KROGER CO

Previous wording

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,” “deliver,” “drive,” “enable,” “estimate,” “expect,” “future,” “goals,” “initiatives,” “intended,” “maintain,” “may,” “model,” “plan,” “position,” “strategy,” “target,” “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.

Current wording

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 “accelerate,” “achieve,” “affect,” “anticipate,” “believe,” “committed,” “continue,” “could,” “deliver,” “drive,” “enable,” “estimate,” “expect,” “future,” “goals,” “initiatives,” “intended,” “maintain,” “may,” “model,” “plan,” “position,” “strategy,” “target,” “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.

Previous wording

We achieved solid first quarter results which reflect the strength and diversity of Kroger’s value creation model led by better-than-expected performance of our grocery business, which helped us manage fuel and health and wellness results that were behind expectations. By maintaining our long-term commitment to lower prices, personalized promotions and rewards and a focus on strong store execution, we are growing total and loyal households and increasing customer visits.

Current wording

We achieved solid second quarter results which demonstrate the strength and resiliency of our value creation model. By maintaining our long-term commitment to lower prices, personalized promotions and rewards and a focus on strong store execution, all through a unique seamless experience, we are improving sales momentum by growing total and loyal households and increasing customer visits, which in turn fuels our alternative profit businesses and drives greater efficiencies.

Previous wording

As inflation moderates, we expect customer sentiment to continue improving, but near term, many customers are managing economic uncertainty. The resiliency of Kroger’s model enables us to manage a variety of economic cycles and is allowing us to navigate these near-term economic headwinds. We are strengthening our grocery business, which drives the data and traffic to accelerate growth in our alternative profit businesses. We remain committed to delivering value for our customers and investing in associates which positions us well to generate attractive and sustainable returns for our shareholders.

Current wording

As our customers continue adjusting to the current economic environment, the resiliency of our model enables us to navigate an environment of economic uncertainty through investments made to diversify our business. We are strengthening our grocery business, which drives the data and traffic to accelerate growth in our alternative profit businesses. We remain committed to delivering exceptional value for our customers and investing in associates which positions us well to generate attractive and sustainable returns for our shareholders.

Previous wording

Notable items for the first quarter of 2024 are:

Current wording

Notable items for the second quarter and first two quarters of 2024 are:

Previous wording

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.

Current wording

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 (loss), 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 (loss), net earnings (loss) and net earnings (loss) 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.

Previous wording

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 the operational effectiveness of our financial model.

Current wording

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

Previous wording

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 quarter of 2024 include the following, which we define as the “2024 Adjusted Items”:

Current wording

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 (loss), net earnings (loss) per diluted share and FIFO operating profit (loss) because adjusted items are not the result of our normal operations. Net earnings (loss) for the first two quarters of 2024 include the following, which we define as the “2024 Adjusted Items”:

Previous wording

Total sales increased in the first quarter of 2024, compared to the first quarter of 2023, by 0.2%. The increase was primarily due to an increase in both total sales to retail customers without fuel and other sales, partially offset by a decrease in supermarket fuel sales. Total sales, excluding fuel, increased 0.6% in the first quarter of 2024, compared to the first quarter of 2023, which was primarily due to our identical sales increase, excluding fuel, of 0.5%. Identical sales, excluding fuel, for the first quarter of 2024, compared to the first quarter of 2023, increased primarily due to increases in total and loyal households shopping with us and increased customer visits, partially offset by a reduction in the number of items in basket. Total supermarket fuel sales decreased 2.7% in the first quarter of 2024, compared to the first quarter of 2023, primarily due to a decrease in the average retail fuel price of 1.6% and a decrease in fuel gallons sold of 1.2%, which was better than the average market decline in fuel gallons sold. The decrease in the average retail fuel price was caused by a decrease in the product cost of fuel.

