KRKroger

Please reconcile your FIFO gross profit, a non-GAAP financial measure, to its most directly comparable GAAP measure which is a fully-loaded GAAP gross profit that must be presented even if one is not depicted on your statements of operations.

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As you present FIFO gross margin on a percentage basis, please disclose your fully-loaded GAAP gross margin with equal or greater prominence wherever you disclose FIFO gross margin. In this regard, your gross margin rate, as a percentage of sales, disclosed on page 34 does not appear to be calculated based on the fully-loaded GAAP gross profit as it excludes depreciation and amortization. Refer to Item 10(e)(1)(i)(A) and (B) of Regulation S-K and Question 102.10(a) of the Non-GAAP Financial Measures Compliance and Disclosure Interpretations.

The Company respectfully acknowledges the Staff’s comment. We separately present depreciation and amortization and rent expenses on our Consolidated Statements of Operations and do not allocate depreciation and amortization and rent expenses to merchandise costs, as described within Note 1 of our Notes to Consolidated Financial Statements

– Accounting Policies. As such, we do not present gross profit within our Consolidated Statements of Operations.

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We have thoughtfully chosen this presentation as depreciation and amortization and rent expenses are managed by the Company separately from merchandise costs. This presentation of our Consolidated Statements of Operations is acceptable for depreciation and amortization according to SAB

Topic 11:B. In addition, rent expense has been separately disclosed per Rule 5-03 of Regulation S-X due to its materiality.

We present and discuss gross profit in the manner we do because 1) it is consistent with how we reflect our business in our internal financial statements, 2) it is consistent with how leadership and the

Chief Executive Officer operate and manage the business, and 3) it reflects how our profit is incorporated into our incentive plans. We further believe the notes to our financial statements clearly present the costs we include in merchandise costs, as well as our classification of depreciation and amortization and rent expenses.

In response to the Staff’s comment, in future filings, we will utilize the term “merchandising margin” to discuss this margin, which is calculated directly from the face of our Consolidated

Statements of Operations using “Sales” and “Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below.” Per Item 10(e)(4) of Regulation S-K, presentation of ratios or statistical measures that are calculated exclusively using financial measures calculated in accordance with Generally Accepted Accounting Principles (“GAAP”), such as our calculation of merchandising margin, are not non-GAAP financial measures. Since we have concluded that merchandising margin is not a non-GAAP measure (as defined by Item 10(e)(2) and Item 10(e)(4) of Regulation S-K), we believe Question 102.10(a) of the Non-GAAP Financial Measures Compliance and Disclosure Interpretations is not applicable with respect to merchandising margin. We will include a tabular calculation of our merchandising margin, as a percentage of sales, from the face of our Consolidated Statements of Operations to ensure we clearly reconcile the statistical measure of merchandising margin for the users of our financial statements. Our merchandising margin, as a percentage of sales, is a GAAP financial statement measure and will be shown with greater prominence than FIFO merchandising margin, a non-GAAP financial measure. Additionally, we will reconcile FIFO merchandising margin to merchandising margin, the most directly comparable GAAP measure, within this tabular calculation.

Additionally, to acknowledge diversity in practice around presentation of depreciation and amortization and rent expenses and margins across our industry, we will clearly define merchandising margin in the

Results of Operations section of Management’s Discussion and Analysis of Financial Condition and Results of Operations. Our proposed disclosure for the changes described above is presented below:

Merchandising Margin, LIFO and FIFO Merchandising Margin

We define merchandising margin as sales minus merchandise costs, including advertising, warehousing, and transportation. Rent expense, depreciation and amortization expense, and interest expense are not included in merchandising margin. Our merchandising margin amounts may not be comparable to those of other retailers since some retailers include an allocation of depreciation and amortization and rent expenses in merchandise costs and others like us exclude these expenses from merchandise costs and choose to separately present them within the Consolidated Statements of Operations. See Note

1 – Accounting Policies, for additional detail.

