CINCINNATI, Sept. 11, 2020 /PRNewswire/ -- The Kroger
Co. (NYSE: KR) today reported its second quarter 2020 results,
provided a Restock Kroger progress update on the three-year
transformation plan, and shared a COVID-19 response update.
Comments from Chairman and CEO Rodney
McMullen
"Each day I'm inspired by the work our
incredible associates do to bring to life our purpose, to Feed the
Human Spirit. I am proud of our dedicated associates who are
serving our customers when they need us most. Our top priority is
to provide a safe environment for associates and customers and as
the pandemic continues, we will continue to rise to meet the
challenge.
Customers are at the center of everything we do and, as a
result, we are growing market share. Kroger's strong digital
business is a key contributor to this growth, as the investments
made to expand our digital ecosystem are resonating with customers.
Our results continue to show that Kroger is a trusted brand and our
customers choose to shop with us because they value the product
quality and freshness, convenience, and digital offerings that we
provide.
We delivered extremely strong results in the second quarter and
expect to deliver consistently attractive total shareholder
returns. We are more certain than ever that the strategic choices
and investments made through Restock Kroger to execute
against our competitive moats - Fresh, Our Brands,
Personalization and Seamless - have positioned Kroger to meet the
moment, especially as customers are rediscovering their passion for
food at home."
Financial
Results
|
|
2Q20 ($ in
millions; except EPS)
|
2Q19 ($ in
millions; except EPS)
|
ID Sales* (Table
4)
|
14.6%
|
2.2%
|
EPS
|
$1.03
|
$0.37
|
Adjusted EPS
(Table 6)
|
$0.73
|
$0.44
|
Operating
Profit
|
$820
|
$559
|
Adjusted FIFO
Operating Profit (Table 7)
|
$894
|
$626
|
FIFO Gross Margin
Rate*
|
Increased 5 basis
points
|
OG&A
Rate*
|
Decreased 61 basis
points
|
*without fuel and
adjustment items, if applicable
|
Total company sales were $30.5
billion in the second quarter, compared to $28.2 billion for the same period last year.
Excluding fuel, sales grew 13.9%.
Gross margin was 22.8% of sales for the second quarter. The FIFO
gross margin rate, excluding fuel, increased 5 basis points
primarily driven by sourcing efficiencies, sales leverage and
growth in alternative profit streams. This was partially offset by
price investments and mix changes.
LIFO charge for the quarter was $23
million, compared to $30
million for the same period last year.
The Operating, General & Administrative rate decreased 61
basis points, excluding fuel and adjustment items, due to sales
leverage and execution of Restock Kroger initiatives,
partially offset by continued COVID-19 related investments to
support and safeguard its associates, customers and
communities.
Rent and depreciation excluding fuel decreased 27 basis points
due to sales leverage.
Capital Allocation Strategy
Kroger's capital allocation strategy is to use its adjusted free
cash flow to invest in the business and drive profitable growth
while also maintaining its current investment grade debt rating and
returning capital to shareholders. The company actively balances
the use of its adjusted free cash flow to achieve these goals.
Kroger's net total debt to adjusted EBITDA ratio is 1.70,
compared to 2.46 a year ago (Table 5). The company's net total debt
to adjusted EBITDA ratio target range is 2.30 to 2.50. Kroger held
temporary cash investments of approximately $2.4 billion as of the end of the quarter,
reflecting improved operating performance and significant
improvement in working capital.
During the quarter, Kroger repurchased $211 million shares under its $1 billion board authorization announced on
November 5, 2019. On September 11, 2020, the Board of Directors
authorized a $1 billion share
repurchase program, replacing the prior authorization.
Earlier this year, Kroger increased the dividend by 13 percent,
marking the 14th consecutive year of dividend
increases.
2020 Guidance
Comments from CFO Gary
Millerchip
"As a result of our strong performance in
the first half, the expectation of sustained trends in food at home
consumption and confidence in our ability to execute against the
Restock Kroger strategy, we are updating our full year 2020
guidance.
There are still many uncertainties and, as a result, we are
providing a wider guidance range. For the full year 2020, we expect
total identical sales without fuel to exceed 13% and we expect to
achieve adjusted EPS growth of approximately 45% to 50%.
Relative to delivering on our total shareholder return growth
targets as outlined at our November
2019 Investor Day, these factors also lead us to believe
that our 2021 business results will be higher than we would have
expected prior to the COVID-19 pandemic."
