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The Kroger Co. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: September 23, 2009 12:01PM

The Kroger Co. (KR) filed Quarterly Report for the period ended 2009-08-15. Kroger Company is one of the larger grocery retailers in the United States. The company also manufactures and processes food for sale by its supermarkets. The company intends to develop new food and convenience store locations and will continue to assess existing stores as to possible replacement remodeling enlarging or closing. The Kroger Co. has a market cap of $13.35 billion; its shares were traded at around $20.5 with a P/E ratio of 10.4 and P/S ratio of 0.2. The dividend yield of The Kroger Co. stocks is 1.8%. The Kroger Co. had an annual average earning growth of 7.1% over the past 5 years.

Highlight of Business Operations:

Based on Kroger’s second quarter sales results, we confirmed our fiscal year 2009 identical supermarket sales growth guidance of 3.0% to 4.0%, excluding fuel. This guidance assumes product costs for the remainder of fiscal 2009 are consistent with or slightly lower than they were in the second half of fiscal 2008. In addition, we have revised our 2009 earnings per share guidance to reflect continued changes in customer behavior and an uncertain operating environment. We anticipate full-year fiscal 2009 earnings of $1.90 to $2.00 per diluted share. This is a wider range than our previous guidance of $2.00 to $2.05 per diluted share because of the uncertain economic environment and the caution on the part of customers caused by this environment.

Net earnings totaled $255 million for the second quarter of 2009, a decrease of 7.9% from net earnings of $277 million for the second quarter of 2008. This decrease in our net earnings resulted from lower retail fuel margins and decreased operating profit, partially offset by a LIFO charge of $15 million pre-tax, compared to a LIFO charge of $46 million pre-tax in 2008. Net earnings totaled $690 million for the first two quarters of 2009, an increase of 4.1% from net earnings of $663 for the first two quarters of 2008. The increase in our net earnings for the first two quarters of 2009 resulted from an increase in operating profit, which benefited from a LIFO charge of $38 million pre-tax, compared to a LIFO charge of $86 million pre-tax in 2008.

We generated $2.2 billion of cash from operating activities during the first two quarters of 2009, compared to $2.1 billion in the first two quarters of 2008. The cash provided by operating activities came from net earnings adjusted for non-cash expenses and changes in our operating assets and liabilities. We realized increases in cash from changes in operating assets and liabilities of $664 million in the first two quarters of 2009 and $427 million in the first two quarters of 2008. The increase in the change in operating assets and liabilities in the first two quarters of 2009, compared to the same period in 2008, resulted primarily from a decrease in income tax receivables and inventories and an increase in trade accounts payable, offset partially by decreased accrued expenses and prepaid expenses. Prepaid expenses decreased significantly since year-end, reflecting prepayments of certain employee benefits at year-end. In the first two quarters of 2009, we contributed $200 million to Kroger sponsored pension plans. During the first two quarters of 2008, we did not make a voluntary cash contribution to Kroger sponsored pension plans.

Total debt, including both the current and long-term portions of capital leases and lease-financing obligations, decreased $87 million to $7.5 billion as of the end of the second quarter of 2009, from $7.6 billion as of the end of the second quarter of 2008. Total debt decreased $523 million as of the end of the second quarter of 2009 from $8.1 billion as of year-end 2008. The decrease as of the end of the second quarter of 2009, compared to the end of the second quarter of 2008, resulted from the issuance of $600 million of senior notes bearing an interest rate of 7.50% in the fourth quarter of 2008, offset by payment at maturity of our $350 million of senior notes bearing an interest rate of 7.25% in the second quarter of 2009, decreased outstanding commercial paper and payments on our money market lines. As of August 15, 2009, our cash and temporary cash investments were $369 million compared to $263 million as of January 31, 2009.

During the second quarter of 2009, we invested $60 million to repurchase 2.8 million shares of Kroger stock at an average price of $21.58 per share. For the first two quarters of 2009, we invested $80 million to repurchase 3.7 million shares of Kroger stock at an average price of $21.39 per share. These shares were reacquired under two separate stock repurchase programs. The first is a $1 billion repurchase program that was authorized by Kroger’s Board of Directors on January 18, 2008. The second is a program that uses the cash proceeds from the exercises of stock options by participants in Kroger’s stock option and long-term incentive plans as well as the associated tax benefits. As of August 15, 2009, we had approximately $425 million remaining under the January 2008 repurchase program. In the second quarter of 2009, to preserve liquidity and financial flexibility, we reduced the amount of stock repurchased during the quarter, decreasing the uses of cash for treasury stock purchases during the quarter and in the first two quarters of 2009, compared to the same periods in 2008.

Capital expenditures, excluding acquisitions and the purchase of leased facilities, totaled $518 million for the second quarter of 2009 compared to $461 million for the second quarter of 2008. Year-to-date, capital expenditures, excluding acquisitions and the purchase of leased facilities, totaled $1.1 billion in 2009 and 2008. During the second quarter of 2009, capital expenditures for the purchase of leased facilities totaled $84 million compared to $17 million for the second quarter of 2008. During the first two quarters of 2009, capital expenditures for purchases of leased facilities totaled $115 million compared to $17 million for the first two quarters of 2008. This increase was due to the Company purchasing several retail stores and one distribution center at very attractive rates during the first two quarters of 2009. During the second quarter of 2009, we opened, acquired, expanded or relocated 12 food stores and also completed 46 within-the-wall remodels. During the first two quarters of 2009, we opened, acquired, expanded or relocated 23 food stores and also completed 83 within-the-wall remodels. Total food store square footage increased 1.2% from the second quarter of 2008. Excluding acquisitions and operational closings, total food store square footage increased 1.8% over the second quarter of 2008.

Read the The complete Report

KR is in the portfolios of Charles Brandes of Brandes Investment, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.


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