Last updated on June 13th, 2024
The Kroger Co. says it met several goals in 2018, the first year of its three-year transformation plan.
Among the 2018 accomplishments, Kroger said it achieved 2018 FIFO operating profit and free cash flow goals, grew digital sales 58 percent, achieved more than $1 billion in cost savings, beat profit stream goals in media and Kroger Personal Finance and announced several partnerships to create customer value.
The Cincinnati-based company announced its fourth quarter and 2018 results in the Restock Kroger progress update Thursday. Click here to read the Restock Kroger plan.
“Kroger solidly delivered on what we set out to do in 2018, which was an investment year that laid the groundwork for us to achieve our 2020 Restock Kroger targets including financials,” said Rodney McMullen, Kroger chairman and CEO. “We reached our FIFO operating profit goal and finished the year with sales and business momentum. We have a clear path to achieve $400 million in incremental FIFO operating profit growth and $6.5 billion in cumulative Restock cash flow by the end of 2020.”
“As America’s grocer, Kroger has the winning combination of local presence plus a digital ecosystem enhanced by strategic partnerships enabling us to offer our customers anything, anytime, anywhere,” he said. “We are transforming from grocer to growth company by deploying our assets to serve even more customers and create margin-rich alternative profit streams. We are well positioned to deliver on our Restock Kroger vision to serve America through food inspiration and uplift.”
Among the key results for Restock Kroger: identical sales without fuel at 1.8 percent (improved over last year), EPS of $3.76; adjusted EPS of $2.11 near the high end of 2018 guidance, achieved FIFO operating profit and free cash flow goals, achieved over $1 billion in cost savings through process improvements, grew digital sales 58 percent, expanded pickup or delivery to reach 91 percent of Kroger households.
Also, the company said Kroger brands achieved its best year ever, reaching record 30.5 percent unit share in Q4; announced partnerships with Home Chef, Microsoft, Nuro, Ocado and Walgreens; raised dividend for 12th consecutive year (increased by 12 percent); and invested in wages and launched Feed Your Future education program for associates.
Details of Q4 2018 results
GAAP net earnings for the fourth quarter totaled $259 million, or $0.32 per diluted share. GAAP net earnings in the same period last year were $854 million, or $0.96 per diluted share.
Adjusted net earnings totaled $390 million, or $0.48 per diluted share. Adjusted net earnings in the same period last year were $483 million, or $0.54 per diluted share.
Total sales decreased 9.5 percent to $28.1 billion in the fourth quarter compared to $31.0 billion for the same period last year. Excluding fuel, the 53rd week in fiscal 2017, the convenience store business unit divestiture, and the merger with Home Chef total sales increased 1.6 percent in the fourth quarter over the same period last year.
Gross margin was 22.0 percent of sales for the fourth quarter. Excluding fuel, the 53rd week and the LIFO credit, gross margin decreased 93 basis points from the same period last year due mostly to changes in mix and investments in supply chain, as well as investments in price.
Kroger recorded a LIFO credit of $10 million in the fourth quarter, compared to a $54 million LIFO credit in the same quarter last year.
Operating, general and administrative costs as a rate of sales, excluding fuel, the 53rd week and the 2018 and 2017 Fourth Quarter Adjustment items, increased 39 basis points due entirely to incentive pay and continuing to staff digital initiatives. Rent and depreciation on the same basis was flat.
Kroger did not adjust the rates as a percent of sales described above for the divestiture of the convenience store business and the merger with Home Chef because the effect was insignificant.
Kroger’s fourth quarter 2018 ended on Feb. 2, 2019.
Fiscal 2018 results
GAAP net earnings for 2018 totaled $3.1 billion, or $3.76 per diluted share. GAAP net earnings in 2017 were $1.9 billion, or $2.09 per diluted share.
Adjusted net earnings totaled $1.7 billion, or $2.11 per diluted share. Adjusted net earnings in 2017 were $1.8 billion, or $1.95 per diluted share.
For fiscal 2018, Kroger’s adjusted net earnings per diluted share result was slightly ahead of the company’s internal expectations due to results from the solid early execution of Restock Kroger, including process changes that led to sustainable cost controls and higher-margin alternative profit streams. This performance allowed Kroger to continue making incremental Restock Kroger investments while delivering on its guidance range for the year.
Total sales decreased 1.2 percent to $121.2 billion in 2018, compared to $122.7 billion in 2017. Excluding fuel, the 53rd week, the convenience store business unit divestiture and the merger with Home Chef, total sales increased 2.0 percent in 2018 compared to 2017.
Gross margin was 21.7 percent of sales in 2018. Excluding fuel, the 53rd week, and the LIFO charge and credit, gross margin decreased 55 basis points compared to 2017.
Kroger’s LIFO charge for 2018 was $29 million, compared to an $8 million LIFO credit in 2017.
Operating, general and administrative costs as a percent of sales—excluding fuel, the 53rd week, the 2018 and 2017 Adjustment Items, and a $111 million contribution to the UFCW Consolidated Pension Plan in 2017—increased 14 basis points; rent and depreciation on the same basis declined 1 basis point compared to 2017.
FIFO operating margin for 2018 decreased 68 basis points compared to the prior year, with the following exclusions: fuel, the 53rd week, the 2018 and 2017 Adjustment Items, a $111 million contribution to the UFCW Consolidated Pension Plan in 2017.
Restock cash flow was $1.9 billion for 2018.
Kroger did not adjust the rates as a percent of sales described above for the divestiture of the convenience store business and the merger with Home Chef because the effect was insignificant.
Financial strategy
Kroger’s financial strategy is to use its free cash flow to drive growth while also maintaining its current investment grade debt rating and returning capital to shareholders. The company actively balances the use of its cash flow to achieve these goals.
2019 guidance
Kroger is targeting identical sales growth, excluding fuel, to range from 2.0 percent to 2.25 percent in 2019.
The company expects net earnings to range from $2.15 to $2.25 per diluted share and FIFO operating profit to range from $2.9 to $3.0 billion for 2019.
The company expects capital investments, excluding mergers, acquisitions and purchases of leased facilities to range between $3.0 and $3.2 billion in 2019.
Kroger expects its 2019 tax rate to be approximately 22 percent.
