The Kroger Co. today reported its first quarter 2023 results, reaffirmed 2023 guidance for identical sales without fuel and adjusted EPS and updated investors on how Leading with Fresh and Accelerating with Digital continues to position Kroger for long-term sustainable growth.
Chairman and CEO Rodney McMullen commented on the quarter, “Kroger achieved solid first quarter results guided by the execution of our Leading with Fresh and Accelerating with Digital strategy.
As more customers are feeling the effects of inflation and economic uncertainty, we are growing customer households by providing fresher products at affordable prices with personalized rewards. Our amazing associates are bringing this strategy to life every day by delivering a full, fresh and friendly shopping experience with zero compromise on quality, selection and convenience.
Looking forward, Kroger’s go-to-market strategy positions us well in a wide range of economic environments to continue to deliver for our customers, invest in our associates and achieve sustainable and attractive returns for shareholders.”
First Quarter Financial Results
Total company sales were $45.2 billion in the first quarter, compared to $44.6 billion for the same period last year. Excluding fuel, sales increased 3.5% compared to the same period last year.
Gross margin was 22.3% of sales for the first quarter. The FIFO gross margin rate, excluding fuel, increased 21 basis points compared to the same period last year. This increase in rate was achieved while also investing in price to maintain a competitive price position and deliver greater value for our customers. The improvement in the FIFO gross margin rate, excluding fuel, was primarily attributable to Kroger-owned Brand portfolio performance, sourcing benefits, lower supply chain costs and the effect of our terminated agreement with Express Scripts, partially offset by higher shrink and increased promotional price investments.
The LIFO charge for the quarter was $99 million, compared to a LIFO charge of $93 million for the same period last year.
The Operating, General & Administrative rate increased 14 basis points, excluding fuel and adjustment items, compared to the same period last year. The increase in OG&A rate was driven by planned investments in associates and the effect of our terminated agreement with Express Scripts, partially offset by sales leverage and continued execution of cost savings initiatives.
First Quarter 2023 Highlights
Leading with Fresh
- Accelerated Fresh Produce Initiative with a total of 1,738 stores now certified, driving higher identical sales without fuel in certified stores
- Increased Alternative Farming offerings to 1,094 stores connecting more communities to locally sourced fresh products
- Expanded on-demand floral and sushi deliveryto the Uber Eats marketplace
Accelerating with Digital
- Increased delivery sales by 30% over last year driven by our delivery solutions including Kroger Boost and Customer Fulfillment Centers
- Announced connected TV collaboration between Disney and Kroger Precision Marketing
- Increased digitally engaged households by 13% over last year
Live Our Purpose
Full-Year 2023 Guidance
- Identical sales without fuel of 1.0% – 2.0%, with underlying growth of 2.5% – 3.5% after adjusting for the effect of Express Scripts
- Adjusted net earnings per diluted share of $4.45 – $4.60, including an estimated benefit from the 53rd week of approximately $0.15
- Adjusted FIFO Operating Profit of $5.0 – $5.2 billion
- Effective tax rate of 23%**
- Capital expenditures of $3.4 – $3.6 billion
- Adjusted Free Cash Flow of $2.5 – $2.7 billion
Comments from CFO Gary Millerchip, “Kroger’s first quarter results demonstrate the durability of our business model in a more challenged operating environment.
The investments we have made over recent years to deliver for our customers and strengthen our value creation flywheel give us the confidence to reaffirm our full-year identical sales without fuel and adjusted net earnings per diluted share guidance. We delivered strong Adjusted Free Cash Flow in the quarter and as a result of improvements in working capital, we are raising our guidance to a range of $2.5 to $2.7 billion for the fiscal year 2023.
Kroger remains committed to delivering attractive and sustainable total shareholder returns for our investors.”