Cover and table of contents

​

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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​

FORM 10-Q

​

​

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

​

For the quarterly period ended August 13, 2022

OR

​

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

​

For the transition period from to

Commission file number 1-303

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​

​

The Kroger Co.

(Exact name of registrant as specified in its charter)

​

​

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

​

1014 Vine Street**,** Cincinnati**,** Ohio 45202

(Address of principal executive offices)

(Zip Code)

​

(513) 762-4000

(Registrant’s telephone number, including area code)

​

Unchanged

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

​

​

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

​

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

​

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

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

​

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

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​	​	​	​	​
Large accelerated filer	☒	​	Accelerated filer	☐
Non-accelerated filer	☐	​	Smaller reporting company	☐
​	​	​	Emerging growth company	☐

​

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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There were 715,806,319 shares of Common Stock ($1 par value) outstanding as of September 13, 2022.

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PART I – FINANCIAL INFORMATION

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Item 1.	Financial Statements.

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THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Second Quarter Ended					​	Two Quarters Ended					​
​	​	August 13,		​	August 14,		​	August 13,		​	August 14,		​
(In millions, except per share amounts)		2022			2021			2022			2021
Sales	​	$	34,638	​	$	31,682	​	$	79,238	​	$	72,980	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Operating expenses	​	​	​	​	​	​	​	​	​	​	​	​	​
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below	​		27,392	​		24,914	​		62,343	​		56,861	​
Operating, general and administrative	​		5,417	​		5,091	​		12,414	​		12,515	​
Rent	​		191	​		191	​		448	​		452	​
Depreciation and amortization	​		684	​		647	​		1,574	​		1,508	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Operating profit	​		954	​		839	​		2,459	​		1,644	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Other income (expense)	​	​	​	​	​	​	​	​	​	​	​	​	​
Interest expense	​	​	(127)	​	​	(137)	​	​	(303)	​	​	(302)	​
Non-service component of company-sponsored pension plan costs	​	​	11	​	​	15	​	​	26	​	​	33	​
Gain (loss) on investments	​	​	103	​	​	(122)	​	​	(429)	​	​	(601)	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings before income tax expense	​		941	​		595	​		1,753	​		774	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income tax expense	​		209	​		126	​		356	​		162	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings including noncontrolling interests	​		732	​		469	​		1,397	​		612	​
Net income attributable to noncontrolling interests	​		1	​		2	​		3	​		5	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co.	​	$	731	​	$	467	​	$	1,394	​	$	607	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co. per basic common share	​	$	1.01	​	$	0.62	​	$	1.92	​	$	0.80	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Average number of common shares used in basic calculation	​		716	​		746	​		720	​		750	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co. per diluted common share	​	$	1.00	​	$	0.61	​	$	1.89	​	$	0.79	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Average number of common shares used in diluted calculation	​		725	​		755	​		730	​		758	​

​

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

​

​

THE KROGER CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		Second Quarter Ended					​	Two Quarters Ended					​
​	​	August 13,		​	August 14,		​	August 13,		​	August 14,		​
(In millions)		2022			2021			2022			2021
Net earnings including noncontrolling interests	​	$	732	​	$	469	​	$	1,397	​	$	612	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Other comprehensive income	​	​	​	​	​	​	​	​	​	​	​	​	​
Change in pension and other postretirement defined benefit plans, net of income tax(1)	​	​	(1)	​	​	1	​	​	(1)	​	​	2	​
Amortization of unrealized gains and losses on cash flow hedging activities, net of income tax(2)	​	​	2	​	​	1	​	​	4	​	​	3	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total other comprehensive income	​		1	​		2	​		3	​	​	5	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Comprehensive income	​		733	​		471	​		1,400	​		617	​
Comprehensive income attributable to noncontrolling interests	​		1	​		2	​		3	​		5	​
Comprehensive income attributable to The Kroger Co.	​	$	732	​	$	469	​	$	1,397	​	$	612	​

(1)	Amount is net of tax of $1 for the second quarters of 2022 and 2021. Amount is net of tax of $2 for the first two quarters of 2021.

(2)	Amount is net of tax of $3 for the second quarter of 2021. Amount is net of tax of $1 for the first two quarters of 2022 and $4 for the first two quarters of 2021.

