Kroger Sets Sights on 9%-11% 2-Year Comps

Q4 comps up 10.6%, loss on pension settlement
Photograph courtesy Kroger

The Kroger Co. said it was anticipating comparable-store sales declines of 3%-5% in fiscal 2021, but 9.1% to 11.1% two-year comps, as it laps historic sales gains aided by the COVID pandemic.

The guidance—which also included anticipated operating profits of $3.3 billion to $3.5 billion and earnings per share of $2.75 to $2.95—came as the Cincinnati-based retailer reviewed its financial results for the fourth quarter and fiscal year that ended Jan. 30.

For the quarter, Kroger said total sales increased by 6.4% to $30.7 billion, but adjusted for fuel, and dispositions increased by 10.6%. Identical-store sales, excluding fuel, grew by 10.6%, and digital sales increased by 118%. The chain got more competitive on pricing in the quarter, with gross margins as a percent of sales decreasing by 6 basis points to 22.9% of sales. The margin figure was offset by growth in alternative profit streams such as advertising sales and by sourcing benefits.

“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,” CEO Rodney McMullen said. “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, pickup 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.”

The company posted an operating loss of $158 million, or 10 cents per share, although that figure was impacted by the previously announced pension settlement with the United Food and Commercial Workers unions that cost $989 million in the quarter. Adjusted for that, Kroger posted an operating profit of $837 million, or 81 cents per share.

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.

For the fiscal year, Kroger’s sales totaled $132.5 billion vs. $122.3 billion in 2019. Operating profit, including the UFCW settlement, totaled $2.8 billion, and net earnings were $2.6 billion.

Like several of its peers have already indicated, Kroger will tune its financial messaging to comparisons over a two-year period to provide better context to results that were wildly impacted by the COVID pandemic in 2020. By that measure, Kroger expects it will significantly exceed its total shareholder return target of 8% to 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,” CFO Gary Millerchip said.


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