01—Abstract
Summary
Summary of the 10-K filed April 3, 2018. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported fiscal 2017 (53 weeks ended February 3, 2018) sales of $122.66 billiona, up from $115.34 billion in 2016, with the Extra Week contributing to the increase.
Net earnings attributable to The Kroger Co. were $1.91 billionb, or $2.09 per diluted share, compared with $2.05 in 2016. Excluding the 2017 Adjusted Items and the Extra Week, adjusted net earnings were $1.95 per diluted share versus $2.12 in 2016, a decrease of 8.0%. The results were heavily affected by a $922 million income tax benefit from the Tax Cuts and Jobs Act, while operating profit fell to $2.09 billion from $3.44 billion, with operating profit as a percentage of sales at 1.70% versus 2.98% in 2016.
Cash generation weakened, with net cash provided by operating activities of $3.41 billionc versus $4.27 billion in 2016, reflecting a $1.0 billion contribution to company-sponsored pension plans. Free cash flow was $706 million, compared with $397 million in 2016. The company returned $2.1 billion to shareholders through share repurchases and dividends in 2017, and total debt rose to $15.6 billion.
Management guides to 2018 net earnings of $1.95 to $2.15d per diluted share and identical supermarket sales growth, excluding fuel, of 1.5% to 2.0%. The company also agreed on February 5, 2018, to sell its convenience store business to EG Group for $2.15 billion.
02—Key points
Key Highlights
- Sales rose to $122.66 billion in 2017 from $115.34 billion in 2016, including the 53rd week, and identical supermarket sales excluding fuel increased 0.7%.
- Net earnings per diluted share were $2.09 in 2017 versus $2.05 in 2016; adjusted net earnings per diluted share were $2.04 (or $1.95 excluding the Extra Week), down from $2.12.
- A $922 million income tax benefit, primarily from remeasuring deferred tax liabilities under the Tax Cuts and Jobs Act, boosted reported 2017 earnings.
- Operating profit fell to $2.09 billion from $3.44 billion, and operating profit as a percentage of sales declined to 1.70% from 2.98%, driven by lower gross margin and higher OG&A expenses.
- Net cash provided by operating activities was $3.41 billion, down from $4.27 billion, after a $1.0 billion pension contribution; free cash flow was $706 million versus $397 million in 2016.
- The company agreed to sell its convenience store business to EG Group for $2.15 billion, and a new $1.0 billion share repurchase program was approved on March 15, 2018.
- Management's 2018 outlook calls for net earnings of $1.95 to $2.15 per diluted share, capital investments of about $3.0 billion, and a tax rate of approximately 22%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Kroger kept $0.02.
- Revenue$122.66B100.0%
- Cost of revenue−$95.66B78.0%
- Gross profit$27.00B22.0%
- Operating costs−$24.39B19.9%
- Operating income$2.61B2.1%
- Interest, other & tax−$705.0M0.6%
- Net income$1.91B1.6%
Where FY2018 revenue went
$122.66B- Cost of revenue: $95.66B, 78% of revenue
- Operating costs: $24.39B, 20% of revenue
- Net income: $1.91B, 1.6% of revenue
- Interest, other & tax: $705.0M, 0.6% of revenue
Kept 1.6% as net incomeNet income $1.91B · 1.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed April 3, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $122.66B$115.34B | +6.4% |
| Cost of Revenue | $95.66B$89.50B | +6.9% |
| Gross Profit | $27.00B$25.84B | +4.5% |
| Operating Income | $2.61B$3.45B | −24.3% |
| Interest Expense | $601.00M$522.00M | +15.1% |
| Net Income | $1.91B$1.98B | −3.4% |
| EPS (Basic) | $2.11$2.08 | +1.4% |
| EPS (Diluted) | $2.09$2.05 | +2.0% |
| Shares Outstanding (Basic) | 895.00M942.00M | −5.0% |
| Shares Outstanding (Diluted) | 904.00M958.00M | −5.6% |
05—Questions
Frequently Asked Questions
Why did reported earnings per share rise while adjusted earnings fell?
Reported net earnings per diluted share rose to $2.09 from $2.05, but this was driven by a $922 million tax benefit from the Tax Cuts and Jobs Act. Excluding the 2017 Adjusted Items and the Extra Week, adjusted net earnings per diluted share were $1.95, a decrease of 8.0% from $2.12 in 2016, due mainly to lower non-fuel FIFO operating profit and higher interest expense.
How did the 53rd week affect 2017 results?
The Extra Week contributed $0.09 to net earnings per diluted share for 2017, adding $119 million to pre-tax net earnings ($79 million net of tax). The filing also notes that sales increased partly due to the Extra Week.
What drove the decline in operating profit?
Operating profit fell to $2.09 billion from $3.44 billion, with the operating profit rate dropping to 1.70% from 2.98%. The filing attributes this to a lower gross margin, which fell to 22.01% from 22.40% of sales, and higher OG&A expenses, which rose to 17.58% of sales from 16.63%.
What is the outlook for 2018?
Kroger targets identical supermarket sales growth, excluding fuel, of 1.5% to 2.0%, expects net earnings of $1.95 to $2.15 per diluted share, plans capital investments of about $3.0 billion excluding mergers and leased facility purchases, and expects a tax rate of approximately 22%.
How is Kroger returning cash and managing its debt?
In 2017 Kroger returned $2.1 billion to shareholders through share repurchases and dividends. Its Leverage Ratio was 2.45 to 1 against a default threshold of 3.50 to 1, and it had $2.1 billion of commercial paper outstanding at year-end. A $1.0 billion term loan was drawn in March 2018 to reduce commercial paper borrowings.
06—Continue