Kroger Reports Third Quarter 2021 Results and Raises Full-Year Guidance
Third Quarter Highlights
- Identical Sales without fuel increased 3.1%; two-year stack increased 14.0%
- Digital Sales two-year stack grew 103%
- EPS of $0.64; Adjusted EPS of $0.78
- Operating Profit of $868 million; Adjusted FIFO Operating Profit of $974 million
- Alternative profit business delivered record third quarter operating profit
CINCINNATI, Dec. 2, 2021 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported its third quarter 2021 results and will update investors on how key initiatives are positioning the company for long-term sustainable growth.
Comments from Chairman and CEO Rodney McMullen
"Kroger's strategy to lead with fresh and accelerate with digital continues to connect with our customers. Our agility, and the commitment from our amazing associates, is allowing us to navigate current labor and supply chain conditions and provide the freshest food at affordable prices across our store and digital ecosystem.
"Our focus on execution, combined with our continued discipline in balancing investments in our associates and customers with exceptional cost management, and growth in our alternative profit business allowed us to exceed internal expectations and deliver strong sales and earnings growth.
"Across all aspects of our business, we are innovating and executing with speed against the key initiatives that are transforming our business. Kroger is in a position of strength. We are committed to delivering for our associates, customers, and communities, and we remain confident in our ability to deliver total shareholder returns of 8% to 11% over time."
Third Quarter Financial Results
3Q21 ($ in millions; except EPS) | 3Q20 ($ in millions; except EPS) | |
ID Sales* (Table 4) | 3.1% | 10.9% |
EPS | $0.64 | $0.80 |
Adjusted EPS (Table 6) | $0.78 | $0.71 |
Operating Profit | $868 | $792 |
Adjusted FIFO Operating | $974 | $871 |
FIFO Gross Margin Rate* | Decreased 41 basis points | |
OG&A Rate* | Decreased 49 basis points | |
*without fuel and adjustment items, if applicable |
Third Quarter Results versus Two Years Ago
3Q21 ($ in millions; except EPS) | |
ID Sales Two Year Stacked* | 14.0% |
EPS Two Year CAGR (Table 8) | 41.4% |
Adjusted EPS Two Year CAGR | 28.8% |
Operating Profit Two Year | 84.9% |
Adjusted FIFO Operating Profit | 22.1% |
FIFO Gross Margin Rate | Decreased 43 basis points |
OG&A Rate Compared to Q3 | Decreased 79 basis points |
*without fuel and adjustment items, if applicable |
Total company sales were $31.9 billion in the third quarter, compared to $29.7 billion for the same period last year. Excluding fuel, sales increased 2.9% compared to the same period last year.
Gross margin was 21.66% of sales for the third quarter. The FIFO gross margin rate, excluding fuel, decreased 41 basis points compared to the same period last year. This decrease primarily related to higher supply chain costs and continued price investments partially offset by sourcing benefits.
The LIFO charge for the third quarter was $93 million, compared to $23 million for the same period last year. This increase was primarily attributable to higher inflation across several categories, including grocery and meat.
The Operating, General & Administrative rate decreased 49 basis points, excluding fuel and adjustment items, which reflects sales leverage and the execution of cost savings initiatives.
Kroger recorded a nonrecurring benefit of $47 million, or $0.07 per diluted share, primarily due to the favorable outcome of income tax audit examinations covering multiple years. This amount is excluded from the company's adjusted net earnings per diluted share result for the third quarter. The income tax rate for the third quarter was 13.8%, compared to 24.2% for the same period last year.
Capital Allocation Strategy
Kroger continues to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchase and a growing dividend over time.
Kroger's net total debt to adjusted EBITDA ratio is 1.68, compared to 1.74 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.
During the quarter, Kroger repurchased $297 million of shares and year-to-date, has repurchased $1 billion of shares. As of the end of the third quarter, $511 million remains on the board authorization announced on June 17, 2021.
2021 Guidance
Comments from CFO Gary Millerchip
"Driven by the momentum in our third quarter results and sustained food at home trends, we are raising our full-year guidance. We now expect our two-year identical sales stack to be in the range of 13.7% to 13.9%. We expect our adjusted net earnings per diluted share to be in the range of $3.40 to $3.50.
"Kroger is executing against its key financial and operational initiatives and continues to invest in strategic priorities that will drive attractive and sustainable total shareholder returns. We believe our business is emerging stronger through the pandemic and is well positioned to grow beyond 2021."
