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CINCINNATI, March 4, 2021 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported its fourth quarter and fiscal year 2020 results.
Comments from Chairman and CEO Rodney McMullen
"I am incredibly humbled by the strength of our associates and what we continue to accomplish together. Our customers are at the center of everything we do and we will continue to serve them as we have since the beginning of the pandemic, through our leadership in food and as a health partner, providing COVID-19 testing and vaccines.
"Kroger continued to grow market share during the quarter. Our ability to meet our customers' evolving needs is a testament to our deep competitive moats, disciplined investments in our increasingly robust digital capabilities, as well as our associates' relentless focus on our customers. We finished fiscal year 2020 with strong sales and earnings, as heightened demand for fresh, convenient food and meal solutions across modalities, including in store, pick up and home delivery, continued throughout the fourth quarter.
"Supported by our strong performance and cash position, we were pleased to commit more than $2.5 billion to safeguard the environment our associates and customers work and shop in and to reward associates, including nearly $1 billion to better secure pensions."
Fourth Quarter Financial Results
4Q20 ($ in millions; except EPS) | 4Q19 ($ in millions; except EPS) | |
ID Sales* (Table 4) | 10.6% | 2.0% |
EPS** | ($0.10) | $0.40 |
Adjusted EPS (Table 6) | $0.81 | $0.57 |
Operating (Loss) Profit** | ($158) | $537 |
Adjusted FIFO Operating Profit (Table 7) | $837 | $758 |
FIFO Gross Margin Rate* | Decreased 6 basis points | |
OG&A Rate* | Decreased 7 basis points | |
*without fuel and adjustment items, if applicable** Includes a $989 million pre-tax charge related to UFCW pension commitments and adjustment items, if applicable
Total company sales were $30.7 billion in the fourth quarter, compared to $28.9 billion for the same period last year. Excluding fuel and dispositions, sales grew 10.7%.
Gross margin was 22.9% of sales for the fourth quarter. The FIFO gross margin rate, excluding fuel, decreased 6 basis points compared to the same period last year, reflecting continued price investments offset by growth in alternative profit streams and sourcing benefits.
The LIFO credit for the fourth quarter was $84 million, compared to a LIFO charge of $36 million for the same period last year. The LIFO credit was primarily driven by fourth quarter working capital improvements in pharmacy inventory and dairy deflation.
The Operating, General & Administrative rate decreased 7 basis points, excluding fuel and adjustment items, which reflects sales leverage and execution of cost savings initiatives, offset by continued COVID-19 related investments to protect the health and safety of associates, customers and communities and increased incentive costs.
Rent and depreciation, excluding fuel, decreased 28 basis points due to sales leverage.
As a result of the UFCW pension charge, the income tax rate was a benefit for the fourth quarter of 2020 of 30.8%. This compared to a rate of 18.3% for the same period last year which was lower than our effective rate due to an increase in tax deductions.
Fiscal 2020 Financial Results
2020 ($ in billions; except EPS) | 2019 ($ in billions; except EPS) | |
ID Sales* (Table 4) | 14.1% | 2.0% |
EPS** | $3.27 | $2.04 |
Adjusted EPS (Table 6) | $3.47 | $2.19 |
Operating Profit** | $2.8 | $2.3 |
Adjusted FIFO Operating Profit (Table 7) | $4.1 | $3.0 |
FIFO Gross Margin Rate* | Increased 14 basis points | |
OG&A Rate* | Decreased 6 basis points | |
*without fuel and adjustment items, if applicable** Includes a $989 million pre-tax charge related to UFCW pension commitments and adjustment items, if applicable
Total company sales were $132.5 billion in 2020, compared to $122.3 billion for the same period last year. Excluding fuel and dispositions, total sales grew 14.2%.
Gross margin was 23.3% of sales for 2020. The FIFO gross margin rate, excluding fuel, increased 14 basis points compared to the same period last year. This increase was primarily driven by sales leverage, growth in alternative profit streams, and sourcing benefits, partially offset with continued price investments.
