Kroger Reports Record First Quarter Results Record Q1 EPS of $0.92; Raises Fiscal 2013 EPS Guidance to $2.73 to $2.80

ID Sales Up 3.3% Without Fuel

CINCINNATI, June 20, 2013 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported net earnings of $0.92 per diluted share and identical supermarket sales growth, without fuel, of 3.3% in the first quarter of fiscal year 2013. Other highlights of the quarter include:

  • Achieved 38th consecutive quarter of positive identical supermarket sales
  • Expanded FIFO operating margin, without fuel, on a rolling four quarter basis
  • Increased return on invested capital

"Kroger achieved strong sales and record earnings per share for the quarter, and our customers' positive view of us continues to improve," said David B. Dillon, Kroger's chairman and chief executive officer. "This is because of our continued focus on the Customer 1st strategy. Our first quarter results give us the confidence to raise our guidance for the year."

Details of First Quarter 2013 Results

Total sales increased 3.4% to $30.0 billion in the first quarter compared with $29.1 billion for the same period last year. Total sales, excluding fuel, increased 3.8% in the first quarter over the same period last year.  

Net earnings for the first quarter totaled $481 million, or $0.92 per diluted share. Net earnings for the first quarter last year were $439 million, or $0.78 per diluted share.

FIFO gross margin was 20.65% of sales for the first quarter. Excluding retail fuel operations, FIFO gross margin decreased 15 basis points from the same period last year.

The company recorded a $17 million LIFO charge during the quarter compared to a $46 million LIFO charge in the same quarter last year.

Operating, general and administrative costs plus rent and depreciation, excluding retail fuel operations, declined 21 basis points as a percent of sales compared to the prior year.

First quarter FIFO operating profit, excluding fuel, increased approximately $47 million over the prior year. Excluding fuel and the extra week in fiscal 2012, on a rolling four quarter basis, the company's FIFO operating margin increased 11 basis points.

Financial Strategy

Kroger's strong financial position has allowed the company to return more than $1.3 billion to shareholders through share buybacks and dividends over the last four quarters. During the first quarter, Kroger repurchased 4.5 million common shares for a total investment of $146 million.

Capital investment totaled $646 million for the first quarter, compared to $557 million for the same period last year.

Return on invested capital on a rolling four quarter 52-week basis was 13.5% compared to 13.4% during the same period last year.

Net total debt was $7.9 billion, an increase of $160 million from a year ago. On a rolling four quarter 52-week basis, Kroger's net total debt to adjusted EBITDA ratio was 1.85 compared to 1.91 during the same period last year.

Fiscal 2013 Guidance

Based on the first quarter results, the company increased its net earnings guidance to a range of $2.73 to $2.80 per diluted share for fiscal 2013. The original guidance was $2.71 to $2.79 per diluted share. The company's long term growth rate guidance is 8 – 11%, plus a growing dividend.

Kroger continues to expect identical supermarket sales growth, excluding fuel, of approximately 2.5% to 3.5% for fiscal year 2013.

During fiscal 2013, Kroger plans to use cash flow from operations to maintain its current investment grade debt rating, repurchase shares, pay dividends to shareholders, and fund capital investments. The company continues to expect capital investments to be in the $2.1 to $2.4 billion range for the year.

"The Kroger team's relentless focus on delivering on our Customer 1st strategy, quarter after quarter, continues to set us apart," Mr. Dillon said. "We will continue to build on this strong momentum to drive growth and greater shareholder value."

Kroger, one of the world's largest retailers, employs 343,000 associates who serve customers in 2,419 supermarkets and multi-department stores in 31 states under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry's, King Soopers, QFC, Ralphs and Smith's. The company also operates 784 convenience stores, 322 fine jewelry stores, 1,182 supermarket fuel centers and 37 food processing plants in the U.S. Recognized by Forbes as the most generous company in America, Kroger supports hunger relief, breast cancer awareness, the military and their families, and more than 30,000 schools and grassroots organizations. Kroger contributes food and funds equal to 200 million meals a year through more than 80 Feeding America food bank partners. A leader in supplier diversity, Kroger is a proud member of the Billion Dollar Roundtable and the U.S. Hispanic Chamber's Million Dollar Club.

