Company Release – 3/3/2022Issues 2022 Full Year Guidance
CINCINNATI, March 3, 2022 /PRNewswire/ —
Fourth Quarter Highlights
- Identical Sales without fuel increased 4.0%; two-year stack increased 14.6%
- Digital Sales two-year stack grew 105%
- EPS of $0.75; Adjusted EPS of $0.91
- Operating Profit of $965 million; Adjusted FIFO Operating Profit of $1,014 million
Fiscal 2021 Highlights
- Identical Sales without fuel increased 0.2%; two-year stack increased 14.3%
- Digital Sales two-year stack grew 113%
- EPS of $2.17; Adjusted EPS of $3.68
- Operating Profit of $3.5 billion; Adjusted FIFO Operating Profit of $4.3 billion
- Cost savings exceeded $1 billion for fourth consecutive year
- Alternative profits contributed an incremental $150 million of operating profit
- Significantly increased associate wages resulting in average hourly wage of $17 and average hourly rate of over $22 with comprehensive benefits factored in
Full Year 2022 Guidance Highlights
- Identical Sales growth without fuel of 2.0% to 3.0%
- Adjusted EPS of $3.75 to $3.85
- Adjusted FIFO Operating Profit of $4.2 billion to $4.3 billion
The Kroger Co. (NYSE: KR) today reported its fourth quarter and fiscal year 2021 results and provided 2022 guidance. Tomorrow during Kroger’s 2022 Business Update, the company will update investors on how key initiatives are positioning the company for long-term sustainable growth.
Comments from Chairman and CEO Rodney McMullen
“Our strategy of leading with fresh and accelerating with digital propelled Kroger to record performance in 2021, on top of record results in 2020. We are incredibly proud of our associates who continue to deliver for our customers through the pandemic.
“As we look to 2022, we expect the momentum in our business to continue and have confidence in our ability to navigate a rapidly changing operating environment. We are leveraging technology, innovation, and our competitive moats to build lasting competitive advantages. Our balanced model is allowing us to deliver for shareholders, invest in our associates, continue to provide fresh affordable food to our customers and uplift our communities.
“We remain confident in our growth model and our ability to deliver total shareholder returns of 8% to 11% over time.”
Fourth Quarter Financial Results
| 4Q21 ( $ in millions; except EPS) | 4Q20 ($ in millions; except EPS) | |
| ID Sales* (Table 4) | 4.0% | 10.6% |
| EPS** | $0.75 | ($0.10) |
| Adjusted EPS (Table 6) | $0.91 | $0.81 |
| Operating Profit (Loss) ** | $965 | ($158) |
| Adjusted FIFO Operating Profit (Table 7) | $1,014 | $837 |
| FIFO Gross Margin Rate* | Increased 3 basis points | |
| OG&A Rate* | Increased 7 basis points |
| * without fuel and adjustment items, if applicable |
| ** Fourth quarter of 2020 includes a $989 million pre-tax charge ($0.97 per diluted share) related to UFCW pension commitments |
Fourth Quarter Results versus Two Years Ago
| 4Q21 ( $ in millions; except EPS) | |
| ID Sales Two Year Stacked* (Table 8) | 14.6% |
| EPS Two Year CAGR (Table 8) | 36.9% |
| Adjusted EPS Two Year CAGR (Table 8) | 26.4% |
| Operating Profit Two Year CAGR (Table 8) | 34.1% |
| Adjusted FIFO Operating Profit Two Year CAGR (Table 8) | 15.7% |
| FIFO Gross Margin Rate Compared to Q4 2019* | Decreased 3 basis points |
| OG&A Rate Compared to Q4 2019* | Decreased 1 basis points |
| *without fuel and adjustment items, if applicable |
Total company sales were $33.0 billion in the fourth quarter, compared to $30.7 billion for the same period last year. Total company sales, excluding fuel, increased 3.7% compared to the same period last year.
Gross margin was 22.2% of sales for the fourth quarter. The FIFO gross margin rate, excluding fuel, increased 3 basis points compared to the same period last year. The stability in our gross margin rate reflects sourcing benefits, offset by strategic price investments and higher supply chain costs.
The LIFO charge for the fourth quarter was $20 million, compared to an $84 million credit for the same period last year. The increase in the charge of $104 million was attributable to higher inflation in most categories, with grocery and meat being the largest contributors.
The Operating, General & Administrative rate increased 7 basis points, excluding fuel and adjustment items. The increase in OG&A was driven by significant investments in associates including a year-end Associate Thank You reward and various asset impairments, offset by decreased COVID related costs, sales leverage, and the execution of cost savings initiatives.
