Kroger · Earnings release

Kroger Reports Fourth

Quarter and Full-Year 2024 Results

Announces Guidance

Fourth Quarter Highlights

·

Identical Sales without fuel increased 2.4%

·

Operating Profit of $912 million; EPS of $0.90

·

Adjusted FIFO Operating Profit of $1,174 million and Adjusted EPS of $1.14

·

Delivered 11% digital sales growth, excluding the 53rd week in

·

Identical Sales without fuel increased 1.5%

·

Operating Profit of $3.8 billion; EPS of $3.67

·

Adjusted FIFO Operating Profit of $4.7 billion and Adjusted EPS of $4.47

·

Delivered more than $13B in digital sales

·

17% increase in Media, excluding the 53rd week in 2023, contributed

to $1.35B in Operating Profit from Alternative Profit Businesses

·

Increased associate wages resulting in average hourly wage of more than $19

and rate of more than $25 with comprehensive benefits factored in, which is a 38% increase in rate in the last seven years

·

Commenced a $5.0B Accelerated Share Repurchase Program to be completed under

Kroger’s $7.5B share repurchase authorization

Kroger Co. (NYSE: KR) today reported its fourth quarter and fiscal year 2024 results, provided 2025 guidance and updated investors on

how Kroger is positioned for long-term sustainable growth.

Comments from Chairman and CEO Ron Sargent

“I am excited to join this talented and experienced management

team in my role as interim CEO. I am committed to ensuring that we execute with speed and that our teams continue to advance our go-to-market

strategy to deliver for our customers, associates, communities, and shareholders.

Kroger is operating from a position of strength, delivering fourth

quarter results that came in ahead of expectations due to the strength of our model and the disciplined execution of our teams. We enter

2025 with positive momentum, focused on delivering an incredible customer experience through great quality at low prices.”

1

Fourth Quarter Financial Results

4Q24 ($ in millions; except EPS)

4Q23 ($ in millions; except EPS)

4Q23 Excluding the 53rd week ($ in millions; except EPS)

ID Sales(1) (Table 4)

N/A

Earnings Per Share

Adjusted EPS (Table 6)

Operating Profit

Adjusted FIFO Operating Profit (Table 7)

Gross Margin (Table 9)

N/A

FIFO Gross Margin Rate(2)(3)

Increased 54 basis points (including 41 basis points increase from the sale of Kroger Specialty Pharmacy)

OG&A Rate(1)(3)

Increased 16 basis points (including 31 basis points increase from the sale of Kroger Specialty Pharmacy)

(1) Without fuel and adjustment

items, if applicable.

(2) Without rent, depreciation

and amortization, fuel and adjustment items, if applicable.

Total company sales were $34.3 billion in the fourth quarter compared

to $37.1 billion for the same period last year, including $2.7 billion from the 53rd week in 2023 and $737 million from Kroger

Specialty Pharmacy sales. Excluding fuel, Kroger Specialty Pharmacy and the 53rd week in 2023, sales increased 2.6% compared to the same

period last year.

Gross margin was 22.7% of sales for the fourth quarter compared to

22.3% for the same period last year. The improvement in gross margin was primarily attributable to the sale of Kroger Specialty Pharmacy

and lower shrink, partially offset by lower pharmacy margins and the LIFO charge.

The FIFO gross margin rate, excluding rent, depreciation and amortization,

fuel, and the 53rd week in 2023, increased 54 basis points compared to the same period last year. The improvement in rate was

primarily attributable to the sale of Kroger Specialty Pharmacy and lower shrink, partially offset by lower pharmacy margins.

The LIFO charge for the quarter was $30 million, compared to a LIFO

credit of $18 million for the same period last year.

The Operating, General and Administrative rate, excluding fuel, adjustment

items and the 53rd week in 2023, increased 16 basis points compared to the same period last year. The increase in rate, was

primarily attributable to the sale of Kroger Specialty Pharmacy, increased incentive plan costs, and investment in associate wages, partially

offset by the continued execution of cost savings initiatives.

