8-K
Kroger Co (KR)
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANTTO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 8, 2023
The Kroger Co.
(Exact Name of Registrant as Specified in Its Charter)
| Ohio | No. 1-303 | 31-0345740 |
|---|---|---|
| (State or Other Jurisdiction of<br><br> Incorporation) | (Commission File Number) | (IRS Employer Identification<br><br> No.) |
| 1014 Vine Street Cincinnati, OH | 45202 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(513) 762-4000
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name Of Each Exchange On Which Registered |
|---|---|---|
| Common Stock, $1.00 par value per share | KR | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
| Item 2.02. | Results of Operations and Financial Condition. |
|---|
On September 8, 2023, The Kroger Co. (NYSE:KR) (“Kroger”) issued a press release announcing its second quarter 2023 results. Attached hereto as Exhibit 99.1, and furnished herewith, is a copy of that release.
The information in this Item 2.02 and the press release attached hereto as Exhibit 99.1 are furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liabilities under that section, and shall not be deemed to be incorporated by reference into the filings of Kroger under the Securities Act of 1933 or the Exchange Act, regardless of any general incorporation language in such filings.
| Item 7.01. | Regulation FD Disclosure. |
|---|
On September 8, 2023, Kroger issued a press release announcing that it has reached an agreement in principle with plaintiffs to settle the majority of opioid claims that have been or could be brought against Kroger by states in which they operate, subdivisions, and Native American tribes. Along with the execution of certain non-monetary conditions that remain in discussion, Kroger 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 (both to be paid over 11 years in equal installments), and approximately $177 million to cover attorneys’ fees and costs (to be paid over 6 years in equal installments). The timing of the settlement payments over multiple years, most of which are tax deductible, results in an after-tax net present value to Kroger of approximately $870 million. Initial payments would begin in December 2023.
States, subdivisions, and the Native American tribes will have an opportunity to opt-in to participate in the settlement, and Kroger will have full discretion to determine whether there is sufficient participation for the settlement to become effective. If all conditions are satisfied, the settlement would allow for the full resolution of all claims on behalf of participating states, subdivisions and tribes and is not an admission of any wrongdoing or liability.
A copy of the press release is attached hereto as Exhibit 99.2.
The information in this Item 7.01 and the press release attached hereto as Exhibit 99.2 are furnished and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to liabilities under that section, and shall not be deemed to be incorporated by reference into the filings of Kroger under the Securities Act of 1933 or the Exchange Act, regardless of any general incorporation language in such filings.
| Item 8.01. | Other Events. |
|---|
On September 8, 2023, Kroger and Albertsons Companies, Inc., (“Albertsons”) issued a joint press release announcing that they have entered into an agreement with C&S Wholesale Grocers, LLC (“C&S”) to divest 413 stores, as well as the QFC, Mariano’s and Carrs brand names, 8 distribution centers, 2 offices and other certain assets in connection with the proposed Kroger-Albertsons merger previously announced on October 14, 2022. In addition, Kroger will divest the Debi Lilly Design, Primo Taglio, Open Nature, ReadyMeals and Waterfront Bistro private label brands. The definitive purchase agreement has customary representations and warranties and covenants of a transaction of its type. The transaction is subject to fulfillment of customary closing conditions, including clearance by the Federal Trade Commission (“FTC”), and the completion of the proposed merger. C&S will pay Kroger all-cash consideration of approximately $1.9 billion, including customary adjustments. Prior to the closing, Kroger may, in connection with securing FTC and other governmental clearance, require C&S to purchase up to an additional 237 stores in certain geographies. If additional stores are added to the transaction, C&S will pay to Kroger additional cash consideration based upon an agreed upon formula.
A copy of the press release is attached hereto as Exhibit 99.3.
Forward Looking Statements
This current report on Form 8-K contains certain statements that constitute “forward-looking statements” within the meaning of federal securities laws, including statements regarding the effects of the proposed transaction and related divestitures and further 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,” “committed,” “confidence,” “continue,” “expect,” “future,” “guidance,” “positions,” “strategy,” “will,” and “target”. 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: the risks relating to or arising from our proposed nationwide opioid litigation settlement, including our ability to finalize and effectuate the settlement, the scope and coverage of the ultimate settlement and the expected financial or other impacts that could result from the settlement; our proposed transaction with Albertsons announced in October 2022, including, among others, our ability to consummate the proposed transaction and related divestiture plan, including on the terms of the merger agreement and divestiture plan, on the anticipated timeline, and/or with the required regulatory approvals. The ability of Kroger and Albertsons to achieve the goals for the proposed transaction may also be affected by their ability to manage the factors identified above.
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.
| Item 9.01. | Financial Statements and Exhibits. |
|---|
(d) Exhibits
| 99.1 | Press Release, dated September 8, 2023 | |
|---|---|---|
| 99.2 | Press Release, dated September 8, 2023 | |
| 99.3 | Press Release, dated September 8, 2023 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| THE KROGER CO. | |
|---|---|
| By: | /s/ Christine S. Wheatley |
| Name: | Christine<br> S. Wheatley |
| Title: | Senior Vice<br> President, General Counsel and Secretary |
Date: September 8, 2023
Exhibit 99.1
KrogerReports Second Quarter 2023 Results and
ReaffirmsGuidance
Second Quarter Highlights
| ● | Identical<br> Sales without fuel increased 1.0% with underlying growth of 2.6%^(1)^ |
|---|---|
| ● | Operating<br> Loss of ($479) million; EPS of ($0.25) |
| --- | --- |
| o | Includes a $1.4 billion charge ($1.54 loss per share) for nationwide<br> opioid settlement framework |
| --- | --- |
| ● | Adjusted<br> FIFO Operating Profit of $989 million**;** Adjusted EPS of $0.96 |
| --- | --- |
| ● | Achieved<br> strong Adjusted Free Cash Flow leading to a record low net total debt to adjusted EBITDA<br> ratio |
| --- | --- |
| ● | Executed<br> its go-to-market strategy to deliver value for customers |
| --- | --- |
| o | Grew digital sales 12% |
| --- | --- |
| o | Increased total and loyal customer households |
| --- | --- |
CINCINNATI, September 8, 2023 – The Kroger Co. (NYSE: KR) today reported its second quarter 2023 results, reaffirmed 2023 guidance and updated investors on how Leading with Fresh and Accelerating with Digital continues to position Kroger for long-term sustainable growth.
Comments from Chairman and CEO Rodney McMullen
“The strength and diversity of Kroger’s business model is delivering consistent results in what remains a challenged environment.
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. Kroger is funding these investments by collaborating with vendors to deliver exceptional value, managing costs and growing alternative profit businesses.
We are growing households as our associates are providing a full, fresh and friendly shopping experience across our seamless ecosystem. While we expect the environment to remain challenged going forward, we are committed to delivering exceptional value for our customers and investing in our associates, and by doing so, we expect to generate attractive returns for shareholders.”
^(1)^Identical sales without fuel would have grown 2.6% in the 2^nd^ quarter of 2023 if not for the reduction in pharmacy sales from the previously communicated termination of our agreement with Express Scripts effective December 31, 2022. In the 2^nd^ quarter of 2023, the terminated agreement had a positive effect on the FIFO Gross Margin Rate, excluding fuel, and a negative effect on the OG&A Rate, excluding fuel and adjustment items. The overall net effect on operating profit was slightly positive.
