(MENAFN Editorial) iCrowdNewswire - Dec 1, 2017
INCINNATI,Nov. 30, 2017/PRNewswire/ —
Highlights:
Great start on Digital revenue up 109%, driven by ClickList Continued growth and innovation inOur Brands Increased market share The Kroger Co. (NYSE:) today reported financial results for its third quarter endedNovember 4, 2017.
Net earnings were$397 million, or$0.44per diluted share, and identical supermarket sales growth, without fuel, was 1.1% in the third quarter of 2017. This includes strong core business results and strong fuel results, as well as an incremental$111 millioncontribution to the UFCW Consolidated Pension Plan in the third quarter. Kroger's net earnings for the third quarter last year were$391 million, or$0.41per diluted share.
Comments from Chairman and CEORodney McMullen
"Restock Krogeris off to a great start. Customers are recognizing our efforts to redefine the customer experience and rewarding us with their loyalty. We continue to accelerate our digital and ecommerce offerings, to growOur Brands, to lower prices for customers, and to invest in our associates.
"The holidays are always Kroger's time to shine. In fact, we had our best ever Black Friday results for general merchandise, led by record sales at Fred Meyer. Everything we are doing revolves around our associates providing friendly service and fresh products to our customers.
"This quarter shows that by investing for the future, our business continues to improve and gain momentum. We remain confident in our ability to continue to grow identical supermarket store sales and market share for the balance of the year and in 2018."
Details of Third Quarter 2017 Results
Total sales increased 4.5% to$27.7 billionin the third quarter compared to$26.6 billionfor the same period last year. Total sales, excluding fuel, increased 3.0% in the third quarter compared to the same period last year.
Gross margin was 22.4% of sales for the third quarter. Excluding fuel, ModernHEALTH and the LIFO charge, gross margin increased 30 basis points from the same period last year. Lower cost of goods and sales mix more than offset continued price investments.
Kroger recorded a$3 millionLIFO charge in the third quarter of 2017, compared to an$8 millionLIFO credit in the same period last year.
FIFO operating margin dollars for the third quarter of 2017 increased$38 million, or 5.5%.
Operating, General & Administrative costs as a rate of sales excluding fuel, ModernHEALTH, and a$111 millioncontribution to the UFCW Consolidated Pension Plan increased 18 basis points. Rent and depreciation with the same exclusions remained consistent.
Third Quarter 2017 Restock Kroger Highlights
Redefine the Grocery Customer Experience
LaunchedWe Are Localcampaign, including a new digital hub to welcome local and emerging brands to partner with the company. Hosted first natural foods innovation summit to expand its natural foods offering. Launched and opened a new restaurant concept,. Announced two newOur Brandsproduct lines: An apparel brand to launch in 2018, and a floral line,BLOOM HAUS™, now available in stores just in time for the holidays. Partner for Customer Value
Used cost savings to continue reducing prices for customers. Launched home delivery, powered by Instacart, in select locations inSouthern California. AnnouncedKroger Precision Marketing, Powered by 84.51°, a media solution that offers CPGs a service that delivers personalized communication to Kroger's customers through a variety of digital and other media channels. Announced cloud computing portfolio is expanding with Google Cloud Platform. Develop Talent
Announced$500 millionincremental investment in associates over the next three years. Hiring an estimated 14,000 part-time and seasonal roles this holiday season. Named one of the "Healthiest 100 Workplaces in America" by Healthiest Employers. Lowered prices for healthcare services for company associates and their immediate families atThe Little Clinic®. Live Kroger's Purpose
Launched Zero Hunger | Zero Waste, a visionary initiative that aims to end hunger in the communities Kroger calls home and eliminate waste across the company by 2025. Named to the Dow Jones Sustainability Index-North America for fifth consecutive year. Generated$7 millionto support hurricane recovery inTexas,FloridaandPuerto Rico. Donated$3.2 millionto the USO through itsHonoring Our Heroescampaign, a commitment Kroger has long made to veterans, military service members and their families. Financial Strategy
Over the last four quarters, Kroger has used cash to:
Contribute an incremental$1.1 billionto company-sponsored pension plans, Repurchase 59 million common shares for$1.7 billion, Pay$446 millionin dividends, and Invest$2.9 billionin capital. Kroger's financial strategy is to use its financial flexibility to drive growth while also returning capital to shareholders and maintaining its current investment grade debt rating. The company continually balances the use of its cash flow to achieve these goals.
Kroger's net total debt to adjusted EBITDA ratio increased to 2.57, due primarily to funding various pension obligations. The company updated its net total debt to adjusted EBITDA ratio target range to 2.20 to 2.40 to reflect its decision to fund these existing obligations, which resulted in them being reflected as debt on Kroger's balance sheet. Kroger expects to use a portion of proceeds from the potential sale of assets to help achieve its targeted net total debt to adjusted EBITDA ratio.
Return on invested capital for the third quarter, on a rolling four quarters basis, was 12.31% (see Table 7).
Guidance
Kroger confirms 2017 net earnings guidance for 53 weeks of$1.74-$1.79per diluted share and adjusted net earnings guidance for 53 weeks of$2.00 to $2.05per diluted share. Both GAAP and adjusted net earnings per diluted share guidance include the effect of hurricanes.
