Kroger Reports First Quarter 2022 Results and Raises Full-Year Guidance

 

Source: The Kroger Co.

via PRNewswire - Jun 16, 2022 

 

First Quarter Highlights

 

    Identical Sales without fuel increased 4.1%

    Operating Profit of $1,505 million; Adjusted FIFO Operating Profit of $1,601 million

    EPS of $0.90; Adjusted EPS of $1.45

    Company is widening its competitive moats to deliver value for customers

        Fresh Department identical sales increased 5.2%

        Our Brands identical sales increased 6.3%

        Digitally engaged households grew by more than half a million and digital coupon downloads increased 11%

 

CINCINNATI, June 16, 2022 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported its first quarter 2022 results and will update investors on how Leading with Fresh and Accelerating with Digital initiatives continue to position Kroger for long-term sustainable growth.

 

Comments from Chairman and CEO Rodney McMullen

 

"Kroger achieved strong first quarter results as we successfully executed on our strategy of Leading with Fresh and Accelerating with Digital. We are incredibly proud of our associates who continue to put the customer at the center of everything we do.

 

Our team is doing an outstanding job managing costs in an inflationary environment, which is allowing us to continue to invest in our associates while providing our customers the freshest food at affordable prices when and where they need it. We are delivering everyday value through personalized experiences, trusted Our Brands products, data-driven promotions, and seamless e-commerce solutions.

 

Looking ahead, we are well positioned to continue delivering for our customers, investing in our associates, and driving sustainable returns for shareholders."
 

First Quarter Financial Results

1Q22 ($ in millions; except EPS)

1Q21 ($ in millions; except EPS)

ID Sales* (Table 4)

4.1 %

(4.1 %)

EPS

$0.90

$0.18

Adjusted EPS (Table 6)

$1.45

$1.19

Operating Profit

$1,505

$805

Adjusted FIFO Operating Profit (Table 7)

$1,601

$1,375

FIFO Gross Margin Rate*

Decreased 26 basis points

OG&A Rate*

Decreased 46 basis points

*without fuel and adjustment items, if applicable

 

Total company sales were $44.6 billion in the first quarter, compared to $41.3 billion for the same period last year. Excluding fuel, sales increased 3.8% compared to the same period last year.

 

Gross margin was 21.6% of sales for the first quarter. The FIFO gross margin rate, excluding fuel, decreased 26 basis points compared to the same period last year. This decrease was primarily attributable to continued strategic price investments and higher supply chain costs offset by sourcing benefits and the cycling of a write-down related to a donation of personal protective equipment inventory from prior year.

 

The LIFO charge for the quarter was $93 million, compared to a LIFO charge of $37 million for the same period last year driven by higher inflation.

 

The Operating, General & Administrative rate decreased 46 basis points, excluding fuel and adjustment items, which reflects sales leverage, continued execution of cost savings initiatives, and lower contributions to multi-employer pension plans offset by investments in associates.

 

The income tax rate for the first quarter was 18.0%, compared to 20.2% for the same period last year. This decrease was primarily attributable to higher tax deductions related to employee stock option exercises.

 

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 1.68, compared to 1.79 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.

 

During the quarter, Kroger repurchased $665 million shares and as of the end of the first quarter, $301 million remains on the board authorization announced on December 30, 2021.

 

2022 Guidance

 

Comments from CFO Gary Millerchip

 

"Our relentless focus on executing our strategy and sustained food at home trends led to a strong first quarter. The Kroger team is effectively navigating a dynamic retail environment. Our diverse and resilient business model gives us confidence to raise our full-year guidance. We now expect identical sales without fuel to be in the range of 2.5% to 3.5%, adjusted FIFO operating profit of $4.3 billion to $4.4 billion, and adjusted net earnings per diluted share to be in the range of $3.85 to $3.95. We remain confident in our ability to deliver sustainable earnings growth and total shareholder returns of 8-11% over time."

