What is Kroger's outlook for 2007?

Kroger expects earnings per diluted share of $1.60 to $1.65 in 2007, which it describes as growth of about 9% to 12% net of the 53rd week effect. It expects identical food store sales growth excluding fuel of 3% to 5% and capital investment of $1.9 to $2.1 billion, excluding acquisitions.

How much debt does Kroger carry and how is it managing it?

Total debt, including capital leases and financing obligations, was $7.1 billion at year-end 2006, down $173 million during the year. The company reports it uses cash flow from operations to reduce debt, and it had a $2.5 billion five-year credit facility with $352 million outstanding under the credit agreement and commercial paper program at year-end.

What are the main risks to Kroger's results?

The filing highlights labor relations, with about 320 collective bargaining agreements and major contracts expiring in 2007 in several markets, and possible work stoppages. It also cites intense price competition from supercenters, underfunding in multi-employer pension plans (estimated at $600 million to $800 million pre-tax for Kroger's share), and a pending Tax Court case that could require a cash payment of about $363 million including interest.

Is Kroger returning cash to shareholders?

Yes. Kroger repurchased $633 million of common stock and paid $140 million in dividends in 2006. The Board adopted a dividend policy in fiscal 2006, and on March 15, 2007 it raised the quarterly dividend to $0.075 per share, payable June 1, 2007. The company plans to use roughly two-thirds of cash flow over the long term for stock repurchases and dividends and one-third for debt reduction.

KR 10-K FY2007 Annual Report — Revenue, Net Income, EPS

Q: How much did Kroger earn in fiscal 2006 and how did that compare with 2005?

Kroger reported net earnings of $1,115 million, or $1.54 per diluted share, for fiscal 2006, compared with $958 million, or $1.31 per diluted share, in fiscal 2005. The filing notes that fiscal 2006 included a 53rd week, which benefited earnings by an estimated $0.07 per diluted share.

01—Abstract

Summary

Summary of the 10-K filed April 4, 2007. Cited figures are marked; the original filing is the authoritative source.

The Kroger Co. reported its annual results for the 53-week fiscal year ended February 3, 2007.

Sales rose to $66.11 billion^a from $60.55 billion, and net earnings increased to $1.115 billion, or $1.54 per diluted share, compared with $958 million, or $1.31 per diluted share, in fiscal 2005. The filing attributes the improvement to strong identical supermarket sales growth excluding fuel (5.6% in 2006), improving operating margins, and fewer shares outstanding. Fiscal 2006 also benefited from the 53rd week (about $0.07 per diluted share) and a deferred tax adjustment ($0.03 per diluted share), and was reduced by $0.03 per share of legal reserve expense and $0.06 per share of stock option expense.

Kroger reported total debt of about $7.1 billion^b, down $173 million during the year, and shareowners' equity of $4.92 billion. Operating cash flow was $2.35 billion and capital expenditures were $1.78 billion. The company repurchased $633 million of stock and paid $140 million in dividends during 2006.

Management guided to 2007 earnings per diluted share of $1.60 to $1.65^c, identical food store sales growth excluding fuel of 3% to 5%, and capital investment of $1.9 to $2.1 billion. The Board raised the quarterly dividend to $0.075 per share on March 15, 2007.

Key risks highlighted include about 320 collective bargaining agreements, with major contracts expiring in 2007 in several markets, and an estimated $600 million to $800 million^d pre-tax share of underfunding in multi-employer pension plans. The filing also discloses a pending Tax Court case in which an adverse decision would require a cash payment of about $363 million including interest.

02—Key points

Key Highlights

Sales of $66.11 billion in fiscal 2006 (53 weeks), up from $60.55 billion in fiscal 2005.
Net earnings of $1.115 billion, or $1.54 per diluted share, versus $1.31 per diluted share in 2005.
Identical supermarket sales excluding fuel grew 5.6% in 2006, after 3.5% in 2005.
Guidance for 2007 calls for earnings of $1.60 to $1.65 per diluted share and identical food store sales growth excluding fuel of 3% to 5%.
Total debt declined $173 million to $7.1 billion, and the company repurchased $633 million of stock in 2006.
Quarterly dividend increased to $0.075 per share, with the first dividend of $0.065 per share paid in fiscal 2006.
Pending Tax Court matter over the Ralphs 1992 transaction could require a cash payment of about $363 million, including interest, if decided adversely.

03—Questions

Frequently Asked Questions

How much did Kroger earn in fiscal 2006 and how did that compare with 2005?
Kroger reported net earnings of $1,115 million, or $1.54 per diluted share, for fiscal 2006, compared with $958 million, or $1.31 per diluted share, in fiscal 2005. The filing notes that fiscal 2006 included a 53rd week, which benefited earnings by an estimated $0.07 per diluted share.
What is Kroger's outlook for 2007?
Kroger expects earnings per diluted share of $1.60 to $1.65 in 2007, which it describes as growth of about 9% to 12% net of the 53rd week effect. It expects identical food store sales growth excluding fuel of 3% to 5% and capital investment of $1.9 to $2.1 billion, excluding acquisitions.
How much debt does Kroger carry and how is it managing it?
Total debt, including capital leases and financing obligations, was $7.1 billion at year-end 2006, down $173 million during the year. The company reports it uses cash flow from operations to reduce debt, and it had a $2.5 billion five-year credit facility with $352 million outstanding under the credit agreement and commercial paper program at year-end.
What are the main risks to Kroger's results?
The filing highlights labor relations, with about 320 collective bargaining agreements and major contracts expiring in 2007 in several markets, and possible work stoppages. It also cites intense price competition from supercenters, underfunding in multi-employer pension plans (estimated at $600 million to $800 million pre-tax for Kroger's share), and a pending Tax Court case that could require a cash payment of about $363 million including interest.
Is Kroger returning cash to shareholders?
Yes. Kroger repurchased $633 million of common stock and paid $140 million in dividends in 2006. The Board adopted a dividend policy in fiscal 2006, and on March 15, 2007 it raised the quarterly dividend to $0.075 per share, payable June 1, 2007. The company plans to use roughly two-thirds of cash flow over the long term for stock repurchases and dividends and one-third for debt reduction.

04—Continue

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