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OFFON

THE KROGER CO.

(KR)
  Report
Delayed Quote. Delayed Nyse - 10/26 04:10:00 pm
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10/25KROGER : COVID-19 forces Soupergirl to close cafes, embrace retail
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10/25KROGER : Home Chef Records $1 Billion in Annual Sales
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KROGER : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

09/17/2021 | 10:48am EDT

The following analysis should be read in conjunction with the Consolidated Financial Statements.

USE OF NON-GAAP FINANCIAL MEASURES




The accompanying Consolidated Financial Statements, including the related notes,
are presented in accordance with generally accepted accounting principles
("GAAP"). We provide non-GAAP measures, including First-In, First-Out ("FIFO")
gross margin, FIFO operating profit, adjusted FIFO operating profit, adjusted
net earnings and adjusted net earnings per diluted share because management
believes these metrics are useful to investors and analysts. These non-GAAP
financial measures should not be considered as an alternative to gross margin,
operating profit, net earnings and net earnings per diluted share or any other
GAAP measure of performance. These measures should not be reviewed in isolation
or considered as a substitute for our financial results as reported in
accordance with GAAP.



We calculate FIFO gross margin as FIFO gross profit divided by sales. FIFO gross
profit is calculated as sales less merchandise costs, including advertising,
warehousing, and transportation expenses, but excluding the Last-In, First-Out
("LIFO") charge. Merchandise costs exclude depreciation and rent expenses. FIFO
gross margin is an important measure used by management and management believes
FIFO gross margin is a useful metric to investors and analysts because it
measures our day-to-day merchandising and operational effectiveness.



We calculate FIFO operating profit as operating profit excluding the LIFO
charge. FIFO operating profit is an important measure used by management and
management believes FIFO operating profit is a useful metric to investors and
analysts because it measures our day-to-day operational effectiveness.



The adjusted net earnings, adjusted net earnings per diluted share and adjusted
FIFO operating profit metrics are important measures used by management to
compare the performance of core operating results between periods. We believe
adjusted net earnings, adjusted net earnings per diluted share and adjusted FIFO
operating profit are useful metrics to investors and analysts because they
present more accurate year-over-year comparisons of our net earnings, net
earnings per diluted share and FIFO operating profit because adjusted items are
not the result of our normal operations. Net earnings for the first two quarters
of 2021 include the following, which we define as the "2021 Adjusted Items":



Charges to operating, general and administrative expenses ("OG&A") of $449

million, $344 million net of tax, for obligations related to withdrawal

? liabilities for a certain multi-employer pension fund; $52 million, $40 million

net of tax, for the revaluation of Home Chef contingent consideration and $101

million, $77 million net of tax, for transformation costs (the "2021 OG&A

   Adjusted Items").



A loss in other income (expense) of $601 million, $460 million net of tax, for

? the unrealized loss on investments (the "2021 Other Income (Expense) Adjusted

   Item").



Net earnings for the second quarter of 2021 include the following, which we define as the "2021 Second Quarter Adjusted Items":

Charges to OG&A of $9 million, $7 million net of tax, for the revaluation of

? Home Chef contingent consideration and $57 million, $43 million net of tax, for

   transformation costs (the "2021 Second Quarter OG&A Adjusted Items").



A loss in other income (expense) of $122 million, $93 million net of tax, for

? the unrealized loss on investments (the "2021 Second Quarter Other Income

   (Expense) Adjusted Item").



Net earnings for the first two quarters of 2020 include the following, which we define as the "2020 Adjusted Items":

Charges to OG&A of $85 million, $63 million net of tax, for the revaluation of

? Home Chef contingent consideration and $67 million, $49 million net of tax, for

transformation costs (the "2020 OG&A Adjusted Items").

? Gains in other income (expense) of $790 million, $590 million net of tax, for

the gain on investments (the "2020 Other Income (Expense) Adjusted Item").


                                       15


Net earnings for the second quarter of 2020 include the following, which we define as the "2020 Second Quarter Adjusted Items":

Charges to OG&A of $25 million, $19 million net of tax, for the revaluation of

? Home Chef contingent consideration and $29 million, $21 million net of tax, for

   transformation costs (the "2020 Second Quarter OG&A Adjusted Items").



Gains in other income (expense) of $368 million, $278 million net of tax, for

? the gain on investments (the "2020 Second Quarter Other Income (Expense)

   Adjusted Item").



Please refer to the "Net Earnings per Diluted Share excluding the Adjusted
Items" table and the tables in the "Two-Year Financial Results" section below
for reconciliations of certain non-GAAP financial measures reported in this
Quarterly Report on Form 10-Q to the most comparable GAAP financial measure
and
related disclosure.



CAUTIONARY STATEMENT



This discussion and analysis contains certain forward-looking statements about
our future performance. These statements are based on management's assumptions
and beliefs in light of the information currently available to it. Such
statements are indicated by words such as "achieve," "affect," "anticipate,"
"believe," "committed," "continue," "could," "estimate," "expect," "future,"
"guidance," "maintain," "may," "strategy," "trend," "will," and "would," and
similar words or phrases. These forward-looking statements are subject to
uncertainties and other factors that could cause actual results to differ
materially. These include the specific risk factors identified in "Risk Factors"
in our Annual Report on Form 10-K for our last fiscal year and any subsequent
filings, as well as those identified in this Form 10-Q.



Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. These include:

The extent to which our sources of liquidity are sufficient to meet our

requirements may be affected by the state of the financial markets and the

effect that such condition has on our ability to issue commercial paper at

acceptable rates. Our ability to borrow under our committed lines of credit,

? including our bank credit facilities, could be impaired if one or more of our

lenders under those lines is unwilling or unable to honor its contractual

obligation to lend to us, or in the event that global pandemics, including the

COVID-19 pandemic, natural disasters or weather conditions interfere with the

ability of our lenders to lend to us. Our ability to refinance maturing debt

   may be affected by the state of the financial markets.




                                       16


Our ability to achieve sales, earnings and incremental FIFO operating profit

goals may be affected by: COVID-19 pandemic related factors, risks and

challenges, including among others, the length of time that the pandemic

continues, new variants of the virus, lack of access to vaccines for certain

populations and the extent of vaccine aversion, as well as the effect of

emerging targeted vaccine mandates and booster vaccines, the potential for

additional future spikes in infection and illness rates including breakthrough

infections among the fully vaccinated, and the corresponding potential for

disruptions in workforce availability and customer shopping patterns,

re-imposed restrictions as a result of resurgence and the corresponding future

easing of restrictions, and interruptions in domestic and global supply chains

or capacity constraints; the pace of recovery when the pandemic subsides; labor

negotiations or disputes; changes in the unemployment rate; pressures in the

labor market; changes in government-funded benefit programs; changes in the

types and numbers of businesses that compete with us; pricing and promotional

activities of existing and new competitors, including non-traditional

competitors, and the aggressiveness of that competition; our response to these

? actions; the state of the economy, including interest rates, the inflationary

and deflationary trends in certain commodities; changes in tariffs; the effect

that fuel costs have on consumer spending; volatility of fuel margins;

manufacturing commodity costs; diesel fuel costs related to our logistics

operations; trends in consumer spending; the extent to which our customers

exercise caution in their purchasing in response to economic conditions; the

uncertainty of economic growth or recession; changes in inflation or deflation

in product and operating costs; stock repurchases; our ability to retain

pharmacy sales from third party payors; consolidation in the healthcare

industry, including pharmacy benefit managers; our ability to negotiate

modifications to multi-employer pension plans; natural disasters or adverse

weather conditions; the effect of public health crises or other significant

catastrophic events, including the coronavirus; the potential costs and risks

associated with potential cyber-attacks or data security breaches; the success

of our future growth plans; the ability to execute our growth strategy and

value creation model, including continued cost savings, growth of our

alternative profit businesses, and widening and deepening our strategic moats

   of fresh, Our Brands, personalization, and seamless; and the successful
   integration of merged companies and new partnerships.



