CINCINNATI, June 20, 2019 /PRNewswire/ --The Kroger Co.
(NYSE: KR) today reported its first quarter 2019 results and
provided a Restock Kroger progress update on the
company's three-year transformation plan.
Comments from Chairman and CEO Rodney
McMullen
"Because the retail industry is constantly transforming, we
proactively launched Restock Kroger to deliver for our
customers and shareholders. It all starts with our customer
obsession, which is why Kroger is assembling a platform to deliver
anything, anytime, anywhere.
We are building momentum in the second year of Restock
Kroger, which is off to a solid start. The entire company is
focused on redefining the grocery customer experience, improved
upon by exciting partnerships that will create value. We are on
track to generate the free cash flow and incremental adjusted FIFO
operating profit that we committed to in 2019 as part of Restock
Kroger. We are confident in our ability to deliver on our plans
for the year and our long-term vision to serve America through food
inspiration and uplift."
Financial Results
Total company sales were $37.3
billion in the first quarter, compared to $37.7 billion for the same period last year. This
decrease is due to the sale of Kroger's convenience store business
unit. Total sales, excluding fuel and the effect of selling the
convenience store business unit, increased 2.0% from the same
period last year.
Gross margin was 22.2% of sales for the first quarter. FIFO
gross margin, excluding fuel, decreased 40 basis points from the
same period last year, primarily due to industry-wide lower gross
margin rates in pharmacy.
The Operating, General & Administrative costs, excluding
fuel and the 2019 and 2018 Adjustment Items (see Table 6),
decreased 12 basis points as a rate of sales, due to execution of
Restock Kroger initiatives and planned real estate
transactions during the quarter.
Operating profit was $901 million
in the first quarter. Adjusted FIFO operating profit totaled
$957 million in the first quarter
(see Table 7).
GAAP net earnings were $0.95 per
diluted share compared to $2.37 per
diluted share in the same period last year.
Adjusted net earnings were $0.72
per diluted share, compared to $0.73
per diluted share in the same period last year (see Table 6).
Kroger did not adjust the rates as a percent of sales described
above for the divestitures of the convenience store, YouTech and
Turkey Hill Dairy businesses and the merger with Home Chef, because
the effect was insignificant.
Financial Strategy
Kroger's financial strategy is to use its free cash flow to
drive growth while also maintaining its current investment grade
debt rating and returning capital to shareholders. The company
actively balances the use of its cash flow to achieve these
goals.
Over the last four quarters, Kroger has used cash to:
- Invest a combined $589 million in
Ocado securities and Home Chef,
- Contribute an incremental $185
million pre-tax to company-sponsored pension plans,
- Repurchase five million common shares for $216 million,
- Pay $440 million in dividends,
and
- Invest $3.0 billion in capital,
excluding mergers, acquisitions, and purchases of leased
facilities.
Consistent with our financial strategy, Kroger reduced net total
debt by $1.7 billion, since the end
of fiscal year 2018. Kroger's net total debt to adjusted EBITDA
ratio is 2.54, down from 2.83 at the end of 2018 (see Table 5). The
company's net total debt to adjusted EBITDA ratio target range is
2.30 to 2.50.
