Why Kroger Shares Are Sliding Today

Kroger Co KR reported first-quarter FY23 sales growth of 1.3% year-on-year to $45.16 billion, missing the analyst consensus of $45.24 billion.

Identical Sales without fuel increased by 3.5%. Adjusted EPS of $1.51 beat the analyst consensus of $1.46.

Gross margin was 22.3%, and the FIFO gross margin rate, excluding fuel, increased by 21 basis points Y/Y.

Operating, general and administrative expenses rose 5.7% Y/Y to $7.4 billion.

Operating margin compressed from 3.4% to 3.3%, and operating income for the quarter fell 2.3% to $1.47 billion.

Kroger held $2.6 billion in cash and equivalents as of May 20, 2023. Operating cash flow totaled $2.86 billion. The company had a total debt of $13.4 billion as of May 20, 2023.

"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," said Chairman and CEO Rodney McMullen.

KR plans 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 Companies, Inc. ACI.

Outlook: Kroger reaffirmed its FY23 adjusted EPS outlook of $4.45 - $4.60 against the Street view of $4.50. It sees Identical sales without fuel of 1.0% – 2.0%.

KR expects an FY23 adjusted FIFO operating profit of $5 billion - $5.2 billion. KR now expects adjusted free cash flow of $2.5 billion - $2.7 billion.

Price Action: KR shares are trading lower by 3.31% at $45.65 in premarket on the last check Thursday.