The income tax rate for the fourth quarter was 20.5%.
Fiscal 2021 Financial Results
| 2021 ( $ in billions; except EPS) | 2020 ($ in billions; except EPS) | |
| ID Sales* (Table 4) | 0.2% | 14.1% |
| EPS** | $2.17 | $3.27 |
| Adjusted EPS (Table 6) | $3.68 | $3.47 |
| Operating Profit** | $3.5 | $2.8 |
| Adjusted FIFO Operating Profit (Table 7) | $4.3 | $4.1 |
| FIFO Gross Margin Rate* | Decreased 43 basis points | |
| OG&A Rate* | Decreased 61 basis points |
| *without fuel and adjustment items, if applicable |
| ** Fourth quarter of 2020 includes a $989 million pre-tax charge ($0.95 per diluted share) related to UFCW pension commitments |
Total company sales were $137.9 billion in 2021, compared to $132.5 billion for the same period last year. Total company sales, excluding fuel, increased 0.2% compared to the same period last year.
Gross margin was 22.0% of sales for 2021. The FIFO gross margin rate, excluding fuel, decreased 43 basis points compared to the same period last year. This decrease primarily related to higher supply chain costs and strategic price investments, partially offset by sourcing benefits and growth in alternative profits.
The LIFO charge for 2021 was $197 million, compared to a credit of $7 million in 2020. This increase of $204 million was attributable to higher inflation in most categories, with grocery and meat being the largest contributors.
The Operating, General & Administrative rate decreased 61 basis points, excluding fuel and adjustment items, reflecting a reduction of COVID related costs and cost savings initiatives, partially offset by significant investments in associates.
The income tax rate for 2021 was 18.8%, compared to 23.2% for the same period last year. The current year tax rate is lower than last year due to the favorable outcome of income tax audit examinations covering multiple years.
Capital Allocation Strategy
Kroger continues to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchases and a growing dividend over time.
Kroger’s net total debt to adjusted EBITDA ratio is 1.63, compared to 1.75 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 $2.2 billion to shareholders in 2021. Kroger repurchased $1.6 billion of shares in 2021, under its board authorizations. Kroger also increased the dividend by 17 percent from 72¢ to 84¢ marking the 15th consecutive year of dividend increases, which resulted in a payout of $589 million.
2022 Guidance
Comments from CFO Gary Millerchip
“Kroger’s 2021 results demonstrate the strength of our value creation model, and in 2022 we expect to build on this momentum.
“We expect to grow identical sales without fuel by 2.0% to 3.0% and grow adjusted net earnings per share to between $3.75 to $3.85. This guidance contemplates continued investments in our associates and customers, balanced with cost savings and growth in alternative profits.
“We will continue to be disciplined with capital allocation. In 2022, we are increasing capital investments in strategic priorities that will drive sustained future earnings growth. At the same time, we expect to generate strong free cash flow and we will continue to return excess cash to shareholders.
“We remain confident in our ability to achieve attractive and sustainable total shareholder returns of 8-11% over time.”
Full Year 2022 Guidance
| IDs (%) | EPS ($) | Operating Profit ($B) | Tax Rate** | Cap Ex ($B) | Free Cash Flow ($B)*** | |
| Adjusted* | 2.0% – 3.0% | $3.75 – $3.85 | $4.2 – $4.3 | 23% | $3.8 – $4.0 | $2.0 – $2.2 |
| * 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 2022 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 2022 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 or changes in tax laws, which cannot be predicted. |
| *** 2022 free cash flow guidance includes a $300M payment of deferred payroll taxes. This excludes planned payments related to the restructuring of multi-employer pension plans. |
Fourth Quarter 2021 Highlights
Leading with Fresh
- Successfully completed initial phase of in-store End-to-End Fresh initiative, to bring more days of fresh to customers. Currently expanding program to targeted stores across the country
- Our Brands launched 72 new items during the quarter, many in support of providing easy food at home meal solutions, including our Simple Truth skillet meals for two and Kroger brand multi-serve tray meals
- Completed the conversion of specialty cheese shops under the Murray’s Cheese brand in 260 stores
- Launched Kroger Floral pilot in partnership with DoorDash in the Houston and Dallas divisions, enabling fresh floral delivery to customers in as little as 1-hour
- Opened first two Kitchen United MIX locations providing customers the opportunity to enjoy made to order restaurant meals from a variety of participating restaurants
Accelerating with Digital
- Opened Customer Fulfillment Center powered by Ocado in Forest Park, Georgia and a cross-dock spoke facility in the Indianapolis area
- Announced development of Customer Fulfillment Centers in the Cleveland area, a new geography, and North Carolina
- Announced a cross-dock spoke facility in Oklahoma City, a new geography for the company
- Recognized by Newsweek as part of “America’s Best Loyalty Programs 2022“
