Kroger Delivers Strong First Quarter Results and Raises Full-Year 2021 Guidance

1Q21 ($ in millions; except EPS)

1Q20 ($ in millions; except EPS)

ID Sales* (Table 4)

(4.1%)

19.0%

EPS

$0.18

$1.52

Adjusted EPS (Table 6)

$1.19

$1.22

Operating Profit

$805

$1,326

Adjusted FIFO Operating Profit (Table 7)

$1,375

$1,453

FIFO Gross Margin Rate*

Decreased 65 basis points

OG&A Rate*

Decreased 108 basis points

1Q21 ($ in millions; except EPS)

ID Sales Two Year Stacked* (Table 8)

14.9%

EPS Two Year CAGR (Table 8)

(56.5%)

Adjusted EPS Two Year CAGR (Table 8)

28.6%

Operating Profit Two Year CAGR (Table 8)

(5.5%)

Adjusted FIFO Operating Profit Two Year CAGR (Table 8)

19.9%

FIFO Gross Margin Rate Compared to Q1 2019*

Decreased 21 basis points

OG&A Rate Compared to Q1 2019*

Decreased 58 basis points

IDs (%)

EPS ($)

Operating Profit ($B)

Tax Rate**

Cap Ex ($B)

Free Cash Flow ($B)****

Adjusted*

(4.0%) - (2.5%)

$2.95 - $3.10

$3.5 - $3.7

23%

$3.4 - $3.6

$1.8 - $2.0

2-Year Basis***

10.1% - 11.6%

(Stack)

16% - 19%

(CAGR)

8.5% - 10.8% (CAGR)

$3.0 - $3.1

(Average)

Table 1.

THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(unaudited)

FIRST QUARTER

2021

2020

SALES

$    41,298

100.0%

$ 41,549

100.0%

OPERATING EXPENSES

MERCHANDISE COSTS, INCLUDING ADVERTISING,

WAREHOUSING AND TRANSPORTATION (a),

AND LIFO CHARGE (b)

31,947

77.4

31,454

75.7

OPERATING, GENERAL AND ADMINISTRATIVE (a)

7,424

18.0

7,671

18.5

RENT

261

0.6

273

0.7

DEPRECIATION AND AMORTIZATION

861

2.1

825

2.0

OPERATING PROFIT 

805

2.0

1,326

3.2

OTHER INCOME (EXPENSE)

INTEREST EXPENSE

(165)

(0.4)

(174)

(0.4)

NON-SERVICE COMPONENT OF COMPANY-SPONSORED

PENSION PLAN COSTS

18

-

11

-

(LOSS) GAIN ON INVESTMENTS

(479)

(1.2)

422

1.0

NET EARNINGS BEFORE INCOME TAX EXPENSE

179

0.4

1,585

3.8

INCOME TAX EXPENSE 

36

0.1

373

0.9

NET EARNINGS INCLUDING NONCONTROLLING INTERESTS

143

0.4

1,212

2.9

NET INCOME ATTRIBUTABLE TO

NONCONTROLLING INTERESTS

3

-

-

-

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. 

$         140

0.3%

$    1,212

2.9%

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.

PER BASIC COMMON SHARE

$        0.18

$      1.53

AVERAGE NUMBER  OF COMMON SHARES USED IN

BASIC CALCULATION

752

780

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.

PER DILUTED COMMON SHARE

$        0.18

$      1.52

AVERAGE NUMBER OF COMMON SHARES USED IN

DILUTED CALCULATION

760

788

DIVIDENDS DECLARED PER COMMON SHARE

$        0.18

$      0.16

Note:

Certain percentages may not sum due to rounding.

Note:

The Company defines First-In First-Out (FIFO) gross profit as sales minus merchandise costs, including advertising, warehousing and transportation, but excluding the Last-In First-Out (LIFO) charge.

The Company defines FIFO gross margin as FIFO gross profit divided by sales.

The Company defines FIFO operating profit as operating profit excluding the LIFO charge.

The Company defines FIFO operating margin as FIFO operating profit divided by sales.

The above FIFO financial metrics are important measures used by management to evaluate operational effectiveness.  Management believes these FIFO financial metrics are useful to investors and analysts because they measure our day-to-day operational effectiveness.

