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EXHIBIT 99.1
Media Contact: Gary Rhodes, The Kroger Co. (513) 762-1304
Investor Contact: Kathy Kelly, The Kroger Co. (513) 762-4969
KROGER REPORTS 19% INCREASE IN EARNINGS PER SHARE,
BEFORE ONE-TIME ITEMS, FOR SECOND QUARTER
COMPANY ACHIEVES $380 MILLION MERGER SYNERGY GOAL AHEAD OF SCHEDULE
AND RECORD SALES, EBITDA AND EARNINGS PER SHARE FOR SECOND QUARTER
CINCINNATI, OH, September 19, 2001 -- The Kroger Co. (NYSE: KR) today
reported earnings of $0.32 per diluted share, excluding costs related to a
merger and one-time expenses, for the second quarter ended August 18, 2001.
These results represent an increase of 19% over the second quarter of 2000, on
the same basis.
Total sales for the second quarter of fiscal 2001 increased 4.2% to
$11.5 billion. Total food store sales rose 4.5%. Comparable food store sales,
which include relocations and expansions, rose 1.6% for the quarter, while
identical food store sales rose 0.8%.
EBITDA (earnings before interest, taxes, depreciation, amortization,
LIFO and one-time items) for the second quarter of 2001 totaled $837 million, an
increase of 9.6% from a year ago.
"We are pleased with our earnings performance in the second quarter,
despite some softness in sales," said Joseph A. Pichler, Kroger chairman and
chief executive officer. "Kroger's earnings growth was driven by our corporate
brands, which turned in one of their strongest quarters, and additional synergy
savings from our merger with Fred Meyer, Inc. in 1999. Thanks to the strategic
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planning and outstanding execution by our associates, Kroger has achieved and
exceeded our $380 million synergy goal well ahead of schedule."
Mr. Pichler said Kroger remains comfortable with achieving annual
earnings per share growth of 16-18% through fiscal 2002 (which ends February 1,
2003) from $1.31 per share in 2000, after adjustment for the 53rd week. However,
he cautioned that Kroger cannot foresee the effects of last week's tragedy upon
the Company's business. Looking beyond fiscal 2002, Kroger expects to achieve
earnings per share growth of 15% annually, excluding major acquisitions, he
said.
During the second quarter:
o FIFO gross profit margin, without one-time expenses, increased 56
basis points to 27.55%, driven by increased corporate-brand
sales, merger synergies and savings from coordinated purchasing.
o Operating, general and administrative (OG&A) costs, without
one-time expenses, increased 23 basis points to 18.89%. Utility
expenses increased 22 basis points from the previous year and
health care benefit costs rose eight basis points. These
increases were partially offset by productivity improvements.
o Kroger repurchased 7.0 million shares of common stock at an
average price of $25.30 per share, for an investment of
approximately $180 million. Since January 2000, Kroger has
invested approximately $1.1 billion to buy back approximately
47.5 million shares. At current prices, the Company is continuing
to repurchase stock under the $1 billion program authorized
earlier this year by Kroger's Board of Directors.
During the second quarter of 2001, Kroger opened, expanded, relocated
or acquired 38 food stores. Overall food store square footage increased 4.0%
over the prior year. Including acquisitions, capital expenditures for the
quarter totaled $540 million.
Net working capital totaled $430 million, an increase of $235 million
from the second quarter of fiscal 2000. This increase represents a $29 million
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improvement in working capital when compared to the increase in the first
quarter of 2001 over the first quarter of 2000. The Company attributed the
increase in the second quarter primarily to higher inventories, including
duplicate inventory resulting from the opening of new warehouses and the
reallocation of divisions among distribution facilities.
"We are committed to achieving our goal of reducing working capital by
$500 million from the benchmark we set in the third quarter of 1999," Mr.
Pichler said.
Net total debt was $8.5 billion, an increase of $391 million as
compared to the second quarter of 2000. Net total debt improved to 2.30 times
EBITDA, as compared to 2.46 times in the second quarter of 2000. This represents
Kroger's lowest debt-to-EBITDA ratio since the merger with Fred Meyer. The
Company's goal is to reduce debt to 2 times EBITDA.
During the second quarter, Kroger incurred merger-related and one-time
expenses of $11.2 million pre-tax. Of this amount, $1.6 million was non-cash and
$9.6 million was cash. For fiscal 2001 and fiscal 2002, Kroger continues to
expect total merger-related costs to be in the range of $90-$100 million. These
costs are primarily related to systems conversions.
For the first two quarters of 2001, Kroger reported earnings of $0.69
per diluted share, excluding one-time expenses and merger-related costs. These
results represent an increase of 19% over the first two quarters of 2000, on the
same basis. Total sales in the first two quarters of 2001 increased 4.9% to
$26.6 billion. EBITDA totaled $1.9 billion for the first half of 2001, an
increase of 8.8% over the first half of 2000.
