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The Kroger Co. (NYSE: KR) announced its third-quarter 2024 results, demonstrating a solid performance in several key areas. The company reported an operating profit of $828 million, though this was a decrease from the $912 million recorded in the same period last year.
Earnings per share (EPS) stood at $0.84, which reflected a slight decline from the previous year’s $0.88. However, adjusted EPS, which accounts for specific non-recurring items, came in at $0.98, marking an improvement over the $0.95 reported in the third quarter of 2023.
Kroger achieved a 2.3% increase in identical sales without fuel, a notable improvement from the 0.6% decline seen in the same quarter last year. The company’s digital sales grew by 11%, underscoring the effectiveness of its go-to-market strategy aimed at enhancing customer value. Additionally, Kroger’s private label, Our Brands, saw sales growth surpassing that of the total grocery sales, further highlighting the brand’s strong market position.
The sale of Kroger Specialty Pharmacy on October 4, 2024, impacted the company’s total sales, which were $33.6 billion, down from $34.0 billion in the same quarter of the previous year. This reduction was attributed to the absence of $340 million in sales from the divested business. Despite this, Kroger managed to increase its gross margin rate by 51 basis points, reflecting improvements in operational efficiency and pricing strategies.
Kroger Beats EPS Expectations, Falls Short on Revenue
In the third quarter, Kroger’s performance was closely aligned with market expectations, albeit with some deviations. The consensus estimate for EPS was $0.97, slightly lower than the adjusted EPS of $0.98 that Kroger reported. This indicates that the company exceeded expectations in terms of earnings, demonstrating effective cost management and strategic initiatives that bolstered profitability.
On the revenue front, the company fell short of the anticipated $34.21 billion, reporting $33.6 billion instead. This shortfall was largely due to the sale of Kroger Specialty Pharmacy, which reduced sales by approximately $340 million. Excluding this and the impact of lower fuel sales, Kroger’s sales actually increased by 2.7% compared to the same period last year, highlighting the underlying strength of its core operations.
Despite the challenges, Kroger’s digital and private label segments performed exceptionally well, contributing to the company’s ability to meet and exceed EPS expectations. The growth in digital sales, bolstered by an 18% increase in delivery sales, and the robust performance of Our Brands, which outpaced total grocery sales growth, were key drivers of this success.
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Kroger Narrows Guidance for Full Year 2024
Kroger has narrowed its guidance range for the full year 2024, reflecting a more focused outlook as it approaches the final quarter. The company now expects identical sales without fuel to grow between 1.20% and 1.50%, an upward revision from the previous range of 0.75% to 1.75%. This adjustment underscores Kroger’s confidence in its ability to maintain sales momentum despite economic uncertainties.
The guidance for adjusted FIFO operating profit has been slightly narrowed to a range of $4.6 billion to $4.7 billion, from the earlier range of $4.6 billion to $4.8 billion. This reflects a cautious yet optimistic approach, taking into account the potential impacts of the macroeconomic environment and ongoing strategic initiatives. Adjusted net earnings per diluted share are now expected to be between $4.35 and $4.45, up from the previous range of $4.30 to $4.50.
Kroger remains committed to its capital allocation strategy, which focuses on generating strong free cash flow, investing in long-term growth, and maintaining its investment-grade debt rating. The company has paused its share repurchase program to prioritize reducing leverage following the proposed merger with Albertsons, indicating a strategic focus on strengthening its financial position.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
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