Kroger Reports Third Quarter 2020 Results and Raises Full-Year 2020 Guidance

Third Quarter Highlights
– Identical Sales without fuel grew 10.9 percent
– Digital sales grew 108 percent
– EPS of $0.80; Adjusted EPS of $0.71, up 51 percent compared to prior year
– Operating Profit of $792 million; Adjusted FIFO Operating Profit of $871 million, up 33 percent compared to prior year
– Strong alternative profit business growth fueled by digital media revenue, up triple digits compared to prior year
– Continued investments to support and safeguard associates, customers and communities, nearly $1.3 billion since March

The Kroger Co. today reported its third quarter 2020 results, provided a Restock Kroger progress update on the three-year transformation plan and an update to its Covid-19 response.

“Our Kroger family of associates have been nothing short of incredible during the pandemic and they continue to inspire me every day,” said Chairman and CEO Rodney McMullen. “I am proud of our dedicated associates who continued to diligently execute our Restock Kroger transformation while serving our customers when they need us most.”

McMullen added, “We delivered strong results in the third quarter. Customers are at the center of everything we do and sales remain elevated as we continue to enhance our competitive moats – Fresh, Our Brands, Data & Personalization and Seamless. We are executing against our strategy even during the pandemic and continue to grow market share. The strong underlying momentum in our core supermarket business and acceleration in the growth of our alternative profit business demonstrates we are successfully transforming our business model to deliver consistently strong and attractive total shareholder return in 2020 and beyond.”

Total company sales were $29.7 billion in the third quarter, compared to $28.0 billion for the same period last year. Excluding fuel and dispositions, sales grew 11.3 percent.

Gross margin was 23.0 percent of sales for the third quarter. The FIFO gross margin rate, excluding fuel, decreased 2 basis points compared to the same period last year. This decrease was primarily driven by price investments and mix changes, offset by sourcing efficiencies, sales leverage and growth in alternative profit streams.

The LIFO charge was $23 million for both the third quarters of 2020 and 2019.

The Operating, General & Administrative rate decreased 30 basis points, excluding fuel and adjustment items, due to sales leverage and execution of Restock Kroger initiatives, partially offset by continued Covid-19 related investments to protect the health and safety of associates, customers and communities and increased incentive costs.

Rent and depreciation, excluding fuel, decreased 27 basis points due to sales leverage.

Capital Allocation Strategy

Kroger’s capital allocation strategy is to use its adjusted free cash flow to invest in the business and drive profitable growth while also maintaining its current investment grade debt rating and returning capital to shareholders. The company actively balances the use of its adjusted free cash flow to achieve these goals.

Kroger’s net total debt to adjusted EBITDA ratio is 1.74, compared to 2.50 a year ago (Table 5). The company’s net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50. Kroger held temporary cash investments of approximately $1.8 billion as of the end of the quarter, reflecting improved operating performance and significant improvement in working capital.

During the quarter, Kroger repurchased $304 million of shares under its $1 billion board authorization announced on Sept. 11, 2020. Year-to-date, Kroger has repurchased $989 million of shares.

Earlier this year, Kroger increased the dividend by 13 percent, marking the 14^th consecutive year of dividend increases.

For more information, visit the company’s official press release.