(a)

Merchandise costs ("COGS") and operating, general and administrative expenses ("OG&A") exclude depreciation and amortization expense and rent expense which are included in separate expense lines.

(b)

LIFO charges of $37 and $31 were recorded in the first quarters of 2021 and 2020, respectively.  

Table 2.

THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

(in millions)

(unaudited)

May 22,

May 23,

2021

2020

ASSETS

Current Assets

Cash

$                   360

$                   425

Temporary cash investments

1,949

2,301

Store deposits in-transit

1,011

1,142

Receivables

1,936

1,552

Inventories

6,767

6,297

Prepaid and other current assets

522

458

Total current assets

12,545

12,175

Property, plant and equipment, net

23,057

21,790

Operating lease assets

6,663

6,831

Intangibles, net

978

1,044

Goodwill

3,076

3,076

Other assets

2,492

2,026

Total Assets

$              48,811

$              46,942

LIABILITIES AND SHAREOWNERS' EQUITY

Current Liabilities

Current portion of long-term debt including obligations

under finance leases

$                1,150

$                1,095

Current portion of operating lease liabilities

644

669

Trade accounts payable

7,015

7,132

Accrued salaries and wages

1,165

1,302

Other current liabilities

5,236

4,473

Total current liabilities

15,210

14,671

Long-term debt including obligations under finance leases

12,974

12,376

Noncurrent operating lease liabilities

6,385

6,503

Deferred income taxes

1,541

1,532

Pension and postretirement benefit obligations

507

591

Other long-term liabilities

2,965

1,941

Total Liabilities

39,582

37,614

Shareowners' equity

9,229

9,328

Total Liabilities and Shareowners' Equity

$              48,811

$              46,942

Total common shares outstanding at end of period

748

778

Total diluted shares year-to-date

760

788

Table 3.

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

YEAR-TO-DATE

2021

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings including noncontrolling interests

$                143

$            1,212

Adjustments to reconcile net earnings including noncontrolling

interests to net cash provided by operating activities:

Depreciation and amortization

861

825

Operating lease asset amortization

191

193

LIFO charge

37

31

Stock-based employee compensation

56

63

Company-sponsored pension plans

(14)

(5)

Deferred income taxes

(2)

76

Loss (gain) on the sale of assets

9

(12)

Loss (gain) on investments

479

(422)

Other

100

108

Changes in operating assets and liabilities, net

of effects from mergers and disposals of businesses:

Store deposits in-transit

84

37

Receivables

14

90

Inventories

205

756

Prepaid and other current assets

369

63

Trade accounts payable

341

783

Accrued expenses

(548)

167

Income taxes receivable and payable

(175)

276

Operating lease liabilities

(214)

(141)

Other

145

Net cash provided by operating activities

2,256

4,245

CASH FLOWS FROM INVESTING ACTIVITIES:

Payments for property and equipment, including payments for lease buyouts

(820)

(698)

Proceeds from sale of assets

7

35

Other

(40)

(26)

Net cash used by investing activities

(853)

(689)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of long-term debt

-

504

Payments on long-term debt including obligations under finance leases

(328)

(14)

Net payments on commercial paper

-

(1,150)

Dividends paid

(138)

(128)

Proceeds from issuance of capital stock

31

57

Treasury stock purchases

(402)

(422)

Proceeds from financing arrangement

166

-

Other

(110)

(76)

Net cash used by financing activities

(781)

(1,229)

NET INCREASE IN CASH AND TEMPORARY

CASH INVESTMENTS

622

2,327

CASH AND TEMPORARY CASH INVESTMENTS:

BEGINNING OF YEAR

1,687

399

END OF PERIOD

$            2,309

$            2,726

Reconciliation of capital investments:

Payments for property and equipment, including payments for lease buyouts

$              (820)

$              (698)

Payments for lease buyouts

-

5

Changes in construction-in-progress payables

154

(62)

Total capital investments, excluding lease buyouts

$              (666)

$              (755)

Disclosure of cash flow information:

Cash paid during the year for interest

$                185

$                188

Cash paid during the year for income taxes

$                205

$                  18

Table 4. Supplemental Sales Information

(in millions, except percentages)

(unaudited)

Items identified below should not be considered as alternatives to sales or any other GAAP measure of performance.  Identical sales is an industry-specific measure and it is important to review it in conjunction with Kroger's financial results reported in accordance with GAAP.  Other companies in our industry may calculate identical sales differently than Kroger does, limiting the comparability of the measure.

