Core Insights - The Zacks Retail – Supermarkets industry is experiencing challenges due to persistent inflation and changing consumer spending habits, which are impacting revenue growth [1][5] - Leading supermarket retailers are focusing on omnichannel strategies to enhance competitiveness and drive long-term growth [2][6] Industry Overview - The industry encompasses various supermarket retailers offering a wide range of products, including groceries, health and beauty aids, and household items, operating through multiple formats [3] - E-commerce has significantly transformed the industry, with retailers enhancing pickup and delivery services to meet rising consumer preferences for online shopping [3] Major Trends - Rising operational costs, including store renovations and wage increases, are squeezing profitability for supermarket players [4] - Economic conditions, such as inflation and geopolitical tensions, are reshaping consumer behavior, leading to a preference for budget-friendly products [5] - Supermarket retailers are investing in digital transformation and omnichannel strategies to improve customer experience and operational efficiency [6] Industry Performance - The Zacks Retail – Supermarkets industry currently ranks 179, placing it in the bottom 27% of over 250 Zacks industries, indicating dull near-term prospects [7][8] - The industry has outperformed the S&P 500, with a growth of 44% over the past year compared to the S&P 500's 12.5% [10] Current Valuation - The industry is trading at a forward 12-month price-to-earnings (P/E) ratio of 32.93X, significantly higher than the S&P 500's 22.43X and the sector's 17.42X [13] Company Highlights - Walmart Inc. is leveraging a diversified business model and strong omnichannel strategy, with a consensus EPS estimate of $2.59 for the current fiscal year and a share price increase of 44.2% over the past year [15][16] - The Kroger Co. is focusing on digital transformation and customer-centric approaches, with a recent EPS estimate increase to $4.76 and a share price rise of 41.3% in the past year [19][20]

Sales Performance - Kroger reported first quarter sales of $45,118 million, a slight decrease of 0.3% compared to $45,269 million in the same period last year[84]. - Total sales decreased by 0.3% in Q1 2025 compared to Q1 2024, primarily due to a 12.5% decrease in supermarket fuel sales and the sale of Kroger Specialty Pharmacy[99]. - Total sales to retail customers without fuel increased by 1.1% to $40,401 million in Q1 2025, compared to $39,967 million in Q1 2024[100]. - Identical sales excluding fuel increased by 3.2% in the first quarter of 2025, compared to a 0.5% increase in the first quarter of 2024[84]. - Identical sales, excluding fuel, increased by 3.2% in Q1 2025, with total sales reaching $39,766 million compared to $38,535 million in Q1 2024[103]. eCommerce Growth - eCommerce sales grew by 15% in the first quarter of 2025, driven by strong demand for delivery solutions[88]. - eCommerce sales grew by 15% in Q1 2025, driven by a 20% increase in Delivery solutions[100]. Profitability - Operating profit for the first quarter was $1,322 million, representing a 2.2% increase from $1,294 million in the first quarter of 2024[84]. - Operating profit for Q1 2025 was $1.3 billion, or 2.93% of sales, an increase of 7 basis points from Q1 2024[116]. - FIFO operating profit was $1.4 billion, or 3.02% of sales, reflecting a 3 basis point increase compared to Q1 2024[117]. - Gross margin improved to 23.0% in Q1 2025 from 22.0% in Q1 2024, attributed to the sale of Kroger Specialty Pharmacy and lower supply chain costs[106]. Earnings - Adjusted net earnings attributable to Kroger per diluted common share were $1.49, a 4.2% increase compared to $1.43 in the first quarter of 2024[84]. - The net earnings attributable to The Kroger Co. excluding adjusted items was $996 million in Q1 2025, a decrease of 4.9% from $1,047 million in Q1 2024[97]. - Adjusted net earnings per diluted share increased by 4.2% to $1.49 in Q1 2025, compared to $1.43 in Q1 2024[97]. - Adjusted net earnings per diluted share for Q1 2025 were $1.49, a 4.2% increase from $1.43 in Q1 2024[123]. Cash Flow and Investments - Cash flows from operations decreased by 8% to $2.1 billion compared to the first quarter of 2024[88]. - Net cash provided by operating activities decreased to $2.1 billion in Q1 2025 from $2.3 billion in Q1 2024[126]. - Capital investments totaled $1.2 billion for both Q1 2025 and Q1 2024, with 27 supermarkets opened or remodeled[130]. Debt and Financial Management - Kroger is committed to maintaining a net total debt to adjusted EBITDA ratio target range of 2.30 to 2.50[79]. - Total debt remained consistent at $17.9 billion as of May 24, 2025, compared to the fiscal year-end 2024[133]. - As of May 24, 2025, the company held cash and temporary cash investments of $4.7 billion, reflecting strong operational performance[138]. Shareholder Returns - The company returned $392 million to shareholders through share repurchases and dividend payments in the first quarter[88]. - The company expects total shareholder return within a target range of 8% to 11% over time[80]. Expenses and Charges - Operating, General and Administrative (OG&A) expenses as a percentage of sales increased to 17.6% in Q1 2025 from 16.8% in Q1 2024, influenced by decreased fuel sales and increased healthcare costs[111]. - Charges related to merger costs amounted to $175 million in Q1 2025, impacting OG&A expenses significantly[99]. - The company recorded a net charge of $44 million for labor dispute charges in Q1 2025[99]. - Net interest expense rose to $199 million in Q1 2025 from $123 million in Q1 2024, primarily due to increased average total outstanding debt[120]. - The effective income tax rate increased to 21.3% in Q1 2025 from 19.8% in Q1 2024, influenced by state income taxes and tax credits[121].