Full Year
2020
|
|
IDS
(%)
|
EPS
($)
|
Operating
Profit
($B)
|
Tax
Rate**
|
Cap
Ex ($B)
|
Adjusted
FCF
($B)
|
Share
Repurchases ($M)
|
Adjusted*
|
>13.0%
|
$3.20
-
$3.30
|
$3.9 -
$4.0
|
23%
|
$3.0-$3.4
|
$2.5-$2.7
|
$600-$1,000
|
*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 2020 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 2020 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, which cannot
be predicted.
|
About Kroger
At The Kroger Co. (NYSE: KR), we are
Fresh for Everyoneâ„¢ 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 second quarter 2020 ended on August 15, 2020.
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 "continue,"
"expect," "future," "guidance," "positioned," "strategy," "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 related factors, risks and challenges,
including among others, the length of time that the pandemic
continues, the temporary inability of customers to shop due to
illness, quarantine, or other travel restrictions or financial
hardship, shifts in demand away from discretionary or higher priced
products to lower priced products, or stockpiling or similar
pantry-filling activities, reduced workforces which may be caused
by, but not limited to, the temporary inability of the workforce to
work due to illness, quarantine, or government mandates, temporary
store closures due to reduced workforces or government mandates, or
the availability and efficacy of a vaccine; 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 and the extent and
effectiveness of any COVID-19 stimulus packages; 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 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 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
September 11, 2020
at ir.kroger.com. An on-demand replay of the webcast will be
available at approximately 1 p.m. (ET) on Friday, September 11, 2020.
2nd Quarter 2020 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
Table
1.
|
THE KROGER
CO.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(in millions, except
per share amounts)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECOND
QUARTER
|
|
YEAR-TO-DATE
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
|
|
|
$
30,489
|
|
100.0%
|
|
$
28,168
|
|
100.0%
|
|
$
72,038
|
|
100.0%
|
|
$
65,419
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MERCHANDISE COSTS,
INCLUDING ADVERTISING,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAREHOUSING AND
TRANSPORTATION (a),
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AND LIFO CHARGE
(b)
|
|
|
23,551
|
|
77.2
|
|
22,007
|
|
78.1
|
|
55,005
|
|
76.4
|
|
50,990
|
|
77.9
|
|
|
OPERATING, GENERAL
AND ADMINISTRATIVE (a)
|
|
5,297
|
|
17.4
|
|
4,811
|
|
17.1
|
|
12,968
|
|
18.0
|
|
11,125
|
|
17.0
|
|
|
RENT
|
|
|
|
|
204
|
|
0.7
|
|
200
|
|
0.7
|
|
477
|
|
0.7
|
|
474
|
|
0.7
|
|
|
DEPRECIATION AND
AMORTIZATION
|
|
617
|
|
2.0
|
|
591
|
|
2.1
|
|
1,442
|
|
2.0
|
|
1,370
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
PROFIT
|
|
|
820
|
|
2.7
|
|
559
|
|
2.0
|
|
2,146
|
|
3.0
|
|
1,460
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
(EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
(135)
|
|
(0.4)
|
|
(130)
|
|
(0.5)
|
|
(309)
|
|
(0.4)
|
|
(327)
|
|
(0.5)
|
|
|
NON-SERVICE COMPONENT
OF COMPANY-SPONSORED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PENSION PLAN
COSTS
|
|
|
8
|
|
-
|
|
(4)
|
|
-
|
|
19
|
|
-
|
|
(1)
|
|
-
|
|
|
MARK TO MARKET GAIN
(LOSS) ON INVESTMENTS
|
|
368
|
|
1.2
|
|
(45)
|
|
(0.2)
|
|
790
|
|
1.1
|
|
61
|
|
0.1
|
|
|
GAIN ON SALE OF
BUSINESSES
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
176
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS BEFORE
