Building on strong momentum from its Customer 1st strategy, The Kroger Co. is poised to invest in a targeted expansion strategy to increase square footage and store penetration in existing and new markets as part of its long-term strategy for enhanced growth, as revealed at its investor conference this week in New York.
Kroger raised its long term, fully-diluted earnings per share growth target from 6 to 8 percent to 8 to 11 percent, plus a current dividend of 2.5 percent. To support its growth strategy, the Cincinnati-based retailer expects to increase capital spending by an incremental $200 million annually and increase return on invested capital. In addition, Kroger’s board of directors approved a $500 million share repurchase program, replacing the existing authorization that had approximately $340 million remaining.
During the conference, Kroger’s senior leadership team highlighted the significant opportunities across the broad food retailing market, which extends beyond traditional supermarkets and includes discount stores, drug stores, restaurants and many others.
“Our proven strategy and market position provide a tremendous platform to accelerate growth and increase value creation for Kroger shareholders,” said David B. Dillon, Kroger’s chairman and CEO. “We are confident that Kroger’s unmatched knowledge of the customer and disciplined approach to deploying capital will drive growth at attractive levels of return,” added Dillon, adding that the company will continue to use its “strong free cash flow to deliver shareholder value through actions such as our recent 30 percent dividend increase and the continuation of our substantial share repurchase program.”
During the past five years, Kroger’s customer-centric strategy has resulted in a 200 basis point increase in market share – defined as overall share of the products Kroger sells in the markets where the company operates – to 21.1 percent, according to Nielsen Homescan data. Today, nearly half of all U.S. households hold a Kroger loyalty card, and that figure increases to 85 percent in the markets where Kroger operates. The company has reported an industry-leading 35 consecutive quarters of positive identical store sales.
“Even through the worst of the recession, Kroger created 29,000 new jobs during the last five years,” affirmed Dillon. “We are going to invest to grow and expand our store base, which will create more job opportunities over the next five years, and beyond.”
In addition to selectively expanding its store base and the markets it serves, Kroger will also pursue other initiatives to drive growth, including:
• New customer channels: Enhancing the company’s digital and mobile platforms by leveraging its world-class customer insights program.
• New store formats: Testing new store formats to provide greater access and shopping flexibility to customers.
The company will measure its progress across several key performance metrics including return on invested capital (ROIC), identical sales excluding fuel, FIFO operating margin excluding fuel, and market share growth.
Kroger employs 339,000 associates who serve customers in 2,425 supermarkets and multi-department stores in 31 states under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry's, King Soopers, QFC, Ralphs and Smith's. The company also operates 788 convenience stores, 342 fine jewelry stores, 1,124 supermarket fuel centers and 37 food processing plants in the U.S.
Recognized by Forbes as the most generous company in America, Kroger supports hunger relief, breast cancer awareness, the military and their families, and more than 30,000 schools and grassroots organizations. Kroger contributes food and funds equal to 160 million meals a year through more than 80 Feeding America food bank partners. A leader in supplier diversity, Kroger is a proud member of the Billion Dollar Roundtable and the U.S. Hispanic Chamber’s Million Dollar Club.