2019 Guidance
|
IDS
(%)
|
EPS
($)
|
Operating
Profit
($B)
|
Tax
Rate
|
Cap
Ex
($B)
|
GAAP
|
N/A
|
$2.38 -
$2.48
|
$2.9 -
$3.0
|
23%
|
$3.0 -
$3.2
|
Adjusted*
|
2.0% -
2.25%
|
$2.15 -
$2.25
|
$2.9 -
$3.0
|
22%
|
N/A
|
* Without adjusted items, if applicable; operating
profit represents FIFO Operating Profit
First Quarter 2019 Restock Kroger Highlights
Redefine the Grocery Customer Experience
- Our Brands sales were up 3.3% vs. prior year, led by
double digit growth in Simple Truth. Kroger also launched 219 new
Our Brands items
- Expanded to 1,685 Pickup locations and 2,126 Delivery
locations, covering over 93% of Kroger households
- Introduced test of new Home Chef retail meal solutions,
including oven-ready options, Heat & Eat choices, and lunch
kits
Partner for Customer Value
- Provided additional detail on Kroger's alternative profit
stream portfolio
- Formed PearlRock Partners, a new platform to identify, invest
in and help grow the next generation of leading consumer product
brands, with private investment firm Lindsay Goldberg
- Broke ground on first Kroger-Ocado center in Monroe, Ohio and named the location of the
second customer fulfillment center
- Completed sale of YouTech to Inmar and established a long-term
service agreement
- Completed sale of Turkey Hill business
- Expanded Media business portfolio with new ad units, including
a direct relationship with Pinterest to bridge the journey between
inspiration and purchase for both customers and advertisers
Develop Talent
- Earned perfect score of 100% on the Human Rights Campaign's
Corporate Equality Index and recognized as one of the Best
Places to Work for LGBTQ
- Kroger Technology was named
to Computerworld magazine's Top 100 Best Places to Work
in IT
- Yael Cosset, senior vice president and chief information
officer, recognized by Business Insider as a top industry executive
who's transforming retail
- Colleen Lindholz, president of
Kroger Health, recognized by Forbes for her leadership in
the food industry to impact communities and improve lives
- Fry's President Monica Garnes
named Progressive Grocer's 2019 Trailblazer
Live Kroger's Purpose
- Announced relationship with sustainability innovator Loop to
pilot new reusable packaging system
- Named a 2019 Engage for Good Gold Halo Award winner in the Best
Environmental Initiative category for Zero Hunger | Zero
Waste
- Eliminated single-use plastic grocery bags in the Pacific
Northwest QFC division
At The Kroger Co. (NYSE: KR), we are dedicated to our Purpose:
to Feed the Human Spirit®. We are nearly
half a million associates who serve over 11 million customers daily
through a seamless digital shopping experience and 2,761 retail
food stores under a variety of banner names, serving America
through food inspiration and uplift, and creating
#ZeroHungerZeroWaste communities by 2025. To learn more about us,
visit our newsroom and investor relations site.
Kroger's first quarter 2019 ended on May 25, 2019.
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. The
remarks contain 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
or phrases such as "ahead," "believe," "build," "committed,"
"confident," "continue," "contribute," "create," "deliver,"
"drive," "estimate," "expect," "future," "guidance,"
"headwind," "improve," "intend," "momentum," "optimistic," "on
track," "proactive," "progress," "solid," "strategy,"
"strength," "tailwind," "target," "transformation," "trend,"
"upcoming," "vision," 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" and
"Outlook" 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 free cash flow goals may be affected by:
labor negotiations or disputes; 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, and
the unemployment rate; the effect that fuel costs have on consumer
spending; volatility of fuel margins; changes in government-funded
benefit programs; 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
uncertain pace of economic growth; 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 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 on Restock
Kroger; 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 ability to achieve these goals may also be affected by
Kroger's ability to manage the factors identified above. Kroger's
ability to execute its financial strategy may be affected by its
ability to generate cash flow.
- Kroger's effective tax rate may differ from the expected rate
due to changes in 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. 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
June 20, 2019 at ir.kroger.com.
An on-demand replay of the webcast will be available at
approximately 1 p.m. (ET) on Thursday, June
20, 2019.
1st Quarter 2019 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
- 2018 Sales Reclassification
Table
1.
