A nationwide opioid settlement weighed down Kroger’s second quarter earnings.
The Cincinnati-based retailer had a $1.4 billion opioid settlement tagged to its recent financial sheet, and total company sales — $33.9 billion — were down compared to Q2 2022 when they were $34.6 billion. Sales excluding fuel, however, did increase 1.1% year-over-year.
“The strength and diversity of Kroger's business model is delivering consistent results in what remains a challenged environment,” said Kroger Chairman and CEO Rodney McMullen.
“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 value, managing costs, and growing alternative profit businesses.”
Gross margin came in at 21.8% during the second quarter, and Kroger’s operating profit recorded a loss of $479 million compared to a $954 million profit a year ago. Fuel operating profit was down $192 million year-over-year.
“Looking forward, we believe inflation will continue to decelerate and the environment will remain challenging for consumers,” said Kroger Chief Financial Officer Gary Millerchip. “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.
Kroger’s forecast for FY 2023 remains unchanged. The grocer is looking at identical sales growth without fuel to fall between 1% and 2%, with underlying growth coming in at 2.5% to 3.5% after adjusting for the effect of Express Scripts. Adjusted operating profit remains at $5-$5.2 billion. Capital expenditures are expected to be $3.4-$3.6 billion.
Kroger also accelerated its “Fresh Produce” initiative during the second quarter, with 1,940 stores now certified.
Digital delivery sales increased 24% year-over-year, and Kroger increased digitally engaged households by about 1.2 million compared to Q2 2022.