CINCINNATI, March 5, 2020 /PRNewswire/ -- The Kroger Co.
(NYSE: KR) today reported its fourth quarter and Fiscal Year 2019
results and will update investors on how the Restock Kroger
framework is repositioning the company to create value for
shareholders, customers and associates.
Comments from Chairman and CEO Rodney
McMullen
"We are pleased with our 2019 results and improving trends in
our supermarket business. We delivered on our commitments for ID
sales without fuel, adjusted FIFO operating profit, and cost
savings in addition to generating over $100
million of incremental operating profit through alternative
profit streams in 2019. We also delivered strong adjusted free cash
flow during the year, consistent with the total shareholder return
model outlined at our Investor Day.
More importantly, the way that we delivered the year is
consistent with our long-term financial model and sets us up to
connect with customers in a deeper way. Restock
Kroger is the right strategic framework to position the
company for sustainable growth in the future, continue to improve
the core business, and deliver strong total shareholder return.
This transformational foundation supports our competitive moats
today – Fresh, Our Brands and Personalization - as well as
building a seamless ecosystem of the future."
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.
Consistent with its financial strategy, Kroger reduced net total
debt by $1.1 billion over the last
four quarters. Kroger's net total debt to adjusted EBITDA ratio is
2.48, compared to 2.83 a year ago (Table 5). The company's net
total debt to adjusted EBITDA ratio target range is 2.30 to
2.50.
In total, Kroger returned $951
million to shareholders in 2019.
Kroger repurchased $400 million
shares in the fourth quarter of 2019 under its $1 billion board authorization announced
November 5, 2019.
In 2019, Kroger increased the dividend by 14 percent, from 56¢
to 64¢ per year, marking the 13th consecutive year of
dividend increases, which resulted in a payout of $486 million. The company's quarterly dividend
has grown at a double-digit compound annual growth rate since it
was reinstated in 2006. The company continues to expect, subject to
board approval, an increasing dividend over time.
Fourth Quarter Financial Results
|
4Q19 ($ in
millions; except EPS)
|
4Q18 ($ in
millions; except EPS)
|
ID Sales* (Table
4)
|
2.0%
|
1.9%
|
EPS
|
$0.40
|
$0.32
|
Adjusted EPS
(Table 6)
|
$0.57
|
$0.48
|
Operating
Profit
|
$537
|
$391
|
Adjusted FIFO
Operating
Profit (Table 7)
|
$758
|
$628
|
FIFO Gross Margin
Rate*
|
Increased 6 basis
points
|
OG&A
Rate*
|
Decreased 79 basis
points
|
*without fuel and
adjustment items, if applicable
|
Total company sales were $28.9
billion in the fourth quarter, compared to $28.3 billion for the same period last year.
Excluding fuel and dispositions, sales grew 2.3%.
Gross margin was 22.1% of sales for the fourth quarter. The FIFO
gross margin rate excluding fuel increased 6 basis points. This
increase resulted from improvement in costs of goods, accelerating
alternative profit streams and cycling of investments that were
disclosed in the fourth quarter of 2018, partially offset by
investments in price and personalization, continued industry-wide
lower gross margin rates in pharmacy and continued growth in the
specialty pharmacy business.
LIFO charge for the quarter was $36
million, compared to a LIFO credit of $10 million for the same period last year. This
increase was driven by higher inflation in dry grocery, pharmacy
and dairy.
The Operating, General & Administrative rate without fuel
and adjustment items decrease of 79 basis points is due to
broad-based improvement in Restock Kroger cost savings
initiatives and cycling of investments in OG&A disclosed in the
fourth quarter of last year.
In the fourth quarter, Kroger recognized an impairment charge
related to the planned closing of 35 stores across the footprint in
2020. This impairment charge is reflected in the $52 million of transformation costs recognized
during the fourth quarter. There is no effect on adjusted net
earnings per diluted share or adjusted free cash flow guidance for
2020 as a result of this charge.
As a consequence of the Lucky's Market
bankruptcy proceeding, Kroger reported a non-cash charge of
$174 million in the quarter and
deconsolidated Lucky's Market from its consolidated financial
statements. There is no effect on adjusted net earnings per diluted
share or adjusted free cash flow guidance for 2020 as a result of
this charge.
The income tax rate for the fourth quarter was 18.2% compared to
20.8% for the same period last year. This decrease resulted from an
increase in tax deductions.
Fiscal 2019 Financial Results
|
2019 ($ in
billions; except EPS)
|
2018 ($ in
billions; except EPS)
|
ID Sales* (Table
4)
|
2.0%
|
1.8%
|
EPS
|
$2.04
|
$3.76
|
Adjusted EPS
(Table 6)
|
$2.19
|
$2.11
|
Operating
Profit
|
$2.3
|
$2.6
|
Adjusted FIFO
Operating
Profit (Table 7)
|
$3.0
|
$2.9
|
FIFO Gross Margin
Rate*
|
Decreased 23 basis
points
|
OG&A
Rate*
|
Decreased 29 basis
points
|
*without fuel and
adjustment items, if applicable
|
Total company sales were $122.3
billion in 2019. Excluding fuel, dispositions and merger
transactions, total sales grew 2.3%.