|
THE KROGER
CO.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(in millions, except
per share amounts)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIRST
QUARTER
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
|
|
|
$
37,251
|
|
100.0%
|
|
$
37,722
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
MERCHANDISE COSTS,
INCLUDING ADVERTISING,
|
|
|
|
|
|
|
|
|
|
|
|
WAREHOUSING AND
TRANSPORTATION (a),
|
|
|
|
|
|
|
|
|
|
|
|
AND LIFO CHARGE
(b)
|
|
|
28,983
|
|
77.8
|
|
29,419
|
|
78.0
|
|
|
OPERATING, GENERAL
AND ADMINISTRATIVE (a)
|
|
6,314
|
|
17.0
|
|
6,257
|
|
16.6
|
|
|
RENT
|
|
|
|
|
274
|
|
0.7
|
|
276
|
|
0.7
|
|
|
DEPRECIATION AND
AMORTIZATION
|
|
779
|
|
2.1
|
|
741
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
PROFIT
|
|
|
901
|
|
2.4
|
|
1,029
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
(EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
(197)
|
|
(0.5)
|
|
(192)
|
|
(0.5)
|
|
|
NON-SERVICE COMPONENT
OF COMPANY-SPONSORED
|
|
|
|
|
|
|
|
|
|
|
|
PENSION PLAN
COSTS
|
|
|
3
|
|
0.0
|
|
(10)
|
|
(0.0)
|
|
|
MARK TO MARKET GAIN
ON OCADO SECURITIES
|
|
106
|
|
0.3
|
|
36
|
|
0.1
|
|
|
GAIN ON SALE OF
BUSINESSES
|
|
176
|
|
0.5
|
|
1,771
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS BEFORE
INCOME TAX EXPENSE
|
|
989
|
|
2.7
|
|
2,634
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX
EXPENSE
|
|
|
226
|
|
0.6
|
|
616
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
INCLUDING NONCONTROLLING INTERESTS
|
|
763
|
|
2.1
|
|
2,018
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE
TO
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING
INTERESTS
|
|
(9)
|
|
-
|
|
(8)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
$
772
|
|
2.1%
|
|
$
2,026
|
|
5.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
|
|
|
|
|
|
|
|
|
|
|
PER BASIC COMMON
SHARE
|
|
$
0.96
|
|
|
|
$
2.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE NUMBER
OF COMMON SHARES USED IN
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
CALCULATION
|
|
|
798
|
|
|
|
839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
|
|
|
|
|
|
|
|
|
|
|
PER DILUTED COMMON
SHARE
|
|
$
0.95
|
|
|
|
$
2.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE NUMBER OF
COMMON SHARES USED IN
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
CALCULATION
|
|
805
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS DECLARED
PER COMMON SHARE
|
|
$
0.140
|
|
|
|
$
0.125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 described in the earnings release, 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 described in the earnings release, 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 $15
were recorded in the first quarters of 2019 and
2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
|
Products and services
related primarily to Kroger Personal Finance and Media, which were
historically accounted for as an offset to OG&A,
are now classified as a component of sales, except for certain
amounts in Media, which are netted against COGS. These
prior-year
amounts have been reclassified to conform to current-year
presentation, which is consistent with our Restock Kroger
initiative and view of
the products and services as part of our core business
strategy. This is also more consistent with industry
practice.
|
Table
2.
|
THE KROGER
CO.
|
CONSOLIDATED
BALANCE SHEETS
|
(in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
25,
|
|
May
26,
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
$
365
|
|
$
315
|
|
|
Temporary cash
investments
|
|
|
44
|
|
376
|
|
|
Store deposits
in-transit
|
|
|
|
1,066
|
|
1,053
|
|
|
Receivables
|
|
|
|
|
1,560
|
|
1,583
|
|
|
Inventories
|
|
|
|
|
6,707
|
|
6,387
|
|
|
Assets held for
sale
|
|
|
|
-
|
|
42
|
|
|
Prepaid and other
current assets
|
|
|
420
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
|
10,162
|
|
10,286
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net
|
|
|
21,661
|
|
21,195
|
|
Operating lease
assets
|
|
|
|
6,819
|
|
-
|
|
Intangibles,
net
|
|
|
|
|
1,123
|
|
1,100
|
|
Goodwill
|
|
|
|
|
3,087
|
|
2,925
|
|
Other
assets
|
|
|
|
|
1,467
|
|
1,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
$
44,319
|
|
$
36,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREOWNERS' EQUITY
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
Current portion of
long-term debt including obligations
|
|
|
|
|
|
|
under finance
leases
|
|
|
|
$
1,453
|
|
$
2,242
|
|
|
Current portion of
operating lease liabilities
|
|
682
|
|
-
|
|
|
Trade accounts
payable
|
|
|
|
6,423
|
|
6,202
|
|
|
Accrued salaries and
wages
|
|
|
1,078
|
|
1,011
|
|
|
Liabilities held for
sale
|
|
|
|
-
|
|
18
|
|
|
Other current
liabilities
|
|
|
|
3,939
|
|
4,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
|
13,575
|
|
13,476
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
including obligations under finance leases
|
12,016
|
|
12,059
|
|
Noncurrent operating
lease liabilities
|
|
|
6,420
|
|
-
|
|
Deferred income
taxes
|
|
|
|
1,484
|
|
1,590
|
|
Pension and
postretirement benefit obligations
|
|
485
|
|
789
|
|
Other long-term
liabilities
|
|
|
|
1,807
|
|
1,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
|
35,787
|
|
29,620
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners'
equity
|
|
|
|
|
8,532
|
|
6,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareowners' Equity
|
|
$
44,319
|
|
$
36,561
|
|
|
|
|
|
|
|
|
|
|
|
|
Total common shares
outstanding at end of period
|
|
798
|
|
796
|
|
Total diluted shares
year-to-date
|
|
|
805
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
|
The Company adopted
ASU 2016-02, "Leases," and related amendments as of February 3,
2019
under the modified retrospective approach and has not revised
comparative periods.
