 290 | $ 432 | ||||||||||
Table 4. Supplemental Sales Information | ||||||||||
(in millions, except percentages) | ||||||||||
(unaudited) | ||||||||||
Items identified below should not be considered as alternatives to sales or any other GAAP measure of performance. | ||||||||||
IDENTICAL SALES (a) | ||||||||||
SECOND QUARTER | YEAR-TO-DATE | |||||||||
2023 | 2022 | 2023 | 2022 | |||||||
EXCLUDING FUEL | $ 29,534 | $ 29,238 | $ 69,108 | $ 67,473 | ||||||
EXCLUDING FUEL (b) | 1.0 % | 5.8 % | 2.4 % | 4.8 % | ||||||
(a) | Kroger defines identical sales, excluding fuel, as sales to retail customers, including sales from all departments at quarters. | |||||||||
(b) | Identical sales without fuel would have grown 2.6% in the 2nd quarter and 4.0% year to date for 2023 if not for the | |||||||||
Table 5. Reconciliation of Net Total Debt and | ||||||
Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA | ||||||
(in millions, except for ratio) | ||||||
(unaudited) | ||||||
The items identified below should not be considered an alternative to any GAAP measure of performance or access to liquidity. Net | ||||||
The following table provides a reconciliation of net total debt. | ||||||
August 12, | August 13, | |||||
2023 | 2022 | Change | ||||
Current portion of long-term debt including obligations | ||||||
under finance leases | $ 716 | $ 789 | $ (73) | |||
Long-term debt including obligations under finance leases | 12,075 | 12,488 | (413) | |||
Total debt | 12,791 | 13,277 | (486) | |||
Less: Temporary cash investments | 2,157 | 851 | 1,306 | |||
Net total debt | $ 10,634 | $ 12,426 | $ (1,792) | |||
The following table provides a reconciliation from net earnings attributable to The Kroger Co. to adjusted EBITDA, as defined in the | ||||||
ROLLING FOUR QUARTERS ENDED | ||||||
August 12, | August 13, | |||||
2023 | 2022 | |||||
Net earnings attributable to The Kroger Co. | $ 1,632 | $ 2,442 | ||||
LIFO charge | 488 | 353 | ||||
Depreciation and amortization | 3,065 | 2,890 | ||||
Interest expense | 479 | 572 | ||||
Income tax expense | 565 | 579 | ||||
Adjustment for pension plan withdrawal liabilities | 25 | - | ||||
Adjustment for company-sponsored pension plan settlement charges | - | 87 | ||||
Adjustment for loss on investments | 9 | 649 | ||||
Adjustment for Home Chef contingent consideration | 2 | 32 | ||||
Adjustment for transformation costs (a) | - | 35 | ||||
Adjustment for merger related costs (b) | 139 | - | ||||
Adjustment for opioid settlement charges (c) | 1,560 | - | ||||
Adjustment for goodwill and fixed asset impairment charges related to Vitacost.com | 164 | - | ||||
Other | (9) | (5) | ||||
Adjusted EBITDA | $ 8,119 | $ 7,634 | ||||
Net total debt to adjusted EBITDA ratio | 1.31 | 1.63 | ||||
(a) | Transformation costs primarily include costs related to third party professional fees associated with business transformation and cost saving initiatives. | ||||
(b) | Merger related costs primarily include third party professional fees and credit facility fees associated with the proposed merger with Albertsons Companies, Inc. | ||||
(c) | Opioid settlement charges include settlements with the nationwide opioid settlement framework and the States of West Virginia and New Mexico. | ||||
Table 6. Net Earnings Per Diluted Share Excluding the Adjustment Items | |||||||||||||
(in millions, except per share amounts) | |||||||||||||
(unaudited) | |||||||||||||
The purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on net earnings (loss) | |||||||||||||
The following table summarizes items that affected the Company's financial results during the periods presented. | |||||||||||||
SECOND QUARTER | YEAR-TO-DATE | ||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||
Net earnings (loss) attributable to The Kroger Co. | $ (180) | $ 731 | $ 782 | $ 1,394 | |||||||||
Adjustment for (gain) loss on investments (a)(b) | (282) | (78) | (223) | 327 | |||||||||
Adjustment for Home Chef contingent consideration (a)(c) | - | 8 | - | 14 | |||||||||
Adjustment for merger related costs (a)(d) | 47 | - | 81 | - | |||||||||
Adjustment for opioid settlement charges (a)(e) | 1,114 | - | 1,163 | - | |||||||||
2023 and 2022 Adjustment Items | 879 | (70) | 1,021 | 341 | |||||||||
Net earnings attributable to The Kroger Co. | |||||||||||||
excluding the adjustment items above | $ 699 | $ 661 | $ 1,803 | $ 1,735 | |||||||||
