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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report:   December 2, 2021

(Date of earliest event reported)

The Kroger Co.

(Exact name of registrant as specified in its charter)

 

Ohio   No. 1-303   31-0345740
(State or other jurisdiction
of incorporation)
  (Commission File Number)   (IRS Employer
Identification No.)

 

1014 Vine Street

Cincinnati, OH 45202

(Address of principal executive offices, including zip code)

 

Registrant’s telephone number, including area code:  (513) 762-4000

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on
which registered
Common Stock $1 par value   KR   NYSE

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

 

Item 2.02 Results of Operations and Financial Condition.

 

On December 2, 2021, The Kroger Co. (NYSE:KR) issued a press release announcing its third quarter 2021 results. Attached hereto as Exhibit 99.1, and furnished herewith, is a copy of that release. 

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit No.   Description
     
99.1   Press Release dated December 2, 2021
104   Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. 

 

  The Kroger Co.
     
     

December 2, 2021

By: /s/ Christine S. Wheatley
    Christine S. Wheatley
    Group Vice President, Secretary and General Counsel

 

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Exhibit 99.1

 

 

 

Kroger Reports Third Quarter 2021 Results and Raises Full-Year Guidance

 

Third Quarter Highlights

 

· Identical Sales without fuel increased 3.1%; two-year stack increased 14.0%

· Digital Sales two-year stack grew 103%

· EPS of $0.64; Adjusted EPS of $0.78

· Operating Profit of $868 million; Adjusted FIFO Operating Profit of $974 million

· Alternative profit business delivered record third quarter operating profit

 

CINCINNATI, December 2, 2021 -- The Kroger Co. (NYSE: KR) today reported its third quarter 2021 results and will update investors on how key initiatives are positioning the company for long-term sustainable growth.

 

Comments from Chairman and CEO Rodney McMullen

 

“Kroger’s strategy to lead with fresh and accelerate with digital continues to connect with our customers. Our agility, and the commitment from our amazing associates, is allowing us to navigate current labor and supply chain conditions and provide the freshest food at affordable prices across our store and digital ecosystem.

 

“Our focus on execution, combined with our continued discipline in balancing investments in our associates and customers with exceptional cost management, and growth in our alternative profit business allowed us to exceed internal expectations and deliver strong sales and earnings growth.

 

“Across all aspects of our business, we are innovating and executing with speed against the key initiatives that are transforming our business. Kroger is in a position of strength. We are committed to delivering for our associates, customers, and communities, and we remain confident in our ability to deliver total shareholder returns of 8% to 11% over time.”

 

Third Quarter Financial Results

 

    3Q21 ($ in millions; except EPS)     3Q20 ($ in millions; except EPS)  
ID Sales* (Table 4)     3.1 %     10.9 %
EPS   $ 0.64     $ 0.80  
Adjusted EPS (Table 6)   $ 0.78     $ 0.71  
Operating Profit   $ 868     $ 792  
Adjusted FIFO Operating Profit (Table 7)   $ 974     $ 871  
FIFO Gross Margin Rate*     Decreased 41 basis points                                                
OG&A Rate*     Decreased 49 basis points          

*without fuel and adjustment items, if applicable

 

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Third Quarter Results versus Two Years Ago

 

    3Q21 ($ in millions; except EPS)  
ID Sales Two Year Stacked* (Table 8)     14.0 %
EPS Two Year CAGR (Table 8)     41.4 %
Adjusted EPS Two Year CAGR (Table 8)     28.8 %
Operating Profit Two Year CAGR (Table 8)     84.9 %
Adjusted FIFO Operating Profit Two Year CAGR (Table 8)     22.1 %
FIFO Gross Margin Rate Compared to Q3 2019*     Decreased 43 basis points  
OG&A Rate Compared to Q3 2019*     Decreased 79 basis points  

*without fuel and adjustment items, if applicable

 

Total company sales were $31.9 billion in the third quarter, compared to $29.7 billion for the same period last year. Excluding fuel, sales increased 2.9% compared to the same period last year.

 

Gross margin was 21.66% of sales for the third quarter. The FIFO gross margin rate, excluding fuel, decreased 41 basis points compared to the same period last year. This decrease primarily related to higher supply chain costs and continued price investments partially offset by sourcing benefits.

