Kroger’s Identical Store Sales Beat Consensus

Image: Kroger’s shares have been choppy during the past couple years.

By Brian Nelson, CFA

On June 20, Kroger (KR) reported solid first-quarter fiscal 2024 results for the period ended May 25, 2024. Identical-store sales without fuel increased 0.5%, better than the consensus forecast, while adjusted earnings per share came in at $1.43, down from a year ago, but better than what the Street was looking for. Digital sales advanced 8%, while Delivery and Pickup combined for a double-digit increase. Adjusted FIFO operating profit was $1.499 billion in the quarter.

Management had the following to say about the quarter:

Kroger is off to a solid start in 2024 led by better-than-expected performance of our grocery business.  

Kroger is delivering exceptional value at a time when many customers need it more than ever, by providing affordable prices with personalized promotions. We appreciate our associates who are elevating the customer experience and improving store execution. Together, this is growing households and increasing customer visits.

The long-term investments we have made to strengthen and diversify our model enables us to manage economic cycles and gives us the confidence to deliver on our full year outlook. By delivering value for customers and investing in our associates, Kroger remains well-positioned to generate attractive and sustainable returns for our shareholders.

Kroger’s capital allocation strategy is sound. The company 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 deleveraging following the proposed merger with Albertsons (ACI).” 

Kroger reaffirmed its full-year 2024 guidance. The company expects identical-store without fuel of 0.25%-1.75%, adjusted FIFO operating profit of $4.6-$4.8 billion and adjusted net earnings per diluted share of $4.30-$4.50. Adjusted free cash flow is targeted in the range of $2.5-$2.7 billion on capital expenditures of $3.4-$3.6 billion for the year. Kroger ended the quarter with ~$12.2 billion in debt and $345 million in cash. All things considered, we liked Kroger’s report, but uncertainties regarding its deal with Albertsons coupled with a large net debt position leave us on the sidelines. Shares yield ~2.2% at the time of this writing.

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