1
Second Quarter Financial Results
| 2Q23<br> ( in millions; except EPS) | 2Q22<br> ( in millions; except EPS) | |||
|---|---|---|---|---|
| ID Sales* (Table 4)^(1)^ | % | % | ||
| Earnings (Loss) Per Share** | ) | |||
| Adjusted EPS (Table 6) | ||||
| Operating (Loss) Profit** | ) | |||
| Adjusted FIFO Operating Profit (Table 7) | ||||
| FIFO Gross Margin Rate*^(2)^ | ||||
| OG&A Rate*^(2)^ |
All values are in US Dollars.
* Without fuel and adjustment items, if applicable. ^(1)^ Identical sales without fuel would have grown 2.6% in the 2^nd^ quarter of 2023 if not for the reduction in pharmacy sales from the previously communicated termination of our agreement with Express Scripts effective December 31, 2022. ^(2)^ In the 2^nd^ quarter of 2023, the terminated agreement had a positive effect on the FIFO Gross Margin Rate, excluding fuel, and a negative effect on the OG&A Rate, excluding fuel and adjustment items. The overall net effect on operating profit was slightly positive.
** Includes a $1.4 billion ($1.54 loss per share) charge related to nationwide opioid settlement framework.
Total company sales were $33.9 billion in the second quarter, compared to $34.6 billion for the same period last year. Excluding fuel, sales increased 1.1% compared to the same period last year.
Gross margin was 21.8% of sales for the second quarter. The FIFO gross margin rate, excluding fuel, increased 35 basis points compared to the same period last year. This increase in rate was achieved while also investing in price to maintain a competitive price position and deliver greater value for our customers. The improvement in the FIFO gross margin rate, excluding fuel, was primarily attributable to Our Brands performance, lower supply chain costs, sourcing benefits and the effect of our terminated agreement with Express Scripts, partially offset by higher shrink and increased promotional price investments.
The LIFO charge for the quarter was $4 million, compared to a LIFO charge of $148 million for the same period last year.
Fuel operating profit declined $192 million compared to the same period last year, primarily due to the cycling of historically high fuel results from a year ago.
The Operating, General & Administrative rate was flat, excluding fuel and adjustment items, compared to the same period last year. This OG&A result was driven by continued execution of cost savings initiatives and lower incentive plan costs partially offset by planned investments in associates, an increase to our self-insurance reserves and the effect of our terminated agreement with Express Scripts.
2
Nationwide Opioid Settlement Framework
Included in Kroger’s results this quarter was a $1.4 billion charge related to a nationwide opioid settlement framework. The timing of the settlement payments will be over 11 years, most of which are tax deductible.
This settlement and the payment terms will not affect Kroger’s ability to complete its proposed merger with Albertsons and the Company still expects to reduce its net total debt to adjusted EBITDA ratio to 2.50 within 18 – 24 months post-close.
For more information, please refer to the separate press release issued this morning.
Capital Allocation Strategy
Kroger expects to continue to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth, as well as maintaining its current investment grade debt rating. The Company expects 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.
Kroger’s net total debt to adjusted EBITDA ratio is 1.31, compared to 1.63 a year ago (Table 5). The company’s net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.
Full-Year 2023 Guidance*
Reaffirmed
| ● | Identical<br> sales without fuel of 1.0% – 2.0%, with underlying growth of 2.5% – 3.5% after<br> adjusting for the effect of Express Scripts |
|---|---|
| ● | Adjusted<br> net earnings per diluted share of $4.45 – $4.60, including an estimated benefit from<br> the 53rd week of approximately $0.15 |
| --- | --- |
| ● | Adjusted<br> FIFO Operating Profit of $5.0 – $5.2 billion |
| --- | --- |
| ● | Adjusted<br> effective tax rate of 23%** |
| --- | --- |
| ● | Capital<br> expenditures of $3.4 – $3.6 billion |
| --- | --- |
| ● | Adjusted<br> Free Cash Flow of $2.5 – $2.7 billion*** |
| --- | --- |
* Without adjusted items, if applicable. Kroger is unable to provide a full reconciliation of the GAAP and non-GAAP measures used in 2023 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 2023 GAAP financial results.
** The adjusted tax rate reflects typical tax adjustments and does not reflect changes to the rate from the completion of income tax audit examinations, changes in tax laws, which cannot be predicted, or the effect of certain non-deductible charges related to opioid settlements.
*** Adjusted free cash flow excludes planned payments related to the restructuring of multi-employer pension plans or payments related to opioid settlements.
3
Comments from CFO Gary Millerchip
“Kroger’s second quarter results demonstrate the resiliency of our value creation model. While industry-wide disinflation continues to impact food at home sales, our team is doing an excellent job managing the effect on our business.
Looking forward, we believe inflation will continue to decelerate and the environment will remain challenging for consumers. We therefore expect identical sales without fuel will be at the low end of our full-year guidance range and slightly negative in the second half of the year. This outlook includes an approximately 150 basis points negative impact due to the termination of our agreement with Express Scripts.
As demonstrated by our year-to-date results, we believe we have the flexibility within our business model to navigate this environment and remain on track to deliver our 2023 adjusted FIFO operating profit and adjusted net earnings per diluted share guidance.”
Second Quarter 2023 Highlights
Leading with Fresh
| ● | Celebrated<br> the 10^th^ anniversary<br> of our<br> $1B Home Chef brand |
|---|---|
| ● | Recognized<br> by Store Brands magazine for the quality of Our Brands products with six Editors’<br> Picks awards |
| --- | --- |
| ● | Accelerated<br> Fresh Produce Initiative with a total of 1,940 stores now certified, driving higher identical<br> sales without fuel in certified stores |
| --- | --- |
| ● | Celebrated<br> five awards earned by Murray’s Cheese varieties at the American Cheese Society<br> Competition |
| --- | --- |
Accelerating with Digital
| ● | Increased<br> delivery sales by 24% over last year driven by our delivery solutions including Kroger Boost<br> and Customer Fulfillment Centers |
|---|---|
| ● | Announced<br> a new in-house advertising platform for Kroger Precision Marketing allowing for greater flexibility<br> to serve clients and improve outcomes for brands |
| --- | --- |
| ● | Increased<br> digitally engaged households by approximately 1.2 million compared to last year |
| --- | --- |
Associate Experience
| ● | Named<br> as one of the Best Places to Work for Disability Inclusion by Disability:IN for the<br> fourth consecutive year |
|---|
4
| ● | Celebrated<br> 64 female leaders named as Top Women in Grocery Honorees by Progressive Grocer |
|---|---|
| ● | Announced commitment to extend its world-class educational benefit<br> and financial counseling services to Albertsons Cos. associates, upon completion of its proposed merger |
| --- | --- |
| ● | Received<br> eight Brandon Hall Group – Excellence in Human Capital Management Awards® |
| --- | --- |
Live Our Purpose
| ● | Announced<br> commitment to donate 10 billion meals as a combined company by 2030, upon completion<br> of its proposed merger with Albertsons Companies |
|---|---|
| ● | Supported<br> disaster response efforts for those impacted by the Maui wildfires |
| --- | --- |
| ● | Launched<br> revamped Kroger Health Savings Club to make medications more affordable and accessible |
| --- | --- |
About Kroger
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 2023 ended on August 12,2023.