Note: Fuel sales have historically had a low FIFO gross margin rate and OG&A rate as compared to corresponding rates on non-fuel sales. As a result Kroger discusses the changes in these rates excluding the effect of retail fuel operations.

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. These statements are indicated by words such as "expect," "guidance" and "plans." Our ability to achieve identical supermarket sales and earnings growth and earnings per share goals, as well as the timing that those earnings occur within the year, may be affected by: labor disputes, particularly as the company seeks to manage health care and pension costs; industry consolidation; pricing and promotional activities of existing and new competitors, including nontraditional competitors, the aggressiveness of competition, and our response to these activities; unexpected changes in product costs; the state of the economy, including interest rates and the inflationary and deflationary trends in certain commodities; the extent to which our customers exercise caution in their purchasing behavior in response to economic conditions as well as fuel and food prices; the number of shares outstanding; the success of our future growth plans; goodwill impairment; changes in government funded benefit programs; volatility in our fuel margins; the effect of fuel costs on consumer spending; the effect of prescription drugs going off patent on our sales and earnings; our expectations regarding our ability to obtain additional pharmacy  sales from third party payors; and our ability to generate sales at desirable margins, as well as the success of our programs designed to increase our identical sales without fuel.  In addition, any delays in opening new stores, failure to achieve tonnage growth as expected, or changes in the economic climate, could cause us to fall short of our sales and earnings targets.  Our ability to increase identical supermarket sales also could be adversely affected by increased competition, and sales shifts to other stores that we operate, as well as increases in sales of our corporate brand products.  Earnings and sales also may be affected by adverse weather conditions, particularly to the extent that adverse weather conditions and natural disasters disrupt our operations or those of our suppliers; create shortages in the availability or increases in the cost of products that we sell in our stores or materials and ingredients we use in our manufacturing facilities; or raise the cost of supplying energy to our various operations, including the cost of transportation; and the benefits that we receive from the consolidation of the UFCW pension plans.  Our earnings per share results also will be affected by our ability to improve our operating results and our ability to repurchase shares under our repurchase program as expected.  Our capital investments could vary from our expectations if we are unsuccessful in acquiring suitable sites for new stores; development costs vary from those budgeted; our logistics and technology or store projects are not completed on budget or within the time frame projected; or if current operating conditions fail to improve, or worsen. Our plans to use cash flow from operations to fund capital investments, repurchase shares, pay dividends to shareholders, and maintain our current debt rating will depend on our ability to generate free cash flow and otherwise to have cash on hand, which will be affected by all of the factors identified above, as well as the extent to which funds can be used for those reasons while maintaining our debt rating.  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 online at 10 a.m. (ET) on June 20, 2013 at ir.kroger.com. An on-demand replay of the webcast will be available from approximately 1 p.m. (ET) Thursday, June 20 through Thursday, July 4, 2013.

 

View 1st Quarter 2013 Reports:

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF CASH FLOWS

SUPPLEMENTAL SALES INFORMATION

RECONCILIATION OF TOTAL DEBT TO NET TOTAL DEBT AND
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. TO ADJUSTED EBITDA

RETURN ON INVESTED CAPITAL

 

Table. 1

THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(unaudited)










FIRST QUARTER


2013


2012









SALES

$ 30,043


100.0%


$ 29,065


100.0%










MERCHANDISE COSTS, INCLUDING ADVERTISING,










WAREHOUSING AND TRANSPORTATION (a),










AND LIFO CHARGE (b)

23,856


79.4


23,095


79.5


OPERATING, GENERAL AND ADMINISTRATIVE (a)

4,600


15.3


4,464


15.4


RENT

189


0.6


191


0.7


DEPRECIATION AND AMORTIZATION

519


1.7


501


1.7











OPERATING PROFIT 

879


2.9


814


2.8










INTEREST EXPENSE

129


0.4


141


0.5











NET EARNINGS BEFORE INCOME TAX EXPENSE

750


2.5


673


2.3










INCOME TAX EXPENSE 

266


0.9


232


0.8











NET EARNINGS INCLUDING NONCONTROLLING INTERESTS

 

484


 

1.6


441


1.5











NET EARNINGS ATTRIBUTABLE TO











NONCONTROLLING INTERESTS

3


0.0


2


0.0











NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. 

