Grocer also updates guidance for full-year ID sales without fuel
Bridget Goldschmidt
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Kroger's long-term model is to consistently invest in lower prices so more customers shop with the grocer, in turn fueling its alternative profit businesses and driving greater efficiencies.
In reporting its second-quarter 2024 results for the period ending Aug. 17, The Kroger Co. noted how its Leading with Fresh and Accelerating with Digital strategies continue to position the grocer for long-term sustainable growth. Kroger logged a 1.2% increase in identical sales without fuel, adjusted FIFO operating profit of $984 million, adjusted EPS of 93 cents, and digital sales growth of 11% during the quarter. The company also saw strong adjusted free cash flow and increased total households, customer visits and loyal households in Q2.
“Kroger achieved solid results in the second quarter, demonstrating the strength and resiliency of our model,” assertedChairman and CEO Rodney McMullen. “We are growing households and increasing customer visits by offering a compelling combination of affordable prices and personalized promotions on great quality products, all through a unique seamless experience. We appreciate our associates for their focus on full, fresh and friendly, which elevates the customer experience.”
Added McMullen: “Our long-term model is to consistently invest to lower prices so more customers shop with us, which in turn fuels our alternative profit businesses and drives greater efficiencies. This flywheel enables Kroger to deliver exceptional value for customers and investing in our associates, and by doing so, we are well positioned to generate attractive and sustainable returns for shareholders.”
On the topic of Kroger’s pending merger with Albertsons, he noted: “As we near the close of the FTC’s preliminary injunction hearing, we are 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.”
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Total company sales came to $33.9 billion in both the second quarters of 2024 and 2023. Excluding fuel, sales increased 1.3% versus the year-ago period. Gross margin was 22.6% of sales for the second quarter, and the FIFO gross margin rate, excluding fuel, rose 42 basis points from the same period last year. According to the company, this increase indicated its ability to boost margin while maintaining competitive pricing and helping customers control their budgets. The company attributed the increase in rate primarily to favorable product mix in its grocery business, including Our Brands; lower shrink; and sourcing benefits, partly offset by lower pharmacy margins.
In fulfillment of its Leading with Fresh strategy in Q2, the company introduced 223 new Our Brands items, including the expansion of the Smart Way product line, celebrated seven awards earned by Murray’s Cheese varieties at the American Cheese Society Competition, and rolled out seasonal Hatch Chiles and Harvest Apple Private Selection products.
Meanwhile, Kroger carried out its Accelerating with Digital strategy during the quarter by increasing delivery sales by 17% over last year, led by customer fulfillment centers; growing e-commerce households by 14% compared with last year; and holding Boost Bonus Days, a two-week sales event offering exclusive access for Boost by Kroger Plus members.
Further, in the area of Associate Experience, the grocer received a top score on the Disability Equality Index, making the company one of the Best Places to Work for Disability Inclusion for the fifth consecutive year; had 67 female leaders named Top Women in Grocery honorees by Progressive Grocer; and received four Brandon Hall Group – Excellence in Human Capital Management Awards. Kroger was able to work toward its Live Our Purpose goal by honoring more than 14,000 students named Zero Heroes for supporting its Zero Hunger | Zero Waste mission to create communities free from hunger and waste; preparing for the sixth annual Kroger’s Wellness Festival, a two-day event spotlighting physical, mental and emotional health for the whole family. The grocer was also recognized as one of the World’s Most Trustworthy Companies for 2024 by Newsweek and Statista.
Going forward, 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. It also 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 after the proposed merger with Albertsons.
The company reaffirmed its full-year 2024 guidance of 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 billion-$2.7 billion, and an adjusted effective tax rate of 23%, while updating its ID sales without fuel to 0.75%-1.75% and capital expenditures to $3.6 billion-$3.8 billion
“Our solid sales results through the first two quarters of the year give us the confidence to raise the low end of our full-year identical sales without fuel guidance by 50 basis points,” explained CFO Todd Foley. “Our positive customer trends are driving sales momentum that we expect to continue in the second half of the year.”
Additionally, Kroger successfully completed a debt offering for $10.5 billion, with the net proceeds expected to partly fund the cash consideration for the proposed merger with Albertsons. A portion of the proceeds of the offering is subject to a special mandatory redemption if the merger doesn’t close.
Cincinnati-based Kroger serves more than 11 million customers daily through a digital shopping experience and retail food stores under a variety ofbanner names. The grocer is No. 4 on The PG 100, Progressive Grocer’s 2024 list of thetop food and consumables retailers in North America.
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