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Press release from PR Newswire

Kroger Reports First Quarter 2012 Results

Thursday, June 14, 2012

Kroger Reports First Quarter 2012 Results08:30 EDT Thursday, June 14, 2012Identical Supermarket Sales Up 4.2% Excluding Fuel Company Raises Fiscal 2012 EPS Guidance to $2.33 to $2.40CINCINNATI, June 14, 2012 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported total sales, including fuel, increased 5.8% to $29.1 billion in the first quarter of fiscal 2012 compared with $27.5 billion for the same period last year. In the first quarter, which ended May 19, 2012, total sales, excluding fuel, increased 4.3% over the same period last year. Identical supermarket sales, without fuel, increased 4.2% in the first quarter over the same period last year. This marks 34 consecutive quarters of positive identical supermarket sales for Kroger. Net earnings for the first quarter totaled $439.4 million, or $0.78 per diluted share. Net earnings in the same period last year were $432.3 million, or $0.70 per diluted share. Separately, the company today announced that the Board of Directors authorized a new $1 billion share repurchase program that replaces the prior authorization, which was exhausted on June 12, 2012. "Kroger's solid first quarter performance demonstrates that our Customer 1st strategy continues to resonate with customers," said David B. Dillon, Kroger's chairman and chief executive officer. "Our core business is growing, and we are rewarding shareholders through earnings growth, increasing dividends over time and share buybacks."Details of First Quarter 2012 Results FIFO gross margin was 20.70% of sales for the first quarter of fiscal 2012. Excluding retail fuel operations, FIFO gross margin decreased 53 basis points from the same period last year. Kroger recorded a $46.0 million LIFO charge in the first quarters of both 2012 and 2011. Operating, general and administrative (OG&A) costs were 15.36% of sales.  Excluding retail fuel operations, OG&A decreased 27 basis points from the same period last year.  Including rent and depreciation, it was a 40 basis point reduction. The benefits of sales leverage, strong cost control and execution more than offset rising health care costs and credit card fees. Excluding fuel, on a rolling four quarters basis the company's FIFO operating margin decreased 11 basis points. Kroger continues to expect slightly increasing FIFO operating margin, excluding fuel,  for the full 2012 fiscal year. Financial StrategyKroger's strong free cash flow allowed the company to return more than $1.6 billion to shareholders through share buybacks and dividends over the last four quarters. During the first quarter, Kroger repurchased 14.6 million common shares for a total investment of $345.3 million. Capital investment, excluding acquisitions and purchases of leased facilities, totaled $539.1 million for the first quarter, compared with $573.1 million for the same period last year. Net total debt was $7.8 billion, an increase of $662.1 million from a year ago. The increase is primarily the result of the issuance of debt to fund the UFCW pension plan consolidation. On a rolling four quarters basis, Kroger's net total debt to adjusted EBITDA ratio was 1.91 compared with 1.79 during the same period last year.Fiscal 2012 Guidance Based on the strong results in the first quarter, the company increased its earnings per share guidance to $2.33 to $2.40 per diluted share for fiscal 2012. The original guidance was $2.28 to $2.38 per diluted share.Kroger continues to expect identical supermarket sales growth, excluding fuel, of 3.0% to 3.5%. In accordance with original guidance, this includes the expected negative effect on sales from prescription drugs coming off patent. "We were very pleased with the results of the first quarter. We exceeded our expectations, and as a result raised our earnings per share guidance for the year," Mr. Dillon said. "Through our focus on the customer, we will continue to stand out among food retailers, and drive loyalty, cash flow and earnings growth in 2012 and beyond."Kroger, one of the world's largest retailers, employs more than 339,000 associates who serve customers in 2,425 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 789 convenience stores, 337 fine jewelry stores, 1,109 supermarket fuel centers and 38 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 in the communities it serves. Kroger contributes food and funds equal to 160 million meals a year through more than 80 Feeding America food bank partners. For more information please visit Kroger.com.