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,” “confidence,” “continue,” “deliver,” “expect,” “future,” “guidance,” “outlook,” “positions,” “strategy,” “will,” and “target”. 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:
5
Kroger's ability to achieve sales, earnings, incremental FIFO operating profit, and adjusted free cash flow goals may be affected by: the risks relating to or arising from our proposed nationwide opioid litigation settlement, including our ability to finalize and effectuate the settlement, the scope and coverage of the ultimate settlement and the expected financial or other impacts that could result from the settlement; our proposed transaction with Albertsons announced in October 2022, including, among others, our ability to consummate the proposed transaction and related divestiture plan, including on the terms of the merger agreement and divestiture plan, on the anticipated timeline, and/or with the required regulatory approvals; COVID-19 pandemic related factors, risks and challenges; 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 adjusted 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.
6
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 8, 2023 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Friday, September 8, 2023.
2^nd^Quarter 2023 Tables Include:
| 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<br> The Kroger Co. to Adjusted EBITDA |
| --- | --- |
| 6. | Net Earnings Per Diluted Share Excluding the Adjustment Items |
| --- | --- |
| 7. | Operating Profit Excluding the Adjustment Items |
| --- | --- |
--30--
Contacts: Media: Erin Rolfes (513) 762-1080; Investors: Rob Quast (513) 762-4969
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Table1.
THEKROGER CO.
CONSOLIDATEDSTATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
| SECOND<br> QUARTER | YEAR-TO-DATE | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| SALES | $ | 33,853 | 100.0 | % | $ | 34,638 | 100.0 | % | $ | 79,018 | 100.0 | % | $ | 79,238 | 100.0 | % | ||||
| OPERATING EXPENSES | ||||||||||||||||||||
| MERCHANDISE<br> COSTS, INCLUDING ADVERTISING, WAREHOUSING AND TRANSPORTATION (a), AND LIFO CHARGE (b) | 26,475 | 78.2 | 27,392 | 79.1 | 61,555 | 77.9 | 62,343 | 78.7 | ||||||||||||
| OPERATING,<br> GENERAL AND ADMINISTRATIVE (a) | 6,935 | 20.5 | 5,417 | 15.6 | 14,328 | 18.1 | 12,414 | 15.7 | ||||||||||||
| RENT | 206 | 0.6 | 191 | 0.6 | 470 | 0.6 | 448 | 0.6 | ||||||||||||
| DEPRECIATION<br> AND AMORTIZATION | 716 | 2.1 | 684 | 2.0 | 1,674 | 2.1 | 1,574 | 2.0 | ||||||||||||
| OPERATING<br> PROFIT (LOSS) | (479 | ) | (1.4 | ) | 954 | 2.8 | 991 | 1.3 | 2,459 | 3.1 | ||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||||||
| INTEREST<br> EXPENSE | (93 | ) | (0.3 | ) | (127 | ) | (0.4 | ) | (247 | ) | (0.3 | ) | (303 | ) | (0.4 | ) | ||||
| NON-SERVICE<br> COMPONENT OF COMPANY-SPONSORED PENSION PLAN COSTS | 8 | - | 11 | - | 17 | - | 26 | - | ||||||||||||
| GAIN<br> (LOSS) ON INVESTMENTS | 367 | 1.1 | 103 | 0.3 | 290 | 0.4 | (429 | ) | (0.5 | ) | ||||||||||
| NET<br> EARNINGS (LOSS) BEFORE INCOME TAX EXPENSE | (197 | ) | (0.6 | ) | 941 | 2.7 | 1,051 | 1.3 | 1,753 | 2.2 | ||||||||||
| INCOME TAX<br> EXPENSE (BENEFIT) | (18 | ) | (0.1 | ) | 209 | 0.6 | 268 | 0.3 | 356 | 0.5 | ||||||||||
| NET<br> EARNINGS (LOSS) INCLUDING NONCONTROLLING INTERESTS | (179 | ) | (0.5 | ) | 732 | 2.1 | 783 | 1.0 | 1,397 | 1.8 | ||||||||||
| NET<br> INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 1 | - | 1 | - | 1 | - | 3 | - | ||||||||||||
| NET<br> EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO. | $ | (180 | ) | (0.5 | )% | $ | 731 | 2.1 | % | $ | 782 | 1.0 | % | $ | 1,394 | 1.8 | % | |||
| NET<br> EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO. PER BASIC COMMON SHARE | $ | (0.25 | ) | $ | 1.01 | $ | 1.08 | $ | 1.92 | |||||||||||
| AVERAGE<br> NUMBER OF COMMON SHARES USED IN BASIC CALCULATION | 719 | 716 | 718 | 720 | ||||||||||||||||
| NET<br> EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO. PER DILUTED COMMON SHARE | $ | (0.25 | ) | $ | 1.00 | $ | 1.07 | $ | 1.89 | |||||||||||
| AVERAGE<br> NUMBER OF COMMON SHARES USED IN DILUTED CALCULATION | 719 | 725 | 725 | 730 | ||||||||||||||||
| DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.29 | $ | 0.26 | $ | 0.55 | $ | 0.47 | ||||||||||||
| Note: | Certain percentages may not sum due to rounding. | |||||||||||||||||||
| --- | --- | |||||||||||||||||||
| Note: | The Company defines First-In First-Out (FIFO) gross profit as sales minus merchandise costs, including advertising, warehousing<br> and transportation, but excluding the Last-In First-Out (LIFO) charge. |
The Company defines FIFO gross margin as FIFO gross profit divided by sales.
The Company defines FIFO operating profit as operating profit excluding the LIFO charge.
The Company defines FIFO operating margin as FIFO operating profit divided by sales.
The above FIFO financial metrics are important measures used by management to evaluate operational effectiveness. Management believes these FIFO financial metrics are useful to investors and analysts because they measure our day-to-day operational effectiveness.
| (a) | Merchandise<br> costs ("COGS") and operating, general and administrative expenses ("OG&A")<br> exclude depreciation and amortization expense and rent expense which are included in separate<br> expense lines. |
|---|---|
| (b) | LIFO<br> charges of $4 and $148 were recorded in the second quarters of 2023 and 2022, respectively. For<br> the year to date period, LIFO charges of $102 and $240 were recorded for 2023 and 2022, respectively. |
| --- | --- |
8
Table2.
THEKROGER CO.