2

Fiscal 2024 Financial Results

2024 ($ in billions; except EPS)

2023 ($ in billions; except EPS)

2023 Excluding the 53rd week ($ in billions; except EPS)

ID Sales(1) (Table 4)

N/A

Earnings Per Share

Adjusted EPS (Table 6)

Operating Profit

Adjusted FIFO Operating Profit (Table 7)

Gross Margin (Table 9)

N/A

FIFO Gross Margin Rate(2)(3)

Increased 32 basis points (including 18 basis point increase from the sale of Kroger Specialty Pharmacy)

OG&A Rate(1)(3)

Increased 31 basis points (including 12 basis point increase from the sale of Kroger Specialty Pharmacy)

(1) Without fuel and adjustment

items, if applicable.

(2) Without rent, depreciation

and amortization, fuel and adjustment items, if applicable.

Total company sales were $147.1 billion in 2024, which includes $2.0

billion of Kroger Specialty Pharmacy sales, compared to $150.0 billion for the same period last year, including $2.7 billion from the

53rd week in 2023 and $3.2 billion of Kroger Specialty Pharmacy sales. Excluding fuel, Kroger Specialty Pharmacy and the 53rdweek in 2023, sales increased 1.8% compared to the same period last year.

same period last year. The improvement in gross margin was primarily attributable to the sale of Kroger Specialty Pharmacy, Our Brandsperformance and lower shrink, partially offset by lower pharmacy margins.

The FIFO gross margin rate, excluding rent, depreciation and amortization,

fuel, and the 53rd week in 2023, increased 32 basis points compared to the same period last year. The improvement in rate,

excluding fuel and the 53rd week, was primarily attributable to the sale of Kroger Specialty Pharmacy, Our Brands performance and lower

shrink, partially offset by lower pharmacy margins.

3

The LIFO charge for 2024 was $95 million, compared to a LIFO charge

of $113 million for the same period last year.

The Operating, General and Administrative rate, excluding fuel, adjustment

items and the 53rd week in 2023, increased 31 basis points compared to the same period last year. The increase in rate was

primarily attributable to the sale of Kroger Specialty Pharmacy, increased incentive plan costs, an increase in costs due to the severity

of general liability claims, and investment in associate wages, partially offset by the continued execution of cost savings initiatives.

Capital Allocation Strategy

Kroger expects to continue to generate strong

free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth, as well as maintaining

its current investment grade debt rating. The Company expects to continue to pay its quarterly dividend and expects this to increase over

time, subject to board approval.

Kroger’s net total debt to adjusted

EBITDA ratio is 1.79, compared to 1.33 a year ago, excluding the 53rd week in 2023 (Table 5). The company’s net total

debt to adjusted EBITDA ratio target range is 2.30 to 2.50. Kroger’s strong balance sheet provides ample opportunities for the Company

to pursue growth and enhance shareholder value.

During the quarter, Kroger initially repurchased

65.6 million shares as part of previously announced $5 billion accelerated share repurchase program (ASR), which is expected to be completed

by no later than the third fiscal quarter of Kroger’s Fiscal 2025. The total numbers of shares purchased by Kroger pursuant to the

ASR will be based on the average of the volume-weighted average prices of our common shares on specified dates during the term of the

ASR agreement, less a discount, and subject to adjustments pursuant to their terms and conditions. The ASR is being completed under Kroger’s

$7.5 billion share repurchase authorization. In addition to the ASR program, Kroger has $2.5 billion of capacity remaining under its share

repurchase authorization for incremental share repurchases over time.

Assuming current interest rates, G1Kroger expects

full-year net interest expense to be between $650 and $675 million in 2025.

·

G2Identical Sales without fuel of 2.0% – 3.0%

·

G3Adjusted FIFO Operating Profit of $4.7 – $4.9 billion

·

G4Adjusted net earnings per diluted share of $4.60 – $4.80

·

G5Adjusted Free Cash Flow of $2.8 – $3.0 billion**

·

G6Capital expenditures of $3.6 – $3.8 billion

·

G7Adjusted effective tax rate of 23%***

* Without adjusted items, if applicable. Kroger is unable to provide

a full reconciliation of the GAAP and non-GAAP measures used in 2025 guidance without unreasonable effort because it is not possible to

predict certain of our adjustment items with a reasonable degree of certainty. This information is dependent upon

future events and may be outside of our control and its unavailability could have a significant impact on 2025 GAAP financial results.

