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Kroger reported second-quarter results in 2009

16 September 2009 2,188 views No Comment
Identical Supermarket Sales Increased 2.6% without Fuel

CINCINNATI, Sept. 15 /PRNewswire-FirstCall/ -- The Kroger Co. (NYSE: KR) today
reported identical supermarket sales increased 2.6% without fuel in the second
quarter of fiscal 2009 ended August 15, 2009, compared with the same period
last year. 

Total sales, including fuel, in the second quarter were $17.7 billion compared
with $18.1 billion for the same period last year.  Excluding fuel sales, total
sales increased 3.5% over the prior year.  

Net earnings totaled $254.4 million, or $0.39 per diluted share, for the
second quarter, compared with net earnings of $276.5 million, or $0.42 per
diluted share, in the same period last year.

"We remain confident in our strategy.  The number of loyal households we serve
and the number of items they are buying in our stores grew during the quarter.
 As a result, we experienced exceptional tonnage growth," said David B.
Dillon, Kroger's chairman and chief executive officer.  "Kroger's
customer-focused strategy is generating and will continue to generate
long-term value for our shareholders."

Details of Second Quarter Results
Including Kroger's retail fuel operations, FIFO gross margin (Table 1) was
23.11% of sales, an increase of 59 basis points compared to the second quarter
last year.  Excluding retail fuel operations, FIFO gross margin decreased 60
basis points.  Supermarket selling gross margin on non-fuel sales decreased 88
basis points.  

The Company recorded a $14.7 million LIFO charge during the quarter, a
decrease of $31.5 million from the prior year.  Excluding retail fuel sales,
the LIFO charge decreased 21 basis points as a percent of sales compared to
the prior year.

Including Kroger's retail fuel operations, operating, general, and
administrative (OG&A) costs were 17.41% of sales, an increase of 81 basis
points compared to the second quarter last year.  Excluding retail fuel
operations, the OG&A rate decreased 7 basis points relative to the same period
last year as a result of strong cost controls.

Financial Strategy
Capital investment, excluding acquisitions and purchases of leased facilities,
totaled $518.0 million for the second quarter, compared to $461.1 million for
the same period last year.  In addition, the Company spent $83.6 million to
purchase leased facilities during the quarter.  

Net total debt (Table 5) was $7.3 billion, a decrease of $198.5 million from a
year ago.  On a rolling four-quarters basis, Kroger's net total debt to EBITDA
ratio was 1.78 compared with 1.90 during the same period last year.  Kroger
expects to continue to improve its debt coverages on a year-over-year basis. 

During the second quarter, Kroger repurchased 2.8 million shares of stock at
an average price of $21.58 per share for a total investment of $60.1 million. 
At the end of the quarter, $424.9 million remained under the $1 billion stock
repurchase program announced in January 2008.  

Fiscal 2009 Year-to-Date Results
For the first two quarters of fiscal 2009, total sales were $40.5 billion
compared with $41.2 billion for the same period last year.  Excluding fuel
sales, total sales increased 3.7% over the prior year.  For the same period,
identical supermarket sales, excluding fuel, increased 2.9%.

Kroger's operating margin for the first two quarters of fiscal 2009 increased
12 basis points.  Excluding fuel and the benefit of a lower LIFO charge, the
Company's operating margin decreased 17 basis points year-to-date. 

Net earnings for the first two quarters of fiscal 2009 were $689.5 million or
$1.05 per diluted share.  Net earnings for the same period last year were
$662.5 million, or $1.00 per diluted share.  

Fiscal Year 2009 Guidance 
Kroger confirmed its expectations for full-year identical supermarket sales
growth of 3% to 4%, without fuel, for fiscal 2009.  This guidance assumes
product costs for the remainder of fiscal 2009 are consistent with or slightly
lower than they were in the second half of fiscal 2008. 

Kroger now expects full-year fiscal 2009 earnings of $1.90 to $2.00 per
diluted share.  This reduced guidance reflects changes in customer behavior
and other factors related to the economic environment that Kroger expects to
influence its business for the remainder of the year.  

Kroger remains committed to delivering solid near-term financial results while
investing for the future growth of its business.  In addition, Kroger's
dividend enhances total shareholder return by over 1% on annual basis.

"We remain on our plan.  Our approach and the investments we are making
continue to strengthen Kroger today and position us well for future growth,"
Mr. Dillon said.  "Our customers are increasingly turning to Kroger's family
of stores to meet even more of their everyday household needs." 