CONSOLIDATEDBALANCE SHEETS
(in millions)
(unaudited)
| August 12, | August 13, | |||
|---|---|---|---|---|
| 2023 | 2022 | |||
| ASSETS | ||||
| Current Assets | ||||
| Cash | $ | 263 | $ | 251 |
| Temporary cash investments | 2,157 | 851 | ||
| Store deposits in-transit | 1,141 | 1,087 | ||
| Receivables | 1,820 | 1,869 | ||
| Inventories | 6,828 | 7,315 | ||
| Prepaid and other<br> current assets | 642 | 536 | ||
| Total current assets | 12,851 | 11,909 | ||
| Property, plant and equipment, net | 24,894 | 24,118 | ||
| Operating lease assets | 6,697 | 6,771 | ||
| Intangibles, net | 885 | 917 | ||
| Goodwill | 2,916 | 3,076 | ||
| Other assets | 1,959 | 1,950 | ||
| Total Assets | $ | 50,202 | $ | 48,741 |
| LIABILITIES AND SHAREOWNERS' EQUITY | ||||
| Current Liabilities | ||||
| Current portion of long-term debt including<br> obligations under finance leases | $ | 716 | $ | 789 |
| Current portion of operating lease liabilities | 669 | 656 | ||
| Trade accounts payable | 7,597 | 7,446 | ||
| Accrued salaries and wages | 1,182 | 1,356 | ||
| Other current liabilities | 6,373 | 6,319 | ||
| Total current liabilities | 16,537 | 16,566 | ||
| Long-term debt including obligations under finance leases | 12,075 | 12,488 | ||
| Noncurrent operating lease liabilities | 6,369 | 6,449 | ||
| Deferred income taxes | 1,452 | 1,522 | ||
| Pension and postretirement benefit obligations | 419 | 439 | ||
| Other long-term liabilities | 2,746 | 1,638 | ||
| Total Liabilities | 39,598 | 39,102 | ||
| Shareowners' equity | 10,604 | 9,639 | ||
| Total Liabilities<br> and Shareowners' Equity | $ | 50,202 | $ | 48,741 |
| Total common shares outstanding at end of period | 719 | 716 | ||
| Total diluted shares year-to-date | 725 | 730 |
9
Table3.
THEKROGER CO.
CONSOLIDATEDSTATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
| YEAR-TO-DATE | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
| Net earnings including<br> noncontrolling interests | $ | 783 | $ | 1,397 | ||
| Adjustments to<br> reconcile net earnings including noncontrolling interests to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 1,674 | 1,574 | ||||
| Operating lease asset amortization | 330 | 329 | ||||
| LIFO charge | 102 | 240 | ||||
| Stock-based employee compensation | 92 | 103 | ||||
| Company-sponsored pension plans | (6 | ) | (20 | ) | ||
| Deferred income taxes | (278 | ) | (40 | ) | ||
| Gain on the sale of assets | (43 | ) | (13 | ) | ||
| (Gain) loss on investments | (290 | ) | 429 | |||
| Other | 84 | 66 | ||||
| Changes in operating assets and liabilities: | ||||||
| Store deposits in-transit | (14 | ) | (5 | ) | ||
| Receivables | 227 | (10 | ) | |||
| Inventories | 630 | (774 | ) | |||
| Prepaid and other current assets | 68 | 115 | ||||
| Trade accounts payable | 478 | 330 | ||||
| Accrued expenses | (434 | ) | (407 | ) | ||
| Income taxes receivable and payable | 252 | (41 | ) | |||
| Operating lease liabilities | (378 | ) | (373 | ) | ||
| Other | 1,087 | (473 | ) | |||
| Net cash provided by operating activities | 4,364 | 2,427 | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
| Payments for property and equipment,<br> including payments for lease buyouts | (1,954 | ) | (1,430 | ) | ||
| Proceeds from sale of assets | 89 | 37 | ||||
| Other | 70 | 5 | ||||
| Net cash used by investing activities | (1,795 | ) | (1,388 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
| Payments on long-term debt including<br> obligations under finance leases | (708 | ) | (486 | ) | ||
| Dividends paid | (376 | ) | (307 | ) | ||
| Proceeds from issuance of capital stock | 36 | 119 | ||||
| Treasury stock purchases | (47 | ) | (975 | ) | ||
| Other | (69 | ) | (109 | ) | ||
| Net cash used by financing activities | (1,164 | ) | (1,758 | ) | ||
| NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH<br> INVESTMENTS | 1,405 | (719 | ) | |||
| CASH AND TEMPORARY CASH INVESTMENTS: | ||||||
| BEGINNING OF YEAR | 1,015 | 1,821 | ||||
| END OF PERIOD | $ | 2,420 | $ | 1,102 | ||
| Reconciliation of capital investments: | ||||||
| Payments for property and equipment,<br> including payments for lease buyouts | $ | (1,954 | ) | $ | (1,430 | ) |
| Payments for lease buyouts | - | 10 | ||||
| Changes in construction-in-progress<br> payables | 183 | (74 | ) | |||
| Total capital investments, excluding<br> lease buyouts | $ | (1,771 | ) | $ | (1,494 | ) |
| Disclosure of cash flow information: | ||||||
| Cash paid during the year for interest | $ | 308 | $ | 379 | ||
| Cash paid during the year for income<br> taxes | $ | 290 | $ | 432 |
10
Table4. Supplemental Sales Information
(in millions, except percentages)
(unaudited)
Items identified below should not be considered as alternatives to sales or any other GAAP measure of performance. Identical sales is an industry-specific measure, and it is important to review it in conjunction with Kroger's financial results reported in accordance with GAAP. Other companies in our industry may calculate identical sales differently than Kroger does, limiting the comparability of the measure.
IDENTICALSALES (a)
| SECOND QUARTER | YEAR-TO-DATE | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||||||
| EXCLUDING FUEL | $ | 29,534 | $ | 29,238 | $ | 69,108 | $ | 67,473 | ||||
| EXCLUDING FUEL (b) | 1.0 | % | 5.8 | % | 2.4 | % | 4.8 | % | ||||
| (a) | Kroger<br> defines identical sales, excluding fuel, as sales to retail customers, including sales from<br> all departments at identical supermarket locations, Kroger Specialty Pharmacy businesses,<br> jewelry and ship-to-home solutions. Kroger defines a supermarket as identical<br> when it has been in operation without expansion or relocation for five full quarters. Kroger<br> defines Kroger Specialty Pharmacy businesses as identical when physical locations have been<br> in operation continuously for five full quarters and discontinued patient therapies are excluded<br> from the identical sales calculation starting in the quarter of transfer or termination. We<br> define Kroger Delivery identical sales powered by Ocado based on geography. We<br> include Kroger Delivery sales powered by Ocado as identical if the delivery occurs in an<br> existing Kroger Supermarket geography. If the Kroger Delivery sales powered by<br> Ocado occur in a new geography, these sales are included as identical when deliveries have<br> occurred to the new geography for five full quarters. | |||||||||||
| --- | --- | |||||||||||
| (b) | Identical<br> sales without fuel would have grown 2.6% in the 2nd quarter and 4.0% year to date for 2023<br> if not for the reduction in pharmacy sales from the previously communicated termination of<br> our agreement with Express Scripts effective December 31, 2022. | |||||||||||
| --- | --- |
11
Table5. Reconciliation of Net Total Debt and
NetEarnings Attributable to The Kroger Co. to Adjusted EBITDA
(in millions, except for ratio)
(unaudited)
The items identified below should not be considered an alternative to any GAAP measure of performance or access to liquidity. Net total debt to adjusted EBITDA is an important measure used by management to evaluate the Company's access to liquidity. The items below should be reviewed in conjunction with Kroger's financial results reported in accordance with GAAP.
