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Kroger Q4 2024 Earnings Release March 6, 2025
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2 Safe Harbor This presentation includes certain statements that constitute “forward-looking statements” about Kroger’s financial position and expected performance, including our proposed transaction with Albertsons Companies. These statements are based on management’s assumptions and beliefs in light of currently available information. Such statements are indicated by words or phrases such as “committed,” “could,” “delivering,” “guidance,” “may,” “model,” “opportunities,” “strategy,” “thesis,” “will,” and other similar statements. 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. 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. This presentation includes certain non-GAAP financial measures. Please refer to the supplemental information presented in the tables for reconciliations of the non-GAAP financial measures used in this presentation to the most comparable GAAP financial measure and related disclosure. This presentation also includes certain forward-looking non-GAAP financial measures, which management believes to be useful to investors and analysts. Kroger is unable to provide a full reconciliation of the non-GAAP measures used in our guidance, including, but not limited to, adjusted FIFO operating profit to operating profit and adjusted free cash flow, without unreasonable effort because it is not possible to predict with a reasonable degree of certainty the information necessary to calculate such measures on a GAAP basis. It is not possible to estimate with a reasonable degree of certainty certain of our adjustment items because such information is dependent on future events that may be outside of our control. The unavailable information could have a significant impact on our GAAP financial results.
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33 +2.4% ID Sales(1) $912M GAAP Operating Profit $0.90 GAAP EPS +11% Digital Sales(2) $1,174M Adj. FIFO Operating Profit $1.14 Adj. EPS Flat vs. Q4’2023 (2) Q4 2024 Results (1) Without fuel (2) Excluding 53rd week in 2023
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44 (1) Without fuel (2) Excluding 53rd week in 2023 +1.5% ID Sales(1) $3.8B GAAP Operating Profit $3.67 GAAP EPS +10% Digital Sales(2) $4.7B Adj. FIFO Operating Profit $4.47 Adj. EPS 2% decline(2) Full-Year 2024 Results
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5 Fresh Personalization Launched a new Fresh brand offering, Field & Vine, offering high quality and regionally grown berries Achieved produce identical sales which outpaced total company identical sales without fuel Delivered more personalized value with 10% increase in digital coupon savings for customers Enhanced the Boost by Kroger Plus Membership by including Disney streaming options with an annual membership Our Brands Seamless Our Brands sales growth outpaced national brands Introduced more than 900 new Our Brands items, including 370 fresh items, in 2024 Double-digit sales growth contributed to making eCommerce more than a $13B business annually Increased delivery sales by 18% over last year, excluding the 53rd week in 2023, led by Customer Fulfillment Centers 2024 Highlights Progress on our go-to-market strategy
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6 Supermarket Health and Wellness Strong store execution and value led to growth in total household and enhanced loyalty in 2024 Improved FIFO gross margin through strong Our Brands performance and lower shrink Strong sales growth compared to last year driven by GLP-1s Grew vaccinations 11% even as fewer total vaccinations were administered in the U.S. Fuel Alternative Profits Full-year fuel profitability decreased as a result of fewer gallons sold Delivered solid results, generating $1.35 billion in operating profit led by 17% increase in Media, excluding the 53rd week in 2023 Strengthening our Value Creation Model *Total shareholder return assumes no change in Kroger’s PE Ratio. 6 Data + Traffic 6 Strong Supermarket, Fuel and Health & Wellness Business Revenue + Traffic Fast Growing Alternative Profit Businesses Delivering Sustainable Total Shareholder Return of 8 – 11%*
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7 Associate Experience 7 • Investing in our Associates: Increased associate wages resulting in an average hourly wage of more than $19 and rate of more than $25 with comprehensive benefits factored in, which is a 38% increase in rate in the last seven years • Record Retention: Achieved record retention rate for store and enterprise associates this year which led to improved productivity and more consistent customer experience • Continuing Education: Supported continuing education with almost 5,500 associates, 89% of whom are hourly, taking advantage of Kroger’s education assistance program in 2024
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8 2025 Full-Year Guidance* 8 Adjusted Metric FY25 Guidance IDs (%)* 2.0% – 3.0% EPS ($)* $4.60 – $4.80 Operating Profit ($B)* $4.7 – $4.9 Free Cash Flow ($B)** $2.8 – $3.0 Cap Ex ($B) $3.6 – $3.8 Tax Rate*** 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 e vents and may be outside of our control and its unavailability could have a significant impact on 2025 GAAP financial results. ** 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 in come tax audit examinations and changes in tax laws and policies, which cannot be predicted.