Full Year 2021 Guidance
IDs (%) | EPS ($) | Operating | Tax Rate** | Cap Ex ($B) | Free Cash | |
Adjusted* | (0.4%) - (0.2%) | $3.40 - $3.50 | $4.1 - $4.2 | 22.1% - 22.5% | $3.1 - $3.3 | $2.4 - $2.6 |
2-Year Basis*** | 13.7% - 13.9% (Stack) | 25% - 26% (CAGR) | 17.0% - 18.4% | $3.3 - $3.4 (Average) |
* Without adjusted items, if applicable; Identical sales is without fuel; Operating profit represents FIFO Operating Profit. Kroger is unable to provide a full reconciliation of the GAAP and non-GAAP measures used in 2021 guidance without unreasonable effort because it is not possible to predict certain of our adjustment items with a reasonable degree of certainty. This information is dependent upon future events and may be outside of our control and its unavailability could have a significant impact on 2021 GAAP financial results. |
** This rate reflects typical tax adjustments and does not reflect changes to the rate from the completion of income tax audit examinations or changes in tax laws, which cannot be predicted. Accordingly, this does not reflect the effect of the $47 million benefit recognized in the third quarter of 2021. |
*** Identical sales, without fuel, guidance for 2-year basis represents the sum of actual 2020 identical sales percentage and 2021 identical sales rate guidance. The 2-year basis guidance items denoted with CAGR represent the compounded annual growth rate utilizing 2019 as the base year. Average free cash flow is the average of actual 2020 free cash flow and 2021 guidance. |
**** 2021 free cash flow guidance includes a $300M payment of deferred payroll taxes. This excludes planned payments related to the restructuring of multi-employer pension plans. |
Third Quarter 2021 Highlights
Leading with Fresh
- Surpassed $1 billion in annualized sales for Home Chef, becoming the newest Our Brands billion dollar brand in Kroger's portfolio
- Our Brands launched 216 new items during the quarter with plans to launch several innovative and unique products focused on helping customers enjoy the holiday season like Private Selection Holiday Trail Mix and Simple Truth Cranberry Pistachio Bread
- Expanded launch of our End-to-End Fresh program to over 50 additional stores
- Announced plans with Kipster Farms, the award-winning system founded in The Netherlands, to bring the world's first carbon-neutral, cage-free eggs to retail shelves under Simple Truth® brand
Accelerating with Digital
- Launched Kroger Delivery Now nationwide with Instacart to provide 30-minute delivery, enabled by first-of-its-kind virtual convenience store shopping experience
- Introduced Boost by Kroger Plus, an annual membership program that provides customers free delivery and additional fuel points on purchases in four divisions
- Shared plans for five new customer fulfillment centers powered by the Ocado Group including expansions in California and Florida and entrance for the first time into the Northeast region
- Announced collaboration with Bed Bath & Beyond and buybuy Baby on a national e-commerce experience via Kroger.com and a small-scale physical store pilot to expand home and baby product offerings
- Kroger Precision Marketing launched a new programmatic advertising marketplace allowing agencies and brands to reach consumers by applying Kroger customer data to campaigns within their preferred ad-buying platform
Associate Experience
- Increased Kroger Family of Companies' average hourly wage to greater than $16 and with comprehensive benefits, will be greater than $21 by the end of 2021
- Received two Brandon Hall Group - Excellence in Human Capital Management Awards, including Gold recognition for Leading through a Crisis during the COVID-19 pandemic and Silver recognition for A Fresh Welcome, organization's new and innovative onboarding program, which launched in 2020
- Held nationwide hiring event with more than 20,000 opportunities in retail, e-commerce, manufacturing, merchandising, corporate, healthcare and more
Live Our Purpose
- Kroger Health partnered with Anthem Blue Cross and Blue Shield to offer new Medicare Advantage plans that include an allowance to help customers purchase groceries and health items
- Kroger Health has administered more than 8.5 million COVID-19 vaccine doses to date, supporting customers and associates
- Marked one-year anniversary of organization's Framework for Action: Diversity, Equity and Inclusion plan to better use company's platform to create and advocate for more equitable communities. Shared the following progress:
- 405,000 associates completed diversity and inclusion training
- Increased our partnerships with Historically Black Colleges and Universities and Hispanic-Serving Institutions from six to seventeen
- Achieved $4.1 billion in diverse supplier spend in 2020, a 21% increase versus prior year
- The Kroger Co. Foundation collectively invested $3.1 million to advance racial equity through partnerships with Black Girl Ventures, Everytable, LISC, Thurgood Marshall College Fund, and other organizations
- Scored 100 on both the Disability Equality Index presented by Disability: IN and the American Association of People with Disabilities (AAPD) and the Corporate Equality Index presented by the Human Rights Campaign Foundation
- The Zero Hunger | Zero Waste Foundation Innovation Fund made impact investments during the first-ever Venture Showcase in two peer-selected startups, Agua Bonita and Matriark Foods
About Kroger
At The Kroger Co. (NYSE: KR), we are Fresh for Everyone™ and dedicated to our Purpose: To Feed the Human Spirit®. We are, across our family of companies, nearly half a million associates who serve over 11 million customers daily through a seamless shopping experience under a variety of banner names. We are committed to creating #ZeroHungerZeroWaste communities by 2025. To learn more about us, visit our newsroom and investor relations site.
Kroger's third quarter 2021 ended on November 6, 2021.
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. Such statements are indicated by words or phrases such as "achieve," "believe," "committed," "confident," "continue," "deliver," "expect," "future," "guidance," "positioning," "strategy," "target," "trends," 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" 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 adjusted free cash flow goals may be affected by: COVID-19 pandemic related factors, risks and challenges, including among others, the length of time that the pandemic continues, new variants of the virus and the effectiveness of vaccines against variants, continued efficacy of vaccines over time and availability of vaccine boosters, the extent of continued vaccine disinformation and vaccine refusal, and global access to vaccines, as well as the effect of emerging vaccine and/or testing mandates and related regulations, the potential for additional future spikes in infection and illness rates including breakthrough infections among the fully vaccinated, and the corresponding potential for disruptions in workforce availability and customer shopping patterns, re-imposed restrictions as a result of resurgence and the corresponding future easing of restrictions, and interruptions in domestic and global supply chains or capacity constraints; the pace of recovery when the pandemic subsides; labor negotiations or disputes; changes in the unemployment rate; pressures in the labor market; changes in government-funded benefit programs; 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; the effect that fuel costs have on consumer spending; volatility of fuel margins; 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 uncertainty of economic growth or recession; 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 effect of public health crises or other significant catastrophic events, including the coronavirus; 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 our growth strategy and value creation model, including continued cost savings, growth of our alternative profit businesses, and widening and deepening our strategic moats of fresh, our brands, personalization, and seamless; 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 effective tax rate may differ from the expected rate due to changes in tax 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 unless required by applicable law. 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 December 2, 2021 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, December 2, 2021.