Our ability to achieve these goals may also be affected by our ability to

? manage the factors identified above. Our ability to execute our financial

   strategy may be affected by our ability to generate cash flow.



Our effective tax rate may differ from the expected rate due to changes in

? laws, the status of pending items with various taxing authorities, and the

   deductibility of certain expenses.




Statements elsewhere in this report and below regarding our expectations,
projections, beliefs, intentions or strategies are forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. While we believe that the statements are accurate, uncertainties about
the general economy, our labor relations, our ability to execute our plans on a
timely basis and other uncertainties described in this report and other reports
that we file with the Securities and Exchange Commission could cause actual
results to differ materially.



                                       17


EXECUTIVE SUMMARY - OUR PATH TO DELIVERING CONSISTENT AND ATTRACTIVE TOTAL SHAREHOLDER RETURN




Our strategic focus on Leading with Fresh and Accelerating with Digital
continues to build momentum across our business. This relentless focus led to
top line sales and adjusted net earnings per diluted share results exceeding our
internal expectations, as we were disciplined in balancing investments in our
associates and customers with strong cost management and continued growth in our
alternative profit businesses. We continue to be on track to deliver over $1
billion of incremental cost savings for the fourth consecutive year and we
expect Alternative Profit growth to be towards the top end of our target range
of $100 million to $150 million of incremental profit in 2021. Our seamless
ecosystem is working. This was evident during the quarter as we saw customers
seamlessly shift between channels, and we saw strong digital engagement.
Identical sales, excluding fuel, decreased 0.6% for the second quarter and 2.6%
for the first two quarters of 2021. This results in a two-year stacked growth
rate of 14.0% for the second quarter and 14.5% for the first two quarters of
2021. Digital sales two-year stacked growth was 114% during the second quarter
of 2021 and has grown triple digits since the beginning of 2019. We are building
on the momentum of 2020 within our seamless ecosystem through expanded capacity,
improved customer experience and continuous innovation. We are emerging stronger
through the pandemic and are confident in our ability to deliver sustainable
earnings growth and total shareholder return. Driven by our continued momentum
and sustained food at home trends, we raised our full year guidance for
identical sales without fuel and adjusted net earnings per diluted share.



Our financial model is underpinned by our leading position in food. We continue
to invest in areas of the business that matter most to our customers and deepen
our competitive moats, to drive sales growth in our retail supermarket business,
including fuel and pharmacy. This, in turn, generates the data and traffic that
enables our fast-growing alternative profit businesses. Our financial strategy
is to continue to use our free cash flow to invest in the business to drive
long-term sustainable net earnings growth, through the identification of
high-return projects that support our strategy. Capital allocation is a core
element of our value creation model, and we will allocate capital towards
driving profitable sales growth, accelerating digital, expanding margin as well
as maintaining the business. We will continue to be disciplined in deploying
capital towards projects that exceed our hurdle rate of return and prioritize
the highest return opportunities to drive 3% to 5% net earnings growth. At the
same time, we are committed to maintaining our net debt to adjusted EBITDA range
of 2.30 to 2.50 in order to keep our current investment grade debt rating and
continue to return cash to shareholders via share repurchases and a growing
dividend over time. We remain confident in our ability to generate strong free
cash flow and deliver strong and sustainable total shareholder return of 8%
to
11% over time.



                                       18


The following table provides highlights of our financial performance:



                           Financial Performance Data

                   ($ in millions, except per share amounts)




                                                Second Quarter Ended                            Two Quarters Ended
                                      August 14,     Percentage     August 15,       August 14,     Percentage     August 15,
                                         2021          Change          2020             2021          Change          2020
Sales                                $     31,682           3.9 %  $     30,489     $     72,980           1.3 %  $     72,038
Sales without fuel                   $     28,105         (0.4) %  $     

28,208 $ 65,413 (2.5) % $ 67,065 Net earnings attributable to The Kroger Co.

                           $        467        (43.0) %  $        

819 $ 607 (70.1) % $ 2,031 Adjusted net earnings attributable to The Kroger Co.

                    $        610           5.0 %  $        581     $      1,528         (1.6) %  $      1,553
Net earnings attributable to The
Kroger Co. per diluted common
share                                $       0.61        (40.8) %  $       1.03     $       0.79        (69.0) %  $       2.55
Adjusted net earnings attributable
to The Kroger Co. per diluted
common share                         $       0.80           9.6 %  $       0.73     $       1.99           2.1 %  $       1.95
Operating profit                     $        839           2.3 %  $       

820 $ 1,644 (23.4) % $ 2,146 Adjusted FIFO operating profit $ 947

           5.9 %  $        894     $      2,322         (1.1) %  $      2,347
Dividends paid                       $        136           7.9 %  $        126     $        274           7.9 %  $        254

Dividends paid per common share $ 0.18 12.5 % $ 0.16 $ 0.36 12.5 % $ 0.32 Identical sales excluding fuel

              (0.6) %         N/A            14.6 %          (2.6) %         N/A            17.1 %
FIFO gross margin rate, excluding
fuel, bps increase (decrease)              (0.60)           N/A            0.05           (0.64)           N/A            0.29
OG&A rate, excluding fuel and
Adjusted Items, bps increase
(decrease)                                 (0.76)           N/A          (0.61)           (0.95)           N/A            0.04
Increase (decrease) in total debt,
including obligations under
finance leases compared to prior
fiscal year end                      $        742           N/A    $      (594)     $        742           N/A    $      (594)
Share repurchases                    $        349           N/A    $        247     $        751           N/A    $        669




OVERVIEW



Significant fluctuations occurred in our business during 2020 due to the
COVID-19 pandemic. As a result, management compares current year identical sales
without fuel, adjusted FIFO operating profit and adjusted net earnings per
diluted share results to the same metrics for the comparable period in 2019, in
addition to comparisons made to 2020. This enables management to evaluate
results of the business and our financial model over a longer period of time,
and to better understand the current state of the business compared to the
period of time prior to the pandemic.