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9 Responded to the Los Angeles wildfires with supplies and monetary donations to support those affected Raised more than $3M through our Holiday Hunger campaign to support local hunger relief organizations Expanded prescription drug safety program to more than 470 U.S. schools Live Our Purpose Recognized 20 Kroger associates with the Zero Hero Community Service Award, celebrating those who demonstrate exceptional volunteer service in support of Zero Hunger | Zero Waste Recognized as one of Newsweek’s “Most Responsible Companies” for 2025
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10 Investment Thesis Strong Business with Exciting Growth Opportunities Proven Value Creation Model Strong Balance Sheet & Resilient Free Cash Flow • Conveniently located +2,700 stores • First Party Data on 62M Households • ~$30B Our Brands Business • Significant Digital Business, >$13B • Robust New Store Growth • Net Earnings Growth, 3-5% • ID Sales Growth (ex. Fuel), 2-4% • Margin Improvements (net of investments), 1-2% • Cost Savings, $1B Annually • High Growth, Margin Accretive Alternative Profits • Disciplined Capital Investments • Cash Payout 5-6% (Dividends & Share Repurchases) • Strong Free Cash Flow Yield • Investment Grade Debt Rating • Growing Dividend Subject to Board Approval • Committed to Repurchasing Shares with Excess Cash • Current Net Debt to Adjusted EBITDA 1.79x
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11 Appendix
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SALES 34,308$ 100.0% 37,064$ 100.0% 147,123$ 100.0% 150,039$ 100.0% OPERATING EXPENSES MERCHANDISE COSTS, INCLUDING ADVERTISING, WAREHOUSING AND TRANSPORTATION (a), AND LIFO CHARGE (b) 26,387 76.9 28,643 77.3 113,720 77.3 116,675 77.8 OPERATING, GENERAL AND ADMINISTRATIVE (a) 6,043 17.6 6,278 16.9 25,431 17.3 26,252 17.5 RENT 206 0.6 220 0.6 877 0.6 891 0.6 DEPRECIATION AND AMORTIZATION 760 2.2 729 1.9 3,246 2.2 3,125 2.0 OPERATING PROFIT 912 2.7 1,194 3.2 3,849 2.6 3,096 2.1 OTHER INCOME (EXPENSE) NET INTEREST EXPENSE (157) (0.5) (100) (0.3) (450) (0.3) (441) (0.3) NON-SERVICE COMPONENT OF COMPANY-SPONSORED PENSION PLAN BENEFITS 3 - 6 - 12 - 30 - (LOSS) GAIN ON INVESTMENTS (22) (0.1) (166) (0.4) (148) (0.1) 151 0.1 GAIN ON SALE OF BUSINESS - - - - 79 0.1 - - NET EARNINGS BEFORE INCOME TAX EXPENSE 736 2.1 934 2.5 3,342 2.3 2,836 1.9 INCOME TAX EXPENSE 102 0.3 195 0.5 670 0.5 667 0.3 NET EARNINGS INCLUDING NONCONTROLLING INTERESTS 634 1.9 739 2.0 2,672 1.8 2,169 1.5 NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS - - 3 - 7 - 5 - NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. 634$ 1.9% 736$ 2.0% 2,665$ 1.8% 2,164$ 1.4% NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. PER BASIC COMMON SHARE 0.91$ 1.01$ 3.70$ 2.99$ AVERAGE NUMBER OF COMMON SHARES USED IN BASIC CALCULATION 691 719 715 718 NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. PER DILUTED COMMON SHARE 0.90$ 1.01$ 3.67$ 2.96$ AVERAGE NUMBER OF COMMON SHARES USED IN DILUTED CALCULATION 696 725 720 725 DIVIDENDS DECLARED PER COMMON SHARE 0.32$ 0.29$ 1.25$ 1.13$ Note: Note: 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. (a) (b) The Company defines FIFO operating margin as FIFO operating profit divided by sales. 2023 Certain percentages may not sum due to rounding. 2023 2024 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. 2024 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. 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 $113 were recorded for 2024 and 2023, respectively. The Company defines First-In First-Out (FIFO) gross profit as sales minus merchandise costs, including advertising, warehousing and transportation, but excluding the Last-In First-Out (LIFO) charge, rent and depreciation and amortization. Table 1. FOURTH QUARTER (in millions, except per share amounts) CONSOLIDATED STATEMENTS OF OPERATIONS YEAR-TO-DATE THE KROGER CO. (unaudited)
