Kroger reported second-quarter results in 2009
16 September 2009
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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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