01—Abstract
Summary
Summary of the 10-K filed March 29, 2011. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported fiscal 2010 (52 weeks ended January 29, 2011) sales of $82.19 billiona, up from $76.73 billion in 2009, and net earnings attributable to The Kroger Co. of $1.116 billion, or $1.74 per diluted share, compared with $70 million, or $0.11 per diluted share, in 2009.
The 2009 result included non-cash goodwill and asset impairment charges totaling about $1.05 billionb after tax. Identical supermarket sales excluding fuel rose 2.8%, and total supermarket fuel sales rose 36.6% as average retail fuel prices increased 16.8%. Management said it has achieved 29 consecutive quarters of positive identical sales growth excluding fuel.
Cash generation and capital allocation were central to the year. Operating cash flow was $3.4 billionc, and capital expenditures were $1.9 billion, down from $2.2 billion in 2009. Total debt fell $164 million to $7.9 billion at year-end, and the company repurchased $545 million of stock in 2010.
On March 3, 2011, the Board authorized an additional $1 billiond stock repurchase program. The company reported a Leverage Ratio of 1.95 to 1 against a default threshold of 3.50 to 1, and it said it was in compliance with its financial covenants. The filing also flags risks for 2011.
Kroger expects net earnings per diluted share of $1.80 to $1.92 and identical supermarket sales growth excluding fuel of 3.0% to 4.0%. It faces labor negotiations covering store employees in southern California, Memphis and West Virginia, plus Teamsters contracts in the Midwest.
Its share of multi-employer pension underfunding was estimated at $2.5 billion pre-tax, and the company expects meaningful increases in contributions over the next few years. A pending Tax Court case could require a cash payment of up to about $516 million, including interest, if decided adversely.
02—Key points
Key Highlights
- Sales rose 7.1% to $82.19 billion in 2010, driven by a 36.6% increase in supermarket fuel sales and 2.8% identical supermarket sales growth excluding fuel.
- Diluted EPS was $1.74 for 2010 versus $0.11 in 2009, which included a $1.05 billion after-tax non-cash impairment charge; 2010 adjusted diluted EPS was $1.76 after excluding an $18 million pre-tax goodwill impairment.
- Operating cash flow was $3.4 billion and capital expenditures were $1.9 billion, down from $2.2 billion in 2009.
- Total debt declined $164 million to $7.9 billion, and the Leverage Ratio was 1.95 to 1 versus a 3.50 to 1 default threshold.
- The company repurchased $545 million of its stock in 2010 and authorized an additional $1 billion repurchase program on March 3, 2011.
- 2011 guidance calls for net earnings per diluted share of $1.80 to $1.92 and identical supermarket sales growth excluding fuel of 3.0% to 4.0%.
- Key risks include upcoming labor negotiations, Kroger's estimated $2.5 billion pre-tax share of multi-employer pension underfunding, and a Tax Court case with a potential cash payment of up to about $516 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Kroger kept $0.01.
- Revenue$82.05B100.0%
- Cost of revenue−$63.80B77.8%
- Gross profit$18.25B22.2%
- Operating costs−$16.06B19.6%
- Operating income$2.18B2.7%
- Interest, other & tax−$1.05B1.3%
- Net income$1.13B1.4%
Where FY2011 revenue went
$82.05B- Cost of revenue: $63.80B, 78% of revenue
- Operating costs: $16.06B, 20% of revenue
- Net income: $1.13B, 1.4% of revenue
- Interest, other & tax: $1.05B, 1.3% of revenue
Kept 1.4% as net incomeNet income $1.13B · 1.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed March 29, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $82.05B$76.61B | +7.1% |
| Cost of Revenue | $63.80B$58.85B | +8.4% |
| Gross Profit | $18.25B$17.76B | +2.7% |
| Operating Income | $2.18B$1.09B | +100.0% |
| Interest Expense | $448.00M$502.00M | −10.8% |
| Net Income | $1.13B$57.00M | +1887.7% |
| EPS (Basic) | $1.75$0.11 | +1490.9% |
| EPS (Diluted) | $1.74$0.11 | +1481.8% |
| Shares Outstanding (Basic) | 635.00M647.00M | −1.9% |
| Shares Outstanding (Diluted) | 638.00M650.00M | −1.8% |
05—Questions
Frequently Asked Questions
How did Kroger's core grocery business perform in 2010?
Identical supermarket sales excluding fuel increased 2.8%, and total supermarket sales without fuel rose 3.4% to $67.88 billion. Management attributed the identical sales growth primarily to inflation, increased transaction count and a higher average sale per shopping trip.
Why did net earnings rise so sharply from 2009 to 2010?
The 2009 results included non-cash asset impairment charges totaling $1.05 billion after tax, mainly from writing off the Ralphs division goodwill. Net earnings attributable to The Kroger Co. were $1.116 billion in 2010 versus $70 million in 2009, and the company said adjusted net earnings for both years would have been about $1.1 billion.
What are the main financial risks in the filing?
The filing cites a Tax Court case involving a 1992 transaction, where an adverse decision would require a cash payment of up to about $516 million including interest. It also cites multi-employer pension underfunding, estimated at $2.5 billion pre-tax for Kroger's share, with expected contribution increases of approximately $300 million planned for 2011 and meaningful increases over the next few years. Total debt of $7.9 billion and upcoming labor contracts in several markets are also noted.
What does Kroger expect for 2011?
Kroger expects net earnings per diluted share of $1.80 to $1.92, identical supermarket sales growth excluding fuel of 3.0% to 4.0%, and capital investments of $1.7 to $1.9 billion. It also expects interest expense of about $460 million and an effective tax rate of about 36.0%, excluding the resolution of any tax issues.
How is Kroger returning cash to shareholders?
Kroger paid dividends totaling $250 million in 2010 and repurchased $545 million of stock. The quarterly dividend was $0.105 per share, declared in March 2011 and payable June 1, 2011. The Board also authorized an additional $1 billion stock repurchase program on March 3, 2011.
06—Continue