Company Release – 9/10/2021
Second Quarter Highlights
– Identical Sales without fuel decreased 0.6%; two-year stack increased 14.0%
– Digital Sales two-year stack grew 114%
– EPS of $0.61; Adjusted EPS of $0.80
– Operating Profit of $839 million; Adjusted FIFO Operating Profit of $947 million
– Alternative profit business continued strong growth tracking toward high end of annual expectations
CINCINNATI, Sept. 10, 2021 /PRNewswire/ — The Kroger Co. (NYSE: KR) today reported its second quarter 2021 results and will update investors on how key initiatives are positioning the company for long-term sustainable growth.
Comments from Chairman and CEO Rodney McMullen –
“Our strategic focus on leading with fresh and accelerating with digital continues to build momentum across our business. Kroger’s seamless ecosystem is working. This was evident during the quarter as we saw customers seamlessly shift between channels, and we continued to see strong digital engagement. Customers are eating more food at home because it is more affordable, convenient, and healthier than other options.
“Our associates continue to support our customers and our communities through the pandemic by delivering a full, fresh, and friendly experience every day. We are committed to our environmental, social, and governance strategy to advance positive outcomes for people and our planet and create more resilient global systems, driven by our Zero Hunger | Zero Waste social and environmental impact plan.
“We are leveraging technology, innovation, and our competitive moats to deliver against the initiatives outlined at our 2021 investor day, and we remain confident in our ability to deliver total shareholder returns of 8% to 11% over time.”
Second Quarter Financial Results
|2Q21 ( $ in millions; except EPS)||2Q20 ($ in millions; except EPS)|
|ID Sales* (Table 4)||(0.6%)||14.6%|
|Adjusted EPS (Table 6)||$0.80||$0.73|
|Adjusted FIFO Operating Profit (Table 7)||$947||$894|
|FIFO Gross Margin Rate*||Decreased 60 basis points|
|OG&A Rate*||Decreased 76 basis points|
*without fuel and adjustment items, if applicable
Second Quarter Results versus Two Years Ago
|2Q21 ( $ in millions; except EPS)|
|ID Sales Two Year Stacked* (Table 8)||14.0%|
|EPS Two Year CAGR (Table 8)||28.4%|
|Adjusted EPS Two Year CAGR (Table 8)||34.8%|
|Operating Profit Two Year CAGR (Table 8)||22.5%|
|Adjusted FIFO Operating Profit Two Year CAGR (Table 8)||23.0%|
|FIFO Gross Margin Rate Compared to Q2 2019*||Decreased 55 basis points|
|OG&A Rate Compared to Q2 2019*||Decreased 137 basis points|
*without fuel and adjustment items, if applicable
Total company sales were $31.7 billion in the second quarter, compared to $30.5 billion for the same period last year. Excluding fuel, sales decreased 0.4% compared to the same period last year.
Gross margin was 21.4% of sales for the second quarter. The FIFO gross margin rate, excluding fuel, decreased 60 basis points compared to the same period last year. This decrease primarily related to continued price investments, and higher shrink and supply chain costs, partially offset by sourcing benefits and growth in the alternative profit business.
The LIFO charge for the quarter was $47 million, compared to a LIFO charge of $23 million for the same period last year. This increase was primarily attributable to inflation in fresh categories.
The Operating, General & Administrative rate decreased 76 basis points, excluding fuel and adjustment items, which reflects decreased COVID-19 related costs and the execution of cost savings initiatives.
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 repurchase and a growing dividend over time.
Kroger’s net total debt to adjusted EBITDA ratio is 1.78, compared to 1.70 a year ago (Table 5). The company’s net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.
Earlier this quarter, Kroger increased the dividend by 17%, marking the 15th consecutive year of dividend increases. Additionally, in the quarter, Kroger repurchased $349 million shares and year-to-date, has repurchased $751 million shares. As of the end of the second quarter, $779 million remains on the board authorization announced on June 17, 2021.
Comments from CFO Gary Millerchip –
“Kroger’s strong execution resulted in identical sales above our internal expectations for the second quarter, and we continued to remove costs from the business. Driven by the momentum in our results and sustained food at home trends, we are raising our full-year guidance. We now expect our two-year identical sales stack to be in the range of 12.6% to 13.1%. We expect our adjusted net earnings per diluted share to be in the range of $3.25 to $3.35.
