Kroger: Reports Third Quarter 2019 Results

Cincinnati / OH. (tkc) The Kroger Company reported its third quarter 2019 results and provided a Restock Kroger progress update on the company’s three-year transformation plan.

Comments from Chairman and CEO Rodney McMullen

«Kroger’s customer obsession and focus on operational excellence continued to generate positive results in the third quarter. Identical sales were the strongest since we started Restock Kroger and gross margin rate, excluding fuel and pharmacy, improved slightly in the quarter. At the same time, we continued to reduce costs as a percentage of sales.

We are using the power of Kroger’s stable and growing supermarket business to create meaningful incremental operating profit through the alternative profit stream businesses, which adds up to a business built for long-term growth that generates consistently attractive total shareholder returns. Kroger continues to generate strong and durable free cash flow as reflected by the fact that the company has reduced debt by USD 1.5 billion over the prior four quarters and continues to increase its dividend to create shareholder value.

Restock Kroger is the right framework to reposition our business to create value for all of our stakeholders, both today and in the future.»

Financial Results

	3Q19 (USD in millions; except EPS)	3Q18 (in millions; except EPS)
ID Sales	2.5%	1.7%
EPS	USD 0.32	USD 0.39
Adjusted EPS	USD 0.47	USD 0.48
Operating Profit	USD 254	USD 647
Adjusted FIFO Operating Profit	USD 653	USD 664
FIFO Gross Margin Rate(*)	Decreased 24 basis points
OG+A Rate(*)	Decreased 15 basis points
(*)without fuel and adjustment items, if applicable

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Total company sales were USD 28.0 billion in the third quarter, compared to USD 27.8 billion for the same period last year. Excluding fuel and dispositions, sales grew 2.7 percent.

Gross margin was 22.1 percent of sales for the third quarter. The FIFO gross margin rate excluding fuel decreased 24 basis points, primarily driven by industry-wide lower gross margin rates in pharmacy and continued growth in the specialty pharmacy business. Gross margin rate excluding fuel and pharmacy improved slightly.

LIFO charge for the quarter was USD 23 million, compared to USD 12 million for the same period last year, driven by higher inflation in dry grocery, pharmacy and dairy.

The Operating, General + Administrative rate decrease of 15 basis points is due to broad based improvement of Restock Kroger cost savings initiatives.

Third quarter results include an out-of-period charge of USD 29 million related to an adjustment for a provision of a pharmacy contract. This amount reduced third quarter adjusted net earnings per diluted share by USD 0.03. There is no effect on earnings guidance as a result of this contract going forward.

As a result of a portfolio review, Kroger has decided to divest its interest in Lucky’s Market and recognized a non-cash impairment charge of USD 238 million in the third quarter, and the portion of this charge attributable to Kroger is USD 131 million.

The income tax rate for the third quarter was 35.6 percent. The income tax rate is higher than the adjusted income tax rate because a portion of the non-cash impairment charge related to Lucky’s Market is not attributable to Kroger.