Current wording

Total sales increased in the second quarter of 2024, compared to the second quarter of 2023, by 0.2%. The increase was primarily due to an increase in both total sales to retail customers without fuel and other sales, partially offset by a decrease in supermarket fuel sales. Total sales, excluding fuel, increased 1.3% in the second quarter of 2024, compared to the second quarter of 2023, which was primarily due to our identical sales increase, excluding fuel, of 1.2%. Identical sales, excluding fuel, for the second quarter of 2024, compared to the second quarter of 2023, increased primarily due to increases in total and loyal households shopping with us, increased customer visits and Health and Wellness sales, partially offset by a reduction in the number of items in basket. Total supermarket fuel sales decreased 8.0% in the second quarter of 2024, compared to the second quarter of 2023, primarily due to a decrease in the average retail fuel price of 4.6% and a decrease in fuel gallons sold of 3.5%, which was better than the average market decline in fuel gallons sold. The decrease in the average retail fuel price was caused by a decrease in the product cost of fuel.

Previous wording

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 Delivery and Ship solutions. We define a supermarket as identical when it has been in operation without expansion or relocation for five full quarters. We define Kroger Specialty Pharmacy businesses as identical when physical locations have been in operation continuously for five full quarters; discontinued patient therapies are excluded from the identical sales calculation starting in the quarter of transfer or termination. Kroger Specialty Pharmacy businesses were not included in identical sales for the first quarter of 2024 due to being classified as held for sale, while they were included in identical sales for the first quarter of 2023. We include sales from Kroger Delivery powered by Ocado in the identical sales calculation if the delivery occurs in an existing Kroger supermarket geography or when the location has been in operation 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. It is important 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 results, excluding fuel, are summarized in the following table. We used the identical sales, excluding fuel, dollar figures presented below to calculate percentage changes for the first quarter of 2024.

Current wording

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 Delivery and Ship solutions. We define a supermarket as identical when it has been in operation without expansion or relocation for five full quarters. We define Kroger Specialty Pharmacy businesses as identical when physical locations have been in operation continuously for five full quarters; discontinued patient therapies are excluded from the identical sales calculation starting in the quarter of transfer or termination. Starting in the first quarter of 2024, Kroger Specialty Pharmacy businesses were not included in identical sales due to being classified as held for sale, while they were included in identical sales in the second quarter and the first two quarters of 2023. We include sales from Kroger Delivery powered by Ocado in the identical sales calculation if the delivery occurs in an existing Kroger supermarket geography or when the location has been in operation 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. It is important 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 results, excluding fuel, 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 the first two quarters of 2024.

Previous wording

Our gross margin rate, as a percentage of sales, was 22.41% for the first quarter of 2024, compared to 22.33% for the first quarter of 2023. This increase in rate was achieved while also investing in price to maintain a competitive price position and deliver greater value for our customers. The increase in rate in the first quarter of 2024, compared to the first quarter of 2023, resulted primarily from favorable product mix reflectingOur Brands margin performance, a decreased LIFO charge and our ability to effectively manage product costs through strong sourcing practices, partially offset by lower pharmacy margins and increased promotional price investments.

Current wording

Our gross margin rate, as a percentage of sales, was 22.48% for the first two quarters of 2024, compared to 22.10% for the first two quarters of 2023. This increase in rate was achieved while also investing in price to maintain a competitive price position and deliver greater value for our customers. The increase in rate in the first two quarters of 2024, compared to the first two quarters of 2023, resulted primarily from decreased fuel sales, which have a lower gross margin rate, an increase in our fuel gross margin, favorable product mix in our grocery business includingOur Brands, a decreased LIFO charge and our ability to effectively manage product costs through strong sourcing practices, partially offset by lower pharmacy margins and increased promotional price investments.

Previous wording

Our FIFO gross margin rate, which excludes the LIFO charge, was 22.50% in the first quarter of 2024, compared to 22.55% in the first quarter of 2023. 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 7 basis points in the first quarter of 2024, compared to the first quarter of 2023. This decrease resulted primarily from lower pharmacy margins and increased promotional price investments, partially offset by favorable product mix reflectingOur Brands margin performance and our ability to effectively manage product costs through strong sourcing practices.