Core Insights - Kroger Co. has announced a 9% increase in its quarterly cash dividend, reflecting confidence in long-term prospects and a commitment to delivering stable returns to investors [1][10] - The annual dividend will rise from $1.28 to $1.40 per share, with the next payment of 35 cents per share scheduled for September 1, 2025 [2][10] - This marks the 19th consecutive year of dividend increases since its reinstatement in 2006, with a compounded annual growth rate of 13% over this period [3][10] Financial Performance - The company expects adjusted free cash flow between $2.8 billion and $3 billion for fiscal 2025, supporting growth and dividend payouts [4][10] - Kroger's stock has gained 6.8% over the past three months, compared to the industry's growth of 13.8% [9] - The forward 12-month price-to-sales ratio for Kroger is 0.31X, indicating a lower valuation compared to the industry average of 1.06X [11] Earnings Estimates - The Zacks Consensus Estimate for Kroger's current financial-year sales implies a year-over-year growth of 1.1%, while earnings per share are expected to grow by 6.5% [12] - For the current quarter, the sales estimate is $34.10 billion, with a year-over-year growth estimate of 0.56% [13] - The earnings per share estimate for the current quarter is $1.01, reflecting an 8.6% year-over-year growth [14]

Financial Data and Key Metrics Changes - The company reported a strong first quarter with significant identical sales growth driven by pharmacy, ecommerce, and fresh categories [34] - A dividend increase from $1.28 to $1.40 per year was approved, marking the 19th consecutive year of dividend increases [38] Business Line Data and Key Metrics Changes - The ecommerce segment experienced double-digit growth, indicating a successful strategy in online sales [54] - The company plans to complete 30 store projects in 2025, maintaining the same level as the previous year, with intentions to increase this number in 2026 and beyond [54] Market Data and Key Metrics Changes - The company lowered prices on over 2,000 additional products in the first quarter, aiming to make savings more visible to customers [52] - The competitive pricing environment remains rational, with a focus on keeping prices affordable to attract more customers [51] Company Strategy and Development Direction - The company is focusing on core retail business investments, including lower prices and extended store hours, funded by reducing corporate expenses [34] - A strategic reevaluation of non-core assets is underway to enhance focus on the primary business [33] Management's Comments on Operating Environment and Future Outlook - Management emphasized the need to adapt quickly to competition, particularly in ecommerce, to improve profitability and customer base [35] - The company is committed to investing in associates, having increased average store hourly pay by 38% over the past seven years [36] Other Important Information - The company has donated over 3.4 billion meals through its Zero Hunger, Zero Waste plan, showcasing its commitment to community support [38] - The board of directors expressed confidence in the company's strategy through the approved dividend increase [39] Q&A Session Summary Question: Update on the CEO search - The board has a search committee in place working with a recognized search firm, while the current CEO remains committed to leading during the transition [48] Question: Raising employee wages in line with cost of living - The company has invested $2.4 billion in wages since 2018, resulting in a 38% increase in average hourly store wages [49] Question: Pricing strategies in a competitive environment - The company is focused on lowering prices to attract customers, having reduced prices on over 2,000 products in the first quarter [52] Question: Store plans