4

** Adjusted free cash flow excludes planned payments related to the

restructuring of multi-employer pension plans, payments related to opioid settlements and merger litigation costs.

*** The adjusted tax rate reflects typical tax adjustments and does

not reflect changes to the rate from the completion of income tax audit examinations and changes in tax laws and policies, which cannot

be predicted.

Comments from Interim CFO Todd Foley

“Kroger’s 2024 results demonstrate the resilience of our

value creation model, which is generating solid results and strong free cash flow.

Investments made to diversify our business have added more ways for

Kroger to drive sustainable future growth. With our strengthened balance sheet, we plan to continue to invest in our business through

new store growth, grow our dividend subject to board approval, and return excess cash to our shareholders through share repurchases to

drive shareholder returns in 2025, consistent with our long-term growth expectations.

The strength of our model and the momentum in our business give us

confidence in our 2025 growth plans.”

Fourth Quarter 2024 Highlights

Leading with Fresh

·

Introduced more than 900 new Our Brands items,

·

Announced new Simple Truth meal bundles designed to make healthy eating simpler for customers

·

Achieved produce identical sales which outpaced

total company identical sales without fuel

Accelerating with Digital

·

Increased delivery sales by 18% over last year, excluding the 53rdweek in 2023, led by Customer Fulfillment Centers

·

Held12 Merry Days Savings event, a mega-sales event helping customers save with special digital offers during the holiday season

Associate Experience

·

Achieved record retention rate for store and enterprise associates this year

which led to improved productivity and more consistent customer experience

·

Named by Computerworld to the 2025 List of Best Places to Work in IT

·

Supported continuing education with almost 5,500 associates, 89% of whom

are hourly, taking advantage of Kroger’s education assistance program in 2024

5

·

Recognized as a leader in Workplace Culture and Pharmacy Customer Service by Forbes

Live Our Purpose

·

Responded to the Los Angeles wildfires with supplies and monetary donations

to support those affected

·

Recognized as one of Newsweek’s “Most Responsible Companies”

·

Expanded prescription drug safety program to more than 470 U.S. schools

About Kroger

At The Kroger

Co. (NYSE: KR), we are dedicated to our Purpose: To Feed the Human Spirit™. We are, across our family of companies nearly

420,000 associates who serve over 11 million customers daily through a seamless digital shopping experience and retail food stores

under a variety of banner names, serving America through food inspiration and uplift, and

creating #ZeroHungerZeroWaste communities. To learn more about us, visit our newsroom and

investor relations site.

Kroger's fourth quarter 2024 ended on February 1,

Note: Fuel sales have historically had a low

gross margin rate and operating expense rate as compared to corresponding rates on non-fuel sales. As a result, Kroger discusses the changes

in these rates excluding the effect of fuel.

Please refer to the supplemental information

presented in the tables for reconciliations of the non-GAAP financial measures used in this press release to the most comparable GAAP

financial measure and related disclosure. As noted above, Kroger is unable to provide a full reconciliation of the GAAP and non-GAAP measures

used in its guidance without unreasonable effort because it is not possible to predict certain of our adjustment items with a reasonable

degree of certainty. This information is dependent upon future events and may be outside of our control and its unavailability could have

a significant impact on GAAP financial results.

This press release contains certain statements

that constitute “forward-looking statements” about Kroger’s financial position and the future performance of the company.

