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Kroger Reports Strong Fourth Quarter and Full Year ResultsIdentical Supermarket Sales During The Quarter Increased 5.3% Without FuelCompany Delivers Record Earnings Per Share In Fiscal 2007
CINCINNATI, March 11 /PRNewswire-FirstCall/ -- The Kroger Co. NYSE: KR today reported total sales increased 2.2% to $17.2 billion for the fourth quarter ended February 2, 2008. Adjusting for the extra week in the fourth quarter of the previous year, total sales increased 10.2%. Identical supermarket sales increased 8.2% with fuel and 5.3% without fuel, based on the same 12-week period in both years. "As Kroger's strong fourth quarter results show, we continue to drive solid identical sales growth by improving service, value, product quality and selection for our customers," said David B. Dillon, Kroger chairman and chief executive officer. "During the quarter, we continued to invest in lower prices for our customers, providing meaningful savings for them in this uncertain economic environment." Net earnings in the fourth quarter totaled $322.9 million, or $0.48 per diluted share. The LIFO charge in the fourth quarter was $0.05 per diluted share, resulting from higher than expected inflation, and was $0.02 per diluted share more than the Company anticipated at the end of the third quarter. Net earnings in the same period last year were $384.8 million, or $0.54 per diluted share. Results from the fourth quarter 2006 included a $0.03 per diluted share benefit from adjustments to certain deferred tax balances and an estimated $0.07 per diluted share from an extra week. Other highlights of the fourth quarter 2007 included:
- FIFO gross margin was 23.56% of sales, a decline of 92 basis points
compared to the fourth quarter last year. Excluding the effect of
retail fuel operations, FIFO gross margin declined 23 basis points.
- Operating, general and administrative (OG&A) costs were 16.81% of
sales, a decline of 84 basis points compared to the fourth quarter last
year. Excluding the effect of retail fuel operations, OG&A declined 33
basis points.
- Kroger repurchased 10.1 million shares of stock at an average price of
$26.64 per share for a total investment of $269 million. At the end
of the fourth quarter, $941 million remained under the $1 billion stock
repurchase program announced in January 2008.
Fiscal Year 2007 Results For the full 2007 fiscal year, total sales increased 6.2% to $70.2 billion. Adjusting for the extra week in fiscal 2006, total sales increased 8.2%. Identical supermarket sales increased 6.9% with fuel and 5.3% without fuel, based on the same 52-week period in both years. Net earnings for fiscal 2007 were $1.18 billion, or $1.69 per diluted share. This equates to 15% growth after adjusting for the extra week in fiscal 2006. This growth, plus Kroger's dividend yield of slightly more than 1%, created strong value for shareholders. Net earnings in fiscal 2006, on a GAAP basis, were $1.11 billion, or $1.54 per diluted share. Other highlights of the fiscal year included:
- Total debt was $8.1 billion, an increase of $1.1 billion from a year
ago. On a rolling four-quarters basis, Kroger's net total debt (Table
5) to EBITDA ratio was 2.0, compared with 1.9 during the same period
last year.
- Capital investment totaled $2.1 billion, excluding acquisitions,
compared with $1.8 billion in fiscal 2006.
- Kroger repurchased 52.5 million shares of stock at an average price of
$27.05 per share for a total investment of $1.4 billion. Over the past
four quarters, Kroger has returned $1.6 billion to shareholders in
share repurchases and dividends.