|
|
|
|
|
|
|
|
Table
3.
|
THE KROGER
CO.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR-TO-DATE
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net earnings
including noncontrolling interests
|
|
$
763
|
|
$
2,018
|
|
|
Adjustments to
reconcile net earnings including noncontrolling
|
|
|
|
|
|
|
|
interests to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
779
|
|
741
|
|
|
|
|
Operating lease
amortization
|
|
|
197
|
|
-
|
|
|
|
|
LIFO
charge
|
|
|
|
15
|
|
15
|
|
|
|
|
Stock-based employee
compensation
|
|
48
|
|
45
|
|
|
|
|
Expense for
Company-sponsored pension plans
|
|
11
|
|
27
|
|
|
|
|
Deferred income
taxes
|
|
|
(73)
|
|
17
|
|
|
|
|
Gain on sale of
businesses
|
|
|
(176)
|
|
(1,771)
|
|
|
|
|
Gain on the sale of
property
|
|
|
(57)
|
|
-
|
|
|
|
|
Mark to market gain
on Ocado securities
|
|
(106)
|
|
(36)
|
|
|
|
|
Other
|
|
|
|
(29)
|
|
-
|
|
|
|
|
Changes in operating
assets and liabilities, net
|
|
|
|
|
|
|
|
|
|
of effects from
mergers and disposals of businesses:
|
|
|
|
|
|
|
|
|
|
|
Store deposits
in-transit
|
|
|
115
|
|
108
|
|
|
|
|
|
|
Receivables
|
|
|
33
|
|
(123)
|
|
|
|
|
|
|
Inventories
|
|
|
124
|
|
134
|
|
|
|
|
|
|
Prepaid and other
current assets
|
|
86
|
|
307
|
|
|
|
|
|
|
Trade accounts
payable
|
|
|
364
|
|
345
|
|
|
|
|
|
|
Accrued
expenses
|
|
|
(18)
|
|
43
|
|
|
|
|
|
|
Income taxes
receivable and payable
|
|
63
|
|
558
|
|
|
|
|
|
|
Operating lease
liabilities
|
|
|
(146)
|
|
-
|
|
|
|
|
|
|
Proceeds from
contract associated with the sale of business
|
|
295
|
|
-
|
|
|
|
|
|
|
Other
|
|
|
|
(20)
|
|
(60)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
|
2,268
|
|
2,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Payments for property
and equipment
|
|
|
(901)
|
|
(758)
|
|
|
Proceeds from sale of
assets
|
|
|
117
|
|
47
|
|
|
Purchases of
stores
|
|
|
|
-
|
|
(44)
|
|
|
Net proceeds from
sale of businesses
|
|
|
326
|
|
2,142
|
|
|
Other
|
|
|
|
|
|
(6)
|
|
(38)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used)
provided by investing activities
|
|
(464)
|
|
1,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Proceeds from
issuance of long-term debt
|
|
9
|
|
1,010
|
|
|
Payments on long-term
debt including obligations under finance leases
|
|
(1,013)
|
|
(214)
|
|
|
Net payments on
commercial paper
|
|
|
(700)
|
|
(2,120)
|
|
|
Dividends
paid
|
|
|
|
(113)
|
|
(110)
|
|
|
Proceeds from
issuance of capital stock
|
|
12
|
|
10
|
|
|
Treasury stock
purchases
|
|
|
(15)
|
|
(1,809)
|
|
|
Other
|
|
|
|
|
|
(4)
|
|
(140)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by
financing activities
|
|
|
(1,824)
|
|
(3,373)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE)
INCREASE IN CASH AND TEMPORARY
|
|
|
|
|
|
|
CASH
INVESTMENTS
|
|
|
(20)
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND TEMPORARY
CASH INVESTMENTS:
|
|
|
|
|
|
|
BEGINNING OF
YEAR
|
|
|
429
|
|
347
|
|
|
END OF
PERIOD
|
|
|
|
$
409
|
|
$
691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
capital investments:
|
|
|
|
|