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 or phrases such as “achieve,” “committed,” “confidence,” “continue,” “deliver,” “drive,” “expect,” “future,” “guidance,” “model,” “opportunities,” “outlook,” “plan,” “strategy,” “target,” “trends,” “will,” and

variations of such words and similar phrases. Various uncertainties and other factors could cause actual results to differ materially

from those contained in the forward-looking statements. 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 the following:

Kroger's ability to achieve sales, earnings, incremental FIFO operating

profit, and adjusted free cash flow goals may be affected by: labor negotiations; potential work stoppages; changes in the unemployment

rate; pressures in the labor market; changes in government-funded benefit programs; changes in the types and numbers of businesses that

compete with Kroger; pricing and promotional activities of existing and new competitors, and the aggressiveness of that competition; Kroger's

response to these actions; the state of the economy, including interest rates, the inflationary, disinflationary and/or deflationary trends

and such trends in certain commodities, products and/or operating costs; the geopolitical environment including wars and conflicts; unstable

political situations and social unrest; changes in tariffs; the effect that fuel costs have on consumer spending; volatility of fuel margins;

manufacturing commodity costs; supply constraints; diesel fuel costs related to Kroger’s logistics operations; trends in consumer

spending; the extent to which Kroger’s customers exercise caution in their purchasing in response to economic conditions; the uncertainty

of economic growth or recession; stock repurchases; changes in the regulatory environment in which Kroger operates, along with changes

in federal policy and at regulatory agencies; Kroger’s ability to retain pharmacy sales from third party payors; consolidation in

the healthcare industry, including pharmacy benefit managers; Kroger’s ability to negotiate modifications to multi-employer pension

plans; natural disasters or adverse weather conditions; the effect of public health crises or other significant catastrophic events; the

potential costs and risks associated with potential cyber-attacks or data security breaches; the success of Kroger's future growth plans;

the ability to execute our growth strategy and value creation model, including continued cost savings, growth of our alternative profit

businesses, and our ability to better serve our customers and to generate customer loyalty and sustainable growth through our strategic

pillars of fresh, our brands, personalization, and seamless; the outcome of litigation matters, including those relating to the terminated

transaction with Albertsons; and the risks relating to or arising from our opioid litigation settlements, including the risk of litigation

relating to persons, entities, or jurisdictions that do not participate in those settlements . Our ability to achieve these goals may

also be affected by our ability to manage the factors identified above. Our ability to execute our financial strategy may be affected

by our ability to generate cash flow.

6

Kroger’s adjusted effective tax rate may differ from the expected

rate due to changes in tax laws and policies, the status of pending items with various taxing authorities, and the deductibility of certain

expenses.

Kroger assumes no obligation to update the information contained herein

unless required by applicable law. Please refer to Kroger's reports and filings with the Securities and Exchange Commission for a further

discussion of these risks and uncertainties.

Note: Kroger's

quarterly conference call with investors will broadcast live at 10 a.m. (ET) on March 6, 2025 at ir.kroger.com.

An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, March 6, 2025.

7

1.

Consolidated Statements of Operations

2.

Consolidated Balance Sheets

3.

Consolidated Statements of Cash Flows

4.

Supplemental Sales Information

5.

Reconciliation of Net Total Debt and Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA

6.

Net Earnings Per Diluted Share Excluding the Adjustment Items

7.

Operating Profit Excluding the Adjustment Items

8.

Adjusted Free Cash Flow

9.

Gross Margin

8

Table 1.

THE KROGER CO.

CONSOLIDATED STATEMENTS

OF OPERATIONS

(in millions, except per

share amounts)

(unaudited)

FOURTH QUARTER

YEAR-TO-DATE

SALES

$

%

$

%

$

%

$

%

OPERATING EXPENSES

MERCHANDISE COSTS, INCLUDING ADVERTISING, WAREHOUSING AND TRANSPORTATION (a),AND LIFO CHARGE (b)

OPERATING, GENERAL AND ADMINISTRATIVE (a)

RENT

DEPRECIATION AND AMORTIZATION

OPERATING PROFIT

OTHER INCOME (EXPENSE)

NET INTEREST EXPENSE

)

)

)

)

)

)

)

)

NON-SERVICE COMPONENT OF COMPANY-SPONSORED PENSION PLAN BENEFITS

3

-

6

-

-

-

(LOSS) GAIN ON INVESTMENTS

)

)

)

)

)

)

GAIN ON SALE OF BUSINESS

-

-

-

-

-

-

NET EARNINGS BEFORE INCOME TAX EXPENSE

INCOME TAX EXPENSE

NET EARNINGS INCLUDING NONCONTROLLING INTERESTS

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

-

-

3

-

7

-

5

-

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.

