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The first quarter of Kroger's 2014 fiscal year is the 42nd in consecutive positive same-store sales growth for the Cincinnati-based grocery giant, at which sales and earnings continue to rise while integration of its Harris Teeter acquisition progresses smoothly.
Total sales increased 9.9 percent to just shy of $33 billion in Q1 compared to $30 billion for the same period last year; excluding fuel, total sales rose 11.4 percent. Identical supermarket sales rose 4.6 percent. Q1 net earnings were $501 million, or 98 cents per diluted share.
“Kroger associates continue to enhance our connection with all customers and achieve our key performance measures, which are allowing us to achieve our growth strategy and create shareholder value,” said Rodney McMullen, Kroger’s CEO. “Our strong first quarter results set us up to deliver a 12- to 15-percent net earnings growth rate for the year, partly due to the benefit of Harris Teeter, compared to our long-term growth rate of 8 to 11 percent plus the growing dividend. We are pleased to start the year with growth momentum while also returning $1.1 billion in cash back to shareholders this quarter through our buyback program.”
Capital investments, excluding mergers, acquisitions and purchases of leased facilities, totaled $709 million for the first quarter, compared to $640 million for the same period last year. Kroger’s net total debt is $11.3 billion, an increase of $3.4 billion from a year ago, including debt related to the Harris Teeter transaction and Kroger’s share repurchase activity.
Positive Shopper Behavior
"Our customers have exhibited less cautious spending behavior," McMullen said. "Consistent with the rise in the Consumer Confidence Index in May, our own customer research tells us that more customers perceive the economy to be in recovery."
But while that's welcome news, McMullen cautioned, "the recovery remains fragile, especially for customers on a budget. We intend to keep delivering value and improving our connection with customers across the entire spectrum." Whether through its popular fuel rewards program, Simple Truth offerings or a more convenient shopping experience, he continued, "Kroger is uniquely positioned to deliver on this promise in any economic environment."
Michael Ellis, president and COO, said Kroger's Customer 1st Strategy is "driving growth and improving our perception in the eyes of our customers. We are connecting better with our customers, showing them we care, and making sure they have a great shopping experience, every time." As a result, Ellis noted, Kroger grew its number of loyal households at a much faster rate than total household growth, which was also up for the quarter.
Kroger's merger with Harris Teeter "is going extremely well," Ellis said. "We are spending time with Harris Teeter and learning a lot about how they connect with customers. Their store standards and fresh foods are world-class. And our cultures are a great fit, which makes our integration work easy." Additionally, Ellis said he's excited by H-T's online ordering and store pickup model, which he called "a program with a lot of promise."
McMullen made note of Kroger's announcement this week of its pension restructuring that will move nearly 2,000 associates and retirees to what the company describes as more stable pension plans, and 350 associates to a Kroger-sponsored 401k plan with a match. "We intend to continue looking for opportunities to leverage our strong financial flexibility to safeguard our associates’ benefits," McMullen said. "We are always looking for opportunities that are good for associates, good for Kroger, and good for our shareholders."
Kroger operates 2,642 supermarkets and multidepartment stores in 34 states and the District of Columbia under two dozen local banner names including Kroger, City Market, Dillons, Food 4 Less, Fred Meyer, Fry's, Harris Teeter, Jay C, King Soopers, QFC, Ralphs and Smith's.