KR
$34.57
Kroger
$1.01
3.01%
Earnings Details
3rd Quarter October 2020
Thursday, December 3, 2020 8:00:00 AM
Tweet Share Watch
Summary

Kroger Misses

Kroger (KR) reported 3rd Quarter October 2020 earnings of $0.71 per share on revenue of $29.7 billion. The consensus earnings estimate was $0.66 per share on revenue of $29.9 billion. The Earnings Whisper number was $0.74 per share. Revenue grew 6.3% on a year-over-year basis.

The company said it expects fiscal 2021 earnings of $3.30 to $3.35 per share. The company's previous guidance was earnings of $3.20 to $3.30 per share and the current consensus earnings estimate is $3.27 per share for the year ending January 31, 2021.

Kroger Co operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores throughout the United States. It also manufactures and processes some of the food for sale in its supermarkets.

Results
Reported Earnings
$0.71
Earnings Whisper
$0.74
Consensus Estimate
$0.66
Reported Revenue
$29.72 Bil
Revenue Estimate
$29.93 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

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

CINCINNATI, Dec. 3, 2020 /PRNewswire/ -- The Kroger Co. (NYSE: KR) 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.

Comments from Chairman and CEO Rodney McMullen

"Our Kroger family of associates have been nothing short of incredible during the pandemic and they continue to inspire me every day. 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.

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."

Financial Results


3Q20 ($ in millions; except EPS)

3Q19 ($ in millions; except EPS)

ID Sales* (Table 4)

10.9%

2.5%

EPS

$0.80

$0.32

Adjusted EPS (Table 6)

$0.71

$0.47

Operating Profit

$792

$254

Adjusted FIFO Operating Profit
(Table 7)

$871

$653

FIFO Gross Margin Rate*

Decreased 2 basis points

OG&A Rate*

Decreased 30 basis points

*without fuel and adjustment items, if applicable

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%.

Gross margin was 23.0% 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 September 11, 2020. Year-to-date, Kroger has repurchased $989 million of shares.

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

Guidance Update

Comments from CFO Gary Millerchip

"As a result of our continued strong performance, market share growth and the expectation of sustained trends in food at home consumption for the remainder of our fiscal year, we are raising our full year 2020 guidance. For the full year 2020, we expect total identical sales without fuel to be around 14% and adjusted EPS growth of 50% to 53%.

Our guidance contemplates continued investments in associates and customers plus ongoing COVID-19 related costs, balanced with continued execution of cost savings initiatives and growth in alternative profit businesses.

Looking toward 2021, we believe that our performance will be stronger than we would have expected prior to the pandemic when viewed as a two-year stacked result for identical sales without fuel growth and as a compounded growth rate over 2020 and 2021 for adjusted earnings per share growth."

Full Year 2020 Guidance


IDS (%)

EPS
($)

Operating
Profit
($B)

Tax
Rate**

Cap
Ex

($B)

Adjusted

FCF

($B)

Share
Repurchases

($B)

Adjusted*

~14.0%

$3.30

 -
$3.35

$4.0 -
$4.1

23%

$2.8
-
$3.2

$2.8 -
$3.1

$1.1 - $1.3

* 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.

Third Quarter 2020 Highlights

Associate Experience

  • Invested nearly $1.3 billion to reward associates and to protect them and customers through dozens of safety measures since March
  • Reached agreement with 20 local UFCW unions to invest $1 billion to improve security of future retirement benefits for 33,000 associates. Agreement ratified in the 4th quarter and will incur a charge to net earnings of approximately $0.98 per diluted share on a GAAP basis in Q4
  • Continued investment in Kroger associates with average hourly rate now over $20 with comprehensive benefits factored in
  • Recognized as a 2020 Champion of Disability Inclusion by the State of Ohio

Customer Obsession

  • Proactively secured an additional 5,000 truckloads of inventory and increased distribution capacity reserves by 20% within supply chain to minimize potential supply disruptions
  • Our Brands launched largest number of new items ever, including 50 new Simple Truth Plant Based collection items
  • Expanded to 2,213 Pickup locations and 2,468 Delivery locations, covering over 98% of Kroger households
  • Announced additional Kroger-Ocado customer fulfillment center in Romulus, Michigan
  • Announced expansion of global money transfer services with Western Union and Ria Money Transfer
  • Launched Chefbot, a first-of-its-kind artificial intelligence tool, on Twitter that delivers personalized recipe recommendations based on ingredients already in a customer's kitchen