$

%

$

%

$

%

$

%

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. PER BASIC COMMON SHARE

$

$

$

$

AVERAGE NUMBER OF COMMON SHARES USED IN BASIC CALCULATION

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. PER DILUTED COMMON SHARE

$

$

$

$

AVERAGE NUMBER OF COMMON SHARES USED IN DILUTED CALCULATION

DIVIDENDS DECLARED PER COMMON SHARE

$

$

$

$

Note:

Certain percentages may not sum due to rounding.

Note:

The Company defines First-In First-Out (FIFO) gross profit as sales minus merchandise costs, including advertising, warehousing and transportation, but excluding the Last-In First-Out (LIFO) charge, rent and depreciation and amortization.

The Company defines FIFO gross margin as FIFO gross profit divided by sales.

The Company defines FIFO operating profit as operating profit excluding the LIFO charge.

The Company defines FIFO operating margin as FIFO operating profit divided by sales.

The above FIFO financial metrics are important measures used by management to evaluate operational effectiveness. Management believes these FIFO financial metrics are useful to investors and analysts because they measure our day-to-day operational effectiveness.

(a)

Merchandise costs ("COGS") and operating, general and administrative expenses ("OG&A") exclude depreciation and amortization expense and rent expense which are included in separate expense lines.

(b)

A LIFO charge of $30 and a LIFO credit of $18 were recorded in the fourth quarters of 2024 and 2023, respectively. For the year-to-date period, LIFO charges of $95 and $113 were recorded for 2024 and 2023, respectively.

Table 2.

THE KROGER CO.

CONSOLIDATED BALANCE

SHEETS

(in millions)

(unaudited)

February 1,

February 3,

ASSETS

Current Assets

Cash

$

$

Temporary cash investments

Store deposits in-transit

Receivables

Inventories

Prepaid and other current assets

Total current assets

Property, plant and equipment, net

Operating lease assets

Intangibles, net

Goodwill

Other assets

Total Assets

$

$

LIABILITIES AND SHAREOWNERS' EQUITY

Current Liabilities

Current portion of long-term debt including obligations under finance leases

$

$

Current portion of operating lease liabilities

Accounts payable

Accrued salaries and wages

Other current liabilities

Total current liabilities

Long-term debt including obligations under finance leases

Noncurrent operating lease liabilities

Deferred income taxes

Pension and postretirement benefit obligations

Other long-term liabilities

Total Liabilities

Shareowners' equity

Total Liabilities and Shareowners' Equity

$

$

Total common shares outstanding at end of period

Total diluted shares year-to-date

Table 3.

THE KROGER CO.

CONSOLIDATED STATEMENTS

OF CASH FLOWS

(in millions)

(unaudited)

YEAR-TO-DATE

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings including noncontrolling interests

$

$

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

Depreciation and amortization

Asset impairment charges

Operating lease asset amortization

LIFO charge

Share-based employee compensation

Company-sponsored pension plan benefits

(2

)

(9

)

Deferred income taxes

)

)

Gain on the sale of assets

)

)

Gain on sale of business

)

-

Loss (gain) on investments

)

Other

Changes in operating assets and liabilities:

Store deposits in-transit

)

)

Receivables

)

Inventories

)

Prepaid and other current assets

)

Accounts payable

Accrued expenses

)

Income taxes receivable and payable

Operating lease liabilities

)

)

Other

)

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Payments for property and equipment, including payments for lease buyouts

)

)

Proceeds from sale of assets

Net proceeds from sale of business

-

Other

)

Net cash used by investing activities

)

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of long-term debt

Payments on long-term debt including obligations under finance leases

)

)

Dividends paid

)

)

Financing fees paid

)

-

Proceeds from issuance of capital stock

Treasury stock purchases

)

)

Unsettled accelerated share repurchases

)

-

Other

)

)

Net cash used by financing activities

)

)

NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS

CASH AND TEMPORARY CASH INVESTMENTS:

BEGINNING OF YEAR

END OF YEAR

$

$

Reconciliation of capital investments:

Payments for property and equipment, including payments for lease buyouts

$

)

$

)

Payments for lease buyouts

-

Changes in construction-in-progress payables

Total capital investments, excluding lease buyouts

$

)

$

)

Disclosure of cash flow information:

Cash paid during the year for net interest

$

$

Cash paid during the year for income taxes

$

$

Table 4. Supplemental

Sales Information

(in millions, except percentages)

(unaudited)

Items

identified below should not be considered as alternatives to sales or any other GAAP measure of performance. Identical sales

is an industry-specific measure, and it is important to review it in conjunction with Kroger's financial results reported in accordance

with GAAP. Other companies in our industry may calculate identical sales differently than Kroger does, limiting the comparability

of the measure.

IDENTICAL SALES (a)

FOURTH QUARTER

YEAR-TO-DATE

EXCLUDING FUEL

$

$

$

$

EXCLUDING FUEL

%

)%

%

%

(a)

Kroger defines identical sales, excluding fuel, as sales to retail customers, including sales from all departments at identical supermarket locations, Kroger Specialty Pharmacy businesses, jewelry and ship-to-home solutions. Kroger defines a supermarket as identical when it has been in operation without expansion or relocation for five full quarters. Kroger defines Kroger Specialty Pharmacy businesses as identical when physical locations have been in operation continuously for five full quarters and discontinued patient therapies are excluded from the identical sales calculation starting in the quarter of transfer or termination. We include Kroger Delivery sales powered by Ocado as identical if the delivery occurs in an existing Kroger Supermarket geography or when the location has been in operation for five full quarters.

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 fourth quarter and year-to-date periods of 2023.

Table 5. Reconciliation

of Net Total Debt and

Net Earnings Attributable

to The Kroger Co. to Adjusted EBITDA

(in millions, except for

ratio)

(unaudited)

The items identified below

should not be considered an alternative to any GAAP measure of performance or access to liquidity. Net total debt to adjusted

EBITDA is an important measure used by management to evaluate the Company's access to liquidity. The items below should be

reviewed in conjunction with Kroger's financial results reported in accordance with GAAP.

The following table provides a reconciliation

of net total debt.

February 1,

February 3,

Change

Current portion of long-term debt including obligations under finance leases

$

$

$

(7

)

Long-term debt including obligations under finance leases

Total debt

Less: Temporary cash investments

Net total debt

$

$

$

The following table provides a reconciliation

from net earnings attributable to The Kroger Co. to adjusted EBITDA, as defined in the Company's credit agreement, for 2024 and 2023

on a 52-week basis.

YEAR-TO-DATE

February 1,

February 3,

Net earnings attributable to The Kroger Co. on a 53-week basis in fiscal year 2023

$

$

LIFO charge

Depreciation and amortization

Net interest expense

Income tax expense

Adjustment for loss (gain) on investments

)

Adjustment for severance charge and related benefits

-

Adjustment for impairment of intangible assets

-

Adjustment for property losses

-

Adjustment for merger-related costs (a)

Adjustment for opioid settlement charges

)

Adjustment for gain on sale of Kroger Specialty Pharmacy

)

-

53rd week EBITDA adjustment

-

)

Other

)

)

Adjusted EBITDA

$

$

Net total debt to adjusted EBITDA ratio on a 52-week basis

(a)

Merger related costs primarily include third-party professional fees and credit facility fees associated with the terminated merger with Albertsons Companies, Inc.

Table

6. Net Earnings Per Diluted Share Excluding the Adjustment Items

(in

millions, except per share amounts)

(unaudited)

The

purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on net

earnings per diluted common share for certain items described below. Adjusted net earnings and adjusted net earnings per diluted share

are useful metrics to investors and analysts because they present more accurately year-over-year comparisons for net earnings and net

earnings per diluted share because adjusted items are not the result of normal operations. Items identified in this table should not

be considered alternatives to net earnings attributable to The Kroger Co. or any other GAAP measure of performance. These items should

not be reviewed in isolation or considered substitutes for the Company's financial results as reported in accordance with GAAP. Due to

the nature of these items, as further described below, it is important to identify these items and to review them in conjunction with

the Company's financial results reported in accordance with GAAP.

