Kroger is 'committed' to defending the Albertsons merger, and stock surges

By Tomi Kilgore

Earnings and same-store sales beat expectations, and full-year profit outlook is upbeat

Shares of Kroger Co. were having their best day in two years on Thursday, after the grocery chain reported quarterly profit beat expectations, and said it remains committed to its proposed purchase of Albertsons Companies Inc. despite pushback from regulators.

The company's comment about the Albertsons merger comes about a week after the U.S. Federal Trade Commission sued to block the merger, saying it would reduce competition, raise grocery prices and hurt workers. Several states have joined the FTC's suit.

"While we were disappointing about the FTC's recent attempt to challenge the our merger, we were not surprised given the current political environment," said Chief Executive Rodney McMullen, according to a FactSet transcript of the post-earnings call with analysts.

He said Kroger's track record in previous mergers has been to lower prices, invest in its employees and improve the customer experience.

"The character of a company is clear in its actions, regardless of what others claim," McMullen said. "We know this merger will result in a secure future for union jobs," he added.

Kroger's stock (KR) shot up 8.1% in morning trading, enough to pace the S&P 500 index's SPX gainers.

It was headed for the biggest one-day gain since it soared 11.6% on March 3, 2022, and for the highest close since May 10, 2022.

McMullen noted that the merger can't close while the lawsuits are pending. While hearing dates have not yet bet set, he expects them to proceed in the mid- to late-summer.

For the fiscal fourth quarter through January, net income rose to $736 million, or $1.01 a share, from $450 million, or 62 cents a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share of $1.34 beat the FactSet consensus of $1.13.

Sales grew 6.4% to $37.064 billion, in line with the FactSet consensus of $37.067 billion, while the 0.8% decrease in same-store sales beat expectations of a 1.4% decline.

Gross margin improved to 22.7% from 21.8% a year ago.

For 2024, Kroger expects adjusted EPS of $4.30 to $4.50, compared with the FactSet consensus of $4.30.

"In 2024, we expect to grow revenue by delivering value for customers and enhancing our seamless shopping experience," said Interim Chief Financial Officer Todd Foley. "We plan to balance investments in our business, including lowering prices and increasing associate wages, with productivity and cost savings initiatives, improvement on long-term initiatives in gross margin and growth in our alternative profit businesses."

The stock has run up 19.4% year to date, while the S&P 500 has tacked on 7.9%.

-Tomi Kilgore

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03-07-24 1117ET

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