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CINCINNATI, Dec. 3, 2020 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported its third quarter 2020 results, provided a Restock Kroger progress update on the three-year transformation plan, and an update to its COVID-19 response.
Comments from Chairman and CEO Rodney McMullen
"Our Kroger family of associates have been nothing short of incredible during the pandemic and they continue to inspire me every day. I am proud of our dedicated associates who continued to diligently execute our Restock Kroger transformation while serving our customers when they need us most.
We delivered strong results in the third quarter. Customers are at the center of everything we do and sales remain elevated as we continue to enhance our competitive moats – Fresh, Our Brands, Data & Personalization and Seamless. We are executing against our strategy even during the pandemic and continue to grow market share.
The strong underlying momentum in our core supermarket business and acceleration in the growth of our alternative profit business demonstrates we are successfully transforming our business model to deliver consistently strong and attractive total shareholder return in 2020 and beyond."
Financial Results | ||
3Q20 ($ in millions; except EPS) | 3Q19 ($ in millions; except EPS) | |
ID Sales* (Table 4) | 10.9% | 2.5% |
EPS | $0.80 | $0.32 |
Adjusted EPS (Table 6) | $0.71 | $0.47 |
Operating Profit | $792 | $254 |
Adjusted FIFO Operating Profit (Table 7) | $871 | $653 |
FIFO Gross Margin Rate* | Decreased 2 basis points | |
OG&A Rate* | Decreased 30 basis points | |
*without fuel and adjustment items, if applicable | ||
Total company sales were $29.7 billion in the third quarter, compared to $28.0 billion for the same period last year. Excluding fuel and dispositions, sales grew 11.3%.
Gross margin was 23.0% of sales for the third quarter. The FIFO gross margin rate, excluding fuel, decreased 2 basis points compared to the same period last year. This decrease was primarily driven by price investments and mix changes, offset by sourcing efficiencies, sales leverage and growth in alternative profit streams.
The LIFO charge was $23 million for both the third quarters of 2020 and 2019.
The Operating, General & Administrative rate decreased 30 basis points, excluding fuel and adjustment items, due to sales leverage and execution of Restock Kroger initiatives, partially 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 27 basis points due to sales leverage.
Capital Allocation Strategy
Kroger's capital allocation strategy is to use its adjusted free cash flow to invest in the business and drive profitable growth while also maintaining its current investment grade debt rating and returning capital to shareholders. The company actively balances the use of its adjusted free cash flow to achieve these goals.
Kroger's net total debt to adjusted EBITDA ratio is 1.74, compared to 2.50 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50. Kroger held temporary cash investments of approximately $1.8 billion as of the end of the quarter, reflecting improved operating performance and significant improvement in working capital.
During the quarter, Kroger repurchased $304 million of shares under its $1 billion board authorization announced on September 11, 2020. Year-to-date, Kroger has repurchased $989 million of shares.
Earlier this year, Kroger increased the dividend by 13 percent, marking the 14th consecutive year of dividend increases.
Guidance Update
Comments from CFO Gary Millerchip
"As a result of our continued strong performance, market share growth and the expectation of sustained trends in food at home consumption for the remainder of our fiscal year, we are raising our full year 2020 guidance. For the full year 2020, we expect total identical sales without fuel to be around 14% and adjusted EPS growth of 50% to 53%.
Our guidance contemplates continued investments in associates and customers plus ongoing COVID-19 related costs, balanced with continued execution of cost savings initiatives and growth in alternative profit businesses.
Looking toward 2021, we believe that our performance will be stronger than we would have expected prior to the pandemic when viewed as a two-year stacked result for identical sales without fuel growth and as a compounded growth rate over 2020 and 2021 for adjusted earnings per share growth."
Full Year 2020 Guidance | |||||||
IDS (%) | EPS ($) | Operating Profit ($B) | Tax Rate** | Cap Ex ($B) | Adjusted FCF ($B) | Share Repurchases ($B) | |
Adjusted* | ~14.0% | $3.30 - $3.35 | $4.0 - $4.1 | 23% | $2.8 -$3.2 | $2.8 -$3.1 | $1.1 - $1.3 |
* 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 2020 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 2020 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. | |||||||
Third Quarter 2020 Highlights
Associate Experience
Customer Obsession
Live Our Purpose
About Kroger
At 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 third quarter 2020 ended on November 7, 2020.
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 December 3, 2020 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, December 3, 2020.