The following table summarizes

items that affected the Company's financial results during the periods presented.

FOURTH QUARTER

YEAR-TO-DATE

Net earnings attributable to The Kroger Co.

$

$

$

$

Adjustment for loss (gain) on investments (a)(b)

)

Adjustment for severance charge and related benefits (a)(c)

-

-

Adjustment for impairment of intangible assets (a)(d)

-

-

Adjustment for property losses (a)(e)

-

-

Adjustment for merger-related costs (a)(f)

Adjustment for merger-related net interest expense (a)(g)

-

-

Adjustment for opioid settlement charges (a)(h)

)

-

)

Adjustment for gain on sale of Kroger Specialty Pharmacy (a)(i)

-

-

)

-

Held for sale income tax adjustment

-

-

)

-

Net earnings attributable to The Kroger Co. excluding the adjustment items above

$

$

$

$

53rd week adjustment (a)(j)

-

)

-

)

Net earnings attributable to The Kroger Co. excluding the adjustment items above and the 53rd week

$

$

$

$

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

$

$

$

$

Adjustment for loss (gain) on investments (k)

)

Adjustment for severance charge and related benefits (k)

-

-

Adjustment for impairment of intangible assets (k)

-

-

Adjustment for property losses (k)

-

-

Adjustment for merger-related costs (k)

Adjustment for merger-related net interest expense (k)

-

-

Adjustment for opioid settlement charges (k)

)

-

)

Adjustment for gain on sale of Kroger Specialty Pharmacy (k)

-

-

)

-

Held for sale income tax adjustment (k)

-

-

)

-

Net earnings attributable to The Kroger Co. per diluted common share excluding the adjustment items above

$

$

$

$

53rd week adjustment (k)

-

)

-

)

Net earnings attributable to The Kroger Co. per diluted common share excluding the adjustment items above and the 53rd week

$

$

$

$

Average number of common shares used in diluted calculation

Table 6. Net Earnings

Per Diluted Share Excluding the Adjustment Items (continued)

(in millions, except per

share amounts)

(unaudited)

(a)

The amounts presented represent the after-tax effect of each adjustment.

(b)

The pre-tax adjustments for loss (gain) on investments were $22 and $166 in the fourth quarters of 2024 and 2023, respectively. The year-to-date pre-tax adjustments for loss (gain) on investments were $148 and ($151) in 2024 and 2023, respectively.

(c)

The pre-tax adjustment to OG&A expenses for severance charge and related benefits was $32.

(d)

The pre-tax adjustment to OG&A expenses for impairment of intangible assets was $30.

(e)

The pre-tax adjustment to OG&A expenses for property losses was $25.

(f)

The pre-tax adjustments to OG&A expenses for merger-related costs were $175 and $138 in the fourth quarters of 2024 and 2023, respectively. The year-to-date pre-tax adjustments to OG&A expenses for merger-related costs were $684 and $316 in 2024 and 2023, respectively.

(g)

The pre-tax adjustment to net interest expense for merger-related net interest expense was $34.

(h)

The pre-tax adjustment to OG&A expenses for opioid settlement charges was $(27) in the fourth quarter of 2024. The year-to-date pre-tax adjustments to OG&A expenses for opioid settlement charges were $(27) and $1,475 in 2024 and 2023, respectively.

(i)

The year-to-date pre-tax adjustment for gain on sale of Kroger Specialty Pharmacy was ($79).

(j)

The pre-tax adjustment for the 53rd week was ($179).

(k)

The amounts presented represent the net earnings (loss) per diluted common share effect of each adjustment.

Note:

2024 Fourth Quarter Adjustment Items include adjustments for the loss on investments, severance charge and related benefits, impairment of intangible assets, property losses, merger-related costs, merger-related net interest expense and opioid settlement charges.