 

The LIFO charge for the third quarter was $93 million, compared to $23 million for the same period last year. This increase was primarily attributable to higher inflation across several categories, including grocery and meat.

 

The Operating, General & Administrative rate decreased 49 basis points, excluding fuel and adjustment items, which reflects sales leverage and the execution of cost savings initiatives.

 

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Kroger recorded a nonrecurring benefit of $47 million, or $0.07 per diluted share, primarily due to the favorable outcome of income tax audit examinations covering multiple years. This amount is excluded from the company’s adjusted net earnings per diluted share result for the third quarter. The income tax rate for the third quarter was 13.8%, compared to 24.2% for the same period last year.

 

Capital Allocation Strategy

 

Kroger continues to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable net earnings growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchase and a growing dividend over time.

 

Kroger's net total debt to adjusted EBITDA ratio is 1.68, compared to 1.74 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50.

 

During the quarter, Kroger repurchased $297 million of shares and year-to-date, has repurchased $1 billion of shares. As of the end of the third quarter, $511 million remains on the board authorization announced on June 17, 2021.

 

2021 Guidance

 

Comments from CFO Gary Millerchip

 

“Driven by the momentum in our third quarter results and sustained food at home trends, we are raising our full-year guidance. We now expect our two-year identical sales stack to be in the range of 13.7% to 13.9%. We expect our adjusted net earnings per diluted share to be in the range of $3.40 to $3.50.

 

“Kroger is executing against its key financial and operational initiatives and continues to invest in strategic priorities that will drive attractive and sustainable total shareholder returns. We believe our business is emerging stronger through the pandemic and is well positioned to grow beyond 2021.”

 

Full Year 2021 Guidance

 

    IDs (%)   EPS ($)   Operating
Profit ($B)
  Tax Rate**   Cap Ex ($B)   Free Cash
Flow ($B)****
Adjusted*   (0.4%) - (0.2%)   $3.40 - $3.50   $4.1 - $4.2   22.1% - 22.5%   $3.1 - $3.3   $2.4 - $2.6
2-Year Basis***   13.7% - 13.9%
(Stack)
  25% - 26%
(CAGR)
  17.0% - 18.4% (CAGR)           $3.3 - $3.4
(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 or changes in tax laws, which cannot be predicted. Accordingly, this does not reflect the effect of the $47 million benefit recognized in the third quarter of 2021.

*** Identical sales, without fuel, guidance for 2-year basis represents the sum of actual 2020 identical sales percentage and 2021 identical sales rate 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.

 

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Third Quarter 2021 Highlights

 

Leading with Fresh

 

· Surpassed $1 billion in annualized sales for Home Chef, becoming the newest Our Brands billion dollar brand in Kroger’s portfolio

· Our Brands launched 216 new items during the quarter with plans to launch several innovative and unique products focused on helping customers enjoy the holiday season like Private Selection Holiday Trail Mix and Simple Truth Cranberry Pistachio Bread

· Expanded launch of our End-to-End Fresh program to over 50 additional stores

· Announced plans with Kipster Farms, the award-winning system founded in The Netherlands, to bring the world’s first carbon-neutral, cage-free eggs to retail shelves under Simple Truth brand

 

Accelerating with Digital

 

· Launched Kroger Delivery Now nationwide with Instacart to provide 30-minute delivery, enabled by first-of-its-kind virtual convenience store shopping experience

· Introduced Boost by Kroger Plus, an annual membership program that provides customers free delivery and additional fuel points on purchases in four divisions

· Shared plans for five new customer fulfillment centers powered by the Ocado Group including expansions in California and Florida and entrance for the first time into the Northeast region

· Announced collaboration with Bed Bath & Beyond and buybuy Baby on a national e-commerce experience via Kroger.com and a small scale physical store pilot to expand home and baby product offerings

· Kroger Precision Marketing launched a new programmatic advertising marketplace allowing agencies and brands to reach consumers by applying Kroger customer data to campaigns within their preferred ad-buying platform

 

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Associate Experience

 

· Increased Kroger Family of Companies' average hourly wage to greater than $16 and with comprehensive benefits, will be greater than $21 by the end of 2021