​

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

​

​

​

THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

(unaudited)

​

​	​	​	​	​	​	​	​
​		August 13,			January 29,
(In millions, except par amounts)	​	2022		​	2022
ASSETS	​	​	​	​	​	​	​
Current assets	​	​	​	​	​	​	​
Cash and temporary cash investments	​	$	1,102	​	$	1,821	​
Store deposits in-transit	​		1,087	​		1,082	​
Receivables	​		1,869	​		1,828	​
FIFO inventory	​		9,125	​		8,353	​
LIFO reserve	​		(1,810)	​		(1,570)	​
Prepaid and other current assets	​	​	536	​	​	660	​
Total current assets	​		11,909	​		12,174	​
​	​	​	​	​	​	​	​
Property, plant and equipment, net	​		24,118	​		23,789	​
Operating lease assets	​	​	6,771	​	​	6,695	​
Intangibles, net	​		917	​		942	​
Goodwill	​		3,076	​		3,076	​
Other assets	​		1,950	​		2,410	​
​	​	​	​	​	​	​	​
Total Assets	​	$	48,741	​	$	49,086	​
​	​	​	​	​	​	​	​
LIABILITIES	​	​	​	​	​	​	​
Current liabilities	​	​	​	​	​	​	​
Current portion of long-term debt including obligations under finance leases	​	$	789	​	$	555	​
Current portion of operating lease liabilities	​	​	656	​	​	650	​
Trade accounts payable	​		7,446	​		7,117	​
Accrued salaries and wages	​		1,356	​		1,736	​
Other current liabilities	​		6,319	​		6,265	​
Total current liabilities	​		16,566	​		16,323	​
​	​	​	​	​	​	​	​
Long-term debt including obligations under finance leases	​	​	12,488	​	​	12,809	​
Noncurrent operating lease liabilities	​	​	6,449	​	​	6,426	​
Deferred income taxes	​		1,522	​		1,562	​
Pension and postretirement benefit obligations	​		439	​		478	​
Other long-term liabilities	​		1,638	​		2,059	​
​	​	​	​	​	​	​	​
Total Liabilities	​		39,102	​		39,657	​
​	​	​	​	​	​	​	​
Commitments and contingencies see Note 6	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
SHAREOWNERS’ EQUITY	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
Preferred shares, $100 par per share, 5 shares authorized and unissued	​	​	—	​	​	—	​
Common shares, $1 par per share, 2,000 shares authorized; 1,918 shares issued in 2022 and 2021	​		1,918	​		1,918	​
Additional paid-in capital	​		3,716	​		3,657	​
Accumulated other comprehensive loss	​		(464)	​		(467)	​
Accumulated earnings	​		25,128	​		24,066	​
Common shares in treasury, at cost, 1,202 shares in 2022 and 1,191 shares in 2021	​		(20,641)	​		(19,722)	​
​	​	​	​	​	​	​	​
Total Shareowners’ Equity - The Kroger Co.	​		9,657	​		9,452	​
Noncontrolling interests	​		(18)	​		(23)	​
​	​	​	​	​	​	​	​
Total Equity	​		9,639	​		9,429	​
​	​	​	​	​	​	​	​
Total Liabilities and Equity	​	$	48,741	​	$	49,086	​

