Kroger Reports Fourth Quarter and Full Year 2009 Results
CINCINNATI, March 9 /PRNewswire-FirstCall/ -- The Kroger Co. (NYSE: KR) today reported total sales, including fuel, increased 7.2% to $18.6 billion in the fourth quarter of fiscal 2009 compared with $17.3 billion for the same period last year. Excluding fuel sales, in the fourth quarter total sales increased 2.0% and identical supermarket sales increased 1.2% over the prior year.
Net earnings for the fourth quarter, which ended on January 30, 2010, totaled $255.4 million, or $0.39 per diluted share. Net earnings in the same period last year were $349.2 million, or $0.53 per diluted share.
"The Kroger team delivered solid fourth quarter results for both our customers and our shareholders during what continues to be a difficult operating environment. We are strengthening Kroger's overall competitive position by increasing the number of households that are loyal to Kroger and earning a greater share of their business," said David B. Dillon, Kroger's chairman and chief executive officer.
Details of Fourth Quarter Results
Including Kroger's retail fuel operations, FIFO gross margin (Table 1) was 22.48% of sales, a decrease of 214 basis points compared to the fourth quarter last year. Excluding retail fuel operations, FIFO gross margin decreased 112 basis points. Supermarket selling gross margin on non-fuel sales decreased 126 basis points.
The Company recorded a $1.3 million LIFO charge during the quarter, a decrease of $39.6 million from the same period in the prior year. Excluding retail fuel operations, the LIFO charge decreased 25 basis points as a percent of sales compared to the same period last year.
Including Kroger's retail fuel operations, operating, general, and administrative (OG&A) costs were 16.98% of sales, a decrease of 73 basis points compared to the fourth quarter last year. Excluding retail fuel operations, OG&A increased 10 basis points compared with the same period last year as a result of higher health care and labor costs, and credit card fees. This increase was partially offset by lower utility costs, improvements in labor productivity and lower incentive pay.
Financial Strategy
Capital investment, excluding acquisitions and purchases of leased facilities, totaled $458.9 million for the fourth quarter, compared with $434.0 million for the same period last year.
Net total debt (Table 5) was $7.5 billion, a decrease of $217.5 million from a year ago. On a rolling four-quarters basis, Kroger's net total debt to EBITDA ratio, adjusted for the southern California asset impairment charges in the third quarter, was 1.97 compared with 1.88 during the same period last year.
During the fourth quarter, Kroger repurchased 4.2 million shares of stock at an average price of $21.08 per share for a total investment of $88.0 million. At the end of the quarter, $337.1 million remained under the $1 billion stock repurchase program announced in January 2008.
Fiscal Year 2009 Results
For fiscal year 2009, total sales increased 0.8% to $76.7 billion compared with fiscal 2008. Excluding fuel sales, total sales for fiscal 2009 increased 2.9%, and identical supermarket sales rose 2.1% compared with the prior fiscal year.
Net earnings for fiscal 2009 were $70.0 million, or $0.11 per diluted share. Current year results include the effect of the southern California asset impairment charges in the third quarter. Excluding these items, net earnings for fiscal 2009 would have been $1.12 billion, or $1.71 per diluted share (Table 6).
Net earnings in fiscal 2008 were $1.25 billion, or $1.89 per diluted share. Fiscal 2008 results include expenses for damage and disruption caused by Hurricane Ike in the third quarter. Excluding these hurricane-related expenses, fiscal year 2008 net earnings were $1.27 billion or $1.91 per diluted share (Table 6).
During 2009, Kroger invested $2.15 billion in capital projects, excluding acquisitions and purchases of leased facilities. The Company repurchased 10.3 million shares of stock at an average price of $21.25 per share for a total investment of $218.3 million. Kroger also paid $237.6 million in cash dividends.
"Throughout 2009, Kroger successfully achieved identical sales growth, one of the key objectives of our business model," Mr. Dillon said. "Through the efforts of all of our associates, we continue to widen the gap between Kroger's identical sales growth trends and those of most of our competitors. We believe this has extremely positive implications for our associates, customers and shareholders both now and as we grow our business."