Current wording

Our FIFO gross margin rate, which excludes the LIFO charge, was 22.63% in the second quarter of 2024, compared to 21.81% in the second quarter of 2023. 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 increased 42 basis points in the second quarter of 2024, compared to the second quarter of 2023. This increase in rate was achieved while maintaining competitive prices and helping customers manage their budgets. This increase resulted primarily from favorable product mix in our grocery business includingOur Brands, lower shrink and our ability to effectively manage product costs through strong sourcing practices, partially offset by lower pharmacy margins.

Previous wording

OG&A expenses, as a percentage of sales, were 16.80% in the first quarter of 2024 and 16.37% in the first quarter of 2023. The increase in the first quarter of 2024, compared to the first quarter of 2023, resulted primarily from planned investment in associates, increased incentive plan costs and the 2024 First Quarter OG&A Adjusted Item, partially offset by the 2023 First Quarter OG&A Adjusted Items and continued execution of broad-based cost savings initiatives that drive administrative efficiencies, including store productivity.

Current wording

OG&A expenses, as a percentage of sales, were 17.04% in the first two quarters of 2024 and 18.13% in the first two quarters of 2023. The decrease in the first two quarters of 2024, compared to the first two quarters of 2023, resulted primarily from the 2023 OG&A Adjusted Items and continued execution of broad-based cost savings initiatives that drive administrative efficiencies, including store productivity, partially offset by the effect of decreased fuel sales, which increases our OG&A rate, as a percentage of sales, planned investment in associates, increased incentive plan costs and the 2024 OG&A Adjusted Item.

Previous wording

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 2024 First Quarter OG&A Adjusted Item and the 2023 First Quarter OG&A Adjusted Items, our OG&A rate increased 22 basis points in the first quarter of 2024, compared to the first quarter of 2023. This increase resulted primarily from planned investments in associates and increased incentive plan costs, partially offset by continued execution of broad-based cost savings initiatives that drive administrative efficiencies, including store productivity.

Current wording

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 2024 Second Quarter OG&A Adjusted Item and the 2023 Second Quarter OG&A Adjusted Items, our OG&A rate increased 65 basis points in the second quarter of 2024, compared to the second quarter of 2023. This increase resulted primarily from planned investments in associates, increased incentive plan costs, hurricane related costs and an increase in costs due to the severity of general liability claims, partially offset by continued execution of broad-based cost savings initiatives that drive administrative efficiencies, including store productivity.

Previous wording

Rent expense remained relatively consistent, as a percentage of sales, for the first quarter of 2024, compared to the first quarter of 2023.

Current wording

Rent expense remained relatively consistent, as a percentage of sales, for the second quarter and the first two quarters of 2024, compared to the same periods of 2023.

Previous wording

Depreciation and amortization expense increased, as a percentage of sales, in the first quarter of 2024, compared to the first quarter of 2023. This increase was primarily due to additional depreciation associated with higher capital investments during the rolling four quarter period ending with the first quarter of 2024 and a decrease in the average useful life on these capital investments.

Current wording

Depreciation and amortization expense increased, as a percentage of sales, in the second quarter and first two quarters of 2024, compared to the same periods of 2023. This increase was primarily due to additional depreciation associated with higher capital investments during the rolling four quarter period ending with the second quarter of 2024 and a decrease in the average useful life on these capital investments.

Previous wording

Operating profit was $1.3 billion, or 2.9% of sales, for the first quarter of 2024, compared to $1.5 billion, or 3.3% of sales, for the first quarter of 2023. Operating profit, as a percentage of sales, decreased 40 basis points in the first quarter of 2024, compared to the first quarter of 2023, due to increased OG&A expenses, as a percentage of sales, a decrease in fuel operating profit and a lower FIFO gross margin rate, partially offset by a decreased LIFO charge.

Current wording

Operating profit was $2.1 billion, or 2.7% of sales, for the first two quarters of 2024, compared to $991 million, or 1.3% of sales, for the first two quarters of 2023. Operating profit, as a percentage of sales, increased 141 basis points in the first two quarters of 2024, compared to the first two quarters of 2023, due to decreased OG&A expenses, as a percentage of sales, a higher FIFO gross margin rate, an increase in fuel operating profit and a decreased LIFO charge, partially offset by increased depreciation and amortization expenses, as a percentage of sales.