The following table provides a reconciliation of net total debt.
| August 12, | August 13, | ||||||
|---|---|---|---|---|---|---|---|
| 2023 | 2022 | Change | |||||
| Current portion of long-term debt including obligations<br> under finance leases | $ | 716 | $ | 789 | $ | (73 | ) |
| Long-term debt including obligations<br> under finance leases | 12,075 | 12,488 | (413 | ) | |||
| Total debt | 12,791 | 13,277 | (486 | ) | |||
| Less: Temporary cash investments | 2,157 | 851 | 1,306 | ||||
| Net total debt | $ | 10,634 | $ | 12,426 | $ | (1,792 | ) |
The following table provides a reconciliation from net earnings attributable to The Kroger Co. to adjusted EBITDA, as defined in the Company's credit agreement, on a rolling four quarter basis.
| ROLLING FOUR<br> QUARTERS ENDED | ||||||
|---|---|---|---|---|---|---|
| August 12, | August 13, | |||||
| 2023 | 2022 | |||||
| Net earnings attributable to The Kroger Co. | $ | 1,632 | $ | 2,442 | ||
| LIFO charge | 488 | 353 | ||||
| Depreciation and amortization | 3,065 | 2,890 | ||||
| Interest expense | 479 | 572 | ||||
| Income tax expense | 565 | 579 | ||||
| Adjustment for pension plan withdrawal liabilities | 25 | - | ||||
| Adjustment for company-sponsored pension plan settlement charges | - | 87 | ||||
| Adjustment for loss on investments | 9 | 649 | ||||
| Adjustment for Home Chef contingent consideration | 2 | 32 | ||||
| Adjustment for transformation costs (a) | - | 35 | ||||
| Adjustment for merger related costs (b) | 139 | - | ||||
| Adjustment for opioid settlement charges (c) | 1,560 | - | ||||
| Adjustment for goodwill and fixed asset impairment charges<br> related to Vitacost.com | 164 | - | ||||
| Other | (9 | ) | (5 | ) | ||
| Adjusted EBITDA | $ | 8,119 | $ | 7,634 | ||
| Net total debt to adjusted EBITDA ratio | 1.31 | 1.63 | ||||
| (a) | Transformation<br> costs primarily include costs related to third party professional fees associated with business<br> transformation and cost saving initiatives. | |||||
| --- | --- | |||||
| (b) | Merger<br> related costs primarily include third party professional fees and credit facility fees associated<br> with the proposed merger with Albertsons Companies, Inc. | |||||
| --- | --- | |||||
| (c) | Opioid<br> settlement charges include settlements with the nationwide opioid settlement framework and the<br> States of West Virginia and New Mexico. | |||||
| --- | --- |
12
Table6. Net Earnings Per Diluted Share Excluding the Adjustment Items
(in millions, except per share amounts)
(unaudited)
The purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on net earnings (loss) per diluted common share for certain items described below. Adjusted net earnings and adjusted net earnings per diluted share are useful metrics to investors and analysts because they present more accurately year-over-year comparisons for net earnings (loss) and net earnings (loss) per diluted share because adjusted items are not the result of normal operations. Items identified in this table should not be considered alternatives to net earnings (loss) attributable to The Kroger Co. or any other GAAP measure of performance. These items should not be reviewed in isolation or considered substitutes for the Company's financial results as reported in accordance with GAAP. Due to the nature of these items, as further described below, it is important to identify these items and to review them in conjunction with the Company's financial results reported in accordance with GAAP.
The following table summarizes items that affected the Company's financial results during the periods presented.
| SECOND QUARTER | YEAR-TO-DATE | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | ||||||||
| Net earnings (loss) attributable to The Kroger<br> Co. | $ | (180 | ) | $ | 731 | $ | 782 | $ | 1,394 | ||
| Adjustment for (gain) loss on investments (a)(b) | (282 | ) | (78 | ) | (223 | ) | 327 | ||||
| Adjustment for Home Chef contingent consideration (a)(c) | - | 8 | - | 14 | |||||||
| Adjustment for merger related costs (a)(d) | 47 | - | 81 | - | |||||||
| Adjustment for opioid settlement charges<br> (a)(e) | 1,114 | - | 1,163 | - | |||||||
| 2023 and 2022 Adjustment Items | 879 | (70 | ) | 1,021 | 341 | ||||||
| Net earnings attributable to The Kroger<br> Co. excluding the adjustment items above | $ | 699 | $ | 661 | $ | 1,803 | $ | 1,735 | |||
| Net earnings (loss) attributable to The Kroger Co. per diluted<br> common share | $ | (0.25 | ) | $ | 1.00 | $ | 1.07 | $ | 1.89 | ||
| Adjustment for (gain) loss on investments (f) | (0.39 | ) | (0.11 | ) | (0.31 | ) | 0.45 | ||||
| Adjustment for Home Chef contingent consideration (f) | - | 0.01 | - | 0.02 | |||||||
| Adjustment for merger related costs (f) | 0.06 | - | 0.11 | - | |||||||
| Adjustment for opioid settlement charges<br> (f) | 1.54 | - | 1.60 | - | |||||||
| 2023 and 2022 Adjustment Items | 1.21 | (0.10 | ) | 1.40 | 0.47 | ||||||
| Net<br> earnings attributable to The Kroger Co. per diluted common share excluding the adjustment items above | $ | 0.96 | $ | 0.90 | $ | 2.47 | $ | 2.36 | |||
| Average number of common shares used in diluted calculation | 725 | 725 | 725 | 730 |
13
Table6. Net Earnings Per Diluted Share Excluding the Adjustment Items (continued)
(in millions, except per share amounts)
(unaudited)
| (a) | The<br> amounts presented represent the after-tax effect of each adjustment. |
|---|---|
| (b) | The<br> pre-tax adjustments for (gain) loss on investments were ($367) and ($103) in the second quarters<br> of 2023 and 2022, respectively. The year-to-date pre-tax adjustments for (gain)<br> loss on investments were ($290) and $429 in the first two quarters of 2023 and 2022, respectively. |
| --- | --- |
| (c) | The<br> pre-tax adjustment to OG&A expenses for Home Chef contingent consideration was $10 in the second quarter of 2022. The<br> year-to-date pre-tax adjustments to OG&A expenses for Home Chef contingent consideration<br> was $18 in the first two quarters of 2022. |
| --- | --- |
| (d) | The<br> pre-tax adjustment to OG&A expenses for merger related costs was $54 in the second quarter of 2023. The<br> year-to-date pre-tax adjustments to OG&A expenses for merger-related costs was $94 in<br> the first two quarters of 2023. |
| --- | --- |
| (e) | The<br> pre-tax adjustment to OG&A expenses for opioid settlement charges was $1,413 in the second quarter of 2023. The year-to-date<br> pre-tax adjustments to OG&A expenses for opioid settlement charges was $1,475 in the<br> first two quarters of 2023. |
| --- | --- |
| (f) | The<br> amounts presented represent the net earnings (loss) per diluted common share effect of each<br> adjustment. |
| --- | --- |
| Note: | 2023 Second Quarter Adjustment Items include adjustments for the gain on investments, merger related costs and opioid settlement<br> charges. |
| --- | --- |
| 2023 Adjustment Items include the Second Quarter Adjustment<br> Items plus the adjustments that occurred in the first quarter of 2023 for loss on investments, merger related costs and opioid settlement<br> charges. | |
| 2022 Second Quarter Adjustment Items include adjustments<br> for the gain on investments and Home Chef contingent consideration adjustment. | |
| 2022 Adjustment Items include the Second Quarter Adjustment Items plus the adjustments that occurred in the first quarter of 2022<br> for loss on investments and Home Chef contingent consideration adjustment. |
14
Table7. Operating Profit Excluding the Adjustment Items
(in millions)
(unaudited)
The purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on operating profit (loss) for certain items described below. Adjusted FIFO operating profit is a useful metric to investors and analysts because it presents more accurately year-over-year comparisons for operating profit (loss) because adjusted items are not the result of normal operations. Items identified in this table should not be considered alternatives to operating profit (loss) or any other GAAP measure of performance. These items should not be reviewed in isolation or considered substitutes for the Company's financial results as reported in accordance with GAAP. Due to the nature of these items, as further described below, it is important to identify these items and to review them in conjunction with the Company's financial results reported in accordance with GAAP.