3rd Quarter 2020 Tables Include:
Table 1. | ||||||||||||||||||||||
THE KROGER CO. | ||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||
(in millions, except per share amounts) | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||
THIRD QUARTER | YEAR-TO-DATE | |||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
SALES | $ 29,723 | 100.0% | $ 27,974 | 100.0% | $ 101,761 | 100.0% | $ 93,393 | 100.0% | ||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||
MERCHANDISE COSTS, INCLUDING ADVERTISING, | ||||||||||||||||||||||
WAREHOUSING AND TRANSPORTATION (a), | ||||||||||||||||||||||
AND LIFO CHARGE (b) | 22,901 | 77.1 | 21,798 | 77.9 | 77,906 | 76.6 | 72,787 | 77.9 | ||||||||||||||
OPERATING, GENERAL AND ADMINISTRATIVE (a) | 5,194 | 17.5 | 5,097 | 18.2 | 18,162 | 17.9 | 16,223 | 17.4 | ||||||||||||||
RENT | 205 | 0.7 | 201 | 0.7 | 682 | 0.7 | 675 | 0.7 | ||||||||||||||
DEPRECIATION AND AMORTIZATION | 631 | 2.1 | 624 | 2.2 | 2,073 | 2.0 | 1,994 | 2.1 | ||||||||||||||
OPERATING PROFIT | 792 | 2.7 | 254 | 0.9 | 2,938 | 2.9 | 1,714 | 1.8 | ||||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||||||||
INTEREST EXPENSE | (129) | (0.4) | (137) | (0.5) | (438) | (0.4) | (463) | (0.5) | ||||||||||||||
NON-SERVICE COMPONENT OF COMPANY-SPONSORED | ||||||||||||||||||||||
PENSION PLAN COSTS | 9 | - | (1) | - | 28 | - | (2) | - | ||||||||||||||
GAIN ON INVESTMENTS | 162 | 0.6 | 106 | 0.4 | 952 | 0.9 | 166 | 0.2 | ||||||||||||||
GAIN ON SALE OF BUSINESSES | - | - | - | - | - | - | 176 | 0.2 | ||||||||||||||
NET EARNINGS BEFORE INCOME TAX EXPENSE | 834 | 2.8 | 222 | 0.8 | 3,480 | 3.4 | 1,591 | 1.7 | ||||||||||||||
INCOME TAX EXPENSE | 202 | 0.7 | 79 | 0.3 | 816 | 0.8 | 398 | 0.4 | ||||||||||||||
NET EARNINGS INCLUDING NONCONTROLLING INTERESTS | 632 | 2.1 | 143 | 0.5 | 2,664 | 2.6 | 1,193 | 1.3 | ||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO | ||||||||||||||||||||||
NONCONTROLLING INTERESTS | 1 | - | (120) | (0.4) | 2 | - | (139) | (0.2) | ||||||||||||||
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. | $ 631 | 2.1% | $ 263 | 0.9% | $ 2,662 | 2.6% | $ 1,332 | 1.4% | ||||||||||||||
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. | ||||||||||||||||||||||
PER BASIC COMMON SHARE | $ 0.81 | $ 0.32 | $ 3.39 | $ 1.65 | ||||||||||||||||||
AVERAGE NUMBER OF COMMON SHARES USED IN | ||||||||||||||||||||||
BASIC CALCULATION | 772 | 802 | 777 | 800 | ||||||||||||||||||
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. | ||||||||||||||||||||||
PER DILUTED COMMON SHARE | $ 0.80 | $ 0.32 | $ 3.35 | $ 1.64 | ||||||||||||||||||
AVERAGE NUMBER OF COMMON SHARES USED IN | ||||||||||||||||||||||
DILUTED CALCULATION | 780 | 807 | 785 | 805 | ||||||||||||||||||
DIVIDENDS DECLARED PER COMMON SHARE | $ 0.180 | $ 0.160 | $ 0.520 | $ 0.460 | ||||||||||||||||||
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 $23 were recorded in the third quarters of 2020 and 2019. For the year to date period, LIFO charges of $77 and $69 were recorded for 2020 and 2019, respectively. | |||||||||||||||||||||
THE KROGER CO. | ||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
(in millions) | ||||||||||
(unaudited) | ||||||||||
November 7, | November 9, | |||||||||
2020 | 2019 | |||||||||
ASSETS | ||||||||||
Current Assets | ||||||||||
Cash | $ 367 | $ 417 | ||||||||
Temporary cash investments | 1,813 | 128 | ||||||||
Store deposits in-transit | 1,102 | 1,034 | ||||||||
Receivables | 1,610 | 1,600 | ||||||||
Inventories | 7,478 | 7,412 | ||||||||
Prepaid and other current assets | 576 | 434 | ||||||||
Total current assets | 12,946 | 11,025 | ||||||||
Property, plant and equipment, net | 21,902 | 21,801 | ||||||||
Operating lease assets | 6,843 | 6,847 | ||||||||
Intangibles, net | 1,012 | 1,086 | ||||||||
Goodwill | 3,076 | 3,076 | ||||||||
Other assets | 2,686 | 1,558 | ||||||||
Total Assets | $ 48,465 | $ 45,393 | ||||||||