|
|
|
Payments for property
and equipment
|
|
|
$
(901)
|
|
$
(758)
|
|
|
Changes in
construction-in-progress payables
|
|
25
|
|
(91)
|
|
|
|
Total capital
investments
|
|
|
$
(876)
|
|
$
(849)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosure of cash
flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the
year for interest
|
|
$
115
|
|
$
124
|
|
|
|
Cash paid during the
year for income taxes
|
|
$
231
|
|
$
36
|
|
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 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)
|
|
|
|
|
|
|
FIRST
QUARTER
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
EXCLUDING
FUEL
|
|
$
32,133
|
|
$
31,670
|
|
|
|
|
|
|
|
|
|
EXCLUDING
FUEL
|
|
1.5%
|
|
1.9%
|
|
|
(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. Additionally, sales from
all acquired businesses are treated as identical as if they were
part of the Company in the prior year. Products and services
related primarily to Kroger Personal Finance, which were
historically accounted for as an offset to OG&A, are now
classified as a component of sales. These prior-year amounts have
been reclassified to conform to current-year presentation and
included in identical sales in 2019 and 2018, which is consistent
with our Restock Kroger initiative and view of the products and
services as part of our core business strategy. This is also
more consistent with industry practice. This change affected
identical sales by 3 and 5 basis points in 2019 and 2018,
respectively.
|
Table 5.
Reconciliation of Net Total Debt and
|
Net Earnings
Attributable to The Kroger Co. to Adjusted EBITDA
|
(in millions, except
for ratio)
|
(unaudited)
|
|
The items identified
below should not be considered an alternative to any GAAP measure
of performance or access to liquidity. Net total debt to
adjusted EBITDA is an important measure used by management to
evaluate the Company's access to liquidity. The items below
should be
reviewed in conjunction with Kroger's financial results reported in
accordance with GAAP.
|
|
The following table
provides a reconciliation of net total debt.
|
|
|
|
|
|
May
25,
|
|
May
26,
|
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
|
|
|
|
|
|
Current portion of
long-term debt including obligations
|
|
|
|
|
|
|
under
finance leases
|
|
$
1,453
|
|
$
2,242
|
|
$
(789)
|
Long-term debt
including obligations under finance leases
|
|
12,016
|
|
12,059
|
|
(43)
|
|
|
|
|
|
|
|
Total debt
|
|
13,469
|
|
14,301
|
|
(832)
|
|
|
|
|
|
|
|
Less: Temporary cash
investments
|
|
44
|
|
376
|
|
(332)
|
Less: Prepaid
employee benefits
|
|
-
|
|
2
|
|
(2)
|
|
|
|
|
|
|
|
Net total debt
|
|
$
13,425
|
|
$
13,923
|
|
$
(498)
|
|
The following table
provides a reconciliation from net earnings attributable to The
Kroger Co. to adjusted EBITDA, as defined in the Company's
credit agreement, on a rolling four quarter 52 week
basis.
|
|
|
|
Rolling Four Quarters
Ended
|
|
|
May
25,
|
|
May
26,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Net earnings
attributable to The Kroger Co.
