CINCINNATI, April 1, 2020 /PRNewswire/ -- The Kroger Co.
(NYSE: KR) today filed its annual report on Form 10-K and announced
business updates in response to the impact from the novel
coronavirus (COVID-19).
"Kroger's most urgent priority is to provide a safe environment
for associates and customers, with open stores, comprehensive
digital solutions and an efficiently-operating supply chain, so
that our communities have access to fresh, affordable food and
essentials," said Rodney McMullen,
Kroger's chairman and CEO. "We are so proud of our dedicated
associates who are on the front lines serving our customers when
they need us most. A huge thank you to all of our associates, whose
efforts are nothing short of heroic."
After experiencing strong sales in February, the COVID-19
pandemic triggered a significantly greater lift in sales across
both physical retail stores and digital channels in March.
Customers shop with Kroger in times of uncertainty because it is a
brand they trust. In addition, Kroger has made significant
investments for several years to enhance the seamless ecosystem for
customers. As customers look for more digital solutions during the
pandemic, Kroger is well-positioned to support them with pick-up,
delivery and ship to home solutions. To advance operations and
support the accelerated sales growth, the Kroger family of
companies is making investments in its workforce, associate and
customer safety, and the supply chain.
Kroger leadership is closely monitoring the impact of the
pandemic on food retail across global markets. From early
observations, Kroger is seeing trends similar to other markets
affected by the pandemic. The Kroger family of companies
started to see a significant shift in customer behavior during the
last few days of February as shoppers started stocking
up. Sales sharply accelerated in March with identical retail
supermarket sales without fuel up approximately 30 percent.
This was driven by dramatically heightened demand in the middle of
the month as customers were stockpiling, which then tapered, but
remained higher than normal in the final week, as customers
adjusted to the new dining, work and travel restrictions. The
demand has been broad based across grocery and fresh departments.
It is too early to speculate what will emerge as the "new normal"
in food consumption at home or what the impact on sales will be in
future periods.
The Kroger family of companies is investing in special pay above
regular wages for frontline hourly associates, providing expanded
paid sick leave, and hiring a record number of new associates. It
likewise is investing in safety protocols throughout its
operations, including more frequent and rigorous cleaning and
sanitization procedures in stores, distribution centers and
manufacturing facilities. Kroger is also investing in its supply
chain to expand capacity where possible. These investments are
supporting associates, customers and communities through the
pandemic, and will help the company emerge stronger as a
result.
"We are seeing strong sales and are at the same time investing
in our business to support our customers and associates through the
current uncertainty," said Gary
Millerchip, Kroger's chief financial officer.
As a result of recent trends, Kroger expects first quarter
identical sales excluding fuel and adjusted EPS to be better than
the annual growth rate provided in guidance for full year 2020.
Looking towards the rest of the year, Kroger expects volatility
in sales throughout the year as the impact of COVID-19 on the
consumer evolves, and anticipates the following to have an impact
on full-year results:
- Continued investments to help our customers and associates
through the COVID-19 pandemic.
- Delay of certain cost-saving initiatives to focus all resources
where they are needed most in the short term - to address the
impact of COVID-19. The company has plans in place to resume these
initiatives quickly, when the timing is right.
- Uncertainty surrounding the longer-term impact of COVID-19,
including the length of travel and other restrictions, on food and
grocery sales, fuel and alternative profit streams.
- Potential long-term shift in customer behavior toward eating
more food at home.
In light of all these factors, Kroger leadership believes
maintaining current guidance is prudent at this time and is
therefore reconfirming guidance for full year 2020.
Kroger's financial model has proven to be resilient throughout
the economic cycle. Kroger continues to generate strong free cash
flow and maintain strong liquidity. As a precautionary measure to
reduce reliance on the commercial paper market and preserve
financial flexibility in response to the coronavirus pandemic,
Kroger proactively borrowed $1
billion under its revolving credit facility on March 18, 2020. Cash and temporary cash
investments were approximately $2.3
billion and there were no commercial paper borrowings
outstanding immediately following the draw down. To maintain
financial flexibility, Kroger has decided to pause additional share
repurchases during the fiscal first quarter. Kroger had already
repurchased $355 million shares
during the quarter under its $1
billion board authorization announced November 5, 2019, leaving $245 million
remaining under the authorization. Kroger remains committed to
maintaining a net total debt to adjusted EBITDA ratio target range
between 2.30 to 2.50.
