01—Abstract
Summary
Summary of the 10-K filed April 1, 2008. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported fiscal 2007 (52 weeks ended February 2, 2008) net earnings of $1,181 milliona, or $1.69 per diluted share, up from $1,115 million ($1.54) in fiscal 2006, which was a 53-week year.
Sales rose to $70,235 millionb from $66,111 million. Management attributed earnings growth primarily to spreading fixed costs over increased identical sales, with identical supermarket sales excluding fuel up 5.3%. The company operated 2,486 supermarkets and multi-department stores, 782 convenience stores and 394 fine jewelry stores, and reported that it gained roughly 65 basis points of market share in its 44 major markets during the year.
Cash generation and capital allocation were central to the year. Net cash provided by operating activities was $2,581 millionc, while capital expenditures were $2,060 million. Kroger repurchased 53 million shares for $1,421 million and paid dividends of $202 million.
Total debt rose $1,062 million to $8.1 billiond at year-end, reflecting new senior notes of $600 million and $750 million and borrowings under the credit facility. The company stated it was in compliance with its financial covenants, with a Leverage Ratio of 2.19 to 1 against a 3.50 to 1 default threshold. For fiscal 2008, Kroger guided to earnings per share of $1.83 to $1.90 and identical food store sales growth, excluding fuel, of 3% to 5%.
Management expects an effective tax rate of approximately 38% and capital investment of $2.0 to $2.2 billion. The filing also highlights risks including labor contracts expiring in 2008 in several markets, an estimated $500 million to $700 million pre-tax share of underfunding in multi-employer pension plans, and a pending U.S. Tax Court case with an adverse outcome that would require a cash payment of approximately $419 million including interest.
02—Key points
Key Highlights
- Net earnings of $1,181 million, or $1.69 per diluted share, versus $1,115 million, or $1.54, in fiscal 2006, which included a 53rd week.
- Total sales of $70,235 million, up from $66,111 million; identical food store sales excluding fuel grew 5.3%.
- Operating cash flow of $2,581 million against capital expenditures of $2,060 million.
- Share repurchases of $1,421 million (53 million shares) and dividends of $202 million; quarterly dividend raised to $0.09 per share in March 2008.
- Total debt increased $1,062 million to $8.1 billion; the company stated it was in compliance with financial covenants at year-end.
- Fiscal 2008 guidance of $1.83 to $1.90 in EPS and 3% to 5% identical food store sales growth excluding fuel.
- Potential $419 million cash payment if the Tax Court rules adversely in the Ralphs Grocery Company Section 338(h)(10) dispute.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Kroger kept $0.02.
- Revenue$70.34B100.0%
- Cost of revenue−$53.71B76.4%
- Gross profit$16.63B23.6%
- Operating costs−$14.26B20.3%
- Operating income$2.36B3.4%
- Interest, other & tax−$1.14B1.6%
- Net income$1.22B1.7%
Where FY2008 revenue went
$70.34B- Cost of revenue: $53.71B, 76% of revenue
- Operating costs: $14.26B, 20% of revenue
- Net income: $1.22B, 1.7% of revenue
- Interest, other & tax: $1.14B, 1.6% of revenue
Kept 1.7% as net incomeNet income $1.22B · 1.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed April 1, 2008Financial Statements
| Revenue | $70.34B |
| Cost of Revenue | $53.71B |
| Gross Profit | $16.63B |
| Operating Income | $2.36B |
| Interest Expense | $474.00M |
| Net Income | $1.22B |
| EPS (Basic) | $1.75 |
| EPS (Diluted) | $1.73 |
| Shares Outstanding (Basic) | 690.00M |
| Shares Outstanding (Diluted) | 697.00M |
05—Questions
Frequently Asked Questions
How did Kroger perform in fiscal 2007?
Net earnings rose to $1,181 million, or $1.69 per diluted share, from $1,115 million, or $1.54, in fiscal 2006. Sales grew to $70,235 million from $66,111 million. The filing notes that EPS growth was about 15% after adjusting for the extra week in fiscal 2006.
How much did Kroger spend returning cash to shareholders?
The company repurchased 53 million shares for a total of $1,421 million during fiscal 2007 and paid $202 million in dividends. It also disclosed a $1 billion repurchase program authorized on January 18, 2008, and raised its quarterly dividend to $0.09 per share.
What is Kroger's guidance for fiscal 2008?
Kroger expects earnings per share of $1.83 to $1.90, representing growth of approximately 8% to 12%. It also expects identical food store sales growth excluding fuel of 3% to 5%, capital investment of $2.0 to $2.2 billion, and an effective tax rate of approximately 38%.
What are the main risks to Kroger's financial position?
Key risks include labor contracts expiring in 2008 in Columbus, Indianapolis, Las Vegas, Louisville, Nashville, Phoenix and Portland, and rising health care and pension costs. Kroger's share of underfunding in multi-employer pension plans was estimated at $500 million to $700 million pre-tax. Total indebtedness of about $8.1 billion could limit financial flexibility, and an adverse Tax Court decision would require a cash payment of approximately $419 million including interest.
How is Kroger's debt position and liquidity?
Total debt reached $8.1 billion at year-end 2007, up from $7.1 billion. The company had a $2.5 billion five-year revolving credit facility, with $570 million outstanding under the credit agreement at year-end. Its Leverage Ratio was 2.19 to 1 and its Fixed Charge Coverage Ratio was 3.94 to 1, and the company stated it was in compliance with its financial covenants.
06—Continue