|
|
$
1,856
|
|
$
3,630
|
LIFO charge
(credit)
|
|
29
|
|
(18)
|
Depreciation and
amortization
|
|
2,503
|
|
2,441
|
Interest
expense
|
|
625
|
|
614
|
Income tax
expense
|
|
510
|
|
63
|
Adjustments for
pension plan agreements
|
|
227
|
|
338
|
Adjustment for Kroger
Specialty Pharmacy goodwill impairment
|
|
-
|
|
110
|
Adjustment for
company-sponsored pension plan termination
|
|
-
|
|
502
|
Adjustment for mark
to market gain on Ocado securities
|
|
(298)
|
|
(36)
|
Adjustment for gain
on sale of convenience store business
|
|
(11)
|
|
(1,771)
|
Adjustment for gain
on sale of Turkey Hill Dairy
|
|
(106)
|
|
-
|
Adjustment for gain
on sale of You Technology
|
|
(70)
|
|
-
|
Adjustment for
contingent consideration
|
|
9
|
|
-
|
Adjustment for loss
on settlement of financial instrument
|
|
42
|
|
-
|
53rd week EBITDA
adjustment
|
|
-
|
|
(131)
|
Other
|
|
(23)
|
|
(13)
|
|
|
|
|
|
Adjusted
EBITDA
|
|
$
5,293
|
|
$
5,729
|
|
|
|
|
|
Net total debt to
adjusted EBITDA ratio on a 52 week basis
|
|
2.54
|
|
2.43
|
Table 6. Net
Earnings Per Diluted Share Excluding the Adjustment
Items
|
(in millions, except
per share amounts)
|
(unaudited)
|
|
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. 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.
|
|
|
|
|
|
|
|
|
FIRST
QUARTER
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
$
772
|
|
$
2,026
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTMENTS FOR
PENSION PLAN AGREEMENTS (a)(b)
|
|
44
|
|
(10)
|
|
ADJUSTMENT FOR GAIN
ON SALE OF CONVENIENCE STORE BUSINESS (a)(c)
|
|
-
|
|
(1,352)
|
|
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 MARK
TO MARKET GAIN ON OCADO SECURITIES (a)(f)
|
|
(80)
|
|
(27)
|
|
ADJUSTMENT FOR
DEPRECIATION RELATED TO HELD FOR SALE ASSETS (a)(g)
|
|
-
|
|
(11)
|
|
ADJUSTMENT FOR
CONTINGENT CONSIDERATION (a)(h)
|
|
(18)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2019 AND 2018
ADJUSTMENT ITEMS
|
|
|
(186)
|
|
(1,400)
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
|
|
|
|
|
EXCLUDING THE
ADJUSTMENT ITEMS ABOVE
|
|
$
586
|
|
$
626
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
|
|
|
|
|
PER DILUTED COMMON
SHARE
|
|
|
$
0.95
|
|
$
2.37
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTMENTS FOR
PENSION PLAN AGREEMENTS (i)
|
|
0.05
|
|
(0.01)
|
|
ADJUSTMENT FOR GAIN
ON SALE OF CONVENIENCE STORE BUSINESS (i)
|
|
-
|
|
(1.59)
|
|
ADJUSTMENT FOR GAIN
ON SALE OF TURKEY HILL DAIRY (i)
|
|
(0.10)
|
|
-
|
|
ADJUSTMENT FOR GAIN
ON SALE OF YOU TECHNOLOGY (i)
|
|
(0.06)
|
|
-
|
|
ADJUSTMENT FOR MARK
TO MARKET GAIN ON OCADO SECURITIES (i)
|
|
(0.10)
|
|
(0.03)
|
|
ADJUSTMENT FOR
DEPRECIATION RELATED TO HELD FOR SALE ASSETS (i)
|
|
-
|
|
(0.01)
|
|
ADJUSTMENT FOR
CONTINGENT CONSIDERATION (i)
|
|
(0.02)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2019 AND 2018
ADJUSTMENT ITEMS
|
|
|
(0.23)
|
|
(1.64)
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO. PER
|
|
|
|
|
|
|
DILUTED COMMON SHARE
EXCLUDING THE ADJUSTMENT ITEMS ABOVE
|
|
$
0.72
|
|
$
0.73
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE NUMBER OF
COMMON SHARES USED IN
|
|
|
|
|
|
|
DILUTED
CALCULATION
|
|
|
805
|
|
846
|
Table 6. Net
Earnings Per Diluted Share Excluding the Adjustment Items
(continued)
|
(in millions, except
per share amounts)
|
(unaudited)
|
|
|
|
|
(a)
|
The amounts presented
represent the after-tax effect of each adjustment.