--------------------------------------------------------------------------------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, in addition to disclosing such rates including the effect of retail fuel operations, Kroger also discusses the changes in these rates excluding the effect of retail fuel operations.This press release contains certain 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. These statements are indicated by words such as "expect" and "guidance." Aggressive competition, economic conditions, interest rates, goodwill impairment, the success of programs designed to increase our identical supermarket sales without fuel, the impact of increasing fuel costs on consumer spending, and labor disputes, particularly as the company seeks to manage increases in health care and pension costs, could materially affect our expected identical supermarket sales growth and earnings per share. Earnings per share also will be affected by the number of shares outstanding and volatility in the company's fuel margins. Earnings and identical supermarket sales also may be affected by adverse weather conditions; particularly to the extent that hurricanes, tornadoes, floods, and other conditions disrupt our operations or those of our suppliers, create shortages in the availability or increases in the cost of products that we sell in our stores or materials and ingredients we use in our manufacturing facilities, or raise the cost of supplying energy to our various operations, including the cost of transportation; and the benefits that we receive from the consolidation of the UFCW pension plans. Our results also will be affected by rising commodity costs, the inconsistency of the economic recovery, consumer confidence, changes in government-funded benefit programs, and changes in inflation or deflation in product and operating costs. Our FIFO operating margin will be affected by changes in product costs during the year, if our estimates of product cost changes or the timing of those changes prove incorrect, and if competitive or other factors cause our margins on product sold to fail to meet our objectives. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially. We assume no obligation to update the information contained herein. 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 be broadcast live online at 10 a.m. (ET) on June 14, 2012 at www.thekrogerco.com.  An on-demand replay of the webcast will be available from approximately 1 p.m. (ET) Thursday, June 14 through Thursday, June 28, 2012.View 1st Quarter 2012 Reports:CONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF CASH FLOWSSUPPLEMENTAL SALES INFORMATIONRECONCILIATION OF TOTAL DEBT TO NET TOTAL DEBT  Table 1.THE KROGER CO.CONSOLIDATED STATEMENTS OF OPERATIONS(in millions, except per share amounts)(unaudited)FIRST QUARTER20122011SALES$  29,064.8100.00%$   27,460.9100.00%MERCHANDISE COSTS, INCLUDING ADVERTISING,WAREHOUSING AND TRANSPORTATION (a),AND LIFO CHARGE (b)23,095.179.4621,624.478.75OPERATING, GENERAL AND ADMINISTRATIVE (a)4,463.915.364,335.115.79RENT191.10.66191.40.70DEPRECIATION AND AMORTIZATION500.61.72499.01.82OPERATING PROFIT 814.12.80811.02.95INTEREST EXPENSE140.90.48138.00.50NET EARNINGS BEFORE INCOME TAX EXPENSE673.22.32673.02.45INCOME TAX EXPENSE 232.20.80252.10.92NET EARNINGS INCLUDING NONCONTROLLING INTERESTS441.01.52420.91.53NET EARNINGS (LOSS) ATTRIBUTABLE TONONCONTROLLING INTERESTS1.60.01(11.4)(0.04)NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. $        439.41.51%$        432.31.57%NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.PER BASIC COMMON SHARE$          0.78$          0.71AVERAGE NUMBER  OF COMMON SHARES USED INBASIC CALCULATION555.8608.1NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.PER DILUTED COMMON SHARE$          0.78$          0.70AVERAGE NUMBER  OF COMMON SHARES USED INDILUTED CALCULATION559.3612.0Note: Certain prior-year amounts have been reclassified to conform to current-year presentation.  Certain per share amounts and percentages may not sum due to rounding.Note:  The Company defines FIFO gross margin, as described in the earnings release, as sales minus merchandise costs, including advertising, warehousing and transportation, but excluding the Last-In First-Out (LIFO) charge.  This measure is included to reflect trends in current cost of product.(a)Merchandise costs and operating, general and administrative expenses exclude depreciation and amortization expense and rent expense which are included in separate expense lines.(b)LIFO charges of $46 were recorded in the first quarter of 2012 and 2011.Table 2.THE KROGER CO.CONSOLIDATED BALANCE SHEETS(in millions)(unaudited)May 19,May 21,20122011ASSETSCurrent AssetsCash$            190.7$            174.1Temporary cash investments320.4256.8Deposits in-transit838.8716.4Receivables921.9854.4Inventories4,977.24,834.4Prepaid and other current assets346.9366.6Total current assets7,595.97,202.7Property, plant and equipment, net14,521.614,192.0Goodwill1,137.91,139.8Other assets534.5576.8Total Assets$       23,789.9$       23,111.3LIABILITIES AND SHAREOWNERS' EQUITYCurrent liabilitiesCurrent portion of long-term debt including obligationsunder capital leases and financing obligations$         1,335.4$            587.1Trade accounts payable4,517.64,225.5Accrued salaries and wages894.5889.1Deferred income taxes189.8219.5Other current liabilities2,416.42,399.4Total current liabilities9,353.78,320.6Long-term debt including obligations under capital leasesand financing obligationsFace-value of long-term debt including obligations undercapital leases and financing obligations6,756.76,745.5Adjustment to reflect fair-value interest rate hedges13.847.6Long-term debt including obligations under capital leasesand financing obligations6,770.56,793.1Deferred income taxes695.8694.6Pension and postretirement benefit obligations1,403.8973.1Other long-term liabilities1,498.81,125.7Total Liabilities19,722.617,907.1Shareowners' equity4,067.35,204.2Total Liabilities and Shareowners' Equity$       23,789.9$       