3rd Quarter 2021 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
- Operating Profit Excluding the Adjustment Items
- Two-Year Financial Results
Table 1. | ||||||||||||||||||||||
THIRD QUARTER | YEAR-TO-DATE | |||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
SALES | $ 31,860 | 100.0% | $ 29,723 | 100.0% | $ 104,840 | 100.0% | $ 101,761 | 100.0% | ||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||
MERCHANDISE COSTS, INCLUDING ADVERTISING, | ||||||||||||||||||||||
WAREHOUSING AND TRANSPORTATION (a), | ||||||||||||||||||||||
AND LIFO CHARGE (b) | 24,959 | 78.3 | 22,901 | 77.1 | 81,820 | 78.0 | 77,906 | 76.6 | ||||||||||||||
OPERATING, GENERAL AND ADMINISTRATIVE (a) | 5,177 | 16.2 | 5,194 | 17.5 | 17,692 | 16.9 | 18,162 | 17.9 | ||||||||||||||
RENT | 197 | 0.6 | 205 | 0.7 | 648 | 0.6 | 682 | 0.7 | ||||||||||||||
DEPRECIATION AND AMORTIZATION | 659 | 2.1 | 631 | 2.1 | 2,168 | 2.1 | 2,073 | 2.0 | ||||||||||||||
OPERATING PROFIT | 868 | 2.7 | 792 | 2.7 | 2,512 | 2.4 | 2,938 | 2.9 | ||||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||||||||
INTEREST EXPENSE | (135) | (0.4) | (129) | (0.4) | (438) | (0.4) | (438) | (0.4) | ||||||||||||||
NON-SERVICE COMPONENT OF COMPANY-SPONSORED | ||||||||||||||||||||||
PENSION PLAN COSTS | (77) | (0.2) | 9 | - | (44) | - | 28 | - | ||||||||||||||
(LOSS) GAIN ON INVESTMENTS | (94) | (0.3) | 162 | 0.6 | (694) | (0.7) | 952 | 0.9 | ||||||||||||||
NET EARNINGS BEFORE INCOME TAX EXPENSE | 562 | 1.8 | 834 | 2.8 | 1,336 | 1.3 | 3,480 | 3.4 | ||||||||||||||
INCOME TAX EXPENSE | 77 | 0.2 | 202 | 0.7 | 239 | 0.2 | 816 | 0.8 | ||||||||||||||
NET EARNINGS INCLUDING NONCONTROLLING INTERESTS | 485 | 1.5 | 632 | 2.1 | 1,097 | 1.1 | 2,664 | 2.6 | ||||||||||||||
NET INCOME ATTRIBUTABLE TO | ||||||||||||||||||||||
NONCONTROLLING INTERESTS | 2 | - | 1 | - | 7 | - | 2 | - | ||||||||||||||
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. | $ 483 | 1.5% | $ 631 | 2.1% | $ 1,090 | 1.0% | $ 2,662 | 2.6% | ||||||||||||||
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. | ||||||||||||||||||||||
PER BASIC COMMON SHARE | $ 0.64 | $ 0.81 | $ 1.44 | $ 3.39 | ||||||||||||||||||
AVERAGE NUMBER OF COMMON SHARES USED IN | ||||||||||||||||||||||
BASIC CALCULATION | 742 | 772 | 747 | 777 | ||||||||||||||||||
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. | ||||||||||||||||||||||
PER DILUTED COMMON SHARE | $ 0.64 | $ 0.80 | $ 1.43 | $ 3.35 | ||||||||||||||||||
AVERAGE NUMBER OF COMMON SHARES USED IN | ||||||||||||||||||||||
DILUTED CALCULATION | 752 | 780 | 757 | 785 | ||||||||||||||||||
DIVIDENDS DECLARED PER COMMON SHARE | $ 0.21 | $ 0.18 | $ 0.60 | $ 0.52 | ||||||||||||||||||
Note: | Certain percentages may not sum due to rounding. | |||||||||||||||||||||
Note: | The Company defines First-In First-Out (FIFO) gross profit as sales minus merchandise costs, including advertising, warehousing and transportation, but excluding the Last-In First-Out (LIFO) charge. | |||||||||||||||||||||
The Company defines FIFO gross margin as FIFO gross profit divided by sales. | ||||||||||||||||||||||
The Company defines FIFO operating profit as operating profit excluding the LIFO charge. | ||||||||||||||||||||||
The Company defines FIFO operating margin as FIFO operating profit divided by sales. | ||||||||||||||||||||||
The above FIFO financial metrics are important measures used by management to evaluate operational effectiveness. Management believes these FIFO financial metrics are useful to investors and analysts because they measure our day-to-day operational effectiveness. | ||||||||||||||||||||||
(a) | Merchandise costs ("COGS") and operating, general and administrative expenses ("OG&A") exclude depreciation and amortization expense and rent expense which are included in separate expense lines. | |||||||||||||||||||||
(b) | LIFO charges of $93 and $23 were recorded in the third quarters of 2021 and 2020, respectively. For the year to date period, LIFO charges of $177 and $77 were recorded for 2021 and 2020, respectively. | |||||||||||||||||||||
Table 2. | ||||||||||
November 6, | November 7, | |||||||||
2021 | 2020 | |||||||||
ASSETS | ||||||||||
Current Assets | ||||||||||
Cash | $ 324 | $ 367 | ||||||||
Temporary cash investments | 1,964 | 1,813 | ||||||||
Store deposits in-transit | 1,140 | 1,102 | ||||||||
Receivables | 1,914 | 1,610 | ||||||||
Inventories | 7,520 | 7,478 | ||||||||
Prepaid and other current assets | 518 | 576 | ||||||||
Total current assets | 13,380 | 12,946 | ||||||||
Property, plant and equipment, net | 23,316 | 21,902 | ||||||||
Operating lease assets | 6,655 | 6,843 | ||||||||
Intangibles, net | 954 | 1,012 | ||||||||
Goodwill | 3,076 | 3,076 | ||||||||
Other assets | 2,448 | 2,686 | ||||||||