· Received two Brandon Hall Group - Excellence in Human Capital Management Awards, including Gold recognition for Leading through a Crisis during the COVID-19 pandemic and Silver recognition for A Fresh Welcome, organization’s new and innovative onboarding program, which launched in 2020

· Held nationwide hiring event with more than 20,000 opportunities in retail, e-commerce, manufacturing, merchandising, corporate, healthcare and more

 

Live Our Purpose

 

· Kroger Health partnered with Anthem Blue Cross and Blue Shield to offer new Medicare Advantage plans that include an allowance to help customers purchase groceries and health items

· Kroger Health has administered more than 8.5 million COVID-19 vaccine doses to date, supporting customers and associates

· Marked one-year anniversary of organization’s Framework for Action: Diversity, Equity and Inclusion plan to better use company’s platform to create and advocate for more equitable communities. Shared the following progress:

o 405,000 associates completed diversity and inclusion training

o Increased our partnerships with Historically Black Colleges and Universities and Hispanic-Serving Institutions from six to seventeen

o Achieved $4.1 billion in diverse supplier spend in 2020, a 21% increase versus prior year

o The Kroger Co. Foundation collectively invested $3.1 million to advance racial equity through partnerships with Black Girl Ventures, Everytable, LISC, Thurgood Marshall College Fund, and other organizations

o Scored 100 on both the Disability Equality Index presented by Disability: IN and the American Association of People with Disabilities (AAPD) and the Corporate Equality Index presented by the Human Rights Campaign Foundation

· The Zero Hunger | Zero Waste Foundation Innovation Fund made impact investments during the first-ever Venture Showcase in two peer-selected startups, Agua Bonita and Matriark Foods

 

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 2021 ended on November 6, 2021.

 

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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,” “committed,” “confident,” “continue,” “deliver,” “expect,” “future,” “guidance,” “positioning,” “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's ability to achieve sales, earnings, incremental FIFO operating profit, and adjusted free cash flow goals may be affected by: COVID-19 pandemic related factors, risks and challenges, including among others, the length of time that the pandemic continues, new variants of the virus and the effectiveness of vaccines against variants, continued efficacy of vaccines over time and availability of vaccine boosters, the extent of continued vaccine disinformation and vaccine refusal, and global access to vaccines, as well as the effect of emerging vaccine and/or testing mandates and related regulations, the potential for additional future spikes in infection and illness rates including breakthrough infections among the fully vaccinated, and the corresponding potential for disruptions in workforce availability and customer shopping patterns, re-imposed restrictions as a result of resurgence and the corresponding future easing of restrictions, and interruptions in domestic and global supply chains or capacity constraints; the pace of recovery when the pandemic subsides; labor negotiations or disputes; changes in the unemployment rate; pressures in the labor market; changes in government-funded benefit programs; changes in the types and numbers of businesses that compete with Kroger; pricing and promotional activities of existing and new competitors, including non-traditional competitors, and the aggressiveness of that competition; Kroger's response to these actions; the state of the economy, including interest rates, the inflationary and deflationary trends in certain commodities; changes in tariffs; the effect that fuel costs have on consumer spending; volatility of fuel margins; manufacturing commodity costs; diesel fuel costs related to Kroger's logistics operations; trends in consumer spending; the extent to which Kroger's customers exercise caution in their purchasing in response to economic conditions; the uncertainty of economic growth or recession; changes in inflation or deflation in product and operating costs; stock repurchases; Kroger's ability to retain pharmacy sales from third party payors; consolidation in the healthcare industry, including pharmacy benefit managers; Kroger's ability to negotiate modifications to multi-employer pension plans; natural disasters or adverse weather conditions; the effect of public health crises or other significant catastrophic events, including the coronavirus; the potential costs and risks associated with potential cyber-attacks or data security breaches; the success of Kroger's future growth plans; the ability to execute our growth strategy and value creation model, including continued cost savings, growth of our alternative profit businesses, and widening and deepening our strategic moats of fresh, our brands, personalization, and seamless; and the successful integration of merged companies and new partnerships. Our ability to achieve these goals may also be affected by our ability to manage the factors identified above. Our ability to execute our financial strategy may be affected by our ability to generate cash flow.

