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Strong core performance and higher fuel margins are being credited for third-quarter success at The Kroger Co.
The Cincinnati-based grocer reported its 44th consecutive quarter of same-store sales growth – 5.6 percent, without fuel – in Q3 of its 2014 fiscal year. Adjusted net earnings were 69 cents per share.
Total sales increased 11.2 percent to $25 billion for the quarter ending Nov. 8 (the third consecutive quarter since Kroger acquired Harris Teeter), compared to $22.5 billion for the same period last year. Total sales, excluding fuel, increased 13.7 percent in Q3 over the year-ago period.
Building Core Business
“Our associates continue to execute our Customer 1st strategy, which is building loyalty beyond the weekly ad and showing yet again that focusing on our customers creates value for our shareholders,” said Rodney McMullen, Kroger’s CEO. “Our financial results were driven by strong sales and core business performance, and helped by higher fuel margins in the third quarter.”
Q3 FIFO adjusted operating profit rose about $100 million over the prior year. Based on Q3 results, Kroger raised and narrowed its adjusted net earnings per diluted share guidance to a range of $3.32 to $3.36 for fiscal 2014, up from $3.22 to $3.28. For Q4, Kroger expects identical supermarket sales growth, excluding fuel, of 4 to 5 percent.
The company expects capital investments, excluding mergers, acquisitions and purchases of leased facilities, to be at the low end of the $2.8 billion to $3 billion range for the year, including those for Harris Teeter.
“Kroger continues to deliver consistently remarkable results. We expect to exceed our long-term earnings per share growth rate for fiscal 2014,” McMullen said. “Our associates shine brightest during the holiday season and we intend to continue our positive momentum through the fourth quarter.”
McMullen added: “We are well on our way to achieving our 10th consecutive year of lowering costs and reinvesting those savings in our people, products, pricing and improved store experience, which together are driving our growth.”
Kroger's long-term net earnings per diluted share growth rate guidance is 8-11 percent, plus a growing dividend. If fuel margins return to historical levels, the company expects fiscal 2015 results to be closer to the low end of the guidance range, compared to 2014 adjusted results, which exclude certain tax benefits and charges related to the restructuring of certain pension plan agreements.
Kroger’s strong financial position allowed the company to return more than $1.8 billion to shareholders through share buybacks and dividends over the last four quarters. During the third quarter, Kroger repurchased 600,000 common shares for a total investment of $29 million.
Kroger’s long-term financial strategy continues to be to use cash flow from operations to maintain its current investment grade debt rating, repurchase shares, grow its dividend and fund capital investments. The company’s net total debt is $11.5 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.
Capital investments, excluding mergers, acquisitions and purchases of leased facilities, totaled $681 million for Q3, compared to $641 million for the same period last year.
The Dec. 4 earnings call was the last such official call for David Dillon as Kroger’s chairman. “Dave has been a friend and a leader to all of us, and a mentor to many of us,” McMullen said of Dillon, whom he succeeded as CEO upon Dillon’s retirement last year.
Kroger employs more than 375,000 associates at 2,631 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. The company also operates 783 convenience stores, 325 fine jewelry stores, 1,293 supermarket fuel centers and 37 food processing plants in the United States.