Live Our Purpose

  • Partnered with federal government and dozens of state health departments in preparation of distribution of COVID-19 vaccine
  • Launched FDA-authorized rapid antibody tests across family of pharmacies and The Little Clinic locations
  • Conducted more than 250,000 COVID-19 tests since April through Kroger Health
  • Announced new Framework for Action: Diversity, Equity & Inclusion plan, featuring 10 significant steps to advance diversity, equity and inclusion in the workplace and communities
  • Named to the Dow Jones Sustainability Index for eighth consecutive year, driven by the company's progress toward its Zero Hunger | Zero Waste and sustainability goals
  • Year-to-date, The Kroger Co. Foundation and The Kroger Co. Zero Hunger | Zero Waste Foundation have directed nearly $21 million in total grants to nonprofit organizations and programs addressing COVID-19 and Zero Hunger | Zero Waste

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.

Kroger's third quarter 2020 ended on November 7, 2020.

Note: Fuel sales have historically had a low gross margin rate and operating expense rate as compared to corresponding rates on non-fuel sales. As a result, Kroger discusses the changes in these rates excluding the effect of fuel.

Please refer to the supplemental information presented in the tables for reconciliations of the non-GAAP financial measures used in this press release to the most comparable GAAP financial measure and related disclosure.

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 "achieve," "believe," "contemplates," "continue," "deliver," "expect," "future," "guidance," "strategy," "target," "trends," 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, temporary store closures due to reduced workforces or government mandates, or the availability and efficacy of a vaccine; 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 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.

Note: Kroger's quarterly conference call with investors will broadcast live at 10 a.m. (ET) on December 3, 2020 at ir.kroger.com. An on-demand replay of the webcast will be available at approximately 1 p.m. (ET) on Thursday, December 3, 2020.

3rd Quarter 2020 Tables Include:

  1. Consolidated Statements of Operations
  2. Consolidated Balance Sheets
  3. Consolidated Statements of Cash Flows
  4. Supplemental Sales Information
  5. Reconciliation of Net Total Debt and Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA
  6. Net Earnings Per Diluted Share Excluding the Adjustment Items
  7. Operating Profit Excluding the Adjustment Items

 

Table 1.

THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(unaudited)
































THIRD QUARTER


YEAR-TO-DATE









2020


2019


2020


2019

























SALES





$     29,723


100.0%


$     27,974


100.0%


$ 101,761


100.0%


$     93,393


100.0%

























OPERATING EXPENSES




















MERCHANDISE COSTS, INCLUDING ADVERTISING,




















WAREHOUSING AND TRANSPORTATION (a),




















AND LIFO CHARGE (b)



22,901


77.1


21,798


77.9


77,906


76.6


72,787


77.9



OPERATING, GENERAL AND ADMINISTRATIVE (a)


5,194


17.5


5,097


18.2


18,162


17.9


16,223


17.4



RENT





205


0.7


201


0.7


682


0.7


675


0.7



DEPRECIATION AND AMORTIZATION


631


2.1


624


2.2


2,073


2.0


1,994


2.1



























OPERATING PROFIT 



792


2.7


254


0.9


2,938


2.9


1,714


1.8

























OTHER INCOME (EXPENSE)




















INTEREST EXPENSE



(129)


(0.4)


(137)


(0.5)


(438)


(0.4)


(463)


(0.5)



NON-SERVICE COMPONENT OF COMPANY-SPONSORED




















PENSION PLAN COSTS



9


-


(1)


-


28


-


(2)


-



GAIN ON INVESTMENTS



162


0.6


106


0.4


952


0.9


166


0.2



GAIN ON SALE OF BUSINESSES


-


-


-


-


-


-


176


0.2



























NET EARNINGS BEFORE INCOME TAX EXPENSE


834


2.8


222


0.8


3,480


3.4


1,591


1.7


























INCOME TAX EXPENSE 



202


0.7


79


0.3


816


0.8


398


0.4



























NET EARNINGS INCLUDING NONCONTROLLING INTERESTS


632


2.1


143


0.5


2,664


2.6


1,193


1.3



























NET INCOME (LOSS) ATTRIBUTABLE TO





















NONCONTROLLING INTERESTS


1


-


(120)


(0.4)


2


-


(139)


(0.2)



























NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. 


$           631


2.1%


$           263


0.9%


$     2,662


2.6%


$       1,332


1.4%



























NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.





