 

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Kroger's effective tax rate may differ from the expected rate due to changes in tax laws, the status of pending items with various taxing authorities, and the deductibility of certain expenses.

 

Kroger assumes no obligation to update the information contained herein unless required by applicable law. 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 2, 2021 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, December 2, 2021.

 

3rd Quarter 2021 Tables Include:

 

1. Consolidated Statements of Operations

2. Consolidated Balance Sheets

3. Consolidated Statements of Cash Flows

4. Supplemental Sales Information

5. Reconciliation of Net Total Debt and Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA

6. Net Earnings Per Diluted Share Excluding the Adjustment Items

7. Operating Profit Excluding the Adjustment Items

8. Two-Year Financial Results

 

--30--

 

Contacts: Media: Kristal Howard (513) 762-1304; Investors: Rob Quast (513) 762-4969

 

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Table 1.
THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(unaudited)

 

    THIRD QUARTER     YEAR-TO-DATE  
    2021     2020     2021     2020  
SALES   $ 31,860       100.0 %   $ 29,723       100.0 %   $ 104,840       100.0 %   $ 101,761       100.0 %
                                                                 

OPERATING EXPENSES

    MERCHANDISE COSTS, INCLUDING ADVERTISING,

WAREHOUSING AND TRANSPORTATION (a),

AND LIFO CHARGE (b)

    24,959       78.3       22,901       77.1       81,820       78.0       77,906       76.6  
OPERATING, GENERAL AND ADMINISTRATIVE (a)     5,177       16.2       5,194       17.5       17,692       16.9       18,162       17.9  
RENT     197       0.6       205       0.7       648       0.6       682       0.7  
DEPRECIATION AND AMORTIZATION     659       2.1       631       2.1       2,168       2.1       2,073       2.0  
                                                                 
OPERATING PROFIT     868       2.7       792       2.7       2,512       2.4       2,938       2.9  
                                                                 
OTHER INCOME (EXPENSE)                                                                
                                                                 
INTEREST EXPENSE     (135 )     (0.4 )     (129 )     (0.4 )     (438 )     (0.4 )     (438 )     (0.4 )

    NON-SERVICE COMPONENT OF COMPANY-SPONSORED

PENSION PLAN COSTS

    (77 )     (0.2 )     9       -       (44 )     -       28       -  
(LOSS) GAIN ON INVESTMENTS     (94 )     (0.3 )     162       0.6       (694 )     (0.7 )     952       0.9  
                                                                 
NET EARNINGS BEFORE INCOME TAX EXPENSE     562       1.8       834       2.8       1,336       1.3       3,480       3.4  
                                                                 
INCOME TAX EXPENSE     77       0.2       202       0.7       239       0.2       816       0.8  
                                                                 
NET EARNINGS INCLUDING NONCONTROLLING INTERESTS     485       1.5       632       2.1       1,097       1.1       2,664       2.6  
                                                                 
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS     2       -       1       -       7       -       2       -  
                                                                 
NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.   $ 483       1.5 %   $ 631       2.1 %   $ 1,090       1.0 %   $ 2,662       2.6 %
                                                                 

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.

PER BASIC COMMON SHARE

  $ 0.64             $ 0.81             $ 1.44             $ 3.39          
                                                                 

AVERAGE NUMBER OF COMMON SHARES USED IN

BASIC CALCULATION

    742               772               747               777          
                                                                 

NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.

PER DILUTED COMMON SHARE

  $ 0.64             $ 0.80             $ 1.43             $ 3.35          
                                                                 

AVERAGE NUMBER OF COMMON SHARES USED IN

DILUTED CALCULATION

    752               780               757               785          
                                                                 
DIVIDENDS DECLARED PER COMMON SHARE   $ 0.21             $ 0.18             $ 0.60             $ 0.52          

 

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 $93 and $23 were recorded in the third quarters of 2021 and 2020, respectively.  For the year to date period, LIFO charges of $177 and $77 were recorded for 2021 and 2020, respectively.