The following table summarizes items that affected the Company's financial results during the periods presented.
| SECOND QUARTER | YEAR-TO-DATE | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Operating profit (loss) | $ | (479 | ) | $ | 954 | $ | 991 | $ | 2,459 | |||
| LIFO charge | 4 | 148 | 102 | 240 | ||||||||
| FIFO Operating profit (loss) | (475 | ) | 1,102 | 1,093 | 2,699 | |||||||
| Adjustment for Home Chef contingent consideration | - | 10 | - | 18 | ||||||||
| Adjustment for merger related costs (a) | 54 | - | 94 | - | ||||||||
| Adjustment for opioid settlement charges (b) | 1,413 | - | 1,475 | - | ||||||||
| Other | (3 | ) | (2 | ) | (4 | ) | (6 | ) | ||||
| 2023 and 2022 Adjustment items | 1,464 | 8 | 1,565 | 12 | ||||||||
| Adjusted FIFO operating profit excluding<br> the adjustment items above | $ | 989 | $ | 1,110 | $ | 2,658 | $ | 2,711 | ||||
| (a) | Merger<br> related costs primarily include third party professional fees and credit facility fees associated<br> with the proposed merger with Albertsons Companies, Inc. | |||||||||||
| --- | --- | |||||||||||
| (b) | Opioid<br> settlement charges include settlements with the nationwide opioid settlement framework and the<br> State of West Virginia. | |||||||||||
| --- | --- |
15
Exhibit 99.2
KrogerReaches Agreement in Principlefor Nationwide Opioid Settlement
CINCINNATI, September 8, 2023 – The Kroger Co. (NYSE: KR) has reached an agreement in principle with plaintiffs to settle the majority of opioid claims that have been or could be brought against the Company by states, subdivisions, and Native American tribes.
Along with the execution of certain non-monetary conditions that remain in discussion, Kroger 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 (both to be paid over 11 years in equal installments), and approximately $177 million to cover attorneys’ fees and costs (to be paid over 6 years in equal installments). The timing of the settlement payments over multiple years, most of which are tax deductible, results in an after-tax net present value to Kroger of approximately $870 million. Initial payments would begin in December 2023. 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. This does not affect adjusted earnings per diluted share results for 2023, which are provided on a basis that excludes adjustment items.
States, subdivisions, and the Native American tribes will have an opportunity to opt-in to participate in the settlement, and Kroger will have full discretion to determine whether there is sufficient participation for the settlement to become effective. If all conditions are satisfied, the settlement would allow for the full resolution of all claims on behalf of participating states, subdivisions and tribes.
This is an important milestone in the Company’s efforts to resolve the pending opioid litigation and support abatement efforts. Kroger has long served as a leader in combatting opioid abuse and remains committed to patient safety.
This settlement is not an admission of wrongdoing or liability by Kroger and Kroger will continue to vigorously defend against any other claims and lawsuits relating to opioids that the final agreement does not resolve.
The Company will provide more detail on the settlement during its Second Quarter 2023 Earnings Call on Friday, September 8 at 10:00AM ET.
About Kroger
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 11 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.
This press release contains certain statements that constitute “forward-looking statements” about the agreement in principle and 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,” “committed,” “confidence,” “continue,” “expect,” “future,” “guidance,” “positions,” “strategy,” “will,” and “target”. Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements, including the risks relating to or arising from our proposed nationwide opioid litigation settlement, including our ability to finalize and effectuate the settlement, the scope and coverage of the ultimate settlement and the expected financial or other impacts that could result from the settlement. See also the risk factors identified in “Risk Factors” in our annual report on Form 10-K for our last fiscal year and any subsequent filings.
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.
Media Contact
Erin Rolfes
Director, Corporate Communications & Media Relations
erin.rolfes@kroger.com
Investor Contact
Rob Quast
Senior Director of Investor Relations
investorrelations@kroger.com
Exhibit 99.3
Kroger and Albertsons Companies Announce ComprehensiveDivestiture Plan with C&S Wholesale Grocers, LLCin Connection with Proposed Merger
Plan Marks Key Step in Merger Process
Both the Kroger and Albertsons Cos. Combinationand the Divestiture Sale to C&S will Create Meaningful and Measurable Benefits for Associates, Customers and Communities
Agreement with C&S Includes Sale of 413Stores, 8 Distribution Centers,2 Offices and 5 Private Label Brands Across 17 States and the District of ColumbiaExtending a Well-Capitalized Competitor into New Geographies
Agreement Includes Sale of the QFC, Mariano’sand Carrs Brand Names and the Exclusive Licensing Rights to the Albertsons Brand Name in Arizona, California, Colorado and Wyoming
C&S, an Industry Leader in Wholesale GrocerySupply and One of the LargestPrivately Held Companies in the United States, Brings 104 Years of Food Industry Experienceand a Track Record as a Successful Grocery Retailer
C&S Agrees to Maintain Collective BargainingAgreements, Securing the Future of Union Jobs
Merger Remains on Track to Close in Early 2024,Subject to Regulatory Clearance and Other Closing Conditions
CINCINNATI and BOISE (September 8, 2023) – The Kroger Co. (NYSE: KR) and Albertsons Companies Inc. (NYSE: ACI) announced today that they have entered a definitive agreement with C&S Wholesale Grocers, LLC for the sale of select stores, banners, distribution centers, offices and private label brands in connection with their proposed merger previously announced on October 14, 2022.
The proposed merger will create meaningful and measurable benefits for America’s consumers, Kroger and Albertsons associates, and communities that both Kroger and Albertsons serve by expanding access to fresh, affordable food and establishing a more compelling alternative to large, non-union retailers. This comprehensive divestiture plan marks a key next step toward the completion of the merger by extending a well-capitalized competitor into new geographies. The divestiture plan ensures no stores will close as a result of the merger and that all frontline associates will remain employed, all existing collective bargaining agreements will continue, and associates will continue to receive industry-leading health care and pension benefits alongside bargained-for wages.
