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LEASES AND LEASE-FINANCED TRANSACTIONS

12 Months Ended

Feb. 03, 2024

LEASES AND LEASE-FINANCED TRANSACTIONS

LEASES AND LEASE-FINANCED TRANSACTIONS

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9. LEASES AND LEASE-FINANCED TRANSACTIONS

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The Company leases certain store real estate, warehouses, distribution centers, fulfillment centers, office space and equipment. The Company operates in leased facilities in approximately half of its store locations. Lease terms generally range from 10 to 20 years with options to renew for varying terms at the Company’s sole discretion. Certain leases also include options to purchase the leased property. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Certain leases include escalation clauses or payment of executory costs such as property taxes, utilities or insurance and maintenance. Rent expense for leases with escalation clauses or other lease concessions are accounted for on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Certain properties or portions thereof are subleased to others for periods generally ranging from one to 20 years.

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The following table provides supplemental balance sheet classification information related to leases:

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​	​	​	​	​	​	​	​	​
​		​		February 3,			January 28,
​	​	Classification	​	2024		​	2023
Assets	​	​	​	​	​	​	​	​
Operating	​	Operating lease assets	​	$	6,692	​	$	6,662
Finance	​	Property, plant and equipment, net(1)	​	​	1,971	​	​	2,018
​	​	​	​	​	​	​	​	​
Total leased assets	​	​	​	$	8,663	​	$	8,680
​	​	​	​	​	​	​	​	​
Liabilities	​	​	​	​	​	​	​	​
Current	​	​	​	​	​	​	​	​
Operating	​	Current portion of operating lease liabilities	​	$	670	​	$	662
Finance	​	Current portion of long-term debt including obligations under finance leases	​	​	173	​	​	157
​	​	​	​	​	​	​	​	​
Noncurrent	​	​	​	​	​	​	​	​
Operating	​	Noncurrent operating lease liabilities	​	​	6,351	​	​	6,372
Finance	​	Long-term debt including obligations under finance leases	​	​	1,866	​	​	1,929
​	​	​	​	​	​	​	​	​
Total lease liabilities	​	​	​	$	9,060	​	$	9,120

(1) Finance lease assets are recorded net of accumulated amortization of $730 and $562 as of February 3, 2024 and January 28, 2023.

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The following table provides the components of lease cost:

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​	​	​	​	​	​	​	​	​
​	​	​	​	Year-To-Date		​	Year-To-Date
Lease Cost	​	Classification		February 3, 2024			January 28, 2023
Operating lease cost(1)	​	Rent Expense	​	$	1,006	​	$	950
Sublease and other rental income	​	Rent Expense	​		(115)	​		(111)
Finance lease cost	​	​	​		​	​		​
Amortization of leased assets	​	Depreciation and Amortization	​	​	195	​	​	161
Interest on lease liabilities	​	Interest Expense	​	​	78	​	​	66
​	​	​	​	​	​	​	​	​
Net lease cost	​	​	​	$	1,164	​	$	1,066

(1) Includes short-term leases and variable lease costs, which are immaterial.

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Maturities of operating and finance lease liabilities are listed below.  Amounts in the table include options to extend lease terms that are reasonably certain of being exercised.

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​	​	​	​	​	​	​	​	​	​
​	​	Operating		​	Finance		​	​
​	​	Leases		​	Leases		​	Total
2024	​	$	961	​	$	243	​	$	1,204
2025	​		898	​		240	​		1,138
2026	​		838	​		240	​		1,078
2027	​		784	​		242	​		1,026
2028	​		722	​		238	​		960
Thereafter	​		5,738	​		1,359	​		7,097
​	​	​	​	​	​	​	​	​	​
Total lease payments	​	​	9,941	​	​	2,562	​	$	12,503
​	​	​	​	​	​	​	​	​	​
Less amount representing interest	​		2,920	​	​	523	​	​	​
​	​	​	​	​	​	​	​	​	​
Present value of lease liabilities(1)	​	$	7,021	​	$	2,039	​	​	​

(1) Includes the current portion of $670 for operating leases and $173 for finance leases.

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Total future minimum rentals under non-cancellable subleases at February 3, 2024 were $212.

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The following table provides the weighted-average lease term and discount rate for operating and finance leases:

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​	​	​	​	​	​	​
​	​	February 3, 2024		​	January 28, 2023
Weighted-average remaining lease term (years)	​	​	​	​	​	​
Operating leases	​	13.9	​	​	14.3	​
Finance leases	​	11.8	​	​	12.7	​
Weighted-average discount rate	​	​	​	​	​	​
Operating leases	​	4.4	%	​	4.2	%
Finance leases	​	3.8	%	​	3.5	%
​	​	​	​	​	​	​

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The following table provides supplemental cash flow information related to leases:

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​	​	​	​	​	​
​	Year-To-Date		​	Year-To-Date
​	February 3, 2024		​	January 28, 2023
Cash paid for amounts included in the measurement of lease liabilities	​	​	​	​	​
Operating cash flows from operating leases	$	984	​	$	903
Operating cash flows from finance leases	$	78	​	$	66
Financing cash flows from finance leases	$	173	​	$	132
Leased assets obtained in exchange for new operating lease liabilities	$	700	​	$	602
Leased assets obtained in exchange for new finance lease liabilities	$	168	​	$	656
Net gain recognized from sale and leaseback transactions(1)	$	37	​	$	30
Impairment of operating lease assets	$	15	​	$	1
Impairment of finance lease assets	$	—	​	$	2

(1) In 2023, the Company entered into sale leaseback transactions related to nine properties, which resulted in total proceeds of $52. In 2022, the Company entered into sale leaseback transactions related to five properties, which resulted in total proceeds of $44.

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On May 17, 2018, the Company entered into a Partnership Framework Agreement with Ocado International Holdings Limited and Ocado Group plc (“Ocado”), which has since been amended. Under this agreement, Ocado will partner exclusively with the Company in the U.S., enhancing the Company’s digital and robotics capabilities in its distribution networks. In 2023, the Company opened one additional Kroger Delivery customer fulfillment center in Frederick, Maryland. The Company determined the arrangement with Ocado contains a lease of the robotic equipment used to fulfill customer orders. As a result, the Company establishes a finance lease when each facility begins fulfilling orders to customers. The base term of each lease is 10 years with options to renew at the Company’s sole discretion. The Company elected to combine the lease and non-lease elements in the contract. As a result, the Company will account for all payments to Ocado as lease payments. In 2023, the Company recorded finance lease assets of $147 and finance lease liabilities of $135 related to the Company’s agreement with Ocado. In 2022, the Company recorded finance lease assets of $629 and finance lease liabilities of $583 related to the Company’s agreement with Ocado. As of February 3, 2024 and January 28, 2023, the Company had $960 and $928, respectively, of net finance lease assets included within “Property, plant and equipment, net” in the Company’s Consolidated Balance Sheets related to the Company's agreement with Ocado. As of February 3, 2024 and January 28, 2023, the Company had $100 and $88, respectively, of current finance lease liabilities recorded within “Current portion of long-term debt including obligations under finance leases" and $814 and $785, respectively, of non-current finance lease liabilities recorded within “Long-term debt including obligations under finance leases” in the Company’s Consolidated Balance Sheets.

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