 

 

 

Table 2.
THE KROGER CO.
CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited)
             
      November 6,       November 7,  
      2021       2020  
ASSETS                
Current Assets                
Cash   $ 324     $ 367  
Temporary cash investments     1,964       1,813  
Store deposits in-transit     1,140       1,102  
Receivables     1,914       1,610  
Inventories     7,520       7,478  
Prepaid and other current assets     518       576  
                 
Total current assets     13,380       12,946  
                 
Property, plant and equipment, net     23,316       21,902  
Operating lease assets     6,655       6,843  
Intangibles, net     954       1,012  
Goodwill     3,076       3,076  
Other assets     2,448       2,686  
                 
Total Assets   $ 49,829     $ 48,465  
                 
LIABILITIES AND SHAREOWNERS' EQUITY                
Current Liabilities                
Current portion of long-term debt including obligations under finance leases   $ 1,048     $ 1,595  
Current portion of operating lease liabilities     642       669  
Trade accounts payable     7,879       7,355  
Accrued salaries and wages     1,458       1,236  
Other current liabilities     5,771       4,662  
                 
Total current liabilities     16,798       15,517  
                 
Long-term debt including obligations under finance leases     12,673       11,925  
Noncurrent operating lease liabilities     6,343       6,482  
Deferred income taxes     1,619       1,682  
Pension and postretirement benefit obligations     490       543  
Other long-term liabilities     2,415       2,272  
                 
Total Liabilities     40,338       38,421  
                 
Shareowners' equity     9,491       10,044  
                 
Total Liabilities and Shareowners' Equity   $ 49,829     $ 48,465  
                 
Total common shares outstanding at end of period     738       766  
Total diluted shares year-to-date     757       785  

 

 

 

 

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   $ 1,097     $ 2,664  
Adjustments to reconcile net earnings including noncontrolling
interests to net cash provided by operating activities:
               
Depreciation and amortization     2,168       2,073  
Operating lease asset amortization     468       481  
LIFO charge     177       77  
Stock-based employee compensation     159       147  
Company-sponsored pension plans     56       (12 )
Deferred income taxes     34       219  
Gain on the sale of assets     (34 )     (24 )
Loss (gain) on investments     694       (952 )
Other     106       119  
Changes in operating assets and liabilities, net
of effects from mergers and disposals of businesses:
               
Store deposits in-transit     (44 )     77  
Receivables     (80 )     42  
Inventories     (673 )     (471 )
Prepaid and other current assets     371       (56 )
Trade accounts payable     1,200       1,006  
Accrued expenses     (40 )     469  
Income taxes receivable and payable     (54 )     89  
Operating lease liabilities     (532 )     (464 )
Other     (282 )     413  
                 
Net cash provided by operating activities     4,791       5,897  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Payments for property and equipment, including payments for lease buyouts     (2,008 )     (2,062 )
Proceeds from sale of assets     139       99  
Other     (90 )     (85 )
                 
Net cash used by investing activities     (1,959 )     (2,048 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from issuance of long-term debt     43       537  
Payments on long-term debt including obligations under finance leases     (915 )     (41 )
Net payments on commercial paper     -       (1,150 )
Dividends paid     (433 )     (395 )
Proceeds from issuance of capital stock     118       98  
Treasury stock purchases     (1,049 )     (989 )
Proceeds from financing arrangement     166       -  
Other     (161 )     (128 )
                 
Net cash used by financing activities     (2,231 )     (2,068 )
                 
NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS     601       1,781  
                 
CASH AND TEMPORARY CASH INVESTMENTS:                
BEGINNING OF YEAR     1,687       399  
END OF PERIOD   $ 2,288     $ 2,180  
                 
Reconciliation of capital investments:                
Payments for property and equipment, including payments for lease buyouts   $ (2,008 )   $ (2,062 )
Payments for lease buyouts     -       42  
Changes in construction-in-progress payables     (144 )     (44 )
Total capital investments, excluding lease buyouts   $ (2,152 )   $ (2,064 )
                 
Disclosure of cash flow information:                
Cash paid during the year for interest   $ 493     $ 474  
Cash paid during the year for income taxes   $ 364     $ 495  

 

 

 

 

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  
    2021     2020     2021     2020  
EXCLUDING FUEL   $ 27,685     $ 26,850     $ 91,899     $ 92,795  
                                 
