EPS of $0.64 decreased by 37.3% from previous year
Gross margin of 20.3%
Net income of 466.00M
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The Kroger Co (0JS2.L) QQ2 2024 Results Analysis – Revenue Decline and Margin Pressure in US Grocery
Executive Summary
The Kroger Co reported QQ2 2024 results that show a material year-over-year and quarter-over-quarter decline in revenue, accompanied by meaningful compression in profitability. Revenue came in at $33.912 billion, down 8.5% year over year and 25.1% quarter over quarter, with gross profit of $6.90 billion and a gross margin of 20.35%. Operating income was $0.963 billion (2.84% margin) and net income was $0.466 billion ($0.64 per share). Despite a challenging top line, the company generated positive operating cash flow of $1.122 billion and free cash flow of $0.247 billion, funded in part by capital discipline (CapEx of $0.875 billion) and modest cash returns (dividends of $0.210 billion and share repurchases of $0.013 billion). Net debt stood at approximately $16.6 billion, with a total debt load of $19.38 billion. Liquidity remains constrained, as evidenced by a current ratio of 0.87 and a negative working capital position, suggesting near-term balance sheet pressure if earnings volatility persists.
From a qualitative standpoint, management commentary (where available in the dataset) is not included in the provided transcript. The results point to ongoing margin pressure in a highly competitive U.S. grocery landscape, with continued emphasis on cost efficiency, mix optimization, and disciplined capital allocation as key levers for sustaining cash generation and deleveraging over time. Investors should monitor: (i) progress on cost containment initiatives and supply-chain resilience, (ii) trajectory of gross, operating, and net margins in the back half of 2024 and into 2025, (iii) mix effects from banner strategy and fuel/ loyalty programs, and (iv) working capital dynamics and financing costs amid a high-debt profile.
Capital allocation and cash flow:
- Operating cash flow: $1.122B; CapEx: $0.875B; Free cash flow: $0.247B
- Net cash from operating activities: $1.122B; Net cash used in investing activities: $0.891B; Net cash used in financing activities: $0.294B
- Dividends paid: $0.210B; Share repurchases: $0.013B; Net debt: ~$16.60B; Debt: ~$19.38B
Balance sheet health:
- Cash and equivalents: $2.786B; Short-term investments: $1.091B; Total cash and equivalents: ~$3.877B
- Total assets: $51.443B; Total liabilities: $38.931B; Total stockholders’ equity: $12.518B
- Current assets: $14.063B; Current liabilities: $16.132B; Quick ratio: 0.46; Current ratio: 0.87
- Inventory: $6.643B; Accounts receivable: $2.149B; Accounts payable: $10.344B
- Debt composition: Short-term debt $0.862B; Long-term debt $18.519B; Interest coverage ~9.7x
Valuation and efficiency:
- P/E: 20.6x; P/S: 1.13x; P/B: 3.07x; Dividend yield: 0.55%
- Free Cash Flow to debt and cash flow coverage metrics imply moderate cash generation relative to leverage in the near term.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
33.91B
-8.50%
-25.09%
Gross Profit
6.90B
-10.30%
-24.73%
Operating Income
963.00M
-31.26%
-34.45%
Net Income
466.00M
-36.16%
-50.79%
EPS
0.64
-37.25%
-50.77%
Key Financial Ratios
currentRatio
0.87
grossProfitMargin
22.6%
operatingProfitMargin
2.4%
netProfitMargin
1.37%
returnOnAssets
0.91%
returnOnEquity
3.72%
debtEquityRatio
1.55
operatingCashFlowPerShare
$1.55
freeCashFlowPerShare
$0.34
dividendPayoutRatio
45.1%
priceToBookRatio
3.07
priceEarningsRatio
20.63
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Earnings transcript unavailable in the provided data. As a result, management quotes and thematic highlights from the QQ2 2024 call cannot be cited here. The analysis relies on the disclosed financials and ratio data. If and when the transcript is provided, a separate section can be added with categorized quotes by themes (strategy, operations, market conditions) and their implications.