Notable items for the second quarter and first two quarters of 2021 are:



Shareholder Return


Net earnings attributable to The Kroger Co. per diluted common share of $0.61

? for the second quarter and $0.79 for the first two quarters. This results in a

two-year compounded annual growth rate of 28.4% for the second quarter and

   (22.3%) for the first two quarters.



Adjusted net earnings attributable to The Kroger Co. per diluted common share

? of $0.80 for the second quarter and $1.99 for the first two quarters. This

results in a two-year compounded annual growth rate of 34.8% for the second

   quarter and 31.0% for the first two quarters.



Achieved operating profit of $839 million for the second quarter and $1.6

? billion for the first two quarters. This results in a two-year compounded

annual growth rate of 22.5% for the second quarter and 6.1% for the first two

   quarters.



Achieved adjusted FIFO operating profit of $947 million for the second quarter

? and $2.3 billion for the first two quarters. This results in a two-year

compounded annual growth rate of 23.0% for the second quarter and 21.1% for the

   first two quarters.




? During the first two quarters of 2021, we generated cash from operations of

   $3.1 billion.


                                       19


? During the first two quarters of 2021, we returned $1.0 billion to shareholders

   through share repurchases and dividend payments.




Other Financial Results



Identical sales, excluding fuel, decreased 0.6% for the second quarter and 2.6%

? for the first two quarters of 2021. This results in a two-year stacked growth

rate of 14.0% for the second quarter and 14.5% for the first two quarters of

   2021.



Digital sales two-year stacked growth was 114% during the second quarter of

? 2021. Digital sales include products ordered online and picked up at our stores

   and products delivered or shipped directly to a customer's home.



Alternative profit businesses experienced significant operating profit growth

in the second quarter and first two quarters of 2021 fueled by our digital

? media business - Kroger Precision Marketing ("KPM") and Kroger Personal

Finance. We remain on track to achieve the high end of our expected range of

   $100 million to $150 million of incremental operating profit in 2021.




Significant Events



During the first quarter of 2021, Fred Meyer and QFC and four local unions

ratified an agreement for the transfer of liabilities from the Sound Retirement

Trust to the UFCW Consolidated Pension Plan. We will transfer $449 million in

net accrued pension liabilities and prepaid escrow funds, on a pre-tax basis,

to fulfill obligations for past service for associates and retirees. On an

? after-tax basis, $344 million will be needed to execute this transaction. The

agreement will be satisfied by cash installment payments to the UFCW

Consolidated Pension Plan and are expected to be paid evenly over seven years.

The impact of this transaction on GAAP net earnings per diluted share was $0.45

for the first two quarters and is excluded from adjusted net earnings per

   diluted share results.




In the first quarter of 2021, we opened our first two Kroger Delivery

? facilities powered by Ocado in Monroe, Ohio and Groveland, Florida, a new

   geography.




                                       20


The following table provides a reconciliation of net earnings attributable to
The Kroger Co. to adjusted net earnings attributable to The Kroger Co. and a
reconciliation of net earnings attributable to The Kroger Co. per diluted common
share to adjusted net earnings attributable to The Kroger Co. per diluted common
share, excluding the 2021 and 2020 Adjusted Items:



          Net Earnings per Diluted Share excluding the Adjusted Items

                   ($ in millions, except per share amounts)




                                                      Second Quarter Ended                           Two Quarters Ended
                                            August 14,      August 15,     Percentage     August 14,      August 15,     Percentage
                                               2021            2020          Change          2021            2020          Change
Net earnings attributable to The Kroger
Co.                                         $       467    $        819                  $        607    $      2,031

(Income) expense adjustments
Adjustment for pension plan withdrawal
liabilities(1)(2)                                     -               -                           344               -
Adjustment for loss (gain) on
investments(1)(3)                                    93           (278)                           460           (590)
Adjustment for Home Chef contingent
consideration(1)(4)                                   7              19                            40              63
Adjustment for transformation
costs(1)(5)                                          43              21                            77              49
2021 and 2020 Adjusted Items                        143           (238)                           921           (478)

Net earnings attributable to The Kroger
Co. excluding the Adjusted Items            $       610    $        581    

5.0 % $ 1,528 $ 1,553 (1.6) %


Net earnings attributable to The Kroger
Co. per diluted common share                $      0.61    $       1.03                  $       0.79    $       2.55

(Income) expense adjustments
Adjustment for pension plan withdrawal
liabilities(6)                                        -               -                          0.45               -
Adjustment for loss (gain) on
investments(6)                                     0.12          (0.35)                          0.60          (0.75)
Adjustment for Home Chef contingent
consideration(6)                                   0.01            0.02                          0.05            0.08
Adjustment for transformation costs(6)             0.06            0.03                          0.10            0.07
2021 and 2020 Adjusted Items                       0.19          (0.30)                          1.20          (0.60)

Adjusted net earnings attributable to
The Kroger Co. per diluted common share     $      0.80    $       0.73           9.6 %  $       1.99    $       1.95           2.1 %

Average number of common shares used in
diluted calculation                                 755             786                           758             787


(1) The amounts presented represent the after-tax effect of each adjustment,

which was calculated using discrete tax rates.

(2) The pre-tax adjustment for pension plan withdrawal liabilities was $449.

The pre-tax adjustment for loss (gain) on investments was $122 and ($368) in (3) the second quarters of 2021 and 2020, respectively. The pre-tax adjustment

was $601 and ($790) in the first two quarters of 2021 and 2020, respectively.

The pre-tax adjustment for Home Chef contingent consideration was $9 and $25 (4) in the second quarters of 2021 and 2020, respectively. The pre-tax adjustment

was $52 and $85 in the first two quarters of 2021 and 2020, respectively.

The pre-tax adjustment for transformation costs was $57 and $29 in the second

quarters of 2021 and 2020, respectively. The pre-tax adjustment was $101 and (5) $67 in the first two quarters of 2021 and 2020, respectively. Transformation

costs primarily include costs related to store and business closure costs and

third party professional consulting fees associated with business

transformation and cost saving initiatives.

(6) The amount presented represents the net earnings per diluted common share

    effect of each adjustment.




                                       21



RESULTS OF OPERATIONS



Sales

                                  Total Sales

                                ($ in millions)




                                           Second Quarter Ended                                               Two Quarters Ended
                           August 14,    Percentage      August 15,    Percentage            August 14,    Percentage      August 15,    Percentage
                              2021       Change(1)          2020       Change(2)                2021       Change(3)          2020       Change(4)
Total sales to retail
customers without
fuel (5)                  $     27,868        (0.6) %   $     28,034         14.0 %         $     64,890        (2.6) %   $     66,651         16.5 %
Supermarket fuel sales           3,577         56.8 %          2,281       (33.0) %                7,567         52.2 %          4,973       (36.3) %
Other sales(6)                     237         36.2 %            174          5.5 %                  523         26.3 %            414        (3.0) %

Total sales               $     31,682          3.9 %   $     30,489          8.2 %         $     72,980          1.3 %   $     72,038         10.1 %

(1) This column represents the percentage change in the second quarter of 2021,

compared to the second quarter of 2020.