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February 1, February 3, 2025 2024 ASSETS Current Assets Cash 216$ 235$ Temporary cash investments 3,743 1,648 Store deposits in-transit 1,312 1,215 Receivables 2,195 2,136 Inventories 7,038 7,105 Prepaid and other current assets 769 609 Total current assets 15,273 12,948 Property, plant and equipment, net 25,703 25,230 Operating lease assets 6,839 6,692 Intangibles, net 834 899 Goodwill 2,674 2,916 Other assets 1,293 1,820 Total Assets 52,616$ 50,505$ LIABILITIES AND SHAREOWNERS' EQUITY Current Liabilities Current portion of long-term debt including obligations under finance leases 191$ 198$ Current portion of operating lease liabilities 599 670 Accounts payable 10,124 10,381 Accrued salaries and wages 1,330 1,323 Other current liabilities 3,615 3,486 Total current liabilities 15,859 16,058 Long-term debt including obligations under finance leases 17,714 12,028 Noncurrent operating lease liabilities 6,578 6,351 Deferred income taxes 1,417 1,579 Pension and postretirement benefit obligations 387 385 Other long-term liabilities 2,380 2,503 Total Liabilities 44,335 38,904 Shareowners' equity 8,281 11,601 Total Liabilities and Shareowners' Equity 52,616$ 50,505$ Total common shares outstanding at end of period 658 720 Total diluted shares year-to-date 720 725 (unaudited) Table 2. THE KROGER CO. CONSOLIDATED BALANCE SHEETS (in millions)
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2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings including noncontrolling interests 2,672$ 2,169$ Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities: Depreciation and amortization 3,246 3,125 Asset impairment charges 98 69 Operating lease asset amortization 603 625 LIFO charge 95 113 Share-based employee compensation 175 172 Company-sponsored pension plan benefits (2) (9) Deferred income taxes (102) (155) Gain on the sale of assets (70) (56) Gain on sale of business (79) - Loss (gain) on investments 148 (151) Other 22 78 Changes in operating assets and liabilities: Store deposits in-transit (97) (88) Receivables (288) 14 Inventories (144) 342 Prepaid and other current assets (166) 72 Accounts payable 253 545 Accrued expenses 107 (222) Income taxes receivable and payable 76 68 Operating lease liabilities (609) (695) Other (144) 772 Net cash provided by operating activities 5,794 6,788 CASH FLOWS FROM INVESTING ACTIVITIES: Payments for property and equipment, including payments for lease buyouts (4,017) (3,904) Proceeds from sale of assets 377 101 Net proceeds from sale of business 464 - Other (52) 53 Net cash used by investing activities (3,228) (3,750) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 10,502 15 Payments on long-term debt including obligations under finance leases (4,883) (1,301) Dividends paid (883) (796) Financing fees paid (116) - Proceeds from issuance of capital stock 127 50 Treasury stock purchases (4,156) (62) Unsettled accelerated share repurchases (1,000) - Other (81) (76) Net cash used by financing activities (490) (2,170) NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS 2,076 868 CASH AND TEMPORARY CASH INVESTMENTS: BEGINNING OF YEAR 1,883 1,015 END OF YEAR 3,959$ 1,883$ Reconciliation of capital investments: Payments for property and equipment, including payments for lease buyouts (4,017)$ $ (3,904) Payments for lease buyouts 51 - Changes in construction-in-progress payables 343 344 Total capital investments, excluding lease buyouts (3,623)$ (3,560)$ Disclosure of cash flow information: Cash paid during the year for net interest 304$ 488$ Cash paid during the year for income taxes 681$ 751$ Table 3. (in millions) CONSOLIDATED STATEMENTS OF CASH FLOWS THE KROGER CO. YEAR-TO-DATE (unaudited)
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2024 2023 2024 2023 EXCLUDING FUEL 30,702$ 29,981$ 128,297$ 126,378$ EXCLUDING FUEL 2.4% (0.8)% 1.5% 0.9% (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 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. YEAR-TO-DATEFOURTH QUARTER IDENTICAL SALES (a)
