Kroger will pay $1.4 billion to settle nationwide opioid claims

Kroger announced a $1.4 billion charge for a national drug settlement in the quarter and issued a sales warning for the remainder of the year as it anticipates further challenges with customer spending.

The settlement by Kroger comes on the heels of a collective $13.8-billion settlement agreed upon by other retailers, including CVS Health Corp, Walgreens Boots Alliance and Walmart, in November last year.

Kroger, which is merging with smaller rival Albertsons in a $25-billion deal, also said it would sell 413 grocery stores to C&S Wholesale Grocers as the companies seek to secure clearance from US regulators for their proposed $24.6-billion merger.

Kroger said it may need C&S to purchase up to an additional 237 stores in certain geographies to get a regulatory nod for the deal, which is expected to close in early 2024.

"One of the main bearish arguments we heard on KR and ACI is that the companies likely were having trouble finding a buyer... Now this major hurdle is in the past," JP Morgan analyst Ken Goldman said.

Kroger shares were up 4.3%, reversing premarket losses, while Albertsons' stock was up 3% in early trade.

Cincinnati, Ohio-based Kroger, which is witnessing strained consumer spending due to still-high inflation, also missed same-store sales for the second quarter. It expects the environment to "remain challenged".

"Expect identical sales without fuel will be at the low end of our full-year guidance range and slightly negative in the second half of the year," CFO Gary Millerchip said.

Kroger posted a loss of $180 million, or 25 cents per share — its first quarterly loss after nine straight quarters of profit — compared to a profit of $731 million, or $1.01 per share, from a year ago, accounting for the opioid-related charges.

Telsey Advisory Group analyst Joe Feldman said despite slowing sales, another positive for Kroger was that its earnings were holding up.

On an adjusted basis, it reported a profit of 96 cents per share, compared to LSEG estimates of 91 cents per share. Gross margin also improved by 35 basis points compared to last year.