Additional Details of Associate Investments
The Kroger
family of companies is protecting the health and safety of its
associates and customers by:
- Enhancing daily sanitation practices, including cleaning
commonly used areas more often like cashier stations,
self-checkouts, credit card terminals, food service counters and
shelves.
- Permitting and working hard to procure protective masks and
gloves for associates.
- Installing plexiglass partitions at check lanes, pharmacy and
Starbucks registers across the enterprise.
- Adding floor decals to promote physical distancing at check
lanes and other counters.
- Adjusting store operating hours to allow more time for our
associates to rest, clean and replenish inventory.
- Continuing to expand online pickup and delivery, and
contactless payment solutions like Kroger
Pay.
The Kroger family of companies is supporting associates in a
variety of ways, including:
- Providing a Hero Bonus – a $2
premium above standard base rate of pay, applied to hours worked
March 29 through April 18 – for all
hourly frontline grocery, supply chain, manufacturing, pharmacy and
call center associates. This follows and is in addition to the
company's previous commitment shared on March 21, which provided a one-time bonus to
frontline associates, which pays out on April 3.
- Beginning next week, Kroger and certain of its affiliates are
adding ExpressPay – a new benefit that allows most hourly
associates to access some of their pay faster, putting money in
their pockets sooner than usual.
- Helping associates who are affected by COVID-19 – whether
experiencing symptoms and self-isolating, diagnosed or placed in
quarantine – be supported with paid time off.
- Making additional resources available for those facing
hardship, including lack of access to childcare and for those
considered high-risk, due to COVID-19 through the Kroger Family of
Companies Helping Hands fund.
- Establishing an Associate Hotline to answer benefit questions
quickly.
- Providing access to mental health services and other benefits
to support associates' mental and physical well-being during this
stressful time.
- The Kroger family of companies has hired more than 32,700 new
associates in the last two weeks, including workers from the
hardest-hit sectors like restaurants, hotels and food service
distributors.
Kroger and its affiliates are supporting communities in a
variety of ways, including:
- The Kroger Co. Zero Hunger | Zero Waste Foundation is rapidly
deploying more than $3 million in
hunger-relief resources to communities disproportionately impacted
by the coronavirus pandemic through its nonprofit partners, Feeding
America and No Kid Hungry. The funding will not only support local
food banks nationwide, but also fund initiatives that ensure
children, whose schools may be closed, still have access to
nutritious meals.
- Making it easy for customers to support The Kroger Co. Zero
Hunger | Zero Waste Foundation's mission to create communities free
of hunger and waste by choosing to roundup their purchases to the
nearest dollar at every self-checkout lane in America or donate at
ZeroHungerZeroWasteFoundation.org.
- Donating food and funds to local food banks and hunger-relief
efforts.
- The Kroger Co. Foundation supported the American Red Cross
Annual Disaster Giving Program and Disaster Responder Program at
the $500,000 level for 2020, enabling
the Red Cross to develop capacity, leaders and resources to provide
relief.
2020 Guidance
|
IDS
(%)
|
EPS
($)
|
Operating
Profit ($B)
|
Tax
Rate**
|
Cap
Ex
($B)
|
Incremental
Alternative
Profit ($M)
|
Adjusted
FCF
($B)
|
Share
Repurchases
($M)
|
Adjusted*
|
>2.25%
|
$2.30
-
$2.40
|
$3.0 -
$3.1
|
23.0%
|
$3.2-
$3.4
|
$125-$150
|
$1.6-$1.8
|
$500-$1,000
|
* Without adjusted items, if applicable; Identical sales is
without fuel; Operating profit represents FIFO Operating
Profit. Kroger is unable to provide a full reconciliation of
the GAAP and non-GAAP measures used in 2020 guidance without
unreasonable effort because it is not possible to predict certain
of our adjustment items with a reasonable degree of certainty. This
information is dependent upon future events and may be outside of
our control and its unavailability could have a significant impact
on 2020 GAAP financial results.