Net earnings (loss) attributable to The Kroger Co. | |||||||||||||
per diluted common share | $ (0.25) | $ 1.00 | $ 1.07 | $ 1.89 | |||||||||
Adjustment for (gain) loss on investments (f) | (0.39) | (0.11) | (0.31) | 0.45 | |||||||||
Adjustment for Home Chef contingent consideration (f) | - | 0.01 | - | 0.02 | |||||||||
Adjustment for merger related costs (f) | 0.06 | - | 0.11 | - | |||||||||
Adjustment for opioid settlement charges (f) | 1.54 | - | 1.60 | - | |||||||||
2023 and 2022 Adjustment Items | 1.21 | (0.10) | 1.40 | 0.47 | |||||||||
Net earnings attributable to The Kroger Co. per | |||||||||||||
diluted common share excluding the adjustment items above | $ 0.96 | $ 0.90 | $ 2.47 | $ 2.36 | |||||||||
Average number of common shares used in | |||||||||||||
diluted calculation | 725 | 725 | 725 | 730 | |||||||||
Table 6. Net Earnings Per Diluted Share Excluding the Adjustment Items (continued) | |||||||||||||
(in millions, except per share amounts) | |||||||||||||
(unaudited) | |||||||||||||
(a) | The amounts presented represent the after-tax effect of each adjustment. | ||||||||||||
(b) | The pre-tax adjustments for (gain) loss on investments were ($367) and ($103) in the second quarters of 2023 and 2022, respectively. The year-to-date pre-tax adjustments for (gain) loss on | ||||||||||||
(c) | The pre-tax adjustment to OG&A expenses for Home Chef contingent consideration was $10 in the second quarter of 2022. The year-to-date pre-tax adjustments to OG&A expenses for Home Chef contingent consideration | ||||||||||||
(d) | The pre-tax adjustment to OG&A expenses for merger related costs was $54 in the second quarter of 2023. The year-to-date pre-tax adjustments to OG&A expenses for merger-related costs was $94 in the first two | ||||||||||||
(e) | The pre-tax adjustment to OG&A expenses for opioid settlement charges was $1,413 in the second quarter of 2023. The year-to-date pre-tax adjustments to OG&A expenses for opioid settlement charges was $1,475 in the | ||||||||||||
(f) | The amounts presented represent the net earnings (loss) per diluted common share effect of each adjustment. | ||||||||||||
Note: | 2023 Second Quarter Adjustment Items include adjustments for the gain on investments, merger related costs and opioid settlement charges. | ||||||||||||
2023 Adjustment Items include the Second Quarter Adjustment Items plus the adjustments that occurred in the first quarter of 2023 for loss on investments, merger related costs and opioid | |||||||||||||
2022 Second Quarter Adjustment Items include adjustments for the gain on investments and Home Chef contingent consideration adjustment. | |||||||||||||
2022 Adjustment Items include the Second Quarter Adjustment Items plus the adjustments that occurred in the first quarter of 2022 for loss on investments and Home Chef contingent | |||||||||||||
Table 7. Operating Profit Excluding the Adjustment Items | |||||||||||||
(in millions) | |||||||||||||
(unaudited) | |||||||||||||
The purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on operating profit (loss) for | |||||||||||||
The following table summarizes items that affected the Company's financial results during the periods presented. | |||||||||||||
SECOND QUARTER | YEAR-TO-DATE | ||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||
Operating profit (loss) | $ (479) | $ 954 | $ 991 | $ 2,459 | |||||||||
LIFO charge | 4 | 148 | 102 | 240 | |||||||||
FIFO Operating profit (loss) | (475) | 1,102 | 1,093 | 2,699 | |||||||||
Adjustment for Home Chef contingent consideration | - | 10 | - | 18 | |||||||||
Adjustment for merger related costs (a) | 54 | - | 94 | - | |||||||||
Adjustment for opioid settlement charges (b) | 1,413 | - | 1,475 | - | |||||||||
Other | (3) | (2) | (4) | (6) | |||||||||
2023 and 2022 Adjustment items | 1,464 | 8 | 1,565 | 12 | |||||||||
Adjusted FIFO operating profit | |||||||||||||
excluding the adjustment items above | $ 989 | $ 1,110 | $ 2,658 | $ 2,711 | |||||||||
(a) | Merger related costs primarily include third party professional fees and credit facility fees associated with the proposed merger with Albertsons Companies, Inc. | ||||||||||||
(b) | Opioid settlement charges include settlements with the nationwide opioid settlement framework and the State of West Virginia. | ||||||||||||
SOURCE The Kroger Co.
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