Fiscal Year 2010 Guidance
For fiscal year 2010, Kroger anticipates identical supermarket sales growth, excluding fuel, of 2% to 3%. Net earnings are expected to range from $1.60 to $1.80 per diluted share. Kroger's quarterly dividend enhances total shareholder return by approximately 1.5% to 2.0%.
Kroger believes several factors that influenced its business in the last half of 2009 will continue at least through the first half of 2010. Inflation or deflation in product and operating costs, the competitive environment, fluctuating fuel margins, and the pace of the economic recovery are uncertain and cause Kroger to be cautious about its fiscal year 2010 forecast. We expect trends in these areas to influence the Company's results throughout fiscal year 2010.
"During a year that proved to be extremely trying, Kroger successfully achieved positive identical sales growth, increased the number of households loyal to Kroger stores, and generated strong tonnage growth. In addition, we reduced debt, increased the dividend we pay shareholders and prudently invested capital to keep our stores fresh and innovative," Mr. Dillon said. "Kroger's strategy generates value in good times and bad. We believe Kroger will continue to be in the best position to deliver shareholder value now and as the economy improves."
Kroger, the nation's largest traditional grocery retailer, employs more than 334,000 associates who serve customers in 2,468 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 777 convenience stores, 374 fine jewelry stores, 893 supermarket fuel centers and 40 food processing plants in the U.S. Kroger, headquartered in Cincinnati, Ohio, focuses its charitable efforts on supporting hunger relief, health and wellness initiatives, and local organizations in the communities it serves. For more information about Kroger, please visit www.kroger.com.
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 discloses such rates, both including and 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. Such statements are indicated by words such as "anticipates," "expected," "believe," and "enhances." Increased competition, 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. Earnings per share and earnings per share growth also will be affected by the number of shares outstanding and volatility in the Company's fuel margins. Earnings and sales also may be affected by climate change and adverse weather conditions, particularly to the extent that hurricanes, tornadoes, floods, and other conditions 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. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially. The extent to which our quarterly dividend enhances shareholder return will depend on the continued declaration of a quarterly dividend by our Board, and the amount of such dividend, as well as the price at which our stock trades. 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) today at www.kroger.com and www.streetevents.com. An on-demand replay of the webcast will be available from approximately 1 p.m. (ET) today through March 19, 2010.
Table 1.
THE KROGER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
FOURTH QUARTER
--------------
2009 2008
---- ----
SALES $18,554.5 100.00% $17,308.0 100.00%
MERCHANDISE COSTS,
INCLUDING ADVERTISING,
WAREHOUSING AND
TRANSPORTATION (a),
AND LIFO CHARGE (b) 14,384.0 77.52 13,088.3 75.62
OPERATING, GENERAL AND
ADMINISTRATIVE (a) 3,149.8 16.98 3,064.5 17.71
RENT 146.3 0.79 149.8 0.87
DEPRECIATION AND AMORTIZATION 367.7 1.98 347.7 2.01
GOODWILL IMPAIRMENT CHARGE - 0.00 - 0.00
--- ---
OPERATING PROFIT 506.7 2.73 657.7 3.80
INTEREST EXPENSE 119.1 0.64 114.7 0.66
----- -----
EARNINGS BEFORE INCOME
TAX EXPENSE 387.6 2.09 543.0 3.14
INCOME TAX EXPENSE 136.0 0.73 195.5 1.13
----- -----
NET EARNINGS INCLUDING
NONCONTROLLING
INTERESTS (c) 251.6 1.36 347.5 2.01
NET EARNINGS (LOSS)
ATTRIBUTABLE TO
NONCONTROLLING
INTERESTS (c) (3.8) (0.02) (1.7) (0.01)
---- ----
NET EARNINGS ATTRIBUTABLE
TO THE KROGER CO. (c) $255.4 1.38% $349.2 2.02%
====== ======
NET EARNINGS ATTRIBUTABLE
TO THE KROGER CO.
PER BASIC COMMON SHARE $0.39 $0.54
===== =====
AVERAGE NUMBER OF
COMMON SHARES USED IN
BASIC CALCULATION 644.3 648.4
NET EARNINGS ATTRIBUTABLE
TO THE KROGER CO.