PER BASIC COMMON SHARE


$          0.81




$          0.32




$       3.39




$         1.65





























AVERAGE NUMBER  OF COMMON SHARES USED IN





















BASIC CALCULATION



772




802




777




800





























NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.





















PER DILUTED COMMON SHARE


$          0.80




$          0.32




$       3.35




$         1.64





























AVERAGE NUMBER OF COMMON SHARES USED IN





















DILUTED CALCULATION


780




807




785




805




























DIVIDENDS DECLARED PER COMMON SHARE


$        0.180




$       0.160




$     0.520




$       0.460

















































Note:

Certain percentages may not sum due to rounding.
































Note:

The Company defines First-In First-Out (FIFO) gross profit as sales minus merchandise costs, including advertising, warehousing and
transportation, but excluding the Last-In First-Out (LIFO) charge.










The Company defines FIFO gross margin as FIFO gross profit divided by sales.










The Company defines FIFO operating profit as operating profit excluding the LIFO charge.










The Company defines FIFO operating margin as FIFO operating profit divided by sales.










The above FIFO financial metrics are important measures used by management to evaluate operational effectiveness.  Management
believes these FIFO financial metrics are useful to investors and analysts because they measure our day-to-day operational
effectiveness.
































(a)

Merchandise costs ("COGS") and operating, general and administrative expenses ("OG&A") exclude depreciation and amortization
expense and rent expense which are included in separate expense lines.
































(b)

LIFO charges of $23 were recorded in the third quarters of 2020 and 2019.  For the year to date period, LIFO charges of $77 and $69
were recorded for 2020 and 2019, respectively.









 

THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

(in millions)

(unaudited)



















November 7


November 9,









2020


2019













ASSETS









Current Assets










Cash





$                367


$                417



Temporary cash investments



1,813


128



Store deposits in-transit




1,102


1,034



Receivables





1,610


1,600



Inventories





7,478


7,412



Prepaid and other current assets



576


434















Total current assets




12,946


11,025













Property, plant and equipment, net



21,902


21,801


Operating lease assets




6,843


6,847


Intangibles, net





1,012


1,086


Goodwill





3,076


3,076


Other assets





2,686


1,558















Total Assets





$          48,465


$          45,393
























LIABILITIES AND SHAREOWNERS' EQUITY






Current Liabilities










Current portion of long-term debt including obligations







under finance leases




$            1,595


$            1,417



Current portion of operating lease liabilities


669


673



Trade accounts payable




7,355


6,867



Accrued salaries and wages



1,236


1,087



Other current liabilities




4,662


4,074















Total current liabilities




15,517


14,118













Long-term debt including obligations under finance leases

11,925


12,227


Noncurrent operating lease liabilities



6,482


6,449


Deferred income taxes




1,682


1,517


Pension and postretirement benefit obligations


543


471


Other long-term liabilities




2,272


1,883















Total Liabilities




38,421


36,665













Shareowners' equity





10,044


8,728















Total Liabilities and Shareowners' Equity


$          48,465


$          45,393













Total common shares outstanding at end of period


766


802


Total diluted shares year-to-date



785


805


 

Table 3.

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)





















YEAR-TO-DATE










2020


2019














CASH FLOWS FROM OPERATING ACTIVITIES:







Net earnings including noncontrolling interests


$            2,664


$            1,193



Adjustments to reconcile net earnings including noncontrolling








interests to net cash provided by operating activities:









Depreciation and amortization


2,073


1,994





Operating lease asset amortization


481


494





LIFO charge


77


69





Stock-based employee compensation


147


117





Company-sponsored pension plan costs


(12)


32





Deferred income taxes


219


(46)





Gain on sale of businesses


-


(176)





Gain on the sale of assets


(24)


(150)





Gain on investments


(952)


(166)





Impairment of Lucky's Market 


-


238





Other


119


(1)





Changes in operating assets and liabilities, net










of effects from mergers and disposals of businesses:











Store deposits in-transit


77


148







Receivables


42


93







Inventories


(471)


(636)







Prepaid and other current assets


(56)


66







Trade accounts payable


1,006


808







Accrued expenses


469


299







Income taxes receivable and payable


89


(145)







Operating lease liabilities


(464)


(477)







Proceeds from contract associated with the sale of business


-


295







Other


461


(1)















Net cash provided by operating activities


5,945


4,048


























CASH FLOWS FROM INVESTING ACTIVITIES:







Payments for property and equipment, including payments for lease buyouts


(2,062)