C&S is an industry leader in wholesale grocery supply and supply chain solutions, with a strong track record as a successful grocery retailer. Founded in 1918 as a supplier to independent grocery stores, C&S services customers of all sizes, supplying more than 7,500 independent supermarkets, retail chain stores and military bases. Grounded in its commitment to feeding families across America, C&S currently operates Grand Union grocery stores and Piggly Wiggly^®^ franchise and corporate-owned stores in the Midwest and Carolinas. C&S is deeply invested in the communities where it operates, and this retail expansion will continue its long-standing mission to keep communities fed. Through its wholesale and retail operations, C&S purchases more than 100,000 products, giving it the ability to provide customers with the best product selection and pricing available. In addition to its franchise and corporate owned supermarkets, C&S provides end-to-end wholesale, supply and marketing services to its retailer customers. C&S also brings experience with the merger process, having been an FTC-approved divestiture buyer in prior grocery transactions with a strong track record of successfully transitioning union employees and their associated collective bargaining agreements. In anticipation of the agreement, C&S’s 1918 Winter Street Partners retail holding company has been established to ensure a seamless closing process. C&S’s depth of industry knowledge, financial strength and commitment to growing its associates’ careers makes it the right fit to ensure the divested stores, distribution centers and offices grow and thrive for years to come.
1
“Following the announcement of our proposed merger with Albertsons Cos., we embarked on a robust and thoughtful process to identify a well-capitalized buyer who will operate as a fierce competitor and ensure divested stores and their associates will continue serving their communities in the ways they do today. C&S achieves all these objectives,” said Rodney McMullen, chairman and CEO of The Kroger Co. “C&S is led by an experienced management team with an extensive background in food retail and distribution and has the financial strength to continue investing in associates and the business for the long run. Importantly in our agreement, C&S commits to honoring all collective bargaining agreements which include industry-leading benefits, retaining frontline associates and further investing for growth.”
McMullen continued, “We appreciate our incredible associates who support and serve our customers and communities, and who help both of our companies succeed. C&S will offer exciting opportunities for associates to advance their careers – from frontline associates and store leaders to merchants and other professionals. We are confident the associates joining the C&S family will have an amazing opportunity to continue to build a thriving career in the food industry in one of the largest private companies in our country. C&S’s strong operational focus and financial resources, along with a comprehensive operational infrastructure included as part of the divestiture agreement, will position it to successfully operate and continue to grow these iconic brands for years to come. C&S is a values-driven organization that is committed to ending hunger while creating healthier communities – now and for future generations.”
The divestiture plan fulfills the commitments Kroger and Albertsons Cos. set out in their original merger agreement in October 2022 with regard to divesting stores, including:
| · | Extending a competitor to new geographies through the sale of stores to a<br>well-capitalized buyer that is led by seasoned operators with a strong balance sheet and a sound business plan; |
|---|---|
| · | Ensuring that no stores will close as a result of the merger; |
| · | Maintaining all current collective bargaining agreements, which include industry-leading<br>healthcare and pension benefits, bargained-for wages, and ensuring frontline associates remain employed; and |
| · | Committing to invest in associates and stores for the long term. |
Kroger took several steps to ensure a thoughtful and comprehensive divestiture plan. The terms of the plan support C&S’s ability to operate divested stores effectively and efficiently by providing:
| · | Strong teams, with deep industry expertise and the ability to operate at<br>scale, and to drive growth and operational advancements in the divested business; |
|---|---|
| · | A cohesive set of stores in each geography supported by two regional headquarters<br>as well as banners, and private label brands with strong consumer recognition that will provide C&S with an established base on which<br>to grow its store network; and |
| · | A robust operational infrastructure, including distribution centers and offices<br>to support both the immediate and long-term success of the divested business. |
“I have long respected C&S and its leadership team,” said Vivek Sankaran, CEO of Albertsons Companies. “I am thrilled that C&S’s outstanding capabilities and financial strength will ensure these divestiture stores can continue to grow and serve their communities as they do today. Most importantly, they have made a clear commitment to continuing to invest in and care for associates, including by honoring all collective bargaining agreements currently in place. I echo Rodney’s confidence in the bright future ahead for the associates joining the C&S team.”
2
“We look forward to welcoming thousands of new associates to the C&S family and providing them the opportunity to build long and successful careers,” said Eric Winn, Chief Operating Officer and designated Chief Executive Officer (effective October 2) of C&S Wholesale Grocers. “As a leader in the grocery industry, we have a strong heritage of value and customer service that is enabled by a deep commitment to our consumers, employees and communities. Today’s announcement is another exciting opportunity for C&S to further expand into the retail market, which is an important component of our growth and future success. We look forward to providing a superior shopping experience that delivers both quality and value to our customers.”
Transaction Details
The divestiture transaction includes 413 stores, along with QFC, Mariano’s and Carrs brand names. Stores currently under these banners that are retained by Kroger will be re-bannered into one of the retained Kroger or Albertsons Cos. banners following the close of the transaction. In the four states where C&S will have the license to the Albertsons banner, Kroger will re-banner the retained stores following the close of the merger with Albertsons Cos. Kroger will maintain the Albertsons banner in the remaining states. In addition, Kroger will divest the Debi Lilly Design, Primo Taglio, Open Nature, ReadyMeals and Waterfront Bistro private label brands.
The number of stores contained in the divestiture plan by geography is as follows:
| · | WA: 104 Albertsons Cos. and Kroger stores |
|---|---|
| · | CA: 66 Albertsons Cos. and Kroger stores |
| · | CO: 52 Albertsons Cos. stores |
| · | OR: 49 Albertsons Cos. and Kroger stores |
| · | TX/LA: 28 Albertsons Cos. stores |
| · | AZ: 24 Albertsons Cos. stores |
| · | NV: 15 Albertsons Cos. stores |
| · | IL: 14 Kroger stores |
| · | AK: 14 Albertsons Cos. stores |
| · | ID: 13 Albertsons Cos. stores |
| · | NM: 12 Albertsons Cos. stores |
| · | MT/UT/WY: 12 Albertsons Cos. stores |
| · | DC/MD/VA: 10 Harris Teeter stores |
The above stores (regardless of banner) will be divested by Kroger following the closing of the merger with Albertsons Cos.
Additional Terms of the Transaction
The definitive purchase agreement has customary representations and warranties and covenants of a transaction of its type. The transaction also provides a comprehensive operational infrastructure including eight distribution centers, two offices, five private label brands, and expert district, division and functional associates, to ensure C&S can continue to operate the divested stores competitively and cohesively with no disruption to the associate or customer experience. All fuel centers and pharmacies associated with the divested stores will remain with the stores and continue to operate.
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Subject to fulfillment of customary closing conditions, including FTC and other governmental clearance, and the completion of the Kroger-Albertsons merger, C&S will pay Kroger an all-cash consideration of approximately $1.9 billion, including customary adjustments.
Prior to the closing, Kroger may, in connection with securing FTC and other governmental clearance, require C&S to purchase up to an additional 237 stores in certain geographies. If additional stores are added to the transaction, C&S will pay to Kroger additional cash consideration based upon an agreed upon formula.
As a result of the comprehensive divestiture plan announced with C&S, Kroger has exercised its right under the merger agreement to sell what would have been the SpinCo business to C&S. Consequently, the spin-off previously contemplated by Kroger and Albertsons Cos. is no longer a requirement under the merger agreement and will no longer be pursued by Kroger and Albertsons Cos.
Merger creates meaningful benefits for customers, associates andcommunities
The divestiture plan is another key step toward the completion of the proposed merger between Kroger and Albertsons Companies. The combination will bring together two complementary companies and create meaningful and measurable benefits for customers, associates and communities. The combination will advance Kroger’s Leading with Fresh,Accelerating with Digital strategy, which is grounded in Fresh, Our Brands, personalization and seamless. By doing so, the combined company will continue to invest in improving the customer experience and serving more communities across the country with fresh, affordable food. With a family of well-known, trusted brands, the combined company will offer customers lower prices and more choices for the fresh foods customers need, want and love – all with a seamless, omnichannel shopping experience.