LIABILITIES AND SHAREOWNERS' EQUITY | ||||||||||
Current Liabilities | ||||||||||
Current portion of long-term debt including obligations | ||||||||||
under finance leases | $ 1,595 | $ 1,417 | ||||||||
Current portion of operating lease liabilities | 669 | 673 | ||||||||
Trade accounts payable | 7,355 | 6,867 | ||||||||
Accrued salaries and wages | 1,236 | 1,087 | ||||||||
Other current liabilities | 4,662 | 4,074 | ||||||||
Total current liabilities | 15,517 | 14,118 | ||||||||
Long-term debt including obligations under finance leases | 11,925 | 12,227 | ||||||||
Noncurrent operating lease liabilities | 6,482 | 6,449 | ||||||||
Deferred income taxes | 1,682 | 1,517 | ||||||||
Pension and postretirement benefit obligations | 543 | 471 | ||||||||
Other long-term liabilities | 2,272 | 1,883 | ||||||||
Total Liabilities | 38,421 | 36,665 | ||||||||
Shareowners' equity | 10,044 | 8,728 | ||||||||
Total Liabilities and Shareowners' Equity | $ 48,465 | $ 45,393 | ||||||||
Total common shares outstanding at end of period | 766 | 802 | ||||||||
Total diluted shares year-to-date | 785 | 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 | $ 2,664 | $ 1,193 | |||||||||
Adjustments to reconcile net earnings including noncontrolling | |||||||||||
interests to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 2,073 | 1,994 | |||||||||
Operating lease asset amortization | 481 | 494 | |||||||||
LIFO charge | 77 | 69 | |||||||||
Stock-based employee compensation | 147 | 117 | |||||||||
Company-sponsored pension plan costs | (12) | 32 | |||||||||
Deferred income taxes | 219 | (46) | |||||||||
Gain on sale of businesses | - | (176) | |||||||||
Gain on the sale of assets | (24) | (150) | |||||||||
Gain on investments | (952) | (166) | |||||||||
Impairment of Lucky's Market | - | 238 | |||||||||
Other | 119 | (1) | |||||||||
Changes in operating assets and liabilities, net | |||||||||||
of effects from mergers and disposals of businesses: | |||||||||||
Store deposits in-transit | 77 | 148 | |||||||||
Receivables | 42 | 93 | |||||||||
Inventories | (471) | (636) | |||||||||
Prepaid and other current assets | (56) | 66 | |||||||||
Trade accounts payable | 1,006 | 808 | |||||||||
Accrued expenses | 469 | 299 | |||||||||
Income taxes receivable and payable | 89 | (145) | |||||||||
Operating lease liabilities | (464) | (477) | |||||||||
Proceeds from contract associated with the sale of business | - | 295 | |||||||||
Other | 461 | (1) | |||||||||
Net cash provided by operating activities | 5,945 | 4,048 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Payments for property and equipment, including payments for lease buyouts | (2,062) | (2,363) | |||||||||
Proceeds from sale of assets | 99 | 257 | |||||||||
Net proceeds from sale of businesses | - | 327 | |||||||||
Other | (133) | (45) | |||||||||
Net cash used by investing activities | (2,096) | (1,824) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
Proceeds from issuance of long-term debt | 537 | 61 | |||||||||
Payments on long-term debt including obligations under finance leases | (41) | (1,540) | |||||||||
Net payments on commercial paper | (1,150) | (235) | |||||||||
Dividends paid | (395) | (356) | |||||||||
Proceeds from issuance of capital stock | 98 | 32 | |||||||||
Treasury stock purchases | (989) | (34) | |||||||||
Other | (128) | (36) | |||||||||
Net cash used by financing activities | (2,068) | (2,108) | |||||||||
NET INCREASE IN CASH AND TEMPORARY | |||||||||||
CASH INVESTMENTS | 1,781 | 116 | |||||||||
CASH AND TEMPORARY CASH INVESTMENTS: | |||||||||||
BEGINNING OF YEAR | 399 | 429 | |||||||||
END OF PERIOD | $ 2,180 | $ 545 | |||||||||
Reconciliation of capital investments: | |||||||||||
Payments for property and equipment, including payments for lease buyouts | $ (2,062) | $ (2,363) | |||||||||
Payments for lease buyouts | 42 | 24 | |||||||||
Changes in construction-in-progress payables | (44) | 96 | |||||||||