(2) This column represents the percentage change in the second quarter of 2020,

compared to the second quarter of 2019.

(3) This column represents the percentage change in the first two quarters of

2021, compared to the first two quarters of 2020.

(4) This column represents the percentage change in the first two quarters of

2020, compared to the first two quarters of 2019.

Digital sales include products ordered online and picked up at our stores and

products delivered or shipped directly to a customer's home. Digital sales

decreased approximately 13% in the second quarter of 2021 and grew

approximately 127% in the second quarter of 2020. Digital sales grew

approximately 3% and 107% in the first two quarters of 2021 and 2020, (5) respectively. The change in results for 2021 compared to 2020 is primarily

due to cycling COVID-19 trends. While digital sales decreased 13% during the

second quarter of 2021, almost all customers who reduced their online spend

during the quarter continued to shop with us in store, highlighting the power

of our seamless ecosystem and our ability to create a meaningful customer

experience across channels. Digital sales are included in the "total sales to

retail customers without fuel" line above.

Other sales primarily relate to external sales at food production plants,

data analytic services and third party media revenue. The increase in the (6) second quarter of 2021 compared to the second quarter of 2020 and for the

first two quarters of 2021 compared to the first two quarters of 2020 is

primarily due to an increase in data analytic services and third-party media

    revenue.




Total sales were $31.7 billion in the second quarter of 2021, compared to $30.5
billion in the second quarter of 2020. This increase was due to an increase in
supermarket fuel sales, partially offset by a decrease in total sales to retail
customers without fuel. Total sales, excluding fuel, decreased 0.4% in the
second quarter of 2021, compared to the second quarter of 2020. This decrease
was primarily due to our identical sales decrease, excluding fuel, of 0.6%. The
decrease in identical sales, excluding fuel, was caused by unprecedented demand
due to the COVID-19 pandemic during the second quarter of 2020. Our two-year
identical sales, excluding fuel, stacked growth was 14.0%. Total supermarket
fuel sales increased 56.8% in the second quarter of 2021, compared to the second
quarter of 2020, primarily due to an increase in fuel gallons sold of 7.3% and
an increase in the average retail fuel price of 46.1%. The increase in the
average retail fuel price was caused by an increase in the product cost of fuel.



Total sales were $73.0 billion in the first two quarters of 2021, compared to
$72.0 billion in the first two quarters of 2020. This increase was due to an
increase in supermarket fuel sales, partially offset by a decrease in total
sales to retail customers without fuel. Total sales, excluding fuel, decreased
2.5% in the first two quarters of 2021, compared to the first two quarters of
2020. This decrease was primarily due to our identical sales decrease, excluding
fuel, of 2.6%. The decrease in identical sales, excluding fuel, was caused by
unprecedented demand due to the COVID-19 pandemic during the first two quarters
of 2020. Our two-year identical sales, excluding fuel, stacked growth was 14.5%.
Total supermarket fuel sales increased 52.2% in the first two quarters of 2021,
compared to the first two quarters of 2020, primarily due to an increase in fuel
gallons sold of 10.5% and an increase in the average retail fuel price of 38.0%.
The increase in the average retail fuel price was caused by an increase in
the
product cost of fuel.

                                       22




We calculate identical sales, excluding fuel, as sales to retail customers,
including sales from all departments at identical supermarket locations, Kroger
Specialty Pharmacy businesses and ship-to-home solutions. We define a
supermarket as identical when it has been in operation without expansion or
relocation for five full quarters. Although identical sales is a relatively
standard term, numerous methods exist for calculating identical sales growth. As
a result, the method used by our management to calculate identical sales may
differ from methods other companies use to calculate identical sales. We urge
you to understand the methods used by other companies to calculate identical
sales before comparing our identical sales to those of other such companies. Our
identical sales, excluding fuel, results are summarized in the following table.
We used the identical sales, excluding fuel, dollar figures presented below to
calculate percentage changes for the second quarter and first two quarters
of
2021.



                                Identical Sales

                                ($ in millions)




                                            Second Quarter Ended
                           August 14,     Percentage     August 15,     Percentage
                              2021        Change(1)         2020        Change(2)
Excluding fuel centers    $     27,606         (0.6) %  $     27,759          14.6 %

(1) This column represents the percentage change in identical sales in the second

quarter of 2021, compared to the second quarter of 2020.

(2) This column represents the percentage change in identical sales in the second

    quarter of 2020, compared to the second quarter of 2019.





                                             Two Quarters Ended
                           August 14,     Percentage     August 15,     Percentage
                              2021        Change(1)         2020        Change(2)
Excluding fuel centers    $     64,214         (2.6) %  $     65,945          17.1 %

(1) This column represents the percentage change in identical sales in the first

two quarters of 2021, compared to the first two quarters of 2020.

(2) This column represents the percentage change in identical sales in the first

    two quarters of 2020, compared to the first two quarters of 2019.



Gross Margin, LIFO and FIFO Gross Margin




We define gross margin as sales minus merchandise costs, including advertising,
warehousing, and transportation. Rent expense, depreciation and amortization
expense, and interest expense are not included in gross margin.



Our gross margin rate, as a percentage of sales, was 21.36% for the second
quarter of 2021, compared to 22.76% for the second quarter of 2020. The decrease
in rate in the second quarter of 2021, compared to the second quarter of 2020,
resulted primarily from increased fuel sales, which have a lower gross margin
rate, a lower gross margin rate on these fuel sales, continued investments in
lower prices for our customers, a higher LIFO charge and increased shrink and
transportation costs, as a percentage of sales, partially offset by growth in
our alternative profit businesses and effective negotiations to achieve savings
on the cost of products sold.



Our gross margin rate, as a percentage of sales, was 22.09% for the first two
quarters of 2021, compared to 23.64% for the first two quarters of 2020. The
decrease in rate in the first two quarters of 2021, compared to the first two
quarters of 2020, resulted primarily from increased fuel sales, which have a
lower gross margin rate, a decrease in our fuel gross margin, continued
investments in lower prices for our customers, a COVID-19 related inventory
write down for personal protective equipment to be donated to community
partners, the effect of supermarket sales deleverage, excluding fuel, due to
cycling COVID-19 trends which decreases our gross margin, as a percentage of
sales, a higher LIFO charge and increased shrink and transportation costs, as a
percentage of sales, partially offset by growth in our alternative profit
businesses and effective negotiations to achieve savings on the cost of products
sold.



                                       23


Our LIFO charge was $47 million for the second quarter of 2021 compared to $23
million for the second quarter of 2020. Our LIFO charge was $84 million for the
first two quarters of 2021 compared to $54 million for the first two quarters of
2020. Our LIFO charge reflects our expected annualized product cost inflation
for 2021, primarily driven by fresh categories.