​

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

​

​

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

​

​	​	​	​	​	​	​	​
​	​	Two Quarters Ended					​
​	​	August 13,		​	August 14,		​
(In millions)		2022			2021
Cash Flows from Operating Activities:	​	​	​	​	​	​	​
Net earnings including noncontrolling interests	​	$	1,397	​	$	612	​
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:	​	​	​	​	​	​	​
Depreciation and amortization	​		1,574	​		1,508	​
Operating lease asset amortization	​	​	329	​	​	332	​
LIFO charge	​		240	​		84	​
Share-based employee compensation	​		103	​		108	​
Company-sponsored pension plans	​		(20)	​		(24)	​
Deferred income taxes	​		(40)	​		(24)	​
Gain on the sale of assets	​	​	(13)	​	​	(28)	​
Loss on investments	​	​	429	​	​	601	​
Other	​		66	​		122	​
Changes in operating assets and liabilities:	​	​	​	​	​	​	​
Store deposits in-transit	​		(5)	​		41	​
Receivables	​		(10)	​		(57)	​
Inventories	​		(774)	​		377	​
Prepaid and other current assets	​		115	​		356	​
Trade accounts payable	​		330	​		101	​
Accrued expenses	​		(407)	​		(400)	​
Income taxes receivable and payable	​		(41)	​	​	(125)	​
Operating lease liabilities	​	​	(373)	​	​	(374)	​
Other	​		(473)	​		(87)	​
​	​	​	​	​	​	​	​
Net cash provided by operating activities	​		2,427	​		3,123	​
​	​	​	​	​	​	​	​
Cash Flows from Investing Activities:	​	​	​	​	​	​	​
Payments for property and equipment, including payments for lease buyouts	​		(1,430)	​		(1,319)	​
Proceeds from sale of assets	​		37	​	​	107	​
Other	​		5	​		(72)	​
​	​	​	​	​	​	​	​
Net cash used by investing activities	​		(1,388)	​		(1,284)	​
​	​	​	​	​	​	​	​
Cash Flows from Financing Activities:	​	​	​	​	​	​	​
Proceeds from issuance of long-term debt	​		—	​		1	​
Payments on long-term debt including obligations under finance leases	​		(486)	​	​	(369)	​
Dividends paid	​	​	(307)	​	​	(274)	​
Proceeds from issuance of capital stock	​	​	119	​		85	​
Treasury stock purchases	​		(975)	​		(751)	​
Proceeds from financing arrangement	​	​	—	​	​	166	​
Other	​	​	(109)	​		(159)	​
​	​	​	​	​	​	​	​
Net cash used by financing activities	​		(1,758)	​		(1,301)	​
​	​	​	​	​	​	​	​
Net (decrease) increase in cash and temporary cash investments	​		(719)	​		538	​
​	​	​	​	​	​	​	​
Cash and temporary cash investments:	​	​	​	​	​	​	​
Beginning of year	​		1,821	​		1,687	​
End of period	​	$	1,102	​	$	2,225	​
​	​	​	​	​	​	​	​
Reconciliation of capital investments:	​	​	​	​	​	​	​
Payments for property and equipment, including payments for lease buyouts	​	$	(1,430)	​	$	(1,319)	​
Payments for lease buyouts	​	​	10	​		—	​
Changes in construction-in-progress payables	​		(74)	​		89	​
Total capital investments, excluding lease buyouts	​	$	(1,494)	​	$	(1,230)	​
​	​	​	​	​	​	​	​
Disclosure of cash flow information:	​	​	​	​	​	​	​
Cash paid during the year for interest	​	$	379	​	$	365	​
Cash paid during the year for income taxes	​	$	432	​	$	301	​

​

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

​

​

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY

(unaudited)

