Kroger Co. (NYSE: KR) has announced its third-quarter 2024 results, highlighting a robust performance in key areas such as digital sales, private-label products, and pharmacy operations. The company also narrowed its guidance for the fiscal year, reinforcing confidence in its growth strategy amidst a challenging macroeconomic environment.
Key Financial Highlights
Kroger reported identical sales without fuel grew by 2.3%, with operating profit reaching $828 million and earnings per share (EPS) at $0.84. Adjusted EPS stood at $0.98, reflecting strong operational efficiency. Adjusted FIFO operating profit for the quarter was $1.017 billion, demonstrating Kroger’s ability to deliver value to both customers and shareholders.
Total sales amounted to $33.6 billion, a slight decline from $34 billion in the same quarter of 2023 due to the sale of Kroger Specialty Pharmacy and lower fuel prices. Excluding these factors, sales grew by 2.7% year-over-year.
Kroger’s gross margin, excluding fuel, increased by 51 basis points, driven by improved private-label performance, reduced shrinkage, and the divestiture of its specialty pharmacy business. However, operating, general, and administrative costs rose slightly due to increased incentive plans and the effects of the pharmacy sale.
Digital Growth and Customer Engagement
Digital sales surged by 11%, underscoring the company’s success in expanding its e-commerce presence. Delivery sales grew 18%, supported by innovations in order batching and routing technologies across all stores. Kroger’s Boost by Kroger Plus membership program was enhanced with Disney streaming options, attracting more loyal customers.
“Our digital strategy continues to resonate with customers, reflecting the strength and adaptability of our model,” said Rodney McMullen, Kroger’s Chairman and CEO.
Private-Label Success and Household Growth
Kroger’s Our Brands products outpaced overall grocery sales growth, reinforcing their role in delivering quality and value. The company introduced 226 new private-label items during the quarter and celebrated the launch of its 12 Days of Murray’s Cheese Advent Calendar.
The total number of households shopping with Kroger increased, with a focus on creating a seamless and personalised shopping experience. McMullen highlighted the company’s commitment to “low prices, personalised offers, and exceptional quality.”
Sale of Kroger Specialty Pharmacy
On October 4, Kroger closed the $464 million sale of its specialty pharmacy business, reducing total quarterly sales by approximately $340 million compared to 2023. The divestiture, aimed at focusing on higher-margin operations, positively impacted gross margin while having no material effect on operating profit.
Outlook and Capital Allocation
As Kroger heads into the final quarter of 2024, it narrowed its full-year guidance for identical sales without fuel to 1.2%-1.5%, adjusted FIFO operating profit to $4.6-$4.7 billion, and adjusted EPS to $4.35-$4.45.
Interim CFO Todd Foley noted, “Our diverse business model and cost-saving initiatives provide a solid foundation for sustainable shareholder returns.”
Kroger’s net total debt to adjusted EBITDA ratio improved to 1.21 from 1.40 a year ago, ensuring financial flexibility for future growth. The company reaffirmed its commitment to maintaining an investment-grade debt rating, continuing dividend payments, and pausing share repurchases to focus on deleveraging following its proposed merger with Albertsons.
Pending Merger with Albertsons
As the regulatory process for the Kroger-Albertsons merger continues, McMullen expressed confidence in the deal’s benefits, including “lower prices, secure jobs, and expanded access to fresh, affordable food.”
Community and Sustainability Efforts
Kroger reinforced its dedication to corporate responsibility through disaster relief efforts, nutrition education programs, and its annual Hunger Action Month campaign. The company also celebrated the achievements of its associates, including 32 honorees in Progressive Grocer’s GenNext Awards.
Looking Ahead
With a resilient business model, strong free cash flow, and a focus on innovation, Kroger is well-positioned for long-term growth. Its continued investment in digital transformation, private-label development, and customer experience solidifies its leadership in the competitive grocery landscape.