Merchandising margin and FIFO merchandising margin are calculated as follows:

Fiscal Year

2023

2022

Sales

$

150,039

148,258

Merchandise costs, including advertising, warehousing, and transportation, excluding depreciation and amortization and rent expenses

116,675

116,480

Merchandising margin

33,364

31,778

Merchandising margin, as a percentage of sales

22.24

%

21.43

LIFO charge

113

626

FIFO merchandising margin

33,477

32,404

FIFO merchandising margin, as a percentage of sales

22.31

21.86

Our merchandising margin rates, as a percentage of sales, were 22.24% in 2023 and 21.43% in 2022. 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 2023, compared to 2022, resulted primarily from a decreased LIFO charge, an increase in our fuel merchandising margin, strong Our Brands performance, our ability to effectively manage product cost through strong sourcing practices, lower transportation costs, as a percentage of sales, and the effect of our terminated agreement with Express Scripts, partially offset by higher shrink, as a percentage of sales, and increased promotional price investment.

Our LIFO charge was $113 million in 2023 and

$626 million in 2022. The decrease in our LIFO charge was attributable to lower product cost inflation for 2023 compared to 2022.

Our FIFO merchandising margin rate, which excludes the LIFO charge, was 22.31% in 2023, compared to 21.86% in 2022. Our fuel sales lower our FIFO merchandising margin rate due to the very low FIFO merchandising margin rate, as a percentage of sales, of fuel sales compared to non-fuel sales. Excluding the effect of fuel and the Extra Week, our FIFO merchandising margin rate increased 18 basis points in 2023, compared to 2022. This increase in rate was achieved while also investing in price to maintain a competitive price position and deliver greater value for our customers. This increase resulted primarily from strong Our Brands performance, our ability to effectively manage product cost through strong sourcing practices, lower transportation costs, as a percentage of sales, and the effect of our terminated agreement with Express Scripts, partially offset by increased promotional price investment and higher shrink, as a percentage of sales.

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Your disclosure of operating cash flow generated from "net earnings including noncontrolling interests, adjusted for non-cash items," appears to be a non-GAAP financial measure. Please remove this measure from your disclosure or provide the disclosure required by Item 10(e) of Regulation S-K.

The Company respectfully acknowledges the Staff’s comment, and in future filings, we will supplement our existing disclosure with the following table to clarify the calculation of net earnings including noncontrolling interests, adjusted for non-cash items, consistent with Item 10(e) of Regulation S-K:

Net cash provided by operating activities

The following table provides a reconciliation of net earnings including noncontrolling interests, adjusted for non-cash items, and change in operating assets and liabilities, including working capital, to net cash provided by operating activities for

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2023 and 2022.

Net earnings including noncontrolling interests

$ 2,169

$ 2,249

Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:

Depreciation and amortization

3,125

2,965

Asset impairment charges

Goodwill and fixed asset impairment charges related to Vitacost.com

-

164

Operating lease asset amortization

625

614

Stock-based employee compensation

172

190

Company-sponsored pension plans

(9 )

(26 )

Deferred income taxes

(155 )

161

Gain on the sale of assets

(56 )

(40 )

(Gain) loss on investments

(151 )

728

Other

(8 )

Net earnings including noncontrolling interests, adjusted for non-cash items

5,980

7,691

Change in operating assets and liabilities, including working capital:

Store deposits in-transit

(88 )

(45 )

Receivables

(222 )

Inventories

342

(1,370 )

Prepaid and other current assets

(36 )

Trade accounts payable

545

Accrued expenses

(126 )

Income taxes receivable and payable

(190 )

Operating lease liabilities

(695 )

(622 )

772

(585 )

Change in operating assets and liabilities, including working capital

808

(3,193 )

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You present the change in FIFO Gross Margin Rate in the financial results table and discuss the change in FIFO gross margin rate, excluding fuel, in the narrative disclosure without disclosing and discussing the change of its most directly comparable GAAP measure. Please revise to present GAAP gross margin with equal or greater prominence.

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Refer to Item 10(e)(1)(i)(A) of Regulation S-K and Question 102.10(a) of the Non-GAAP Financial Measures Compliance and Disclosure Interpretations.

