This summary is based on the fourth quarter fiscal 2008 earnings call conducted by The Kroger Co. (KR) on March 10, 2009.
Management:
Chairman and CEO: David B. Dillon
Vice Chairman: W. Rodney McMullen
President and COO: Donnie W. McGeorge
SVP and CFO: J. Michael Schlotman
IR: Carin Fike
Key Investor Issues:
- Full year total sales increased 8.2% to $76 billion over the same period last year.
- Net earnings for the year were $1.25 billion or $1.90 versus $1.18 billion or $1.69 in 2007.
- The management repurchased 500,000 shares of stock at an average price of $25.55 per share.
Fourth Quarter Financial Highlights:
Excluding fuel sales at supermarkets and convenience stores, total sales increased 4.4% over the prior year.
- The retail price of gasoline fell considerably in the past year.
- The average retail price of a gallon of gas sold at Kroger’s fuel outlets was 41% lower than it was in Q4 last year.
- Fourth quarter identical supermarket sales without fuel increased 3.8%.
- Several departments posted identical sales well above the company average including meat, grocery, nutrition, pharmacy, and deli bakery.
The management believes the several money saving strategies shoppers employed in 2008 will continue throughout 2009.
- These include combining trips to save fuel; eating out less often at restaurants; choosing Kroger brands more often; entertaining at home; and using more coupons and food stamps.
- The company views these changing trends as opportunities.
During the fourth quarter, 27% of the company’s grocery sales came from own brands.
- The grocery unit sales of Kroger brands reached a record high of 35% of total grocery units.
- The results continue the exceptionally strong growth in Kroger brands recorded for Q3.
- Private Selections exceeded $1 billion in 2008.
- The company reported that keeping prices low is one of the several key drivers of the identical supermarket sales.
- The $4 generic program in pharmacy which includes 90 day supply for only $10 continues to drive growth in the pharmacy business.
The grocery retail chain made significant gains in market share in 2008.
- In the major markets, Kroger gained 61 basis points of additional market share.
- This is the fourth consecutive year the company has achieved significant market share gain.
- Over the past four years combined, Kroger’s share in major markets has increased roughly 225 basis points.
Kroger’s fourth quarter net earnings were $349.2 million or 53 cents per share.
- This compares with net earnings of $322.9 million or 48 cents per share in the same period last year.
- The strength of the core grocery business drove the solid year-over-year earnings growth.
- In the fourth quarter, Kroger’s retail fuel operations had minimal impact on total EPS.
- The company benefited from a LIFO charge that was $13 million lower than the same period last year.
The management had a better understanding of the timing and the amount of the settlement related to a Visa-MasterCard lawsuit associated with interchange fees.
- This prompted the company to accelerate certain planned 2009 price investments to offer customers additional value during the holidays.
- The after tax benefit of $11.7 million realized in December is a result of this settlement offset the cost of these accelerated price investments.
- The net impact on Kroger’s fourth quarter results was not material.
- The Visa-MasterCard settlement reportedly helped the OG&A rates.
- Excluding the settlement amount, Kroger’s fourth quarter OG&A rate excluding fuel increased 9 basis points versus the prior year.
The full year identical sales growth of 5% without fuel is within the guidance raised throughout the year.
- The company’s strong non-fuel identical sales growth contributed to strong earnings results.
- The management reported fiscal 2008 EPS of $1.92, excluding expenses incurred during Q3 for damage and disruption caused by Hurricane Ike.
- This exceeds the upper end of the guidance given in December and represents a 13.6% growth over fiscal 2007 earnings of $1.69 per share.
- The company’s quarterly dividend adds more than 1% to total shareholder return.