Our FIFO gross margin rate, which excludes the second quarter LIFO charge, was
21.51% for the second quarter of 2021, compared to 22.83% for the second quarter
of 2020. Our fuel sales lower our FIFO gross margin rate due to the very low
FIFO gross margin rate, as a percentage of sales, of fuel sales compared to
non-fuel sales. Excluding the effect of fuel, our FIFO gross margin rate
decreased 60 basis points in the second quarter of 2021, compared to the second
quarter of 2020. This decrease resulted primarily from continued investments in
lower prices for our customers and increased shrink and transportation costs, as
a percentage of sales, partially offset by growth in our alternative profit
businesses and effective negotiations to achieve savings on the cost of products
sold.



Our FIFO gross margin rate, which excludes the first two quarters LIFO charge,
was 22.20% for the first two quarters of 2021, compared to 23.72% for the first
two quarters of 2020. Excluding the effect of fuel, our FIFO gross margin rate
decreased 64 basis points in the first two quarters of 2021, compared to the
first two quarters of 2020. This decrease resulted primarily from continued
investments in lower prices for our customers, a COVID-19 related inventory
write down for personal protective equipment to be donated to community
partners, the effect of supermarket sales deleverage, excluding fuel, due to
cycling COVID-19 trends which decreases our gross margin, as a percentage of
sales and increased shrink and transportation costs, as a percentage of sales,
partially offset by growth in our alternative profit businesses and effective
negotiations to achieve savings on the cost of products sold.



Operating, General and Administrative Expenses

OG&A expenses consist primarily of employee-related costs such as wages, healthcare benefit costs, retirement plan costs, utilities, and credit card fees. Rent expense, depreciation and amortization expense, and interest expense are not included in OG&A.

OG&A expenses, as a percentage of sales, were 16.07% for the second quarter of
2021, compared to 17.37% for the second quarter of 2020. The decrease in the
second quarter of 2021, compared to the second quarter of 2020 resulted
primarily from decreased COVID-19 related costs, the 2020 Second Quarter OG&A
Adjusted Items, the effect of increased fuel sales, which decreases our OG&A
rate, as a percentage of sales and broad-based improvement from cost savings
initiatives that drive administrative efficiencies, store productivity and
sourcing cost reductions, partially offset by the 2021 Second Quarter OG&A
Adjusted Items.



Our fuel sales lower our OG&A rate, as a percentage of sales, due to the very
low OG&A rate, as a percentage of sales, of fuel sales compared to non-fuel
sales. Excluding the effect of fuel, the 2021 Second Quarter OG&A Adjusted Items
and the 2020 Second Quarter OG&A Adjusted Items, our OG&A rate decreased 76
basis points in the second quarter of 2021, compared to the second quarter of
2020. This decrease resulted primarily from decreased COVID-19 related costs and
broad-based improvement from cost savings initiatives that drive administrative
efficiencies, store productivity and sourcing cost reductions.



OG&A expenses, as a percentage of sales, were 17.15% for the first two quarters
of 2021, compared to 18.00% for the first two quarters of 2020. The decrease in
the first two quarters of 2021, compared to the first two quarters of 2020
resulted primarily from decreased COVID-19 related costs, lower contributions to
multi-employer pension plans, decreased incentive plan costs, the 2020 OG&A
Adjusted Items, the effect of increased fuel sales, which decreases our OG&A
rate, as a percentage of sales and broad-based improvement from cost savings
initiatives that drive administrative efficiencies, store productivity and
sourcing cost reductions, partially offset by the 2021 OG&A Adjusted Items and
the effect of supermarket sales deleverage, excluding fuel, due to cycling
COVID-19 trends which increases our OG&A expense, as a percentage of sales.


                                       24



Excluding the effect of fuel, the 2021 OG&A Adjusted Items and the 2020 OG&A
Adjusted Items, our OG&A rate decreased 95 basis points in the first two
quarters of 2021, compared to the first two quarters of 2020. This decrease
resulted primarily from decreased COVID-19 related costs, lower contributions to
multi-employer pension plans, decreased incentive plan costs and broad-based
improvement from cost savings initiatives that drive administrative
efficiencies, store productivity and sourcing cost reductions, partially offset
by the effect of supermarket sales deleverage, excluding fuel, due to cycling
COVID-19 trends which increases our OG&A expense, as a percentage of sales.


Rent Expense


Rent expense remained consistent, as a percentage of sales, in both the second quarter and first two quarters of 2021, compared to the same periods in 2020.

Depreciation and Amortization Expense

Depreciation and amortization expense remained consistent, as a percentage of
sales, in both the second quarter and first two quarters of 2021, compared
to
the same periods in 2020.


Operating Profit and FIFO Operating Profit




Operating profit was $839 million, or 2.65% of sales, for the second quarter of
2021, compared to $820 million, or 2.69% of sales, for the second quarter of
2020. Operating profit, as a percentage of sales, decreased 4 basis points in
the second quarter of 2021, compared to the second quarter of 2020, due to
reduced sales to retail customers without fuel and a lower gross margin rate,
partially offset by decreased OG&A expense, as a percentage of sales, and
increased fuel earnings.



Operating profit was $1.6 billion, or 2.25% of sales, for the first two quarters
of 2021, compared to $2.1 billion, or 2.98% of sales, for the first two quarters
of 2020. Operating profit, as a percentage of sales, decreased 73 basis points
in the first two quarters of 2021, compared to the first two quarters of 2020,
due to reduced sales to retail customers without fuel as we cycle prior year
COVID-19 trends, a lower gross margin rate, increased depreciation and
amortization expense, as a percentage of sales, and decreased fuel earnings,
partially offset by decreased OG&A expense, as a percentage of sales.



FIFO operating profit was $886 million, or 2.80% of sales, for the second
quarter of 2021, compared to $843 million, or 2.76% of sales, for the second
quarter of 2020. FIFO operating profit, as a percentage of sales, excluding the
2021 and 2020 Second Quarter Adjusted Items, increased 7 basis points in the
second quarter of 2021, compared to the second quarter of 2020, due to decreased
OG&A expense, as a percentage of sales, and increased fuel earnings, partially
offset by reduced sales to retail customers without fuel and a lower gross
margin rate.



FIFO operating profit was $1.7 billion, or 2.37% of sales, for the first two
quarters of 2021, compared to $2.2 billion, or 3.05% of sales, for the first two
quarters of 2020. FIFO operating profit, as a percentage of sales, excluding the
2021 and 2020 Adjusted Items, decreased 7 basis points in the first two quarters
of 2021, compared to the first two quarters of 2020, due to reduced sales to
retail customers without fuel as we cycle prior year COVID-19 trends, a lower
gross margin rate, increased depreciation and amortization expense, as a
percentage of sales, and decreased fuel earnings, partially offset by decreased
OG&A expense, as a percentage of sales.



Specific factors contributing to the operating trends for operating profit and FIFO operating profit above are discussed earlier in this section.