INCOME TAX EXPENSE
|
|
1,061
|
|
3.5
|
|
380
|
|
1.4
|
|
2,646
|
|
3.7
|
|
1,369
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX
EXPENSE
|
|
|
241
|
|
0.8
|
|
93
|
|
0.3
|
|
614
|
|
0.9
|
|
319
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
INCLUDING NONCONTROLLING INTERESTS
|
820
|
|
2.7
|
|
287
|
|
1.0
|
|
2,032
|
|
2.8
|
|
1,050
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
ATTRIBUTABLE TO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING
INTERESTS
|
|
1
|
|
-
|
|
(10)
|
|
-
|
|
1
|
|
-
|
|
(19)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
$
819
|
|
2.7%
|
|
$
297
|
|
1.1%
|
|
$
2,031
|
|
2.8%
|
|
$
1,069
|
|
1.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER BASIC COMMON
SHARE
|
|
$
1.04
|
|
|
|
$
0.37
|
|
|
|
$
2.58
|
|
|
|
$
1.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE NUMBER
OF COMMON SHARES USED IN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
CALCULATION
|
|
|
777
|
|
|
|
800
|
|
|
|
779
|
|
|
|
799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER DILUTED COMMON
SHARE
|
|
$
1.03
|
|
|
|
$
0.37
|
|
|
|
$
2.55
|
|
|
|
$
1.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE NUMBER OF
COMMON SHARES USED IN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
CALCULATION
|
|
786
|
|
|
|
805
|
|
|
|
787
|
|
|
|
805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS DECLARED
PER COMMON SHARE
|
|
$
0.180
|
|
|
|
$
0.160
|
|
|
|
$
0.340
|
|
|
|
$
0.300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $23
and $30 were recorded in the second quarter of 2020 and 2019,
respectively. For the year to date period, LIFO charges of
$54 and $46 were recorded for 2020 and 2019,
respectively.
|
Table
2.
|
THE KROGER
CO.
|
CONSOLIDATED
BALANCE SHEETS
|
(in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
August
15,
|
|
August 17,
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
|
$
372
|
|
$
354
|
|
|
Temporary cash
investments
|
2,448
|
|
275
|
|
|
Store deposits
in-transit
|
1,058
|
|
983
|
|
|
Receivables
|
1,526
|
|
1,567
|
|
|
Inventories
|
6,344
|
|
6,526
|
|
|
Prepaid and other
current assets
|
538
|
|
435
|
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
12,286
|
|
10,140
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net
|
21,881
|
|
21,820
|
|
Operating lease
assets
|
6,822
|
|
6,861
|
|
Intangibles,
net
|
1,029
|
|
1,103
|
|
Goodwill
|
3,076
|
|
3,095
|
|
Other
assets
|
2,449
|
|
1,443
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
47,543
|
|
$
44,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREOWNERS' EQUITY
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Current portion of
long-term debt including obligations
|
|
|
|
|
|
|
under finance
leases
|
$
1,096
|
|
$
1,353
|
|
|
Current portion of
operating lease liabilities
|
666
|
|
675
|
|
|
Trade accounts
payable
|
6,871
|
|
6,268
|
|
|
Accrued salaries and
wages
|
1,267
|
|
1,099
|
|
|
Other current
liabilities
|
4,678
|
|
3,955
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
14,578
|
|
13,350
|
|
|
|
|
|
|
|
|
Long-term debt
including obligations under finance leases
|
12,386
|
|
12,130
|
|
Noncurrent operating
lease liabilities
|
6,478
|
|
6,463
|
|
Deferred income
taxes
|
1,634
|
|
1,502
|
|
Pension and
postretirement benefit obligations
|
578
|
|
482
|
|
Other long-term
liabilities
|
2,096
|
|
1,882
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
37,750
|
|
35,809
|
|
|
|
|
|
|
|
|
Shareowners'
equity
|
9,793
|
|
8,653
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareowners' Equity
|
$
47,543
|
|
$
44,462
|
|
|
|
|
|
|
|
|
Total common shares
outstanding at end of period
|
775
|
|
801
|
|
Total diluted shares
year-to-date
|
787
|
|
805
|
|
Table
3.
