01—Abstract
Summary
Summary of the 10-K filed April 1, 2014. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported fiscal 2013 (52 weeks ended February 1, 2014) sales of $98.4 billiona, up from $96.6 billion in fiscal 2012.
Net earnings attributable to The Kroger Co. were $1.5 billionb, or $2.90 per diluted share, compared with $2.77 per diluted share in 2012. Excluding adjusted items, diluted EPS was $2.85 in 2013 versus $2.52 in 2012, which the company says reflects a 13% increase. Identical supermarket sales excluding fuel rose 3.6%, and the company cited 41 consecutive quarters of positive identical supermarket sales growth excluding fuel.
Operating cash flow was $3.4 billionc, and the company completed its $2.4 billion merger with Harris Teeter Supermarkets on January 28, 2014. The merger was the main balance sheet event. Total debt, including capital leases and financing obligations, rose to $11.3 billion, and the Leverage Ratio was 2.30 to 1 against a default threshold of 3.50 to 1.
Goodwill increased by $901 milliond, and Harris Teeter's 2013 revenue and earnings were not material to consolidated results. Management guided to fiscal 2014 diluted EPS of $3.14 to $3.25, net earnings per diluted share growth of 10% to 14% including Harris Teeter accretion, and capital investments of $2.8 billion to $3.0 billion. On March 13, 2014, the Board authorized a new $1 billion share repurchase program.
Key risks include labor negotiations, since about 300 collective bargaining agreements cover a majority of employees and several are up for renewal in 2014. The company estimates its share of underfunding in multi-employer pension plans at $1.6 billion pre-tax, or $1.0 billion after tax, and expects contributions of about $250 million in 2014. Competitive pressure from supercenters and other formats, fuel price exposure, and the integration of Harris Teeter are also flagged as material risks.
02—Key points
Key Highlights
- Fiscal 2013 sales were $98,375 million, compared with $96,619 million in fiscal 2012, and the company reported a 3.9% increase in total sales over adjusted 2012 sales.
- Net earnings attributable to The Kroger Co. were $1,519 million, or $2.90 per diluted share, versus $2.77 per diluted share in 2012. Adjusted diluted EPS was $2.85 versus $2.52.
- Identical supermarket sales excluding fuel increased 3.6%, and the company reported 41 consecutive quarters of positive identical supermarket sales growth excluding fuel.
- The Harris Teeter merger closed on January 28, 2014 for $2,436 million, adding goodwill of $901 million. Total debt rose to $11.3 billion, and the Leverage Ratio was 2.30 to 1.
- Operating cash flow was $3,380 million in 2013, up from $2,833 million in 2012. Capital investments excluding acquisitions totaled $2,305 million.
- Fiscal 2014 guidance calls for diluted EPS of $3.14 to $3.25 and identical supermarket sales growth excluding fuel of 2.5% to 3.5%. A new $1 billion share repurchase program was authorized on March 13, 2014.
- Kroger's share of multi-employer pension underfunding was estimated at $1.6 billion pre-tax ($1.0 billion after tax), and about 300 collective bargaining agreements cover a majority of its roughly 375,000 employees.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Kroger kept $0.02.
- Revenue$98.38B100.0%
- Cost of revenue−$78.14B79.4%
- Gross profit$20.24B20.6%
- Operating costs−$17.51B17.8%
- Operating income$2.73B2.8%
- Interest, other & tax−$1.21B1.2%
- Net income$1.52B1.5%
Where FY2014 revenue went
$98.38B- Cost of revenue: $78.14B, 79% of revenue
- Operating costs: $17.51B, 18% of revenue
- Net income: $1.52B, 1.5% of revenue
- Interest, other & tax: $1.21B, 1.2% of revenue
Kept 1.5% as net incomeNet income $1.52B · 1.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed April 1, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $98.38B$96.62B | +1.8% |
| Cost of Revenue | $78.14B$76.73B | +1.8% |
| Gross Profit | $20.24B$19.89B | +1.7% |
| Operating Income | $2.73B$2.76B | −1.4% |
| Interest Expense | $443.00M$462.00M | −4.1% |
| Net Income | $1.52B$1.51B | +0.7% |
| EPS (Basic) | $1.47$2.78 | −47.1% |
| EPS (Diluted) | $1.45$2.77 | −47.7% |
| Shares Outstanding (Basic) | 1.03B533.00M | +92.9% |
| Shares Outstanding (Diluted) | 1.04B537.00M | +93.7% |
05—Questions
Frequently Asked Questions
How did Kroger perform in fiscal 2013?
Sales rose to $98,375 million from $96,619 million, and net earnings attributable to The Kroger Co. were $1,519 million, or $2.90 per diluted share, compared with $2.77 in 2012. The filing states that adjusted diluted EPS was $2.85, excluding 2013 adjusted items, versus $2.52 in 2012.
What was the Harris Teeter merger and how does it affect the balance sheet?
Kroger closed its merger with Harris Teeter Supermarkets, Inc. on January 28, 2014 by purchasing 100% of its outstanding common stock for $2,436 million. Goodwill increased by $901 million, and the company financed the deal with commercial paper and long-term debt. Harris Teeter's 2013 results were not material to consolidated results because of the late-year closing.
How much debt does Kroger carry and is it within covenant limits?
Total debt, including capital leases and financing obligations, was $11.3 billion at year-end 2013. The Leverage Ratio was 2.30 to 1 as of February 1, 2014, compared with a default threshold of 3.50 to 1, and the Fixed Charge Coverage Ratio was 4.83 to 1 against a minimum of 1.70 to 1. The company stated it was in compliance with its financial covenants at year-end 2013.
What does Kroger expect for fiscal 2014?
Kroger expects diluted EPS of $3.14 to $3.25 for fiscal 2014, net earnings per diluted share growth of 10% to 14% including the expected accretion from Harris Teeter, and capital investments of $2.8 billion to $3.0 billion. It also expects contributions of approximately $250 million to multi-employer pension plans and an effective tax rate of approximately 35.0%.
What are the main risks to investors highlighted in the filing?
The filing highlights intense price competition and supercenter expansion, labor negotiations covering about 300 collective bargaining agreements with several expiring in 2014, and multi-employer pension underfunding estimated at $1.6 billion pre-tax. It also cites fuel price and regulation risks, economic conditions affecting consumer spending, and the successful integration of Harris Teeter.
06—Continue