                                       25


The following table provides a reconciliation of operating profit to FIFO operating profit, and to Adjusted FIFO operating profit, excluding the 2021 and 2020 Adjusted Items:




                 Operating Profit excluding the Adjusted Items

                                ($ in millions)




                                                                   Second Quarter Ended             Two Quarters Ended
                                                               August 14,        August 15,    August 14,       August 15,
                                                                  2021              2020          2021             2020
Operating profit                                              $        839      $        820   $     1,644     $      2,146
LIFO charge                                                             47                23            84               54

FIFO Operating profit                                                  886               843         1,728            2,200

Adjustment for pension plan withdrawal liabilities                       -                 -           449                -
Adjustment for Home Chef contingent consideration                        9                25            52               85
Adjustment for transformation costs(1)                                  57                29           101               67
Other                                                                  (5)               (3)           (8)              (5)

2021 and 2020 Adjusted items                                            61                51           594              147

Adjusted FIFO operating profit excluding the adjusted
items above                                                   $        947 

$ 894 $ 2,322 $ 2,347

Transformation costs primarily include costs related to store and business (1) closure costs and third-party professional consulting fees associated with

    business transformation and cost saving initiatives.




Income Taxes



The effective income tax rate was 21.1% and 22.7% in the second quarters of 2021
and 2020, respectively. The effective income tax rate was 20.9% and 23.2% for
the first two quarters of 2021 and 2020, respectively. The effective income tax
rate for the second quarters of 2021 and 2020 as well as the first two quarters
of 2020 differed from the federal statutory rate due to the effect of state
income taxes, partially offset by the benefit from share-based payments and the
utilization of tax credits. The effective income tax rate for the first two
quarters of 2021 differed from the federal statutory rate due to the benefit
from share-based payments and the utilization of tax credits, partially offset
by the effect of state income taxes. The effective income tax rate decreased in
the first two quarters of 2021, compared to the first two quarters of 2020, due
to lower pre-tax income in 2021, which increases the favorable impact of the
benefit from share-based payments and tax credits and reduces the impact of
state income taxes.



Net Earnings and Net Earnings Per Diluted Share

Our net earnings are based on the factors discussed in the Results of Operations section.




Net earnings were $0.61 per diluted share for the second quarter of 2021
compared to net earnings of $1.03 per diluted share for the second quarter of
2020. Adjusted net earnings of $0.80 per diluted share for the second quarter of
2021 represented an increase of 9.6% compared to adjusted net earnings of $0.73
per diluted share for the second quarter of 2020. The increase in adjusted net
earnings per diluted share resulted primarily from increased FIFO operating
profit without fuel, increased fuel earnings and lower weighted average common
shares outstanding due to common share repurchases, partially offset by a higher
LIFO charge.



Net earnings were $0.79 per diluted share for the first two quarters of 2021
compared to net earnings of $2.55 per diluted share for the first two quarters
of 2020. Adjusted net earnings of $1.99 per diluted share for the first two
quarters of 2021 represented an increase of 2.1% compared to adjusted net
earnings of $1.95 per diluted share for the first two quarters of 2020. The
increase in adjusted net earnings per diluted share resulted primarily from
increased FIFO operating profit without fuel and lower weighted average common
shares outstanding due to common share repurchases, partially offset by
decreased fuel earnings and a higher LIFO charge.



                                       26


LIQUIDITY AND CAPITAL RESOURCES



Cash Flow Information


Net cash provided by operating activities

We generated $3.1 billion of cash from operations in the first two quarters of
2021 compared to $5.4 billion in the first two quarters of 2020. Net earnings
including noncontrolling interests, adjusted for non-cash items, generated
approximately $3.3 billion of operating cash flow in the first two quarters of
2021 compared to $3.5 billion in the first two quarters of 2020. Cash provided
(used) by operating activities for changes in operating assets and liabilities,
including working capital, was ($168) million in the first two quarters of 2021
compared to $1.9 billion in the first two quarters of 2020. The decrease in cash
provided by operating activities for changes in operating assets and
liabilities, including working capital, was primarily due to the following:

An increase in FIFO inventory at the end of the second quarter of 2021,

? compared to the second quarter of 2020, due to the accelerated timing of

inventory sell-through in the prior year resulting from elevated demand for our

   products during the pandemic;



Cash flows for trade accounts payable were more favorable in the first two

? quarters of 2020, compared to the first two quarters of 2021, due to increased

trade accounts payable at the end of the second quarter of 2020, primarily

related to inventory purchases to meet elevated demand during the pandemic;

? A decrease in accrued expenses at the end of the second quarter of 2021,

compared to fiscal year end 2020, primarily due to the following:

o An increase in our incentive plan payout in the first two quarters of 2021,

compared to the first two quarters of 2020; and

o A decrease in the current portion of our commitments due to the National Fund

   as a result of a contractual payment;



Cash flows from income taxes were favorable in the first two quarters of 2020,

compared to the first two quarters of 2021, primarily due to favorable changes

in the timing of certain deductions including changes enacted under the

? Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") which was

enacted in the first quarter of 2020 and certain charges recorded in the first

two quarters of 2021 that reduced net earnings but did not reduce the amount of

   tax payments required; and




? An increase in long-term liabilities at the end of 2020, primarily due to the

   following:




o An increase in the noncurrent portion of the deferral of the employer portion

of social security tax payments as a result of the CARES Act; and

o An increase in the noncurrent portion of our commitments due to the National

   Fund;



Partially offset by a decrease in prepaid and other current assets due to the

? transfer of prepaid escrow funds to fulfill obligations related to the

restructuring of multi-employer pension plans.





Cash paid for taxes increased in the first two quarters of 2021, compared to the
first two quarters of 2020, primarily due to the favorable impact in 2020 for
the timing of certain deductions enacted under the CARES Act.



Net cash used by investing activities




Investing activities used cash of $1.3 billion in each of the first two quarters
of 2021 and 2020. The amount of cash used for investing activities for the first
two quarters of 2021, compared to the first two quarters of 2020, remained
consistent due to balanced payments for property and equipment and proceeds
from
the sale of assets.



                                       27


Net cash used by financing activities




We used $1.3 billion of cash for financing activities in the first two quarters
of 2021 compared to $1.6 billion in the first two quarters of 2020. The amount
of cash used for financing activities decreased in the first two quarters of
2021 compared to the first two quarters of 2020, primarily due to the following:



? Decreased net payments on commercial paper; and

? Increased proceeds from financing arrangement;

? Partially offset by decreased proceeds from issuance of long-term debt; and

? Increased payments on long-term debt including obligations under finance

   leases.




Debt Management



As of August 14, 2021, we maintained a $2.75 billion (with the ability to
increase by $1.25 billion), unsecured revolving credit facility that, unless
extended, terminates on July 6, 2026. Outstanding borrowings under the credit
facility, commercial paper borrowings, and some outstanding letters of credit
reduce funds available under the credit facility. As of August 14, 2021, we had
no outstanding commercial paper and no borrowings under our revolving credit
facility. The outstanding letters of credit that reduce funds available under
our credit facility totaled $3 million as of August 14, 2021.