Headquartered in Cincinnati, Ohio, Kroger is one of the nation's
largest retail grocery chains. At the end of the second quarter, the Company
operated 2,392 supermarkets and multi-department stores in 32 states under
approximately two dozen banners, including Kroger, Ralphs, Fred Meyer, Food 4
Less, King Soopers, Smith's, Fry's and Fry's Marketplace, Dillon, QFC and City
Market. Kroger also operates 788 convenience stores, 420 fine jewelry stores,
143 supermarket fuel centers and 41 food processing plants.
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# # #
This press release contains certain 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 relate to, among other things: projected growth in annual
earnings per share; working capital reduction; a decline in our debt-to-earnings
ratio; and merger-related costs, and are indicated by words or phrases such as
"comfortable," "committed," "expects," "goal," and similar words or phrases.
These forward-looking statements are subject to uncertainties and other factors
that could cause actual results to differ materially. Our ability to achieve
annual earnings per share goals could be adversely affected by: general economic
conditions; competitive activity in the markets in which we operate; increases
in product costs; prolonged union work stoppages; interest rate fluctuations;
our ability to obtain sales growth from new square footage; and other factors
not specifically identified. Our efforts to meet our working capital reduction
targets could be adversely affected by: increases in product costs; our ability
to obtain sales growth from new square footage; competitive activity in the
markets in which we operate; changes in our product mix; changes in laws and
regulations; and other factors. Our ability to reduce our debt-to-earnings ratio
could be adversely affected by: our ability to generate sales growth and
operating cash flow; interest rate fluctuations and other changes in capital
market conditions; the Company's stock repurchase activity; unexpected increases
in the cost of capital expenditures; acquisitions; and other factors. Our
merger-related costs could exceed our expectations if information system
conversions are not completed as planned. The Company 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 be broadcast live
via the Internet at 10 a.m. (EDT) on September 19, 2001 at www.kroger.com and
www.streetevents.com. An on-demand replay of the webcast will be available from
2 p.m. (EDT) on September 19, 2001 through September 26, 2001.
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THE KROGER CO.
CONSOLIDATED STATEMENT OF INCOME
WITHOUT ONE-TIME ITEMS
(in millions, except per share amounts)
SECOND QUARTER YEAR TO DATE
------------------------ ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
SALES $11,484.9 $11,017.0 $26,587.2 $25,346.3
COSTS AND EXPENSES:
MERCHANDISE COSTS, INCLUDING ADVERTISING,
WAREHOUSING AND TRANSPORTATION 8,328.3 8,047.5 19,360.8 18,532.8
OPERATING, GENERAL AND ADMINISTRATIVE 2,169.6 2,055.3 4,993.4 4,738.5
RENT 158.2 155.0 365.2 355.9
DEPRECIATION 220.5 210.9 508.6 486.5
AMORTIZATION OF GOODWILL 26.0 22.9 57.4 53.8
NET INTEREST EXPENSE INCL. CAPITAL LEASES 151.6 155.4 357.2 361.5
--------- --------- --------- ---------
TOTAL 11,054.2 10,647.0 25,642.6 24,529.0
--------- --------- --------- ---------
INCOME BEFORE TAX EXPENSE
AND EXTRAORDINARY ITEMS 430.7 370.0 944.6 817.3
TAX EXPENSE 168.0 144.3 368.4 320.9
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS 262.7 225.7 576.2 496.4
EXTRAORDINARY ITEMS (a) -- (1.6) -- (1.6)
--------- --------- --------- ---------
NET INCOME $ 262.7 $ 224.1 $ 576.2 $ 494.8
========= ========= ========= =========
INCOME PER BASIC COMMON SHARE:
FROM OPERATIONS $ 0.33 $ 0.27 $ 0.71 $ 0.60
EXTRAORDINARY ITEMS 0.00 0.00 0.00 0.00
--------- --------- --------- ---------
NET INCOME PER COMMON SHARE $ 0.33 $ 0.27 $ 0.71 $ 0.60
========= ========= ========= =========
SHARES USED IN BASIC CALCULATION 805.3 823.7 808.9 827.6
INCOME PER DILUTED COMMON SHARE:
FROM OPERATIONS $ 0.32 $ 0.27 $ 0.69 $ 0.58
EXTRAORDINARY ITEMS 0.00 0.00 0.00 0.00
--------- --------- --------- ---------
NET INCOME PER DILUTED COMMON SHARE $ 0.32 $ 0.27 $ 0.69 $ 0.58
========= ========= ========= =========
SHARES USED IN DILUTED CALCULATION 826.6 846.6 830.5 848.8
(a) The Extraordinary Items are from the early retirement of debt.