Kroger also made significant gains in market share during fiscal 2007. In the major markets where Kroger serves customers, the Company's overall market share rose approximately 65 basis points, with share gains in 37 of its 44 major markets, based on the Company's calculations. These increases are on top of strong market share gains in 2005 and 2006. During the last three fiscal years combined, Kroger's share in its major markets has increased approximately 165 basis points. "Our performance last year and our three consecutive years of increases in market share show that Kroger's strategy is working as we continue to deliver value to both our customers and our shareholders," Mr. Dillon said. Fiscal 2008 Guidance For fiscal 2008, Kroger anticipates earnings of $1.83 - $1.90 per diluted share. The Company said it expects that earnings per share growth will be driven by strong identical sales, a slight improvement in non-fuel operating margins, and fewer shares outstanding. Identical supermarket sales growth is expected to be in the range of 3 - 5%, excluding fuel sales. Shareholder return will be further enhanced by Kroger's dividend. The range for identical sales and earnings guidance takes into account the current uncertainty about future economic conditions. The upper end of the range assumes current economic conditions will continue while the lower end assumes economic conditions weaken slightly. Both sales and earnings guidance are based on a stable labor environment. "Kroger's fourth quarter and fiscal year results can be tied directly to the efforts of our associates in every aspect of our business," Mr. Dillon said. "The contribution of all of our associates is fundamental to our success in 2008 as we continue to execute our Customer 1st strategy. Kroger's business model and the diversity of our product offerings are well-suited for what continues to be a challenging economic and competitive environment." Kroger, one of the nation's largest retail grocery chains, is honored to celebrate its 125th anniversary in 2008. The Company's more than 310,000 associates serve customers in 2,486 supermarkets and multi-department stores in 31 states under two dozen local banners including Kroger, Ralphs, Fred Meyer, Food 4 Less, Fry's, King Soopers, Smith's, Dillons, QFC and City Market. Kroger associates also serve customers in 782 convenience stores, 394 fine jewelry stores and 696 supermarket fuel centers the Company operates. The Company also operates 42 food processing plants in the U.S. Headquartered in Cincinnati, Ohio, Kroger focuses its charitable efforts on supporting hunger relief, health and wellness initiatives, and local schools and grassroots organizations in the communities it serves. For more information about the Company, please visit our web site at http://www.kroger.com. This press release contains 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 the words "anticipates," "will," and "expected." Increased competition, weather and economic conditions, interest rates, goodwill impairment, the success of programs designed to increase our identical supermarket sales without fuel, and labor disputes, particularly as the Company seeks to manage increases in health care and pension costs, could materially affect our expected identical supermarket sales growth, earnings per share, and earnings per share growth. These same factors could affect the extent to which our strategic plan is successful. Earnings per share and earnings per share growth also will be affected by the number of shares outstanding, our success in reducing the number of shares outstanding, and volatility in the Company's fuel margins. The extent to which shareholder return will be enhanced by Kroger's dividend will depend upon the continuation of payment of a dividend and the amount thereof. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially. We assume 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 via the Internet at 10 a.m. (ET) on March 11, 2008 at http://www.kroger.com and http://www.streetevents.com. An on-demand replay of the webcast will be available from approximately 1 p.m. (ET) today through March 25, 2008.
Table 1.
THE KROGER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
FOURTH QUARTER
2007 2006
SALES $17,234.6 100.00% $16,858.7 100.00%
MERCHANDISE COSTS, INCLUDING
ADVERTISING, WAREHOUSING AND
TRANSPORTATION (a), AND
LIFO CHARGE (b) 13,228.5 76.76 12,728.3 75.50
OPERATING, GENERAL AND
ADMINISTRATIVE (a) 2,896.5 16.81 2,976.3 17.65
RENT 156.4 0.91 161.2 0.96
DEPRECIATION 325.5 1.89 299.1 1.77
OPERATING PROFIT 627.7 3.64 693.8 4.12
INTEREST 113.0 0.66 115.7 0.69
EARNINGS BEFORE TAX EXPENSE 514.7 2.99 578.1 3.43
TAX EXPENSE 191.8 1.11 193.3 1.15
NET EARNINGS $322.9 1.87% $384.8 2.28%
NET EARNINGS PER BASIC COMMON
SHARE $0.48 $0.55
SHARES USED IN BASIC
CALCULATION 668.3 705.8
NET EARNINGS PER DILUTED
COMMON SHARE $0.48 $0.54
SHARES USED IN DILUTED
CALCULATION 675.8 715.2
Table 1. (continued)
THE KROGER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
YEAR-TO-DATE
2007 2006
SALES $70,234.7 100.00% $66,111.2 100.00%
MERCHANDISE COSTS, INCLUDING
ADVERTISING, WAREHOUSING AND
TRANSPORTATION (a), AND
LIFO CHARGE (b) 53,779.5 76.57 50,115.3 75.80
OPERATING, GENERAL AND
ADMINISTRATIVE (a) 12,155.2 17.31 11,838.9 17.91
RENT 643.9 0.92 649.7 0.98
DEPRECIATION 1,355.5 1.93 1,271.8 1.92
OPERATING PROFIT 2,300.6 3.28 2,235.5 3.38
INTEREST 473.6 0.67 487.5 0.74
EARNINGS BEFORE TAX EXPENSE 1,827.0 2.60 1,748.0 2.64
TAX EXPENSE 646.5 0.92 633.1 0.96
NET EARNINGS $1,180.5 1.68% $1,114.9 1.69%
NET EARNINGS PER BASIC COMMON
SHARE $1.71 $1.56
SHARES USED IN BASIC
CALCULATION 689.8 715.2
NET EARNINGS PER DILUTED
COMMON SHARE $1.69 $1.54
SHARES USED IN DILUTED
CALCULATION 697.7 723.0
Note: Certain prior-year amounts have been reclassified to conform to
current-year presentation. Certain per share amounts and percentages may
not sum due to rounding.