Gross margin was 22.1% of sales for 2019. The FIFO gross margin
rate excluding fuel decreased 23 basis points, primarily driven by
industry-wide lower gross margin rates in pharmacy and continued
growth in the specialty pharmacy business. Gross margin rate
excluding fuel and pharmacy improved slightly.
LIFO charge for 2019 was $105
million, compared to $29
million in 2018. This increase was driven by higher
inflation in dry grocery, pharmacy and dairy.
The Operating, General & Administrative rate without fuel
and adjustment items decrease of 29 basis points is due to broad
based improvement of Restock Kroger cost savings
initiatives.
The income tax rate for 2019 was 23.7% compared to 22.6% for the
same period last year. The income tax rate is higher compared
to prior year because a portion of the non-cash impairment charge
in the third quarter of 2019 related to Lucky's Market is not
attributable to Kroger (Table 9), and therefore not deductible by
Kroger.
2020 Guidance – (same as previous guidance)
|
IDS
(%)
|
EPS
($)
|
Operating
Profit ($B)
|
Tax
Rate**
|
Cap
Ex
($B)
|
Incremental
Alternative
Profit ($M)
|
Adjusted
FCF
($B)
|
Share
Repurchases
($M)
|
Adjusted*
|
>2.25%
|
$2.30
-
$2.40
|
$3.0 -
$3.1
|
23.0%
|
$3.2-
$3.4
|
$125-$150
|
$1.6-$1.8
|
$500-$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.
|
Kroger's 2020 guidance does not include any potential impact
related to the Coronavirus.
Fourth Quarter 2019 Restock Kroger Highlights
Redefine the Grocery Customer Experience
- Our Brands achieved its best year ever, exceeding
$23.1 billion in sales. Introduced 39
new Our Brands Plant-Based products in 2019
- Private Selection brand eclipsed $2
billion in sales for the first time and is Kroger's third
$2-billion-dollar brand
- Expanded to 1,989 Pickup locations and 2,385 Delivery
locations, covering 97% of Kroger households
Partner for Customer Value
- Named the location of an additional Kroger-Ocado customer
fulfillment center in Maryland
- Formed Group Purchasing Organization with Walgreens
- Kroger Precision Marketing (KPM), achieved TAG Platinum
Certification from the Trustworthy Accountability Group (TAG),
recognizing KPM as a digital marketing leader for achieving
rigorous certifications in all program areas. KPM is the first
retail media platform to reach this milestone
Develop Talent
- Continued investment in Kroger associate wages has increased
Kroger's average hourly wage to $15
an hour in 2019, with average hourly rate now over $20 per hour with comprehensive benefits factored
in, benefits that many of our competitors don't offer
- Made significant investments in educational assistance program,
Feed Your Future. Since inception, the program has impacted over
5,000 associates, with hourly associates making up 87% of those who
have taken advantage of this program so far
- Achieved record employee retention in one of the tightest labor
markets in years
Live Kroger's Purpose
- Achieved a 100% score on the Human Rights Campaign's Corporate
Equality Index for the second year in a row in 2019
- Recognized as one of America's top corporation for women-owned
businesses for the sixth year in a row and received the Silver
award for the first time in the company's history
- Selected as one of "America's Top 50 Corporations for
Multicultural Business Opportunities" in recognition of Kroger's
commitment to inclusion by Omnikal
About Kroger
At The Kroger Co. (NYSE: KR), we are Fresh for Everyone™ and
dedicated to our Purpose: To Feed the Human Spirit®. We are,
across our family of companies, nearly half a million associates
who serve over 11 million customers daily through a seamless
shopping experience under a variety of banner names. We are
committed to creating #ZeroHungerZeroWaste communities by 2025. To
learn more about us, visit our newsroom and investor
relations site.
Kroger's fourth quarter 2019 ended on February 1, 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. 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 "build," "continue," "create," "deliver,"
"drive," "expect," "future," "guidance," "improve," "position,"
"strategy," "transformation," and "trend." 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 adjusted 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 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 ability to achieve these goals may also be affected by
Kroger's ability to manage the factors identified above.
- 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
March 5, 2020 at ir.kroger.com.
An on-demand replay of the webcast will be available at
approximately 1 p.m. (ET) on Thursday, March
5, 2020.