 

Full-Year 2022 Guidance - Updated

IDs (%)

EPS ($)

Operating
Profit ($B)

Tax
Rate** 

Cap Ex ($B)

Free Cash
Flow ($B)***

Adjusted*

2.5% - 3.5%

$3.85 - $3.95

$4.3 - $4.4

22 %

$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.

 

First Quarter 2022 Highlights

 

Leading with Fresh 

 

    Achieved the two highest single-day floral sales in Kroger history, led by Valentine's Day and Mother's Day and solidified the company's place as the nation's largest floral retailer

    Accelerated End-to-End Fresh Produce initiative with 355 new stores certified, driving higher fresh sales during the quarter

    Launched 239 new, seasonal Our Brands items, including fresh products to elevate summer cooking

    Unveiled a study completed with the University of Cincinnati and Kroger Health to understand how Kroger's Food as Medicine platform and dietitians can support customers' goals to incorporate more fresh foods and live healthier lives by leveraging technology, health education, and the OptUP shopping tool

 

Accelerating with Digital

 

    Opened two new Kroger Delivery facilities, powered by Ocado, in Dallas, Texas and Pleasant Prairie, Wisconsin allowing Kroger to serve fresh and affordable products directly to more households

    Expanded the Kroger Delivery network by opening three new spoke facilities, which serve as last-mile cross-dock locations, including Columbus and Louisville in existing geographies, as well as Miami, a new geography

    Introduced national e-commerce experience that expands Kroger's Home and Baby offerings by selling several thousand new products on Kroger's Ship Marketplace in collaboration with Bed Bath & Beyond Inc.

 

Associate Experience

 

    Held nationwide hybrid hiring event with opportunities in retail, e-commerce, manufacturing, supply chain, merchandising, logistics, corporate, pharmacy, and healthcare roles

    Launched Microsoft Teams Rooms in supermarket locations to improve collaboration and training capabilities for associates

    Celebrated 45 associates who were recognized by Progressive Grocer to represent the Top Women in Grocery across three categories including, Senior-Level Executives, Rising Stars and Store Leaders

    Continued Kroger's commitment to associate well-being by providing new training to more than 1,500 leaders to develop the skills needed to identify signs and symptoms of mental health problems, demonstrate support for associates experiencing a crisis, and guidance for self-care

 

Live Our Purpose

 

    Directed $210 million of $350 million in annual charitable giving to end hunger in our communities and gave a record one-year total of 546 million meals to people across the country while achieving 79% waste diversion from landfills company-wide

    Reduced barriers to COVID-19 treatment options nationwide by supporting the "Test to Treat" initiative at The Little Clinic locations for patients exhibiting symptoms of COVID-19

    Announced new partnership with USO to bring mobile food programming to serve local military communities

    Ranked 25th on the 2022 Axios Harris Poll 100, an annual ranking of the reputations of the most visible U.S. companies

 

About Kroger

At The Kroger Co. (NYSE: KR), we are dedicated to our Purpose: to Feed the Human Spirit™. We are, across our family of companies nearly half a million associates who serve over eleven million customers daily through a seamless digital shopping experience and 2,723 retail food stores under a variety of banner names, serving America through food inspiration and uplift, and creating #ZeroHungerZeroWaste communities by 2025. To learn more about us, visit our newsroom and investor relations site.

 

Kroger's first quarter 2022 ended on May 21, 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," "continue," "deliver," "driving," "expect," "future," "guidance," "strategy," "target," "trends," and "well-positioned." 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 including the war in Ukraine; 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 June 16, 2022 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, June 16, 2022.

 

1st Quarter 2022 Tables Include:

 

    Consolidated Statements of Operations

    Consolidated Balance Sheets

    Consolidated Statements of Cash Flows

    Supplemental Sales Information

    Reconciliation of Net Total Debt and Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA

    Net Earnings Per Diluted Share Excluding the Adjustment Items

    Operating Profit Excluding the Adjustment Items

 

Table 1.

 

THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(unaudited)

 

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