UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 20, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to         

Commission file number 1-303

The Kroger Co.

(Exact name of registrant as specified in its charter)

Ohio	31-0345740
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1014 Vine Street, Cincinnati, Ohio 45202

(Address of principal executive offices)

(Zip Code)

(513) 762-4000

(Registrant’s telephone number, including area code)

Unchanged

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common, $1.00 Par Value	KR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No  ☒.

There were 717,745,520 shares of Common Stock ($1 par value) outstanding as of June 20, 2023.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	First Quarter Ended
	May 20,		May 21,
(In millions, except per share amounts)	2023		2022
Sales	$	45,165	$	44,600
Operating expenses
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below		35,080		34,952
Operating, general and administrative		7,393		6,997
Rent		265		256
Depreciation and amortization		957		890
Operating profit		1,470		1,505
Other income (expense)
Interest expense		(153)		(177)
Non-service component of company-sponsored pension plan benefits		9		16
Loss on investments		(78)		(532)
Net earnings before income tax expense		1,248		812
Income tax expense		286		146
Net earnings including noncontrolling interests		962		666
Net income attributable to noncontrolling interests		—		2
Net earnings attributable to The Kroger Co.	$	962	$	664
Net earnings attributable to The Kroger Co. per basic common share	$	1.33	$	0.91
Average number of common shares used in basic calculation		717		722
Net earnings attributable to The Kroger Co. per diluted common share	$	1.32	$	0.90
Average number of common shares used in diluted calculation		724		733

The accompanying notes are an integral part of the Consolidated Financial Statements.

2

THE KROGER CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	First Quarter Ended
	May 20,		May 21,
(In millions)	2023		2022
Net earnings including noncontrolling interests	$	962	$	666
Other comprehensive (loss) income
Change in pension and other postretirement defined benefit plans, net of income tax(1)		(4)		—
Unrealized gains and losses on cash flow hedging activities, net of income tax(2)		91		—
Amortization of unrealized gains and losses on cash flow hedging activities, net of income tax(3)		1		2
Total other comprehensive income		88		2
Comprehensive income		1,050		668
Comprehensive income attributable to noncontrolling interests		—		2
Comprehensive income attributable to The Kroger Co.	$	1,050	$	666

(1) Amount is net of tax of ($1) for the first quarter of 2023 and ($1) for the first quarter of 2022.

(2) Amount is net of tax of $26 for the first quarter of 2023.

(3) Amount is net of tax of $1 for the first quarter of 2023 and $1 for the first quarter of 2022.

The accompanying notes are an integral part of the Consolidated Financial Statements.

3

THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

(unaudited)

	May 20,		January 28,
(In millions, except par amounts)	2023		2023
ASSETS
Current assets
Cash and temporary cash investments	$	2,632	$	1,015
Store deposits in-transit		1,143		1,127
Receivables		1,766		2,234
FIFO inventory		9,325		9,756
LIFO reserve		(2,295)		(2,196)
Prepaid and other current assets		633		734
Total current assets		13,204		12,670
Property, plant and equipment, net		24,935		24,726
Operating lease assets		6,659		6,662
Intangibles, net		893		899
Goodwill		2,916		2,916
Other assets		1,586		1,750
Total Assets	$	50,193	$	49,623
LIABILITIES
Current liabilities
Current portion of long-term debt including obligations under finance leases	$	1,319	$	1,310
Current portion of operating lease liabilities		664		662
Trade accounts payable		7,353		7,119
Accrued salaries and wages		1,130		1,746
Other current liabilities		6,664		6,401
Total current liabilities		17,130		17,238
Long-term debt including obligations under finance leases		12,114		12,068
Noncurrent operating lease liabilities		6,353		6,372
Deferred income taxes		1,694		1,672
Pension and postretirement benefit obligations		427		436
Other long-term liabilities		1,595		1,823
Total Liabilities		39,313		39,609
Commitments and contingencies see Note 6
SHAREOWNERS’ EQUITY
Preferred shares, $100 par per share, 5 shares authorized and unissued		—		—
Common shares, $1 par per share, 2,000 shares authorized; 1,918 shares issued in 2023 and 2022		1,918		1,918
Additional paid-in capital		3,826		3,805
Accumulated other comprehensive loss		(544)		(632)
Accumulated earnings		26,375		25,601
Common shares in treasury, at cost, 1,200 shares in 2023 and 1,202 shares in 2022		(20,670)		(20,650)
Total Shareowners’ Equity - The Kroger Co.		10,905		10,042
Noncontrolling interests		(25)		(28)
Total Equity		10,880		10,014
Total Liabilities and Equity	$	50,193	$	49,623

The accompanying notes are an integral part of the Consolidated Financial Statements.