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	Accumulated		​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	Additional		​	​	​	​	​	​	Other		​	​	​	​	​	​	​	​	​
​	​	Common Stock				​	Paid-In		​	Treasury Stock				​	Comprehensive		​	Accumulated		​	Noncontrolling		​	​	​
(In millions, except per share amounts)		Shares		Amount			Capital			Shares		Amount			Loss			Earnings			Interest			Total
Balances at January 30, 2021	​	1,918	​	$	1,918	​	$	3,461		1,160	​	$	(18,191)	​	$	(630)	​	$	23,018	​	$	(26)		$	9,550
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		(2)	​		31	​		—	​		—	​		—	​		31
Restricted stock issued		—	​		—	​		(35)		(1)	​		17	​		—	​		—	​		—	​		(18)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		10	​		(338)	​		—	​		—	​		—	​		(338)
Stock options exchanged		—	​		—	​		—		2	​		(64)	​		—	​		—	​		—	​		(64)
Share-based employee compensation		—	​		—	​		56		—	​		—	​		—	​		—	​		—	​		56
Other comprehensive income net of income tax of $2		—	​		—	​		—		—	​		—	​		3	​		—	​		—	​		3
Other		—	​		—	​		23		—	​		(23)	​		—	​		1	​		3	​		4
Cash dividends declared ($0.18 per common share)		—	​		—	​		—		—	​		—	​		—	​		(138)	​		—	​		(138)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		140	​		3	​		143
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at May 22, 2021		1,918		$	1,918		$	3,505		1,169		$	(18,568)		$	(627)		$	23,021		$	(20)		$	9,229
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		(2)	​		54	​		—	​		—	​		—	​		54
Restricted stock issued		—	​		—	​		(99)		(2)	​		56	​		—	​		—	​		—	​		(43)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		8	​		(299)	​		—	​		—	​		—	​		(299)
Stock options exchanged		—	​		—	​		—		1	​		(50)	​		—	​		—	​		—	​		(50)
Share-based employee compensation		—	​		—	​		52		—	​		—	​		—	​		—	​		—	​		52
Other comprehensive income net of income tax of $4		—	​		—	​		—		—	​		—	​		2	​		—	​		—	​		2
Other		—	​		—	​		69		—	​		(69)	​		—	​		—	​		(2)	​		(2)
Cash dividends declared ($0.21 per common share)		—	​		—	​		—		—	​		—	​		—	​		(154)	​		—	​		(154)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		467	​		2	​		469
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at August 14, 2021		1,918		$	1,918		$	3,527		1,174		$	(18,876)		$	(625)		$	23,334		$	(20)		$	9,258
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		(1)	​		33	​		—	​		—	​		—	​		33
Restricted stock issued		—	​		—	​		(3)		—	​		—	​		—	​		—	​		—	​		(3)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		6	​		(251)	​		—	​		—	​		—	​		(251)
Stock options exchanged		—	​		—	​		—		1	​		(47)	​		—	​		—	​		—	​		(47)
Share-based employee compensation		—	​		—	​		51		—	​		—	​		—	​		—	​		—	​		51
Other comprehensive income net of income tax of $37		—	​		—	​		—		—	​		—	​		134	​		—	​		—	​		134
Other		—	​		—	​		15		—	​		(15)	​		—	​		(1)	​		(10)	​		(11)
Cash dividends declared ($0.21 per common share)		—	​		—	​		—		—	​		—	​		—	​		(158)	​		—	​		(158)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		483	​		2	​		485
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at November 6, 2021		1,918		$	1,918		$	3,590		1,180		$	(19,156)		$	(491)		$	23,658		$	(28)		$	9,491
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		(2)	​		54	​		—	​		—	​		—	​		54
Restricted stock issued		—	​		—	​		—		—	​		—	​		—	​		—	​		—	​		—
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		11	​		(534)	​		—	​		—	​		—	​		(534)
Stock options exchanged		—	​		—	​		—		2	​		(64)	​		—	​		—	​		—	​		(64)
Share-based employee compensation		—	​		—	​		44		—	​		—	​		—	​		—	​		—	​		44
Other comprehensive income net of income tax of $8		—	​		—	​		—		—	​		—	​		24	​		—	​		—	​		24
Other		—	​		—	​		23		—	​		(22)	​		—	​		—	​		1	​		2
Cash dividends declared ($0.21 per common share)		—	​		—	​		—		—	​		—	​		—	​		(157)	​		—	​		(157)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		565	​		4	​		569
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at January 29, 2022		1,918		$	1,918		$	3,657		1,191		$	(19,722)		$	(467)		$	24,066		$	(23)		$	9,429

​

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

​

​

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY

(unaudited)

​

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

​

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

​

​

​

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

​

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

​

1.	ACCOUNTING POLICIES

​

Basis of Presentation and Principles of Consolidation

​

The accompanying financial statements include the consolidated accounts of The Kroger Co., its wholly-owned subsidiaries and other consolidated entities. The January 29, 2022 balance sheet was derived from audited financial statements and, due to its summary nature, does not include all disclosures required by generally accepted accounting principles (“GAAP”). Significant intercompany transactions and balances have been eliminated. References to the “Company” in these Consolidated Financial Statements mean the consolidated company.

​

In the opinion of management, the accompanying unaudited Consolidated Financial Statements include adjustments, all of which are of a normal, recurring nature that are necessary for a fair statement of results of operations for such periods but should not be considered as indicative of results for a full year. The financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted, pursuant to SEC regulations. Accordingly, the accompanying Consolidated Financial Statements should be read in conjunction with the financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022.