EXCLUDING FUEL     3.1 %     10.9 %     (1.0 )%     15.3 %

 

(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 6,     November 7,        
    2021     2020     Change  
Current portion of long-term debt including obligations under finance leases   $ 1,048     $ 1,595     $ (547 )
Long-term debt including obligations under finance leases     12,673       11,925       748  
                         
Total debt     13,721       13,520       201  
                         
Less: Temporary cash investments     1,964       1,813       151  
                         
Net total debt   $ 11,757     $ 11,707     $ 50  

 

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 6,     November 7,  
    2021     2020  
Net earnings attributable to The Kroger Co.   $ 1,013     $ 2,989  
LIFO charge     93       113  
Depreciation and amortization     2,842       2,728  
Interest expense     543       578  
Income tax expense     205       887  
Adjustment for pension plan withdrawal liabilities     1,437       4  
Adjustment for company-sponsored pension plan settlement charges     87       -  
Adjustment for loss (gain) on investments     541       (943 )
Adjustment for Home Chef contingent consideration     142       58  
Adjustment for deconsolidation and impairment of Lucky's Market attributable to The Kroger Co. (a)     -       174  
Adjustment for transformation costs (b)     118       152  
Other     (7 )     (10 )
                 
Adjusted EBITDA   $ 7,014     $ 6,730  
                 
Net total debt to adjusted EBITDA ratio     1.68       1.74  

 

(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 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  
    2021     2020     2021     2020  
Net earnings attributable to The Kroger Co.   $ 483     $ 631     $ 1,090     $ 2,662  
                                 
Adjustment for pension plan withdrawal liabilities (a)(b)     -       -       344       -  
Adjustment for company-sponsored pension plan settlement charges (a)(c)     68       -       68       -  
Adjustment for loss (gain) on investments (a)(d)     73       (115 )     533       (705 )
Adjustment for Home Chef contingent consideration (a)(e)     7       17       47       80  
Adjustment for transformation costs (a)(f)     5       24       82       73  
Adjustment for income tax audit examinations (a)     (47 )     -       (47 )     -  
                                 
2021 and 2020 Adjustment Items     106       (74 )     1,027       (552 )
                                 
Net earnings attributable to The Kroger Co. excluding the adjustment items above   $ 589     $ 557     $ 2,117     $ 2,110  
                                 
Net earnings attributable to The Kroger Co. per diluted common share   $ 0.64     $ 0.80     $ 1.43     $ 3.35  
                                 
Adjustment for pension plan withdrawal liabilities (g)     -       -       0.45       -  
Adjustment for company-sponsored pension plan settlement charges (g)     0.09       -       0.09       -  
Adjustment for loss (gain) on investments (g)     0.10       (0.15 )     0.70       (0.90 )
Adjustment for Home Chef contingent consideration (g)     0.01       0.02       0.06       0.10  
Adjustment for transformation costs (g)     0.01       0.04       0.11       0.11  
Adjustment for income tax audit examinations (g)     (0.07 )     -       (0.07 )     -  
                                 
2021 and 2020 Adjustment Items     0.14       (0.09 )     1.34       (0.69 )
                                 
Net earnings attributable to The Kroger Co. per diluted common share excluding the adjustment items above   $ 0.78     $ 0.71     $ 2.77     $ 2.66  
                                 
Average number of common shares used in diluted calculation     752       780       757       785  

 

 

 

 

 

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 adjustment to other income (expense) for company-sponsored pension plan settlement charges was $87.
   
(d) The pre-tax adjustments for loss (gain) on investments were $94 and ($162) in the third quarters of 2021 and 2020, respectively.  The year-to-date pre-tax adjustments for loss (gain) on investments were $694 and ($952) in the first three quarters of 2021 and 2020, respectively.
   
(e) The pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $10 and $24 in the third quarters of 2021 and 2020, respectively.  The year-to-date pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $61 and $109 in the first three quarters of 2021 and 2020, respectively.
   
(f) The pre-tax adjustments to OG&A expenses for transformation costs were $6 and $33 in the third quarters of 2021 and 2020, respectively.  The year-to-date pre-tax adjustment to OG&A expenses for transformation costs were $107 and $100 in the first three 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.
   