IDENTICAL SALES (a)

FIRST QUARTER

2021

2020

EXCLUDING FUEL

$         36,608

$         38,186

EXCLUDING FUEL

(4.1)%

19.0%

(a)

Kroger defines identical sales, excluding fuel, as sales to retail customers, including sales from all departments at identical supermarket locations, Kroger Specialty Pharmacy businesses, jewelry and ship-to-home solutions.  Kroger defines a supermarket as identical when it has been in operation without expansion or relocation for five full quarters.  

Table 5.  Reconciliation of Net Total Debt and

Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA

(in millions, except for ratio)

(unaudited)

The items identified below should not be considered an alternative to any GAAP measure of performance or access to liquidity.  Net total debt to adjusted EBITDA is an important measure used by management to evaluate the Company's access to liquidity.  The items below should be reviewed in conjunction with Kroger's financial results reported in accordance with GAAP.

The following table provides a reconciliation of net total debt.

May 22,

May 23,

2021

2020

Change

Current portion of long-term debt including obligations

   under finance leases

$           1,150

$        1,095

$          55

Long-term debt including obligations under finance leases

12,974

12,376

598

     Total debt

14,124

13,471

653

Less: Temporary cash investments

1,949

2,301

(352)

     Net total debt

$         12,175

$       11,170

$     1,005

The following table provides a reconciliation from net earnings attributable to The Kroger Co. to adjusted EBITDA, as defined in the Company's credit agreement, on a rolling four quarter basis.

Rolling Four Quarters Ended

May 22,

May 23,

2021

2020

Net earnings attributable to The Kroger Co.

$           1,513

$        2,099

LIFO (credit) charge

(1)

121

Depreciation and amortization

2,783

2,695

Interest expense

535

580

Income tax expense 

445

616

Adjustment for pension plan withdrawal liabilities

1,437

76

Adjustment for gain on investments

(204)

(473)

Adjustment for Home Chef contingent consideration

172

15

Adjustment for severance charge and related benefits

-

80

Adjustment for deconsolidation and impairment of Lucky's Market 

-

305

Adjustment for transformation costs (b)

117

90

Other

(6)

(21)

Adjusted EBITDA

$           6,791

$        6,183

Net total debt to adjusted EBITDA ratio

1.79

1.81

(b) Transformation costs primarily include costs related to store and business closure costs and third party professional      consulting fees associated with business transformation and cost saving initiatives.

Table 6. Net Earnings Per Diluted Share Excluding the Adjustment Items

(in millions, except per share amounts)

(unaudited)

The purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on net earnings per diluted common share for certain items described below.  Adjusted net earnings and adjusted net earnings per diluted share are useful metrics to investors and analysts because they present more accurately year-over-year comparisons for net earnings and net earnings per diluted share because adjusted items are not the result of normal operations.  Items identified in this table should not be considered alternatives to net earnings attributable to The Kroger Co. or any other GAAP measure of performance.  These items should not be reviewed in isolation or considered substitutes for the Company's financial results as reported in accordance with GAAP.  Due to the nature of these items, as further described below, it is important to identify these items and to review them in conjunction with the Company's financial results reported in accordance with GAAP.

The following table summarizes items that affected the Company's financial results during the periods presented. 

FIRST QUARTER

2021

2020

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.

$                            140

$                          1,212

ADJUSTMENT FOR PENSION PLAN WITHDRAWAL LIABILITIES (a)(b)

344

-

ADJUSTMENT FOR LOSS (GAIN) ON INVESTMENTS (a)(c)

367

(312)

ADJUSTMENT FOR HOME CHEF CONTINGENT CONSIDERATION (a)(d)

33

44

ADJUSTMENT FOR TRANSFORMATION COSTS (a)(e)

34

28

2021 AND 2020 ADJUSTMENT ITEMS

778

(240)

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.

EXCLUDING THE ADJUSTMENT ITEMS ABOVE

$                            918

$                            972

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. 