and future growth - The company is on track to complete 30 store projects in 2025 and plans to close approximately 60 underperforming stores, reallocating resources to new store growth [55] Question: Approach to customer health data requests - The company prioritizes customer trust and has a team ensuring compliance with data protection laws [56] Question: Justification of executive pay ratios - Compensation is based on various factors, and the company continues to invest in associates' wages and benefits [58] Question: Board's stance on supporting farm workers - The company believes its existing standards for suppliers make the shareholder proposal unnecessary [60] Question: Impact of proposed changes to SNAP on sales - The company is prepared to navigate changes to the SNAP program without expecting a significant impact on sales [61] Question: Alignment of waste reduction vision with cigarette waste proposal - The company views the cigarette waste proposal as redundant given its existing waste reduction commitments [63] Question: Thoughts on changing tariff situations - The company is monitoring tariff changes and is prepared to manage any potential cost impacts [65]

Core Viewpoint - The Kroger Co. has announced a dividend increase from $1.28 to $1.40 per year, reflecting the company's strong operating performance and commitment to shareholder value [1][3]. Dividend Growth - The quarterly dividend has experienced a compounded annual growth rate of 13% since its reinstatement in 2006, marking the 19th consecutive year of dividend increases [2]. Capital Allocation Strategy - Kroger's capital allocation strategy focuses on utilizing free cash flow to invest in business growth while maintaining an investment-grade debt rating and returning capital to shareholders [4]. Company Overview - Kroger operates with nearly 410,000 associates serving over 11 million customers daily through various eCommerce and store experiences, aiming to create ZeroHungerZeroWaste communities [5].

Group 1 - The article provides an update on The Kroger Co. (NYSE: KR) following a merger breakup, indicating a significant moment for the company [1] - The author has a background in private credit and commercial real estate financing, which may influence the analysis of Kroger's financial health and market position [1] Group 2 - There is no financial advice or recommendations provided in the article, emphasizing that the content is based on personal opinions and research [3][4] - The article does not guarantee future performance, highlighting the inherent uncertainties in investment decisions [4]

Core Viewpoint - Kroger plans to close approximately 60 stores over the next 18 months to enhance operational efficiency and focus on future growth, despite reporting profits that exceeded expectations [2][5]. Group 1: Store Closures - Kroger will close 60 stores by the end of next year as part of a strategic review to improve efficiency [1][2]. - The closures will incur a $100 million impairment charge, but the company anticipates a modest financial benefit from the shutdowns [5]. - All employees from the closing stores will be offered jobs at other locations, maintaining the workforce stability [7]. Group 2: Financial Performance - Total company sales for the first quarter were reported at $45.1 billion, slightly down from $45.3 billion in the same period last year [8]. - The company expects the loss from store closures will not impact its full-year guidance, indicating confidence in future financial performance [5]. Group 3: Management Insights - Director Ron Sargent emphasized that not all stores are delivering sustainable results, prompting the decision to close underperforming locations [2]. - The company aims to reinvest savings from the closures back into enhancing customer experience [5].