(g) The amounts presented represent the net earnings (loss) per diluted common share effect of each adjustment.
   
Note: 2021 Third Quarter Adjustment Items include adjustments for the loss on investments, Home Chef contingent consideration adjustment, company-sponsored pension plan settlement charges, strategic transformation costs, and the income tax audit examinations adjustment.
   
  2021 Adjustment Items include the Third Quarter Adjustment Items plus the adjustments that occurred in the first two quarters of 2021 for pension plan withdrawal liabilities, loss on investments, Home Chef contingent consideration adjustment and strategic transformation costs.
 
   
  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.
 

 

 

 

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  
    2021     2020     2021     2020  
Operating profit   $ 868     $ 792     $ 2,512     $ 2,938  
LIFO charge     93       23       177       77  
                                 
FIFO Operating profit     961       815       2,689       3,015  
                                 
Adjustment for pension plan withdrawal liabilities     -       -       449       -  
Adjustment for Home Chef contingent consideration     10       24       61       109  
Adjustment for transformation costs (a)     6       33       107       100  
Other     (3 )     (1 )     (9 )     (6 )
                                 
2021 and 2020 Adjustment items     13       56       608       203  
                                 

Adjusted FIFO operating profit excluding the adjustment items above

  $ 974     $ 871     $ 3,297     $ 3,218  

 

(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     2021     2020  
    THIRD QUARTER     THIRD QUARTER     YEAR-TO-DATE     YEAR-TO-DATE  
    2021     2020     2020     2019     2021     2020     2020     2019  
Excluding Fuel   $ 27,685     $ 26,850     $ 26,860     $ 24,212     $ 91,899     $ 92,795     $ 92,759     $ 80,485  
                                                                 
Excluding Fuel     3.1 %             10.9 %             (1.0 )%             15.3 %        
                                                                 
Two-year identical sales stacked     14.0 %                             14.3 %                        
                                                                 

 

OPERATING PROFIT EXCLUDING THE ADJUSTMENT ITEMS TWO-YEAR CAGR*  

 

    THIRD QUARTER     YEAR-TO-DATE  
    2021     2019     2021     2019  
Operating profit   $ 868     $ 254     $ 2,512     $ 1,714  
LIFO charge     93       23       177       69  
                                 
FIFO Operating profit     961       277       2,689       1,783  
                                 
Adjustment for pension plan withdrawal liabilities     -       45       449       131  
Adjustment for Home Chef contingent consideration     10       4       61       (18 )
Adjustment for severance charge and related benefits     -       80       -       80  
Adjustment for transformation costs (a)     6       -       107       -  
Adjustment for impairment of Lucky's Market (b)     -       238       -       238  
Other     (3 )     9       (9 )     23  
                                 
2021 and 2019 Adjustment items     13       376       608       454  
                                 
Adjusted FIFO operating profit excluding the adjustment items above   $ 974     $ 653     $ 3,297     $ 2,237  
                                 
Two-year operating profit CAGR*     84.9 %             21.1 %        
                                 
Two-year adjusted FIFO operating profit excluding the adjustment items above CAGR*     22.1 %             21.4 %        

 

(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) The adjustment for impairment of Lucky's Market includes a $107 net loss attributable to the minority interest of Lucky's Market.  
                                       
* 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*

 

    THIRD QUARTER     YEAR-TO-DATE  
    2021     2019     2021     2019  
Net earnings attributable to the Kroger Co.   $ 483     $ 263     $ 1,090     $ 1,332  
                               
Adjustment for pension plan withdrawal liabilities (a)(b)     -       35       344       101  
Adjustment for company-sponsored pension plan settlement charges (a)(c)     68       -       68       -  
Adjustment for gain on sale of Turkey Hill Dairy (a)(d)     -       -       -       (80 )
Adjustment for gain on sale of You Technology (a)(e)     -       -       -       (52 )
Adjustment for loss (gain) on investments (a)(f)     73       (81 )     533       (125 )
Adjustment for impairment of Lucky's Market attributable to the Kroger Co. (a)(g)     -       100       -       100  
Adjustment for Home Chef contingent consideration (a)(h)     7       3       47       (13 )
Adjustment for transformation costs (a)(i)     5       -       82       -  
Adjustment for severance charge and related benefits (a)(j)     -       61       -       61  
Adjustment for income tax audit examinations (a)     (47 )     -       (47 )     -  
                                 
