01—Abstract
Summary
Summary of the 10-K filed March 29, 2016. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported fiscal 2015 (52 weeks ended January 30, 2016) with sales of $109.83 billiona, up from $108.47 billion in 2014, and net earnings attributable to The Kroger Co. of $2.04 billion, or $2.06 per diluted share, compared with $1.73 billion, or $1.72 per diluted share, in 2014.
Management attributes the improvement mainly to higher FIFO non-fuel operating profit, a lower LIFO charge ($28 millionb versus $147 million in 2014) and lower contributions to the UFCW Consolidated Pension Plan and The Kroger Co. Foundation, partly offset by a lower fuel margin ($0.17 per gallon versus $0.19 in 2014), continued price investments and a $110 million 2015 UFCW pension contribution charge. Identical supermarket sales excluding fuel rose 5.0%, and the company reports 49 consecutive quarters of positive identical supermarket sales growth excluding fuel. The balance sheet and cash flows remained solid.
Operating cash flow was $4.83 billionc, capital investments excluding mergers were $3.35 billion, and total debt including capital leases and financing obligations was $12.1 billion. The Leverage Ratio was 1.97 to 1 against a 3.50 to 1 covenant limit. The company completed the Roundy's merger on December 18, 2015 for a purchase price of $866 million.
Kroger's share of multi-employer pension underfunding is estimated at $2.9 billiond pre-tax, an increase of about $1.1 billion, which management flags as a risk to future contribution expense. For 2016, Kroger guides to net earnings of $2.19 to $2.28 per diluted share, identical supermarket sales growth excluding fuel of 2.5% to 3.5%, capital investments of $4.1 to $4.4 billion, and a return to a dividend of $0.105 per quarter. The company also authorized a new $500 million share repurchase program on March 10, 2016, expected to be exhausted by the end of the second quarter of 2016.
02—Key points
Key Highlights
- Sales of $109.83 billion in fiscal 2015, up from $108.47 billion in 2014; total supermarket sales without fuel were $91.31 billion.
- Net earnings attributable to The Kroger Co. of $2.04 billion, or $2.06 per diluted share, versus $1.72 per diluted share in 2014 (2014 adjusted EPS was $1.76).
- Identical supermarket sales excluding fuel increased 5.0% in 2015, marking 49 consecutive quarters of positive growth.
- LIFO charge fell to $28 million from $147 million, while fuel margin per gallon declined to $0.17 from $0.19.
- Operating cash flow of $4.83 billion; capital investments of $3.35 billion; total debt of $12.1 billion with a 1.97 to 1 Leverage Ratio against a 3.50 to 1 covenant limit.
- Estimated share of multi-employer pension underfunding of about $2.9 billion pre-tax, up about $1.1 billion, with about $260 million of 2016 contributions expected.
- 2016 guidance of $2.19 to $2.28 per diluted share, with identical supermarket sales growth excluding fuel of 2.5% to 3.5% and a new $500 million share repurchase program authorized March 10, 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Kroger kept $0.02.
- Revenue$109.83B100.0%
- Cost of revenue−$85.50B77.8%
- Gross profit$24.33B22.2%
- Operating costs−$20.76B18.9%
- Operating income$3.58B3.3%
- Interest, other & tax−$1.54B1.4%
- Net income$2.04B1.9%
Where FY2016 revenue went
$109.83B- Cost of revenue: $85.50B, 78% of revenue
- Operating costs: $20.76B, 19% of revenue
- Net income: $2.04B, 1.9% of revenue
- Interest, other & tax: $1.54B, 1.4% of revenue
Kept 1.9% as net incomeNet income $2.04B · 1.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed March 29, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $109.83B$108.47B | +1.3% |
| Cost of Revenue | $85.50B$85.51B | 0.0% |
| Gross Profit | $24.33B$22.95B | +6.0% |
| Operating Income | $3.58B$3.14B | +14.0% |
| Interest Expense | $482.00M$488.00M | −1.2% |
| Net Income | $2.04B$1.73B | +18.0% |
| EPS (Basic) | $2.09$1.74 | +20.1% |
| EPS (Diluted) | $2.06$1.72 | +19.8% |
| Shares Outstanding (Basic) | 966.00M981.00M | −1.5% |
| Shares Outstanding (Diluted) | 980.00M993.00M | −1.3% |
05—Questions
Frequently Asked Questions
How did Kroger perform financially in fiscal 2015?
Sales rose to $109.83 billion from $108.47 billion, and net earnings attributable to The Kroger Co. were $2.04 billion, or $2.06 per diluted share, compared with $1.72 per diluted share in 2014. Operating profit increased to $3.58 billion from $3.14 billion, driven mainly by a much lower LIFO charge and FIFO non-fuel profit growth, partly offset by lower fuel profit.
What is driving identical supermarket sales growth?
The filing attributes 2015 identical supermarket sales growth excluding fuel of 5.0% primarily to more households shopping with Kroger, increased visits per household, changes in product mix and product cost inflation. Kroger reports that its overall market share increased by about 40 basis points in 2015.
What did Kroger guide to for 2016?
Kroger expects net earnings of $2.19 to $2.28 per diluted share, identical supermarket sales growth excluding fuel of 2.5% to 3.5%, capital investments excluding mergers of $4.1 to $4.4 billion, and an effective tax rate of about 35%, excluding certain tax items resolutions.
What are the main risks to Kroger's earnings and balance sheet?
The filing highlights intense price competition, labor relations and approximately 350 collective bargaining agreements, fuel margin volatility, and multi-employer pension underfunding that could raise contributions or trigger withdrawal liabilities. It also notes that a debt downgrade would likely raise borrowing costs, and that information technology and cyber-attack risks could affect operations.
How does Kroger return cash to shareholders?
Kroger paid dividends totaling $385 million in 2015 and repurchased $703 million of common shares in 2015 across its programs. On March 10, 2016, the board approved a new $500 million repurchase program, and it declared a quarterly dividend of $0.105 per share payable June 1, 2016, with the company expecting to continue comparable quarterly dividends.
06—Continue