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February 1, February 3, 2025 2024 Change Current portion of long-term debt including obligations under finance leases 191$ 198$ (7)$ Long-term debt including obligations under finance leases 17,714 12,028 5,686 Total debt 17,905 12,226 5,679 Less: Temporary cash investments 3,743 1,648 2,095 Net total debt 14,162$ 10,578$ 3,584$ February 1, February 3, 2025 2024 Net earnings attributable to The Kroger Co. on a 53-week basis in fiscal year 2023 2,665$ 2,164$ LIFO charge 95 113 Depreciation and amortization 3,246 3,125 Net interest expense 450 441 Income tax expense 670 667 Adjustment for loss (gain) on investments 148 (151) Adjustment for severance charge and related benefits 32 - Adjustment for impairment of intangible assets 30 - Adjustment for property losses 25 - Adjustment for merger-related costs (a) 684 316 Adjustment for opioid settlement charges (27) 1,475 Adjustment for gain on sale of Kroger Specialty Pharmacy (79) - 53rd week EBITDA adjustment - (187) Other (12) (15) Adjusted EBITDA 7,927$ 7,948$ Net total debt to adjusted EBITDA ratio on a 52-week basis 1.79 1.33 (a) Merger related costs primarily include third-party professional fees and credit facility fees associated with the terminated merger with Albertsons Companies, Inc. YEAR-TO-DATE 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. Table 5. Reconciliation of Net Total Debt and (in millions, except for ratio) 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. (unaudited) Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA
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2024 2023 2024 2023 Net earnings attributable to The Kroger Co. 634$ 736$ 2,665$ 2,164$ Adjustment for loss (gain) on investments (a)(b) 17 128 112 (116) Adjustment for severance charge and related benefits (a)(c) 24 - 24 - 23 - 23 - Adjustment for property losses (a)(e) 19 - 19 - Adjustment for merger-related costs (a)(f) 78 115 489 268 Adjustment for merger-related net interest expense (a)(g) 26 - 26 - Adjustment for opioid settlement charges (a)(h) (21) - (21) 1,163 Adjustment for gain on sale of Kroger Specialty Pharmacy (a)(i) - - (60) - Held for sale income tax adjustment - - (31) - 2024 and 2023 Adjustment Items 166 243 581 1,315 Net earnings attributable to The Kroger Co. excluding the adjustment items above 800$ 979$ 3,246$ 3,479$ 53rd week adjustment (a)(j) - (144) - (144) Net earnings attributable to The Kroger Co. excluding the adjustment items above and the 53rd week 800$ 835$ 3,246$ 3,335$ Net earnings attributable to The Kroger Co. per diluted common share 0.90$ 1.01$ 3.67$ 2.96$ Adjustment for loss (gain) on investments (k) 0.02 0.17 0.15 (0.17) Adjustment for severance charge and related benefits (k) 0.03 - 0.03 - 0.03 - 0.03 - Adjustment for property losses (k) 0.03 - 0.03 - Adjustment for merger-related costs (k) 0.12 0.16 0.67 0.37 Adjustment for merger-related net interest expense (k) 0.04 - 0.04 - Adjustment for opioid settlement charges (k) (0.03) - (0.03) 1.60 Adjustment for gain on sale of Kroger Specialty Pharmacy (k) - - (0.08) - Held for sale income tax adjustment (k) - - (0.04) - 2024 and 2023 Adjustment Items 0.24 0.33 0.80 1.80 Net earnings attributable to The Kroger Co. per diluted common share excluding the adjustment items above 1.14$ 1.34$ 4.47$ 4.76$ 53rd week adjustment (k) - (0.20) - (0.20) Net earnings attributable to The Kroger Co. per diluted common share excluding the adjustment items above and the 53rd week 1.14$ 1.14$ 4.47$ 4.56$ Average number of common shares used in diluted calculation 696 725 720 725 Adjustment for impairment of intangible assets (a)(d) FOURTH QUARTER Adjustment for impairment of intangible assets (k) YEAR-TO-DATE 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.
