KROGER CO Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Company Commitment: The Kroger Co. is committed to enduring values, with a strong leadership team. Focus on customer experience, offering fresh and affordable products, and operational excellence.
• 2024 Performance: Achieved solid results in 2024, with performance improving throughout the year. Positive customer engagement trends, growth in households and loyalty, and strong digital and brands performance.
• Associates: Focus on wages, benefits, well-being, and talent development, leading to record store and enterprise retention rates.
• Productivity Initiatives: Introduced AI-powered tools for associates (over 70,000 associates use for 70+ use cases) and a generative AI-powered sell-through tool for inventory management.

Segment Performance

• Grocery: Fourth quarter identical sales without fuel grew 2.4%; full year 2024 saw 1.5% growth. Brands sales outpaced national brands, led by Private Selection.
• Digital/Seamless: Digital sales in 2024 exceeded $13 billion, with the fourth quarter showing the best digital profit improvement quarter.
• Brands: Expanded product portfolio in 2024, with over 90% of customer households purchasing our brands items. Over 900 new our brands products were released in 2024, including 370 fresh items.
• Alternative Profit: Generated $1.35 billion in operating profit in 2024, though falling short of initial growth expectations, but expected growth in 2025.
• Health and Wellness: Gained momentum in the second half of 2024, though margin pressures from GLP-one; renewed agreement with Express Scripts but no benefit in 2025 guidance.

Guidance

• 2025 Expectations: Anticipates identical sales without fuel of 2%-3%, adjusted FIFO operating profit of $4.7B-$4.9B, and adjusted net earnings per diluted share of $4.60-$4.80.
• Inflation: Expect inflation to be 1.5%-2% in 2025 (excluding tariffs).
• Capital Allocation: Plan to complete the accelerated share repurchase (ASR) by Q3 2025, with a $2.5B authorization for open market repurchases. Interest expense expected to be between $650M-$675M in 2025.

Risks

• Macroeconomic Factors: Inflation, avian flu affecting eggs, and external factors pressuring fresh commodities.
• Leverage and Market Changes: Need to manage leverage ratio; exposure to market changes like potential cuts in Snap advertising spend.

Question and Answer

• Q: About 2025 guidance breakdown by core vs alternate; A: Todd Foley discussed core business growth and alternative profit contribution, noting growth from both core and alternative.
• Q: CEO succession planning; A: Rodney McMullen discussed board search process, considering internal and external candidates for CEO.
• Q: Digital growth and profitability; A: Todd Foley talked about digital progress, cost to serve improvements, and future trajectory of digital profitability.
• Q: ID sales guidance and EPS; A: Todd Foley explained inflation expectations and pension impact on Q1 EPS, noting union pension expenses affecting Q1.
• Q: Digital growth and shed openings; A: Todd Foley discussed digital growth trajectory and considerations for shed openings, emphasizing profitability and volume requirements.
• Q: Inflation and tariff exposure; A: Todd Foley talked about inflation expectations and tariff impacts on fresh products, highlighting proactive sourcing to mitigate effects.
• Q: Share repo and Snap exposure; A: Todd Foley discussed share repurchase plans and monitoring Snap exposure, noting historical impacts on discretionary spending.
• Q: Price gaps and operating profit; A: Todd Foley discussed price gap management and operating profit components, focusing on all-in value for customers.
• Q: Own brands plan; A: Todd Foley discussed own brands innovation, ongoing category deep dives, and contribution to margins.
• Q: Pension and earnings; A: Todd Foley explained pension impact on Q1 earnings, noting it was an opportunity from 2024 rather than an issue.