PER DILUTED COMMON SHARE $0.39 $0.53
===== =====
AVERAGE NUMBER OF COMMON
SHARES USED IN DILUTED
CALCULATION 647.7 653.8
YEAR-TO-DATE
------------
2009 2008
---- ----
SALES $76,733.2 100.00% $76,147.9 100.00%
MERCHANDISE COSTS,
INCLUDING ADVERTISING,
WAREHOUSING AND
TRANSPORTATION (a),
AND LIFO CHARGE (b) 58,958.3 76.84 58,544.1 76.88
OPERATING, GENERAL AND
ADMINISTRATIVE (a) 13,397.7 17.46 13,049.9 17.14
RENT 648.2 0.84 659.3 0.87
DEPRECIATION AND
AMORTIZATION 1,524.9 1.99 1,442.6 1.89
GOODWILL IMPAIRMENT CHARGE 1,112.7 1.45 - 0.00
------- ---
OPERATING PROFIT 1,091.4 1.42 2,452.0 3.22
INTEREST EXPENSE 502.3 0.65 484.5 0.64
----- -----
EARNINGS BEFORE INCOME
TAX EXPENSE 589.1 0.77 1,967.5 2.58
INCOME TAX EXPENSE 532.4 0.69 716.6 0.94
----- -----
NET EARNINGS INCLUDING
NONCONTROLLING
INTERESTS (c) 56.7 0.07 1,250.9 1.64
NET EARNINGS (LOSS)
ATTRIBUTABLE TO
NONCONTROLLING
INTERESTS (c) (13.3) (0.02) 1.5 -
----- ---
NET EARNINGS ATTRIBUTABLE
TO THE KROGER CO. (c) $70.0 0.09% $1,249.4 1.64%
===== ========
NET EARNINGS ATTRIBUTABLE
TO THE KROGER CO.
PER BASIC COMMON $0.11 $1.91
===== =====
AVERAGE NUMBER OF
COMMON SHARES USED IN
BASIC CALCULATION 646.6 651.9
NET EARNINGS ATTRIBUTABLE
TO THE KROGER CO.
PER DILUTED COMMON SHARE $0.11 $1.89
===== =====
AVERAGE NUMBER OF COMMON
SHARES USED IN DILUTED
CALCULATION 650.1 657.7
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 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.
Note: The Company defines selling gross margin, as described in the
earnings release related to the Company's supermarkets, as gross
margin before incurring expenses directly related to distributing
and merchandising the products on its store shelves. These
expenses include advertising, warehousing, transportation, and
shrink. Selling gross margin is a measure of how competitively
the Company is pricing the products it sells.
(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 $1.3 and $40.9 were recorded in the fourth quarter
of 2009 and 2008, respectively. For the year-to-date period, LIFO
charges of $49.0 and $195.9 were recorded for 2009 and 2008,
respectively.
(c) In the first quarter of 2009, the Company adopted the amended
standards for noncontrolling interests in consolidated financial
statements. As a result, for those entities the Company
consolidates but that are not wholly-owned, Net Earnings Including
Noncontrolling Interests includes the entire amount of net earnings
(loss) from those entities. The portion of those entities' net
earnings (loss) not attributable to The Kroger Co. is then removed
from Net Earnings Including Noncontrolling Interests in order to
determine Net Earnings Attributable to The Kroger Co. These rules
have been retroactively applied to all periods presented, which
changed income statement line amounts, but did not change Net
Earnings Attributable to The Kroger Co. (Dollar amounts for prior
periods previously presented as Net Earnings, which are now
presented as Net Earnings Attributable to The Kroger Co., have
not changed as a result of the amended standards for
noncontrolling interests in consolidated financial statements.)
Table 2.
THE KROGER CO.
CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited)
January 30, January 31,
2010 2009
---- ----
ASSETS
Current Assets
Cash $165.5 $216.5
Temporary cash investments 258.3 46.6
Deposits in-transit 654.4 631.0
Receivables 908.7 943.9
Inventories 4,901.9 4,904.9
Prepaid and other current assets 561.0 509.7
----- -----
Total current assets 7,449.8 7,252.6
Property, plant and
equipment, net 13,928.9 13,160.6
Goodwill 1,158.4 2,271.1
Other assets 555.5 573.0
----- -----
Total Assets $23,092.6 $23,257.3
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Current portion of long-term
debt including obligations
under capital leases and
financing obligations $579.4 $557.6
Trade accounts payable 3,889.7 3,822.2
Accrued salaries and wages 786.4 827.7
Deferred income taxes 340.8 361.5
Other current liabilities 2,117.4 2,077.9
------- -------
Total current liabilities 7,713.7 7,646.9
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 7,419.6 7,460.4
Adjustment to reflect
fair-value interest
rate hedges 57.7 44.5
---- ----
Long-term debt including
obligations under capital leases
and financing obligations 7,477.3 7,504.9
Deferred income taxes 568.0 384.1
Pension and postretirement benefit
obligations 1,081.8 1,173.4
Other long-term liabilities 1,345.9 1,248.2
------- -------
Total Liabilities 18,186.7 17,957.5
Shareowners' equity 4,905.9 5,299.8
------- -------
Total Liabilities and
Shareowners' Equity $23,092.6 $23,257.3
========= =========
Total common shares outstanding at
end of period 642.6 648.4
Total diluted shares year-to-date 650.1 657.7
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
------------
2009 2008
---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings including
noncontrolling interests $56.7 $1,250.9
Adjustment to reconcile net
earnings to net cash
provided by operating
activities:
Depreciation and
amortization 1,524.9 1,442.6
LIFO charge 49.0 195.9
Stock-based employee
compensation 83.4 91.0
Expense for Company-
sponsored pension plans 31.0 44.1
Goodwill impairment charge 1,112.7 -
Asset impairment charges 47.5 26.2
Deferred income taxes 221.6 341.2
Other 53.4 (65.0)
Changes in operating assets
and liabilities, net
of effects from acquisitions
of businesses:
Deposits in-transit (23.4) 44.8
Receivables (20.5) (28.4)
Inventories (45.3) (193.2)
Prepaid expenses (51.2) 47.1
Trade accounts payable 53.5 (53.2)
Accrued expenses (46.0) (33.2)
Income taxes receivable
and payable 49.2 (205.8)
Contribution to Company-
sponsored pension plan (265.0) (20.3)
Other 90.3 11.4
---- ----
Net cash provided by
operating activities 2,921.8 2,896.1
------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for capital
expenditures (2,296.5) (2,148.9)
Payments for acquisitions (35.7) (79.5)
Proceeds from sale of
assets 19.7 58.8
Other (14.2) (9.0)
----- ----
Net cash used by investing
activities (2,326.7) (2,178.6)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from lease-
financing transactions 6.2 10.2
Proceeds from issuance of
long-term debt 511.0 1,376.6
Payments on long-term
debt (431.4) (1,048.1)
Payments on credit
facility (129.0) (440.9)
Dividends paid (237.6) (226.5)
Excess tax benefits on
stock-based awards 4.4 14.5
Proceeds from issuance of
capital stock 50.5 172.4
Treasury stock purchases (218.3) (637.0)
Increase in book
overdrafts 14.1 2.2
Other (4.3) 7.6
---- ---
Net cash used by financing
activities (434.4) (769.0)
------ ------
NET INCREASE (DECREASE) IN
CASH AND TEMPORARY
CASH INVESTMENTS 160.7 (51.5)
CASH FROM CONSOLIDATED
VARIABLE INTEREST ENTITY - 73.0
CASH AND TEMPORARY CASH
INVESTMENTS:
BEGINNING OF YEAR 263.1 241.6
----- -----
END OF YEAR $423.8 $263.1
====== ======
Reconciliation of capital
expenditures:
Payments for capital
expenditures $(2,296.5) $(2,148.9)
Changes in construction-in-
progress payables (18.5) (3.9)
----- ----
Total capital expenditures $(2,315.0) $(2,152.8)
Disclosure of cash flow
information:
Cash paid during the year
for interest $541.9 $485.3
Cash paid during the year
for income taxes $130.4 $640.5
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 YEAR-TO-DATE
-------------- ------------
2009 2008 2009 2008
---- ---- ---- ----
INCLUDING FUEL CENTERS $16,710.4 $15,845.2 $68,981.0 $68,599.9
EXCLUDING FUEL CENTERS $15,062.2 $14,877.2 $62,733.9 $61,414.4
INCLUDING FUEL CENTERS 5.5% 0.6% 0.6% 6.9%
EXCLUDING FUEL CENTERS 1.2% 3.8% 2.1% 5.0%
COMPARABLE SUPERMARKET SALES (b)
FOURTH QUARTER YEAR-TO-DATE
-------------- ------------
2009 2008 2009 2008
---- ---- ---- ----
INCLUDING FUEL CENTERS $17,237.5 $16,288.0 $71,345.9 $70,721.7
EXCLUDING FUEL CENTERS $15,535.3 $15,295.6 $64,838.1 $63,279.6
INCLUDING FUEL CENTERS 5.8% 1.0% 0.9% 7.2%
EXCLUDING FUEL CENTERS 1.6% 4.2% 2.5% 5.3%
(a) Kroger defines a supermarket as identical when it has been open
without expansion or relocation for five full quarters.