Previous wording

FIFO operating profit was $1.3 billion, or 3.0% of sales, for the first quarter of 2024, compared to $1.6 billion, or 3.5% of sales, for the first quarter of 2023. FIFO operating profit, as a percentage of sales, excluding the 2024 and 2023 Adjusted Items, decreased 36 basis points in the first quarter of 2024, compared to the first quarter of 2023, due to increased OG&A expenses, as a percentage of sales, a decrease in fuel operating profit and a lower FIFO gross margin rate.

Current wording

FIFO operating profit was $2.2 billion, or 2.7% of sales, for the first two quarters of 2024, compared to $1.1 billion, or 1.4% of sales, for the first two quarters of 2023. FIFO operating profit, as a percentage of sales, excluding the 2024 and 2023 Adjusted Items, decreased 22 basis points in the first two quarters of 2024, compared to the first two quarters of 2023, due to increased OG&A and depreciation and amortization expenses, as a percentage of sales, partially offset by a higher FIFO gross margin rate, an increase in fuel operating profit and a decreased LIFO charge.

Previous wording

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

Current wording

Specific factors contributing to the trends driving operating profit (loss) and FIFO operating profit (loss) identified above are discussed earlier in this section.

Previous wording

The following table provides a reconciliation of operating profit to FIFO operating profit, and to Adjusted FIFO operating profit, excluding the 2024 and 2023 Adjusted Items:

Current wording

The following table provides a reconciliation of operating profit (loss) to FIFO operating profit (loss), and to Adjusted FIFO operating profit, excluding the 2024 and 2023 Adjusted Items:

Previous wording

Interest expense decreased for the first quarter of 2024, compared to the first quarter of 2023. This decrease was primarily due to increased interest income earned on our cash and temporary cash investments due to increased balances of cash and temporary cash investments throughout the first quarter of 2024, compared to the first quarter of 2023, and decreased average total outstanding debt throughout the first quarter 2024, compared to the first quarter of 2023.

Current wording

Interest expense decreased for the second quarter and first two quarters of 2024, compared to the same periods of 2023. This decrease was primarily due to increased interest income earned on our cash and temporary cash investments due to increased balances of cash and temporary cash investments throughout the second quarter and the first two quarters of 2024, compared to the same periods of 2023, and decreased average total outstanding debt throughout 2024, compared to 2023.

Previous wording

The effective income tax rate was 19.8% for the first quarter of 2024 and 22.9% for the first quarter of 2023. The effective income tax rate for the first quarter of 2024 differed from the federal statutory rate due to a tax benefit related to classifying Kroger Specialty Pharmacy as held for sale and the utilization of tax credits and deductions, partially offset by the effect of state income taxes. The effective income tax rate for the first quarter of 2023 differed from the federal statutory rate due to the effect of state income taxes, partially offset by the utilization of tax credits and deductions.

Current wording

The effective income tax rate was 24.1% for the second quarter of 2024 and 9.1% for the second quarter of 2023. The effective income tax rate was 21.2% for the first two quarters of 2024 and 25.5% for the first two quarters of 2023. The effective income tax rate for the second quarter of 2024 differed from the federal statutory rate due to the effect of state income taxes, partially offset by the utilization of tax credits and deductions. The effective tax rate for the first two quarters of 2024 differed from the federal statutory rate due to the effect of state income taxes, partially offset by a tax benefit related to classifying Kroger Specialty Pharmacy as held for sale and the utilization of tax credits and deductions. The effective income tax rate for the second quarter of 2023 reflects a tax benefit resulting from the pre-tax loss that occurred in the second quarter of 2023. The tax benefit was reduced by the nondeductible portion of opioid settlement charges, partially offset by the effect of state income taxes and the utilization of tax credits and deductions. The effective income tax rate for the first two quarters of 2023 differed from the federal statutory rate primarily due to the nondeductible portion of opioid settlement charges and the effect of state income taxes, partially offset by the utilization of tax credits and deductions.

