Kroger announced on February 5th, 2024 that Chief Financial Officer Gary Millerchip is stepping down, effective immediately. The company has appointed Todd Foley as interim CFO as it searches for a permanent replacement.
Lead Up to Resignation
Millerchip had served as Kroger’s CFO since January 2019, having previously worked as CFO for Walgreens. During his 5 year tenure, Kroger has undergone significant changes and faced numerous challenges.
In 2018, Kroger announced plans for a transformational restructuring program called “Restock Kroger” to improve profitability. The plan aimed to invest more than $3 billion over 3 years into store renovations, technology upgrades, and price reductions to better compete with rivals like Walmart and Amazon/Whole Foods [1].
Additionally, Kroger has been pursuing mergers over the past few years to aid growth. Most notably, in October 2022, Kroger announced plans to acquire Albertsons for $24.6 billion. The deal is still under regulatory review and faces antitrust scrutiny over concerns it could result in higher grocery prices due to reduced competition [2].
| Kroger Key Events During Millerchip’s Tenure |
|---|
| 2018: Restock Kroger transformation plan announced |
| 2019: Millerchip appointed CFO |
| 2020: COVID-19 pandemic causes sales surge followed by uncertainty |
| 2021: Strong digital sales growth amid inflated grocery prices |
| 2022: Albertsons merger agreement |
Facing these challenges, Kroger has delivered mixed financial results under Millerchip’s leadership. Comparable store sales excluding fuel grew 3.5% in 2021 and 2.5% in 2022 amid continued inflation. However, operating profit declined in 2022 and margins remain pressured from price investments and higher operating costs. The stock has underperformed the market over the past 2 years as well [3].
Details of Resignation
In a surprise announcement on February 5th, Kroger shared the news of Millerchip’s departure in an 8-K filing with the SEC and press release [4]. Millerchip is leaving to “return home to Australia”, but the timing during significant merger uncertainty seems unusual.
Kroger CEO Rodney McMullen thanked Millerchip for his contributions, stating:
“During his tenure as CFO, Gary has played a key role in redefining the Kroger ecosystem by tapping into seamless, interconnected experiences to serve our customers anything, anytime and anywhere. The entire Kroger family wishes Gary all the best.”
The company has appointed Todd Foley, Vice President and Controller, to take over immediately as interim CFO. Foley brings deep experience, having been with Kroger since 1998 in various audit and financial roles.
Regarding his interim appointment, Foley commented:
“I am energized by this opportunity…To support Rodney and the Leadership Team in continuing to deliver on Restock Kroger and the merger agreement with Albertsons.”
The upcoming search for a new permanent CFO comes amid a broader shakeup of Kroger’s executive ranks. Just last week, Kroger announced the departure of 2 key HR leaders – Chief People Officer Tim Massa and Senior Vice President of Retail Operations Joe Grieshaber [5].
What Caused the Sudden Exit?
While the company statement says Millerchip elected to return to Australia, the timing has sparked questions regarding whether it was entirely his decision. After serving successfully for 5 years, why would he abruptly leave in the midst of critical merger plans?
According to JPMorgan analyst Ken Goldman, the resignation likely signals uncertainty over the pending Albertsons deal [6].
Goldman stated:
“We can’t help but think today’s news shows that KR is preparing itself in case it needs to stand on its own in a more challenging economic environment rather than rely on a merger to improve its outlook.”
If the merger faces extended delays or an ultimate rejection, Kroger would need to rethink financial strategy amid a potential recession. Perhaps there was a difference of opinion behind closed doors about the right path forward.
However, CEO Rodney McMullen maintained confidence in achieving regulatory approval on a February 9th investor call, stating “We continue to work constructively with regulators” [7].
Effect on Pending Merger Plans
How Millerchip’s resignation could impact the outlook for Kroger’s merger with Albertsons remains unclear. With over 5,000 store locations combined, the deal aims to improve economies of scale and boost digital commerce competitiveness with Walmart and Amazon.
However, serious antitrust issues have been raised, with over 20 states voicing concerns about reduced choice and higher prices for consumers if the merged company controls too much market share [8]. Critics argue that Kroger should invest in stores and online delivery rather than consolidation.
The merger was only announced 4 months ago in October 2022, with plans to close in early 2024 pending regulatory review. Albertsons recently postponed the closing from January to April 2023 to allow more time for divestitures and negotiations to gain approval [9].
| Key Milestones for Albertsons Merger |
|---|
| October 2022: Merger agreement signed |
| January 2023: Initial planned closing postponed |
| April 2023: New expected closing date |
| Mid 2023: Target for integration completion |
Ultimately the regulatory fate of the merger is tied to political winds in Washington, but Millerchip’s exit adds a new dimension of uncertainty that could shake stakeholder confidence.
What Changes Can Be Expected?
In the wake of Millerchip’s resignation, Kroger investors can expect a bumpy road in the first half of 2024 until merger implications shake out.
If the Albertsons deal falters and is not approved, Kroger will likely renew focus on the Restock Kroger plan as a go-forward strategy. This would mean reinvesting efficiency savings into price reductions, store remodels, enhanced digital capabilities, and improved delivery options to protect market share [10].
Cost control would become more urgent to free up funds for competitive responses. Margin pressure from price investment would continue in the near term before benefits are realized.
Additionally, a new permanent CFO would re-evaluate capital allocation priorities and reforecast earnings based on the state of both macroeconomic conditions and the competitive landscape [11]. Investors would gain clarity on management’s strategic vision once updated guidance is issued.
If the merger gains approval as currently proposed, rapid integration of the two companies would ensue to quickly achieve synergies. But additional store divestitures would likely be required, presenting a distraction for leadership.
Moreover, the departure of Kroger’s CFO before closing could force Albertsons to seek new terms or assurances amid perceptions of disarray. Albertsons may request an interim CFO role in the combined company structure. This introduces further uncertainty into leadership transitions.
Either path forward for Kroger faces both opportunities and risks. But Millerchip’s resignation foreshadows the potential for additional strategy pivots as circumstances evolve.
Final Thoughts
The next 6-12 months promise to be a critical period determining the long term direction of Kroger’s strategy and competitive positioning in the evolving grocery landscape. Millerchip served as a key steward through a disruptive era for the company. His successor must balance numerous complex variables in charting the road ahead – from macroeconomics to mergers to margin pressures. Investor patience will be tested while clarity emerges on whether scale or agility wins in the end game. But Kroger’s experienced interim CFO Todd Foley seems well equipped to navigate the storm.
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