CINCINNATI,  Sept. 9, 2022 /PRNewswire/ --

Second Quarter Highlights
   • Identical Sales without fuel increased 5.8%
   • Operating Profit of $954 million; Adjusted FIFO Operating Profit of $1,110 million
   • EPS of $1.00; Adjusted EPS of $0.90
   • Company is executing its go-to-market strategy to deliver value for customers
      ° Our Brands identical sales increased 10.2%
      ° Digital sales grew 8%
      ° Accelerated our Fresh Produce Initiative with 864 stores now certified, driving higher identical sales

The Kroger Co. (NYSE: KR) today reported its second quarter 2022 results and will update investors on how Leading with Fresh and Accelerating with Digital continues to position Kroger for long-term sustainable growth.

"Kroger delivered strong second quarter results propelled by our Leading with Fresh and Accelerating with Digital strategy. We are incredibly thankful for our dedicated associates who continue to deliver a full, fresh and friendly customer experience.

Our consistent performance underscores the resiliency and flexibility of our business model, which enables Kroger to thrive in many different operating environments. We are applying technology and innovation to improve freshness, grow Our Brands, and create a seamless shopping experience so our customers can get what they want, when and how they want it, with zero compromise on quality, selection and affordability.

We will continue to focus on providing affordable, fresh food to our customers, investing in wages and the associate experience, and creating zero hunger, zero waste communities because when we do those things well, we deliver attractive and sustainable shareholder returns."

Total company sales were $34.6 billion in the second quarter, compared to $31.7 billion for the same period last year. Excluding fuel, sales increased 5.2% compared to the same period last year.

Gross margin was 20.9% of sales for the second quarter. The FIFO gross margin rate, excluding fuel, increased 2 basis points compared to the same period last year. This result reflected our ability to effectively manage product cost inflation through strong sourcing practices while helping customers manage their budgets and keeping prices competitive.

The LIFO charge for the quarter was $148 million, compared to a LIFO charge of $47 million for the same period last year driven by higher product cost inflation primarily in grocery.

The Operating, General & Administrative rate increased 36 basis points, excluding fuel and adjustment items, compared to the same period last year. The increase in OG&A rate was driven by investments in associates, higher incentive plan costs, and strategic investments in various margin expansion initiatives that will drive future growth, partially offset by sales leverage and continued execution of cost savings initiatives.

Kroger continues to generate strong free cash flow and remains committed to investing in its business to drive long-term sustainable net earnings growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchases and a growing dividend over time.

Kroger's net total debt to adjusted EBITDA ratio is 1.63, compared to 1.78 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.

Earlier this quarter, Kroger increased its dividend by 24%, marking the 16^th consecutive year of dividend increases.  Additionally, during the quarter, Kroger repurchased $309 million in shares and year-to-date, has repurchased $975 million in shares.  On September 9^th, the Board of Directors authorized a new $1 billion share repurchase program.

Comments from CFO Gary Millerchip

"Our second quarter results provide another proof point that Kroger has the right go-to-market strategy. Our consistent execution of this strategy is building momentum in our business which, combined with sustained food at home trends, gives us the confidence to raise our full-year guidance. We now expect identical sales without fuel to be in the range of 4.0% to 4.5% and adjusted net earnings per diluted share in the range of $3.95 to $4.05. 

Our business model has proven to be resilient in a variety of operating and economic environments and we remain confident in our ability to deliver attractive and sustainable total shareholder returns of 8-11% over time."

• Expanded Our Brands portfolio with the launch of the Smart Way product line, part of Kroger's new opening price point strategy 
• Recognized by Store Brands Magazine for the quality of Our Brands products with 12 Editors' Picks awards for best new products in 2022
• Introduced 170 new Our Brands items, including the expansion of our industry-leading Simple Truth plant-based line and seasonal fresh favorites
• Celebrated five awards earned by Murray's Cheese varieties at the American Cheese Society Competition

• Improved delivery sales by 34% over last year driven by Kroger Boost and Customer Fulfillment Centers
• Announced a new Kroger Delivery Customer Fulfillment Center in the Denver Metro area, one of the fastest-growing areas in the country
• Opened a new Kroger Delivery Customer Fulfillment Center in Romulus, Michigan, supporting customers in several geographies, including Michigan, Northern Ohio, and Indiana
• Expanded the Kroger Delivery network by opening seven new spoke facilities, which serve as last-mile cross-dock locations, including Louisville, Nashville, and Chicago in existing geographies, as well as Austin, Birmingham, Oklahoma City, and San Antonio in new geographies

• Named as one of the Best Places to Work for Disability Inclusion by Disability:IN for the third consecutive year with a score of 100 on the 2022 Disability Equity Index
• Introduced financial coaching services, a unique benefit available to hourly associates to empower them to achieve financial goals through free financial planning
• Received two Brandon Hall Group – Excellence in Human Capital Management Awards, including recognition for Best Use of Gaming or Simulations for Learning and Best Learning Program that Supports and Promotes Diversity, Equity, and Inclusion
• Launched a Women's Leadership program bringing together female business leaders, entrepreneurs, and key community members as part of the LPGA Queen City Championship
• 10,775 associates have participated in Feed Your Future, Kroger's continuing education benefit available to all associates since the program began in 2018. More than 90% of participants are hourly associates