Our bank credit facility and the indentures underlying our publicly issued debt
contain a financial covenant. As of August 14, 2021, we were in compliance with
the financial covenant. Furthermore, management believes it is not reasonably
likely that we will fail to comply with the financial covenant in the
foreseeable future.



Total debt, including both the current and long-term portions of obligations
under finance leases, increased $742 million as of August 14, 2021 compared to
our fiscal year end 2020 debt of $13.4 billion. This increase resulted primarily
from the completion of a property transaction. We purchased and then immediately
sold a portfolio of 28 of our existing stores, allowing us to secure long-term
access to these locations at favorable lease rates. The structure used to
complete this transaction requires our liability to be shown as debt.
Additionally, there was a net increase in obligations under finance leases of
$434 million primarily related to our two Kroger Delivery facility openings,
which was partially offset by the payment of $300 million of senior notes
bearing an interest rate of 2.60%.



Common Share Repurchase Program




During the second quarter of 2021, we invested $349 million to repurchase 8.9
million Kroger common shares at an average price of $39.20 per share. For the
first two quarters of 2021, we invested $751 million to repurchase 20.3 million
Kroger common shares at an average price of $36.95 per share. The shares
repurchased in the first two quarters of 2021 were reacquired under the
following share repurchase programs:



On September 11, 2020, our Board of Directors approved a $1.0 billion share

repurchase program to reacquire shares via open market purchase or privately

? negotiated transactions, block trades, or pursuant to trades intending to

comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended

   (the "September 2020 Repurchase Program");




   On June 16, 2021, our Board of Directors approved a $1.0 billion share

repurchase program to reacquire shares via open market purchase or privately

? negotiated transactions, block trades, or pursuant to trades intending to

comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended

   (the "June 2021 Repurchase Program"); and



A program that uses the cash proceeds from the exercises of stock options by

? participants in Kroger's stock option, long-term incentive plans and the

associated tax benefits.

The September 2020 Repurchase Program was exhausted on June 11, 2021. As of August 14, 2021, there was $779 million remaining under the June 2021 Repurchase Program.


                                       28



Liquidity Needs



Based on current operating trends, we believe that cash flows from operating
activities and other sources of liquidity, including borrowings under our
commercial paper program and bank credit facility, will be adequate to meet our
liquidity needs for the next twelve months and for the foreseeable future beyond
the next twelve months. Our liquidity needs include anticipated requirements for
working capital, capital investments, pension plan commitments, interest
payments and scheduled principal payments of debt and commercial paper, offset
by cash and temporary cash investments on hand at the end of the second quarter
of 2021. We generally operate with a working capital deficit due to our
efficient use of cash in funding operations and because we have consistent
access to the capital markets. We have approximately $1.4 billion of senior
notes maturing in the next twelve months, $311 million of the employer portion
of social security tax payments we have deferred under the CARES Act that is
required to be paid by December 31, 2021 (as further discussed below) and expect
to pay approximately $300 million in the first half of 2022 to satisfy a portion
of certain newly restructured multi-employer pension plan commitments. We expect
to satisfy these obligations using cash generated from operations, temporary
cash investments on hand, or through the issuance of additional senior notes or
commercial paper. We believe we have adequate coverage of our debt covenant to
continue to maintain our current investment grade debt ratings and to respond
effectively to competitive conditions.



We held cash and temporary cash investments of $2.2 billion as of the end of the
second quarter of 2021, which reflects an increase compared to our fiscal year
end 2020 balance of $1.7 billion, due to our strong operating performance in the
first two quarters of 2021. We remain committed to our dividend and share
repurchase program and we will evaluate the optimal use of any excess free cash
flow, consistent with our previously stated capital allocation strategy.



The CARES Act, which was enacted on March 27, 2020, includes measures to assist
companies in response to the COVID-19 pandemic. These measures include deferring
the due dates of tax payments and other changes to income and non-income-based
tax laws. As permitted under the CARES Act, as mentioned above, we deferred the
remittance of the employer portion of the social security tax. The social
security tax provision requires that the deferred employment tax be paid over
two years, with half of the amount required to be paid by December 31, 2021 and
the other half by December 31, 2022. During 2020, we deferred the employer
portion of social security tax of $622 million. Of the total, $311 million is
included in "Other current liabilities" and $311 million is included in "Other
long-term liabilities" in our Consolidated Balance Sheets.



For additional information about our debt activity in the first two quarters of 2021, see Note 2 to the Consolidated Financial Statements.



CAPITAL INVESTMENTS



Capital investments, excluding mergers, acquisitions and the purchase of leased
facilities, totaled $564 million for the second quarter of 2021 compared to $683
million for the second quarter of 2020. Capital investments, excluding mergers,
acquisitions and the purchase of leased facilities, totaled $1.2 billion for the
first two quarters of 2021 compared to $1.4 billion for the first two quarters
of 2020. During the rolling four quarter period ended with the second quarter of
2021, we opened, expanded, relocated or acquired 15 supermarkets and also
completed 72 major within-the-wall remodels. Total supermarket square footage at
the end of the second quarter of 2021 remained consistent with the end of the
second quarter of 2020. Excluding mergers, acquisitions and operational
closings, total supermarket square footage at the end of the second quarter of
2021 increased 0.4% over the end of the second quarter of 2020.



CRITICAL ACCOUNTING POLICIES



We have chosen accounting policies that we believe are appropriate to report
accurately and fairly our operating results and financial position, and we apply
those accounting policies in a consistent manner. Our critical accounting
policies are summarized in our Annual Report on Form 10-K for the fiscal year
ended January 30, 2021.



                                       29


The preparation of financial statements in conformity with GAAP requires us to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities. We base our estimates on historical experience and other
factors we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
could vary from those estimates.



NEW ACCOUNTING STANDARDS


Refer to Note 6 to the Consolidated Financial Statements for recently issued accounting standards not yet adopted as of August 14, 2021.



TWO-YEAR FINANCIAL RESULTS



Significant fluctuations occurred in our business during 2020 due to the
COVID-19 pandemic. As a result, management compares current year identical sales
without fuel, adjusted FIFO operating profit and adjusted net earnings per
diluted share results to the same metrics for the comparable period in 2019, in
addition to comparisons made to 2020. This enables management to evaluate
results of the business and our financial model over a longer period of time,
and to better understand the state of the business after the height of the
pandemic compared to the period of time prior to the pandemic. The purpose of
the following tables is to better illustrate comparable two-year growth from our
ongoing business for the second quarter and first two quarters of 2021 for
identical sales without fuel, adjusted FIFO operating profit and adjusted net
earnings per diluted share compared to the second quarter and first two quarters
of 2019. Two-year financial results for these measures are useful metrics to
investors and analysts because they present more accurate comparisons of results
and trends over a longer period of time to demonstrate the effect of COVID-19 on
our results. The tables provide the two-year stacked results or compounded
annual growth rate for each measure presented and how it was calculated. Items
identified in these tables should not be considered alternatives to any other
measure of performance. These items should not be reviewed in isolation or
considered substitutes for the Company's financial results including those
measures reported in accordance with GAAP. Due to the nature of these items, as
further described below, it is important to identify these items and to review
them in conjunction with the Company's financial results reported in accordance
with GAAP.



