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LEASES AND LEASE-FINANCED TRANSACTIONS

12 Months Ended

Feb. 01, 2025

LEASES AND LEASE-FINANCED TRANSACTIONS

9.	LEASES AND LEASE-FINANCED TRANSACTIONS

The Company leases certain store real estate, warehouses, distribution centers, fulfillment centers, office space and equipment. The Company operates in leased facilities in approximately half of its store locations. Lease terms generally range from 10 to 20 years with options to renew for varying terms at the Company’s sole discretion. Certain leases also include options to purchase the leased property. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Certain leases include escalation clauses or payment of executory costs such as property taxes, utilities or insurance and maintenance. Rent expense for leases with escalation clauses or other lease concessions are accounted for on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Certain properties or portions thereof are subleased to others for periods generally ranging from one to 20 years.

The following table provides supplemental balance sheet classification information related to leases:


		February 1,		February 3,
	Classification	2025		2024
Assets
Operating	Operating lease assets	$	6,839	$	6,692
Finance	Property, plant and equipment, net⁽¹⁾		1,917		1,971

Total leased assets		$	8,756	$	8,663

Liabilities
Current
Operating	Current portion of operating lease liabilities	$	599	$	670
Finance	Current portion of long-term debt including obligations under finance leases		168		173

Noncurrent
Operating	Noncurrent operating lease liabilities		6,578		6,351
Finance	Long-term debt including obligations under finance leases		1,828		1,866

Total lease liabilities		$	9,173	$	9,060

(1)	Finance lease assets are recorded net of accumulated amortization of $915 and $730 as of February 1, 2025 and February 3, 2024, respectively.

The following table provides the components of lease cost:


		Year-To-Date		Year-To-Date
Lease Cost	Classification	February 1, 2025		February 3, 2024
Operating lease cost⁽¹⁾	Rent Expense	$	988	$	1,006
Sublease and other rental income	Rent Expense		(111)		(115)
Finance lease cost
Amortization of leased assets	Depreciation and Amortization		203		195
Interest on lease liabilities	Interest Expense		84		78

Net lease cost		$	1,164	$	1,164

(1)	Includes short-term leases and variable lease costs, which are immaterial.

Maturities of operating and finance lease liabilities are listed below. Amounts in the table include options to extend lease terms that are reasonably certain of being exercised.


	Operating		Finance
	Leases		Leases		Total
2025	$	974	$	261	$	1,235
2026		921		262		1,183
2027		866		265		1,131
2028		799		259		1,058
2029		734		255		989
Thereafter		5,832		1,280		7,112

Total lease payments		10,126		2,582	$	12,708

Less amount representing interest		2,949		586

Present value of lease liabilities⁽¹⁾	$	7,177	$	1,996

(1)	Includes the current portion of $599 for operating leases and $168 for finance leases.

Total future minimum rentals under non-cancellable subleases at February 1, 2025 were $269.

The following table provides the weighted-average lease term and discount rate for operating and finance leases:


	February 1, 2025		February 3, 2024
Weighted-average remaining lease term (years)
Operating leases	13.7		13.9
Finance leases	11.5		11.8
Weighted-average discount rate
Operating leases	4.6	%	4.4	%
Finance leases	4.7	%	3.8	%

The following table provides supplemental cash flow information related to leases:


	Year-To-Date		Year-To-Date
	February 1, 2025		February 3, 2024
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	916	$	984
Operating cash flows from finance leases	$	84	$	78
Financing cash flows from finance leases	$	168	$	173
Leased assets obtained in exchange for new operating lease liabilities	$	786	$	700
Leased assets obtained in exchange for new finance lease liabilities	$	157	$	168
Net gain recognized from sale and leaseback transactions⁽¹⁾	$	39	$	37
Impairment of operating lease assets	$	13	$	15
Impairment of finance lease assets	$	—	$	—

(1)	In 2024, the Company entered into sale leaseback transactions related to five properties, which resulted in total proceeds of $52. In 2023, the Company entered into sale leaseback transactions related to nine properties, which resulted in total proceeds of $52.

On May 17, 2018, the Company entered into a Partnership Framework Agreement with Ocado International Holdings Limited and Ocado Group plc (“Ocado”), which has since been amended. Under this agreement, Ocado will partner exclusively with the Company in the U.S., enhancing the Company’s digital and robotics capabilities in its distribution networks. In 2024, the Company did not open any additional Kroger Delivery customer fulfillment centers. The Company determined the arrangement with Ocado contains a lease of the robotic equipment used to fulfill customer orders. As a result, the Company establishes a finance lease when each facility begins fulfilling orders to customers. The base term of each lease is 10 years with options to renew at the Company’s sole discretion. The Company elected to combine the lease and non-lease elements in the contract. As a result, the Company will account for all payments to Ocado as lease payments. In 2024, the Company recorded finance lease assets of $91 and finance lease liabilities of $73 related to the Company’s agreement with Ocado. In 2023, the Company recorded finance lease assets of $147 and finance lease liabilities of $135 related to the Company’s agreement with Ocado. As of February 1, 2025 and February 3, 2024, the Company had $926 and $960, respectively, of net finance lease assets included within “Property, plant and equipment, net” in the Company’s Consolidated Balance Sheets related to the Company's agreement with Ocado. As of February 1, 2025 and February 3, 2024, the Company had $104 and $100, respectively, of current finance lease liabilities recorded within “Current portion of long-term debt including obligations under finance leases" and $781 and $814, respectively, of non-current finance lease liabilities recorded within “Long-term debt including obligations under finance leases” in the Company’s Consolidated Balance Sheets.