Total Assets | $ 49,829 | $ 48,465 | ||||||||
LIABILITIES AND SHAREOWNERS' EQUITY | ||||||||||
Current Liabilities | ||||||||||
Current portion of long-term debt including obligations | ||||||||||
under finance leases | $ 1,048 | $ 1,595 | ||||||||
Current portion of operating lease liabilities | 642 | 669 | ||||||||
Trade accounts payable | 7,879 | 7,355 | ||||||||
Accrued salaries and wages | 1,458 | 1,236 | ||||||||
Other current liabilities | 5,771 | 4,662 | ||||||||
Total current liabilities | 16,798 | 15,517 | ||||||||
Long-term debt including obligations under finance leases | 12,673 | 11,925 | ||||||||
Noncurrent operating lease liabilities | 6,343 | 6,482 | ||||||||
Deferred income taxes | 1,619 | 1,682 | ||||||||
Pension and postretirement benefit obligations | 490 | 543 | ||||||||
Other long-term liabilities | 2,415 | 2,272 | ||||||||
Total Liabilities | 40,338 | 38,421 | ||||||||
Shareowners' equity | 9,491 | 10,044 | ||||||||
Total Liabilities and Shareowners' Equity | $ 49,829 | $ 48,465 | ||||||||
Total common shares outstanding at end of period | 738 | 766 | ||||||||
Total diluted shares year-to-date | 757 | 785 | ||||||||
Table 3. | ||||||||||||
YEAR-TO-DATE | ||||||||||||
2021 | 2020 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net earnings including noncontrolling interests | $ 1,097 | $ 2,664 | ||||||||||
Adjustments to reconcile net earnings including noncontrolling | ||||||||||||
interests to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 2,168 | 2,073 | ||||||||||
Operating lease asset amortization | 468 | 481 | ||||||||||
LIFO charge | 177 | 77 | ||||||||||
Stock-based employee compensation | 159 | 147 | ||||||||||
Company-sponsored pension plans | 56 | (12) | ||||||||||
Deferred income taxes | 34 | 219 | ||||||||||
Gain on the sale of assets | (34) | (24) | ||||||||||
Loss (gain) on investments | 694 | (952) | ||||||||||
Other | 106 | 119 | ||||||||||
Changes in operating assets and liabilities, net | ||||||||||||
of effects from mergers and disposals of businesses: | ||||||||||||
Store deposits in-transit | (44) | 77 | ||||||||||
Receivables | (80) | 42 | ||||||||||
Inventories | (673) | (471) | ||||||||||
Prepaid and other current assets | 371 | (56) | ||||||||||
Trade accounts payable | 1,200 | 1,006 | ||||||||||
Accrued expenses | (40) | 469 | ||||||||||
Income taxes receivable and payable | (54) | 89 | ||||||||||
Operating lease liabilities | (532) | (464) | ||||||||||
Other | (282) | 413 | ||||||||||
Net cash provided by operating activities | 4,791 | 5,897 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Payments for property and equipment, including payments for lease buyouts | (2,008) | (2,062) | ||||||||||
Proceeds from sale of assets | 139 | 99 | ||||||||||
Other | (90) | (85) | ||||||||||
Net cash used by investing activities | (1,959) | (2,048) | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from issuance of long-term debt | 43 | 537 | ||||||||||
Payments on long-term debt including obligations under finance leases | (915) | (41) | ||||||||||
Net payments on commercial paper | - | (1,150) | ||||||||||
Dividends paid | (433) | (395) | ||||||||||
Proceeds from issuance of capital stock | 118 | 98 | ||||||||||
Treasury stock purchases | (1,049) | (989) | ||||||||||
Proceeds from financing arrangement | 166 | - | ||||||||||
Other | (161) | (128) | ||||||||||
Net cash used by financing activities | (2,231) | (2,068) | ||||||||||
NET INCREASE IN CASH AND TEMPORARY | ||||||||||||
CASH INVESTMENTS | 601 | 1,781 | ||||||||||
CASH AND TEMPORARY CASH INVESTMENTS: | ||||||||||||
BEGINNING OF YEAR | 1,687 | 399 | ||||||||||
END OF PERIOD | $ 2,288 | $ 2,180 | ||||||||||
Reconciliation of capital investments: | ||||||||||||
Payments for property and equipment, including payments for lease buyouts | $ (2,008) | $ (2,062) | ||||||||||
Payments for lease buyouts | - | 42 | ||||||||||
Changes in construction-in-progress payables | (144) | (44) | ||||||||||
Total capital investments, excluding lease buyouts | $ (2,152) | $ (2,064) | ||||||||||
Disclosure of cash flow information: | ||||||||||||
Cash paid during the year for interest | $ 493 | $ 474 | ||||||||||
Cash paid during the year for income taxes | $ 364 | $ 495 | ||||||||||
Table 4. Supplemental Sales Information | ||||||||||
Items identified below should not be considered as alternatives to sales or any other GAAP measure of performance. Identical 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 SALES (a) | ||||||||||
THIRD QUARTER | YEAR-TO-DATE | |||||||||
2021 | 2020 | 2021 | 2020 | |||||||
EXCLUDING FUEL | $ 27,685 | $ 26,850 | $ 91,899 | $ 92,795 | ||||||
EXCLUDING FUEL | 3.1% | 10.9% | (1.0)% | 15.3% | ||||||