Kroger expects fourth quarter identical supermarket sales growth, excluding fuel, to exceed 1.1%.
The company expects capital investments excluding mergers, acquisitions and purchases of leased facilities, to be approximately$3.0 billionfor 2017.
At The Kroger Co., we are dedicated to our purpose: toFeed the Human Spirit™.We are 450,000 associates who serve nearly nine million customers in 2,790 retail food stores under a variety ofin 35 states and theDistrict of Columbia. Our Family of Companies operates an expanding ClickList offering a personalized order online service in addition to 2,266 pharmacies, 783 convenience stores, 306 fine jewelry stores, 219 retail health clinics, 1,480 supermarket fuel centers and 38 food production plants inthe United States. Our Company has been recognized as one of America's most generous companies for our support of more than 100 Feeding America food bank partners, breast cancer research and awareness, the military and their families, and more than 145,000 community organizations including schools. As a leader in supplier diversity, we are a proud member of theBillion Dollar Roundtable.
Note: Fuel sales have historically had a low FIFO 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.
Note: Kroger discusses the changes in operating results, as a percentage of sales, excluding certain items that affect comparability.
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.
This press release contains certain statements that constitute "forward-looking statements" about 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. These statements are indicated by words such as "estimate," "expect," "guidance," "confident," "strategy," "goal," "target," "range," and "continue." 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" and "Outlook" in Kroger's annual report on Form 10-K for the last fiscal year and any subsequent filings, as well as the following:
Kroger's ability to achieve sales, earnings and cash flow goals may be affected by: labor negotiations or disputes; changes in the types and numbers of businesses that compete with Kroger; pricing and promotional activities of existing and new competitors, including non-traditional competitors, and the aggressiveness of that competition; Kroger's response to these actions; the state of the economy, including interest rates, the inflationary and deflationary trends in certain commodities, and the unemployment rate; the effect that fuel costs have on consumer spending; volatility of fuel margins; changes in government-funded benefit programs; manufacturing commodity costs; 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 inconsistent pace of the economic recovery; changes in inflation or deflation in product and operating costs; stock repurchases; 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 potential costs and risks associated with potential cyber-attacks or data security breaches; the success of Kroger's future growth plans; and the successful integration ofHarris Teeterand Roundy's. Kroger's ability to achieve sales and earnings goals may also be affected by Kroger's ability to manage the factors identified above. Kroger's ability to execute its financial strategy may be affected by its ability to generate cash flow. During the first three quarters of each fiscal year, Kroger's LIFO charge and the recognition of LIFO expense is affected primarily by estimated year-end changes in product costs. Kroger's fiscal year LIFO charge is affected primarily by changes in product costs at year-end. Kroger assumes no obligation to update the information contained herein. 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 be broadcast live online at10 a.m. (ET)onNovember 30, 2017at ir.kroger.com. An on-demand replay of the webcast will be available at approximately1 p.m. (ET) Thursday, November 30, 2017.
3rdQuarter 2017 Tables Include:
Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Cash Flows Supplemental Sales Information Reconciliation of Net Total Debt and Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA Net Earnings Per Diluted Share Excluding the Adjustment Items Return on Invested Capital
Table 2.
THE KROGER CO.
CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited)
November 4, November 5,
2017 2016
ASSETS
Current Assets
Cash $ 334
$ 362
Temporary cash investments 18
12
Store deposits in-transit 1,163
1,043
Receivables 1,452
1,488
Inventories 6,917
6,976
Assets held for sale 604
-
Prepaid and other current assets 437
522
Total current assets 10,925
10,403
Property, plant and equipment, net 20,966
20,966
Intangibles, net 1,113
1,164
Goodwill 3,035
3,035
Other assets 989
939
Total Assets $ 37,028
$ 36,507
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Current portion of long-term debt including obligations
under capital leases and financing obligations $ 1,729
$ 3,019
Trade accounts payable 6,307
6,310
Accrued salaries and wages 1,074
1,153
Deferred income taxes -
221
Liabilities held for sale 259
-
Other current liabilities 3,521
3,421
Total current liabilities 12,890
14,124
Long-term debt including obligations under capital leases
and financing obligations 13,118
10,817
Deferred income taxes 2,452
1,759
Pension and postretirement benefit obligations 522
1,381
Other long-term liabilities 1,835
1,796
Total Liabilities 30,817
29,877
Shareowners' equity 6,211
6,630
Total Liabilities and Shareowners' Equity $ 37,028
$ 36,507
Total common shares outstanding at end of period 881
934
Total diluted shares year-to-date 910
962
Table 3.
