Earnings Solid, But Kroger’s 13-Year Positive ID Sales Streak Snapped

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Earlier this month, Kroger Co. posted identical store sales of negative 0.7 percent (excluding fuel) in its fiscal fourth quarter ended January 28, ending a remarkable streak of positive ID sales that dated back to 2004 (52 quarters). The marginal sales decline was not surprising since the largest pure-play supermarket chain in the country had been lagging in recent quarters as the Cincinnati-based merchant struggled like many other retailers with food deflation, intense price competition (especially from Wal-Mart) and an overcrowded market landscape.

For all of fiscal 2016 net earnings totaled $1.98 billion, or $2.05 per diluted share, and identical supermarket sales growth, without fuel, was 1.0 percent. The company’s fiscal year net earnings per diluted share included charges related to the restructuring of certain multi-employer pension obligations to help stabilize associates’ future benefits. Excluding the effect of these charges, Kroger’s fiscal year adjusted net earnings per diluted share were $2.12.

“True to our history, we will continue making proactive investments in our ‘Customer 1st’ strategy to maintain our strong competitive position. We are lowering costs to invest those savings in our people, our business, and technology,” said Kroger chairman and CEO Rodney McMullen. “This approach will enable us to deliver on our long-term net earnings per diluted share growth rate target of 8-11 percent, plus an increasing dividend, as it has in the past. In 2016, Kroger grew market share, increased tonnage, and hired more than 12,000 new store associates. For 2017 and beyond, we will continue delivering for our customers while also setting the company up for our next phase of growth and customer-first innovation.”

Net earnings for the fourth quarter totaled $506 million, or $0.53 per diluted share. Net earnings in the same period last year were $559 million, or $0.57 per diluted share.

Total sales increased 5.5 percent to $27.6 billion in the fourth quarter compared to $26.2 billion for the same period last year. Total sales, excluding fuel, increased 4.4 percent in the fourth quarter over the same period last year. Recent mergers with Roundy’s and Modern Health contributed to this growth, Kroger noted.

Gross margin was 22.2 percent of sales for the fourth quarter. Excluding fuel, recent mergers and the LIFO charge, gross