Kroger, one of the nation's largest retail grocery chains, employs more than
326,000 associates who serve customers in 2,470 supermarkets and
multi-department stores in 31 states under two dozen local banner names
including Kroger, Ralphs, Fred Meyer, Food 4 Less, Fry's, King Soopers,
Smith's, Dillons, QFC and City Market.  The Company also operates 768
convenience stores, 388 fine jewelry stores, 818 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 "confirmed," "expectations,"
"guidance," and "expects." Increased competition, weather, economic
conditions, interest rates, unexpected changes in product costs, 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.  Our estimate of product cost
inflation or deflation could be affected by general economic conditions,
weather, availability of raw materials and ingredients in the products that we
sell and their packaging, and other factors beyond our control.  Our ability
to continue to improve our debt coverage could be affected by unanticipated
increases in net total debt, our inability to generate free cash flow at the
levels anticipated, and our failure to generate expected earnings.  These
forward-looking statements are subject to uncertainties and other factors that
could cause actual results to differ materially.  We assume no obligation to
update the information contained herein.  Please refer to Kroger's reports and
filings with the Securities and Exchange Commission for a further discussion
of these risks and uncertainties.

Note: Kroger's quarterly conference call with investors will be broadcast live
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 September 25, 2009.

                               Table 1.
                            THE KROGER CO.
                CONSOLIDATED STATEMENTS OF OPERATIONS
               (in millions, except per share amounts)
                             (unaudited)

                                       SECOND QUARTER
                                       --------------
                                    2009               2008
                                    ----               ----

    SALES                   $17,735.4  100.00% $18,094.3  100.00%

      MERCHANDISE COSTS,
        INCLUDING
        ADVERTISING,
        WAREHOUSING AND
        TRANSPORTATION (a),
        AND LIFO CHARGE (b)  13,651.1   76.97   14,065.5   77.73
      OPERATING, GENERAL
       AND ADMINISTRATIVE
       (a)                    3,087.5   17.41    3,004.0   16.60
      RENT                      150.1    0.85      150.8    0.83
      DEPRECIATION AND
       AMORTIZATION             347.6    1.96      327.7    1.81
                                -----              -----
        OPERATING PROFIT        499.1    2.81      546.3    3.02

      INTEREST EXPENSE          115.2    0.65      111.5    0.62
                                -----              -----

        EARNINGS BEFORE
         INCOME TAX EXPENSE     383.9    2.16      434.8    2.40

      INCOME TAX EXPENSE        133.4    0.75      158.8    0.88
                                -----              -----

        NET EARNINGS
         INCLUDING
         NONCONTROLLING
         INTERESTS (c)          250.5    1.41      276.0    1.53

        NET EARNINGS (LOSS)
          ATTRIBUTABLE TO
          NONCONTROLLING
           INTERESTS (c)         (3.9)  (0.02)      (0.5)      -
                                 ----               ----

        NET EARNINGS
         ATTRIBUTABLE TO
         THE KROGER CO. (c)    $254.4    1.43%    $276.5    1.53%
                               ======             ======

        NET EARNINGS
          ATTRIBUTABLE TO THE
          KROGER CO. PER
          BASIC COMMON SHARE    $0.39              $0.42
                                =====              =====

        AVERAGE NUMBER  OF
          COMMON SHARES USED IN
          BASIC CALCULATION     647.6              651.3

        NET EARNINGS
          ATTRIBUTABLE TO THE
          KROGER CO. PER
          DILUTED
          COMMON SHARE          $0.39              $0.42
                                =====              =====

        AVERAGE NUMBER OF
          COMMON SHARES USED
          IN DILUTED
          CALCULATION           651.3              658.2

                                         YEAR-TO-DATE
                                         ------------
                                    2009               2008
                                    ----               ----

    SALES                   $40,534.3  100.00% $41,237.9  100.00%

      MERCHANDISE COSTS,
        INCLUDING ADVERTISING,
        WAREHOUSING AND
        TRANSPORTATION (a),
        AND LIFO CHARGE (b)  30,918.3   76.28   31,910.6   77.38
      OPERATING, GENERAL
       AND ADMINISTRATIVE (a) 7,122.1   17.57    6,894.3   16.72
      RENT                      349.9    0.86      357.5    0.87
      DEPRECIATION AND
       AMORTIZATION             801.0    1.98      760.1    1.84
                                -----              -----
        OPERATING PROFIT      1,343.0    3.31    1,315.4    3.19

