Kroger delivers Q4 results, eyes sustainable growth in 2024
The Kroger Co. has released fourth-quarter and fiscal year 2023 results while projecting sustainable growth in 2024 through strategic initiatives and investments.
Total company sales were $37.1 billion in the fourth quarter, up from $34.8 billion for the same period last year, according to a news release. Excluding fuel and the 53rd week, sales decreased 0.5% compared to the same period last year.
"Kroger achieved strong 2023 results, in line with our long-term growth model and built upon three consecutive years of historic growth," Rodney McMullen, chairman and CEO of Kroger, said in the release.
Gross margin was 22.7% of sales for the fourth quarter. The FIFO gross margin rate, excluding fuel and the 53rd week, increased 13 basis points compared to the same period last year, according to the release. Kroger said the improvement in rate was primarily attributable to strong Our Brands performance, sourcing benefits and lower supply chain costs, partially offset by increased price investments and higher shrink.
"As customers manage macroeconomic pressures, we are lowering prices and offering even more ways to save with personalized promotions and rewards," McMullen said. "Our unique seamless shopping experience provides customers the products they want, when and how they want them, with zero compromise on quality, convenience and selection."
The LIFO credit for the quarter was $18 million, compared to a LIFO charge of $234 million for the same period last year. The credit was due to lower year-over-year product cost inflation than expected.
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The Operating, General and Administrative rate increased 40 basis points, excluding fuel, the 53rd week and adjustment items, compared to the same period last year, Kroger reported. This increase in rate was driven by planned investments in associate wages, an adjustment for self-insurance expenses and the decision to contribute an additional $40 million to multi-employer pension plans, helping stabilize associates' future benefits and reduce future obligations, partially offset by continued execution of cost savings initiatives and lower incentive plan costs, the company said.
"We respect and appreciate our associates who are delivering a full, fresh and friendly customer experience. Over the last five years, we've made historic investments in associate wages, benefits and career development opportunities, including significant investments to help stabilize associates' future pension benefits," McMullen said.
Total company sales were $150 billion in 2023 including $2.7 billion from the 53rd week, compared to $148.3 billion for the same period last year, the company reported. Excluding fuel and the 53rd week, sales increased 1.1% compared to the same period last year.
"We are increasing customer visits and growing loyal households through the strength of our retail business, which positions Kroger for more ways to drive sustainable future growth," McMullen said. "We expect to continue our momentum in 2024 by delivering value for customers, investing in associates and generating attractive and sustainable shareholder returns."
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Gross margin was 22.2% of sales for 2023, according to the company. The FIFO gross margin rate, excluding fuel and the 53rd week, increased 18 basis points compared to the same period last year. Kroger said this improvement in rate was primarily attributable to strong Our Brands performance, sourcing benefits, lower supply chain costs and the effect of our terminated agreement with Express Scripts, partially offset by increased price investments and higher shrink.
"Kroger's 2023 results provide another proof point of the strength and resilience of our value creation model, which supported another year of strong free cash flow and net earnings growth," Todd Foley, Kroger's interim chief financial officer, said in the release.
The LIFO charge for 2023 was $113 million, compared to a LIFO charge of $626 million for the same period last year. This was driven by lower product cost inflation compared to the same period last year, the company said.
"In 2024, we expect to grow revenue by delivering value for customers and enhancing our seamless shopping experience," Foley said. "We plan to balance investments in our business, including lowering prices and increasing associate wages, with productivity and cost savings initiatives, improvement on long-term initiatives in gross margin and growth in our alternative profit businesses."
The Operating, General and Administrative rate increased 21 basis points, excluding fuel, the 53rd week and adjustment items, compared to the same period last year, Kroger reported. This increase in rate was driven by planned investments in associates, investments in strategic growth initiatives and the effect of our terminated agreement with Express Scripts, partially offset by the continued execution of cost savings initiatives and lower incentive plan costs, the release said.
"This strength in our model gives us confidence in our ability to deliver on our 2024 guidance and maintain our strong track record of delivering for our customers, investing in our associates and generating attractive and sustainable returns for shareholders," Foley said.
Kroger said its net total debt to adjusted EBITDA ratio is 1.33, excluding the 53rd week, compared to 1.56 a year ago. The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.
The Cincinnati-based grocer said it 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 said it 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, according to the release.