PER DILUTED COMMON SHARE

$                           0.18

$                           1.52

ADJUSTMENT FOR PENSION PLAN WITHDRAWAL LIABILITIES (f)

0.45

-

ADJUSTMENT FOR LOSS (GAIN) ON INVESTMENTS (f)

0.48

(0.40)

ADJUSTMENT FOR HOME CHEF CONTINGENT CONSIDERATION (f)

0.04

0.06

ADJUSTMENT FOR TRANSFORMATION COSTS (f)

0.04

0.04

2021 AND 2020 ADJUSTMENT ITEMS

1.01

(0.30)

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. PER 

DILUTED COMMON SHARE EXCLUDING THE ADJUSTMENT ITEMS ABOVE

$                           1.19

$                           1.22

AVERAGE NUMBER OF COMMON SHARES USED IN

DILUTED CALCULATION

760

788

Table 6. Net Earnings Per Diluted Share Excluding the Adjustment Items (continued)

(in millions, except per share amounts)

(unaudited)

(a)

The amounts presented represent the after-tax effect of each adjustment.

(b)

The pre-tax adjustment to OG&A expenses for pension plan withdrawal liabilities was $449.

(c) 

The pre-tax adjustments for (gain) loss on investments were $479 and ($422) in the first quarters of 2021 and 2020, respectively.  

(d)

The pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $43 and $60 in the first quarters of 2021 and 2020, respectively.  

(e)

The pre-tax adjustment to OG&A expenses for transformation costs was $44 and $38 in the first quarters of 2021 and 2020, respectively.  Transformation costs primarily include costs related to store and business closure costs and third party professional consulting fees associated with business transformation and cost saving initiatives.

(f)

The amounts presented represent the net earnings (loss) per diluted common share effect of each adjustment.

Note:

2021 First Quarter Adjustment Items include adjustments for pension plan withdrawal liabilities, loss on investments, Home Chef contingent consideration adjustment and strategic transformation costs.

2020 First Quarter Adjustment Items include adjustments for the gain on investments, Home Chef contingent consideration adjustment and strategic transformation costs.

Table 7. Operating Profit Excluding the Adjustment Items

(in millions)

(unaudited)

The purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on operating profit for certain items described below.  Adjusted FIFO operating profit is a useful metric to investors and analysts because it presents more accurately year-over year comparisons for operating profit because adjusted items are not the result of normal operations.  Items identified in this table should not be considered alternatives to operating profit or any other GAAP measure of performance.  These items should not be reviewed in isolation or considered substitutes for the Company's financial results as reported in accordance with GAAP.  Due to the nature of these items, as further described below, it is important to identify these items and to review them in conjunction with the Company's financial results reported in accordance with GAAP.

The following table summarizes items that affected the Company's financial results during the periods presented. 

FIRST QUARTER

2021

2020

Operating profit

$                          805

$                       1,326

LIFO charge

37

31

FIFO Operating profit

842

1,357

Adjustment for pension plan withdrawal liabilities

449

-

Adjustment for Home Chef contingent consideration

43

60

Adjustment for transformation costs (a)

44

38

Other

(3)

(2)

2021 and 2020 Adjustment items

533

96

Adjusted FIFO operating profit

excluding the adjustment items above

$                       1,375

$                       1,453

(a)

Transformation costs primarily include costs related to store and business closure costs and third party professional consulting fees associated with business transformation and cost saving initiatives.

Table 8. Two-Year Financial Results

(in millions, except per share amounts)

(unaudited)

The purpose of this table is to better illustrate comparable two-year growth from our ongoing business for the current year for identical sales without fuel, adjusted operating profit and adjusted net earnings per diluted share, due to the significant fluctuations that occurred during 2020 as a result of the COVID-19 pandemic.  Two-year financial results for identical sales without fuel, adjusted operating profit and adjusted net earnings per diluted share are useful metrics to investors and analysts because it presents more accurate comparisons of results and trends over a longer period of time to demonstrate the effect of COVID-19 on our results.  Items identified in these tables should not be considered alternatives to any other GAAP measure of performance.  These items should not be reviewed in isolation or considered substitutes for the Company's financial results as reported in accordance with GAAP.  Due to the nature of these items, as further described below, it is important to identify these items and to review them in conjunction with the Company's financial results reported in accordance with GAAP.