(2,363)



Proceeds from sale of assets


99


257



Net proceeds from sale of businesses


-


327



Other





(133)


(45)















Net cash used by investing activities


(2,096)


(1,824)


























CASH FLOWS FROM FINANCING ACTIVITIES:







Proceeds from issuance of long-term debt


537


61



Payments on long-term debt including obligations under finance leases


(41)


(1,540)



Net payments on commercial paper


(1,150)


(235)



Dividends paid


(395)


(356)



Proceeds from issuance of capital stock


98


32



Treasury stock purchases


(989)


(34)



Other


(128)


(36)















Net cash used by financing activities


(2,068)


(2,108)






































NET INCREASE IN CASH AND TEMPORARY







CASH INVESTMENTS


1,781


116














CASH AND TEMPORARY CASH INVESTMENTS:







BEGINNING OF YEAR


399


429



END OF PERIOD



$            2,180


$                545


























Reconciliation of capital investments:







Payments for property and equipment, including payments for lease buyouts


$           (2,062)


$           (2,363)



Payments for lease buyouts


42


24



Changes in construction-in-progress payables


(44)


96




Total capital investments, excluding lease buyouts


$           (2,064)


$           (2,243)














Disclosure of cash flow information:








Cash paid during the year for interest


$                474


$                407




Cash paid during the year for income taxes


$                495


$                633


 

Table 4. Supplemental Sales Information

(in millions, except percentages)

(unaudited)












Items identified below should not be considered as alternatives to sales or any other GAAP measure of performance.  Identical sales
is an industry-specific measure and it is important to review it in conjunction with Kroger's financial results reported in accordance
with GAAP.  Other companies in our industry may calculate identical sales differently than Kroger does, limiting the comparability of
the measure.
























































IDENTICAL SALES (a)
















THIRD QUARTER


YEAR-TO-DATE





2020


2019


2020


2019














EXCLUDING FUEL


$         26,860


$         24,212


$         92,759


$         80,485














EXCLUDING FUEL


10.9%


2.5%


15.3%


2.0%


































(a)

Kroger defines identical sales, excluding fuel, as sales to retail customers, including sales from all departments at identical
supermarket locations, Kroger Specialty Pharmacy businesses, jewelry and ship-to-home solutions.  Kroger defines a
supermarket as identical when it has been in operation without expansion or relocation for five full quarters.  

 

Table 5.  Reconciliation of Net Total Debt and

Net Earnings Attributable to The Kroger Co. to Adjusted EBITDA

(in millions, except for ratio)

(unaudited)








The items identified below should not be considered an alternative to any GAAP measure of performance or access to liquidity.  Net total
debt to adjusted EBITDA is an important measure used by management to evaluate the Company's access to liquidity.  The items below
should be reviewed in conjunction with Kroger's financial results reported in accordance with GAAP.






















The following table provides a reconciliation of net total debt.






























November 7


November 9,





2020


2019


Change








Current portion of long-term debt including obligations







   under finance leases


$           1,595


$        1,417


$        178

Long-term debt including obligations under finance leases


11,925


12,227


(302)








     Total debt


13,520


13,644


(124)








Less: Temporary cash investments


1,813


128


1,685








     Net total debt


$         11,707


$       13,516


$    (1,809)















The following table provides a reconciliation from net earnings attributable to The Kroger Co. to adjusted EBITDA, as defined in the
Company's credit agreement, on a rolling four quarter basis.

















Rolling Four Quarters Ended





November 7


November 9,





2020


2019










Net earnings attributable to The Kroger Co.


$           2,989


$        1,591



LIFO charge


113


59



Depreciation and amortization


2,728


2,575



Interest expense


578


605



Income tax expense 


887


464



Adjustment for pension plan withdrawal liabilities


4


299



Adjustment for gain on investments


(943)


(241)



Adjustment for gain on sale of Turkey Hill Dairy


-


(106)



Adjustment for gain on sale of You Technology


-


(70)



Adjustment for Home Chef contingent consideration


58


15



Adjustment for loss on settlement of financial instrument


-


42



Adjustment for severance charge and related benefits


-


80



Adjustment for deconsolidation and impairment of Lucky's Market 







attributable to The Kroger Co. (a)


174


131



Adjustment for transformation costs (b)


152


-



Other


(10)


(28)










Adjusted EBITDA


$           6,730


$        5,416










Net total debt to adjusted EBITDA ratio


1.74


2.50

















(a) The adjustment for impairment of Lucky's Market attributable to The Kroger Co., in the rolling four quarters ended November 9
      2019, excludes a $107 net loss attributable to the minority interest of Lucky's Market.










