The Kroger Co. (KR, Financial), headquartered in Cincinnati, is one of the world's largest food retailers, with fiscal 2014 sales of $108.5 billion.
Kroger spans many states with store formats that include grocery and multidepartment stores, convenience stores and jewelry stores. Kroger employs nearly 400,000 associates who serve customers in 2,625 supermarkets and multidepartment stores in 34 states and the District of Columbia under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry's, Harris Teeter, King Soopers, QFC, Ralphs and Smith's. The company also operates 782 convenience stores, 326 fine jewelry stores, 1,330 supermarket fuel centers and 37 food processing plants in the U.S.
The company reported strong fourth-quarter results and is poised to grow. It increased capital investment and improved return on invested capital and reduced operating expenses as a rate of sales for the 11th consecutive year.
Fourth quarter
Total sales, excluding fuel, increased 6.5% in the fourth quarter from the prior-year quarter. Excluding Roundy's, total sales without fuel increased 4.4% in the fourth quarter. Total sales including fuel and Roundy’s increased by 3.8% and were $26.2 billion in the fourth quarter of 2015 (which was $25.2 billion during the prior-year quarter).
Net earnings for the fourth quarter totaled $559 million or 57 cents per diluted share.
The company recorded a LIFO credit of $30 million in the fourth quarter, which was $9 million LIFO charge during the prior-year quarter.
FIFO gross margin was 22.7% of sales for the fourth quarter. Excluding retail fuel operations, FIFO gross margin increased one basis point from the same period last year.
Total operating expenses – excluding retail fuel operations, Roundy's, a $30 million contribution to the UFCW Consolidated Pension Plan in the fourth quarter of 2015 and a $60 million contribution to The Kroger Co. Foundation and a $55 million contribution to the UFCW Consolidated Pension Plan in the fourth quarter of 2014 – increased 23 basis points as a percent of sales compared to the prior year. Drivers of this increase included health care and pension costs, as well as chargebacks related to EMV credit card transition during the fourth quarter.
The company's net total debt to adjusted EBITDA ratio decreased to 2.08, which was 2.14 during the prior year period.
Capital investments, excluding mergers, acquisitions and purchases of leased facilities, totaled $3.3 billion for the year, which were $2.8 billion in the prior-year period.
Kroger's strong EBITDA performance resulted in a return on invested capital for 2015 of 13.93%, which was 13.76% during the prior year period, excluding Roundy's.
Share repurchases
Kroger's strong financial position allowed the company to return more than $1.1 billion to shareholders through share buybacks and dividends in 2015. During the fiscal year, Kroger repurchased approximately 19 million common shares for a total investment of $703 million.
(Source: Company’s website)
Strong attributes of the fourth quarter
- Delivered on performance targets.
- Increased market share.
- Created 9,000 new jobs.
- Growing business.
- Using better technology to drive growth.
Expectations for 2016
The company expects the following:
- Identical supermarket sales growth, excluding fuel, to be 2.5% to 5%.
- Full-year net earnings for 2016 are expected to range from $2.19 to $2.28 per diluted share.
- It expects its core business in 2016 to grow in line with its long-term net earnings per diluted share growth rate of 8% to 11%.
- The company expects capital investments, excluding mergers, acquisitions and purchases of leased facilities, to be in the $4.1 billion to $4.4 billion range for 2016.
Key strengths
- Wide variety of store formats.
- Customer base is becoming increasingly diverse.
- It is continually improving in the delivery of the right products at the right price with great service.
- Enhanced shopping experience.
On a concluding note
Recognized by Forbes as the most generous company in America, Kroger supports hunger relief, breast cancer awareness, the military and its families and more than 30,000 schools and community organizations. Kroger contributes food and funds equal to 200 million meals a year through more than 80 Feeding America food bank partners. A leader in supplier diversity, Kroger is a proud member of the Billion Dollar Roundtable and the U.S. Hispanic Chamber’s Million Dollar Club.
Over the last eight years, Kroger has created more than 74,000 new jobs. This figure does not include increases due to the company's mergers. Kroger and its subsidiaries today employ more than 431,000 associates. The company hired more than 7,000 veterans in 2015 and has hired more than 35,000 veterans since 2009. Kroger's total active workforce grew by more than 9,000 in 2015.
Kroger has grown identical supermarket sales for an unparalleled 45 consecutive quarters. Kroger continues to increase market share year over year. In fact, fiscal 2014 represented the 10th consecutive year of market share growth.
The company is deepening its focus on customers and has redefined its business model and made it more sustainable than ever. The company continues to increase the number of loyal households shopping with them. This company is a buy.
Disclosure: I do note hold any position in the company.