Note: The Company defines FIFO gross margin as sales minus merchandise
costs plus the Last-In First-Out (LIFO) charge.
(a) Merchandise costs and operating, general and administrative expenses
exclude depreciation expense and rent expense which are included in
separate expense lines.
(b) LIFO charge/(credit) of $54.2 and $(3.2) was recorded for the fourth
quarter of fiscal years 2007 and 2006, respectively. LIFO charges of
$154.2 and $49.5 were recorded for fiscal years 2007 and 2006,
respectively.
Table 2.
THE KROGER CO.
CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited)
February 2, February 3,
2008 2007
ASSETS
Current Assets
Cash $159.9 $156.9
Cash - Temporary investments (a) 81.7 32.4
Store deposits in-transit 675.7 613.9
Receivables 786.2 778.0
Inventories 4,855.4 4,609.1
Prepaid and other current assets 555.2 564.5
Total current assets 7,114.1 6,754.8
Property, plant and equipment, net 12,497.9 11,779.5
Goodwill, net 2,143.7 2,192.3
Other assets 542.9 488.2
Total Assets $22,298.6 $21,214.8
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Current portion of long-term debt,
at face value, including
capital leases and lease-
financing obligations $1,592.2 $906.0
Accounts payable 4,049.6 3,803.6
Accrued salaries and wages 814.8 796.2
Deferred income taxes 238.6 268.4
Other current liabilities 1,994.1 1,806.8
Total current liabilities 8,689.3 7,581.0
Long-term debt including capital
leases and lease-financing obligations
Long-term debt, at face value,
including capital leases
and lease-financing obligations 6,484.7 6,136.0
Adjustment to reflect fair value
interest rate hedges 44.7 17.8
Long-term debt including capital
leases and lease-financing obligations 6,529.4 6,153.8
Deferred income taxes 366.8 721.6
Other long-term liabilities 1,799.6 1,835.4
Total Liabilities 17,385.1 16,291.8
Shareowners' equity 4,913.5 4,923.0
Total Liabilities and
Shareowners' Equity $22,298.6 $21,214.8
Total common shares outstanding at
end of period 663.2 704.8
Total diluted shares year-to-date 697.7 723.0
Note: Certain prior-year amounts have been reclassified to conform to
current-year presentation.
(a) Cash - Temporary investments represent Euros held to settle Euro -
denominated contracts, and escrow deposits.
Table 3.