(a) | Kroger defines identical sales, excluding fuel, as sales to retail customers, including sales from all departments at identical supermarket locations, Kroger Specialty Pharmacy businesses, jewelry and ship-to-home solutions. Kroger defines a supermarket as identical when it has been in operation without expansion or relocation for five full quarters. | |||||||||
Table 5. Reconciliation of Net Total Debt and | ||||||||
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 6, | November 7, | |||||||
2021 | 2020 | Change | ||||||
Current portion of long-term debt including obligations | ||||||||
under finance leases | $ 1,048 | $ 1,595 | $ (547) | |||||
Long-term debt including obligations under finance leases | 12,673 | 11,925 | 748 | |||||
Total debt | 13,721 | 13,520 | 201 | |||||
Less: Temporary cash investments | 1,964 | 1,813 | 151 | |||||
Net total debt | $ 11,757 | $ 11,707 | $ 50 | |||||
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 basis. | ||||||||
Rolling Four Quarters Ended | ||||||||
November 6, | November 7, | |||||||
2021 | 2020 | |||||||
Net earnings attributable to The Kroger Co. | $ 1,013 | $ 2,989 | ||||||
LIFO charge | 93 | 113 | ||||||
Depreciation and amortization | 2,842 | 2,728 | ||||||
Interest expense | 543 | 578 | ||||||
Income tax expense | 205 | 887 | ||||||
Adjustment for pension plan withdrawal liabilities | 1,437 | 4 | ||||||
Adjustment for company-sponsored pension plan settlement charges | 87 | - | ||||||
Adjustment for loss (gain) on investments | 541 | (943) | ||||||
Adjustment for Home Chef contingent consideration | 142 | 58 | ||||||
Adjustment for deconsolidation and impairment of Lucky's Market | ||||||||
attributable to The Kroger Co. (a) | - | 174 | ||||||
Adjustment for transformation costs (b) | 118 | 152 | ||||||
Other | (7) | (10) | ||||||
Adjusted EBITDA | $ 7,014 | $ 6,730 | ||||||
Net total debt to adjusted EBITDA ratio | 1.68 | 1.74 | ||||||
(a) The adjustment for impairment of Lucky's Market attributable to The Kroger Co. excludes a $107 net loss attributable | ||||||||
(b) Transformation costs primarily include costs related to store and business closure costs and third party professional | ||||||||
Table 6. Net Earnings Per Diluted Share Excluding the Adjustment Items | |||||||||||||||
The purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on net earnings per diluted common share for certain items described below. Adjusted net earnings and adjusted net earnings per diluted share are useful metrics to investors and analysts because they present more accurately year-over-year comparisons for net earnings and net earnings per diluted share because adjusted items are not the result of normal operations. 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, 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. | |||||||||||||||
THIRD QUARTER | YEAR-TO-DATE | ||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||
Net earnings attributable to The Kroger Co. | $ 483 | $ 631 | $ 1,090 | $ 2,662 | |||||||||||
Adjustment for pension plan withdrawal liabilities (a)(b) | - | - | 344 | - | |||||||||||
Adjustment for company-sponsored pension plan settlement charges (a)(c) | 68 | - | 68 | - | |||||||||||
Adjustment for loss (gain) on investments (a)(d) | 73 | (115) | 533 | (705) | |||||||||||
Adjustment for Home Chef contingent consideration (a)(e) | 7 | 17 | 47 | 80 | |||||||||||
Adjustment for transformation costs (a)(f) | 5 | 24 | 82 | 73 | |||||||||||
Adjustment for income tax audit examinations (a) | (47) | - | (47) | - | |||||||||||
2021 and 2020 Adjustment Items | 106 | (74) | 1,027 | (552) | |||||||||||
Net earnings attributable to The Kroger Co. | |||||||||||||||
excluding the adjustment items above | $ 589 | $ 557 | $ 2,117 | $ 2,110 | |||||||||||
Net earnings attributable to The Kroger Co. | |||||||||||||||
per diluted common share | $ 0.64 | $ 0.80 | $ 1.43 | $ 3.35 | |||||||||||
Adjustment for pension plan withdrawal liabilities (g) | - | - | 0.45 | - | |||||||||||
Adjustment for company-sponsored pension plan settlement charges (g) | 0.09 | - | 0.09 | - | |||||||||||
Adjustment for loss (gain) on investments (g) | 0.10 | (0.15) | 0.70 | (0.90) | |||||||||||
Adjustment for Home Chef contingent consideration (g) | 0.01 | 0.02 | 0.06 | 0.10 | |||||||||||
Adjustment for transformation costs (g) | 0.01 | 0.04 | 0.11 | 0.11 | |||||||||||
Adjustment for income tax audit examinations (g) | (0.07) | - | (0.07) | - | |||||||||||
2021 and 2020 Adjustment Items | 0.14 | (0.09) | 1.34 | (0.69) | |||||||||||
Net earnings attributable to The Kroger Co. per | |||||||||||||||
diluted common share excluding the adjustment items above | $ 0.78 | $ 0.71 | $ 2.77 | $ 2.66 | |||||||||||
Average number of common shares used in | |||||||||||||||