THE KROGER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
YEAR-TO-DATE
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings including noncontrolling interests $ 1,036
$ 1,455
Adjustments to reconcile net earnings including noncontrolling
interests to net cash provided by operating activities:
Depreciation and amortization 1,871
1,768
LIFO charge 46
19
Stock-based employee compensation 118
110
Expense for Company-sponsored pension plans 68
62
Deferred income taxes 267
5
Other 5
(27)
Changes in operating assets and liabilities, net
of effects from mergers of businesses:
Store deposits in-transit (268)
(120)
Receivables 45
48
Inventories (466)
(798)
Prepaid and other current assets 426
219
Trade accounts payable 620
509
Accrued expenses 26
(144)
Income taxes receivable and payable 143
267
Contribution to Company-sponsored pension plan (1,000)
-
Other 117
83
Net cash provided by operating activities 3,054
3,456
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment, including payments for lease buyouts (2,137)
(3,025)
Proceeds from sale of assets 120
114
Payments for acquisitions, net of cash acquired (16)
(401)
Other (2)
39
Net cash used by investing activities (2,035)
(3,273)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,503
1,785
Payments on long-term debt (769)
(1,332)
Net (payments) borrowings on commercial paper (45)
1,200
Dividends paid (333)
(316)
Proceeds from issuance of capital stock 31
51
Treasury stock purchases (1,292)
(1,401)
Other (84)
(73)
Net cash used by financing activities (989)
(86)
NET INCREASE IN CASH AND TEMPORARY
CASH INVESTMENTS 30
97
CASH AND TEMPORARY CASH INVESTMENTS:
BEGINNING OF YEAR 322
277
END OF YEAR $ 352
$ 374
Reconciliation of capital investments:
Payments for property and equipment, including payments for lease buyouts $ (2,137)
$ (3,025)
Payments for lease buyouts 9
5
Changes in construction-in-progress payables (149)
14
Total capital investments, excluding lease buyouts $ (2,277)
$ (3,006)
Disclosure of cash flow information:
Cash paid during the year for interest $ 469
$ 410
Cash paid during the year for income taxes $ 168
$ 450
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 supermarket 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 supermarket sales differently than Kroger does, limiting the comparability of the measure.
IDENTICAL SUPERMARKET SALES (a)
THIRD QUARTER YEAR-TO-DATE
2017 2016
2017
2016
INCLUDING FUEL CENTERS $
24,605 $
24,026 $
81,327 $
80,045
EXCLUDING FUEL CENTERS $
21,629 $
21,398 $
71,958 $
71,636
INCLUDING FUEL CENTERS 2.4%
-0.2% 1.6%
-0.1%
EXCLUDING FUEL CENTERS 1.1%
0.1% 0.4%
1.5%
(a) Kroger defines a supermarket as identical when it has been open without expansion or relocation for five full quarters.
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.
November 4, November 5,
2017 2016
Change
Current portion of long-term debt including obligations
under capital leases and financing obligations $
1,729 $
3,019 $
(1,290)
Long-term debt including obligations under capital leases
and financing obligations 13,118
10,817 2,301
Total debt 14,847
13,836 1,011
Less: Temporary cash investments 18
12 6
Net total debt $
14,829 $
13,824 $
1,005
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, on a rolling four quarters basis.
Rolling Four Quarters Ended
November 4, November 5,
2017 2016
Net earnings attributable to The Kroger Co. $
1,559 $
2,028
LIFO charge (credit) 46
(11)
Depreciation and amortization 2,443
2,276
Interest expense 579
509
Income tax expense 782
977
Adjustments for pension plan agreements 199
111
Adjustments for voluntary retirement offering 184
-
Other (18)
(11)
Adjusted EBITDA $
5,774 $
5,879
Net total debt to adjusted EBITDA ratio on a rolling four quarters basis 2.57
2.35
Table 7. Return on Invested Capital
(in millions, except percentages)
(unaudited)
Return on invested capital should not be considered an alternative to any GAAP measure of performance. Return on invested capital is an important measure used by management to evaluate our investment returns on capital and our effectiveness in deploying our assets. Return on invested capital should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. Other companies may calculate return on invested capital differently than Kroger, limiting the comparability of the measure.
The following table provides a calculation of return on invested capital on a rolling four quarters basis ended November 4, 2017.
Rolling Four
Quarters Ended
November 4,
2017
Return on Invested Capital
Numerator (a)
Operating profit $
2,899
LIFO charge 46
Depreciation and amortization 2,443
Rent 906
Adjustments for pension plan agreements 199
Adjustments for voluntary retirement offering 184
Adjusted operating profit $
6,677
Denominator (b)
Average total assets $
36,768
Average taxes receivable (c) (81)
Average LIFO reserve (d) 1,298
Average accumulated depreciation and amortization 20,017
Average trade accounts payable (6,309)
Average accrued salaries and wages (1,114)
Average other current liabilities (e) (3,448)
Average liabilities held for sale (130)
Rent * 8 (f) 7,248
Average invested capital $
54,249
Return on Invested Capital 12.31%
a) Represents results for the rolling four quarters for the period noted.
b) Represents the average of amounts at the beginning and end of the rolling four quarters for the period presented.
c) Taxes receivable is recorded in the Consolidated Balance Sheet in receivables.
d) LIFO reserve is recorded in the Consolidated Balance Sheet in inventories.
e) The calculation of average other current liabilities excludes accrued income taxes.
f) The factor of eight estimates the hypothetical capitalization of our operating leases.
Contact Information:
The Kroger Co.
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