Kroger Reports Q3 2024 Results: Sales Decline but Net Earnings Growth

Kroger Co. reported its financial results for the third quarter and the first three quarters of fiscal 2024, revealing a slight decline in total sales but significant growth in net earnings compared to the previous year. For the third quarter ended November 9, 2024, total sales reached $33.6 billion, a decrease of 1.0% from $34.0 billion in the same period last year. However, net earnings attributable to Kroger increased to $618 million, or $0.84 per diluted share, down from $646 million, or $0.88 per diluted share, in the prior year. For the first three quarters, net earnings rose to $2.03 billion, or $2.77 per diluted share, compared to $1.43 billion, or $1.95 per diluted share, in the same period of 2023.

The company's operating profit for the third quarter was $828 million, a decline of 9.2% from $912 million in the previous year, while for the first three quarters, operating profit surged 54.4% to $2.94 billion from $1.90 billion. The decrease in operating profit for the third quarter was attributed to increased operating, general, and administrative expenses, which rose to 17.54% of sales from 16.63% a year earlier. In contrast, the first three quarters saw a decrease in these expenses as a percentage of sales, reflecting improved operational efficiencies.

Strategically, Kroger completed the sale of its Kroger Specialty Pharmacy business to Elevance Health for $464 million on October 4, 2024. This transaction is expected to reduce annualized sales by approximately $3 billion but is anticipated to enhance the company's gross margin and operating efficiency. Additionally, Kroger issued $10.5 billion in senior notes to finance the merger with Albertsons, which was ultimately terminated on December 11, 2024, due to regulatory challenges. The company has since authorized a new share repurchase program totaling $7.5 billion.

Operationally, Kroger reported a 2.3% increase in identical sales excluding fuel for the third quarter, driven by growth in total and loyal households shopping with the company. Digital sales also saw an 11% increase, reflecting the strength of Kroger's delivery solutions. The company’s cash and temporary cash investments rose significantly to $13.4 billion, bolstered by the proceeds from the senior notes issuance. Kroger's total debt increased to $22.6 billion, primarily due to this issuance, but the company remains committed to maintaining its investment-grade credit rating.

Looking ahead, Kroger's management expressed confidence in its value creation model, which focuses on enhancing customer experience and operational efficiency. The company aims to continue generating strong free cash flow and is committed to returning value to shareholders through dividends and share repurchases. Despite the challenges posed by the terminated merger and market conditions, Kroger anticipates ongoing growth in its core retail business and digital sales.