CINCINNATI — Rodney McMullen, chairman and chief executive officer of The Kroger Co., said the supermarket giant stands ready to move forward with its planned merger with rival Albertsons Cos. as the companies await court rulings that could determine the fate of the more than two-year-old, $24.6 billion deal.

“It has been a long journey, and our associates have done an excellent job serving customers in running the day-to-day operations of our business while also preparing for the merger,” McMullen told analysts in a Dec. 5 conference call on Kroger’s fiscal 2024 third-quarter results. “I would like to extend a special thanks to those who supported the litigation in federal and state courts, both the associates who testified and the teams who prepared a compelling case about some meaningful and measurable benefits of the merger. Our teams are ready to ensure a seamless transition for our customers and associates from day one.”

On the merger litigation front, a decision from a Federal Trade Commission hearing in Oregon, completed over two months ago, is still pending. The FTC seeks a preliminary injunction to halt the transaction, in which Cincinnati-based Kroger plans to acquire Boise, Idaho-based Albertsons, joining the nation’s two largest conventional supermarket operators. In late February, the commission had issued an administrative complaint and filed a lawsuit — joined by eight states and the District of Columbia — to stop the deal.

Several other rulings also are forthcoming. In mid-August, Kroger filed suit to toss the FTC’s administrative complaint, calling it unconstitutional. Among legal actions taken by states, decisions on whether to block the merger remain pending after September trials in Colorado and Washington, though the outcomes of those cases may hinge on the FTC ruling in Oregon.

“As I’ve said before, we remain committed to closing the merger because it will provide meaningful and measurable benefits for customers, for associates and for communities across the country,” McMullen said. “And we look forward to bringing these commitments to life regardless of the outcome of the trials.”

During the analyst call, McMullen also reiterated the case for the merger. Both Kroger and Albertsons have said that together they would be a stronger supermarket company with more to offer employees, consumers and the communities they serve — including lower grocery prices.

“It is exciting to see the complementary strengths of both Kroger and Albertson’s organizations, and we look forward to combining the strengths to provide customers with an even better experience,” he said. “As we await the court rulings and the regulatory challenges to the merger, we remain confident in the facts and the strength of our position.”

Kroger sees the merger with Albertsons — the largest-ever US traditional supermarket merger deal — as a way to build the scale to better compete with mass chains like Walmart, Costco, Target and Dollar General as well as discount grocers and online retailers like Aldi and Amazon, which have seized significant grocery retail market share from traditional supermarkets over the past few decades.

When announced in October 2022, Kroger and Albertsons said the merger would form a company with revenue of $210 billion and 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies, 2,015 fuel centers and 710,000 employees in 48 states and DC. A September 2023 divestiture deal with C&S Wholesale Grocers — aimed at addressing regulators’ antitrust concerns — was expanded this past April to a $2.9 billion package, including 579 stores in 18 states and DC; eight distribution centers and additional warehouse space; and five private labels, plus access to two other brands.

“The retail industry continues to be more competitive and we know how our customers shop every day,” McMullen said in the call. “They are making decisions on where to eat and where to buy their groceries. They shop at a wide range of competitors — from Costco to Amazon to dollar stores — and they eat at restaurants. They shop digitally and brick-and-mortar.”

Kroger is “operating from a position of strength,” despite the merger’s uncertainty, McMullen said.

“We are optimistic about our future,” he said. “Our business is more diverse than ever, and our value-creation model provides us with multiple ways to drive sustainable growth. Our strong free cash flow and balance sheet provides us with the ability to invest in our business and enhance shareholder value.”

In responding to an analyst question, McMullen said Kroger wouldn’t be looking for “the next Albertsons” in terms of another potential M&A opportunity if the merger deal falls through.

“We’ve always made sure that we don’t need to do mergers to make our business successful, and that was one of the reasons that we’ve always been proud of what Kroger has done,” he said. “We’re super-excited about Albertsons and the potential, and we believe we will be able to add a ton of value.

“But if it (the Albertsons transaction) doesn’t happen, we’ll continue to go on. As you know, we always will continue to look at ways to grow the business. Mergers are always one of those ways of growing the business. But we try to make sure that we only do a merger when it makes sense and we’re not chasing something. And we won’t get into a position where we are having to chase something.”

Quarterly earnings decline

For the third quarter ended Nov. 9, Kroger’s net income totaled $618 million, equal to 84¢ per share on the common stock, down from $646 million, or 88¢ per share, a year earlier. The decrease primarily reflects $145 million in merger-related costs and investment losses, partially offset by a $60 million gain from the early October sale of the specialty pharmacy business, the company said.  

Adjusted net earnings were $719 million, or 98¢ per share, versus $698 million, or 95¢ per share, a year ago. The result was in line with Wall Street’s consensus forecast for adjusted earnings per share of 98¢ for the 2024 quarter.

“We delivered strong third-quarter sales results, led by our pharmacy and digital performance, which reflects the versatility of our model,” McMullen told analysts. “Customer engagement remains strong. Our convenient, seamless shopping experience, along with incredible customer value through low prices, personalized offers and great-quality Our Brands (private label) products, drove growth in both total and loyal households.”

Kroger’s top line dipped in the third quarter. Net sales declined just under 1% to $33.63 billion from $33.96 billion a year earlier. Excluding the specialty pharmacy divestiture and lower fuel business, net sales were up 2.7%. Identical sales excluding gasoline rose 2.3%, compared with a year-ago decrease of 0.6%. Digital sales climbed 11%, with delivery sales up 18%, which Kroger said were driven by the automated customer fulfillment centers it developed with Ocado Group.

During the third quarter, Kroger added 226 new own-brand products, and the company said its Our Brands offerings outpaced total grocery sales growth, led by the Private Selection label.

“We are helping customers save in multiple ways, including competitive shelf prices and loyalty discounts, personalized offers, fuel rewards and an expanded multi-tier Our Brands portfolio,” McMullen said. “Digital offers are an important way we deliver savings to customers, and engagement continues to grow, with 5% more digital offer clips so far this year. And that has led to 14% more savings for Kroger customers.”