4th 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
- Income Tax Rate Excluding the Impairment Charge Attributable to
the Minority Interest of Lucky's Market
- Adjusted Free Cash Flow
Table
1.
|
THE KROGER
CO.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(in millions, except
per share amounts)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOURTH
QUARTER
|
|
YEAR-TO-DATE
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
|
|
|
$
28,893
|
|
100.0%
|
|
$
28,286
|
|
100.0%
|
|
$ 122,286
|
|
100.0%
|
|
$
121,852
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MERCHANDISE COSTS,
INCLUDING ADVERTISING,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAREHOUSING AND
TRANSPORTATION (a),
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AND LIFO CHARGE
(b)
|
|
|
22,507
|
|
77.9
|
|
21,955
|
|
77.6
|
|
95,294
|
|
77.9
|
|
95,103
|
|
78.1
|
|
|
OPERATING, GENERAL
AND ADMINISTRATIVE (a)
|
|
4,985
|
|
17.3
|
|
5,155
|
|
18.2
|
|
21,208
|
|
17.3
|
|
20,786
|
|
17.1
|
|
|
RENT
|
|
|
|
|
209
|
|
0.7
|
|
204
|
|
0.7
|
|
884
|
|
0.7
|
|
884
|
|
0.7
|
|
|
DEPRECIATION AND
AMORTIZATION
|
|
655
|
|
2.3
|
|
581
|
|
2.1
|
|
2,649
|
|
2.2
|
|
2,465
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
PROFIT
|
|
|
537
|
|
1.9
|
|
391
|
|
1.4
|
|
2,251
|
|
1.8
|
|
2,614
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
(EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
(140)
|
|
(0.5)
|
|
(142)
|
|
(0.5)
|
|
(603)
|
|
(0.5)
|
|
(620)
|
|
(0.5)
|
|
|
NON-SERVICE COMPONENT
OF COMPANY-SPONSORED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PENSION PLAN
COSTS
|
|
|
2
|
|
-
|
|
(7)
|
|
-
|
|
-
|
|
-
|
|
(26)
|
|
-
|
|
|
MARK TO MARKET (LOSS)
GAIN ON OCADO SECURITIES
|
|
(9)
|
|
-
|
|
75
|
|
0.3
|
|
157
|
|
0.1
|
|
228
|
|
0.2
|
|
|
GAIN ON SALE OF
BUSINESSES
|
|
-
|
|
-
|
|
-
|
|
-
|
|
176
|
|
0.1
|
|
1,782
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS BEFORE
INCOME TAX EXPENSE
|
|
390
|
|
1.4
|
|
317
|
|
1.1
|
|
1,981
|
|
1.6
|
|
3,978
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX
EXPENSE
|
|
|
71
|
|
0.3
|
|
66
|
|
0.2
|
|
469
|
|
0.4
|
|
900
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
INCLUDING NONCONTROLLING INTERESTS
|
|
319
|
|
1.1
|
|
251
|
|
0.9
|
|
1,512
|
|
1.2
|
|
3,078
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE
TO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING
INTERESTS
|
|
(8)
|
|
-
|
|
(8)
|
|
-
|
|
(147)
|
|
(0.1)
|
|
(32)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
$
327
|
|
1.1%
|
|
$
259
|
|
0.9%
|
|
$
1,659
|
|
1.4%
|
|
$
3,110
|
|
2.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER BASIC COMMON
SHARE
|
|
$
0.40
|
|
|
|
$
0.32
|
|
|
|
$
2.05
|
|
|
|
$
3.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE NUMBER
OF COMMON SHARES USED IN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
CALCULATION
|
|
|
797
|
|
|
|
798
|
|
|
|
799
|
|
|
|
810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER DILUTED COMMON
SHARE
|
|
$
0.40
|
|
|
|
$
0.32
|
|
|
|
$
2.04
|
|
|
|
$
3.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE NUMBER OF
COMMON SHARES USED IN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
CALCULATION
|
|
804
|
|
|
|
806
|
|
|
|
805
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS DECLARED
PER COMMON SHARE
|
|
$
0.160
|
|
|
|
$
0.140
|
|
|
|
$
0.620
|
|
|
|
$
0.545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 charge of $36
and credit of ($10) were recorded in the fourth quarter of 2019 and
2018, respectively. For the year to date period, LIFO charges
of $105 and $29 were recorded for 2019 and 2018,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1,
|
|
February
2,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
$
393
|
|
$
411
|
|
|
Temporary cash
investments
|
|
|
6
|
|
18
|
|
|
Store deposits
in-transit