diluted calculation | 752 | 780 | 757 | 785 | |||||||||||
Table 6. Net Earnings Per Diluted Share Excluding the Adjustment Items (continued) | |||||||||||||
(a) | The amounts presented represent the after-tax effect of each adjustment. | ||||||||||||
(b) | The pre-tax adjustment to OG&A expenses for pension plan withdrawal liabilities was $449. | ||||||||||||
(c) | The pre-tax adjustment to other income (expense) for company-sponsored pension plan settlement charges was $87. | ||||||||||||
(d) | The pre-tax adjustments for loss (gain) on investments were $94 and ($162) in the third quarters of 2021 and 2020, respectively. The year-to-date pre-tax adjustments for loss (gain) on investments were $694 and ($952) in the first three quarters of 2021 and 2020, respectively. | ||||||||||||
(e) | The pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $10 and $24 in the third quarters of 2021 and 2020, respectively. The year-to-date pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $61 and $109 in the first three quarters of 2021 and 2020, respectively. | ||||||||||||
(f) | The pre-tax adjustments to OG&A expenses for transformation costs were $6 and $33 in the third quarters of 2021 and 2020, respectively. The year-to-date pre-tax adjustment to OG&A expenses for transformation costs were $107 and $100 in the first three quarters of 2021 and 2020, respectively. Transformation costs primarily include costs related to store and business closure costs and third party professional consulting fees associated with business transformation and cost saving initiatives. | ||||||||||||
(g) | The amounts presented represent the net earnings (loss) per diluted common share effect of each adjustment. | ||||||||||||
Note: | 2021 Third Quarter Adjustment Items include adjustments for the loss on investments, Home Chef contingent consideration adjustment, company-sponsored pension plan settlement charges, strategic transformation costs, and the income tax audit examinations adjustment. | ||||||||||||
2021 Adjustment Items include the Third Quarter Adjustment Items plus the adjustments that occurred in the first two quarters of 2021 for pension plan withdrawal liabilities, loss on investments, Home Chef contingent consideration adjustment and strategic transformation costs. | |||||||||||||
2020 Third Quarter Adjustment Items include adjustments for the gain on investments, Home Chef contingent consideration adjustment and strategic transformation costs. | |||||||||||||
2020 Adjustment Items include the Third Quarter Adjustment Items plus the adjustments that occurred in the first two quarters of 2020 for the gain on investments, Home Chef contingent consideration adjustment and strategic transformation costs. | |||||||||||||
Table 7. Operating Profit Excluding the Adjustment Items | |||||||||||||||
The purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on operating profit for certain items described below. Adjusted FIFO operating profit is a useful metric to investors and analysts because it presents more accurately year-over year comparisons for operating profit because adjusted items are not the result of normal operations. Items identified in this table should not be considered alternatives to operating profit 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, 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. | |||||||||||||||
THIRD QUARTER | YEAR-TO-DATE | ||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||
Operating profit | $ 868 | $ 792 | $ 2,512 | $ 2,938 | |||||||||||
LIFO charge | 93 | 23 | 177 | 77 | |||||||||||
FIFO Operating profit | 961 | 815 | 2,689 | 3,015 | |||||||||||
Adjustment for pension plan withdrawal liabilities | - | - | 449 | - | |||||||||||
Adjustment for Home Chef contingent consideration | 10 | 24 | 61 | 109 | |||||||||||
Adjustment for transformation costs (a) | 6 | 33 | 107 | 100 | |||||||||||
Other | (3) | (1) | (9) | (6) | |||||||||||
2021 and 2020 Adjustment items | 13 | 56 | 608 | 203 | |||||||||||
Adjusted FIFO operating profit | |||||||||||||||
excluding the adjustment items above | $ 974 | $ 871 | $ 3,297 | $ 3,218 | |||||||||||
(a) | Transformation costs primarily include costs related to store and business closure costs and third party professional consulting fees associated with business transformation and cost saving initiatives. | ||||||||||||||
Table 8. Two-Year Financial Results | ||||||||||||||||||||