2021 and 2019 adjustment items     106       118       1,027       (8 )
                                 
Net earnings attributable to the Kroger Co. Excluding the adjustment items above   $ 589     $ 381     $ 2,117     $ 1,324  
                                 
Net earnings attributable to the Kroger Co. Per diluted common share   $ 0.64     $ 0.32     $ 1.43     $ 1.64  
                                 
Adjustment for pension plan withdrawal liabilities (k)     -       0.04       0.45       0.12  
Adjustment for company-sponsored pension plan settlement charges (k)     0.09       -       0.09       -  
Adjustment for gain on sale of Turkey Hill Dairy (k)     -       -       -       (0.10 )
Adjustment for gain on sale of You Technology (k)     -       -       -       (0.06 )
Adjustment for loss (gain) on investments (k)     0.10       (0.10 )     0.70       (0.16 )
Adjustment for impairment of Lucky's Market attributable to The Kroger Co. (k)     -       0.12       -       0.12  
Adjustment for Home Chef contingent consideration (k)     0.01       0.01       0.06       (0.02 )
Adjustment for transformation costs (k)     0.01       -       0.11       -  
Adjustment for severance charge and related benefits (k)     -       0.08       -       0.08  
Adjustment for income tax audit examinations (k)     (0.07 )     -       (0.07 )     -  
                                 
2021 and 2019 adjustment items     0.14       0.15       1.34       (0.02 )
                                 
Net earnings attributable to the Kroger Co. per Diluted common share excluding the adjustment items above   $ 0.78     $ 0.47     $ 2.77     $ 1.62  
                                 
Average number of common shares used in Diluted calculation     752       807       757       805  
                                 
Two-year net earnings attributable to the Kroger Co. per Diluted common share CAGR*     41.4 %             (6.6 )%        
                                 
Two-year net earnings attributable to the Kroger Co. per Diluted common share excluding the adjustment items above CAGR*     28.8 %             30.8 %        

 

* CAGR represents the compounded annual growth rate.

 

(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 adjustments for pension plan withdrawal liabilities were $449 and $131 in the first three quarters of 2021 and 2019, respectively.
                             
(c) The pre-tax adjustment to other income (expense) for company-sponsored pension plan settlement charges was $87.
                             
(d) The pre-tax adjustment for gain on sale of Turkey Hill Dairy was ($106).
                             
(e) The pre-tax adjustment for gain on sale of You Technology was ($70).
                             
(f) The pre-tax adjustments for loss (gain) on investments were $94 and ($106) in the third quarters of 2021 and 2019, respectively.  The year-to-date pre-tax adjustments for loss (gain) on investments were $694 and ($166) in the first three quarters of 2021 and 2019, respectively.
                             
(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 $10 and $4 in the third quarters of 2021 and 2019, respectively.  The year-to-date pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $61 and ($18) in the first three quarters of 2021 and 2019, respectively.
                             
(i) The pre-tax adjustments to OG&A expenses for transformation costs were $6 in the third quarter of 2021.  The year-to-date pre-tax adjustments to OG&A expenses for transformation costs were $107 in the first three quarters of 2021.  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 pre-tax adjustment for severance charge and related benefits was $80.    
                             
(k) The amounts presented represent the net earnings (loss) per diluted common share effect of each adjustment.
                             
Note: 2021 Third Quarter Adjustment Items include adjustments for the loss on investments, Home Chef contingent consideration adjustment, company-sponsored pension plan settlement charges, strategic transformation costs, and the income tax audit examination adjustment.
 
                             
  2021 Adjustment Items include the Third Quarter Adjustment Items plus the adjustments that occurred in the first two quarters of 2021 for pension plan withdrawal liabilities, loss on investments, Home Chef contingent consideration adjustment and strategic transformation costs.
 
                             
  2019 Third Quarter Adjustment Items include adjustments for pension plan withdrawal liabilities, gain on investments, severance charges, 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, gain on sale of You Technology, the gain on investments and Home Chef contingent consideration adjustment.