KR Kroger Co

CINCINNATI, Dec. 2, 2021 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported its third quarter 2021 results and will update investors on how key initiatives are positioning the company for long-term sustainable growth.

Comments from Chairman and CEO Rodney McMullen  

"Kroger's strategy to lead with fresh and accelerate with digital continues to connect with our customers. Our agility, and the commitment from our amazing associates, is allowing us to navigate current labor and supply chain conditions and provide the freshest food at affordable prices across our store and digital ecosystem.

"Our focus on execution, combined with our continued discipline in balancing investments in our associates and customers with exceptional cost management, and growth in our alternative profit business allowed us to exceed internal expectations and deliver strong sales and earnings growth.

"Across all aspects of our business, we are innovating and executing with speed against the key initiatives that are transforming our business. Kroger is in a position of strength. We are committed to delivering for our associates, customers, and communities, and we remain confident in our ability to deliver total shareholder returns of 8% to 11% over time."

Third Quarter Financial Results

Third Quarter Results versus Two Years Ago

Total company sales were $31.9 billion in the third quarter, compared to $29.7 billion for the same period last year. Excluding fuel, sales increased 2.9% compared to the same period last year.

Gross margin was 21.66% of sales for the third quarter. The FIFO gross margin rate, excluding fuel, decreased 41 basis points compared to the same period last year. This decrease primarily related to higher supply chain costs and continued price investments partially offset by sourcing benefits.  

The LIFO charge for the third quarter was $93 million, compared to $23 million for the same period last year. This increase was primarily attributable to higher inflation across several categories, including grocery and meat.

The Operating, General & Administrative rate decreased 49 basis points, excluding fuel and adjustment items, which reflects sales leverage and the execution of cost savings initiatives.

Kroger recorded a nonrecurring benefit of $47 million, or $0.07 per diluted share, primarily due to the favorable outcome of income tax audit examinations covering multiple years. This amount is excluded from the company's adjusted net earnings per diluted share result for the third quarter. The income tax rate for the third quarter was 13.8%, compared to 24.2% for the same period last year.

Capital Allocation Strategy

Kroger continues to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchase and a growing dividend over time.

Kroger's net total debt to adjusted EBITDA ratio is 1.68, compared to 1.74 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.

During the quarter, Kroger repurchased $297 million of shares and year-to-date, has repurchased $1 billion of shares. As of the end of the third quarter, $511 million remains on the board authorization announced on June 17, 2021.  

2021 Guidance

Comments from CFO Gary Millerchip  

"Driven by the momentum in our third quarter results and sustained food at home trends, we are raising our full-year guidance. We now expect our two-year identical sales stack to be in the range of 13.7% to 13.9%. We expect our adjusted net earnings per diluted share to be in the range of $3.40 to $3.50.  

"Kroger is executing against its key financial and operational initiatives and continues to invest in strategic priorities that will drive attractive and sustainable total shareholder returns. We believe our business is emerging stronger through the pandemic and is well positioned to grow beyond 2021."

Full Year 2021 Guidance

Third Quarter 2021 Highlights

Leading with Fresh

• Surpassed $1 billion in annualized sales for Home Chef, becoming the newest Our Brands billion dollar brand in Kroger's portfolio
• Our Brands launched 216 new items during the quarter with plans to launch several innovative and unique products focused on helping customers enjoy the holiday season like Private Selection Holiday Trail Mix and Simple Truth Cranberry Pistachio Bread
• Expanded launch of our End-to-End Fresh program to over 50 additional stores
• Announced plans with Kipster Farms, the award-winning system founded in The Netherlands, to bring the world's first carbon-neutral, cage-free eggs to retail shelves under Simple Truth® brand

Accelerating with Digital

• Launched Kroger Delivery Now nationwide with Instacart to provide 30-minute delivery, enabled by first-of-its-kind virtual convenience store shopping experience
• Introduced Boost by Kroger Plus, an annual membership program that provides customers free delivery and additional fuel points on purchases in four divisions
• Shared plans for five new customer fulfillment centers powered by the Ocado Group including expansions in California and Florida and entrance for the first time into the Northeast region
• Announced collaboration with Bed Bath & Beyond and buybuy Baby on a national e-commerce experience via Kroger.com and a small-scale physical store pilot to expand home and baby product offerings
• Kroger Precision Marketing launched a new programmatic advertising marketplace   allowing agencies and brands to reach consumers by applying Kroger customer data to campaigns within their preferred ad-buying platform

Associate Experience

• Increased Kroger Family of Companies' average hourly wage to greater than $16 and with comprehensive benefits, will be greater than $21 by the end of 2021
• Received two Brandon Hall Group - Excellence in Human Capital Management Awards, including Gold recognition for Leading through a Crisis during the COVID-19 pandemic and Silver recognition for A Fresh Welcome, organization's new and innovative onboarding program, which launched in 2020
• Held nationwide hiring event with more than 20,000 opportunities in retail, e-commerce, manufacturing, merchandising, corporate, healthcare and more