The LIFO credit for 2020 was $7 million, compared to a LIFO charge of $105 million in 2019. The LIFO credit was primarily driven by fourth quarter working capital improvements in pharmacy inventory and dairy deflation.
The Operating, General & Administrative rate decreased 6 basis points, excluding fuel and adjustment items, which reflects sales leverage and execution of cost savings initiatives, offset by continued COVID-19 related investments to protect the health and safety of associates, customers and communities and increased incentive costs.
Rent and depreciation, excluding fuel, decreased 31 basis points due to sales leverage.
The income tax rate for 2020 was 23.2% compared to 23.7% for the same period last year. The income tax rate is lower compared to 2019 due to the unfavorable impact of the Lucky's Market impairment charge in 2019.
Capital Allocation Strategy
Kroger reduced net total debt by $2.0 billion over the last four quarters. Kroger's net total debt to adjusted EBITDA ratio is 1.75, compared to 2.48 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.
In total, Kroger returned $1.9 billion to shareholders in 2020. Kroger repurchased $1.32 billion of shares in 2020 under its board authorizations. Kroger increased the dividend by 13 percent, from 64¢ to 72¢ per year, marking the 14th consecutive year of dividend increases, which resulted in a payout of $534 million.
2021 Guidance
Comments from CFO Gary Millerchip
"As a result of strong execution of our strategy, enabled by continued investments in our customers and associates, we are accelerating the momentum in our business. Looking ahead to 2021, evaluating our performance using the two-year period of 2020 and 2021 more accurately measures this underlying momentum. We expect our two-year identical sales stack*** to be in the range of 9% to 11%. In addition, we expect our adjusted net earnings per diluted share and adjusted FIFO operating profit to have compounded annual growth rates of between 12% and 16% and 5.4% and 8.5%, respectively. Over the two years, this would result in total shareholder return significantly above our previously communicated target of 8-11%.
"Our 2021 guidance contemplates continued investments in associates and customers plus ongoing COVID-19 related costs, balanced with continued execution of cost savings initiatives and growth in our alternative profit businesses.
"We remain committed to delivering strong and attractive total shareholder return over the long term and expect our 2021 operating profit guidance to represent a new, higher baseline from which we will deliver total shareholder return of 8-11%. We look forward to sharing more about our future growth plans at our upcoming investor day."
Full Year 2021 Guidance
IDs (%) | EPS ($) | Operating Profit ($B) | Tax Rate** | Cap Ex ($B) | Free Cash Flow ($B)**** | |
Adjusted* | (3.0%) - (5.0%) | $2.75 - $2.95 | $3.3 - $3.5 | 23% | $3.4 - $3.6 | $1.6 - $1.8 |
2-Year Basis*** | 9.1% - 11.1% (Stack) | 12% - 16% (CAGR) | 5.4% - 8.5% (CAGR) | $2.9 - $3.0 (Average) |
* Without adjusted items, if applicable; Identical sales is without fuel; Operating profit represents FIFO Operating Profit. Kroger is unable to provide a full reconciliation of the GAAP and non-GAAP measures used in 2021 guidance without unreasonable effort because it is not possible to predict certain of our adjustment items with a reasonable degree of certainty. This information is dependent upon future events and may be outside of our control and its unavailability could have a significant impact on 2021 GAAP financial results.** This rate reflects typical tax adjustments and does not reflect changes to the rate from the completion of income tax audit examinations, which cannot be predicted.*** Identical sales, without fuel, guidance for 2-year basis represents the sum of actual 2020 identical sales and 2021 guidance. The 2-year basis guidance items denoted with CAGR represent the compounded annual growth rate utilizing 2019 as the base year. Average free cash flow is the average of actual 2020 free cash flow and 2021 guidance.**** 2021 free cash flow guidance includes a $300M payment of deferred payroll taxes. This excludes planned payments related to the restructuring of multi-employer pension plans.