• Published 2022 ESG Report reaffirming company's comprehensive ESG strategy and framework to benefit people and the planet, and create a more resilient, equitable food system for tomorrow
• Donated $10 million to The Kroger Co. Zero Hunger | Zero Waste Foundation to further our commitment to empower communities to live healthy lives
• Recognized by the Congressional Hunger Center for The Kroger Co. Foundation's longstanding commitment to ending hunger
• Announced expanded customer access to electric vehicle charging stations to more than 350 locations
• Assisted in the flood relief efforts in Eastern Kentucky and water shortage in Jackson, Mississippi with company and customer donations of funds and supplies, as well as delivery of more than 55,000 gallons of fresh water to the communities

At The Kroger Co. (NYSE: KR), we are dedicated to our Purpose: to Feed the Human Spirit™. We are, across our family of companies nearly half a million associates who serve over eleven million customers daily through a seamless digital shopping experience and retail food stores under a variety of banner names, serving America through food inspiration and uplift, and creating #ZeroHungerZeroWaste communities by 2025. To learn more about us, visit our newsroom and investor relations site.

Kroger's second quarter 2022 ended on August 13, 2022.

Note: Fuel sales have historically had a low gross margin rate and operating expense rate as compared to corresponding rates on non-fuel sales. As a result, Kroger discusses the changes in these rates excluding the effect of fuel.

Please refer to the supplemental information presented in the tables for reconciliations of the non-GAAP financial measures used in this press release to the most comparable GAAP financial measure and related disclosure. As noted above, Kroger is unable to provide a full reconciliation of the GAAP and non-GAAP measures used in its guidance without unreasonable effort because it is not possible to predict certain of our adjustment items with a reasonable degree of certainty. This information is dependent upon future events and may be outside of our control and its unavailability could have a significant impact on GAAP financial results.

This press release contains certain statements that constitute "forward-looking statements" about the future performance of the company. These statements are based on management's assumptions and beliefs in light of the information currently available to it. Such statements are indicated by words or phrases such as "achieve," "believe," "committed," "continue," "expect," "future," "guidance," "target," "trends," and "will." Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. These include the specific risk factors identified in "Risk Factors" in our annual report on Form 10-K for our last fiscal year and any subsequent filings, as well as the following:

Kroger's ability to achieve sales, earnings, incremental FIFO operating profit, and adjusted free cash flow goals may be affected by: COVID-19 pandemic related factors, risks and challenges, including among others, the length of time that the pandemic continues, future variants, mutations or related strains of the virus and the effectiveness of vaccines against variants, continued efficacy of vaccines over time and availability of vaccine boosters, the extent of vaccine refusal, and global access to vaccines, as well as the effect of  vaccine and/or testing mandates and related regulations, the potential for additional future spikes in infection and illness rates including breakthrough infections among the fully vaccinated, and the corresponding potential for disruptions in workforce availability and customer shopping patterns, re-imposed restrictions as a result of resurgence and the corresponding future easing of restrictions, and interruptions in domestic and global supply chains or capacity constraints; whether and when the global pandemic will become endemic, the pace of recovery when the pandemic subsides or becomes endemic, which may vary materially over time and among the different regions we serve; labor negotiations; potential work stoppages; changes in the unemployment rate; pressures in the labor market; changes in government-funded benefit programs; changes in the types and numbers of businesses that compete with Kroger; pricing and promotional activities of existing and new competitors, including non-traditional competitors, and the aggressiveness of that competition; Kroger's response to these actions; the state of the economy, including interest rates, the current inflationary environment and future potential inflationary and/or deflationary trends and such trends in certain commodities, products and/or operating costs; the geopolitical environment including the war in Ukraine; unstable political situations and social unrest; changes in tariffs; the effect that fuel costs have on consumer spending; volatility of fuel margins; manufacturing commodity costs; supply constraints; diesel fuel costs related to Kroger's logistics operations; trends in consumer spending; the extent to which Kroger's customers exercise caution in their purchasing in response to economic conditions; the uncertainty of economic growth or recession; stock repurchases; changes in the regulatory environment in which Kroger operates; Kroger's ability to retain pharmacy sales from third party payors; consolidation in the healthcare industry, including pharmacy benefit managers; Kroger's ability to negotiate modifications to multi-employer pension plans; natural disasters or adverse weather conditions; the effect of public health crises or other significant catastrophic events; the potential costs and risks associated with potential cyber-attacks or data security breaches; the success of Kroger's future growth plans; the ability to execute our growth strategy and value creation model, including continued cost savings, growth of our alternative profit businesses, and our ability to better serve our customers and to generate customer loyalty and sustainable growth through our strategic pillars of fresh, our brands, personalization, and seamless; and the successful integration of merged companies and new partnerships. Our ability to achieve these goals may also be affected by our ability to manage the factors identified above. Our ability to execute our financial strategy may be affected by our ability to generate cash flow.

Kroger's effective tax rate may differ from the expected rate due to changes in tax laws, the status of pending items with various taxing authorities, and the deductibility of certain expenses.

Kroger assumes no obligation to update the information contained herein unless required by applicable law. Please refer to Kroger's reports and filings with the Securities and Exchange Commission for a further discussion of these risks and uncertainties.

Note: Kroger's quarterly conference call with investors will broadcast live at 10 a.m. (ET) on September 9, 2022 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Friday, September 9, 2022.

1. Consolidated Statements of Operations
2. Consolidated Balance Sheets
3. Consolidated Statements of Cash Flows
4. Supplemental Sales Information
5. Reconciliation of Net Total Debt and Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA
6. Net Earnings Per Diluted Share Excluding the Adjustment Items
7. Operating Profit Excluding the Adjustment Items