01—Abstract
Summary
Summary of the 10-K filed April 1, 2020. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported fiscal 2019 (52 weeks ended February 1, 2020) sales of $122.29 billiona, up 0.4% from $121.85 billion in 2018, while net earnings attributable to The Kroger Co. fell to $1.66 billion, or $2.04 per diluted share, from $3.11 billion, or $3.76 per diluted share, in 2018.
Excluding Adjusted Items, adjusted net earnings per diluted share rose 3.8% to $2.19b, and adjusted FIFO operating profit increased 4.0% to $2.995 billion. Identical sales excluding fuel grew 2.0%, digital revenue grew 29%, and the company reported $951 million returned to shareholders through share repurchases and dividends. Key charges in 2019 included a $412 million Lucky's Market impairment and deconsolidation (of which $305 million was attributable to Kroger), $135 million in multi-employer pension withdrawal liabilities, and $80 million in severance.
Kroger reduced total debt, including finance lease obligations, by $1.2 billion to $14.1 billionc, and its leverage ratio was 2.30 to 1 at year-end, against a covenant maximum of 3.50 to 1. Management stated a commitment to a net debt to adjusted EBITDA range of 2.30 to 2.50 to maintain its investment-grade rating. Operating cash flow was $4.66 billion, and capital investments excluding lease buyouts were $3.04 billion.
The filing also discloses COVID-19 as a material risk: on March 18, 2020, Kroger borrowed $1 billiond under its revolving credit facility as a precaution, and it paused share repurchases in the first quarter of 2020 with $245 million remaining under the November 2019 program as of March 25, 2020. The company plans to continue quarterly dividends of $0.16 per share, declared March 12, 2020.
02—Key points
Key Highlights
- Sales of $122.29 billion in 2019, up 0.4% from $121.85 billion in 2018; identical sales excluding fuel rose 2.0%.
- Net earnings attributable to The Kroger Co. were $1.66 billion, or $2.04 per diluted share, versus $3.76 per diluted share in 2018; adjusted EPS was $2.19, up 3.8%.
- Adjusted FIFO operating profit rose 4.0% to $2.995 billion; reported operating profit fell 13.9% to $2.251 billion.
- Lucky's Market impairment and deconsolidation resulted in a $305 million charge attributable to The Kroger Co. ($225 million net of tax).
- Total debt, including finance lease obligations, was reduced by $1.2 billion to $14.1 billion; leverage ratio was 2.30 to 1 versus a 3.50 to 1 covenant maximum.
- Returned $951 million to shareholders through share repurchases and dividends; share repurchases were paused in Q1 2020 with $245 million remaining under the November 2019 program.
- COVID-19 led Kroger to borrow $1 billion under its revolving credit facility on March 18, 2020, and the company disclosed that the pandemic could materially affect costs, sales, and liquidity.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed April 1, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $122.29B$121.85B | +0.4% |
| Operating Income | $2.25B$2.61B | −13.9% |
| Interest Expense | $603.00M$620.00M | −2.7% |
| Net Income | $1.66B$3.08B | −46.1% |
| EPS (Basic) | $2.05$3.80 | −46.1% |
| EPS (Diluted) | $2.04$3.76 | −45.7% |
| Shares Outstanding (Basic) | 799.00M810.00M | −1.4% |
| Shares Outstanding (Diluted) | 805.00M818.00M | −1.6% |
05—Questions
Frequently Asked Questions
How did Kroger perform in fiscal 2019 compared with 2018?
Sales rose 0.4% to $122.29 billion. Net earnings attributable to The Kroger Co. fell to $1.66 billion, or $2.04 per diluted share, from $3.11 billion, or $3.76 per diluted share, largely because 2018 included a $1.78 billion gain on the sale of the convenience store business. Adjusted net earnings per diluted share increased 3.8% to $2.19.
What drove the decline in reported operating profit?
Operating profit fell 13.9% to $2.251 billion. The filing cites higher OG&A and depreciation and amortization as a percentage of sales, partially offset by a higher gross margin rate. The 2019 results include Adjusted Items such as the Lucky's Market impairment ($412 million total), pension withdrawal liabilities ($135 million), severance ($80 million), and transformation costs ($52 million).
How is Kroger managing its debt and liquidity?
Kroger reduced total debt by $1.2 billion to $14.1 billion in 2019 and ended the year with a leverage ratio of 2.30 to 1, within its covenant limit of 3.50 to 1. It had $1.2 billion of commercial paper outstanding and a $2.75 billion revolving credit facility. The company stated it believes cash flows and available sources will be adequate for at least the next twelve months.
What is the impact of COVID-19 on Kroger according to the filing?
The filing states that the pandemic could materially increase costs, reduce sales, and damage financial condition, results, cash flows, and liquidity, though the duration cannot be predicted. Kroger borrowed $1 billion on its revolving credit facility on March 18, 2020 as a precaution, and paused share repurchases in the first quarter of 2020 to preserve financial flexibility.
What are Kroger's capital return plans?
Kroger paid $486 million in dividends in 2019 ($0.60 per share) and declared a quarterly dividend of $0.16 per share on March 12, 2020, payable June 1, 2020. The company expects to continue comparable quarterly dividends that increase over time. The November 2019 repurchase program had $600 million remaining at February 1, 2020, and $245 million remaining as of March 25, 2020.
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