Previous wording

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

Current wording

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

Previous wording

Net earnings of $1.29 per diluted share for the first quarter of 2024 represented a decrease of 2.3% compared to net earnings of $1.32 per diluted share for the first quarter of 2023. Adjusted net earnings of $1.43 per diluted share for the first quarter of 2024 represented a decrease of 5.3% compared to adjusted net earnings of $1.51 per diluted share for the first quarter of 2023. The decrease in adjusted net earnings per diluted share resulted primarily from decreased FIFO operating profit, excluding fuel, and decreased fuel earnings, partially offset by a decreased LIFO charge, lower interest expense and lower income tax expense.

Current wording

Net earnings were $1.93 per diluted share for the first two quarters of 2024, compared to net earnings of $1.07 per diluted share for the first two quarters of 2023. Adjusted net earnings of $2.36 per diluted share for the first two quarters of 2024 represented a decrease of 4.5% compared to adjusted net earnings of $2.47 per diluted share for the first two quarters of 2023. The decrease in adjusted net earnings per diluted share resulted primarily from decreased FIFO operating profit, excluding fuel, partially offset by a decreased LIFO charge, lower interest expense, lower income tax expense and increased fuel earnings.

Previous wording

The following table summarizes our net increase in cash and temporary cash investments for the first quarter of 2024 and 2023:

Current wording

The following table summarizes our net increase in cash and temporary cash investments for the first two quarters of 2024 and 2023:

Previous wording

We generated $2.3 billion of cash from operations in the first quarter of 2024 compared to $2.9 billion in the first quarter of 2023. Net earnings including noncontrolling interests, adjusted for non-cash items, generated approximately $2.1 billion of operating cash flow in the first quarter of 2024 compared to $2.4 billion in the first quarter of 2023. Cash provided by operating activities for changes in operating assets and liabilities, including working capital, was $193 million in the first quarter of 2024 compared to $502 million in the first quarter of 2023. The decrease in cash provided by operating activities for changes in operating assets and liabilities, including working capital, was primarily due to the following:

Current wording

We generated $3.5 billion of cash from operations in the first two quarters of 2024 compared to $4.4 billion in the first two quarters of 2023. Net earnings including noncontrolling interests, adjusted for non-cash items, generated approximately $3.7 billion of operating cash flow in the first two quarters of 2024 compared to $2.4 billion in the first two quarters of 2023. Cash provided (used) by operating activities for changes in operating assets and liabilities, including working capital, was $(269) million in the first two quarters of 2024 compared to $1.9 billion in the first two quarters of 2023. The decrease in cash provided by operating activities for changes in operating assets and liabilities, including working capital, was primarily due to the following:

Previous wording

Investing activities used cash of $1.0 billion in the first quarter of 2024 compared to $947 million in the first quarter of 2023. The amount of cash used by investing activities increased in the first quarter of 2024, compared to the first quarter of 2023, primarily due to increased payments for property and equipment, which was partially offset by an increase in proceeds from the sale of assets related to the sale of an equity investment in the first quarter of 2024.

Current wording

Investing activities used cash of $1.9 billion in the first two quarters of 2024 compared to $1.8 billion in the first two quarters of 2023. The amount of cash used by investing activities increased in the first two quarters of 2024, compared to the first two quarters of 2023, primarily due to increased payments for property and equipment, including payments for lease buyouts, which was partially offset by an increase in proceeds from the sale of assets related to the sale of an equity investment in the first two quarters of 2024.

Previous wording

Capital investments, excluding mergers, acquisitions and the purchase of leased facilities, totaled $1.2 billion for the first quarter of 2024 compared to $1.1 billion for the first quarter of 2023. During the rolling four quarter period ended with the first quarter of 2024, we opened, expanded, relocated or acquired 14 supermarkets and completed 175 major within-the-wall remodels. We define a major remodel as a project that exceeds a cost of $20 per square foot. Total supermarket square footage at the end of the first quarter of 2024 remained consistent with the end of the first quarter of 2023. Excluding mergers, acquisitions and operational closings, total supermarket square footage at the end of the first quarter of 2024 increased 0.4% over the end of the first quarter of 2023.