4

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	First Quarter Ended
	May 20,		May 21,
(In millions)	2023		2022
Cash Flows from Operating Activities:
Net earnings including noncontrolling interests	$	962	$	666
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization		957		890
Operating lease asset amortization		188		186
LIFO charge		99		93
Share-based employee compensation		49		57
Company-sponsored pension plans benefit		(2)		(12)
Deferred income taxes		(5)		(30)
Gain on the sale of assets		(41)		—
Loss on investments		78		532
Other		73		54
Changes in operating assets and liabilities:
Store deposits in-transit		(16)		(28)
Receivables		274		(2)
Inventories		419		(676)
Prepaid and other current assets		82		117
Trade accounts payable		233		439
Accrued expenses		(449)		(748)
Income taxes receivable and payable		198		(70)
Operating lease liabilities		(215)		(214)
Other		(24)		(152)
Net cash provided by operating activities		2,860		1,102
Cash Flows from Investing Activities:
Payments for property and equipment, including payments for lease buyouts		(1,028)		(745)
Proceeds from sale of assets		86		14
Other		(5)		8
Net cash used by investing activities		(947)		(723)
Cash Flows from Financing Activities:
Payments on long-term debt including obligations under finance leases		(62)		(45)
Dividends paid		(188)		(154)
Proceeds from issuance of capital stock		23		113
Treasury stock purchases		(29)		(665)
Other		(40)		(67)
Net cash used by financing activities		(296)		(818)
Net increase (decrease) in cash and temporary cash investments		1,617		(439)
Cash and temporary cash investments:
Beginning of year		1,015		1,821
End of period	$	2,632	$	1,382
Reconciliation of capital investments:
Payments for property and equipment, including payments for lease buyouts	$	(1,028)	$	(745)
Payments for lease buyouts		—		3
Changes in construction-in-progress payables		(71)		(229)
Total capital investments, excluding lease buyouts	$	(1,099)	$	(971)
Disclosure of cash flow information:
Cash paid during the year for interest	$	164	$	198
Cash paid during the year for income taxes	$	92	$	244

The accompanying notes are an integral part of the Consolidated Financial Statements.

5

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY

(unaudited)

									Accumulated
				Additional					Other
	Common Stock			Paid-In		Treasury Stock			Comprehensive		Accumulated		Noncontrolling
(In millions, except per share amounts)	Shares	Amount		Capital		Shares	Amount		Income (Loss)		Earnings		Interest		Total
Balances at January 29, 2022	1,918	$	1,918	$	3,657	1,191	$	(19,722)	$	(467)	$	24,066	$	(23)	$	9,429
Issuance of common stock:
Stock options exercised	—		—		—	(4)		113		—		—		—		113
Restricted stock issued	—		—		(77)	(2)		12		—		—		—		(65)
Treasury stock activity:
Treasury stock purchases, at cost	—		—		—	10		(520)		—		—		—		(520)
Stock options exchanged	—		—		—	3		(145)		—		—		—		(145)
Share-based employee compensation	—		—		57	—		—		—		—		—		57
Other comprehensive income net of tax of $-	—		—		—	—		—		2		—		—		2
Other	—		—		77	—		(77)		—		—		3		3
Cash dividends declared ($0.21 per common share)	—		—		—	—		—		—		(147)		—		(147)
Net earnings including noncontrolling interests	—		—		—	—		—		—		664		2		666
Balances at May 21, 2022	1,918	$	1,918	$	3,714	1,198	$	(20,339)	$	(465)	$	24,583	$	(18)	$	9,393
Issuance of common stock:
Stock options exercised	—		—		—	—		6		—		—		—		6
Restricted stock issued	—		—		(89)	(2)		47		—		—		—		(42)
Treasury stock activity:
Treasury stock purchases, at cost	—		—		—	6		(300)		—		—		—		(300)
Stock options exchanged	—		—		—	—		(10)		—		—		—		(10)
Share-based employee compensation	—		—		46	—		—		—		—		—		46
Other comprehensive income net of tax of $1	—		—		—	—		—		1		—		—		1
Other	—		—		45	—		(45)		—		—		(1)		(1)
Cash dividends declared ($0.26 per common share)	—		—		—	—		—		—		(186)		—		(186)
Net earnings including noncontrolling interests	—		—		—	—		—		—		731		1		732
Balances at August 13, 2022	1,918	$	1,918	$	3,716	1,202	$	(20,641)	$	(464)	$	25,128	$	(18)	$	9,639
Issuance of common stock:
Stock options exercised	—		—		—	—		8		—		—		—		8
Restricted stock issued	—		—		(4)	—		—		—		—		—		(4)
Treasury stock activity:
Treasury stock purchases, at cost	—		—		—	—		(1)		—		—		—		(1)
Stock options exchanged	—		—		—	—		(9)		—		—		—		(9)
Share-based employee compensation	—		—		42	—		—		—		—		—		42
Other comprehensive income net of tax of $11	—		—		—	—		—		52		—		—		52
Other	—		—		4	—		(4)		—		—		(10)		(10)
Cash dividends declared ($0.26 per common share)	—		—		—	—		—		—		(188)		—		(188)
Net earnings including noncontrolling interests	—		—		—	—		—		—		398		2		400
Balances at November 5, 2022	1,918	$	1,918	$	3,758	1,202	$	(20,647)	$	(412)	$	25,338	$	(26)	$	9,929
Issuance of common stock:
Stock options exercised	—		—		—	—		7		—		—		—		7
Restricted stock issued	—		—		(3)	—		3		—		—		—		—
Treasury stock activity:
Stock options exchanged	—		—		—	—		(8)		—		—		—		(8)
Share-based employee compensation	—		—		45	—		—		—		—		—		45
Other comprehensive loss net of tax of ($63)	—		—		—	—		—		(220)		—		—		(220)
Other	—		—		5	—		(5)		—		—		(2)		(2)
Cash dividends declared ($0.26 per common share)	—		—		—	—		—		—		(188)		—		(188)
Net earnings including noncontrolling interests	—		—		—	—		—		—		451		—		451
Balances at January 28, 2023	1,918	$	1,918	$	3,805	1,202	$	(20,650)	$	(632)	$	25,601	$	(28)	$	10,014