Fourth Quarter 2020 Highlights
Customer Obsession
Associate Experience
Live Our Purpose
About KrogerAt The Kroger Co. (NYSE: KR), we are Fresh for Everyone™ and dedicated to our Purpose: To Feed the Human Spirit®. We are, across our family of companies, nearly half a million associates who serve over 11 million customers daily through a seamless shopping experience under a variety of banner names. We are committed to creating #ZeroHungerZeroWaste communities by 2025. To learn more about us, visit our newsroom and investor relations site.
Kroger's fourth quarter 2020 ended on January 30, 2021.
Note: Fuel sales have historically had a low gross margin rate and operating expense rate as compared to corresponding rates on non-fuel sales. As a result, Kroger discusses the changes in these rates excluding the effect of fuel.
Please refer to the supplemental information presented in the tables for reconciliations of the non-GAAP financial measures used in this press release to the most comparable GAAP financial measure and related disclosure.
This press release contains certain statements that constitute "forward-looking statements" about the future performance of the company. These statements are based on management's assumptions and beliefs in light of the information currently available to it. Such statements are indicated by words or phrases such as "achieve," "believe," "contemplates," "continue," "deliver," "expect," "future," "guidance," "strategy," "target," "trends," and "will." Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. These include the specific risk factors identified in "Risk Factors" in our annual report on Form 10-K for our last fiscal year and any subsequent filings, as well as the following:
Kroger assumes no obligation to update the information contained herein. Please refer to Kroger's reports and filings with the Securities and Exchange Commission for a further discussion of these risks and uncertainties.
Note: Kroger's quarterly conference call with investors will broadcast live at 10 a.m. (ET) on March 4, 2021 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, March 4, 2021.
Kroger will host its 2021 Investor Conference virtually at ir.kroger.com at 9:00 a.m. (ET) on March 31, 2021.
4th Quarter 2020 Tables Include:
Table 1. | ||||||||||||||||||||||
THE KROGER CO. | ||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||
(in millions, except per share amounts) | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||
FOURTH QUARTER | YEAR-TO-DATE | |||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
SALES | $ 30,737 | 100.0% | $ 28,893 | 100.0% | $ 132,498 | 100.0% | $ 122,286 | 100.0% | ||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||
MERCHANDISE COSTS, INCLUDING ADVERTISING, | ||||||||||||||||||||||
WAREHOUSING AND TRANSPORTATION (a), | ||||||||||||||||||||||
AND LIFO CHARGE (b) | 23,691 | 77.1 | 22,507 | 77.9 | 101,597 | 76.7 | 95,294 | 77.9 | ||||||||||||||
OPERATING, GENERAL AND ADMINISTRATIVE (a) | 6,338 | 20.6 | 4,985 | 17.3 | 24,500 | 18.5 | 21,208 | 17.3 | ||||||||||||||
RENT | 192 | 0.6 | 209 | 0.7 | 874 | 0.7 | 884 | 0.7 | ||||||||||||||
DEPRECIATION AND AMORTIZATION | 674 | 2.2 | 655 | 2.3 | 2,747 | 2.1 | 2,649 | 2.2 | ||||||||||||||
OPERATING PROFIT (LOSS) | (158) | (0.5) | 537 | 1.9 | 2,780 | 2.1 | 2,251 | 1.8 | ||||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||||||||
INTEREST EXPENSE | (106) | (0.3) | (140) | (0.5) | (544) | (0.4) | (603) | (0.5) | ||||||||||||||
NON-SERVICE COMPONENT OF COMPANY-SPONSORED | ||||||||||||||||||||||
PENSION PLAN COSTS | 1 | - | 2 | - | 29 | - | - | - | ||||||||||||||
GAIN (LOSS) ON INVESTMENTS | 153 | 0.5 | (9) | - | 1,105 | 0.8 | 157 | 0.1 | ||||||||||||||