(b) Transformation costs primarily include costs related to store and business closure costs and third party professional
      consulting fees associated with business transformation and cost saving initiatives.



 

Table 6. Net Earnings Per Diluted Share Excluding the Adjustment Items

(in millions, except per share amounts)

(unaudited)















The purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on net earnings per diluted common share for certain items described below.  Adjusted
net earnings and adjusted net earnings per diluted share are useful metrics to investors and analysts because they present more accurately year-over-year comparisons for net earnings and net earnings per diluted
share because adjusted items are not the result of normal operations.  Items identified in this table should not be considered alternatives to net earnings attributable to The Kroger Co. or any other GAAP measure of
performance.  These items should not be reviewed in isolation or considered substitutes for the Company's financial results as reported in accordance with GAAP.  Due to the nature of these items, as further described
below, it is important to identify these items and to review them in conjunction with the Company's financial results reported in accordance with GAAP.











































The following table summarizes items that affected the Company's financial results during the periods presented. 


















































THIRD QUARTER


YEAR-TO-DATE








2020


2019


2020


2019
















NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.


$                            631


$                            263


$                          2,662


$                         1,332
















ADJUSTMENT FOR PENSION PLAN WITHDRAWAL LIABILITIES (a)(b)


-


35


-


101


ADJUSTMENT FOR GAIN ON SALE OF TURKEY HILL DAIRY (a)(c)


-


-


-


(80)


ADJUSTMENT FOR GAIN ON SALE OF YOU TECHNOLOGY (a)(d)


-


-


-


(52)


ADJUSTMENT FOR GAIN ON INVESTMENTS (a)(e)


(115)


(81)


(705)


(125)


ADJUSTMENT FOR SEVERANCE CHARGE AND RELATED BENEFITS (a)(f)


-


61


-


61


ADJUSTMENT FOR IMPAIRMENT OF LUCKY'S MARKET 











ATTRIBUTABLE TO THE KROGER CO. (a)(g)


-


100


-


100


ADJUSTMENT FOR HOME CHEF CONTINGENT CONSIDERATION (a)(h)


17


3


80


(13)


ADJUSTMENT FOR TRANSFORMATION COSTS (a)(i)


24


-


73


-
















2020 AND 2019 ADJUSTMENT ITEMS



(74)


118


(552)


(8)
















NET EARNINGS ATTRIBUTABLE TO THE KROGER CO.











EXCLUDING THE ADJUSTMENT ITEMS ABOVE


$                            557


$                            381


$                          2,110


$                         1,324
















NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. 











PER DILUTED COMMON SHARE



$                           0.80


$                           0.32


$                           3.35


$                           1.64
















ADJUSTMENT FOR PENSION PLAN WITHDRAWAL LIABILITIES (j)


-


0.04


-


0.12


ADJUSTMENT FOR GAIN ON SALE OF TURKEY HILL DAIRY (j)


-


-


-


(0.10)


ADJUSTMENT FOR GAIN ON SALE OF YOU TECHNOLOGY (j)


-


-


-


(0.06)


ADJUSTMENT FOR GAIN ON INVESTMENTS (j)


(0.15)


(0.10)


(0.90)


(0.16)


ADJUSTMENT FOR SEVERANCE CHARGE AND RELATED BENEFITS (j)


-


0.08


-


0.08


ADJUSTMENT FOR IMPAIRMENT OF LUCKY'S MARKET 











ATTRIBUTABLE TO THE KROGER CO. (j)


-


0.12


-


0.12


ADJUSTMENT FOR HOME CHEF CONTINGENT CONSIDERATION (j)


0.02


0.01


0.10


(0.02)


ADJUSTMENT FOR TRANSFORMATION COSTS (j)


0.04


-


0.11


-
















2020 AND 2019 ADJUSTMENT ITEMS


(0.09)


0.15


(0.69)


(0.02)
















NET EARNINGS ATTRIBUTABLE TO THE KROGER CO. PER 











DILUTED COMMON SHARE EXCLUDING THE ADJUSTMENT ITEMS ABOVE


$                           0.71


$                           0.47


$                           2.66


$                           1.62
















AVERAGE NUMBER OF COMMON SHARES USED IN











DILUTED CALCULATION


780


807


785


805

 

Table 6. Net Earnings Per Diluted Share Excluding the Adjustment Items (continued)

(in millions, except per share amounts)

(unaudited)





























(a)

The amounts presented represent the after-tax effect of each adjustment.