|
|
|
|
1,179
|
|
1,181
|
|
|
Receivables
|
|
|
|
|
1,692
|
|
1,589
|
|
|
Inventories
|
|
|
|
|
7,084
|
|
6,846
|
|
|
Assets held for
sale
|
|
|
|
-
|
|
166
|
|
|
Prepaid and other
current assets
|
|
|
522
|
|
592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
|
10,876
|
|
10,803
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net
|
|
|
21,793
|
|
21,635
|
|
Operating lease
assets
|
|
|
|
6,814
|
|
-
|
|
Intangibles,
net
|
|
|
|
|
1,066
|
|
1,258
|
|
Goodwill
|
|
|
|
|
3,076
|
|
3,087
|
|
Other
assets
|
|
|
|
|
1,539
|
|
1,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
$
45,164
|
|
$
38,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREOWNERS' EQUITY
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
Current portion of
long-term debt including obligations
|
|
|
|
|
|
|
under finance
leases
|
|
|
|
$
1,940
|
|
$
3,157
|
|
|
Current portion of
operating lease liabilities
|
|
597
|
|
-
|
|
|
Trade accounts
payable
|
|
|
|
6,349
|
|
6,059
|
|
|
Accrued salaries and
wages
|
|
|
1,168
|
|
1,227
|
|
|
Liabilities held for
sale
|
|
|
|
-
|
|
51
|
|
|
Other current
liabilities
|
|
|
|
4,086
|
|
3,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
|
14,140
|
|
14,274
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
including obligations under finance leases
|
12,136
|
|
12,072
|
|
Noncurrent operating
lease liabilities
|
|
|
6,505
|
|
-
|
|
Deferred income
taxes
|
|
|
|
1,452
|
|
1,562
|
|
Pension and
postretirement benefit obligations
|
|
608
|
|
494
|
|
Other long-term
liabilities
|
|
|
|
1,750
|
|
1,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
|
36,591
|
|
30,283
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners'
equity
|
|
|
|
|
8,573
|
|
7,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareowners' Equity
|
|
$
45,164
|
|
$
38,118
|
|
|
|
|
|
|
|
|
|
|
|
|
Total common shares
outstanding at end of period
|
|
788
|
|
798
|
|
Total diluted shares
year-to-date
|
|
|
805
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
1,512
|
|
$
3,078
|
|
|
Adjustments to
reconcile net earnings including noncontrolling
|
|
|
|
|
|
|
|
interests to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
2,649
|
|
2,465
|
|
|
|
|
Operating lease asset
amortization
|
|
640
|
|
-
|
|
|
|
|
LIFO
charge
|
|
|
|
105
|
|
29
|
|
|
|
|
Stock-based employee
compensation
|
|
155
|
|
154
|
|
|
|
|
Expense for
company-sponsored pension plans
|
|
39
|
|
76
|
|
|
|
|
Asset impairment
charges
|
|
|
120
|
|
56
|
|
|
|
|
Deferred income
taxes
|
|
|
(71)
|
|
(45)
|
|
|
|
|
Gain on sale of
businesses
|
|
|
(176)
|
|
(1,782)
|
|
|
|
|
Gain on the sale of
assets
|
|
|
(158)
|
|
-
|
|
|
|
|
Mark to market gain
on Ocado securities
|
|
(157)
|
|
(228)
|
|
|
|
|
Loss on
deconsolidation and impairment of Lucky's Market
|
|
412
|
|
-
|
|
|
|
|
Other
|
|
|
|
(109)
|
|
60
|
|
|
|
|
Changes in operating
assets and liabilities, net
|
|
|
|
|
|
|
|
|
|
of effects from
mergers and disposals of businesses:
|
|
|
|
|
|
|
|
|
|
|
Store deposits
in-transit
|
|
|
3
|
|
(20)
|
|
|
|
|
|
|
Receivables
|
|
|
(36)
|
|
(208)
|
|
|
|
|
|
|
Inventories
|
|
|
(351)
|
|
(354)
|
|
|
|
|
|
|
Prepaid and other
current assets
|
|
(33)
|
|
244
|
|
|
|
|
|
|
Trade accounts
payable
|
|
|
342
|
|
213
|
|
|
|
|
|
|
Accrued
expenses
|
|
|
302
|
|
416
|
|
|
|
|
|
|
Income taxes
receivable and payable
|
|
(127)
|
|
289
|
|
|
|
|
|
|
Contribution to
company-sponsored pension plan
|
|
-
|
|
(185)
|
|
|
|
|
|
|
Operating lease
liabilities
|
|
|
(639)
|
|
-
|
|
|
|
|
|
|
Proceeds from
contract associated with the sale of business
|
|
295
|
|
-
|
|
|
|
|
|
|
Other
|
|
|
|
(53)
|
|
(94)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
|
4,664
|
|
4,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Payments for property
and equipment, including payments for lease buyouts
|