2024 Adjustment Items include the Fourth Quarter Ajustment Items plus the adjustments that occurred in the first three quarters of 2024 for loss on investments, merger-related costs, the gain on sale of Kroger Specialty Pharmacy and held for sale income tax.

2023 Fourth Quarter Adjustment Items include adjustments for the loss on investments and merger related costs.

2023 Adjustment Items include the Fourth Quarter Adjustment Items plus the adjustments that occurred in the first three quarters of 2023 for gain on investments, merger-related costs and opioid settlement charges.

Table

7. Operating Profit Excluding the Adjustment Items

(in

millions)

(unaudited)

The

purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on operating

profit for certain items described below. Adjusted FIFO operating profit is a useful metric to investors and analysts because

it presents more accurately year-over-year comparisons for operating profit because adjusted items are not the result of normal operations.

Items identified in this table should not be considered alternatives to operating profit or any other GAAP measure of performance. These

items should not be reviewed in isolation or considered substitutes for the Company's financial results as reported in accordance with

GAAP. Due to the nature of these items, as further described below, it is important to identify these items and to review

them in conjunction with the Company's financial results reported in accordance with GAAP.

The following table summarizes items that

affected the Company's financial results during the periods presented.

FOURTH QUARTER

YEAR-TO-DATE

Operating profit

$

$

$

$

LIFO charge (credit)

)

FIFO operating profit

Adjustment for merger-related costs (a)

Adjustment for opioid settlement charges

)

-

)

Adjustment for severance charge and related benefits

-

-

Adjustment for impairment of intangible assets

-

-

Adjustment for property losses

-

-

Other

(3

)

(7

)

)

)

Adjusted FIFO operating profit excluding the adjustment items above

$

$

$

$

53rd week adjustment

-

)

-

)

Adjusted FIFO operating profit excluding the adjustment items above and the 53rd week

$

$

$

$

(a)

Merger related costs primarily include third party professional fees and credit facility fees associated with the terminated merger with Albertsons Companies, Inc.

Table

8. Adjusted Free Cash Flow

(in

millions)

(unaudited)

Adjusted

free cash flow is an important performance measure used by management, and management believes it is also a useful metric for investors

and analysts to evaluate the Company's ability to generate additional funding from business operations available for dividends, managing

debt levels, share repurchases and other strategic investments. Adjusted free cash flow is one of the key financial indicators of the

Company's business performance and the Company also uses adjusted free cash flow to evaluate the Company's senior management. However,

adjusted free cash flow is not a measure of financial performance or liquidity under GAAP and, therefore, should not be considered an

alternative to net earnings or net cash provided by operating activities as an indicator of the Company's performance or liquidity. Although

free cash flow is a relatively standard term, numerous methods exist for calculating free cash flow. As a result, the method used by

the Company's management to calculate adjusted free cash flow may differ from methods other companies use to calculate free cash flow.

The

following table sets forth a reconciliation of net cash provided by operating activities to adjusted free cash flow.

YEAR-TO-DATE

February 1,

February 3,

Net cash provided by operating activities

$

$

$

Payments for property and equipment, including payments for lease buyouts

)

)

)

Free Cash Flow

Adjustment for merger-related costs

-

-

Adjustment for merger-related net interest expense

-

-

Adjustment for company pension plans and payments related to the restructuring of multi-employer pension plans

Adjustment for payments related to opioid settlements

-

Adjusted Free Cash Flow

$

$

$

Table

9. Gross Margin

(in

millions, except percentages)

(unaudited)

In the Consolidated Statements of Operations within Table 1, the Company separately presents rent and depreciation and amortization to

evaluate operational effectiveness. The table below calculates gross margin in accordance with Generally Accepted Accounting Principles

("GAAP") by including a portion of rent and depreciation and amortization related to the Company's manufacturing and warehousing and transportation

activities.

The

following table provides the calculation of gross profit and gross margin in accordance with GAAP.

FOURTH QUARTER

YEAR-TO-DATE

Sales

$

$

$

$

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

Rent

Depreciation and amortization

Gross profit

$

$

$

$

Gross margin

%

%

%

%