8-K: Kroger Reports Solid Q4 and Full-Year 2024 Results, Provides 2025 Guidance

Kroger announces positive fourth quarter and full-year 2024 results, driven by strong identical sales and digital growth, and provides guidance for 2025.

Summary

• Kroger reported its fourth quarter and full-year 2024 results on March 6, 2025, and provided guidance for 2025.
• In the fourth quarter, identical sales without fuel increased by 2.4%.
• The operating profit for the fourth quarter was $912 million, with an EPS of $0.90.
• Adjusted FIFO operating profit for the fourth quarter was $1,174 million, and adjusted EPS was $1.14.
• Digital sales grew by 11% in the fourth quarter, excluding the 53rd week in 2023.
• For the full fiscal year 2024, identical sales without fuel increased by 1.5%.
• The operating profit for the full year was $3.8 billion, with an EPS of $3.67.
• Adjusted FIFO operating profit for the full year was $4.7 billion, and adjusted EPS was $4.47.
• Digital sales for the full year exceeded $13 billion.
• Media contributed to $1.35 billion in operating profit from alternative profit businesses, showing a 17% increase excluding the 53rd week in 2023.
• The average hourly wage for associates increased to more than $19, with a rate of more than $25 including comprehensive benefits, representing a 38% increase in the last seven years.
• Kroger commenced a $5.0 billion accelerated share repurchase program, to be completed under its $7.5 billion share repurchase authorization.
• Total company sales were $34.3 billion in the fourth quarter, compared to $37.1 billion for the same period last year.
• Total company sales were $147.1 billion in 2024, compared to $150.0 billion for the same period last year.
• For 2025, Kroger anticipates identical sales without fuel to increase by 2.0% 3.0%.
• Adjusted FIFO operating profit for 2025 is projected to be between $4.7 and $4.9 billion.
• Adjusted net earnings per diluted share for 2025 are expected to be between $4.60 and $4.80.
• Adjusted free cash flow for 2025 is estimated to be between $2.8 and $3.0 billion.
• Capital expenditures for 2025 are projected to be between $3.6 and $3.8 billion.
• The adjusted effective tax rate for 2025 is expected to be 23%.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook, highlighting strong financial results and future growth prospects. While there are some challenges and risks mentioned, the overall tone is optimistic.

Positives

• Kroger's identical sales without fuel increased in both the fourth quarter (2.4%) and full year (1.5%).
• Digital sales showed strong growth, exceeding $13 billion for the full year.
• The company is returning capital to shareholders through a $5.0 billion accelerated share repurchase program.
• Kroger is investing in its associates, with average hourly wages increasing to over $19.
• The company's balance sheet remains strong, providing opportunities for growth.
• Kroger is focused on delivering an incredible customer experience through great quality at low prices.
• Kroger achieved record retention rate for store and enterprise associates this year which led to improved productivity and more consistent customer experience.
• Kroger introduced more than 900 new Our Brands items, including 370 fresh items, in 2024.

Negatives

• Total company sales decreased in both the fourth quarter and full year, partly due to the 53rd week in 2023 and the sale of Kroger Specialty Pharmacy.
• The Operating, General and Administrative rate increased due to the sale of Kroger Specialty Pharmacy, increased incentive plan costs, and investment in associate wages.
• Kroger's net total debt to adjusted EBITDA ratio increased to 1.79, compared to 1.33 a year ago.

Risks

• Kroger's ability to achieve sales and earnings goals may be affected by labor negotiations, potential work stoppages, and changes in the unemployment rate.
• Competition from existing and new competitors could impact Kroger's performance.
• Economic conditions, including interest rates and inflation, could affect consumer spending and Kroger's results.
• The outcome of litigation matters, including those relating to the terminated transaction with Albertsons, could have an impact.
• Risks relating to or arising from opioid litigation settlements, including the risk of litigation relating to persons, entities, or jurisdictions that do not participate in those settlements.

Future Outlook

Kroger expects identical sales without fuel to increase by 2.0% 3.0% in 2025, with adjusted FIFO operating profit between $4.7 and $4.9 billion and adjusted net earnings per diluted share between $4.60 and $4.80.

Management Comments

• Ron Sargent, Interim CEO: 'Kroger is operating from a position of strength, delivering fourth quarter results that came in ahead of expectations due to the strength of our model and the disciplined execution of our teams.'
• Todd Foley, Interim CFO: 'Krogers 2024 results demonstrate the resilience of our value creation model, which is generating solid results and strong free cash flow.'

Industry Context

Kroger's results reflect the ongoing trends in the grocery industry, including the importance of digital sales, private label brands ('Our Brands'), and managing costs in a competitive environment. The company's focus on customer experience and alternative profit businesses aligns with industry best practices.

Comparison to Industry Standards

• Kroger's digital sales growth of 11% is comparable to other major retailers investing heavily in e-commerce and delivery services.
• The company's focus on private label brands is in line with industry trends, as retailers seek to improve margins and offer unique products.
• Kroger's cost-saving initiatives are essential in a competitive industry where pricing pressures are significant.
• Companies like Walmart and Costco are also focusing on digital sales and private label brands to drive growth and profitability.
• Kroger's share repurchase program is a common strategy among large, established companies to return capital to shareholders.

Stakeholder Impact

• Shareholders will benefit from the share repurchase program and potential dividend increases.
• Employees will benefit from increased wages and continuing education opportunities.
• Customers will benefit from improved customer experience and quality products.
• Communities will benefit from Kroger's commitment to #ZeroHungerZeroWaste and support during crises.

Next Steps

• Complete the $5 billion accelerated share repurchase program by the third fiscal quarter of 2025.
• Continue to invest in the business to drive long-term sustainable net earnings growth.
• Grow the dividend subject to board approval.
• Return excess cash to shareholders through share repurchases.

Key Dates