The accompanying notes are an integral part of the Consolidated Financial Statements.

6

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY

(unaudited)

									Accumulated
				Additional					Other
	Common Stock			Paid-In		Treasury Stock			Comprehensive		Accumulated		Noncontrolling
(In millions, except per share amounts)	Shares	Amount		Capital		Shares	Amount		Income (Loss)		Earnings		Interest		Total
Balances at January 28, 2023	1,918	$	1,918	$	3,805	1,202	$	(20,650)	$	(632)	$	25,601	$	(28)	$	10,014
Issuance of common stock:
Stock options exercised	—		—		—	(1)		23		—		—		—		23
Restricted stock issued	—		—		(72)	(1)		30		—		—		—		(42)
Treasury stock activity:
Stock options exchanged	—		—		—	—		(29)		—		—		—		(29)
Share-based employee compensation	—		—		49	—		—		—		—		—		49
Other comprehensive income net of tax of $26	—		—		—	—		—		88		—		—		88
Other	—		—		44	—		(44)		—		—		3		3
Cash dividends declared ($0.26 per common share)	—		—		—	—		—		—		(188)		—		(188)
Net earnings including noncontrolling interests	—		—		—	—		—		—		962		—		962
Balances at May 20, 2023	1,918	$	1,918	$	3,826	1,200	$	(20,670)	$	(544)	$	26,375	$	(25)	$	10,880

The accompanying notes are an integral part of the Consolidated Financial Statements.

7

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

All amounts in the Notes to the Unaudited Consolidated Financial Statements are in millions except per share amounts.

1. ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying financial statements include the consolidated accounts of The Kroger Co., its wholly-owned subsidiaries and other consolidated entities. The January 28, 2023 balance sheet was derived from audited financial statements and, due to its summary nature, does not include all disclosures required by generally accepted accounting principles (“GAAP”). Significant intercompany transactions and balances have been eliminated. References to the “Company” in these Consolidated Financial Statements mean the consolidated company.

In the opinion of management, the accompanying unaudited Consolidated Financial Statements include adjustments, all of which are of a normal, recurring nature that are necessary for a fair statement of results of operations for such periods but should not be considered as indicative of results for a full year. The financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted, pursuant to SEC regulations. Accordingly, the accompanying Consolidated Financial Statements should be read in conjunction with the financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

The unaudited information in the Consolidated Financial Statements for the first quarters ended May 20, 2023 and May 21, 2022 includes the results of operations of the Company for the 16 week periods then ended.

Fair Value Measurements

Fair value measurements are classified and disclosed in one of the following three categories:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities;

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable;

Level 3 – Unobservable pricing inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company records cash and temporary cash investments, store deposits in-transit, receivables, prepaid and other current assets, trade accounts payable, accrued salaries and wages and other current liabilities at approximated fair value. Certain other investments and derivatives are recorded as Level 1, 2 or 3 instruments.

The equity investment in Ocado is measured at fair value through net earnings. The fair value of all shares owned, which is measured using Level 1 inputs, was $236 and $401 as of May 20, 2023 and January 28, 2023, respectively, and is included in “Other assets” in the Company’s Consolidated Balance Sheets. An unrealized loss for this Ocado investment of approximately $165 and $532 for the first quarters of 2023 and 2022, respectively, is included in “Loss on investments” in the Company’s Consolidated Statements of Operations.

The Company's forward-starting interest rate swaps are considered a Level 2 instrument. The Company values interest rate swaps using observable forward yield curves. These forward yield curves are classified as Level 2 inputs. Refer to Note 2 for the disclosure of forward-starting interest rate swap fair values.

Refer to Note 2 for the disclosure of debt instrument fair values.

8

Accounts Payable Financing Arrangem