** This rate reflects typical tax adjustments and does not reflect
changes to the rate from the completion of income tax audit
examinations, which cannot be predicted.
About Kroger
At The Kroger Co. (NYSE: KR), we are
Fresh for Everyone™ and dedicated to our Purpose: To Feed the
Human Spirit®. We are, across our family of companies, nearly half
a million associates who serve over 11 million customers daily
through a seamless shopping experience under a variety
of banner names. We are committed to creating
#ZeroHungerZeroWaste communities by 2025. To learn more about us,
visit our newsroom and investor relations site.
This press release contains certain statements that constitute
"forward-looking statements" about the future performance of the
company. These statements are based on management's assumptions and
beliefs in light of the information currently available to it. Such
statements are indicated by words or phrases such as "believe,"
"commit," "continue," "expect," "future," "guidance," "strategy,"
"trend," and "will." Various uncertainties and other factors could
cause actual results to differ materially from those contained in
the forward-looking statements. These include the specific risk
factors identified in "Risk Factors" in our annual report on Form
10-K for our last fiscal year and any subsequent filings, as well
as the following:
- Kroger's ability to achieve sales, earnings, incremental FIFO
operating profit, and adjusted free cash flow goals may be
affected by: COVID-19 related factors, risks and challenges,
including among others, the length of time that the pandemic
continues, the temporary inability of customers to shop due to
illness, quarantine, or other travel restrictions or financial
hardship, shifts in demand away from discretionary or higher priced
products to lower priced products, or stockpiling or similar
pantry-filling activities, reduced workforces which may be caused
by, but not limited to, the temporary inability of the workforce to
work due to illness, quarantine, or government mandates, or
temporary store closures due to reduced workforces or government
mandates; labor negotiations or disputes; changes in the types and
numbers of businesses that compete with Kroger; pricing and
promotional activities of existing and new competitors, including
non-traditional competitors, and the aggressiveness of that
competition; Kroger's response to these actions; the state of the
economy, including interest rates, the inflationary and
deflationary trends in certain commodities, changes in tariffs, and
the unemployment rate; the effect that fuel costs have on consumer
spending; volatility of fuel margins; changes in government-funded
benefit programs and the extent and effectiveness of any COVID-19
stimulus packages; manufacturing commodity costs; diesel fuel costs
related to Kroger's logistics operations; trends in consumer
spending; the extent to which Kroger's customers exercise caution
in their purchasing in response to economic conditions; the
uncertainty of economic growth or recession; changes in inflation
or deflation in product and operating costs; stock repurchases;
Kroger's ability to retain pharmacy sales from third party payors;
consolidation in the healthcare industry, including pharmacy
benefit managers; Kroger's ability to negotiate modifications to
multi-employer pension plans; natural disasters or adverse weather
conditions; the effect of public health crises or other significant
catastrophic events, including the coronavirus; the potential costs
and risks associated with potential cyber-attacks or data security
breaches; the success of Kroger's future growth plans; the ability
to execute on Restock Kroger; and the successful integration
of merged companies and new partnerships. Our ability to achieve
these goals may also be affected by our ability to manage the
factors identified above. Our ability to execute our financial
strategy may be affected by our ability to generate cash flow.
- Kroger's ability to achieve these goals may also be affected by
Kroger's ability to manage the factors identified above.
- Kroger's effective tax rate may differ from the expected rate
due to changes in laws, the status of pending items with various
taxing authorities, and the deductibility of certain expenses.
Kroger assumes no obligation to update the information contained
herein. Please refer to Kroger's reports and filings with the
Securities and Exchange Commission for a further discussion of
these risks and uncertainties.
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SOURCE The Kroger Co.