The Company respectfully acknowledges the Staff’s comment. In accordance with the rationale discussed in our response to comment 1 above, we consider merchandising margin to be an appropriate financial statement measure to satisfy the prominence rules under Item 10(e)(1)(i)(A) of Regulation S-K. In response to this comment 3, in future filings, we will include a line item within our press release which includes our financial results that is filed as Exhibit 99.1 to our Item 2.02 Form 8-K to show merchandising margin rate basis point fluctuation as shown below:

Third Quarter Financial

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Results

3Q24 ($ in millions; except EPS)

3Q23 ($ in millions; except EPS)

ID Sales* (Table 4)

2.3 %

(0.6) %

Earnings Per Share

$ 0.84

$ 0.88

Adjusted EPS (Table 6)

$ 0.98

$ 0.95

Operating Profit

$ 828

$ 912

Adjusted FIFO Operating Profit (Table 7)

$ 1,017

$ 1,022

Merchandising Margin Rate

Increased 81 basis points

FIFO Merchandising Margin Rate*

Increased 51 basis points

OG&A Rate*

Increased 22 basis points

* Without fuel and adjustment items, if applicable.

We will also include a discussion of merchandising margin rate change within our financial results release prior to discussion of FIFO merchandising margin rate, excluding fuel.

We acknowledge that the company and its management are responsible for the accuracy and adequacy of its disclosures, notwithstanding any review, comments, action or absence of action by the Staff.

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We note your response to prior comment 2. Please expand your proposed disclosure revisions to: • Disclose the reasons why you believe the presentation of “net earnings including noncontrolling interests, adjusted for non-cash items” provides useful information to investors and additional purposes for which the management uses this non- GAAP measure. Refer to Items 10(e)(1)(i)(C) and (D) of Regulation S-K.

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• Clarify the nature of the adjustment for “deferred income taxes” presented in your reconciliation. Please tell us why this adjustment does not change the recognition and measurement principles required to be applied in accordance with U.S. GAAP. Refer to Question 100.04 of the Non-GAAP Financial Measures Compliance and Disclosure Interpretations.

advises the Staff that in future filings, the Company will not include the measure of “Net earnings including noncontrolling interests, adjusted for non-cash items” within its disclosure.

We acknowledge that the company and its management are responsible for the accuracy and adequacy of its disclosures, notwithstanding any review, comments, action or absence of action by the Staff. Read in the reply ↗

Please provide support for the following statements or revise as appropriate to ensure that a reasonable basis exists for such claims: • "we believe that Kroger’s...Board...has not fulfilled its duty to shareholders to protect their interests with respect to the Company’s mistreatment of its employees and its hollow commitment to...ESG practices." • "Kroger’s Board and management team should live up to this

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commitment by addressing the unacceptably low wages of the Company’s frontline workers..." • "While Kroger profited from extremely high margins during the COVID19 pandemic, the Company failed to fulfill its “Hero Bonus” promise made to its front-line workers." In responding to this comment, please note the disclosure on pages 6 and 53 of the Company's definitive proxy statement filed on May 2, 2022 that "[i]n 2021, [Kroger] invested more than ever before in our associates by continuing to raise our average hourly wage to $17 and our average hourly rate to over $22, inclusive of industry leading benefits such as continuing education and tuition reimbursement, training and development, health and wellness." It is our understanding that Kroger has invested an incremental $1.2 billion in associate compensation and benefits since 2018 and invested $140 million in associate training and development in 2021. It is also our understanding that (i) on March 31, 2020, the Company announced that it would provide all hourly frontline grocery, supply chain, manufacturing, pharmacy and call center associates with a Hero Bonus - a $2 premium above their standard base rate of pay, applied to hours worked March 29 through April 18, (ii) on April 16, 2020, the Company extended the $2 per hour premium for hourly frontline associates through May 2, 2020 and (iii) on May 15, 2020, the Company announced that the Hero Bonuses were paid in April through mid-May, with a final payment to be made by May 23, 2020. Refer to Kroger press releases found on its website dated March 31, April 16 and May 15, 2020. Finally, with respect to the reference to "extremely high margins" in the last bullet point above, it is our understanding that the Company's profit margins over the last two years have been consistent with pre-pandemic margins, with an overall gross profit margin rate 0.06% lower than in 2019.

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