GAIN ON SALE OF BUSINESSES | - | - | - | - | - | - | 176 | 0.1 | ||||||||||||||
NET EARNINGS (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) | (110) | (0.4) | 390 | 1.4 | 3,370 | 2.5 | 1,981 | 1.6 | ||||||||||||||
INCOME TAX EXPENSE (BENEFIT) | (34) | (0.1) | 71 | 0.3 | 782 | 0.6 | 469 | 0.4 | ||||||||||||||
NET EARNINGS (LOSS) INCLUDING NONCONTROLLING INTERESTS | (76) | (0.3) | 319 | 1.1 | 2,588 | 2.0 | 1,512 | 1.2 | ||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO | ||||||||||||||||||||||
NONCONTROLLING INTERESTS | 1 | - | (8) | - | 3 | - | (147) | (0.1) | ||||||||||||||
NET EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO. | $ (77) | -0.3% | $ 327 | 1.1% | $ 2,585 | 2.0% | $ 1,659 | 1.4% | ||||||||||||||
NET EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO. | ||||||||||||||||||||||
PER BASIC COMMON SHARE | $ (0.10) | $ 0.40 | $ 3.31 | $ 2.05 | ||||||||||||||||||
AVERAGE NUMBER OF COMMON SHARES USED IN | ||||||||||||||||||||||
BASIC CALCULATION | 761 | 797 | 773 | 799 | ||||||||||||||||||
NET EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO. | ||||||||||||||||||||||
PER DILUTED COMMON SHARE | $ (0.10) | $ 0.40 | $ 3.27 | $ 2.04 | ||||||||||||||||||
AVERAGE NUMBER OF COMMON SHARES USED IN | ||||||||||||||||||||||
DILUTED CALCULATION | 761 | 804 | 781 | 805 | ||||||||||||||||||
DIVIDENDS DECLARED PER COMMON SHARE | $ 0.180 | $ 0.160 | $ 0.700 | $ 0.620 | ||||||||||||||||||
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 credit of ($84) and charge of $36 were recorded in the fourth quarter of 2020 and 2019, respectively. For the year to date period, LIFO credit of ($7) and charge of $105 were recorded for 2020 and 2019, respectively. | ||||||||||||
Table 2. | ||||||||||
THE KROGER CO. | ||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
(in millions) | ||||||||||
(unaudited) | ||||||||||
January 30, | February 1, | |||||||||
2021 | 2020 | |||||||||
ASSETS | ||||||||||
Current Assets | ||||||||||
Cash | $ 371 | $ 393 | ||||||||
Temporary cash investments | 1,316 | 6 | ||||||||
Store deposits in-transit | 1,096 | 1,179 | ||||||||
Receivables | 1,756 | 1,706 | ||||||||
Inventories | 7,063 | 7,084 | ||||||||
Prepaid and other current assets | 876 | 522 | ||||||||
Total current assets | 12,478 | 10,890 | ||||||||
Property, plant and equipment, net | 22,386 | 21,871 | ||||||||
Operating lease assets | 6,796 | 6,814 | ||||||||
Intangibles, net | 997 | 1,066 | ||||||||
Goodwill | 3,076 | 3,076 | ||||||||
Other assets | 2,904 | 1,539 | ||||||||
Total Assets | $ 48,637 | $ 45,256 | ||||||||
LIABILITIES AND SHAREOWNERS' EQUITY | ||||||||||
Current Liabilities | ||||||||||
Current portion of long-term debt including obligations | ||||||||||
under finance leases | $ 911 | $ 1,965 | ||||||||
Current portion of operating lease liabilities | 667 | 597 | ||||||||
Trade accounts payable | 6,679 | 6,349 | ||||||||
Accrued salaries and wages | 1,413 | 1,168 | ||||||||
Other current liabilities | 5,700 | 4,164 | ||||||||
Total current liabilities | 15,370 | 14,243 | ||||||||
Long-term debt including obligations under finance leases | 12,502 | 12,111 | ||||||||
Noncurrent operating lease liabilities | 6,507 | 6,505 | ||||||||
Deferred income taxes | 1,513 | 1,466 | ||||||||
Pension and postretirement benefit obligations | 535 | 608 | ||||||||
Other long-term liabilities | 2,660 | 1,750 | ||||||||
Total Liabilities | 39,087 | 36,683 | ||||||||
Shareowners' equity | 9,550 | 8,573 | ||||||||
Total Liabilities and Shareowners' Equity | $ 48,637 | $ 45,256 | ||||||||
Total common shares outstanding at end of period | 757 | 788 | ||||||||
Total diluted shares year-to-date | 781 | 805 | ||||||||