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Forward Guidance
No explicit forward-looking guidance is contained within the supplied dataset. Given the top-line decline and margin compression observed in QQ2 2024, the likely near-term focus areas for Kroger include cost reduction initiatives, efficiency improvements in digital and logistics, and optimizing the banner mix to preserve gross margins. Investors should watch for: (i) any updated guidance on gross margin trajectory and operating expense management, (ii) liquidity and debt reduction targets given the elevated leverage, (iii) progress in omnichannel growth and loyalty program effectiveness, (iv) capital allocation discipline (dividends vs. buybacks vs. strategic investments). The achievability of margin expansion hinges on successful cost containment, favorable product mix, and stabilization of promotional activity amid competitive pricing. The key factors to monitor are operating leverage as revenue stabilizes and the pace of deleveraging in the context of macroeconomic dynamics and input costs.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
0JS2.L Focus
20.35%
2.40%
3.72%
20.63%
0J1R.L
41.00%
41.00%
-91.30%
14.34%
0HLQ.L
1.00%
40.70%
2.86%
9.85%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
The QQ2 2024 results depict a difficult near-term earnings backdrop for The Kroger Co, with revenue declines and margin compression contrasted by still-positive cash flow generation. The stock’s relative valuation (P/E around 20.6x) reflects a premium placed on Kroger’s scale and defensive positioning, but the earnings trajectory will hinge on successful cost optimization, margin stabilization, and growth in digital channels. The investment thesis rests on (i) durable cash flow potential from a large grocery footprint and fuel network, (ii) meaningful opportunities to lift margins through cost savings and operational efficiency, and (iii) continued strength of loyalty-driven basket growth. Key catalysts include better cost visibility, execution of efficiency initiatives, and moderation of promotional intensity that supports margin recovery. Investors should monitor leverage trajectory, working capital dynamics, and progress in omnichannel expansion while weighing the current beta against broader consumer staple benchmarks and sector peers. Given the near-term softness in revenue and margin, a cautious stance with a focus on debt reduction and cash-flow optimization is prudent until margin restoration proves durable.
Key Investment Factors
Growth Potential
Growth potential centers on improving operating leverage through cost savings, optimization of store formats and banner exposure, expansion of digital and e-commerce channels, and enhanced loyalty-driven basket size. Long-term revenue growth could be supported by private-label expansion, fuel-network synergies, and continued supply-chain efficiency gains.
Profitability Risk
Key risks include sustained margin compression from aggressive competitive pricing in the U.S. grocery sector, elevated input and labor costs, debt-servicing pressure given a high gross leverage, potential working capital volatility, and macro headwinds affecting consumer discretionary spending. Liquidity risk is present given current ratio below 1 and negative working capital, requiring ongoing capital discipline.
Financial Position
The balance sheet shows strong cash reserves (approx. $3.88B collectively) but a heavy debt load ($19.38B) and net debt of ~$16.60B, with a debt-to-capitalization of ~60.8%. Interest coverage around 9.7x provides a healthy cushion, but the near-term liquidity profile (current ratio ~0.87) signals sensitivity to earnings volatility. Free cash flow generation ($0.247B) is modest relative to leverage, suggesting a gradual deleveraging path is needed to improve financial flexibility.
SWOT Analysis
Strengths
Large scale and diversified banner strategy across the U.S. grocery landscape, creating extensive market reach.
Robust cash flow generation in a challenging environment, enabling capital distribution through dividends and modest buybacks.
Extensive store networks, private-label opportunities, and a fuel network that can support seamless omnichannel experiences.
Weaknesses
Thin operating margins in the QQ2 2024 period (operating margin ~2.84%), highlighting margin pressure from competitive pricing.
Liquidity position is tight with current ratio below 1 and negative working capital, increasing balance sheet sensitivity to earnings volatility.
High debt burden relative to equity, elevating financial risk in a rising rate environment.
Opportunities
Digital transformation and e-commerce growth to capture online grocery share and loyalty-driven spend.
Optimization of banner mix, supply chain efficiency, and cost-reduction programs to improve gross and operating margins.
Expansion of loyalty programs and private-label offerings to strengthen basket size and margins.
Threats
Intense competition from discounters and broad retailers pressuring price/margin structures.