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Rodney McMullen, chairman and CEO of The Kroger Co., issued his annual letter to shareholders outlining the Cincinnati-based grocery giant’s long-term focus and strategy.
The high points of McMullen’s missive include:
- Execution of Kroger’s Customer 1st strategy.
- 12 consecutive years of same-store sales growth.
- Growing the core business.
- Moving beyond the core with new services and strategic partnerships.
- Innovation across all levels of the business.
- Continued attention to philanthropy and sustainability.
Following is the verbatim text of McMullen’s letter to shareholders:
Every day we open our doors and welcome more than eight-and-a-half million people who are hungry for more than food. They want to make their lives easier, healthier, brighter and a bit lighter. Our purpose at Kroger is to do just that – to make a difference for our customers, our communities and our associates. When our business delivers on that purpose, we create value for our shareholders.
What makes Kroger different? It all starts with our more than 431,000 associates who share a passion for people, a passion for results, and a passion for food. We like to say that Kroger is more than the sum of its parts. Like a great meal, there is no single characteristic – no one person or thing – that explains Kroger’s success. Rather, it is a unique and powerful combination of factors that make Kroger unique, including our:
• Customer 1st Strategy and our team’s extraordinary execution of it;
• Exceptional merchandisers, operators and deep bench of leaders;
• Ability to leverage scale as a large company and remain local and relevant to individual customers through our use of data;
• Strong manufacturing base and diverse corporate brands offering; and our
• Commitment to making our customers lives better through the use of technology and innovation, to name just a few.
There is another aspect of our company culture that I want to reiterate: Our team is never satisfied with yesterday’s results. We are constantly challenging ourselves to do better. And this shows in the everyday interactions with our customers – who are giving Kroger higher and higher marks in each of the four key areas of our Customer 1st Strategy: our customer service, the quality of our products, low prices and overall shopping experience.
Can a collective sense of urgency be a differentiator? We think so. And while our core business is and will remain strong, we are strategically expanding beyond our core and innovating in new and exciting ways that we believe have transformative potential for our business, customers and associates.
The following letter will outline our growth strategy and why Kroger is positioned as an exceptionally strong long-term investment. But first, a few words about our terrific performance in 2015.
A Triple Crown 2015
Some of my fondest memories as a child were listening to baseball games on the radio. I have been a life-long fan of the game. When I think about extraordinary performance results in baseball, I think about the batting Triple Crown. The Triple Crown occurs when a player posts league-leading results in key performance areas – generally batting average, runs batted in and home runs. It occurs rarely: only 17 times since 1878, and with a forty-year drought from 1967 until 2012.
As CEO, when I judge Kroger’s overall performance, I think about how well we are delivering for our customers, for our associates, and for our shareholders. I’m pleased to report that it has been a Triple Crown year for Kroger. Because in fiscal 2015, we:
• Achieved our 12th consecutive year of positive identical supermarket sales growth,
• Improved overall engagement with and created more opportunity for associates, and
• Delivered financial results in line with our long-term growth objectives and a total shareholder return of 13.63%.
In fact, we exceeded all of our financial performance targets for the year. Growth in identical supermarket sales and net earnings per diluted share, FIFO operating profit margin expansion and return on invested capital were all better than our long-term guidance. We also achieved our eleventh consecutive year of market share growth.
In 2015, we continued to return cash to shareholders. Kroger’s Board of Directors approved a quarterly dividend increase of 13.5%, a two-for-one split of Kroger’s common shares, and a $500 million share repurchase program. We have delivered double-digit compound annual growth in our dividend since it was reinstated in 2006, and we continue to expect an increasing dividend over time. The stock split announced in June both increased liquidity in the trading of our shares and, importantly, made Kroger’s common shares more accessible to all of our associates. Kroger’s strong financial position has enabled the company to return approximately $12 billion to shareholders through share repurchases since January 2000, and approximately $2.6 billion in dividends since 2006.
Unlike baseball’s Triple Crown, Kroger’s 2015 performance wasn’t a rarity. Kroger is a compelling investment because of our ability to deliver remarkably consistent results. That consistency can at times make it easy for our results to be taken for granted. But I can assure you this: we don’t take Kroger’s success for granted – not for a second. To repeat what I said above, what makes our team of associates so special is that we are never satisfied with what we’ve already accomplished. Kroger may be 133 years old, but we are just getting started.
Improving our Core, Beyond the Core, and Innovation – A Strategy for Long-Term Value Creation
Our growth strategy is designed to deliver consistent sales growth and sustainable shareholder value for the long-term. We aim to provide a net earnings per diluted share growth rate of 8 – 11% plus an increasing dividend. Our Board of Directors reviews and approves our strategy annually.