Table 3. | ||||||||||||
THE KROGER CO. | ||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
(in millions) | ||||||||||||
(unaudited) | ||||||||||||
YEAR-TO-DATE | ||||||||||||
2020 | 2019 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net earnings including noncontrolling interests | $ 2,588 | $ 1,512 | ||||||||||
Adjustments to reconcile net earnings including noncontrolling | ||||||||||||
interests to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 2,747 | 2,649 | ||||||||||
Operating lease asset amortization | 626 | 640 | ||||||||||
LIFO (credit) charge | (7) | 105 | ||||||||||
Stock-based employee compensation | 185 | 155 | ||||||||||
Expense (credit) for company-sponsored pension plans | (9) | 39 | ||||||||||
Asset impairment charges | 70 | 120 | ||||||||||
Deferred income taxes | 44 | (56) | ||||||||||
Gain on sale of businesses | - | (176) | ||||||||||
Gain on the sale of assets | (59) | (158) | ||||||||||
Gain on investments | (1,105) | (157) | ||||||||||
Loss on deconsolidation and impairment of Lucky's Market | - | 412 | ||||||||||
Other | 165 | (109) | ||||||||||
Changes in operating assets and liabilities, net | ||||||||||||
of effects from mergers and disposals of businesses: | ||||||||||||
Store deposits in-transit | 83 | 3 | ||||||||||
Receivables | (90) | (36) | ||||||||||
Inventories | 7 | (351) | ||||||||||
Prepaid and other current assets | (342) | (33) | ||||||||||
Trade accounts payable | 330 | 342 | ||||||||||
Accrued expenses | 1,382 | 302 | ||||||||||
Income taxes receivable and payable | 53 | (142) | ||||||||||
Operating lease liabilities | (552) | (639) | ||||||||||
Proceeds from contract associated with the sale of business | - | 295 | ||||||||||
Other | 699 | (53) | ||||||||||
Net cash provided by operating activities | 6,815 | 4,664 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Payments for property and equipment, including payments for lease buyouts | (2,865) | (3,128) | ||||||||||
Proceeds from sale of assets | 165 | 273 | ||||||||||
Net proceeds from sale of businesses | - | 327 | ||||||||||
Other | (114) | (83) | ||||||||||
Net cash used by investing activities | (2,814) | (2,611) | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from issuance of long-term debt | 1,049 | 813 | ||||||||||
Payments on long-term debt including obligations under finance leases | (747) | (2,304) | ||||||||||
Net proceeds (payments) on commercial paper | (1,150) | 350 | ||||||||||
Dividends paid | (534) | (486) | ||||||||||
Proceeds from issuance of capital stock | 127 | 55 | ||||||||||
Treasury stock purchases | (1,324) | (465) | ||||||||||
Other | (134) | (46) | ||||||||||
Net cash used by financing activities | (2,713) | (2,083) | ||||||||||
NET INCREASE (DECREASE) IN CASH AND TEMPORARY | ||||||||||||
CASH INVESTMENTS | 1,288 | (30) | ||||||||||
CASH AND TEMPORARY CASH INVESTMENTS: | ||||||||||||
BEGINNING OF YEAR | 399 | 429 | ||||||||||
END OF PERIOD | $ 1,687 | $ 399 | ||||||||||
Reconciliation of capital investments: | ||||||||||||
Payments for property and equipment, including payments for lease buyouts | $ (2,865) | $ (3,128) | ||||||||||
Payments for lease buyouts | 58 | 82 | ||||||||||
Changes in construction-in-progress payables | (359) | 2 | ||||||||||
Total capital investments, excluding lease buyouts | $ (3,166) | $ (3,044) | ||||||||||
Disclosure of cash flow information: | ||||||||||||
Cash paid during the year for interest | $ 564 | $ 523 | ||||||||||
Cash paid during the year for income taxes | $ 659 | $ 706 | ||||||||||
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) | ||||||||||||
FOURTH QUARTER | YEAR-TO-DATE | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
