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The Kroger Co. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: December 17, 2009 12:16PM

The Kroger Co. (KR) filed Quarterly Report for the period ended 2009-11-07. 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 $20.51 with a P/E ratio of 11.1 and P/S ratio of 0.2. The dividend yield of The Kroger Co. stocks is 1.9%. The Kroger Co. had an annual average earning growth of 7.1% over the past 5 years.

Highlight of Business Operations:

For the third quarter of 2009, we reported a net loss totaling $875 million, or $1.35 per diluted share, a decrease of $1.71 per diluted share over the third quarter of 2008. These results include non-cash asset impairment charges totaling $1.05 billion, after-tax, that primarily resulted from a goodwill write-down at our Ralphs division in southern California. Excluding these impairment charges, net earnings for the quarter would have been $177 million, or $0.27 per diluted share, a decrease of $0.11 per diluted share over the third quarter of 2008. These results exclude an after-tax charge of $16 million for the disruption and damage caused by Hurricane Ike in 2008. Our retail fuel operations accounted for approximately $0.08 of this decrease due to lower retail fuel margins in the third quarter of 2009 compared to the third quarter of 2008. The third quarter results for 2009 also benefited from a LIFO charge of $10 million pre-tax, compared to a LIFO charge of $69 million pre-tax in 2008. In addition, gross margin, without fuel, declined due to persistent deflation, changes in customer behavior, lower than expected retail prices and heightened competitive activity.

We recorded a net loss totaling $875 million for the third quarter of 2009 compared to net earnings totaling $237 million in the third quarter of 2008. These results include non-cash asset impairment charges totaling $1.05 billion, after-tax, related to our division in southern California. The impairment primarily resulted from a goodwill write-down. Excluding these impairment charges, net earnings for the quarter would have been $177 million. Additionally, the decrease in net earnings for the quarter, resulted from lower retail fuel margins and decreased operating profit, partially offset by a LIFO charge of $10 million pre-tax, compared to a LIFO charge of $69 million pre-tax in 2008, and an after tax charge of $16 million from disruption and damage caused by Hurricane Ike in the third quarter of 2008. Net losses totaled $185 million for the first three quarters of 2009 compared to net earnings totaling $900 million for the first three quarters of 2008. Excluding these impairment charges, net earnings for the first three quarters of 2009 would have been $866 million. The decrease in net earnings also resulted from lower retail fuel margins and decreased operating profit, partially offset by a LIFO charge of $48 million pre-tax, compared to a LIFO charge of $155 million pre-tax in 2008, and an after tax charge of $16 million from disruption and damage caused by Hurricane Ike in the third quarter of 2008.

We recorded a net loss of $1.35 per diluted share for the third quarter of 2009 compared to net earnings per diluted share of $0.36 in the third quarter of 2008. Net losses totaled $0.29 per diluted share for the first three quarters of 2009 compared to net earnings per diluted share of $1.36 for the first three quarters of 2008. The 2009 results include non-cash asset impairment charges totaling $1.05 billion, after-tax, that primarily resulted from a goodwill write-down at our Ralphs division in southern California. Excluding these impairment charges, net earnings per diluted share would have been $0.27 in the third quarter of 2009 and $1.33 for the first three quarters of 2009. The net earnings per share decline in the third quarter and the first three quarters of 2009, compared to the same periods last year, also resulted from lower retail fuel margins, decreased operating profit, partially offset by lower LIFO charges, compared to the same periods in 2008, and an after tax charge of $16 million from disruption and damage caused by Hurricane Ike in the third quarter of 2008.

Total debt, including both the current and long-term portions of capital leases and lease-financing obligations, increased $19 million to $8.1 billion as of the end of the third quarter of 2009, from $8.0 billion as of the end of the third quarter of 2008. Total debt decreased $9 million as of the end of the third quarter of 2009 from $8.1 billion as of year-end 2008. The slight increase as of the end of the third quarter of 2009, compared to the end of the third 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 and $500 million of senior notes bearing an interest rate of 3.90% in the third quarter of 2009, 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 and credit facility. As of November 7, 2009, our cash and temporary cash investments were $517 million compared to $263 million as of January 31, 2009.

During the third quarter of 2009, we invested $50 million to repurchase 2.4 million shares of Kroger stock at an average price of $21.35 per share. For the first three quarters of 2009, we invested $130 million to repurchase 6.1 million shares of Kroger stock at an average price of $21.37 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 November 7, 2009, we had approximately $386 million remaining under the January 2008 repurchase program. In 2009, to preserve liquidity and financial flexibility, we reduced the amount of stock repurchased during the year, decreasing the uses of cash for treasury stock purchases during the first three quarters of 2009, compared to the same periods in 2008.

Capital expenditures, excluding acquisitions and the purchase of leased facilities, totaled $552 million for the third quarter of 2009 compared to $604 million for the third quarter of 2008. In the first three quarters of both 2009 and 2008, capital expenditures, excluding acquisitions and the purchase of leased facilities, totaled $1.7 billion. During the third quarter of 2009, capital expenditures for the purchase of leased facilities totaled $23 million. We did not have any capital expenditures for the purchase of leased facilities in the third quarter of 2008. During the first three quarters of 2009, capital expenditures for purchases of leased facilities totaled $138 million compared to $17 million for the first three quarters of 2008. This increase was due to Kroger purchasing several retail stores, one office building and one distribution center at very attractive rates during the first three quarters of 2009. During the third quarter of 2009, we opened, acquired, expanded or relocated 12 food stores and also completed 42 within-the-wall remodels. During the first three quarters of 2009, we opened, acquired, expanded or relocated 35 food stores and also completed 125 within-the-wall remodels. Total food store square footage increased 1.2% from the third quarter of 2008. Excluding acquisitions and operational closings, total food store square footage increased 2.0% over the third quarter of 2008. Due to the current economic environment, we will reduce our internal capital plans by approximately $1 billion over the next three fiscal years. We now expect capital expenditures to average under $2 billion a year over the next three years.

Read the The complete Report

KR is in the portfolios of NWQ Managers of NWQ Investment Management Co, Bruce Kovner of Caxton Associates, Louis Moore Bacon of Moore Capital Management, LP, Charles Brandes of Brandes Investment, John Buckingham of AL FRANK ASSET MANAGEMENT INC, Jeremy Grantham of GMO LLC, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.


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