THE KROGER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
YEAR-TO-DATE
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $1,180.5 $1,114.9
Adjustment to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 1,355.5 1,271.8
LIFO charge 154.2 49.5
Stock-based employee
compensation 86.9 71.9
Expense for Company-sponsored
pension plans 67.4 161.4
Gain on sale of property (6.1) (38.3)
Deferred income taxes (116.8) (60.4)
Other 43.1 58.2
Changes in operating assets and
liabilities, net of effects
of acquisitions:
Store deposits in-transit (61.8) (125.3)
Receivables (16.6) (89.5)
Inventories (383.1) (172.9)
Prepaid expenses 2.5 (42.5)
Accounts payable 185.2 256.2
Accrued expenses 155.8 97.8
Income tax payables and
receivables 73.9 (3.8)
Contribution to Company-
sponsored pension plan (51.5) (150.0)
Other long-term liabilities (88.5) (48.2)
Net cash provided by operating
activities 2,580.6 2,350.8
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for capital expenditures (2,126.2) (1,683.1)
Payments for acquisitions (90.2) -
Proceeds from sale of assets 49.5 142.8
Other (51.4) (46.7)
Net cash used by investing
activities (2,218.3) (1,587.0)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from lease-financing
transactions 7.6 15.0
Proceeds from issuance of long-term
debt 1,372.0 10.2
Payments for long-term debt (559.7) (556.0)
Borrowings on bank revolver 218.1 351.8
Dividends paid (201.7) (139.8)
Excess tax benefits on stock-based
awards 35.7 37.6
Proceeds from issuance of common
stock 188.2 130.8
Treasury stock purchases (1,421.4) (633.0)
Increase in book overdrafts 60.8 1.5
Other (9.6) (2.5)
Net cash used by financing
activities (310.0) (784.4)
NET INCREASE (DECREASE IN) CASH 52.3 (20.6)
CASH AT BEGINNING OF YEAR 189.3 209.9
CASH AT END OF YEAR $241.6 $189.3
Reconciliation of capital expenditures
Payments for capital expenditures $(2,126.2) $(1,683.1)
Changes in construction-in-progress
payables 65.6 (94.4)
Total capital expenditures $(2,060.6) $(1,777.5)
Supplemental disclosure of cash flow
information:
Cash paid during the year for
interest $477.2 $514.2
Cash paid during the year for
income taxes $639.9 $615.2
Note: Certain prior-year amounts have been reclassified to conform to
current-year presentation.
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 and comparable
supermarket sales are industry-specific measures and it is important to
review them in conjunction with Kroger's financial results reported in
accordance with GAAP. Other companies in our industry may calculate
identical or comparable sales differently than Kroger does, limiting the
comparability of these measures.
IDENTICAL SUPERMARKET SALES (a)
FOURTH QUARTER
2007 2006
INCLUDING FUEL CENTERS $15,276.4 $14,120.1
EXCLUDING FUEL CENTERS $13,937.4 $13,241.8
INCLUDING FUEL CENTERS 8.2% 5.6%
EXCLUDING FUEL CENTERS 5.3% 5.3%
COMPARABLE SUPERMARKET SALES (b)
FOURTH QUARTER
2007 2006
INCLUDING FUEL CENTERS $15,777.1 $14,553.3
EXCLUDING FUEL CENTERS $14,378.2 $13,643.7
INCLUDING FUEL CENTERS 8.4% 5.9%
EXCLUDING FUEL CENTERS 5.4% 5.5%
(a) Kroger defines a supermarket as identical when it has been open
without expansion or relocation for five full quarters and is not
scheduled to be closed.
(b) Kroger defines a supermarket as comparable when it has been open for
five full quarters, including expansions and relocations, and is not
scheduled to be closed.
OTHER INFORMATION
Note: Fuel sales have a very low FIFO gross margin rate, OG&A rate, and
operating margin rate, as compared to corresponding rates on non-fuel
sales. As a result, the Company discloses such rates excluding the
effect of retail fuel operations.
Table 5. Reconciliation of Total Debt to Net Total Debt
(in millions)
(unaudited)
Net total debt should not be considered an alternative to any GAAP measure
of performance or liquidity. Management believes net total debt is an
important measure of liquidity, and a primary component of measuring
compliance with the financial covenants under the Company's credit
facility. Net total debt should be reviewed in conjunction with Kroger's
financial results reported in accordance with GAAP.
The following table provides a reconciliation of total debt to net total
debt and compares the balance in the fourth quarter of 2007 to the
balances in the fourth quarter of 2006 and the fourth quarter of 1999.
February 2, February 3, January 29,
2008 2007 Change 2000 Change
Current portion of
long-term debt,
at face value,
including capital
leases and
lease-financing
obligations $1,592.2 $906.0 $686.2 $591.5 $1,000.7
Long-term debt, at
face value,
including capital
leases and
lease-financing
obligations 6,484.7 6,136.0 348.7 8,422.5 (1,937.8)
Adjustment to
reflect fair value
interest rate hedges 44.7 17.8 26.9 - 44.7
Total debt $8,121.6 $7,059.8 $1,061.8 $9,014.0 $(892.4)
Temporary cash
investments (81.7) (32.4) (49.3) - (81.7)
Investments in debt
securities - - - (68.8) 68.8
Prepaid employee
benefits (300.0) (300.0) - (200.0) (100.0)
Net total debt $7,739.9 $6,727.4 $1,012.5 $8,745.2 $(1,005.3)
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