(b) Kroger defines a supermarket as comparable when it has been open
for five full quarters, including expansions and relocations.
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 2009 to the
balance in the fourth quarter of 2008.
January 30, January 31,
2010 2009 Change
---- ---- ------
Current portion of long-term debt
including obligations under capital
leases and financing obligations $579.4 $557.6 $21.8
Face-value of long-term debt including
obligations under capital leases and
financing obligations 7,419.6 7,460.4 (40.8)
Adjustment to reflect fair-value
interest rate hedges 57.7 44.5 13.2
---- ---- ----
Total debt $8,056.7 $8,062.5 $(5.8)
Temporary cash investments (258.3) (46.6) (211.7)
Prepaid employee benefits (300.0) (300.0) -
------ ------ ---
Net total debt $7,498.4 $7,715.9 $(217.5)
======== ======== =======
Table 6. Net Earnings Per Diluted Share Excluding Impairment Charges and
Charges Related to Hurricane Ike
(in millions, except per share amounts)
(unaudited)
Items identified in this table should not be considered alternatives to
net earnings attributable to The Kroger Co. or any other GAAP measure of
performance. These items should not be reviewed in isolation or
considered substitutes for the Company's financial results as reported in
accordance with GAAP. Due to the nature of these items, as further
described below in the footnotes, it is important to identify these items
and to review them in conjunction with the Company's financial results
reported in accordance with GAAP.
The following table summarizes items that affected the Company's financial
results during the periods presented. The items include charges that were
recorded as components of asset impairment and goodwill impairment
charges, and charges related to Hurricane Ike.
YEAR-TO-DATE YEAR-TO-DATE
2009 2008
NET EARNINGS NET EARNINGS
ATTRIBUTABLE TO ATTRIBUTABLE TO
THE KROGER CO. THE KROGER CO.
NET EARNINGS PER NET EARNINGS PER
ATTRIBUTABLE TO DILUTED ATTRIBUTABLE TO DILUTED
THE KROGER CO. COMMON SHARE THE KROGER CO. COMMON SHARE
NET EARNINGS
ATTRIBUTABLE
TO THE
KROGER CO. $70.0 $0.11 $1,249.4 $1.89
AFTER-TAX
GOODWILL
IMPAIRMENT
CHARGE (a) 1,036.1 1.58 - -
AFTER-TAX ASSET
IMPAIRMENT
CHARGES (b) 15.5 0.02 - -
AFTER-TAX
CHARGE FROM
HURRICANE
IKE (c) - - 15.9 0.02
--- --- ----- -----
NET EARNINGS
ATTRIBUTABLE TO
THE KROGER CO.
EXCLUDING
IMPAIRMENT
CHARGES RELATED
TO A SOUTHERN
CALIFORNIA
REPORTING UNIT
AND HURRICANE
IKE $1,121.6 $1.71 $1,265.3 $1.91
======== ===== ======== =====
AVERAGE NUMBER
OF COMMON SHARES
USED IN
DILUTED
CALCULATION 650.1 657.7
(a) After-tax goodwill impairment charge ($1,112.7 pre-tax) relating
to a Southern California reporting unit. Most of the goodwill
impairment charge is non-deductible for tax purposes.
(b) After-tax asset impairment charges ($24.1 pre-tax) relating to
underperforming stores in a Southern California reporting unit.
(c) After-tax charges ($25.0 pre-tax) relating to Hurricane Ike.
SOURCE The Kroger Co.
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