Earlier this month, Kroger Co. posted identical store sales of negative 0.7 percent (excluding fuel) in its fiscal fourth quarter ended January 28, ending a remarkable streak of positive ID sales that dated back to 2004 (52 quarters). The marginal sales decline was not surprising since the largest pure-play supermarket chain in the country had been lagging in recent quarters as the Cincinnati-based merchant struggled like many other retailers with food deflation, intense price competition (especially from Wal-Mart) and an overcrowded market landscape.
For all of fiscal 2016 net earnings totaled $1.98 billion, or $2.05 per diluted share, and identical supermarket sales growth, without fuel, was 1.0 percent. The company’s fiscal year net earnings per diluted share included charges related to the restructuring of certain multi-employer pension obligations to help stabilize associates’ future benefits. Excluding the effect of these charges, Kroger’s fiscal year adjusted net earnings per diluted share were $2.12.
“True to our history, we will continue making proactive investments in our ‘Customer 1st’ strategy to maintain our strong competitive position. We are lowering costs to invest those savings in our people, our business, and technology,” said Kroger chairman and CEO Rodney McMullen. “This approach will enable us to deliver on our long-term net earnings per diluted share growth rate target of 8-11 percent, plus an increasing dividend, as it has in the past. In 2016, Kroger grew market share, increased tonnage, and hired more than 12,000 new store associates. For 2017 and beyond, we will continue delivering for our customers while also setting the company up for our next phase of growth and customer-first innovation.”
Net earnings for the fourth quarter totaled $506 million, or $0.53 per diluted share. Net earnings in the same period last year were $559 million, or $0.57 per diluted share.
Total sales increased 5.5 percent to $27.6 billion in the fourth quarter compared to $26.2 billion for the same period last year. Total sales, excluding fuel, increased 4.4 percent in the fourth quarter over the same period last year. Recent mergers with Roundy’s and Modern Health contributed to this growth, Kroger noted.
Gross margin was 22.2 percent of sales for the fourth quarter. Excluding fuel, recent mergers and the LIFO charge, gross
Kroger recorded a LIFO charge of $0.2 million in the fourth quarter, compared to a $30 million LIFO credit in the same quarter last year.
Total sales increased 5.0 percent to $115.3 billion in fiscal 2016 compared to $109.8 billion in 2015. Excluding fuel, total sales increased 6.7 percent in 2016 compared to 2015. Gross margin was 22.4 percent of sales in 2016. Excluding fuel, recent mergers and the LIFO charge, gross margin decreased 7 basis points compared to 2015.
Operating, general and administrative costs as a percent of sales – excluding fuel, recent mergers, the 2016 restructuring of certain multi-employer pension obligations, and the 2015 contributions to the UFCW Consolidated Pension Plan – declined 5 basis points; rent and depreciation with the same exclusions increased by 12 basis points in 2016.
Kroger reiterated that its long-term financial strategy is to use its financial flexibility to drive growth while also returning capital to shareholders.
In 2016, Kroger used cash to repurchase $1.8 billion in common shares; pay $429 million in dividends; invest $3.6 billion in capital; and merge with Modern Health for approximately $390 million.
Capital investments, excluding mergers, acquisitions and purchases of leased facilities, totaled $3.6 billion for the year, compared to $3.3 billion in 2015.
Return on invested capital for 2016 was 13.09 percent. This result was affected by current year results and recently-merged companies.
Kroger said it anticipates identical supermarket sales, excluding fuel, to range from flat to 1 percent growth for 2017.
The company expects net earnings to range from $2.21 to $2.25 per diluted share, including an estimated $.09 for the 53rd week.
Kroger expects the operating environment in the first half of 2017 to be similar to the second half of 2016. The company’s results in the second half of 2017 are expected to show improvement as the company cycles the previous year.
The company expects capital investments, excluding mergers, acquisitions and purchases of leased facilities, to be in the $3.2 to $3.5 billion range for 2017.