Total capital investments, excluding lease buyouts | $ (2,064) | $ (2,243) | |||||||||
Disclosure of cash flow information: | |||||||||||
Cash paid during the year for interest | $ 474 | $ 407 | |||||||||
Cash paid during the year for income taxes | $ 495 | $ 633 | |||||||||
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) | ||||||||||
THIRD QUARTER | YEAR-TO-DATE | |||||||||
2020 | 2019 | 2020 | 2019 | |||||||
EXCLUDING FUEL | $ 26,860 | $ 24,212 | $ 92,759 | $ 80,485 | ||||||
EXCLUDING FUEL | 10.9% | 2.5% | 15.3% | 2.0% | ||||||
(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. | ||||||
November 7, | November 9, | |||||
2020 | 2019 | Change | ||||
Current portion of long-term debt including obligations | ||||||
under finance leases | $ 1,595 | $ 1,417 | $ 178 | |||
Long-term debt including obligations under finance leases | 11,925 | 12,227 | (302) | |||
Total debt | 13,520 | 13,644 | (124) | |||
Less: Temporary cash investments | 1,813 | 128 | 1,685 | |||
Net total debt | $ 11,707 | $ 13,516 | $ (1,809) | |||
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 | ||||||
November 7, | November 9, | |||||
2020 | 2019 | |||||
Net earnings attributable to The Kroger Co. | $ 2,989 | $ 1,591 | ||||
LIFO charge | 113 | 59 | ||||
Depreciation and amortization | 2,728 | 2,575 | ||||
Interest expense | 578 | 605 | ||||
Income tax expense | 887 | 464 | ||||
Adjustment for pension plan withdrawal liabilities | 4 | 299 | ||||
Adjustment for gain on investments | (943) | (241) | ||||
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 | 58 | 15 | ||||
Adjustment for loss on settlement of financial instrument | - | 42 | ||||
Adjustment for severance charge and related benefits | - | 80 | ||||
Adjustment for deconsolidation and impairment of Lucky's Market | ||||||
attributable to The Kroger Co. (a) | 174 | 131 | ||||
Adjustment for transformation costs (b) | 152 | - | ||||
Other | (10) | (28) | ||||
Adjusted EBITDA | $ 6,730 | $ 5,416 | ||||
Net total debt to adjusted EBITDA ratio | 1.74 | 2.50 | ||||
(a) The adjustment for impairment of Lucky's Market attributable to The Kroger Co., in the rolling four quarters ended November 9, 2019, 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 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. | |||||||||||||
THIRD QUARTER | YEAR-TO-DATE | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. | $ 631 | $ 263 | $ 2,662 | $ 1,332 | |||||||||
ADJUSTMENT FOR PENSION PLAN WITHDRAWAL LIABILITIES (a)(b) | - | 35 | - | 101 | |||||||||
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 ON INVESTMENTS (a)(e) | (115) | (81) | (705) | (125) | |||||||||
ADJUSTMENT FOR SEVERANCE CHARGE AND RELATED BENEFITS (a)(f) | - | 61 | - | 61 | |||||||||
ADJUSTMENT FOR IMPAIRMENT OF LUCKY'S MARKET | |||||||||||||
ATTRIBUTABLE TO THE KROGER CO. (a)(g) | - | 100 | - | 100 | |||||||||
ADJUSTMENT FOR HOME CHEF CONTINGENT CONSIDERATION (a)(h) | 17 | 3 | 80 | (13) | |||||||||
ADJUSTMENT FOR TRANSFORMATION COSTS (a)(i) | 24 | - | 73 | - | |||||||||
2020 AND 2019 ADJUSTMENT ITEMS | (74) | 118 | (552) | (8) | |||||||||
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. | |||||||||||||
EXCLUDING THE ADJUSTMENT ITEMS ABOVE | $ 557 | $ 381 | $ 2,110 | $ 1,324 | |||||||||
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. | |||||||||||||
PER DILUTED COMMON SHARE | $ 0.80 | $ 0.32 | $ 3.35 | $ 1.64 | |||||||||
ADJUSTMENT FOR PENSION PLAN WITHDRAWAL LIABILITIES (j) | - | 0.04 | - | 0.12 | |||||||||
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 ON INVESTMENTS (j) | (0.15) | (0.10) | (0.90) | (0.16) | |||||||||
ADJUSTMENT FOR SEVERANCE CHARGE AND RELATED BENEFITS (j) | - | 0.08 | - | 0.08 | |||||||||
ADJUSTMENT FOR IMPAIRMENT OF LUCKY'S MARKET | |||||||||||||
ATTRIBUTABLE TO THE KROGER CO. (j) | - | 0.12 | - | 0.12 | |||||||||
ADJUSTMENT FOR HOME CHEF CONTINGENT CONSIDERATION (j) | 0.02 | 0.01 | 0.10 | (0.02) | |||||||||