$     481


1.6%


$     439


1.5%














NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.











PER BASIC COMMON SHARE

$    0.93




$    0.78
















AVERAGE NUMBER  OF COMMON SHARES USED IN











BASIC CALCULATION

514




556
















NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.











PER DILUTED COMMON SHARE

$    0.92




$    0.78
















AVERAGE NUMBER  OF COMMON SHARES USED IN











DILUTED CALCULATION

520




559















DIVIDENDS DECLARED PER COMMON SHARE

$  0.150




$  0.115

























Note: Certain per share amounts and percentages may not sum due to rounding.












Note:  The Company defines FIFO gross profit, as described in the earnings release, as sales minus merchandise costs, including advertising, warehousing and transportation, but excluding the Last-In First-Out (LIFO) charge.  This measure is included to reflect trends in current cost of product.























(a)

Merchandise costs and operating, general and administrative expenses exclude depreciation and amortization expense and rent expense which are included in separate expense lines.












(b)

LIFO charges of $17 and $46 were recorded in the first quarter of 2013 and 2012, respectively.

 

 



Table 2.

THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

(in millions)

(unaudited)










May 25,


May 19,




2013


2012







ASSETS




Current Assets





Cash

$                247


$                191


Temporary cash investments

-


320


Store deposits in-transit

851


839


Receivables

961


922


Inventories

5,076


4,977


Prepaid and other current assets

299


347









Total current assets

7,434


7,596







Property, plant and equipment, net

14,985


14,522

Goodwill

1,234


1,138

Other assets

592


535









Total Assets

$          24,245


$          23,791













LIABILITIES AND SHAREOWNERS' EQUITY




Current liabilities





Current portion of long-term debt including obligations






under capital leases and financing obligations

$            1,784


$            1,335


Trade accounts payable

4,855


4,474


Accrued salaries and wages

957


939


Deferred income taxes

284


190


Other current liabilities

2,487


2,416









Total current liabilities

10,367


9,354







Long-term debt including obligations under capital leases




and financing obligations





Face-value of long-term debt including obligations under






capital leases and financing obligations

6,161


6,757


Adjustment to reflect fair-value interest rate hedges

1


14


Long-term debt including obligations under capital leases






and financing obligations

6,162


6,771







Deferred income taxes

776


696

Pension and postretirement benefit obligations

1,199


1,404

Other long-term liabilities

1,145


1,499









Total Liabilities

19,649


19,724







Shareowners' equity

4,596


4,067









Total Liabilities and Shareowners' Equity

$          24,245


$          23,791







Total common shares outstanding at end of period

514


549

Total diluted shares year-to-date

520


559













Note: Certain prior-year amounts have been reclassified to conform to current-year presentation.



Table 3.

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)
















YEAR-TO-DATE







2013


2012










CASH FLOWS FROM OPERATING ACTIVITIES:





Net earnings including noncontrolling interests

$                484


$                441


Adjustment to reconcile net earnings including noncontrolling






interests to net cash provided by operating activities:







Depreciation and amortization

519


501




LIFO charge

17


46




Stock-based employee compensation

24


24




Expense for Company-sponsored pension plans

25


31




Asset impairment charges

19


2




Deferred income taxes

(14)


58




Other

11


(5)




Changes in operating assets and liabilities, net








of effects from acquisitions of businesses:









Store deposits in-transit

104


(53)






Receivables

88


3






Inventories

53


91






Prepaid expenses

276


(56)






Trade accounts payable

279


214






Accrued expenses

(226)


(49)






Income taxes receivable and payable

89


94






Other

(131)


(43)











Net cash provided by operating activities

1,617


1,299



















CASH FLOWS FROM INVESTING ACTIVITIES:





Payments for capital investments

(618)


(542)


Proceeds from sale of assets

6


9


Other



(14)


6











Net cash used by investing activities

(626)


(527)



















CASH FLOWS FROM FINANCING ACTIVITIES:





Proceeds from issuance of long-term debt

2


846


Payments on long-term debt

(409)


(527)