(b)

The pre-tax adjustment to OG&A expenses for pension plan withdrawal liabilities was $45 in the third quarter of 2019.  The year-to-date pre-tax adjustment to OG&A expenses for pension plan withdrawal liabilities was $131 in the first three quarters of 2019.  















(c) 

The pre-tax adjustment for gain on sale of Turkey Hill Dairy was ($106).















(d) 

The pre-tax adjustment for gain on sale of You Technology was ($70).















(e) 

The pre-tax adjustments for gain on investments were ($162) and ($106) in the third quarters of 2020 and 2019, respectively.  The year-to-date pre-tax adjustments for gain on investments were ($952) and ($166) in the first three quarters of 2020 and 2019, respectively.















(f) 

The pre-tax adjustment for severance charge and related benefits was $80.



(g)

The pre-tax adjustment for impairment of Lucky's Market was $238 including a $107 net loss attributable to the minority interest of Lucky's Market.



(h)

The pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $24 and $4 in the third quarters of 2020 and 2019, respectively.  The year-to-date pre-tax adjustments to OG&A expenses for Home Chef contingent consideration were $109 and ($18) in the first three quarters of 2020 and 2019, respectively.















(i)

The pre-tax adjustment to OG&A expenses for transformation costs was $33 in the third quarter of 2020.  The year-to-date pre-tax adjustment to OG&A expenses for transformation costs was $100 in the first three quarters of 2020.  Transformation costs primarily include costs related to store and business closure costs and third party professional consulting fees associated with business transformation and cost saving initiatives.















(j)

The amounts presented represent the net earnings per diluted common share effect of each adjustment.





























Note:

2020 Third Quarter Adjustment Items include adjustments for the gain on investments, Home Chef contingent consideration adjustment and strategic transformation costs.






























2020 Adjustment Items include the Third Quarter Adjustment Items plus the adjustments that occurred in the first two quarters of 2020 for the gain on investments, Home Chef contingent consideration adjustment and strategic transformation costs.






























2019 Third Quarter Adjustment items include adjustments for pension plan withdrawal liabilities, the gain on investments, severance charge, impairment of Lucky's Market and Home Chef contingent consideration adjustment.






























2019 Adjustment Items include the Third Quarter Adjustment Items plus the adjustments that occurred in the first two quarters of 2019 for pension plan withdrawal liabilities, the gain on sale of Turkey Hill Dairy, the gain on sale of You Technology, the gain on investments and Home Chef contingent consideration adjustment.

 

Table 7. Operating Profit Excluding the Adjustment Items

(in millions)

(unaudited)















The purpose of this table is to better illustrate comparable operating results from our ongoing business, after removing the effects on operating profit for certain items described below.  Adjusted FIFO
operating profit is a useful metric to investors and analysts because it presents more accurately year-over year comparisons for operating profit because adjusted items are not the result of normal
operations.  Items identified in this table should not be considered alternatives to operating profit or any other GAAP measure of performance.  These items should not be reviewed in isolation or
considered substitutes for the Company's financial results as reported in accordance with GAAP.  Due to the nature of these items, as further described below, it is important to identify these items
and to review them in conjunction with the Company's financial results reported in accordance with GAAP.











































The following table summarizes items that affected the Company's financial results during the periods presented. 




































THIRD QUARTER


YEAR-TO-DATE








2020


2019


2020


2019
















Operating profit




$                          792


$                          254


$                       2,938


$                      1,714


LIFO charge




23


23


77


69
















FIFO Operating profit



815


277


3,015


1,783
















Adjustment for pension plan withdrawal liabilities


-


45


-


131


Adjustment for Home Chef contingent consideration


24


4


109


(18)


Adjustment for severance charge and related benefits


-


80


-


80


Adjustment for transformation costs


33


-


100


-


Adjustment for impairment of Lucky's Market (a)


-


238


-


238


Other





(1)


9


(6)


23
















2020 and 2019 Adjustment items


56


376


203


454
















Adjusted FIFO operating profit












excluding the adjustment items above


$                          871


$                          653


$                       3,218


$                      2,237





























(a)

The adjustment for impairment of Lucky's Market includes a $107 net loss attributable to the minority interest of Lucky's Market.

 

 

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SOURCE The Kroger Co.