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

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Kroger recorded a LIFO charge of $0.2 million in the fourth quarter, compared to a $30 million LIFO credit in the same quarter last year.

Total sales increased 5.0 percent to $115.3 billion in fiscal 2016 compared to $109.8 billion in 2015. Excluding fuel, total sales increased 6.7 percent in 2016 compared to 2015. Gross margin was 22.4 percent of sales in 2016. Excluding fuel, recent mergers and the LIFO charge, gross margin decreased 7 basis points compared to 2015.

Operating, general and administrative costs as a percent of sales – excluding fuel, recent mergers, the 2016 restructuring of certain multi-employer pension obligations, and the 2015 contributions to the UFCW Consolidated Pension Plan – declined 5 basis points; rent and depreciation with the same exclusions increased by 12 basis points in 2016.

Kroger reiterated that its long-term financial strategy is to use its financial flexibility to drive growth while also returning capital to shareholders.

In 2016, Kroger used cash to repurchase $1.8 billion in common shares; pay $429 million in dividends; invest $3.6 billion in capital; and merge with Modern Health for approximately $390 million.

Capital investments, excluding mergers, acquisitions and purchases of leased facilities, totaled $3.6 billion for the year, compared to $3.3 billion in 2015.

Return on invested capital for 2016 was 13.09 percent. This result was affected by current year results and recently-merged companies.

Kroger said it anticipates identical supermarket sales, excluding fuel, to range from flat to 1 percent growth for 2017.

The company expects net earnings to range from $2.21 to $2.25 per diluted share, including an estimated $.09 for the 53rd week.

Kroger expects the operating environment in the first half of 2017 to be similar to the second half of 2016. The company’s results in the second half of 2017 are expected to show improvement as the company cycles the previous year.

The company expects capital investments, excluding mergers, acquisitions and purchases of leased facilities, to be in the $3.2 to $3.5 billion range for 2017.