The combination will allow Kroger and Albertsons Cos. to unlock significant benefits, including:
| · | Advancing a Brighter Future for Our Associates. The combined company<br>will benefit associates seeking to grow their careers. Kroger added more than 100,000 good-paying union jobs since 2012, and it anticipates<br>continuing on this trajectory. The retailer committed to investing $1 billion in improving associates’ wages and comprehensive benefits<br>post close. This commitment builds on the $1.9 billion in incremental investments Kroger made in wages and comprehensive benefits since<br>2018. The combined company has also committed to providing associates with programs aimed at continuing education and financial literacy<br>following the completion of the merger. The combination will create a compelling alternative to large, non-union competitors. |
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| · | **Serving More of America with Fresh, High-Quality and Affordable Food.**Kroger built its business model on a foundation of bringing customers lower prices and more choices for the foods their families need<br>to thrive. The retailer committed to investing $500 million beginning day one post close to reduce prices for customers in stores across<br>the U.S. An incremental $1.3 billion will also be invested to enhance the customer experience. The combination advances Kroger’s<br>work to make its products more affordable and accessible to more families, ultimately supporting a food system that will feed people across<br>the U.S. for years to come. |
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| · | Driving Meaningful Improvements Where It Matters Most. The combination<br>will create more opportunities to invest in communities across America as the company continues its journey to eliminate hunger and food<br>waste. In June 2023, Kroger announced its commitment to donate 10 billion meals as<br>a combined company upon completion of the proposed merger to families across the country by 2030. Putting this commitment into<br>context, ten billion meals are enough to feed every person in the cities of Seattle, Denver, Chicago and Boston every meal, every day,<br>for nearly two years. As a result of a strategic focus on donating surplus fresh food and charitable giving, the combined company will<br>accelerate its ability to feed its neighbors and reduce waste, especially food waste. |
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The merger remains on track to close in early 2024, subject to the receipt of required regulatory clearance and other customary closing conditions, including receipt of clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Kroger and Albertsons Cos. remain committed to working cooperatively with the regulators and all other interested parties to complete the transaction and unlock the many benefits it offers.
Read more about the combined company’s commitment to customers, associates and communities at www.krogeralbertsons.com
Kroger Second Quarter 2023 Earnings Results and Conference Call
In a separate press release issued today, Kroger reported its second quarter 2023 results.
Kroger's quarterly conference call with investors will be broadcast as scheduled at 10 a.m. (ET) on September 8, 2023 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Friday, September 8, 2023.
Advisors
Citi and Wells Fargo Securities, LLC are serving as financial advisors and Weil, Gotshal & Manges LLP and Arnold & Porter Kaye Scholer LLP are serving as legal counsel to Kroger.
Goldman Sachs & Co. LLC and Credit Suisse are serving as financial advisors and Jenner & Block LLP is serving as corporate legal counsel and White & Case LLP and Debevoise & Plimpton LLP are serving as antitrust legal counsel to Albertsons Cos.
About Kroger
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 11 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.
About AlbertsonsCompanies, Inc.
Albertsons Companies is a leading food and drug retailer in the United States. As of June 17, 2023, the Company operated 2,272 retail food and drug stores with 1,726 pharmacies, 401 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities. The Company operates stores across 34 states and the District of Columbia with 24 banners including Albertsons, Safeway, Vons, Jewel-Osco, Shaw's, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci's Food Lovers Market. The Company is committed to helping people across the country live better lives by making a meaningful difference, neighborhood by neighborhood. In 2022, along with the Albertsons Companies Foundation, the Company contributed more than $200 million in food and financial support, including more than $40 million through our Nourishing Neighbors Program to ensure those living in our communities and those impacted by disasters have enough to eat.
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About C&S Wholesale Grocers, LLC
C&S Wholesale Grocers, LLC is an industry leader in supply chain solutions and wholesale grocery supply in the United States. Founded in 1918 as a supplier to independent grocery stores, C&S now services customers of all sizes, supplying more than 7,500 independent supermarkets, chain stores, military bases and institutions with over 100,000 different products. We are an engaged corporate citizen, supporting causes that positively impact our communities. To learn more, please visit www.cswg.com.
This press release contains certain statements that constitute “forward-looking statements” within the meaning of federal securities laws, including statements regarding the effects of the proposed transaction and divestiture plan. These statements are based on the assumptions and beliefs of Kroger and Albertsons Cos. management in light of the information currently available to them. Such statements are indicated by words or phrases such as “accelerate,” “anticipates,” “create,” “committed,” “confident,” “continue,” “deliver,” “driving,” “expect,” “future,” “guidance,” “positioned,” “strategy,” “target,” “synergies,” “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 each of Kroger’s and Albertsons Cos.’ annual report on Form 10-K for the last fiscal year and any subsequent filings, as well as the following: the expected timing and likelihood of completion of the proposed transaction and divestiture plan, including the timing, receipt and terms and conditions of any required governmental and regulatory clearance of the proposed transaction and divestiture plan; the impact of the proposed divestiture plan; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement or divestiture agreement; the outcome of any legal proceedings that may be instituted against the parties and others following announcement of the merger agreement and proposed transaction or divestiture plan; the inability to consummate the proposed transaction or divestiture plan due to the failure to satisfy other conditions to complete the proposed transaction or divestiture plan; risks that the proposed transaction disrupts current plans and operations of Kroger and Albertsons Cos.; the ability to identify and recognize the anticipated benefits of the proposed transaction, including expectations and synergies; the amount of the costs, fees, expenses and charges related to the proposed transaction or divestiture plan; and the ability of Kroger and Albertsons Cos. to successfully integrate their businesses and related operations; the ability of Kroger to maintain an investment grade credit rating; risks related to the potential impact of general economic, political and market factors on the companies or the proposed transaction. The ability of Kroger and Albertsons Cos. to achieve the goals for the proposed transaction may also be affected by their ability to manage the factors identified above.
The forward-looking statements by Kroger and Albertsons Cos. included in this press release speak only as of the date the statements were made. Neither Kroger nor Albertsons Cos. assumes the obligation to update the information contained herein unless required by applicable law. Please refer to the reports and filings of Kroger and Albertsons Cos. with the Securities and Exchange Commission for a further discussion of the risks and uncertainties that affect them and their respective businesses.
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Media Contacts
Kroger
Erin Rolfes
Director, Corporate Communications & Media Relations
erin.rolfes@kroger.com
AlbertsonsCompanies
Daphne Avila
Vice President, External Communications
media@albertsons.com
C&SWholesale Grocers
Lauren La Bruno
Vice President of Communications, Change Management and Community Relations
C&S Wholesale Grocers, LLC
CSComm@cswg.com
Investor Contacts
Kroger
Rob Quast
Senior Director of Investor Relations
investorrelations@kroger.com
AlbertsonsCompanies
Melissa Plaisance
Senior Vice President, Investor Relations, Treasury and Risk Management
Investor-relations@albertsons.com
C&S WholesaleGrocers
Julie Drake
Vice President, Assistant Treasurer
IR@cswg.com
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