|
THE KROGER
CO.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR-TO-DATE
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
|
|
Net earnings
including noncontrolling interests
|
$
2,032
|
|
$
1,050
|
|
|
Adjustments to
reconcile net earnings including noncontrolling
|
|
|
|
|
|
|
interests to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
1,442
|
|
1,370
|
|
|
|
|
Operating lease asset
amortization
|
336
|
|
346
|
|
|
|
|
LIFO
charge
|
54
|
|
46
|
|
|
|
|
Stock-based employee
compensation
|
107
|
|
89
|
|
|
|
|
Company-sponsored
pension plan costs
|
(9)
|
|
22
|
|
|
|
|
Deferred income
taxes
|
176
|
|
(49)
|
|
|
|
|
Gain on sale of
businesses
|
-
|
|
(176)
|
|
|
|
|
Gain on the sale of
assets
|
(7)
|
|
(157)
|
|
|
|
|
Mark to market gain
on investments
|
(790)
|
|
(61)
|
|
|
|
|
Other
|
121
|
|
(23)
|
|
|
|
|
Changes in operating
assets and liabilities, net
|
|
|
|
|
|
|
|
|
of effects from
mergers and disposals of businesses:
|
|
|
|
|
|
|
|
|
|
Store deposits
in-transit
|
121
|
|
198
|
|
|
|
|
|
|
Receivables
|
117
|
|
44
|
|
|
|
|
|
|
Inventories
|
685
|
|
274
|
|
|
|
|
|
|
Prepaid and other
current assets
|
(16)
|
|
68
|
|
|
|
|
|
|
Trade accounts
payable
|
522
|
|
209
|
|
|
|
|
|
|
Accrued
expenses
|
335
|
|
104
|
|
|
|
|
|
|
Income taxes
receivable and payable
|
195
|
|
(34)
|
|
|
|
|
|
|
Operating lease
liabilities
|
(302)
|
|
(313)
|
|
|
|
|
|
|
Proceeds from
contract associated with the sale of business
|
-
|
|
295
|
|
|
|
|
|
|
Other
|
286
|
|
(25)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
5,405
|
|
3,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
|
|
Payments for property
and equipment, including payments for lease buyouts
|
(1,343)
|
|
(1,581)
|
|
|
Proceeds from sale of
assets
|
40
|
|
247
|
|
|
Net proceeds from
sale of businesses
|
-
|
|
327
|
|
|
Other
|
|
|
(45)
|
|
(32)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by
investing activities
|
(1,348)
|
|
(1,039)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
|
|
Proceeds from
issuance of long-term debt
|
504
|
|
53
|
|
|
Payments on long-term
debt including obligations under finance leases
|
(28)
|
|
(1,025)
|
|
|
Net payments on
commercial paper
|
(1,150)
|
|
(800)
|
|
|
Dividends
paid
|
(254)
|
|
(226)
|
|
|
Proceeds from
issuance of capital stock
|
87
|
|
18
|
|
|
Treasury stock
purchases
|
(669)
|
|
(23)
|
|
|
Other
|
|
|
(126)
|
|
(35)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by
financing activities
|
(1,636)
|
|
(2,038)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
AND TEMPORARY
|
|
|
|
|
|
CASH
INVESTMENTS
|
2,421
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND TEMPORARY
CASH INVESTMENTS:
|
|
|
|
|
|
BEGINNING OF
YEAR
|
399
|
|
429
|
|
|
END OF
PERIOD
|
$
2,820
|
|
$
629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
capital investments:
|
|
|
|
|
|
Payments for property
and equipment, including payments for lease buyouts
|
$
(1,343)
|
|
$
(1,581)
|
|
|
Payments for lease
buyouts
|
15
|
|
-
|
|
|
Changes in
construction-in-progress payables
|
(110)
|
|
29
|
|
|
|
Total capital
investments, excluding lease buyouts
|
$
(1,438)
|
|
$
(1,552)
|
|
|
|
|
|
|
|
|
|
|
|
Disclosure of cash
flow information:
|
|
|
|
|
|
|
Cash paid during the
year for interest
|
$
373
|
|
$
306
|
|
|
|
Cash paid during the
year for income taxes
|
$
229
|
|
$
454
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECOND
QUARTER
|
|
YEAR-TO-DATE
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
EXCLUDING
FUEL
|
|
$
27,761
|
|
$
24,226
|
|
$
65,898
|
|
$
56,272
|
|
|
|
|
|
|
|
|
|
|
|
EXCLUDING
FUEL
|
|
14.6%
|
|
2.2%
|
|
17.1%
|
|
1.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
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.
|
|
|
|
|
|
|
|
|
|
|
August
15,
|
|
August 17,
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
|
|
|
|
|
|
Current portion of
long-term debt including obligations
|
|
|
|
|
|
|
under
finance leases
|
|
$
1,096
|
|
$
1,353
|
|
$
(257)
|
Long-term debt
including obligations under finance leases
|
|
12,386
|
|
12,130
|
|
256
|
|
|
|
|
|
|
|
Total debt
|
|
13,482
|
|
13,483
|
|
(1)
|
|
|
|
|
|
|
|
Less: Temporary cash
investments
|
|
2,448
|
|
275
|
|
2,173
|
|
|
|
|
|
|
|
Net total debt
|
|
$
11,034
|
|
$
13,208
|
|
$
(2,174)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
August
15,
|
|
August 17,
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Net earnings
attributable to The Kroger Co.