The purpose of this table is to better illustrate comparable two-year growth from our ongoing business for the current year for identical sales without fuel, adjusted operating profit and adjusted net earnings per diluted share, due to the significant fluctuations that occurred during 2020 as a result of the COVID-19 pandemic. Two-year financial results for identical sales without fuel, adjusted operating profit and adjusted net earnings per diluted share are useful metrics to investors and analysts because it presents more accurate comparisons of results and trends over a longer period of time to demonstrate the effect of COVID-19 on our results. Items identified in these tables should not be considered alternatives to 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, it is important to identify these items and to review them in conjunction with the Company's financial results reported in accordance with GAAP. | ||||||||||||||||||||
IDENTICAL SALES TWO-YEAR STACKED | ||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||
THIRD QUARTER | THIRD QUARTER | YEAR-TO-DATE | YEAR-TO-DATE | |||||||||||||||||
2021 | 2020 | 2020 | 2019 | 2021 | 2020 | 2020 | 2019 | |||||||||||||
Excluding Fuel | $ 27,685 | $ 26,850 | $ 26,860 | $ 24,212 | $ 91,899 | $ 92,795 | $ 92,759 | $ 80,485 | ||||||||||||
Excluding Fuel | 3.1% | 10.9% | (1.0)% | 15.3% | ||||||||||||||||
Two-year identical sales stacked | 14.0% | 14.3% | ||||||||||||||||||
OPERATING PROFIT EXCLUDING THE ADJUSTMENT ITEMS TWO-YEAR CAGR* | ||||||||||||||||||||
THIRD QUARTER | YEAR-TO-DATE | |||||||||||||||||||
2021 | 2019 | 2021 | 2019 | |||||||||||||||||
Operating profit | $ 868 | $ 254 | $ 2,512 | $ 1,714 | ||||||||||||||||
LIFO charge | 93 | 23 | 177 | 69 | ||||||||||||||||
FIFO Operating profit | 961 | 277 | 2,689 | 1,783 | ||||||||||||||||
Adjustment for pension plan withdrawal liabilities | - | 45 | 449 | 131 | ||||||||||||||||
Adjustment for Home Chef contingent consideration | 10 | 4 | 61 | (18) | ||||||||||||||||
Adjustment for severance charge and related benefits | - | 80 | - | 80 | ||||||||||||||||
Adjustment for transformation costs (a) | 6 | - | 107 | - | ||||||||||||||||
Adjustment for impairment of Lucky's Market (b) | - | 238 | - | 238 | ||||||||||||||||
Other | (3) | 9 | (9) | 23 | ||||||||||||||||
2021 and 2019 Adjustment items | 13 | 376 | 608 | 454 | ||||||||||||||||
Adjusted FIFO operating profit | ||||||||||||||||||||
excluding the adjustment items above | $ 974 | $ 653 | $ 3,297 | $ 2,237 | ||||||||||||||||
Two-year operating profit CAGR* | 84.9% | 21.1% | ||||||||||||||||||
Two-year adjusted FIFO operating profit | ||||||||||||||||||||
excluding the adjustment items above CAGR* | 22.1% | 21.4% | ||||||||||||||||||
(a) | Transformation costs primarily include costs related to store and business closure costs and third party professional consulting fees associated with business transformation and cost saving initiatives. | |||||||||||||||||||
(b) | The adjustment for impairment of Lucky's Market includes a $107 net loss attributable to the minority interest of Lucky's Market. | |||||||||||||||||||
* | CAGR represents the compounded annual growth rate. | |||||||||||||||||||
Table 8. Two-Year Financial Results (continued) | ||||||||||||||
NET EARNINGS PER DILUTED SHARE EXCLUDING THE ADJUSTMENT ITEMS TWO-YEAR CAGR* | ||||||||||||||
THIRD QUARTER | YEAR-TO-DATE | |||||||||||||
2021 | 2019 | 2021 | 2019 | |||||||||||
Net earnings attributable to the Kroger Co. | $ 483 | $ 263 | $ 1,090 | $ 1,332 | ||||||||||
Adjustment for pension plan withdrawal liabilities (a)(b) | - | 35 | 344 | 101 | ||||||||||
Adjustment for company-sponsored pension plan settlement charges (a)(c) | 68 | - | 68 | - | ||||||||||
Adjustment for gain on sale of Turkey Hill Dairy (a)(d) | - | - | - | (80) | ||||||||||
Adjustment for gain on sale of You Technology (a)(e) | - | - | - | (52) | ||||||||||
Adjustment for loss (gain) on investments (a)(f) | 73 | (81) | 533 | (125) | ||||||||||
Adjustment for impairment of Lucky's Market attributable to the Kroger Co. (a)(g) | - | 100 | - | 100 | ||||||||||
Adjustment for Home Chef contingent consideration (a)(h) | 7 | 3 | 47 | (13) | ||||||||||
Adjustment for transformation costs (a)(i) | 5 | - | 82 | - | ||||||||||
Adjustment for severance charge and related benefits (a)(j) | - | 61 | - | 61 | ||||||||||
Adjustment for income tax audit examinations (a) | (47) | - | (47) | - | ||||||||||
2021 and 2019 adjustment items | 106 | 118 | 1,027 | (8) | ||||||||||
Net earnings attributable to the Kroger Co. | ||||||||||||||
Excluding the adjustment items above | $ 589 | $ 381 | $ 2,117 | $ 1,324 | ||||||||||
Net earnings attributable to the Kroger Co. | ||||||||||||||
Per diluted common share | $ 0.64 | $ 0.32 | $ 1.43 | $ 1.64 | ||||||||||
Adjustment for pension plan withdrawal liabilities (k) | - | 0.04 | 0.45 | 0.12 | ||||||||||
Adjustment for company-sponsored pension plan settlement charges (k) | 0.09 | - | 0.09 | - | ||||||||||
Adjustment for gain on sale of Turkey Hill Dairy (k) | - | - | - | (0.10) | ||||||||||
