01—Abstract
Summary
Summary of the 10-K filed March 30, 2021. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported fiscal 2020 (52 weeks ended January 30, 2021) sales of $132.50 billiona, up 8.4% from $122.29 billion in 2019, with net earnings attributable to The Kroger Co. of $2.59 billion, or $3.27 per diluted share, compared with $1.66 billion, or $2.04 per diluted share, in 2019.
Excluding Adjusted Items, adjusted net earnings per diluted share were $3.47b, an increase of 58.4% from $2.19. Identical sales excluding fuel rose 14.1%, digital revenue grew 116%, and operating profit was $2.78 billion. The results were shaped by the COVID-19 pandemic, which the filing describes as having a material impact on fiscal 2020 results, along with a $962 million pre-tax withdrawal liability charge tied to the UFCW International Union-Industry Pension Fund (the National Fund).
Cash flow and capital returns were strong. Cash from operations was $6.8 billionc, and the company returned $1.9 billion to shareholders through share repurchases and dividends. Total debt, including finance leases, fell $663 million to $13.4 billion, and cash and temporary cash investments rose to $1.69 billion.
The company stated it remains committed to a net debt to adjusted EBITDA range of 2.30 to 2.50 to maintain its investment grade rating, and it expects 3% to 5% net earnings growth. The quarterly dividend was raised to $0.18d per share in 2020.
The filing also highlights ongoing risks, including exposure to multi-employer pension plans that the company estimates are underfunded by approximately $1.7 billion, collective bargaining agreements covering a majority of employees, and cybersecurity and data privacy obligations. The goodwill impairment assessment for the Kroger Specialty Pharmacy reporting unit was identified by the auditor as a critical audit matter, and PricewaterhouseCoopers LLP issued an unqualified opinion on the financial statements and internal control over financial reporting.
02—Key points
Key Highlights
- Sales of $132.50 billion in fiscal 2020, up 8.4% from $122.29 billion in 2019, with identical sales excluding fuel up 14.1%.
- Net earnings attributable to The Kroger Co. of $3.27 per diluted share, versus $2.04 in 2019; adjusted net earnings per diluted share of $3.47, up 58.4%.
- Digital revenue grew 116% in 2020, and cost savings for 2020 exceeded $1 billion.
- Recorded a $962 million pre-tax withdrawal liability charge (National Fund Commitment totaling $754 million after tax) tied to withdrawal from the UFCW International Union-Industry Pension Fund.
- Generated $6.8 billion of cash from operations and returned $1.9 billion to shareholders through share repurchases and dividends.
- Reduced total debt, including finance leases, by $663 million to $13.4 billion; the company held no commercial paper at year-end.
- Estimated its share of multi-employer pension plan underfunding at approximately $1.7 billion ($1.3 billion net of tax) as of December 31, 2020.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed March 30, 2021Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $132.50B$122.29B | +8.4% |
| Operating Income | $2.78B$2.25B | +23.5% |
| Interest Expense | $544.00M$603.00M | −9.8% |
| Net Income | $2.59B$1.66B | +56.0% |
| EPS (Basic) | $3.31$2.05 | +61.5% |
| EPS (Diluted) | $3.27$2.04 | +60.3% |
| Shares Outstanding (Basic) | 773.00M799.00M | −3.3% |
| Shares Outstanding (Diluted) | 781.00M805.00M | −3.0% |
05—Questions
Frequently Asked Questions
How did COVID-19 affect Kroger's fiscal 2020 results?
The filing states the pandemic's impact on financial condition, results of operations and cash flows was material in fiscal 2020. Identical sales excluding fuel rose 14.1% as customers consolidated trips and spent more per transaction, and digital revenue grew 116%. The company also invested over $1.5 billion in COVID-19 related items, primarily within operating, general and administrative expenses.
What was the National Fund withdrawal charge and how will it be paid?
In the fourth quarter of 2020, certain associates ratified an agreement with UFCW local unions to withdraw from the UFCW International Union-Industry Pension Fund. Kroger recorded a $962 million pre-tax withdrawal liability charge, plus a $27 million transition reserve commitment, totaling $754 million after tax. The commitment is to be satisfied through payments to the National Fund over the next three years.
What are Kroger's capital allocation priorities and leverage targets?
Kroger stated it will deploy capital toward projects exceeding its hurdle rate of return and aims for 3% to 5% net earnings growth. It is committed to maintaining a net debt to adjusted EBITDA range of 2.30 to 2.50 to keep its investment grade rating, and it expects to grow its dividend over time and return excess cash through share repurchases. The board approved a $1.0 billion repurchase program in September 2020, with $400 million remaining at January 30, 2021.
What liquidity does Kroger have?
At January 30, 2021, Kroger had $1.69 billion of cash and temporary cash investments and a $2.75 billion unsecured revolving credit facility with no borrowings outstanding. It could borrow about $2.75 billion daily under its commercial paper program, which had no balance outstanding. The company stated it was in compliance with its financial covenants, with a Leverage Ratio of 1.63 to 1 against a maximum of 3.50 to 1.
What are the main risks highlighted in the filing?
Key risks include intense price competition and non-traditional entrants, labor relations given that a majority of associates are covered by about 350 collective bargaining agreements, underfunded multi-employer pension plans, cybersecurity and data privacy exposure, supply chain disruption, and fuel price volatility. The filing also notes that the COVID-19 pandemic may heighten these other risks.
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