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(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) Note: 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 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. 2023 Fourth Quarter Adjustment Items include adjustments for the loss on investments and merger related costs. 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. 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. 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. The pre-tax adjustment for the 53rd week was ($179). The amounts presented represent the net earnings (loss) per diluted common share effect of each adjustment. The year-to-date pre-tax adjustment for gain on sale of Kroger Specialty Pharmacy was ($79). The pre-tax adjustment to OG&A expenses for severance charge and related benefits was $32. The pre-tax adjustment to OG&A expenses for impairment of intangible assets was $30. The pre-tax adjustment to OG&A expenses for property losses was $25. The pre-tax adjustment to net interest expense for merger-related net interest expense was $34. Table 6. Net Earnings Per Diluted Share Excluding the Adjustment Items (continued) (in millions, except per share amounts) (unaudited) The amounts presented represent the after-tax effect of each adjustment. 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 ($151) in 2024 and 2023, respectively.
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2024 2023 2024 2023 Operating profit 912$ 1,194$ 3,849$ 3,096$ LIFO charge (credit) 30 (18) 95 113 FIFO operating profit 942 1,176 3,944 3,209 Adjustment for merger-related costs (a) 175 138 684 316 Adjustment for opioid settlement charges (27) - (27) 1,475 Adjustment for severance charge and related benefits 32 - 32 - Adjustment for impairment of intangible assets 30 - 30 - Adjustment for property losses 25 - 25 - Other (3) (7) (14) (14) 2024 and 2023 Adjustment items 232 131 730 1,777 Adjusted FIFO operating profit excluding the adjustment items above 1,174$ 1,307$ 4,674$ 4,986$ 53rd week adjustment - (187) - (187) Adjusted FIFO operating profit excluding the adjustment items above and the 53rd week 1,174$ 1,120$ 4,674$ 4,799$ (a) Merger related costs primarily include third party professional fees and credit facility fees associated with the terminated merger with Albertsons Companies, Inc. FOURTH QUARTER YEAR-TO-DATE 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.
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Net cash provided by operating activities $ 5,794 $ 6,788 $ 4,498 Payments for property and equipment, including payments for lease buyouts (4,017) (3,904) (3,078) Free Cash Flow 1,777 2,884 1,420 Adjustment for merger-related costs 489 - - Adjustment for merger-related net interest expense 26 - - Adjustment for company pension plans and payments related to the restructuring of multi-employer pension plans 57 298 283 Adjustment for payments related to opioid settlements 150 33 - Adjusted Free Cash Flow $ 2,499 $ 3,215 $ 1,703 YEAR-TO-DATE 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. February 1, February 3, January 28, 2025 2024 2023
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2024 2023 2024 2023 Sales 34,308$ 37,064$ 147,123$ 150,039$ Merchandise costs, including advertising, warehousing and transportation and LIFO charge, excluding rent and depreciation and amortization 26,387 28,643 113,720 116,675 Rent 14 17 66 68 Depreciation and amortization 134 125 589 541 Gross profit 7,773$ 8,279$ 32,748$ 32,755$ Gross margin 22.7% 22.3% 22.3% 21.8% 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