​

The unaudited information in the Consolidated Financial Statements for the second quarters and two quarters ended August 13, 2022 and August 14, 2021 includes the results of operations of the Company for the 12 and 28 week periods then ended.

​

Fair Value Measurements

​

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

​

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

​

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

​

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

​

The Company records cash and temporary cash investments, store deposits in-transit, receivables, prepaid and other current assets, trade accounts payable, accrued salaries and wages and other current liabilities at approximated fair value. Certain other investments and derivatives are recorded as Level 1, 2 or 3 instruments. The equity investment in Ocado is measured at fair value through net earnings. The fair value of all shares owned, which is measured using Level 1 inputs, was $558 and $987 as of August 13, 2022 and January 29, 2022, respectively, and is included in “Other assets” in the Company’s Consolidated Balance Sheets. An unrealized loss for this Level 1 investment of approximately $429 and $601 for the first two quarters of 2022 and 2021, respectively, is included in “Gain (loss) on investments” in the Company’s Consolidated Statements of Operations. An unrealized gain of $103 and unrealized loss of $122 for this Level 1 investment was recorded for the second quarters of 2022 and 2021, respectively, and is included in the “Gain (loss) on investments” in the Company’s Consolidated Statements of Operations. Refer to Note 2 for the disclosure of debt instrument fair values.

​

​

2.	DEBT OBLIGATIONS

​

Long-term debt consists of:

​

​	​	​	​	​	​	​
​	​	August 13,		​	January 29,
​		2022			2022
1.70% to 8.00% Senior Notes due through 2049	​	$	10,211	​	$	10,607
Other	​		1,114	​		1,138
​	​	​	​	​	​	​
Total debt, excluding obligations under finance leases	​		11,325	​		11,745
Less current portion	​		(652)	​		(451)
​	​	​	​	​	​	​
Total long-term debt, excluding obligations under finance leases	​	$	10,673	​	$	11,294

​

The fair value of the Company’s long-term debt, including current maturities, was estimated based on the quoted market prices for the same or similar issues adjusted for illiquidity based on available market evidence. If quoted market prices were not available, the fair value was based upon the net present value of the future cash flow using the forward interest rate yield curve in effect at August 13, 2022 and January 29, 2022. At August 13, 2022, the fair value of total debt was $11,094 compared to a carrying value of $11,325. At January 29, 2022, the fair value of total debt was $13,189 compared to a carrying value of $11,745.

​

Additionally, in the first two quarters of 2022, the Company repaid $400 of senior notes bearing an interest rate of 2.80% using cash on hand.

​

During the first quarter of 2021, the Company acquired 28, previously leased, properties for a purchase price of $455. Separately, the Company also entered into a transaction to sell those properties to a third party for total proceeds of $621. Total cash proceeds received as a result of the transactions was $166. The sale transaction did not qualify for sale-leaseback accounting treatment. As a result, the Company recorded property, plant and equipment for the $455 price paid and recorded a $621 financing obligation. The leases have a base term of 25 years and twelve option periods of five years each. The Company has the option to purchase the individual properties for fair market value at the end of the base term or at the end of any option period. The Company is obligated to repurchase the properties at the end of the base term for $300 if the lessor exercises its put option.

​

​

3.	BENEFIT PLANS

​

The following table provides the components of net periodic benefit cost for the company-sponsored defined benefit pension plans and other post-retirement benefit plans for the second quarters of 2022 and 2021:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Second Quarter Ended
​	​	Pension Benefits					​	Other Benefits
​	​	August 13,		​	August 14,		​	August 13,		​	August 14,
​		2022			2021			2022			2021
Components of net periodic benefit cost (benefit):	​	​	​	​	​	​	​	​	​	​	​	​	​
Service cost		$	2		$	4		$	1		$	1	​
Interest cost	​		24	​		22	​		—	​		1	​
Expected return on plan assets	​		(35)	​		(40)	​		—	​		—	​
Amortization of:	​	​	​	​	​	​	​	​	​	​	​	​	​
Prior service cost	​		—	​		—	​		(3)	​		(3)	​
Actuarial loss (gain)	​		6	​		9	​		(3)	​		(4)	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net periodic benefit cost (benefit)		$	(3)		$	(5)		$	(5)		$	(5)	​

