Cincinnati, Ohio-based supermarket giant Kroger has reported earnings of US$0.48 per diluted share for the 16-week Q1 ended 25 May 2002.
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These results exclude restructuring charges associated with implementation of the previously announced Strategic Growth Plan, one-time items, and a charge from adopting FASB 142. On this basis, earnings per diluted share increased 26% over the first quarter of fiscal 2001.
Adjusting prior-year results to eliminate goodwill amortization as required by FASB 142, earnings per share before one-time expenses for the first quarter of 2002 increased 17%. During the Q1, Kroger incurred restructuring costs and one-time items of US$11.1m pre-tax, or one cent per diluted share after tax. The adoption of FASB 142 resulted in a goodwill write-down in the jewelry store division of US$26.4m pre-tax, or two cents per diluted share after tax. Including these items, earnings for the Q1 2002 were US$0.45 per diluted share.
Q1 sales were US$15.7bn, up 3.7% on the Q1 2001. Total food store sales rose 4%. Identical food store sales, including fuel, increased 0.6%. Identical food-store sales excluding fuel were slightly positive. Comparable food store sales, which include relocations and expansions, rose 1.3% for the Q1. Comparable food store sales excluding fuel rose 0.6%.
EBITDA for the Q1 2002 totalled US$1.1bn, an increase of 8.9% from a year ago.
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By GlobalDataJoseph A. Pichler, chairman and CEO, commented: “The implementation of Kroger’s Strategic Growth Plan is moving forward as expected, and we are pleased with the initial results.
“Kroger’s identical food store sales showed substantial improvement over the Q4 2001. We expect that the same-store sales increase in the Q2 will be higher than the 0.6% increase achieved in the Q1. In the first four weeks of the Q2, same-store sales are running ahead of that mark.”
Among the highlights of the Q1:
* FIFO gross profit margin, without one-time expenses, increased three basis points to 27.07%, driven by strong corporate-brand results, including another solid performance from Kroger’s manufacturing division, and savings in advertising.
* Operating, general and administrative (OG&A) costs, before one-time expenses, decreased 28 basis points to 18.46%. These strong results reflect Kroger’s successful cost reduction and productivity initiatives. They were achieved despite higher health care benefit costs and credit card fees.
* Net working capital totalled US$530m, a decrease of US$147m from the Q1 2001. Pichler said Kroger is making progress toward its goal of reducing net working capital by US$500m from the benchmark set in the Q3 1999.
* Kroger repurchased 5.5 million shares of common stock at an average price of US$21.89 per share, for a total investment of US$121m. Since January 2000, Kroger has invested US$1.4bn to repurchase 64 million shares. The company has US$574m remaining under the US$1bn repurchase programme authorised last year by the board of directors. At current prices, Kroger continues to aggressively repurchase shares.
* Net total debt was US$8.3bn, a decrease of US$370m compared to the Q1 2001. Net total debt improved to 2.16x EBITDA, as compared to 2.39x in the Q1 2001. This represents Kroger’s lowest net total debt-to-EBITDA ratio since 1988. The company continues to improve toward the goal of net total debt equal to 2x EBITDA.
“I am pleased by the reduction in net total debt. During the past four quarters, Kroger’s strong free cash flow enabled the company to reduce debt by US$370m while repurchasing US$546m in stock and investing US$2.4bn in capital projects. These three elements comprise a ‘triple play’ for Kroger and our shareholders,” Pichler said.
During the Q1 2002, Kroger opened, expanded, relocated or acquired 34 food stores. Food store square footage increased 3.4% over a year ago. Capital expenditures for the quarter totalled US$890m, including acquisitions and the purchase of US$192m of assets which previously had been financed under a synthetic lease.
Looking ahead, Kroger said it remains comfortable with achieving its previously announced earnings per share growth target of 10-12%, before one-time items, for FY 2002. The elimination of goodwill amortization as required by new FASB rules will improve FY 2002 EPS by around 11 cents per share.
“The operating environment continues to be challenging as competition remains intense, unemployment in certain markets remains high and the economy tries to get back on track.
We believe that our earnings per share forecast for FY 2002 reflects these challenges and the investments Kroger is making to achieve the sales goals of our Strategic Growth Plan,” Pichler said.