Live Our Purpose

• Kroger Health partnered with Anthem Blue Cross and Blue Shield to offer new Medicare Advantage plans that include an allowance to help customers purchase groceries and health items
• Kroger Health has administered more than 8.5 million COVID-19 vaccine doses to date, supporting customers and associates
• Marked one-year anniversary of organization's Framework for Action: Diversity, Equity and Inclusion plan to better use company's platform to create and advocate for more equitable communities. Shared the following progress:
• • 405,000 associates completed diversity and inclusion training
  • Increased our partnerships with Historically Black Colleges and Universities and Hispanic-Serving Institutions from six to seventeen
  • Achieved $4.1 billion in diverse supplier spend in 2020, a 21% increase versus prior year
  • The Kroger Co. Foundation collectively invested $3.1 million to advance racial equity through partnerships with Black Girl Ventures, Everytable, LISC, Thurgood Marshall College Fund, and other organizations
  • Scored 100 on both the Disability Equality Index presented by Disability: IN and the American Association of People with Disabilities (AAPD) and the Corporate Equality Index presented by the Human Rights Campaign Foundation
• The Zero Hunger | Zero Waste Foundation Innovation Fund made impact investments during the first-ever Venture Showcase in two peer-selected startups, Agua Bonita and Matriark Foods

About Kroger
At The Kroger Co. (NYSE: KR), we are Fresh for Everyone™ and dedicated to our Purpose: To Feed the Human Spirit®. We are, across our family of companies, nearly half a million associates who serve over 11 million customers daily through a seamless shopping experience under a variety of banner names. We are committed to creating #ZeroHungerZeroWaste communities by 2025. To learn more about us, visit our newsroom  and investor relations site.

Kroger's third quarter 2021 ended on November 6, 2021.

Note: Fuel sales have historically had a low gross margin rate and operating expense rate as compared to corresponding rates on non-fuel sales. As a result, Kroger discusses the changes in these rates excluding the effect of fuel.

Please refer to the supplemental information presented in the tables for reconciliations of the non-GAAP financial measures used in this press release to the most comparable GAAP financial measure and related disclosure.

This press release contains certain statements that constitute "forward-looking statements" about the future performance of the company. These statements are based on management's assumptions and beliefs in light of the information currently available to it. Such statements are indicated by words or phrases such as "achieve," "believe," "committed," "confident," "continue," "deliver," "expect," "future," "guidance," "positioning," "strategy," "target," "trends," and "will." Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. These include the specific risk factors identified in "Risk Factors" in our annual report on Form 10-K for our last fiscal year and any subsequent filings, as well as the following:

Kroger's ability to achieve sales, earnings, incremental FIFO operating profit, and adjusted free cash flow goals may be affected by: COVID-19 pandemic related factors, risks and challenges, including among others, the length of time that the pandemic continues, new variants of the virus and the effectiveness of vaccines against variants, continued efficacy of vaccines over time and availability of vaccine boosters, the extent of continued vaccine disinformation and vaccine refusal, and global access to vaccines, as well as the effect of emerging  vaccine and/or testing mandates and related regulations, the potential for additional future spikes in infection and illness rates including breakthrough infections among the fully vaccinated, and the corresponding potential for disruptions in workforce availability and customer shopping patterns, re-imposed restrictions as a result of resurgence and the corresponding future easing of restrictions, and interruptions in domestic and global supply chains or capacity constraints; the pace of recovery when the pandemic subsides; labor negotiations or disputes; changes in the unemployment rate; pressures in the labor market; changes in government-funded benefit programs; changes in the types and numbers of businesses that compete with Kroger; pricing and promotional activities of existing and new competitors, including non-traditional competitors, and the aggressiveness of that competition; Kroger's response to these actions; the state of the economy, including interest rates, the inflationary and deflationary trends in certain commodities; changes in tariffs; the effect that fuel costs have on consumer spending; volatility of fuel margins; manufacturing commodity costs; diesel fuel costs related to Kroger's logistics operations; trends in consumer spending; the extent to which Kroger's customers exercise caution in their purchasing in response to economic conditions; the uncertainty of economic growth or recession; changes in inflation or deflation in product and operating costs; stock repurchases; Kroger's ability to retain pharmacy sales from third party payors; consolidation in the healthcare industry, including pharmacy benefit managers; Kroger's ability to negotiate modifications to multi-employer pension plans; natural disasters or adverse weather conditions; the effect of public health crises or other significant catastrophic events, including the coronavirus; the potential costs and risks associated with potential cyber-attacks or data security breaches; the success of Kroger's future growth plans; the ability to execute our growth strategy and value creation model, including continued cost savings, growth of our alternative profit businesses, and widening and deepening our strategic moats of fresh, our brands, personalization, and seamless; and the successful integration of merged companies and new partnerships. Our ability to achieve these goals may also be affected by our ability to manage the factors identified above. Our ability to execute our financial strategy may be affected by our ability to generate cash flow.

Kroger's effective tax rate may differ from the expected rate due to changes in tax laws, the status of pending items with various taxing authorities, and the deductibility of certain expenses.

Kroger assumes no obligation to update the information contained herein unless required by applicable law. Please refer to Kroger's reports and filings with the Securities and Exchange Commission for a further discussion of these risks and uncertainties.

Note: Kroger's quarterly conference call with investors will broadcast live at 10 a.m. (ET) on December 2, 2021 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, December 2, 2021.

3^rd Quarter 2021 Tables Include:

1. Consolidated Statements of Operations
2. Consolidated Balance Sheets
3. Consolidated Statements of Cash Flows
4. Supplemental Sales Information
5. Reconciliation of Net Total Debt and Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA
6. Net Earnings Per Diluted Share Excluding the Adjustment Items
7. Operating Profit Excluding the Adjustment Items
8. Two-Year Financial Results