​

The following table provides the components of net periodic benefit cost for the company-sponsored defined benefit pension plans and other post-retirement benefit plans for the first two quarters of 2022 and 2021:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Two Quarters Ended
​	​	Pension Benefits					​	Other Benefits
​	​	August 13,		​	August 14,		​	August 13,		​	August 14,
​		2022			2021			2022			2021
Components of net periodic benefit cost (benefit):	​	​	​	​	​	​	​	​	​	​	​	​	​
Service cost		$	5		$	7		$	2		$	2	​
Interest cost	​		54	​		54	​		3	​		2	​
Expected return on plan assets	​		(82)	​		(93)	​		—	​		—	​
Amortization of:	​	​	​	​	​	​	​	​	​	​	​	​	​
Prior service cost	​		—	​		—	​		(7)	​		(7)	​
Actuarial loss (gain)	​		14	​		21	​		(8)	​		(10)	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net periodic benefit cost (benefit)		$	(9)		$	(11)		$	(10)		$	(13)	​

​

The Company is not required to make any contributions to its company-sponsored pension plans in 2022, but may make contributions to the extent such contributions are beneficial to the Company. The Company did not make any contributions to its company-sponsored pension plans in the first two quarters of 2022 and 2021.

​

The Company contributed $175 and $158 to employee 401(k) retirement savings accounts in the first two quarters of 2022 and 2021, respectively.

​

The Company also contributes to various multi-employer pension plans based on obligations arising from most of its collective bargaining agreements. These plans provide retirement benefits to participants based on their service to contributing employers. The Company recognizes expense in connection with these plans as contributions are funded. In addition to the recurring multi-employer pension contributions the Company makes in the normal course of business, in the first two quarters of 2021, the Company contributed an incremental $106, $81 net of tax, to multi-employer pension plans, helping stabilize future associate benefits.

​

During the first quarter of 2021, associates within the Fred Meyer and QFC divisions ratified an agreement for the transfer of liabilities from the Sound Retirement Trust to the UFCW Consolidated Pension Plan. The Company transferred $449, $344 net of tax, in net accrued pension liabilities and prepaid escrow funds to fulfill obligations for past service for associates and retirees. The agreement will be satisfied by cash installment payments to the UFCW Consolidated Pension Plan and will be paid evenly over seven years.

​

​

4.	EARNINGS PER COMMON SHARE

​

Net earnings attributable to The Kroger Co. per basic common share equal net earnings attributable to The Kroger Co. less income allocated to participating securities divided by the weighted-average number of common shares outstanding. Net earnings attributable to The Kroger Co. per diluted common share equal net earnings attributable to The Kroger Co. less income allocated to participating securities divided by the weighted-average number of common shares outstanding, after giving effect to dilutive stock options. The following table provides a reconciliation of net earnings attributable to The Kroger Co. and shares used in calculating net earnings attributable to The Kroger Co. per basic common share to those used in calculating net earnings attributable to The Kroger Co. per diluted common share:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Second Quarter Ended							​	Second Quarter Ended							​	​
​	​	August 13, 2022							​	August 14, 2021							​
​		​	​		​		Per			​	​		​		Per		​	​
​	​	Earnings		​	Shares	​	Share		​	Earnings		​	Shares	​	Share		​	​
​	​	(Numerator)		​	(Denominator)	​	Amount		​	(Numerator)		​	(Denominator)	​	Amount		​	​
Net earnings attributable to The Kroger Co. per basic common share	​	$	724		716	​	$	1.01	​	$	462		746	​	$	0.62	​	​
Dilutive effect of stock options	​	​	​		9	​	​	​	​	​	​		9	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co. per diluted common share	​	$	724		725	​	$	1.00	​	$	462		755	​	$	0.61	​	​