EXCLUDING FUEL | $ 28,004 | $ 25,321 | $ 120,762 | $ 105,806 | ||||||||
EXCLUDING FUEL | 10.6% | 2.0% | 14.1% | 2.0% | ||||||||
(a) | Kroger defines identical sales, excluding fuel, as sales to retail customers, including sales from all departments at identical supermarketlocations, 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. | ||||||||
January 30, | February 1, | |||||||
2021 | 2020 | Change | ||||||
Current portion of long-term debt including obligations | ||||||||
under finance leases | $ 911 | $ 1,965 | $ (1,054) | |||||
Long-term debt including obligations under finance leases | 12,502 | 12,111 | 391 | |||||
Total debt | 13,413 | 14,076 | (663) | |||||
Less: Temporary cash investments | 1,316 | 6 | 1,310 | |||||
Less: Prepaid benefit payments | 125 | 125 | - | |||||
Net total debt | $ 11,972 | $ 13,945 | $ (1,973) | |||||
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, for 2020 and 2019. | ||||||||
YEAR-TO-DATE | ||||||||
January 30, | February 1, | |||||||
2021 | 2020 | |||||||
Net earnings attributable to The Kroger Co. | $ 2,585 | $ 1,659 | ||||||
LIFO (credit) charge | (7) | 105 | ||||||
Depreciation and amortization | 2,747 | 2,649 | ||||||
Interest expense | 544 | 603 | ||||||
Income tax expense | 782 | 469 | ||||||
Adjustment for pension plan withdrawal liabilities | 989 | 135 | ||||||
Adjustment for gain on investments | (1,105) | (157) | ||||||
Adjustment for gain on sale of Turkey Hill Dairy | - | (106) | ||||||
Adjustment for gain on sale of You Technology | - | (70) | ||||||
Adjustment for Home Chef contingent consideration | 189 | (69) | ||||||
Adjustment for severance charge and related benefits | - | 80 | ||||||
Adjustment for deconsolidation and impairment of Lucky's Market | ||||||||
attributable to The Kroger Co. (a) | - | 305 | ||||||
Adjustment for transformation costs (b) | 111 | 52 | ||||||
Other | (8) | (26) | ||||||
Adjusted EBITDA | $ 6,827 | $ 5,629 | ||||||
Net total debt to adjusted EBITDA ratio | 1.75 | 2.48 | ||||||
(a) | The adjustment for impairment of Lucky's Market attributable to The Kroger Co. excludes a $107 net loss attributable to the minority interest of Lucky's Market. | |||||||
(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 (loss) and net earnings (loss) 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 (loss) 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 reviewthem 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. |
FOURTH QUARTER | YEAR-TO-DATE | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
NET EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO. | $ (77) | $ 327 | $ 2,585 | $ 1,659 | ||||||||
ADJUSTMENT FOR PENSION PLAN WITHDRAWAL LIABILITIES (a)(b) | 754 | 3 | 754 | 104 | ||||||||
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 (GAIN) LOSS ON INVESTMENTS (a)(e) | (116) | 6 | (821) | (119) | ||||||||
ADJUSTMENT FOR SEVERANCE CHARGE AND RELATED BENEFITS (a)(f) | - | - | - | 61 | ||||||||
ADJUSTMENT FOR IMPAIRMENT OF LUCKY'S MARKET | ||||||||||||
ATTRIBUTABLE TO THE KROGER CO. (a)(g) | - | 125 | - | 225 | ||||||||
ADJUSTMENT FOR HOME CHEF CONTINGENT CONSIDERATION (a)(h) | 61 | (36) | 141 | (49) | ||||||||
ADJUSTMENT FOR TRANSFORMATION COSTS (a)(i) | 8 | 37 | 81 | 37 | ||||||||
2020 AND 2019 ADJUSTMENT ITEMS | 707 | 135 | 155 | 127 | ||||||||
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. | ||||||||||||
EXCLUDING THE ADJUSTMENT ITEMS ABOVE | $ 630 | $ 462 | $ 2,740 | $ 1,786 | ||||||||
NET EARNINGS (LOSS) ATTRIBUTABLE TO THE KROGER CO. | ||||||||||||
PER DILUTED COMMON SHARE | $ (0.10) | $ 0.40 | $ 3.27 | $ 2.04 | ||||||||
ADJUSTMENT FOR PENSION PLAN WITHDRAWAL LIABILITIES (j) | 0.97 | 0.01 | 0.95 | 0.13 | ||||||||