|
(3,128)
|
|
(2,967)
|
|
|
Proceeds from sale of
assets
|
|
|
273
|
|
85
|
|
|
Proceeds on
settlement of financial instrument
|
|
-
|
|
235
|
|
|
Payments for
acquisitions, net of cash acquired
|
|
-
|
|
(197)
|
|
|
Purchases of
stores
|
|
|
|
-
|
|
(44)
|
|
|
Net proceeds from
sale of businesses
|
|
|
327
|
|
2,169
|
|
|
Purchases of Ocado
securities
|
|
|
-
|
|
(392)
|
|
|
Other
|
|
|
|
|
|
(83)
|
|
(75)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by
investing activities
|
|
|
(2,611)
|
|
(1,186)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Proceeds from
issuance of long-term debt
|
|
813
|
|
2,236
|
|
|
Payments on long-term
debt including obligations under finance leases
|
|
(2,304)
|
|
(1,372)
|
|
|
Net proceeds
(payments) on commercial paper
|
|
350
|
|
(1,321)
|
|
|
Dividends
paid
|
|
|
|
(486)
|
|
(437)
|
|
|
Proceeds from
issuance of capital stock
|
|
55
|
|
65
|
|
|
Treasury stock
purchases
|
|
|
(465)
|
|
(2,010)
|
|
|
Other
|
|
|
|
|
|
(46)
|
|
(57)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by
financing activities
|
|
|
(2,083)
|
|
(2,896)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE)
INCREASE IN CASH AND TEMPORARY
|
|
|
|
|
|
|
CASH
INVESTMENTS
|
|
|
(30)
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND TEMPORARY
CASH INVESTMENTS:
|
|
|
|
|
|
|
BEGINNING OF
YEAR
|
|
|
429
|
|
347
|
|
|
END OF
PERIOD
|
|
|
|
$
399
|
|
$
429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
capital investments:
|
|
|
|
|
|
|
|
Payments for property
and equipment, including payments for lease buyouts
|
|
$
(3,128)
|
|
$
(2,967)
|
|
|
Payments for lease
buyouts
|
|
|
82
|
|
5
|
|
|
Changes in
construction-in-progress payables
|
|
80
|
|
(56)
|
|
|
|
Total capital
investments, excluding lease buyouts
|
|
$
(2,966)
|
|
$
(3,018)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosure of cash
flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the
year for interest
|
|
$
523
|
|
$
614
|
|
|
|
Cash paid during the
year for income taxes
|
|
$
706
|
|
$
600
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOURTH
QUARTER
|
|
YEAR-TO-DATE
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXCLUDING
FUEL
|
|
$
25,286
|
|
$
24,790
|
|
$
106,037
|
|
$
103,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXCLUDING
FUEL
|
|
2.0%
|
|
1.9%
|
|
2.0%
|
|
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. 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 did not
affect identical sales percentages for the fourth quarter and
year-to-date periods of 2018.
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1,
|
|
February
2,
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
|
|
|
|
|
|
Current portion of
long-term debt including obligations
|
|
|
|
|
|
|
under
finance leases
|
|
$
1,940
|
|
$
3,157
|
|
$
(1,217)
|
Long-term debt
including obligations under finance leases
|
|
12,136
|
|
12,072
|
|
64
|
|
|
|
|
|
|
|
Total debt
|
|
14,076
|
|
15,229
|
|
(1,153)
|
|
|
|
|
|
|
|
Less: Temporary cash
investments
|
|
6
|
|
18
|
|
(12)
|
Less: Prepaid
employee benefits
|
|
125
|
|
125
|
|
-
|
|
|
|
|
|
|
|
Net total debt
|
|
$
13,945
|
|
$
15,086
|
|
$
(1,141)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, for 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR-TO-DATE
|
|
|
|
|
February
1,
|
|
February
2,
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Net earnings
attributable to The Kroger Co.
|
|
$
1,659
|
|
$
3,110
|
|
|
LIFO
charge
|
|
105
|
|
29
|
|
|
Depreciation and
amortization
|
|
2,649
|
|
2,465
|
|
|
Interest
expense
|
|
603
|
|
620
|
|
|
Income tax
expense
|
|
469
|
|
900
|
|
|
Adjustments for
pension plan withdrawal liabilities
|
|
135
|
|
155
|
|
|
Adjustment for mark
to market gain on Ocado securities
|
|
(157)
|
|
(228)
|
|
|
Adjustment for gain
on sale of convenience store business