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Two Quarters Ended							​	Two Quarters Ended							​
​	​	August 13, 2022							​	August 14, 2021							​
​		​	​		​		Per			​	​		​		Per
​	​	Earnings		​	Shares	​	Share		​	Earnings		​	Shares	​	Share		​
​	​	(Numerator)		​	(Denominator)	​	Amount		​	(Numerator)		​	(Denominator)	​	Amount
Net earnings attributable to The Kroger Co. per basic common share	​	$	1,381		720	​	$	1.92	​	$	601		750	​	$	0.80	​
Dilutive effect of stock options	​	​	​		10	​	​	​	​	​	​		8	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co. per diluted common share	​	$	1,381		730	​	$	1.89	​	$	601		758	​	$	0.79	​

​

The Company had combined undistributed and distributed earnings to participating securities totaling $7 and $5 in the second quarters of 2022 and 2021, respectively. For the first two quarters of 2022 and 2021, the Company had combined undistributed and distributed earnings to participating securities of $13 and $6, respectively.

​

The Company had options outstanding for approximately 2 million shares during each of the second quarters of 2022 and 2021 that were excluded from the computations of net earnings per diluted common share because their inclusion would have had an anti-dilutive effect on net earnings per share. The Company had options outstanding for approximately 1 million and 8 million shares during the first two quarters of 2022 and 2021, respectively, that were excluded from the computations of net earnings per diluted common share because their inclusion would have had an anti-dilutive effect on net earnings per share.

​

​

5.	LEASES AND LEASE-FINANCED TRANSACTIONS

​

On May 17, 2018, the Company entered into a Partnership Framework Agreement with Ocado International Holdings Limited and Ocado Group plc (“Ocado”), which has since been amended. Under this agreement, Ocado will partner exclusively with the Company in the U.S., enhancing the Company’s digital and robotics capabilities in its distribution networks. In the first two quarters of 2022, the Company opened three additional Kroger Delivery customer fulfillment centers in Romulus, Michigan, Dallas, Texas and Pleasant Prairie, Wisconsin, which brings the Company’s total Kroger Delivery customer fulfillment centers to six as of August 13, 2022. The Company determined the arrangement with Ocado contains a lease of the robotic equipment used to fulfill customer orders. As a result, the Company establishes a finance lease when each facility begins fulfilling orders to customers. The base term of each lease is 10 years with options to renew at the Company’s sole discretion. The Company elected to combine the lease and non-lease elements in the contract. As a result, the Company will account for all payments to Ocado as lease payments. During the first two quarters of 2022, the Company recorded finance lease assets of $429 and finance lease liabilities of $391 related to the Company’s agreement with Ocado.

​

6.	COMMITMENTS AND CONTINGENCIES

​

The Company continuously evaluates contingencies based upon the best available evidence.

​

The Company believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. To the extent that resolution of contingencies results in amounts that vary from the Company’s estimates, future earnings will be charged or credited.

​

The principal contingencies are described below:

​

Insurance — The Company’s workers’ compensation risks are self-insured in most states. In addition, other workers’ compensation risks and certain levels of insured general liability risks are based on retrospective premium plans, deductible plans, and self-insured retention plans. The liability for workers’ compensation risks is accounted for on a present value basis. Actual claim settlements and expenses incident thereto may differ from the provisions for loss. Property risks have been underwritten by a subsidiary and are all reinsured with unrelated insurance companies. Operating divisions and subsidiaries have paid premiums, and the insurance subsidiary has provided loss allowances, based upon actuarially determined estimates.

​

Litigation — Various claims and lawsuits arising in the normal course of business, including personal injury, contract disputes, employment discrimination, wage and hour and other regulatory claims are pending against the Company. Some of these suits purport or have been determined to be class actions and/or seek substantial damages. Although it is not possible at this time to evaluate the merits of all of these claims and lawsuits, nor their likelihood of success, the Company is of the belief that any resulting liability will not have a material effect on the Company’s financial position, results of operations, or cash flows.