“We are emerging stronger through the pandemic and are confident in our ability to deliver sustainable earnings growth and total shareholder return.”
Full Year 2021 Guidance
|IDs (%)||EPS ($)||Operating|
|Tax Rate**||Cap Ex ($B)||Free Cash|
|Adjusted*||(1.5%) – (1.0%)||$3.25 – $3.35||$3.9 – $4.0||22.1% – 22.7%||$3.4 – $3.6||$1.9 – $2.1|
|2-Year Basis***||12.6% – 13.1%(Stack)||22% – 24%(CAGR)||14.1% – 15.6% (CAGR)||$3.1 – $3.2(Average)|
* 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 2021 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 2021 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.
*** Identical sales, without fuel, guidance for 2-year basis represents the sum of actual 2020 identical sales percentage and 2021 identical sales rate guidance. The 2-year basis guidance items denoted with CAGR represent the compounded annual growth rate utilizing 2019 as the base year. Average free cash flow is the average of actual 2020 free cash flow and 2021 guidance.
**** 2021 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.
Second Quarter 2021 Highlights
Leading with Fresh
- Introduced brand icon, bringing together the Kroger Family of Companies under one unifying visual and reinforcing its brand promise: Fresh for Everyone
- Our Brands launched 142 new items during the quarter, including Big Pack items and further expansion of industry leading Simple Truth Plant Based line
- Announced collaboration with ghost kitchen partner Kitchen United to create new service that provides customers on-demand meal pickup and delivery from popular restaurants
- Announced inaugural Go Fresh & Local Supplier Accelerator cohort, launching innovative locally and regionally sourced products to stores across the country
- Introduced collaboration with KNAPP to modernize and expand the Great Lakes Distribution Center, driving efficiency improvements for regional store replenishment and faster delivery of fresh food for customers
Accelerating with Digital
- Introduced Kroger Delivery Savings Pass in Florida, offering customers unlimited delivery for $79 annually
- Launched sushi delivery pilot with DoorDash in three geographies
- Expanded pilot with Google Maps to improve grocery pickup experience for associates and customers
- Expanded to 2,239 Pickup locations and 2,546 Delivery locations, covering 98% of Kroger households
- Recognized by Computerworld magazine as one of the Top 100 Best Places to Work in IT for 2021, marking the fourth consecutive year Kroger has received the accolade
- Launched FEED app which provides associates easy access to company communication and resources
- Increased Kroger Family of Companies’ average hourly wage to in excess of $16 and with comprehensive benefits, will be approaching $21 by the end of 2021
- Named to the Disability Equality Index’s 2020 “Best Places to Work for Disability Inclusion“
- Launched Fresh Start, a technology enabled, personalized, front-line associate training program to foster greater engagement and retention
- Selected as one of WayUp’s Top 100 Internship Programs for 2021
- Hosted a companywide live virtual event on mental health, featuring company leaders and other experts
Live Our Purpose
- Partnered with the Biden Administration in offering at-home, rapid COVID-19 tests at cost for 100 days
- Published 2021 ESG report highlighting new long-term ESG strategy and framework to benefit people and the planet, and to help create a more resilient, equitable food system for tomorrow
- Partnered with Lyft Healthcare, Inc. after concluding the successful #CommunityImmunity Giveaway in collaboration with the Biden Administration to increase vaccinations across the country
- Kroger Health has administered more than 6.7 million COVID-19 vaccine doses to date, supporting customers and associates
- Named Winsight Grocery’s Business of the Year for the company’s sustainability efforts throughout 2020
- Hosted The Wellness Experience, a virtual wellness platform and multi-day festival experience inspiring physical, emotional, and mental health
- Achieved $4.1 billion in diverse supplier spend in 2020, representing an increase of 21% versus prior year
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 second quarter 2021 ended on August 14, 2021.
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,” “approach,” “believe,” “contemplates,” “continue,” “deliver,” “expect,” “future,” “guidance,” “on track,” “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, new variants of the virus , lack of access to vaccines for certain populations and the extent of vaccine aversion, as well as the effect of emerging targeted vaccine mandates and booster vaccines, 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; the pace of recovery when the pandemic subsides; labor negotiations or disputes; 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 inflationary and deflationary trends in certain commodities; 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; 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 our growth strategy and value creation model, including continued cost savings, growth of our alternative profit businesses, and widening and deepening 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 September 10, 2021 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, September 10, 2021.View Original Article