ADJUSTMENT FOR TRANSFORMATION COSTS (j) | 0.04 | - | 0.11 | - | |||||||||
2020 AND 2019 ADJUSTMENT ITEMS | (0.09) | 0.15 | (0.69) | (0.02) | |||||||||
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. PER | |||||||||||||
DILUTED COMMON SHARE EXCLUDING THE ADJUSTMENT ITEMS ABOVE | $ 0.71 | $ 0.47 | $ 2.66 | $ 1.62 | |||||||||
AVERAGE NUMBER OF COMMON SHARES USED IN | |||||||||||||
DILUTED CALCULATION | 780 | 807 | 785 | 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 was $45 in the third quarter of 2019. The year-to-date pre-tax adjustment to OG&A expenses for pension plan withdrawal liabilities was $131 in the first three quarters of 2019. | ||||||||||||
(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 on investments were ($162) and ($106) in the third quarters of 2020 and 2019, respectively. The year-to-date pre-tax adjustments for gain on investments were ($952) and ($166) in the first three quarters of 2020 and 2019, respectively. | ||||||||||||
(f) | The pre-tax adjustment for severance charge and related benefits was $80. | ||||||||||||
(g) | The pre-tax adjustment for impairment of Lucky's Market was $238 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 $24 and $4 in the third quarters of 2020 and 2019, respectively. The year-to-date pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $109 and ($18) in the first three quarters of 2020 and 2019, respectively. | ||||||||||||
(i) | The pre-tax adjustment to OG&A expenses for transformation costs was $33 in the third quarter of 2020. The year-to-date pre-tax adjustment to OG&A expenses for transformation costs was $100 in the first three quarters of 2020. 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 per diluted common share effect of each adjustment. | ||||||||||||
Note: | 2020 Third Quarter Adjustment Items include adjustments for the gain on investments, Home Chef contingent consideration adjustment and strategic transformation costs. | ||||||||||||
2020 Adjustment Items include the Third Quarter Adjustment Items plus the adjustments that occurred in the first two quarters of 2020 for the gain on investments, Home Chef contingent consideration adjustment and strategic transformation costs. | |||||||||||||
2019 Third Quarter Adjustment items include adjustments for pension plan withdrawal liabilities, the gain on investments, severance charge, impairment of Lucky's Market and Home Chef contingent consideration adjustment. | |||||||||||||
2019 Adjustment Items include the Third Quarter Adjustment Items plus the adjustments that occurred in the first two 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 and Home Chef contingent consideration adjustment. | |||||||||||||
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. | |||||||||||||
THIRD QUARTER | YEAR-TO-DATE | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
Operating profit | $ 792 | $ 254 | $ 2,938 | $ 1,714 | |||||||||
LIFO charge | 23 | 23 | 77 | 69 | |||||||||
FIFO Operating profit | 815 | 277 | 3,015 | 1,783 | |||||||||
Adjustment for pension plan withdrawal liabilities | - | 45 | - | 131 | |||||||||
Adjustment for Home Chef contingent consideration | 24 | 4 | 109 | (18) | |||||||||
Adjustment for severance charge and related benefits | - | 80 | - | 80 | |||||||||
Adjustment for transformation costs | 33 | - | 100 | - | |||||||||
Adjustment for impairment of Lucky's Market (a) | - | 238 | - | 238 | |||||||||
Other | (1) | 9 | (6) | 23 | |||||||||
2020 and 2019 Adjustment items | 56 | 376 | 203 | 454 | |||||||||
Adjusted FIFO operating profit | |||||||||||||
excluding the adjustment items above | $ 871 | $ 653 | $ 3,218 | $ 2,237 | |||||||||
(a) | The adjustment for impairment of Lucky's Market includes a $107 net loss attributable to the minority interest of Lucky's Market. | ||||||||||||
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SOURCE The Kroger Co.
