Kroger's Mixed Q2 Earnings & $1.4B Opioid Settlement - What You Need To Know

Kroger Co KR reported a second-quarter FY23 sales decline of 2.3% year-on-year to $33.85 billion, missing the analyst consensus of $34.13 billion.

Identical Sales without fuel increased by 1%. Adjusted EPS of $0.96 beat the consensus estimate of $0.91.

Gross margin was 21.8%, and the FIFO gross margin rate, excluding fuel, increased by 35 basis points Y/Y.

Operating, general and administrative expenses rose 28% Y/Y to $6.9 billion.

The company incurred an operating loss of $(479) million compared to an income of $954 million last year.

Kroger held $263 million in cash and $2.157 billion in temporary cash investments as of August 12, 2023. Operating cash flow year-to-date totaled $4.4 billion. The company had a total debt of $12.7 billion as of August 12, 2023.

"By investing in price and providing more personalized offers, we are helping customers stretch their budgets and manage the ongoing effects of reduced government benefits, inflation and higher interest rates," said Chairman and CEO Rodney McMullen.

"Kroger is funding these investments by collaborating with vendors to deliver exceptional value, managing costs and growing alternative profit businesses."

Kroger has reached an agreement in principle with plaintiffs to settle the majority of opioid claims.

The company has agreed to pay up to $1.2 billion to states and subdivisions and $36 million to Native American tribes in funding for abatement efforts and approximately $177 million to cover attorneys' fees and costs.

Kroger expects to recognize a $1.4 billion charge during the second quarter of 2023, which will negatively impact earnings per diluted share of $1.54 on a GAAP basis. 

Outlook Reaffirmed: Kroger sees FY23 adjusted EPS of $4.45 - $4.60 versus an estimate of $4.51.

KR expects FY23 identical sales without fuel of 1.0% – 2.0%. KR expects an FY23 adjusted FIFO operating profit of $5 billion - $5.2 billion. KR expects adjusted free cash flow of $2.5 billion - $2.7 billion.

Price Action: KR shares are trading lower by 1.16% at $45.00 in premarket on the last check Friday.