Net payments on commercial paper

(545)


(370)


Dividends paid

(78)


(65)


Excess tax benefits on stock-based awards

7


1


Proceeds from issuance of capital stock

95


38


Treasury stock purchases

(146)


(345)


Increase (decrease) in book overdrafts

93


(19)


Other



(1)


(8)











Net cash used by financing activities

(982)


(449)



















NET INCREASE IN CASH AND TEMPORARY





CASH INVESTMENTS

9


323










CASH AND TEMPORARY CASH INVESTMENTS:





BEGINNING OF YEAR

238


188


END OF QUARTER

$                247


$                511



















Reconciliation of capital investments:





Payments for capital investments

$              (618)


$              (542)


Changes in construction-in-progress payables

(28)


(15)



Total capital investments

$              (646)


$              (557)










Disclosure of cash flow information:






Cash paid during the quarter for interest

114


113



Cash paid during the quarter for income taxes

181


94



















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 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 sales differently than Kroger does, limiting the comparability of the measure.








IDENTICAL SUPERMARKET SALES (a)










FIRST QUARTER




2013


2012








INCLUDING FUEL CENTERS


$         26,945


$         26,196


EXCLUDING FUEL CENTERS


$         22,412


$         21,700








INCLUDING FUEL CENTERS


2.9%


5.5%


EXCLUDING FUEL CENTERS


3.3%


4.2%




















(a)

Kroger defines a supermarket as identical when it has been open without expansion or relocation for five full quarters.

 


 



Table 5.  Reconciliation of Total Debt to 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 total debt to net total debt and compares the balance in the first quarter of 2013 to the balance in the first quarter of 2012.













May 25,


May 19,




2013


2012


Change







Current portion of long-term debt including obligations






   under capital leases and financing obligations

$    1,784


$  1,335


$     449

Face-value of long-term debt including obligations under






   capital leases and financing obligations

6,161


6,757


(596)

Adjustment to reflect fair-value interest rate hedges

1


14


(13)







     Total debt

$    7,946


$  8,106


$    (160)







Less: Temporary cash investments

-


320


(320)







     Net total debt

$    7,946


$  7,786


$     160













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 quarter 52 week basis.








 Rolling Four Quarters Ended




May 25,


May 19,




2013


2012









Net earnings attributable to The Kroger Co.

$    1,539


$     609



LIFO

26


216



Depreciation and amortization

1,670


1,640



Interest expense

450


438



Income tax expense

828


227



UFCW pension plan consolidation charge

-


953



UFCW consolidated pension plan liability and credit card






     settlement adjustments

(115)


-



53rd week EBITDA adjustment

(99)


-



Other

(7)


(5)









Adjusted EBITDA

$    4,292


$  4,078









Net total debt to adjusted EBITDA ratio on a 52 week basis

1.85


1.91









 

 



Table 6.  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 quarter 52 week basis ended May 25, 2013 and May 19, 2012.



















 Rolling Four Quarters Ended





May 25,


May 19,





2013


2012


Return on Invested Capital





Numerator (a)







Operating profit

$        2,829


$        1,281




53rd week operating profit adjustment

(99)


-




LIFO charge

26


216




Depreciation and amortization

1,670


1,640




Rent on a 53 week basis

626


618




53rd week rent adjustment

(12)


-




UFCW pension plan consolidation charge

-


953




UFCW consolidated pension plan liability and credit card







     settlement adjustments

(115)


-











Adjusted operating income

$        4,925


$        4,708









Denominator (b)







Average total assets

$      24,018


$     23,451




Average taxes receivable (c)

(9)


(12)




Average LIFO reserve (d)

1,102


981




Average accumulated depreciation and amortization

14,430


13,412




Average trade accounts payable

(4,665)


(4,325)




Average accrued salaries and wages

(948)


(940)




Average other current liabilities (e)

(2,309)


(2,263)




Rent * 8

4,912


4,944











Average invested capital

$      36,531


$     35,248









Return on Invested Capital

13.5%


13.4%






a)

Represents results for the rolling four quarters ended for the periods noted.



b)

Represents the average of amounts at the beginning and end of the rolling four-quarter 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.











 

SOURCE The Kroger Co.



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