Kroger Reports Record Third Quarter Earnings Per Share
Kroger Reports Record Third Quarter Earnings Per Share
ID Sales Up 3.2% Without Fuel
Company Raises Fiscal 2012 Adjusted EPS Guidance to $2.44 to $2.46
CINCINNATI, Nov. 29, 2012 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported net earnings of $0.60 per diluted share for the third quarter, which ended November 3, 2012. This includes a $0.14 per diluted share benefit from a settlement with Visa and MasterCard and from a reduction in the company's obligation to fund the UFCW consolidated pension fund created in January.
Excluding the benefit of these two items, Kroger's adjusted earnings per diluted share was a record $0.46 for the quarter. The company believes the adjusted earnings figure presents a more accurate year-over-year comparison of its financial results because the two items were not the result of our normal operations.
Identical supermarket sales growth, without fuel, was 3.2% in the third quarter. Other highlights of the quarter include:
Achieved 36th consecutive quarter of positive identical supermarket sales
Increased adjusted FIFO operating profit $29 million for the third quarter, including fuel, compared to last year and GAAP FIFO operating profit increased $144 million
Improved tonnage – highest increase in unit movement since the second quarter of 2010
Raised adjusted earnings per diluted share guidance for the fiscal year
"Kroger achieved our growth objectives for the quarter, including positive identical supermarket sales, operating profit growth and outstanding tonnage growth," said David B. Dillon, Kroger's chairman and chief executive officer. "This quarter illustrates that the strength of our core business positions Kroger to accelerate our earnings per share growth."
Total sales, including fuel, increased 5.9% to $21.8 billion in the third quarter compared with $20.6 billion for the same period last year. Total sales, excluding fuel, increased 3.7% in the third quarter over the same period last year.
Net earnings for the third quarter totaled $316.5 million, or $0.60 per diluted share. Excluding the $0.14 per share benefit of the two items described above, Kroger's adjusted net earnings for the third quarter totaled $242.4 million, or $0.46 per diluted share. The lower LIFO charge described below benefited this year's third quarter by $0.02 per diluted share. Net earnings in the same period last year were $195.9 million, or $0.33 per diluted share.
Details of Third Quarter 2012 Results
FIFO gross margin was 20.35% of sales for the third quarter of fiscal 2012. Excluding retail fuel operations, FIFO gross margin decreased 25 basis points from the same period last year.
The company recorded a $15.5 million LIFO charge during the quarter compared to a $61.6 million LIFO charge in the same quarter last year. Excluding retail fuel sales, the LIFO charge decreased 28 basis points as a percentage of sales. Kroger reduced its LIFO charge estimate to $125 million for the year from its previous estimate of $150 million, due to lower than anticipated inflation expectations for the year.
Operating, general and administrative costs plus rent and depreciation, excluding retail fuel operations and the two adjustment items, declined 21 basis points as a percent of sales compared to the prior year.
Total third quarter FIFO operating profit, excluding the two adjustment items, increased approximately $29 million over the prior year. Excluding fuel and the two adjustment items, on a rolling four quarters basis, the company's FIFO operating margin was 7 basis points lower compared to last year. Kroger expects to have a slightly higher FIFO operating margin rate, excluding fuel, for the full 2012 fiscal year, in line with our commitment to grow the rate slightly over time on a rolling four quarters basis.
Kroger's strong financial position has allowed the company to return more than $1.7 billion to shareholders through share buybacks and dividends over the last four quarters. During the third quarter, Kroger repurchased 14.5 million common shares for a total investment of $333 million.
Capital expenditures, excluding acquisitions and purchases of leased facilities, totaled $473.5 million for the third quarter, compared to $497.0 million for the same period last year.
Kroger recently began reporting return on invested capital, or ROIC, results on a quarterly basis. ROIC in the third quarter was 13.3%, compared to 13.5% during the same period last year.
Net total debt was $8.7 billion, an increase of $1.0 billion from a year ago. On a rolling four quarters basis, Kroger's net total debt to adjusted EBITDA ratio was 2.08 compared to 1.89 during the same period last year.
Fiscal 2012 Guidance
Kroger raised its diluted earnings per share guidance, excluding the two adjustment items, to $2.44 to $2.46 for the full year, up from the previous guidance range of $2.35 to $2.42. In the fourth quarter, the company expects identical supermarket sales growth between 3.0% and 3.5%, excluding fuel.
"Kroger's proven Customer 1st Strategy continues to increase customer loyalty, identical supermarket sales and market share. With that foundation firmly in place, we are focused on deploying capital to further accelerate growth and improve ROIC," Mr. Dillon said. "We are committed to delivering shareholder value through stronger earnings per share growth, higher dividends and stock buybacks."
Kroger, one of the world's largest retailers, employs more than 339,000 associates who serve customers in 2,422 supermarkets and multi-department stores in 31 states under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry's, King Soopers, QFC, Ralphs and Smith's. The company also operates 790 convenience stores, 344 fine jewelry stores, 1,141 supermarket fuel centers and 37 food processing plants in the U.S. Recognized by Forbes as the most generous company in America, Kroger supports hunger relief, breast cancer awareness, the military and their families, and more than 30,000 schools and grassroots organizations. Kroger contributes food and funds equal to 160 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.
Note: Fuel sales have historically had a low FIFO gross margin rate and OG&A rate as compared to corresponding rates on non-fuel sales. As a result Kroger discusses the changes in these rates excluding the effect of retail fuel operations.