23,111.3Total common shares outstanding at end of period548.5600.2Total diluted shares year-to-date559.3612.0Note: Certain prior-year amounts have been reclassified to conform to current-year presentation.Table 3.THE KROGER CO.CONSOLIDATED STATEMENTS OF CASH FLOWS(in millions)(unaudited)YEAR-TO-DATE20122011CASH FLOWS FROM OPERATING ACTIVITIES:Net earnings including noncontrolling interests$            441.0$            420.9Adjustment to reconcile net earnings including noncontrollinginterests to net cash provided by operating activities:Depreciation and amortization500.6499.0LIFO charge46.046.0Stock-based employee compensation24.323.8Expense for Company-sponsored pension plans31.423.1Asset impairment charges1.99.4Deferred income taxes57.6(57.0)Other(4.9)31.0Changes in operating assets and liabilities, netof effects from acquisitions of businesses:Deposits in-transit(52.5)(50.4)Receivables2.7(2.9)Inventories90.985.8Prepaid expenses(55.9)(48.3)Trade accounts payable213.668.0Accrued expenses(44.1)31.3Income taxes receivable and payable93.6151.5Other(41.2)4.3Net cash provided by operating activities1,305.01,235.5CASH FLOWS FROM INVESTING ACTIVITIES:Payments for capital expenditures(542.4)(520.9)Proceeds from sale of assets8.92.9Other5.99.0Net cash used by investing activities(527.6)(509.0)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from lease-financing transactions-1.7Proceeds from issuance of long-term debt845.62.7Payments on long-term debt(526.7)(506.9)Net payments on commercial paper(370.0)-Dividends paid(64.8)(65.3)Excess tax benefits on stock-based awards0.82.3Proceeds from issuance of capital stock38.459.6Treasury stock purchases(345.3)(544.3)Decrease in book overdrafts(24.3)(69.5)Other(7.5)(0.5)Net cash used by financing activities(453.8)(1,120.2)NET INCREASE (DECREASE) IN CASH AND TEMPORARYCASH INVESTMENTS323.6(393.7)CASH AND TEMPORARY CASH INVESTMENTS:BEGINNING OF YEAR187.5824.6END OF QUARTER$            511.1$            430.9Reconciliation of capital expenditures:Payments for capital expenditures$           (542.4)$           (520.9)Changes in construction-in-progress payables(15.2)(58.7)Total capital expenditures$           (557.6)$           (579.6)Disclosure of cash flow information:Cash paid during the quarter for interest$             113.1$            133.9Cash paid during the quarter for income taxes$               94.0$            149.3Note: Certain prior-year amounts have been reclassified to conform to current-year presentation.  Table 4. Supplemental Sales Information(in millions, except percentages)(unaudited)Items identified below should not be considered as alternatives to sales or any other GAAP measure of performance. Identical supermarket sales is an industry-specific measure and it is important to review it in conjunction with Kroger's financial results reported in accordance with GAAP.  Other companies in our industry may calculate identical sales differently than Kroger does, limiting the comparability of the measure. IDENTICAL SUPERMARKET SALES (a)FIRST QUARTER20122011INCLUDING FUEL CENTERS$      26,100.6$      24,745.3EXCLUDING FUEL CENTERS$      21,652.7$      20,774.4INCLUDING FUEL CENTERS5.5%9.8%EXCLUDING FUEL CENTERS4.2%4.6%(a) Kroger defines a supermarket as identical when it has been open without expansion or relocation for five full quarters.  Table 5.  Reconciliation of Total Debt to Net Total Debt andNet Earnings Attributable to The Kroger Co. to EBITDA.(in millions except for ratio)(unaudited)The items identified below should not be considered an alternative to any GAAP measure of performance or liquidity.  The items below are a primary component of determining compliance with the financial covenants under the Company's credit facility and management believes that they are an important measure of liquidity.  The items below should be reviewed in conjunction with Kroger's financial results reported in accordance with GAAP. The following table provides a reconciliation of total debt to net total debt and compares the balance in the first quarter of 2012 to the balance in the first quarter of 2011.May 19,May 21,20122011ChangeCurrent portion of long-term debt including obligations   under capital leases and financing obligations$        1,335.4$       587.1$     748.3Face-value of long-term debt including obligations under   capital leases and financing obligations6,756.76,745.511.2Adjustment to reflect fair-value interest rate hedges13.847.6(33.8)     Total debt$        8,105.9$    7,380.2$     725.7Less: Temporary cash investments320.4256.863.6     Net total debt$        7,785.5$    7,123.4$     662.1The following table provides a reconciliation from net earnings attributable to The Kroger Co. to EBITDA, as defined in the Company's credit agreement ("EBITDA"), on a rolling four quarter basis. Rolling Four Quarters Ended May 19,May 21,20122011Net earnings attributable to the Kroger Co.$           609.2$    1,174.9LIFO215.787.9Goodwill impairment charge-18.6Depreciation and amortization1,639.41,621.2Interest expense437.8453.6Income tax expense227.5637.5UFCW Pension Plan consolidation charge952.6-Other(4.3)(3.6)EBITDA$        4,077.9$    3,990.1Net total debt to adjusted EBITDA ratio1.911.79 SOURCE The Kroger Co.For further information: Media: Keith Dailey, +1-513-762-1304, Investors: Cindy Holmes, +1-513-762-4969