|
|
$
2,621
|
|
$
1,645
|
|
|
LIFO
charge
|
|
113
|
|
48
|
|
|
Depreciation and
amortization
|
|
2,721
|
|
2,521
|
|
|
Interest
expense
|
|
585
|
|
611
|
|
|
Income tax
expense
|
|
764
|
|
476
|
|
|
Adjustment for
pension plan withdrawal liabilities
|
|
49
|
|
254
|
|
|
Adjustment for mark
to market gain on investments
|
|
(886)
|
|
(36)
|
|
|
Adjustment for gain
on sale of Turkey Hill Dairy
|
|
-
|
|
(106)
|
|
|
Adjustment for gain
on sale of You Technology
|
|
-
|
|
(70)
|
|
|
Adjustment for Home
Chef contingent consideration
|
|
37
|
|
11
|
|
|
Adjustment for loss
on settlement of financial instrument
|
|
-
|
|
42
|
|
|
Adjustment for
severance charge and related benefits
|
|
80
|
|
-
|
|
|
Adjustment for
deconsolidation and impairment of Lucky's Market
|
|
|
|
|
|
|
attributable to The
Kroger Co. (a)
|
|
305
|
|
-
|
|
|
Adjustment for
transformation costs (b)
|
|
119
|
|
-
|
|
|
Other
|
|
(16)
|
|
(25)
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
|
$
6,492
|
|
$
5,371
|
|
|
|
|
|
|
|
|
|
Net total debt to
adjusted EBITDA ratio
|
|
1.70
|
|
2.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The adjustment for
impairment of Lucky's Market attributable to The Kroger Co.
excludes a $107 net loss attributable to the minority interest of
Lucky's Market.
|
|
|
|
|
|
|
|
|
(b)
|
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 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.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECOND
QUARTER
|
|
YEAR-TO-DATE
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
$
819
|
|
$
297
|
|
$
2,031
|
|
$
1,069
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTMENT FOR
PENSION PLAN WITHDRAWAL LIABILITIES(a)(b)
|
-
|
|
22
|
|
-
|
|
66
|
|
ADJUSTMENT FOR GAIN
ON SALE OF TURKEY HILL DAIRY (a)(c)
|
-
|
|
-
|
|
-
|
|
(80)
|
|
ADJUSTMENT FOR GAIN
ON SALE OF YOU TECHNOLOGY (a)(d)
|
-
|
|
-
|
|
-
|
|
(52)
|
|
ADJUSTMENT FOR MARK
TO MARKET (GAIN) LOSS ON INVESTMENTS (a)(e)
|
(278)
|
|
36
|
|
(590)
|
|
(44)
|
|
ADJUSTMENT FOR HOME
CHEF CONTINGENT CONSIDERATION (a)(f)
|
19
|
|
2
|
|
63
|
|
(16)
|
|
ADJUSTMENT FOR
TRANSFORMATION COSTS (a)(g)
|
21
|
|
-
|
|
49
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2020 AND 2019
ADJUSTMENT ITEMS
|
(238)
|
|
60
|
|
(478)
|
|
(126)
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
|
|
|
|
|
|
|
|
EXCLUDING THE
ADJUSTMENT ITEMS ABOVE
|
$
581
|
|
$
357
|
|
$
1,553
|
|
$
943
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
|
|
|
|
|
|
|
|
PER DILUTED COMMON
SHARE
|
$
1.03
|
|
$
0.37
|
|
$
2.55
|
|
$
1.31
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTMENT FOR
PENSION PLAN WITHDRAWAL LIABILITIES (h)
|
-
|
|
0.03
|
|
-
|
|
0.08
|
|
ADJUSTMENT FOR GAIN
ON SALE OF TURKEY HILL DAIRY (h)
|
-
|
|
-
|
|
-
|
|
(0.10)
|
|
ADJUSTMENT FOR GAIN
ON SALE OF YOU TECHNOLOGY (h)
|
-
|
|
-
|
|
-
|
|
(0.06)
|
|
ADJUSTMENT FOR MARK
TO MARKET (GAIN) LOSS ON INVESTMENTS (h)
|
(0.35)
|
|
0.04
|
|
(0.75)
|
|
(0.05)
|
|
ADJUSTMENT FOR HOME
CHEF CONTINGENT CONSIDERATION (h)
|
0.02
|
|
-
|
|
0.08
|
|
(0.02)
|
|
ADJUSTMENT FOR
TRANSFORMATION COSTS (h)
|
0.03
|
|
-
|
|
0.07
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2020 AND 2019
ADJUSTMENT ITEMS
|
(0.30)
|
|
0.07
|
|
(0.60)
|
|
(0.15)
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO. PER
|
|
|
|
|
|
|
|
|
|
DILUTED COMMON SHARE
EXCLUDING THE ADJUSTMENT ITEMS ABOVE
|
$
0.73
|
|
$
0.44
|
|
$
1.95
|
|
$
1.16
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE NUMBER OF
COMMON SHARES USED IN
|
|
|
|
|
|
|
|
|
|
DILUTED
CALCULATION
|
786
|
|
805
|
|
787
|
|
805
|
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
adjustment to OG&A expenses for pension plan withdrawal
liabilities was $27 in the second quarter of 2019. The