Group 1 - The company reported first-quarter adjusted earnings per share of $1.49, exceeding the analyst consensus estimate of $1.46 [1] - Quarterly sales were $45.12 billion, slightly missing the expected $45.19 billion, with identical sales excluding fuel increasing by 3.2% [1] - Gross margin improved to 23% from 22% year-over-year, driven by the sale of Kroger Specialty Pharmacy, lower shrink, and reduced supply chain costs [2] Group 2 - The CFO expressed confidence in raising the guidance for identical sales excluding fuel to a range of 2.25% to 3.25%, despite the uncertain macroeconomic environment [3] - Following the earnings announcement, Kroger shares increased by 2.4% to $73.72 [3] - Analysts adjusted their price targets for Kroger, with Deutsche Bank raising it from $57 to $67, Telsey Advisory Group from $73 to $82, UBS from $66 to $74, Guggenheim from $73 to $78, and Morgan Stanley from $71 to $76 [5]

Core Insights - Kroger Co. reported mixed results for Q1 fiscal 2025, with revenues falling short of estimates and declining year over year, while earnings exceeded expectations and improved from the previous year [1][3] - Strong underlying performance was driven by solid sales in pharmacy, e-commerce, and fresh categories, leading management to raise its identical sales without fuel growth outlook [1][8] Financial Performance - Adjusted earnings were $1.49 per share, beating the Zacks Consensus Estimate of $1.45 and improving from $1.43 in the prior year [3][8] - Total sales were $45,118 million, down from $45,269 million year over year and below the Zacks Consensus Estimate of $45,383 million [3][4] - Excluding fuel and Kroger Specialty Pharmacy, total sales rose 3.7% year over year, with identical sales without fuel increasing by 3.2% [4] Margin and Cost Analysis - Gross margin expanded by 100 basis points to 23%, driven by the divestiture of Kroger Specialty Pharmacy, reduced shrink, and lower supply-chain expenses [5] - The Operating, General and Administrative rate increased by 63 basis points, attributed to the sale of Kroger Specialty Pharmacy and contributions to a multi-employer pension plan [6] Balance Sheet and Guidance - Kroger ended the quarter with cash of $340 million, total debt of $17,945 million, and shareholders' equity of $8,908 million [7] - The company reaffirmed its fiscal 2025 capital expenditure outlook of $3.6 billion to $3.8 billion and maintained adjusted free cash flow guidance of $2.8 billion to $3 billion [7] Future Outlook - For fiscal 2025, Kroger now expects identical sales without fuel to increase between 2.25% and 3.25%, up from the previous range of 2%-3% [8] - Adjusted earnings guidance remains between $4.60 and $4.80 per share, compared to $4.47 in fiscal 2024 [8]

Core Viewpoint - Kroger plans to close 60 underperforming stores, representing about 5% of its locations, following the ousting of its CEO and the failure of a merger with Albertsons [1][2][4] Group 1: Store Closures and Financial Impact - The company has taken a $100 million impairment charge related to the planned closures in the first quarter [1] - Kroger expects a "modest financial benefit" from the closures in the long term [1][2] - Workers at the affected locations will be offered roles at other Kroger stores [2] Group 2: Leadership Changes - Longtime CEO Rodney McMullen resigned in March after a probe into his personal conduct, forfeiting $11.2 million in unvested stock and options [3] - McMullen's resignation also led to his departure from the board of VF Corporation [3] Group 3: Sales Performance and Future Plans - Kroger has increased its full-year sales forecast without fuel to a growth of 2.25% to 3.25%, up from a previous guidance of 2% to 3% [7] - Sales without fuel increased by 3.2% in the first quarter, driven by price cuts on 2,000 products and a larger promotional effort on private label items [7] - The company plans to launch 80 new high-protein products in the coming months to meet growing consumer demand [8] Group 4: Market Context - The company is benefiting from a trend of consumers dining out less and preparing more meals at home [6] - Kroger's private-label products have outperformed national brands for seven consecutive quarters [7]