      INTEREST EXPENSE          278.1    0.69      263.8    0.64
                                -----              -----

        EARNINGS BEFORE
         INCOME TAX EXPENSE   1,064.9    2.63    1,051.6    2.55

      INCOME TAX EXPENSE        383.4    0.95      385.6    0.94
                                -----              -----

        NET EARNINGS
         INCLUDING
         NONCONTROLLING
         INTERESTS (c)          681.5    1.68      666.0    1.62

        NET EARNINGS (LOSS)
          ATTRIBUTABLE TO
          NONCONTROLLING
           INTERESTS (c)         (8.0)  (0.02)       3.5    0.01
                                 ----                ---

        NET EARNINGS
         ATTRIBUTABLE TO
         THE KROGER CO. (c)    $689.5    1.70%    $662.5    1.61%
                               ======             ======

        NET EARNINGS
          ATTRIBUTABLE TO
          THE KROGER CO.
          PER BASIC COMMON
           SHARE                $1.06              $1.01
                                =====              =====

        AVERAGE NUMBER OF
          COMMON SHARES USED IN
          BASIC CALCULATION     647.8              654.7

        NET EARNINGS
        ATTRIBUTABLE TO THE
        KROGER CO. PER DILUTED
           COMMON SHARE         $1.05              $1.00
                                =====              =====

        AVERAGE NUMBER OF
          COMMON SHARES USED IN
          DILUTED CALCULATION   651.3              660.9

    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 $14.7 and $46.2 were recorded in the
         second quarter of 2009 and 2008, respectively.  For the
         year-to-date period, LIFO charges of $37.8 and $86.2 were
         recorded for 2009 and 2008, respectively.

    (c)  In the first quarter of 2009, the Company adopted SFAS
         No. 160, "Noncontrolling Interests in Consolidated
         Financial Statements an Amendment of ARB No. 51".  As a
         result, for those entities in which the Company has an
         equity investment, Net Earnings Including Noncontrolling
         Interests includes the entire amount of net earnings
         (loss) from those entities.  The portion of those
         entities' 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.  The tenets of
         this new accounting pronouncement 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 adoption of this new
         accounting pronouncement.)

                                    Table 2.
                                 THE KROGER CO.
                          CONSOLIDATED BALANCE SHEETS
                                 (in millions)
                                  (unaudited)

                                                 ----------- ----------
                                                  August 15,  August 16,
                                                      2009        2008
                                                      ----        ----

    ASSETS
    Current Assets
      Cash                                            $159.0     $171.3
      Temporary cash
       investments                                     210.2       98.4
      Deposits in-transit                              627.9      661.7
      Receivables                                      773.7      770.3
      Inventories                                    4,634.6    4,722.9
      Prepaid and other current assets                 300.6      272.3
                                                       -----      -----

        Total current assets                         6,706.0    6,696.9

    Property, plant and equipment, net              13,605.9   12,825.3
    Goodwill                                         2,271.1    2,245.9
    Other assets                                       562.2      524.9
                                                       -----      -----

        Total Assets                               $23,145.2  $22,293.0
                                                   =========  =========

    LIABILITIES AND SHAREOWNERS' EQUITY
    Current liabilities
      Current portion of long-term debt
       including obligations under capital
       leases and financing obligations               $581.6     $731.2
      Trade accounts payable                         3,857.1    3,810.2
      Accrued salaries and wages                       791.6      763.6
      Deferred income taxes                            343.9      238.6
      Other current liabilities                      2,132.4    2,321.3
                                                     -------    -------

        Total current liabilities                    7,706.6    7,864.9

    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                     6,912.9    6,860.8
      Adjustment to reflect fair-value
       interest rate hedges                             44.5       33.7
                                                        ----       ----
      Long-term debt including obligations
       under capital leases and financing
       obligations                                   6,957.4    6,894.5

    Deferred income taxes                              474.6      475.3
    Pension and postretirement benefit obligations     977.9      564.8
    Other long-term liabilities                      1,231.5    1,248.1
                                                     -------    -------

        Total Liabilities                           17,348.0   17,047.6

    Shareowners' equity                              5,797.2    5,245.4
                                                     -------    -------

        Total Liabilities and
         Shareowners' Equity                       $23,145.2  $22,293.0
                                                   =========  =========

    Total common outstanding at end
     of period                                         646.4      650.9
    Total diluted shares year-to-date                  651.3      660.9