|
|
-
|
|
(1,782)
|
|
|
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
|
|
(69)
|
|
33
|
|
|
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, including 35 planned store
closures
|
|
52
|
|
-
|
|
|
Other
|
|
(26)
|
|
(20)
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
|
$
5,629
|
|
$
5,324
|
|
|
|
|
|
|
|
|
|
Net total debt to
adjusted EBITDA ratio
|
|
2.48
|
|
2.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOURTH
QUARTER
|
|
YEAR-TO-DATE
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
$
327
|
|
$
259
|
|
$
1,659
|
|
$
3,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTMENTS FOR
PENSION PLAN WITHDRAWAL LIABILITIES(a)(b)
|
|
3
|
|
131
|
|
104
|
|
121
|
|
ADJUSTMENT FOR GAIN
ON SALE OF CONVENIENCE STORE BUSINESS (a)(c)
|
|
-
|
|
-
|
|
-
|
|
(1,360)
|
|
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 LOSS (GAIN) ON OCADO SECURITIES (a)(f)
|
|
6
|
|
(59)
|
|
(119)
|
|
(174)
|
|
ADJUSTMENT FOR
DEPRECIATION RELATED TO HELD FOR SALE ASSETS (a)(g)
|
|
-
|
|
-
|
|
-
|
|
(11)
|
|
ADJUSTMENT FOR
SEVERANCE CHARGE AND RELATED BENEFITS (a)(h)
|
|
-
|
|
-
|
|
61
|
|
-
|
|
ADJUSTMENT FOR
DECONSOLIDATION AND IMPAIRMENT OF LUCKY'S MARKET
|
|
|
|
|
|
|
|
|
|
|
ATTRIBUTABLE TO THE
KROGER CO. (a)(i)
|
|
125
|
|
-
|
|
225
|
|
-
|
|
ADJUSTMENT FOR HOME
CHEF CONTINGENT CONSIDERATION (a)(j)
|
|
(36)
|
|
26
|
|
(49)
|
|
26
|
|
ADJUSTMENT FOR LOSS
ON SETTLEMENT OF FINANCIAL INSTRUMENT (a)(k)
|
|
-
|
|
33
|
|
-
|
|
33
|
|
ADJUSTMENT FOR
TRANSFORMATION COSTS,
|
|
|
|
|
|
|
|
|
|
|
INCLUDING 35 PLANNED
STORE CLOSURES (a)(l)
|
|
37
|
|
-
|
|
37
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 AND 2018
ADJUSTMENT ITEMS
|
|
|
135
|
|
131
|
|
127
|
|
(1,365)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
|
|
|
|
|
|
|
|
|
EXCLUDING THE
ADJUSTMENT ITEMS ABOVE
|
|
$
462
|
|
$
390
|
|
$
1,786
|
|
$
1,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO.
|
|
|
|
|
|
|
|
|
|
|
PER DILUTED COMMON
SHARE
|
|
|
$
0.40
|
|
$
0.32
|
|
$
2.04
|
|
$
3.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTMENTS FOR
PENSION PLAN WITHDRAWAL LIABILITIES (m)
|
|
0.01
|
|
0.16
|
|
0.13
|
|
0.15
|
|
ADJUSTMENT FOR GAIN
ON SALE OF CONVENIENCE STORE BUSINESS (m)
|
|
-
|
|
-
|
|
-
|
|
(1.65)
|
|
ADJUSTMENT FOR GAIN
ON SALE OF TURKEY HILL DAIRY (m)
|
|
-
|
|
-
|
|
(0.10)
|
|
-
|
|
ADJUSTMENT FOR GAIN
ON SALE OF YOU TECHNOLOGY (m)
|
|
-
|
|
-
|
|
(0.06)
|
|
-
|
|
ADJUSTMENT FOR MARK
TO MARKET LOSS (GAIN) ON OCADO SECURITIES (m)
|
|
0.01
|
|
(0.07)
|
|
(0.15)
|
|
(0.21)
|
|
ADJUSTMENT FOR
DEPRECIATION RELATED TO HELD FOR SALE ASSETS (m)
|
|
-
|
|
-
|
|
-
|
|
(0.01)
|
|
ADJUSTMENT FOR
SEVERANCE CHARGE AND RELATED BENEFITS (m)
|
|
-
|
|
-
|
|
0.08
|
|
-
|
|
ADJUSTMENT FOR
DECONSOLIDATION AND IMPAIRMENT OF LUCKY'S MARKET
|
|
|
|
|
|
|
|
|
|
|
ATTRIBUTABLE TO THE
KROGER CO. (m)
|
|
0.16
|
|
-
|
|
0.28
|
|
-
|
|
ADJUSTMENT FOR HOME
CHEF CONTINGENT CONSIDERATION (m)
|
|
(0.05)
|
|
0.03
|
|
(0.07)
|
|
0.03
|
|
ADJUSTMENT FOR LOSS
ON SETTLEMENT OF FINANCIAL INSTRUMENT (m)
|
|
-
|
|
0.04
|
|
-
|
|
0.04
|
|
ADJUSTMENT FOR
TRANSFORMATION COSTS,
|
|
|
|
|
|
|
|
|
|
|
INCLUDING 35 PLANNED
STORE CLOSURES (m)
|
|
0.04
|
|
-
|
|
0.04
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 AND 2018
ADJUSTMENT ITEMS
|
|
|
0.17
|
|
0.16
|
|
0.15
|
|
(1.65)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
ATTRIBUTABLE TO THE KROGER CO. PER
|
|
|
|
|
|
|
|
|
|
|
DILUTED COMMON SHARE
EXCLUDING THE ADJUSTMENT ITEMS ABOVE
|
|
$
0.57
|
|
$
0.48
|
|
$
2.19
|
|
$
2.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE NUMBER OF
COMMON SHARES USED IN
|
|
|
|
|
|
|
|
|
|
|
DILUTED
CALCULATION
|
|
|
804
|
|
806
|
|
805
|
|
818
|
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 withdrawal liabilities were $4 and
$168 in the fourth quarter of 2019 and 2018, respectively.
