The Kroger Co. on Thursday reported net earnings of $501 million, or $0.98 per diluted share, and identical supermarket sales growth, without fuel, of 4.6 percent in the first quarter of fiscal year 2014. It is the company’s 42nd consecutive quarter of positive identical supermarket sales growth.
This also is the first period that includes Harris Teeter in Kroger’s statement of operations, and year-over-year percentage comparisons are affected as a result.
Total sales increased 9.9 percent to $32.96 billion in the first quarter vs. $30.00 billion for the same period last year. Total sales, excluding fuel, increased 11.4 percent in the first quarter over the same period last year.
“Kroger associates continue to enhance our connection with all customers and achieve our key performance measures, which are allowing us to achieve our growth strategy and create shareholder value,” said Kroger CEO Rodney McMullen. “Our strong first quarter results set us up to deliver a 12-15 percent net earnings growth rate for the year, partly due to the benefit of Harris Teeter, compared to our long-term growth rate of 8-11 percent plus the growing dividend. We are pleased to start the year with growth momentum while also returning $1.1 billion in cash back to shareholders this quarter through our buyback program.”
The company’s net earnings include charges announced yesterday related to the restructuring of certain pension obligations. Kroger has negotiated withdrawals from two multi-employer pension funds, including the Washington Meat Industry Pension Trust, which covered approximately 870 current and 840 retired Kroger associates, mostly in Washington State. Kroger will move the liability for pensions earned from this fund into the UFCW Consolidated Pension Fund that was established in December 2011.
Pension liabilities for current associates’ future service will be earned in the Seattle-based Sound Retirement Trust, which includes the majority of Seattle-area store clerks.
The other is the Pace Industry Union-Management Pension Fund, which included approximately 350 King Soopers pharmacists in the Denver area. These associates will now participate in a Kroger-sponsored 401k plan with matching benefits.
Kroger has agreed to contribute a total of approximately $56 million, after tax, to restructure these pension obligations. Because Kroger has made a commitment to fund this amount in the future, the majority of it over the next five years, the company incurred a charge in this amount to earnings for the first quarter of 2014.
Excluding the effect of these charges, Kroger’s adjusted net earnings were $557 million, or $1.09 per diluted share, for the first quarter. Net earnings in the same period last year were $481 million, or $0.92 per diluted share.
Capital investments, excluding mergers, acquisitions and purchases of leased facilities, totaled $709 million for the first quarter, compared to $640 million for the same period last year. Return on invested capital, on a rolling four quarters 52-week basis, was 13.5 percent, consistent with the same period last year.
Kroger’s net total debt is $11.3 billion, an increase of $3.4 billion from a year ago, including debt related to the Harris Teeter transaction and Kroger’s share repurchase activity.
Kroger raises earnings guidance
Based on the first quarter results, the company raised and narrowed its adjusted net earnings guidance to a range of $3.19 to $3.27 per diluted share for fiscal 2014. The original guidance was $3.14 to $3.25 per diluted share.
The company’s long-term net earnings per diluted share growth rate guidance is 8-11 percent, plus a growing dividend.
Kroger raised its identical supermarket sales growth guidance, excluding fuel, to 3.0 percent to 4.0 percent for fiscal 2014 vs. the original guidance of 2.5 percent to 3.5 percent.
“Kroger’s Customer 1st culture, remarkably consistent execution and renewed commitment to growth have led us to 42 consecutive quarters of positive identical store sales,” McMullen said. “We will continue building on this resilient foundation to grow aggressively into the future.”
Kroger employs more than 375,000 associates who serve customers in 2,642 supermarkets and multi-department stores in 34 states and the District of Columbia under two dozen local banner names including Kroger, City Market, Dillons, Food 4 Less, Fred Meyer, Fry’s, Harris Teeter, Jay C, King Soopers, QFC, Ralphs and Smith’s. The company also operates 787 convenience stores, 324 fine jewelry stores, 1,261 supermarket fuel centers and 37 food processing plants in the U.S.