IDENTICAL SALES TWO-YEAR STACKED

2021

2020

FIRST QUARTER

FIRST QUARTER

2021

2020

2020

2019

Excluding Fuel

$  36,608

$ 38,186

$ 38,137

$   32,046

Excluding Fuel

(4.1)%

19.0%

Two-year identical sales stacked

14.9%

OPERATING PROFIT EXCLUDING THE ADJUSTMENT ITEMS TWO-YEAR CAGR*

FIRST QUARTER

2021

2019

Operating profit

$       805

$         901

LIFO charge

37

15

FIFO Operating profit

842

916

Adjustment for pension plan withdrawal liabilities

449

59

Adjustment for Home Chef contingent consideration

43

Adjustment for transformation costs (a)

44

-

Other

6

2021 and 2019 Adjustment items

533

41

Adjusted FIFO operating profit

excluding the adjustment items above

$    1,375

$         957

Two-year operating profit CAGR*

(5.5)%

Two-year adjusted FIFO operating profit

excluding the adjustment items above CAGR*

19.9%

(a)

Transformation costs primarily include costs related to store and business closure costs and third party professional consulting fees associated with business transformation and cost saving initiatives.

*

CAGR represents the compounded annual growth rate.

Table 8. Two-Year Financial Results (continued)

(in millions, except per share amounts)

(unaudited)

NET EARNINGS PER DILUTED SHARE EXCLUDING THE ADJUSTMENT ITEMS TWO-YEAR CAGR*

FIRST QUARTER

2021

2019

Net earnings attributable to the Kroger Co.  

$                 140

$                       772

Adjustment for pension plan withdrawal liabilities (a)(b)

344

44

Adjustment for gain on sale of Turkey Hill Dairy (a)(c)

-

(80)

Adjustment for gain on sale of You Technology (a)(d)

-

(52)

Adjustment for loss (gain) on investments (a)(e)

367

(80)

Adjustment for Home Chef contingent consideration (a)(f)

33

(18)

Adjustment for transformation costs (a)(g)

34

-

2021 and 2019 adjustment items

778

(186)

Net earnings attributable to the Kroger Co.

Excluding the adjustment items above

$                 918

$                       586

Net earnings attributable to the Kroger Co.

Per diluted common share

$                0.18

$                      0.95

Adjustment for pension plan withdrawal liabilities (h)

0.45

0.05

Adjustment for gain on sale of Turkey Hill Dairy (h)

-

(0.10)

Adjustment for gain on sale of You Technology (h)

-

(0.06)

Adjustment for loss (gain) on investments (h)

0.48

(0.10)

Adjustment for Home Chef contingent consideration (h)

0.04

(0.02)

Adjustment for transformation costs (h)

0.04

-

2021 and 2019 adjustment items

1.01

(0.23)

Net earnings attributable to the Kroger Co. per

Diluted common share excluding the adjustment items above

$                1.19

$                      0.72

Average number of common shares used in

Diluted calculation

760

805

Two-year net earnings attributable to the Kroger Co. per

Diluted common share CAGR*

Two-year net earnings attributable to the Kroger Co. per

Diluted common share excluding the adjustment items above CAGR*

28.6%

*

CAGR represents the compounded annual growth rate.

(a)

The amounts presented represent the after-tax effect of each adjustment.

(b)

The pre-tax adjustments to OG&A expenses for pension plan withdrawal liabilities were $449 and $59 in the firstquarters of 2021 and 2019, respectively.

(c) 

The pre-tax adjustment for gain on sale of Turkey Hill Dairy was ($106).

(d) 

The pre-tax adjustment for gain on sale of You Technology was ($70).

(e) 

The pre-tax adjustments for (gain) loss on investments were $479 and ($106) in the first quarters of 2021 and 2019,respectively.  

(f)

The pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $43 and ($24) in the first quarters of 2021 and 2019, respectively.  

(g)

The pre-tax adjustment to OG&A expenses for transformation costs was $44.  Transformation costs primarily include costs related to store and business closure costs and third party professional consulting fees associated with business transformation and cost saving initiatives.

(h)

The amounts presented represent the net earnings (loss) per diluted common share effect of each adjustment.

Note:

2021 First Quarter Adjustment Items include adjustments for pension plan withdrawal liabilities, loss on investments,Home Chef contingent consideration adjustment and strategic transformation costs.

2019 First Quarter Adjustment Items include adjustments for pension plan withdrawal liabilities, the gain on sale of Turkey Hill Dairy, the gain on sale of You Technology, gain on investments and Home Chef contingent consideration adjustment.