Release Date: March 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The Kroger Co (KR, Financial) delivered strong financial results in 2024, demonstrating positive momentum and positioning the company well for growth in 2025.
• Digital sales were robust, with more than $13 billion in sales, and profitability in the digital channel improved notably in the fourth quarter.
• The company's 'Our Brands' product line expanded significantly, with over 900 new products introduced in 2024, contributing to strong sales and customer loyalty.
• Kroger's alternative profit businesses, including media and health, delivered solid results, generating $1.35 billion in operating profit.
• The company plans to accelerate new store openings, with 30 major projects expected in 2025, supporting long-term growth and market share improvement.

Negative Points

• The Kroger Co (KR) experienced pressure on spending from budget-conscious households due to multiyear inflation and higher interest rates.
• Fuel sales were lower compared to the previous year, impacting overall profitability due to fewer gallons sold and lower average retail prices.
• The company's alternative profit businesses fell short of initial growth expectations in 2024, partly due to slower growth in advertiser spend.
• Inflationary pressures, particularly in fresh commodities like eggs, continue to challenge the business, with egg inflation reaching approximately 70% during the quarter.
• The company faces ongoing challenges in improving digital profitability, with a need to enhance cost efficiency in both pickup and delivery channels.

Q & A Highlights

Q: Can you break down the expected EBIT growth for 2025 between the core business and alternative profit streams? Also, how is the CEO succession process being approached? A: Todd Foley, Interim CFO, stated that EBIT growth is expected to be around 3%, with contributions from both the core business and alternative profit streams. The alternative profit business is expected to perform better than in 2024. Ronald Sargent, CEO, mentioned that the Board is conducting a search for a new CEO, considering both internal and external candidates, to drive Kroger's growth and shareholder value.

Q: How is Kroger planning to improve digital profitability, and what role does retail media growth play in this? A: Todd Foley explained that Kroger saw sequential improvement in digital profitability in Q4 2024, with progress in both pickup and delivery channels. The company is focusing on automation, new technology, and improved density to enhance profitability. Retail media growth is a key lever for generating value and offsetting investments in pricing.

Q: With the 2025 ID sales guidance, are volumes expected to be flat or down, and what are the reasons for this? A: Todd Foley noted that the ID sales guidance considers flat to slightly up volumes, with ongoing sequential improvement expected to turn positive during the year. The core business is expected to grow, with pharmacy contributing to overall growth. The flat EPS in Q1 is due to year-over-year OG&A items and a return to normal union pension expenses.

Q: What are the expectations for digital growth and profitability improvements in 2025, and when might shed openings accelerate? A: Todd Foley expects continued improvement in digital growth and profitability in 2025, with incremental improvements across various areas. Shed openings will accelerate once profitability reaches expected levels and new sheds can start at a scalable volume level.

Q: How is Kroger addressing potential impacts from tariffs, and what is the exposure? A: Todd Foley stated that Kroger has limited exposure to international tariffs, with some impact on the Fresh business, particularly produce. The company is proactively diversifying its supplier base to mitigate tariff effects and keep prices low for customers.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.