ADJUSTMENT FOR GAIN ON SALE OF TURKEY HILL DAIRY (j) | - | - | - | (0.10) | ||||||||
ADJUSTMENT FOR GAIN ON SALE OF YOU TECHNOLOGY (j) | - | - | - | (0.06) | ||||||||
ADJUSTMENT FOR (GAIN) LOSS ON INVESTMENTS (j) | (0.15) | 0.01 | (1.05) | (0.15) | ||||||||
ADJUSTMENT FOR SEVERANCE CHARGE AND RELATED BENEFITS (j) | - | - | - | 0.08 | ||||||||
ADJUSTMENT FOR IMPAIRMENT OF LUCKY'S MARKET | ||||||||||||
ATTRIBUTABLE TO THE KROGER CO. (j) | - | 0.16 | - | 0.28 | ||||||||
ADJUSTMENT FOR HOME CHEF CONTINGENT CONSIDERATION (j) | 0.08 | (0.05) | 0.18 | (0.07) | ||||||||
ADJUSTMENT FOR TRANSFORMATION COSTS (j) | 0.01 | 0.04 | 0.12 | 0.04 | ||||||||
2020 AND 2019 ADJUSTMENT ITEMS | 0.91 | 0.17 | 0.20 | 0.15 | ||||||||
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. PER | ||||||||||||
DILUTED COMMON SHARE EXCLUDING THE ADJUSTMENT ITEMS ABOVE | $ 0.81 | $ 0.57 | $ 3.47 | $ 2.19 | ||||||||
AVERAGE NUMBER OF COMMON SHARES USED IN | ||||||||||||
DILUTED CALCULATION | 768 | 804 | 781 | 805 | ||||||||
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 were $989 and $4 in the fourth quarters of 2020 and 2019, respectively. The year-to-date pre-tax adjustment to OG&A expenses for pension plan withdrawal liabilities were $989 and $135 in 2020 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 ($153) and $9 in the fourth quarters of 2020 and 2019, respectively. The year-to-date pre-tax adjustments for gain on investments were ($1,105) and ($157) in 2020 and 2019, respectively. | ||||||||||||
(f) | The pre-tax adjustment for severance charge and related benefits was $80. | ||||||||||||
(g) | The pre-tax adjustment for deconsolidation and impairment of Lucky's Market was $174 in the fourth quarter of 2019. For the year-to-date period, pre-tax adjustment for deconsolidation and impairment of Lucky's Market was $412 including a $107 net loss attributable to the minority interest of Lucky's Market. | ||||||||||||
(h) | The pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $80 and ($51) in the fourth quarters of 2020 and 2019, respectively. The year-to-date pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $189 and ($69) in 2020 and 2019, respectively. | ||||||||||||
(i) | The pre-tax adjustment to OG&A expenses for transformation costs was $11 and $52 in the fourth quarters of 2020 and 2019, respectively. The year-to-date pre-tax adjustment to OG&A expenses for transformation costs was $111 and $52 in 2020 and 2019, 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. | ||||||||||||
(j) | The amounts presented represent the net earnings (loss) per diluted common share effect of each adjustment. | ||||||||||||
Note: | 2020 Fourth Quarter Adjustment Items include adjustments for pension plan withdrawal liabilities, gain on investments, Home Chef contingent consideration adjustment and strategic transformation costs. | ||||||||||||
2020 Adjustment Items include the fourth Quarter Adjustment Items plus the adjustments that occurred in the first three quarters of 2020 for the gain on investments, Home Chef contingent consideration adjustment and strategic transformation costs. | |||||||||||||
2019 Fourth Quarter Adjustment items include adjustments for pension plan withdrawal liabilities, the loss on investments, deconsolidation of Lucky's Market, Home Chef contingent consideration adjustment, and strategic transformation costs. | |||||||||||||
2019 Adjustment Items include the fourth Quarter Adjustment Items plus the adjustments that occurred in the first three quarters of 2019 for pension plan withdrawal liabilities, the gain on sale of Turkey Hill Dairy, the gain on sale of You Technology, the gain on investments, Home Chef contingent consideration adjustment, the impairment of Lucky's Market and severance charge and related benefits. | |||||||||||||