Adjustment for gain on sale of You Technology (k) | - | - | - | (0.06) | ||||||||||
Adjustment for loss (gain) on investments (k) | 0.10 | (0.10) | 0.70 | (0.16) | ||||||||||
Adjustment for impairment of Lucky's Market attributable to The Kroger Co. (k) | - | 0.12 | - | 0.12 | ||||||||||
Adjustment for Home Chef contingent consideration (k) | 0.01 | 0.01 | 0.06 | (0.02) | ||||||||||
Adjustment for transformation costs (k) | 0.01 | - | 0.11 | - | ||||||||||
Adjustment for severance charge and related benefits (k) | - | 0.08 | - | 0.08 | ||||||||||
Adjustment for income tax audit examinations (k) | (0.07) | - | (0.07) | - | ||||||||||
2021 and 2019 adjustment items | 0.14 | 0.15 | 1.34 | (0.02) | ||||||||||
Net earnings attributable to the Kroger Co. per | ||||||||||||||
Diluted common share excluding the adjustment items above | $ 0.78 | $ 0.47 | $ 2.77 | $ 1.62 | ||||||||||
Average number of common shares used in | ||||||||||||||
Diluted calculation | 752 | 807 | 757 | 805 | ||||||||||
Two-year net earnings attributable to the Kroger Co. per | ||||||||||||||
Diluted common share CAGR* | 41.4% | (6.6)% | ||||||||||||
Two-year net earnings attributable to the Kroger Co. per | ||||||||||||||
Diluted common share excluding the adjustment items above CAGR* | 28.8% | 30.8% | ||||||||||||
* | CAGR represents the compounded annual growth rate. | |||||||||||||
(a) | The amounts presented represent the after-tax effect of each adjustment. | |||||||||||||
(b) | The pre-tax adjustment to OG&A expenses for pension plan withdrawal liabilities was $45 in the third quarter of 2019. The year-to-date pre-tax adjustments for pension plan withdrawal liabilities were $449 and $131 in the first three quarters of 2021 and 2019, respectively. | |||||||||||||
(c) | The pre-tax adjustment to other income (expense) for company-sponsored pension plan settlement charges was $87. | |||||||||||||
(d) | The pre-tax adjustment for gain on sale of Turkey Hill Dairy was ($106). | |||||||||||||
(e) | The pre-tax adjustment for gain on sale of You Technology was ($70). | |||||||||||||
(f) | The pre-tax adjustments for loss (gain) on investments were $94 and ($106) in the third quarters of 2021 and 2019, respectively. The year-to-date pre-tax adjustments for loss (gain) on investments were $694 and ($166) in the first three quarters of 2021 and 2019, respectively. | |||||||||||||
(g) | The pre-tax adjustment for impairment of Lucky's Market was $238 including a $107 net loss attributable to the minority interest of Lucky's Market. | |||||||||||||
(h) | The pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $10 and $4 in the third quarters of 2021 and 2019, respectively. The year-to-date pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $61 and ($18) in the first three quarters of 2021 and 2019, respectively. | |||||||||||||
(i) | The pre-tax adjustments to OG&A expenses for transformation costs were $6 in the third quarter of 2021. The year-to-date pre-tax adjustments to OG&A expenses for transformation costs were $107 in the first three quarters of 2021. Transformation costs primarily include costs related to store and business closure costs and third party professional consulting fees associated with business transformation and cost saving initiatives. | |||||||||||||
(j) | The pre-tax adjustment for severance charge and related benefits was $80. | |||||||||||||
(k) | The amounts presented represent the net earnings (loss) per diluted common share effect of each adjustment. | |||||||||||||
Note: | 2021 Third Quarter Adjustment Items include adjustments for the loss on investments, Home Chef contingent consideration adjustment, company-sponsored pension plan settlement charges, strategic transformation costs, and the income tax audit examination adjustment. | |||||||||||||
2021 Adjustment Items include the Third Quarter Adjustment Items plus the adjustments that occurred in the first two quarters of 2021 for pension plan withdrawal liabilities, loss on investments, Home Chef contingent consideration adjustment and strategic transformation costs. | ||||||||||||||
2019 Third Quarter Adjustment Items include adjustments for pension plan withdrawal liabilities, gain on investments, severance charges, impairment of Lucky's Market, and Home Chef contingent consideration adjustment. | ||||||||||||||
2019 Adjustment Items include the Third Quarter Adjustment Items plus the adjustments that occurred in the first two quarters of 2019 for pension plan withdrawal liabilities, the gain on sale of Turkey Hill Dairy, gain on sale of You Technology, the gain on investments and Home Chef contingent consideration adjustment. | ||||||||||||||
SOURCE The Kroger Co.
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