​

The Company continually evaluates its exposure to loss contingencies arising from pending or threatened litigation and believes it has made provisions where it is reasonably possible to estimate and when an adverse outcome is probable. Nonetheless, assessing and predicting the outcomes of these matters involves substantial uncertainties. Management currently believes that the aggregate range of loss for the Company’s exposure is not material to the Company. It remains possible that despite management’s current belief, material differences in actual outcomes or changes in management’s evaluation or predictions could arise that could have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

​

​

The Company is one of dozens of companies that have been named in various lawsuits alleging that defendants contributed to create a public nuisance through the distribution and dispensing of opioids. At present, the Company is named in a significant number of lawsuits pending in various state courts as well as in the United States District Court for the Northern District of Ohio, where over 2,000 cases have been consolidated as Multi-District Litigation ("MDL") pursuant to 28 U.S.C. §1407 in a case entitled In re National Prescription Opiate Litigation. Most of these cases have been stayed but Kroger entities have been named in five bellwether cases that are proceeding on a staggered discovery schedule before Judge Polster, the MDL judge. Once discovery is completed, those cases will be remanded to the originating federal court for trial. The Company is vigorously defending these matters and believes that these cases are without merit. At this stage in the proceedings, the Company is unable to determine the probability of the outcome of these matters or the range of reasonably possible loss, if any.

​

Assignments — The Company is contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions. The Company could be required to satisfy the obligations under the leases if any of the assignees is unable to fulfill its lease obligations. Due to the wide distribution of the Company’s assignments among third parties, and various other remedies available, the Company believes the likelihood that it will be required to assume a material amount of these obligations is remote.

​

7.	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

​

The following table represents the changes in AOCI by component for the first two quarters of 2022 and 2021:

​

​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	Pension and		​	​	​
​	​	Cash Flow		​	Postretirement		​	​	​
​	​	Hedging		​	Defined Benefit		​	​	​
​		Activities(1)			Plans(1)			Total(1)
Balance at January 30, 2021	​	$	(54)	​	$	(576)	​	$	(630)
Amounts reclassified out of AOCI(2)	​	​	3	​		2	​		5
Net current-period OCI	​	​	3	​		2	​		5
Balance at August 14, 2021	​	$	(51)	​	$	(574)	​	$	(625)
​	​	​	​	​	​	​	​	​	​
Balance at January 29, 2022	​	$	(47)	​	$	(420)	​	$	(467)
Amounts reclassified out of AOCI(2)	​		4	​	​	(1)	​		3
Net current-period OCI	​		4	​		(1)	​		3
Balance at August 13, 2022	​	$	(43)	​	$	(421)	​	$	(464)

(1)	All amounts are net of tax.

(2)	Net of tax of $4 for cash flow hedging activities and $2 for pension and postretirement defined benefit plans for the first two quarters of 2021. Net of tax of $1 for cash flow hedging activities for the first two quarters of 2022.

​

​

The following table represents the items reclassified out of AOCI and the related tax effects for the second quarters and first two quarters of 2022 and 2021:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Second Quarter Ended					​	Two Quarters Ended
​		August 13,			August 14,			August 13,			August 14,
​	​	2022		​	2021		​	2022		​	2021		​
Cash flow hedging activity items	​	​	​	​	​	​	​	​	​	​	​	​	​
Amortization of gains and losses on cash flow hedging activities(1)	​	$	2	​	$	4	​	$	5	​	$	7	​
Tax expense	​		—	​		(3)	​		(1)	​		(4)	​
Net of tax	​		2	​		1	​		4	​		3	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Pension and postretirement defined benefit plan items	​	​	​	​	​	​	​	​	​	​	​	​	​
Amortization of amounts included in net periodic pension cost(2)	​		—	​		2			(1)			4	​
Tax expense			(1)			(1)			—			(2)	​
Net of tax			(1)			1			(1)			2	​
Total reclassifications, net of tax		$	1		$	2		$	3		$	5	​

(1)	Reclassified from AOCI into interest expense.

(2)	Reclassified from AOCI into non-service component of company-sponsored pension plan costs. These components are included in the computation of net periodic pension cost (see Note 3 for additional details).

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8.	INCOME TAXES

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The effective income tax rate was 22.3% for the second quarter of 2022 and 21.1% for the second quarter of 2021. The effective income tax rate was 20.3% for the first two quarters of 2022 and 20.9% for the first two quarters of 2021. The effective income tax rate for the second quarters of 2022 and 2021 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 2022 and 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.

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9.	SUBSEQUENT EVENT

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On September 9, 2022, the Company’s Board of Directors approved a $1,000 share repurchase program. The previous repurchase program was exhausted subsequent to the end of the second quarter of 2022.

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