year-to-date pre-tax adjustment to OG&A expenses for pension
plan withdrawal liabilities was $86 in the first two quarters of
2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
The pre-tax
adjustment for gain on sale of Turkey Hill Dairy was
($106).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d)
|
The pre-tax
adjustment for gain on sale of You Technology was ($70).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e)
|
The pre-tax
adjustments for mark to market (gain) loss on investments were
($368) and $45 in the second quarters of 2020 and 2019,
respectively. The year-to-date pre-tax adjustments for mark
to market gain on investments were ($790) and ($61) in the first
two quarters of 2020 and 2019, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(f)
|
The pre-tax
adjustments to OG&A expenses for Home Chef contingent
consideration were $25 and $2 in the second quarters of 2020 and
2019, respectively. The year-to-date pre-tax adjustments to
OG&A expenses for Home Chef contingent consideration were $85
and ($21) in the first two quarters of 2020 and 2019,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(g)
|
The pre-tax
adjustment to OG&A expenses for transformation costs was $29 in
the second quarter of 2020. The year-to-date pre-tax adjustment to
OG&A expenses for transformation costs was $67 in the first two
quarters of 2020. 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.
|
|
|
(h)
|
The amounts presented
represent the net earnings per diluted common share effect of each
adjustment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
|
2020 Second Quarter
Adjustment Items include adjustments for the mark to market gain on
investments, Home Chef contingent consideration adjustment and
strategic transformation costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Adjustment Items
include the Second Quarter Adjustment Items plus the adjustments
that occurred in the first quarter of 2020 for the mark to market
gain on investments, Home Chef contingent consideration adjustment
and strategic transformation costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Second Quarter
Adjustment items include adjustments for pension plan withdrawal
liabilities, the mark to market loss on investments and Home Chef
contingent consideration adjustment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Adjustment Items
include the Second Quarter Adjustment Items plus the adjustments
that occurred in the first quarter of 2019 for pension plan
withdrawal liabilities, the gain on sale of Turkey Hill Dairy, the
gain on sale of You Technology, the mark to market gain on
investments and Home Chef contingent consideration
adjustment.
|
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. 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.
|
|
|
|
|
SECOND
QUARTER
|
|
YEAR-TO-DATE
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
$
820
|
|
$
559
|
|
$
2,146
|
|
$
1,460
|
|
LIFO
charge
|
23
|
|
30
|
|
54
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
FIFO Operating
profit
|
843
|
|
589
|
|
2,200
|
|
1,506
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for
pension plan withdrawal liabilities
|
-
|
|
27
|
|
-
|
|
86
|
|
Adjustment for Home
Chef contingent consideration
|
25
|
|
2
|
|
85
|
|
(21)
|
|
Adjustment for
transformation costs
|
29
|
|
-
|
|
67
|
|
-
|
|
Other
|
(3)
|
|
8
|
|
(5)
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
2020 and 2019
Adjustment items
|
51
|
|
37
|
|
147
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted FIFO
operating profit
|
|
|
|
|
|
|
|
|
|
excluding the
adjustment items above
|
$
894
|
|
$
626
|
|
$
2,347
|
|
$
1,583
|
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SOURCE The Kroger Co.