                        Identical Sales Two-Year Stacked

                                ($ in millions)




                                             Second Quarter Ended          Second Quarter Ended
                                          August 14,      August 15,    August 15,      August 17,
                                             2021            2020          2020            2019
Excluding fuel centers                    $    27,606    $     27,759   $    27,761    $     24,226
Individual year identical sales result          (0.6) %                        14.6 %
Two-year stacked identical sales result          14.0 %





                                              Two Quarters Ended           Two Quarters Ended
                                          August 14,     August 15,    August 15,     August 17,
                                             2021           2020          2020           2019
Excluding fuel centers                    $    64,214   $     65,945   $    65,898   $     56,272
Individual year identical sales result          (2.6) %                       17.1 %
Two-year stacked identical sales result          14.5 %






                                       30



          Operating Profit Excluding the Adjusted Items Two-Year CAGR

                                ($ in millions)




                                                  Second Quarter Ended             Two Quarters Ended
                                              August 14,        August 17,    August 14,       August 17,
                                                 2021              2019          2021             2019
Operating profit                              $       839      $        559   $     1,644     $      1,460
LIFO charge                                            47                30            84               46

FIFO Operating profit                                 886               589         1,728            1,506

Adjustment for pension plan withdrawal
liabilities                                             -                27           449               86
Adjustment for Home Chef contingent
consideration                                           9                 2            52             (21)
Adjustment for transformation costs(1)                 57                 -           101                -
Other                                                 (5)                 8           (8)               12

2021 and 2019 Adjusted items                           61                37           594               77

Adjusted FIFO operating profit excluding
the adjusted items above                      $       947      $        626

$ 2,322 $ 1,583

Two-year operating profit CAGR(2)                    22.5 %                

6.1 %


Two-year adjusted FIFO operating profit
excluding the adjusted items above CAGR(2)           23.0 %                

21.1 %

Transformation costs primarily include costs related to store and business (1) closure costs and third-party professional consulting fees associated with

business transformation and cost saving initiatives.

(2) CAGR represents the compounded annual growth rate.




                                       31



   Net Earnings per Diluted Share Excluding the Adjusted Items Two-Year CAGR

                   ($ in millions, except per share amounts)




                                                  Second Quarter Ended           Two Quarters Ended
                                              August 14,       August 17,    August 14,      August 17,
                                                 2021             2019          2021            2019
Net earnings attributable to The Kroger
Co.                                           $       467      $       297 

$ 607 $ 1,069


(Income) expense adjustments
Adjustment for pension plan withdrawal
liabilities(1)(2)                                       -               22           344              66
Adjustment for gain on sale of Turkey Hill
Dairy(1)(3)                                             -                -             -            (80)
Adjustment for gain on sale of You
Technology(1)(4)                                        -                -             -            (52)
Adjustment for loss (gain) on
investments(1)(5)                                      93               36           460            (44)
Adjustment for Home Chef contingent
consideration(1)(6)                                     7                2            40            (16)
Adjustment for transformation costs(1)(7)              43                -            77               -
2021 and 2019 Adjusted Items                          143               60           921           (126)

Net earnings attributable to The Kroger
Co. excluding the Adjusted Items              $       610      $       357 

$ 1,528 $ 943


Net earnings attributable to The Kroger
Co. per diluted common share                  $      0.61      $      0.37 

$ 0.79 $ 1.31


(Income) expense adjustments
Adjustment for pension plan withdrawal
liabilities(8)                                          -             0.03          0.45            0.08
Adjustment for gain on sale of Turkey Hill
Dairy(8)                                                -                -             -          (0.10)
Adjustment for gain on sale of You
Technology(8)                                           -                -             -          (0.06)
Adjustment for loss (gain) on
investments(8)                                       0.12             0.04          0.60          (0.05)
Adjustment for Home Chef contingent
consideration(8)                                     0.01                -          0.05          (0.02)
Adjustment for transformation costs(8)               0.06                -          0.10               -
2021 and 2019 Adjusted Items                         0.19             0.07 

1.20 (0.15)


Adjusted net earnings attributable to The
Kroger Co. per diluted common share           $      0.80      $      0.44 

$ 1.99 $ 1.16


Average number of common shares used in
diluted calculation                                   755              805           758             805

Two-year net earnings attributable to The
Kroger Co. per diluted common share
CAGR(9)                                              28.4 %                

(22.3) %


Two-year net earnings attributable to The
Kroger Co. per diluted common share
CAGR(9)                                              34.8 %                

31.0 %

(1) The amounts presented represent the after-tax effect of each adjustment,

which was calculated using discrete tax rates.

The pre-tax adjustment for pension plan withdrawal liabilities was $27 in the (2) second quarter of 2019. The pre-tax adjustment was $449 and $86 in the first

two quarters of 2021 and 2019, respectively.

(3) The pre-tax adjustment for gain on sale of Turkey Hill Dairy was ($106).

(4) The pre-tax adjustment for gain on sale of You Technology was ($70).

The pre-tax adjustment for loss (gain) on investments was $122 and $45 in the (5) second quarter of 2021 and 2019, respectively. The pre-tax adjustment was

$601 and ($61) in the first two quarters of 2021 and 2019, respectively.

The pre-tax adjustment for Home Chef contingent consideration was $9 and $2 (6) in the second quarter of 2021 and 2019, respectively. The pre-tax adjustment

was $52 and ($21) in the first two quarters of 2021 and 2019, respectively.

The pre-tax adjustment for transformation costs was $57 in the second quarter

of 2021 and $101 in the first two quarters of 2021. Transformation costs (7) primarily include costs related to store and business closure costs and third

party professional consulting fees associated with business transformation

and cost saving initiatives.

(8) The amount presented represents the net earnings per diluted common share

effect of each adjustment.

(9) CAGR represents the compounded annual growth rate.





                                       32

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Sales 2022 136 B - -
Net income 2022 1 583 M - -
Net Debt 2022 12 434 M - -
P/E ratio 2022 18,5x
Yield 2022 1,98%
Capitalization 29 716 M 29 716 M -
EV / Sales 2022 0,31x
EV / Sales 2023 0,31x
Nbr of Employees 465 000
Free-Float 38,5%
Chart THE KROGER CO.
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The Kroger Co. Technical Analysis Chart | MarketScreener
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Technical analysis trends THE KROGER CO.
Short TermMid-TermLong Term
TrendsNeutralNeutralBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 27
Last Close Price 39,96 $
Average target price 42,01 $
Spread / Average Target 5,14%
EPS Revisions
Managers and Directors
W. Rodney McMullen Chairman & Chief Executive Officer
Gary Millerchip Chief Financial Officer & Senior Vice President
Yael Cosset Chief Information Officer & Senior Vice President
Clyde R. Moore Independent Director
Ronald L. Sargent Lead Independent Director
Sector and Competitors
1st jan.Capi. (M$)
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