Current wording

Capital investments, excluding mergers, acquisitions and the purchase of leased facilities, totaled $846 million for the second quarter of 2024 compared to $672 million for the second quarter of 2023. Capital investments, excluding mergers, acquisitions and the purchase of leased facilities, totaled $2.1 billion for the first two quarters of 2024 compared to $1.8 billion for the first two quarters of 2023. Capital investments increased for the first two quarters of 2024, compared to the first two quarters of 2023, due to the completion of more store projects in 2024 compared to 2023. During the first two quarters of 2024, we opened, expanded, relocated or acquired 11 supermarkets and completed 84 major within-the-wall remodels. During the first two quarters of 2023, we opened, expanded, relocated or acquired 3 supermarkets and completed 54 major within-the-wall remodels. During the rolling four quarter period ended with the second quarter of 2024, we opened, expanded, relocated or acquired 18 supermarkets and completed 203 major within-the-wall remodels. We define a major remodel as a project that exceeds a cost of $20 per square foot. Total supermarket square footage at the end of the second quarter of 2024 remained consistent with the end of the second quarter of 2023. Excluding mergers, acquisitions and operational closings, total supermarket square footage at the end of the second quarter of 2024 increased 0.6% over the end of the second quarter of 2023.

Previous wording

In connection with the proposed merger with Albertsons, on October 13, 2022, we entered into a commitment letter with certain lenders pursuant to which the lenders have committed to provide a 364-day $17.4 billion senior unsecured bridge term loan facility. The commitments are intended to be drawn to finance the proposed merger with Albertsons only to the extent we do not arrange for alternative financing prior to closing. As alternative financing for the proposed merger is secured, the commitments with respect to the bridge term loan facility under the commitment letter will be reduced.

Current wording

In connection with the proposed merger with Albertsons, on October 13, 2022, we entered into a commitment letter with certain lenders pursuant to which the lenders have committed to provide a 364-day $17.4 billion senior unsecured bridge term loan facility. The commitments are intended to be drawn to finance the proposed merger with Albertsons only to the extent we do not arrange for alternative financing prior to closing. As alternative financing for the proposed merger has been secured, the commitments with respect to the bridge term loan facility under the commitment letter were terminated in the third quarter of 2024.

Previous wording

On November 9, 2022, we executed a term loan credit agreement with certain lenders pursuant to which the lenders committed to provide, contingent upon the completion of the proposed merger with Albertsons and certain other customary conditions to funding, (1) senior unsecured term loans in an aggregate principal amount of $3.0 billion maturing on the third anniversary of the proposed merger closing date and (2) senior unsecured term loans in an aggregate principal amount of $1.75 billion maturing on the date that is 18 months after the proposed merger closing date (collectively, the “Term Loan Facilities”). Borrowings under the Term Loan Facilities will be used to pay a portion of the consideration and other amounts payable in connection with the proposed merger with Albertsons. The duration of the Term Loan Facilities will allow us to achieve our net total debt to adjusted EBITDA ratio target range of 2.30 to 2.50 within the first 18 to 24 months after the proposed merger closing date. The entry into the term loan credit agreement reduced the commitments under our bridge facility commitment letter from $17.4 billion to $12.65 billion. On April 12, 2024, Kroger further reduced the bridge facility commitment from $12.65 billion to $10.65 billion. Borrowings under the Term Loan Facilities will bear interest at rates that vary based on the type of loan and our debt rating.

Current wording

On November 9, 2022, we executed a term loan credit agreement with certain lenders pursuant to which the lenders committed to provide, contingent upon the completion of the proposed merger with Albertsons and certain other customary conditions to funding, (1) senior unsecured term loans in an aggregate principal amount of $3.0 billion maturing on the third anniversary of the proposed merger closing date and (2) senior unsecured term loans in an aggregate principal amount of $1.75 billion maturing on the date that is 18 months after the proposed merger closing date (collectively, the “Term Loan Facilities”). Borrowings under the Term Loan Facilities will be used to pay a portion of the consideration and other amounts payable in connection with the proposed merger with Albertsons. The duration of the Term Loan Facilities will allow us to achieve our net total debt to adjusted EBITDA ratio target range of 2.30 to 2.50 within the first 18 to 24 months after the proposed merger closing date. Borrowings under the Term Loan Facilities will bear interest at rates that vary based on the type of loan and our debt rating.