|
|
|
(b)
|
The pre-tax
adjustments for pension plan agreements were $59 and $(13) in the
first quarters of 2019 and 2018, respectively.
|
|
|
(c)
|
The pre-tax
adjustment for gain on sale of convenience store business was
($1,771).
|
|
|
(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
adjustment for mark to market gain on Ocado securities was ($106)
and ($36) in the first quarters of 2019 and 2018,
respectively.
|
|
|
(g)
|
The pre-tax
adjustment for depreciation related to held for sale assets was
($14).
|
|
|
(h)
|
The pre-tax
adjustment for contingent consideration was $(24).
|
|
|
(i)
|
The amounts presented
represent the net earnings per diluted common share effect of each
adjustment.
|
|
|
Note:
|
2019 First Quarter
Adjustment Items include adjustments for pension plan agreements,
the gain on sale of Turkey Hill Dairy, the gain on sale of You
Technology, the mark to market gain on Ocado securities and a
contingent consideration adjustment.
|
|
|
|
|
2018 First Quarter
Adjustment Items include adjustments for pension plan agreements,
the gain on sale of convenience store business, the mark to market
gain on Ocado securities and depreciation related to held for sale
assets.
|
|
|
Table 7. Operating
Profit Excluding the Adjustment Items
|
(in
millions)
|
(unaudited)
|
|
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. 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.
|
|
|
|
|
|
|
|
|
FIRST
QUARTER
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
|
$
901
|
|
$
1,029
|
|
LIFO
charge
|
|
|
|
15
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
FIFO Operating
profit
|
|
|
916
|
|
1,044
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for
pension plan agreements
|
|
59
|
|
(13)
|
|
Adjustment for
depreciation related to held for sale assets
|
|
-
|
|
(14)
|
|
Adjustment for
contingent consideration
|
|
(24)
|
|
-
|
|
Other
|
|
|
|
|
6
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
2019 and 2018
Adjustment items
|
|
41
|
|
(22)
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted FIFO
operating profit
|
|
|
|
|
|
|
|
excluding the
adjustment items above
|
|
$
957
|
|
$
1,022
|
Table 8. 2018
Sales Reclassification
|
(in
millions)
|
(unaudited)
|
|
Products and services
related primarily to Kroger Personal Finance and Media, which were
historically accounted for as an offset to OG&A, are now
classified as a component of sales, except for certain amounts in
Media, which are netted against COGS. These prior-year amounts have
been reclassified to conform to current-year presentation, which is
consistent with our Restock Kroger initiative and view of the
products and services as part of our core business strategy.
This is also more consistent with industry practice.
|
|
The following table
summarizes the Company's 2018 sales reclassification:
|
|
|
|
|
|
|
|
|
FIRST QUARTER
AS PREVIOUSLY
STATED
|
|
RECLASSIFICATION
|
|
RECLASSIFIED
FIRST
QUARTER
|
|
|
|
|
|
|
|
2018
|
|
2018
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
|
|
|
|
$
37,530
|
|
$
192
|
|
$
37,722
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
MERCHANDISE COSTS,
INCLUDING ADVERTISING,
|
|
|
|
|
|
|
|
|
WAREHOUSING AND
TRANSPORTATION,
|
|
|
|
|
|
|
|
|
AND LIFO
CHARGE
|
|
|
29,362
|
|
57
|
|
29,419
|
|
OPERATING, GENERAL
AND ADMINISTRATIVE
|
|
6,122
|
|
135
|
|
6,257
|
|
RENT
|
|
|
|
|
276
|
|
-
|
|
276
|
|
DEPRECIATION AND
AMORTIZATION
|
|
741
|
|
-
|
|
741
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
PROFIT
|
|
|
|
$
1,029
|
|
$
-
|
|
$
1,029
|
View original content to download
multimedia:http://www.prnewswire.com/news-releases/kroger-reports-first-quarter-2019-results-300872001.html
SOURCE The Kroger Co.