    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                       $681.5     $666.0
      Adjustment to reconcile net earnings to net
        cash provided by operating activities:
          Depreciation and amortization                801.0      760.1
          LIFO charge                                   37.8       86.2
          Stock-based employee compensation             45.3       47.9
          Expense for Company-sponsored
           pension plans                                18.5       16.3
          Deferred income taxes                         90.0      106.0
          Other                                         26.7       16.8
          Changes in operating assets and
           liabilities, net of effects from
           acquisitions of businesses:
              Deposits in-transit                        3.1       14.1
              Receivables                               39.8       16.3
              Inventories                              186.3       40.5
              Prepaid expenses                         209.0      282.9
              Trade accounts payable                   151.1       33.5
              Accrued expenses                         (78.0)     (16.3)
              Income taxes receivable and
               payable                                 186.0       49.8
              Contribution to Company-sponsored
               pension plan                           (200.0)      (0.3)
              Other                                    (32.6)       6.3
                                                       -----        ---

      Net cash provided by operating activities      2,165.5    2,126.1
                                                     -------    -------

    CASH FLOWS FROM INVESTING ACTIVITIES:
      Payments for capital expenditures             (1,209.5)  (1,053.0)
      Payments for acquisitions                        (12.5)     (79.5)
      Proceeds from sale of assets                       6.1       48.5
      Other                                             (6.0)         -
                                                        ----        ---

      Net cash used by investing activities         (1,221.9)  (1,084.0)
                                                    --------   --------

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from lease-financing transactions         6.4        2.6
      Proceeds from issuance of
       long-term debt                                    3.1      775.0
      Payments on long-term debt                      (412.5)    (987.4)
      Payments on credit facility                     (129.0)    (287.9)
      Dividends paid                                  (117.3)    (108.9)
      Excess tax benefits on stock-based awards          0.7        8.6
      Proceeds from issuance of capital stock            7.5      157.3
      Treasury stock purchases                         (79.9)    (538.9)
      Decrease in book overdrafts                     (116.2)     (92.2)
      Other                                             (0.3)      (7.2)
                                                        ----       ----

      Net cash used by financing activities           (837.5)  (1,079.0)
                                                      ------   --------

    NET INCREASE (DECREASE) IN CASH AND TEMPORARY
     CASH INVESTMENTS                                  106.1      (36.9)

    CASH FROM CONSOLIDATED VARIABLE INTEREST ENTITY        -       65.0

    CASH AND TEMPORARY CASH INVESTMENTS:
      BEGINNING OF YEAR                                263.1      241.6
                                                       -----      -----
      END OF QUARTER                                  $369.2     $269.7
                                                      ======     ======

    Reconciliation of capital expenditures:
      Payments for capital expenditures            $(1,209.5) $(1,053.0)
      Changes in construction-in-progress
       payables                                        (45.6)     (61.9)
                                                       -----      -----
        Total capital expenditures                 $(1,255.1) $(1,114.9)

    Disclosure of cash flow information:
        Cash paid during the year for interest        $303.1     $294.4
        Cash paid during the year for income taxes    $114.6     $282.6

    Note: Certain prior-year amounts have been 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)

                                            SECOND QUARTER
                                            --------------
                                            2009       2008
                                            ----       ----

    INCLUDING FUEL CENTERS              $15,867.3    $16,120.5
    EXCLUDING FUEL CENTERS              $14,341.2    $13,976.0

    INCLUDING FUEL CENTERS                -1.6%         9.7%
    EXCLUDING FUEL CENTERS                 2.6%         4.7%

                         COMPARABLE SUPERMARKET SALES (b)

                                            SECOND QUARTER
                                            --------------
                                            2009       2008
                                            ----       ----

    INCLUDING FUEL CENTERS              $16,408.2    $16,616.7
    EXCLUDING FUEL CENTERS              $14,815.8    $14,390.8

    INCLUDING FUEL CENTERS                -1.3%        10.1%
    EXCLUDING FUEL CENTERS                 3.0%         4.9%

    (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 second quarter of 2009 to the
    balance in the second quarter of 2008.

                                                  August 15,  August 16,
                                                   2009        2008   Change
                                                   ----        ----   ------

    Current portion of long-term debt including
     obligations under capital leases and
     financing obligations                       $581.6      $731.2  $(149.6)
    Face-value of long-term debt including
     obligations under capital leases and
      financing obligations                     6,912.9     6,860.8     52.1
    Adjustment to reflect fair-value
     interest rate hedges                          44.5        33.7     10.8
                                                   ----        ----     ----

         Total debt                            $7,539.0    $7,625.7   $(86.7)

    Temporary cash investments                   (210.2)      (98.4)  (111.8)
                                                 ------       -----   ------

         Net total debt                        $7,328.8    $7,527.3  $(198.5)
                                               ========    ========  =======

SOURCE  The Kroger Co.

Media: Meghan Glynn, +1-513-762-1304, or Investors: Carin Fike,
+1-513-762-4969, both of The Kroger Co.

 

 

 

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