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 (loss) because adjusted items are not the result of normal operations. Items identified in this table should not be considered alternatives to operating profit (loss) 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. | |||||||||||||||
FOURTH QUARTER | YEAR-TO-DATE | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
Operating profit (loss) | $ (158) | $ 537 | $ 2,780 | $ 2,251 | |||||||||
LIFO (credit) charge | (84) | 36 | (7) | 105 | |||||||||
FIFO Operating profit (loss) | (242) | 573 | 2,773 | 2,356 | |||||||||
Adjustment for pension plan withdrawal liabilities | 989 | 4 | 989 | 135 | |||||||||
Adjustment for Home Chef contingent consideration | 80 | (51) | 189 | (69) | |||||||||
Adjustment for severance charge and related benefits | - | - | - | 80 | |||||||||
Adjustment for transformation costs (a) | 11 | 52 | 111 | 52 | |||||||||
Adjustment for deconsolidation and impairment of Lucky's Market (b) | - | 174 | - | 412 | |||||||||
Other | (1) | 6 | (6) | 29 | |||||||||
2020 and 2019 Adjustment items | 1,079 | 185 | 1,283 | 639 | |||||||||
Adjusted FIFO operating profit | |||||||||||||
excluding the adjustment items above | $ 837 | $ 758 | $ 4,056 | $ 2,995 | |||||||||
(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. | ||||||||||||
(b) | For the year-to-date period, the adjustment for impairment of Lucky's Market includes a $107 net loss attributable to the minority interest of Lucky's Market. | ||||||||||||
Table 8. Adjusted Free Cash Flow | ||||||||||
(in millions) | ||||||||||
(unaudited) | ||||||||||
Adjusted free cash flow is an important performance measure used by management, and management believes it is also a useful metric for investors and analysts to evaluate the Company's ability to generate additional funding from business operations available for dividends, managing debt levels, share repurchases and other strategic investments. Adjusted free cash flow is one of the key financial indicators of the Company's business performance and the Company also uses adjusted free cash flow to evaluate the Company's senior management. However, adjusted free cash flow is not a measure of financial performance or liquidity under GAAP and, therefore, should not be considered an alternative to net earnings (loss) or net cash provided by operating activities as an indicator of the Company's performance or liquidity. Although free cash flow is a relatively standard term, numerous methods exist for calculating free cash flow. As a result, the method used by the Company's management to calculate adjusted free cash flow may differ from methods other companies use to calculate free cash flow. | ||||||||||
The following table sets forth a reconciliation of net cash provided by operating activities to adjusted free cash flow. | ||||||||||
YEAR-TO-DATE | ||||||||
January 30, | February 1, | February 2, | ||||||
2021 | 2020 | 2019 | ||||||
Net cash provided by operating activities | $ | 6,815 | $ | 4,664 | $ | 4,164 | ||
Payments for property and equipment, including payments for lease buyouts | (2,865) | (3,128) | (2,967) | |||||
Free Cash Flow | 3,950 | 1,536 | 1,197 | |||||
Adjustment for company pension plans and payments related to the restructuring of multi-employer pension plans | 263 | - | 185 | |||||
Adjustment for tax effects of divestiture transactions | - | 156 | 460 | |||||
Adjusted Free Cash Flow | $ | 4,213 | $ | 1,692 | $ | 1,842 | ||
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SOURCE The Kroger Co.
