01—Abstract
Summary
Summary of the 10-K filed April 2, 2019. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co.'s 10-K for fiscal 2018 (ended February 2, 2019) reports sales of $121.16 billiona, down from $122.66 billion in fiscal 2017, a year that included a 53rd week.
Net earnings attributable to The Kroger Co. were $3.11 billionb, or $3.76 per diluted share, versus $1.91 billion or $2.09 per diluted share in 2017. Adjusted operating net earnings per diluted share were $2.11 in 2018, compared with $1.95 in 2017 excluding the Extra Week. The 2018 GAAP results were heavily influenced by a $1.78 billion pre-tax gain on the sale of the convenience store business for $2.2 billion, and a $228 million mark-to-market gain on Ocado securities.
Identical sales excluding fuel rose 1.8%, digital revenue grew over 58%, and operating profit was $2.61 billionc, or 2.16% of sales. Cash generation and shareholder returns were strong. Net cash provided by operating activities was $4.2 billion, up from $3.4 billion, and Restock cash flow was $1.9 billion versus $735 million in 2017.
The company returned $2.4 billiond to shareholders through repurchases and dividends, including a $1.2 billion accelerated stock repurchase. Total debt decreased $360 million to $15.2 billion, the Leverage Ratio was 2.64 to 1 against a 3.50 to 1 covenant limit, and management expects a higher weighted average interest rate in 2019. For 2019, Kroger guided to identical sales growth excluding fuel of 2.0% to 2.25%, net earnings of $2.15 to $2.25 per diluted share, and FIFO operating profit of $2.9 billion to $3.0 billion.
Key risks include Kroger's estimated $3.1 billion share of multi-employer pension underfunding, labor relations across about 360 collective bargaining agreements, intense price competition, and cybersecurity. Subsequent events include the March 2019 sale of the You Technology business to Inmar for $565 million and an agreement to sell Turkey Hill Dairy.
02—Key points
Key Highlights
- Sales were $121.16 billion in 2018 versus $122.66 billion in 2017, which included a 53rd week; identical sales excluding fuel rose 1.8%.
- Net earnings per diluted share were $3.76 versus $2.09, driven by the $1.78 billion pre-tax gain on the sale of the convenience store business; adjusted operating net earnings per diluted share were $2.11.
- Digital revenue grew over 58% in 2018, driven by Pickup, and the company operated 1,581 supermarkets offering Pickup or ExpressLane services.
- Net cash provided by operating activities was $4.2 billion and Restock cash flow was $1.9 billion, compared with $3.4 billion and $735 million in 2017.
- The company returned $2.4 billion to shareholders in 2018 through share repurchases and dividends, including a $1.2 billion accelerated stock repurchase.
- Estimated share of multi-employer pension underfunding was approximately $3.1 billion, up about $800 million from December 31, 2017.
- 2019 guidance calls for identical sales growth excluding fuel of 2.0% to 2.25%, net earnings of $2.15 to $2.25 per diluted share, and FIFO operating profit of $2.9 billion to $3.0 billion.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed April 2, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $121.85B$122.66B | −0.7% |
| Operating Income | $2.61B$2.61B | +0.1% |
| Interest Expense | $620.00M$601.00M | +3.2% |
| Net Income | $3.08B$1.91B | +61.4% |
| EPS (Basic) | $3.80$2.11 | +80.1% |
| EPS (Diluted) | $3.76$2.09 | +79.9% |
| Shares Outstanding (Basic) | 810.00M895.00M | −9.5% |
| Shares Outstanding (Diluted) | 818.00M904.00M | −9.5% |
05—Questions
Frequently Asked Questions
How did Kroger's 2018 earnings compare with 2017, and what drove the difference?
Net earnings attributable to The Kroger Co. rose to $3.11 billion, or $3.76 per diluted share, from $1.91 billion, or $2.09 per diluted share. The increase was driven mainly by a $1.78 billion pre-tax gain on the sale of the convenience store business and a $228 million mark-to-market gain on Ocado securities, along with a lower effective tax rate of 22.6% versus a negative 27.3% in 2017. Excluding adjusted items, adjusted operating net earnings per diluted share were $2.11 versus $1.95 in 2017 excluding the Extra Week.
How is Kroger's balance sheet and debt position?
Total debt, including capital and financing lease obligations, decreased $360 million to $15.2 billion at year-end 2018. The Leverage Ratio was 2.64 to 1 as of February 2, 2019, against a covenant maximum of 3.50 to 1, and the company said it was in compliance with its financial covenants. Kroger had $800 million of commercial paper outstanding and a $2.75 billion revolving credit facility, and it said it maintains investment grade debt ratings.
What are the main risks highlighted for investors?
The filing highlights intense price competition and non-traditional entrants, labor relations across approximately 360 collective bargaining agreements, and underfunded multi-employer pension plans, where Kroger's estimated share of underfunding was about $3.1 billion. It also cites cybersecurity and data risks, dependence on information technology systems, and the risk that debt rating downgrades would raise borrowing costs.
What did Kroger say about its outlook for 2019?
For 2019, Kroger targets identical sales growth excluding fuel of 2.0% to 2.25%, net earnings of $2.15 to $2.25 per diluted share, and FIFO operating profit of $2.9 billion to $3.0 billion. It expects capital investments of $3.0 to $3.2 billion, an effective tax rate of about 22%, and a higher weighted average interest rate that may increase interest expense.
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