- Q4 EPS of $0.53 and Full Year 2016 EPS of $2.05 (Adjusted EPS of $2.12)
- Q4 ID Sales Without Fuel -0.7% and 2016 ID Sales Without Fuel 1.0%
- 2017 Net Earnings Per Diluted Share Growth Guidance of $2.21 to $2.25, Including a 53rd Week
CINCINNATI, 2017-Mar-06 — /EPR Retail News/ —
Fiscal 2016 Highlights
- 12th consecutive year of market share gains
- Added more than 420 ClickList locations for 640 online ordering service locations
- Record high unit share for Corporate Brands
- Created 12,000 new supermarket jobs in 2016
The Kroger Co. (NYSE: KR) today (March 2, 2017) reported net earnings of $0.53 per diluted share and identical supermarket sales, without fuel, of -0.7% in the fourth quarter of 2016, which ended on January 28, 2017.
Fiscal 2016 net earnings were $2.05 per diluted share and identical supermarket sales growth, without fuel, was 1.0%. The company’s fiscal year net earnings per diluted share included charges related to the restructuring of certain multi-employer pension obligations to help stabilize associates’ future benefits. Excluding the effect of these charges, Kroger’s fiscal year adjusted net earnings per diluted share were $2.12.
Comments from Chairman and CEO Rodney McMullen
“True to our history, we will continue making proactive investments in our Customer 1st Strategy to maintain our strong competitive position. We are lowering costs to invest those savings in our people, our business, and technology. This approach will enable us to deliver on our long-term net earnings per diluted share growth rate target of 8 – 11%, plus an increasing dividend, as it has in the past.
“In 2016, Kroger grew market share, increased tonnage, and hired more than 12,000 new store associates. For 2017 and beyond, we will continue delivering for our customers while also setting the company up for our next phase of growth and customer-first innovation.”
Details of Fourth Quarter 2016 Results
Net earnings for the fourth quarter totaled $506 million, or $0.53 per diluted share. Net earnings in the same period last year were $559 million, or $0.57 per diluted share.
Total sales increased 5.5% to $27.6 billion in the fourth quarter compared to $26.2 billion for the same period last year. Total sales, excluding fuel, increased 4.4% in the fourth quarter over the same period last year. Recent mergers with Roundy’s and ModernHEALTH contributed to this growth.
Gross margin was 22.2% of sales for the fourth quarter. Excluding fuel, recent mergers and the LIFO charge, gross margin decreased 22 basis points from the same period last year.
Kroger recorded a LIFO charge of $0.2 million in the fourth quarter, compared to a $30 million LIFO credit in the same quarter last year.
Operating, General & Administrative costs as a rate of sales – excluding fuel, recent mergers, and a $30 million contribution to the UFCW Consolidated Pension Plan in the fourth quarter of 2015 – declined by 11 basis points; rent and depreciation with the same exclusions increased by 24 basis points.
Fiscal 2016 Results
Net earnings for 2016 totaled $1.98 billion, or $2.05 per diluted share. Excluding the restructuring of certain multi-employer pension obligations, adjusted net earnings totaled $2.05 billion, or $2.12 per diluted share. Net earnings in 2015 were $2.04 billion, or $2.06 per diluted share.
Total sales increased 5.0% to $115.3 billion in 2016 compared to $109.8 billion in 2015. Excluding fuel, total sales increased 6.7% in 2016 compared to 2015. The company’s mergers with Roundy’s and ModernHEALTH contributed to this growth.
Gross margin was 22.4% of sales in 2016. Excluding fuel, recent mergers and the LIFO charge, gross margin decreased 7 basis points compared to 2015.
Kroger’s LIFO charge for 2016 was $19 million, compared to a $28 million LIFO charge in 2015.
Operating, General & Administrative costs as a percent of sales – excluding fuel, recent mergers, the 2016 restructuring of certain multi-employer pension obligations, and the 2015 contributions to the UFCW Consolidated Pension Plan – declined 5 basis points; rent and depreciation with the same exclusions increased by 12 basis points in 2016.
FIFO operating margin for 2016 decreased 14 basis points compared to the prior year, with the following exclusions: fuel, recent mergers, the 2016 restructuring of certain multi-employer pension obligations and the 2015 contributions to the UFCW Consolidated Pension Plan.
Kroger’s long-term financial strategy is to use its financial flexibility to drive growth while also returning capital to shareholders.
The company’s net total debt to adjusted EBITDA ratio increased to 2.31, compared to 2.08 during the same period last year (see Table 5). This result is due to the merger with ModernHEALTH and changes in working capital.
In 2016, Kroger used cash to:
- Repurchase $1.8 billion in common shares,
- Pay $429 million in dividends,
- Invest $3.6 billion in capital, and
- Merge with ModernHEALTH for approximately $390 million.
Capital investments, excluding mergers, acquisitions and purchases of leased facilities, totaled $3.6 billion for the year, compared to $3.3 billion in 2015.
Return on invested capital for 2016 was 13.09%. This result was affected by current year results and recently-merged companies.
Kroger anticipates identical supermarket sales, excluding fuel, to range from flat to 1% growth for 2017.
The company expects net earnings to range from $2.21 to $2.25 per diluted share, including an estimated $.09 for the 53rd week.
Kroger expects the operating environment in the first half of 2017 to be similar to the second half of 2016. The company’s results in the second half of 2017 are expected to show improvement as the company cycles the previous year.
The company expects capital investments, excluding mergers, acquisitions and purchases of leased facilities, to be in the $3.2 to $3.5 billion range for 2017.
Over the long term, Kroger is committed to achieving a net earnings per diluted share growth rate of 8 – 11%, plus a growing dividend.
Every day, the Kroger Family of Companies makes a difference in the lives of eight and a half million customers and 443,000 associates who shop or serve in 2,796 retail food stores under a variety of local banner names in 35 states and the District of Columbia. Kroger and its subsidiaries operate an expanding ClickList offering – a personalized, order online, pick up at the store service – in addition to our 2,255 pharmacies, 784 convenience stores, 319 fine jewelry stores, 1,445 supermarket fuel centers and 38 food production plants in the United States. Kroger is recognized as one of America’s most generous companies for its support of more than 100 Feeding America food bank partners, breast cancer research and awareness, the military and their families, and more than 145,000 community organizations including schools. A leader in supplier diversity, Kroger is a proud member of the Billion Dollar Roundtable.
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.
Note: Kroger discusses the changes in operating results, as a percentage of sales, excluding recent mergers due to them affecting comparability to last year.
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. These statements are indicated by words such as “expect,” “anticipate,” “guidance,” “committed,” “goal,” “target,” “will,” and “continue.” 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 Kroger’s annual report on Form 10-K for the last fiscal year and any subsequent filings, as well as the following:
- Kroger’s ability to achieve sales, earnings and 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, 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 inconsistent pace of the economic recovery; 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; and the successful integration of Harris Teeter and Roundy’s. Kroger’s ability to achieve sales and earnings 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 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 be broadcast live online at 10 a.m. (ET) on March 2, 2017 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, March 2, 2017.
4th Quarter and Fiscal Year 2016 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
- Return on Invested Capital
SOURCE: The Kroger Co.