For the year-to-date period, pre-tax adjustments for pension plan
agreements were $135 and $155 in 2019 and 2018,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
The pre-tax
adjustment for gain on sale of convenience store business was
($1,782).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 loss (gain) on Ocado securities were
$9 and ($75) in the fourth quarters of 2019 and 2018,
respectively. For the year-to-date period, pre-tax
adjustments for Ocado securities were ($157) and ($228) in 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 severance charge and related benefits was
$80.
|
|
|
(i)
|
The pre-tax
adjustment for deconsolidation and impairment of Lucky's Market was
$174 in the fourth quarter of 2019. For the year-to-date
period, pre-tax adjustment for deconsolidation and impairment of
Lucky's Market was $412 including a $107 net loss attributable to
the minority interest of Lucky's Market.
|
|
|
(j)
|
The pre-tax
adjustments for Home Chef contingent consideration was ($51) and
$33 in the fourth quarters of 2019 and 2018, respectively.
For the year-to-date period, the pre-tax adjustments for Home Chef
contingent consideration were ($69) and $33 in 2019 and 2018,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(k)
|
The pre-tax
adjustment for loss on settlement of financial instrument was
$42.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(l)
|
The pre-tax
adjustment for transformation costs was $52, including 35 planned
store closures.
|
|
|
(m)
|
The amounts presented
represent the net earnings per diluted common share effect of each
adjustment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
|
2019 Fourth Quarter
Adjustment items include adjustments for pension plan withdrawal
liabilities, the mark to market loss on Ocado securities,
deconsolidation of Lucky's Market, Home Chef contingent
consideration adjustment, and strategic transformation
costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Adjustment Items
include the fourth Quarter Adjustment Items plus the adjustments
that occurred in the first three quarters 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 Ocado
securities, Home Chef contingent consideration adjustment, the
impairment of Lucky's Market and severance charge and related
benefits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Fourth Quarter
Adjustment Items include adjustments for pension plan agreements,
mark to market gain on Ocado securities, Home Chef contingent
consideration adjustment and an adjustment for the loss on
settlement of financial instrument.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Adjustment Items
include the 2018 Fourth Quarter Adjustment Items plus the
adjustments that occurred in the first three quarters of 2018 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. Adjusted FIFO operating
profit is a useful metric to investors and analysts because they
present 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOURTH
QUARTER
|
|
YEAR-TO-DATE
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
|
$
537
|
|
$
391
|
|
$
2,251
|
|
$
2,614
|
|
LIFO
charge
|
|
|
|
36
|
|
(10)
|
|
105
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIFO Operating
profit
|
|
|
573
|
|
381
|
|
2,356
|
|
2,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for
pension plan withdrawal liabilities
|
|
4
|
|
168
|
|
135
|
|
155
|
|
Adjustment for
depreciation related to held for sale assets
|
|
-
|
|
-
|
|
-
|
|
(14)
|
|
Adjustment for Home
Chef contingent consideration
|
|
(51)
|
|
33
|
|
(69)
|
|
33
|
|
Adjustment for
severance charge and related benefits
|
|
-
|
|
-
|
|
80
|
|
-
|
|
Adjustment for loss
on settlement of financial instrument
|
|
-
|
|
42
|
|
-
|
|
42
|
|
Adjustment for
transformation costs, including 35 planned store
closures
|
|
52
|
|
-
|
|
52
|
|
-
|
|
Adjustment for
deconsolidation and impairment of Lucky's Market
(a)
|
|
174
|
|
-
|
|
412
|
|
-
|
|
Other
|
|
|
|
|
6
|
|
4
|
|
29
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 and 2018
Adjustment items
|
|
185
|
|
247
|
|
639
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted FIFO
operating profit
|
|
|
|
|
|
|
|
|
|
|
excluding the
adjustment items above
|
|
$
758
|
|
$
628
|
|
$
2,995
|
|
$
2,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
For the year-to-date
period, the adjustment for impairment of Lucky's Market includes a
$107 net loss attributable to the minority interest of Lucky's
Market.