Previous wording

Our bank credit facility contains a financial covenant. As of May 25, 2024, 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.

Current wording

As of August 17, 2024, we were in compliance with our bank credit facility financial covenant. Furthermore, management believes it is not reasonably likely that we will fail to comply with the financial covenant in the foreseeable future.

Previous wording

Total debt, including both the current and long-term portions of obligations under finance leases, of $12.2 billion as of May 25, 2024, remained consistent to our fiscal year end 2023 debt of $12.2 billion. During the first quarter of 2024, we did not have any payments or issuances of senior notes or activity that occurred on our revolving credit facility.

Current wording

Total debt, including both the current and long-term portions of obligations under finance leases, of $12.2 billion as of August 17, 2024, remained consistent with our fiscal year end 2023 debt of $12.2 billion. During the first two quarters of 2024, we did not have any payments or issuances of senior notes or activity that occurred on our revolving credit facility.

Previous wording

During the first quarter of 2024, we invested $103 million to repurchase approximately 1.9 million Kroger common shares at an average price of $54.98 per share. The shares repurchased in the first quarter of 2024 were reacquired under a share repurchase program announced on December 6, 1999 to repurchase common shares to reduce dilution resulting from our employee stock option and long-term incentive plans, under which repurchases are limited to proceeds received from exercises of stock options and the tax benefits associated therewith (“1999 Repurchase Program”).

Current wording

During the second quarter of 2024, we invested $13 million to repurchase approximately two hundred and sixty thousand Kroger common shares at an average price of $52.85 per share. For the first two quarters of 2024, we invested $116 million to repurchase 2.1 million Kroger common shares at an average price of $54.72 per share. The shares repurchased in the second quarter and first two quarters of 2024, were reacquired under a share repurchase program announced on December 6, 1999 to repurchase common shares to reduce dilution resulting from our employee stock option and long-term incentive plans, under which repurchases are limited to proceeds received from exercises of stock options and the tax benefits associated therewith (“1999 Repurchase Program”).

Previous wording

As previously disclosed, on October 13, 2022, we entered into a merger agreement with Albertsons. We expect to meet our liquidity needs for the proposed merger with cash and temporary cash investments on hand as of the merger closing date, cash flows from our operating activities and other sources of liquidity, including borrowings under our commercial paper program, senior notes issuances, bank credit facility and other sources of financing. In connection with the proposed merger, we entered into a commitment letter for a bridge term loan facility and executed a term loan credit agreement. For additional information about the proposed merger with Albertsons, see Note 10 to the Consolidated Financial Statements.

Current wording

As previously disclosed, on October 13, 2022, we entered into a merger agreement with Albertsons. We expect to meet our liquidity needs for the proposed merger with cash and temporary cash investments on hand as of the merger closing date, cash flows from our operating activities and other sources of liquidity, including borrowings under our commercial paper program, senior notes issuances, bank credit facility and other sources of financing. In connection with the proposed merger, we entered into a commitment letter for a bridge term loan facility and executed a term loan credit agreement. On August 20, 2024, we issued $10.5 billion of senior notes. We expect to use the net proceeds of the senior notes issuances to pay a portion of the cash consideration for the proposed merger with Albertsons. A portion of the proceeds of the senior notes issuances is subject to a special mandatory redemption under certain circumstances if the merger is terminated or does not close by an agreed upon date. If the proposed merger with Albertsons is not completed, we expect to use a portion of the net proceeds for general corporate purposes. Due to the senior notes issuances, we terminated the commitment letter for the bridge term loan facility. For additional information about the proposed merger with Albertsons, see Note 10 and Note 11 to the Consolidated Financial Statements.

Previous wording

For additional information about our debt activity in the first quarter of 2024, see Note 2 to the Consolidated Financial Statements.

Current wording

For additional information about our debt activity in the first two quarters of 2024, see Note 2 to the Consolidated Financial Statements. For additional information about our debt activity subsequent to the second quarter of 2024, see Note 11 to the Consolidated Financial Statements.