Market Overview

Kroger Reports First Quarter 2019 Results

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CINCINNATI, June 20, 2019 /PRNewswire/ --The Kroger Co. (NYSE:KR) today reported its first quarter 2019 results and provided a Restock Kroger progress update on the company's three-year transformation plan.

The Kroger Co. Logo (PRNewsFoto/The Kroger Co.) (PRNewsFoto/The Kroger Co.)

Comments from Chairman and CEO Rodney McMullen

"Because the retail industry is constantly transforming, we proactively launched Restock Kroger to deliver for our customers and shareholders. It all starts with our customer obsession, which is why Kroger is assembling a platform to deliver anything, anytime, anywhere.

We are building momentum in the second year of Restock Kroger, which is off to a solid start. The entire company is focused on redefining the grocery customer experience, improved upon by exciting partnerships that will create value. We are on track to generate the free cash flow and incremental adjusted FIFO operating profit that we committed to in 2019 as part of Restock Kroger. We are confident in our ability to deliver on our plans for the year and our long-term vision to serve America through food inspiration and uplift."

Financial Results

Total company sales were $37.3 billion in the first quarter, compared to $37.7 billion for the same period last year. This decrease is due to the sale of Kroger's convenience store business unit. Total sales, excluding fuel and the effect of selling the convenience store business unit, increased 2.0% from the same period last year.

Gross margin was 22.2% of sales for the first quarter. FIFO gross margin, excluding fuel, decreased 40 basis points from the same period last year, primarily due to industry-wide lower gross margin rates in pharmacy.

The Operating, General & Administrative costs, excluding fuel and the 2019 and 2018 Adjustment Items (see Table 6), decreased 12 basis points as a rate of sales, due to execution of Restock Kroger initiatives and planned real estate transactions during the quarter.

Operating profit was $901 million in the first quarter. Adjusted FIFO operating profit totaled $957 million in the first quarter (see Table 7).

GAAP net earnings were $0.95 per diluted share compared to $2.37 per diluted share in the same period last year. 

Adjusted net earnings were $0.72 per diluted share, compared to $0.73 per diluted share in the same period last year (see Table 6).

Kroger did not adjust the rates as a percent of sales described above for the divestitures of the convenience store, YouTech and Turkey Hill Dairy businesses and the merger with Home Chef, because the effect was insignificant.

Financial Strategy

Kroger's financial strategy is to use its free cash flow to drive growth while also maintaining its current investment grade debt rating and returning capital to shareholders. The company actively balances the use of its cash flow to achieve these goals.

Over the last four quarters, Kroger has used cash to:

  • Invest a combined $589 million in Ocado securities and Home Chef,
  • Contribute an incremental $185 million pre-tax to company-sponsored pension plans,
  • Repurchase five million common shares for $216 million,
  • Pay $440 million in dividends, and
  • Invest $3.0 billion in capital, excluding mergers, acquisitions, and purchases of leased facilities.

Consistent with our financial strategy, Kroger reduced net total debt by $1.7 billion, since the end of fiscal year 2018. Kroger's net total debt to adjusted EBITDA ratio is 2.54, down from 2.83 at the end of 2018 (see Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.

2019 Guidance


IDS (%)

EPS ($)

Operating Profit
(NYSE:B)

Tax Rate

Cap Ex

(NYSE:B)

GAAP

N/A

$2.38 - $2.48

$2.9 - $3.0

23%

$3.0 - $3.2

Adjusted*

2.0% - 2.25%

$2.15 - $2.25

$2.9 - $3.0

22%

N/A

* Without adjusted items, if applicable; operating profit represents FIFO Operating Profit

First Quarter 2019 Restock Kroger Highlights

Redefine the Grocery Customer Experience

  • Our Brands sales were up 3.3% vs. prior year, led by double digit growth in Simple Truth. Kroger also launched 219 new Our Brands items
  • Expanded to 1,685 Pickup locations and 2,126 Delivery locations, covering over 93% of Kroger households
  • Introduced test of new Home Chef retail meal solutions, including oven-ready options, Heat & Eat choices, and lunch kits

Partner for Customer Value

  • Provided additional detail on Kroger's alternative profit stream portfolio
  • Formed PearlRock Partners, a new platform to identify, invest in and help grow the next generation of leading consumer product brands, with private investment firm Lindsay Goldberg
  • Broke ground on first Kroger-Ocado center in Monroe, Ohio and named the location of the second customer fulfillment center
  • Completed sale of YouTech to Inmar and established a long-term service agreement
  • Completed sale of Turkey Hill business
  • Expanded Media business portfolio with new ad units, including a direct relationship with Pinterest to bridge the journey between inspiration and purchase for both customers and advertisers

Develop Talent

Live Kroger's Purpose

At The Kroger Co. (NYSE:KR), we are dedicated to our Purpose: to Feed the Human Spirit®. We are nearly half a million associates who serve over 11 million customers daily through a seamless digital shopping experience and 2,761 retail food stores under a variety of banner names, serving America through food inspiration and uplift, and creating #ZeroHungerZeroWaste communities by 2025. To learn more about us, visit our newsroom and investor relations site.

Kroger's first quarter 2019 ended on May 25, 2019.

Note: Fuel sales have historically had a low 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.

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. The remarks contain certain 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. Such statements are indicated by words or phrases such as "ahead," "believe," "build,"  "committed," "confident," "continue," "contribute," "create," "deliver," "drive," "estimate," "expect,"  "future," "guidance," "headwind," "improve," "intend," "momentum," "optimistic," "on track," "proactive,"  "progress," "solid," "strategy," "strength," "tailwind," "target," "transformation," "trend," "upcoming," "vision,"  and "will." 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 our annual report on Form 10-K for our last fiscal year and any subsequent filings, as well as the following:

  • Kroger's ability to achieve sales, earnings, incremental FIFO operating profit, and free 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, changes in tariffs, 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 uncertain pace of economic growth; 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; the ability to execute on Restock Kroger; and the successful integration of merged companies and new partnerships. Our ability to achieve these goals may also be affected by our ability to manage the factors identified above. Our ability to execute our financial strategy may be affected by our ability to generate cash flow.
  • Kroger's ability to achieve these 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.
  • Kroger's effective tax rate may differ from the expected rate due to changes in laws, the status of pending items with various taxing authorities, and the deductibility of certain expenses.

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 broadcast live at 10 a.m. (ET) on June 20, 2019 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, June 20, 2019.

1st Quarter 2019 Tables Include:

  1. Consolidated Statements of Operations
  2. Consolidated Balance Sheets
  3. Consolidated Statements of Cash Flows
  4. Supplemental Sales Information
  5. Reconciliation of Net Total Debt and Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA
  6. Net Earnings Per Diluted Share Excluding the Adjustment Items
  7. Operating Profit Excluding the Adjustment Items
  8. 2018 Sales Reclassification

 

 

Table 1.

THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(unaudited)
























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