|
|
|
|
|
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 tables
summarize the Company's fourth quarter and year-to-date period 2018
sales reclassification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOURTH QUARTER
AS PREVIOUSLY
STATED
|
|
RECLASSIFICATION
|
|
RECLASSIFIED
FOURTH QUARTER
|
|
|
|
|
|
|
|
2018
|
|
2018
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
|
|
|
|
$
28,091
|
|
$
195
|
|
$
28,286
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
MERCHANDISE COSTS,
INCLUDING ADVERTISING,
|
|
|
|
|
|
|
|
|
WAREHOUSING AND
TRANSPORTATION,
|
|
|
|
|
|
|
|
|
AND LIFO
CHARGE
|
|
|
21,902
|
|
53
|
|
21,955
|
|
OPERATING, GENERAL
AND ADMINISTRATIVE
|
|
5,013
|
|
142
|
|
5,155
|
|
RENT
|
|
|
|
|
204
|
|
-
|
|
204
|
|
DEPRECIATION AND
AMORTIZATION
|
|
581
|
|
-
|
|
581
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
PROFIT
|
|
|
|
$
391
|
|
$
-
|
|
$
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR-TO-DATE
AS PREVIOUSLY
STATED
|
|
RECLASSIFICATION
|
|
RECLASSIFIED
YEAR-TO-DATE
|
|
|
|
|
|
|
|
2018
|
|
2018
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
|
|
|
|
$
121,162
|
|
$
690
|
|
$
121,852
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
MERCHANDISE COSTS,
INCLUDING ADVERTISING,
|
|
|
|
|
|
|
|
|
WAREHOUSING AND
TRANSPORTATION,
|
|
|
|
|
|
|
|
|
AND LIFO
CHARGE
|
|
|
94,894
|
|
209
|
|
95,103
|
|
OPERATING, GENERAL
AND ADMINISTRATIVE
|
|
20,305
|
|
481
|
|
20,786
|
|
RENT
|
|
|
|
|
884
|
|
-
|
|
884
|
|
DEPRECIATION AND
AMORTIZATION
|
|
2,465
|
|
-
|
|
2,465
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
PROFIT
|
|
|
|
$
2,614
|
|
$
-
|
|
$
2,614
|
Table 9.
Income Tax Rate Excluding the Impairment Charge Attributable to the
Minority Interest of Lucky's Market
|
(in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
This metric is useful
to investors and analysts because it illustrates the Company's
income tax rate excluding the impairment charge attributable to the
minority interest of Lucky's Market recorded in the third quarter
of 2019. This item should not be reviewed in isolation or
considered a substitute 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR-TO-DATE
|
|
|
2019
|
|
|
|
|
Income Tax
Expense
|
|
Income Tax
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings before
income tax expense
|
|
$
1,981
|
|
$
469
|
|
23.7%
|
|
|
|
|
|
|
|
Adjustment for
impairment charge attributable to the minority interest of Lucky's
Market
|
|
107
|
|
-
|
|
|
|
|
|
|
|
|
|
Adjusted net earnings
before income tax expense excluding the adjustment above
|
|
$
2,088
|
|
$
469
|
|
22.5%
|
Table 10.
Adjusted Free Cash Flow
|
(in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted free cash
flow is an important performance measure used by management, and
management believes it is also a useful metric for investors and
analysts to evaluate the Company's ability to generate additional
funding from business operations available for dividends, managing
debt levels, share repurchases and other strategic
investments. Adjusted free cash flow is one of the key
financial indicators of the Company's business performance and the
Company also uses adjusted free cash flow to evaluate the Company's
senior management. However, adjusted free cash flow is not a
measure of financial performance or liquidity under GAAP and,
therefore, should not be considered an alternative to net earnings
or net cash provided by operating activities as an indicator of the
Company's performance or liquidity. The Company updated the
definition of adjusted free cash flow during 2019 to more closely
align with the Company's current strategic performance metrics and
the amounts in the table below have been recast to reflect the
Company's current definition. Although free cash flow is a
relatively standard term, numerous methods exist for calculating
free cash flow. As a result, the method used by the Company's
management to calculate adjusted free cash flow may differ from
methods other companies use to calculate free cash
flow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table
sets forth a reconciliation of net cash provided by operating
activities to adjusted free cash flow.
|
|
|
|
|
|
|
|
|
|
|
YEAR-TO-DATE
|
|
February
1,
|
|
February
2,
|
|
February
3,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
$
|
4,664
|
|
$
|
4,164
|
|
$
|
3,413
|
|
|
|
|
|
|
|
|
|
Payments for property
and equipment, including payments for lease buyouts
|
|
(3,128)
|
|
|
(2,967)
|
|
|
(2,809)
|
|
|
|
|
|
|
|
|
|
Free Cash
Flow
|
|
1,536
|
|
|
1,197
|
|
|
604
|
|
|
|
|
|
|
|
|
|
Adjustment for
contribution to company-sponsored pension plan
|
|
-
|
|
|
185
|
|
|
1,000
|
Adjustment for tax
effects of divestiture transactions
|
|
156
|
|
|
460
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Adjusted Free Cash
Flow
|
$
|
1,692
|
|
$
|
1,842
|
|
$
|
1,604
|
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SOURCE The Kroger Co.