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Kroger Reports Record 2Q Results

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The Kroger Co. on Thursday reported net earnings of $0.60 per diluted share and identical supermarket sales growth, without fuel, of 3.3 percent in the second quarter of fiscal 2013. The company marked its 39th consecutive quarter of positive identical supermarket sales.

“Kroger’s strong second quarter results have us on target to deliver the earnings per share growth we promised for the year,” says David B. Dillon, Kroger’s chairman and CEO. “As we have shown quarter after quarter, our consistent execution of the Customer 1st Strategy deepens customer loyalty, increases sales and creates sustainable shareholder value.”

Details of 2Q 2013 results

• Total sales increased 4.6 percent to $22.7 billion in the second quarter compared with $21.7 billion for the same period last year. Total sales, excluding fuel, increased 3.9 percent in the second quarter over the same period last year.

• Net earnings for the second quarter totaled $317 million, or $0.60 per diluted share. Net earnings for the second quarter last year were $279 million, or $0.51 per diluted share.

• FIFO gross margin, including fuel, was 20.46 percent of sales for the second quarter. Excluding retail fuel operations, FIFO gross margin decreased 11 basis points from the same period last year.

• The company recorded a $13 million LIFO charge during the quarter compared to a $35 million LIFO charge in the same quarter last year.

• Operating, general and administrative costs plus rent and depreciation, excluding retail fuel operations, decreased 17 basis points as a percent of sales compared to the prior year as a result of strong sales leverage.

• FIFO operating margin, excluding fuel and the extra week in fiscal 2012, on a rolling four quarter basis, increased 9 basis points.

Financial strategy

Kroger says its strong financial position has allowed the company to return more than $920 million to shareholders through share buybacks and dividends over the last four quarters. During the second quarter, Kroger repurchased 2.4 million common shares for a total investment of $90 million.

Capital investment, excluding acquisitions and purchases of leased property, totaled $507 million for the second quarter, compared to $444 million for the same period last year.

Return on invested capital on a rolling four-quarter 52-week basis was 13.49 percent compared to 13.44 percent during the same period last year.

Net total debt was $7.7 billion, a decrease of $446 million from a year ago. On a rolling four-quarter 52-week basis, Kroger’s net total debt to adjusted EBITDA ratio was 1.77 compared to 1.96 during the same period last year.

Fiscal 2013 guidance

Based on the second quarter results, the company maintained its net earnings guidance range of $2.73-$2.80 per diluted share for fiscal 2013. This is consistent with the company’s long term earnings per share growth rate guidance of 8-11 percent, plus a growing dividend.

Kroger raised identical supermarket sales, excluding fuel, growth guidance to approximately 3.0-3.5 percent for fiscal 2013. The previous guidance was 2.5-3.5 percent.

During fiscal 2013, Kroger plans to use cash flow from operations to maintain its current investment grade debt rating, repurchase shares, pay dividends to shareholders and fund capital investments. The company continues to expect capital investments to be in the $2.1-$2.4 billion range for the year, excluding acquisitions and purchases of leased property.

“We are improving our connection with customers and associates, rewarding shareholders and investing to grow our business,” says Dillon. “We intend to continue building on this positive momentum with execution at every level of the company to achieve our long-term earnings per share growth rate of 8-11 percent in fiscal 2013 and beyond.”

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