- Launched Starbucks Mobile Order & Pay capabilities in more than 150 stores, allowing customers to utilize the Starbucks mobile app to order ahead and pick up in-store
- Received the ANA Genius Adoption Award for leveraging analytics in marketing from Neustar
- Expanded collaboration with Nuro to continue redefining the customer experience through the introduction of Nuro’s third-generation autonomous delivery vehicle
Associate Experience
- Increased Kroger Family of Companies’ average hourly wage to $17 and average hourly rate to over $22 with comprehensive benefits factored in
- Provided $5.5 million to support associates through unexpected hardships and disaster relief through Helping Hands Fund
- Named one of the Best Places to Work for LGBTQ Equality for fourth consecutive year on the Human Rights Campaign Foundation’s 2022 Corporate Equality Index
- More than 3,000 associates, 90% of whom are hourly, have taken advantage of Kroger’s best-in-class education assistance program in 2021
Live Our Purpose
- Donated 499 million meals to help end hunger in communities through Zero Hunger | Zero Waste and $343 million in total charitable giving in 2021
- Sending emergency food assistance to support Ukrainian refugees through the UN World Food Programme’s Ukraine Emergency Fund. Company will match all gifts made by associates and customers, up to $250,000
- Kroger Health surpassed administering 10 million doses of the COVID-19 vaccine
- Kroger Heath received the 2022 America Pharmacists Association Immunization Champion Award recognizing the group’s extraordinary contributions toward improving vaccination rates within communities
- Partnered with the Biden Administration to offer customers free N95 masks at store locations with pharmacies
- Donated hand sanitizer, masks, and gloves to nonprofit organizations committed to quickly distributing to communities in need
- Donated additional $5 million into The Kroger Co. Foundation Racial Equity Fund to catalyze innovative approaches to help create more equitable and inclusive communities
- Launched exclusive and first-of-its-kind partnership in the U.S. with Loop to introduce a selection of products in reusable packaging rather than in single-use plastic
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 and fiscal year 2021 ended on January 29, 2022.
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 “achieve,” “committed,” “confident,” “contemplates,” “continue,” “deliver,” “enable” “expect,” “future,” “guidance,” “positioning,” “strategy,” “target,” “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 pandemic related factors, risks and challenges, including among others, the length of time that the pandemic continues, future variants, mutations or related strains of the virus and the effectiveness of vaccines against variants, continued efficacy of vaccines over time and availability of vaccine boosters, the extent of vaccine refusal, and global access to vaccines, as well as the effect of vaccine and/or testing mandates and related regulations, the potential for additional future spikes in infection and illness rates including breakthrough infections among the fully vaccinated, and the corresponding potential for disruptions in workforce availability and customer shopping patterns, re-imposed restrictions as a result of resurgence and the corresponding future easing of restrictions, and interruptions in domestic and global supply chains or capacity constraints; whether and when the global pandemic will become endemic, the pace of recovery when the pandemic subsides or becomes endemic, which may vary materially over time and among the different regions we serve; labor negotiations; potential work stoppages; changes in the unemployment rate; pressures in the labor market; changes in government-funded benefit programs; 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 current inflationary environment and future potential inflationary and/or deflationary trends and such trends in certain commodities, products and/or operating costs; the geopolitical environment; unstable political situations and social unrest; changes in tariffs; the effect that fuel costs have on consumer spending; volatility of fuel margins; 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; stock repurchases; changes in the regulatory environment in which Kroger operates; 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; 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 our growth strategy and value creation model, including continued cost savings, growth of our alternative profit businesses, and our ability to better serve our customers and to generate customer loyalty and sustainable growth through our strategic moats of fresh, our brands, personalization, and seamless; 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 tax 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 unless required by applicable law. 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 3, 2022 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, March 3, 2021.
Kroger will host a 2022 Business Update live in Groveland Florida and virtually at ir.kroger.com, at 8:30 a.m. (ET) on March 4, 2021.
4th Quarter 2021 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
- Two-Year Financial Results
- Adjusted Free Cash Flow