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SUPPLEMENTAL FINANCIAL INFORMATION
WITHOUT ONE-TIME ITEMS
SECOND QUARTER YEAR TO DATE
----------------------- -----------------------
2001 2000 2001 2000
--------- -------- -------- -------
EBITDA (b) $ 836.8 $ 763.2 $1,887.8 $1,735.1
LIFO CHARGE 8.0 4.0 20.0 16.0
GROSS PROFIT % (EXCLUDING LIFO CHARGE)
WITHOUT ONE-TIME ITEMS 27.55% 26.99% 27.26% 26.94%
NET WORKING CAPITAL (c) $ 430.0 $ 194.7
NET TOTAL DEBT (d) 8,477.0 8,086.5
ERONOA (e) 25.88% 24.57%
% TO SALES FOR INCOME STATEMENT WITHOUT ONE-TIME ITEMS
SECOND QUARTER YEAR TO DATE
-------------------- ---------------------
2001 2000 2001 2000
------ ----- ----- -----
MERCHANDISE COSTS, INCLUDING ADVERTISING,
WAREHOUSING AND TRANSPORTATION 72.52% 73.05% 72.82% 73.12%
OPERATING, GENERAL AND ADMINISTRATIVE 18.89% 18.66% 18.78% 18.70%
EFFECTIVE TAX RATE 39.00% 39.00% 39.00% 39.27%
(b) EBITDA, as defined in Kroger's credit agreements, represents earnings
before interest, taxes, depreciation, amortization, LIFO , and one-time
items.
(c) Net working capital, as defined by The Kroger Co., is calculated as current
operating assets less current operating liabilities. The components of this
calculation are detailed following the Consolidated Balance Sheet.
(d) Net total debt, as defined by The Kroger Co., is calculated as the amount
of total debt, including capital leases, net of Kroger's investment in debt
securities issued by lenders of certain of Kroger's structured financings
and net of prefunded employee benefits.
(e) ERONOA, as defined by The Kroger Co., represents the EBITDA return on net
operating assets and is calculated as rolling four quarters EBITDA before
rent expense divided by the sum of total assets plus LIFO reserve less
goodwill less accounts payable, less prepaid VEBA, plus 8 times rolling
four quarters rent expense.
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THE KROGER CO.
CONSOLIDATED STATEMENT OF INCOME
WITH ONE-TIME ITEMS
(in millions, except per share amounts)
SECOND QUARTER YEAR TO DATE
----------------------- -----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
SALES $11,484.9 $11,017.0 $26,587.2 $25,346.3
COSTS AND EXPENSES:
MERCHANDISE COSTS, INCLUDING ADVERTISING,
WAREHOUSING, AND TRANSPORTATION 8,330.7 8,051.3 19,366.0 18,551.6
OPERATING, GENERAL AND ADMINISTRATIVE 2,176.8 2,059.3 5,011.8 4,808.3
RENT 158.2 155.0 365.2 355.9
DEPRECIATION 220.5 210.9 508.6 486.5
AMORTIZATION OF GOODWILL 26.0 22.9 57.4 53.8
INTEREST EXPENSE INCL. CAPITAL LEASES 151.6 155.4 357.2 361.5
IMPAIRMENT CHARGES -- -- -- 190.9
MERGER RELATED COSTS 1.6 2.0 3.9 10.8
--------- --------- --------- ---------
TOTAL 11,065.4 10,656.8 25,670.1 24,819.3
INCOME BEFORE TAX EXPENSE
AND EXTRAORDINARY ITEMS 419.5 360.2 917.1 527.0
TAX EXPENSE 163.8 150.6 358.1 217.3
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS 255.7 209.6 559.0 309.7
EXTRAORDINARY ITEMS (a) -- (1.6) -- (1.6)
--------- --------- --------- ---------
NET INCOME $ 255.7 $ 208.0 $ 559.0 $ 308.1
========= ========= ========= =========
INCOME PER BASIC COMMON SHARE:
FROM OPERATIONS $ 0.32 $ 0.25 $ 0.69 $ 0.37
EXTRAORDINARY ITEMS 0.00 0.00 0.00 0.00
--------- --------- --------- ---------
NET INCOME PER COMMON SHARE $ 0.32 $ 0.25 $ 0.69 $ 0.37
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SHARES USED IN BASIC CALCULATION 805.3 823.7 808.9 827.6
INCOME PER DILUTED COMMON SHARE:
FROM OPERATIONS $ 0.31 $ 0.25 $ 0.67 $ 0.36
EXTRAORDINARY ITEMS (a) 0.00 0.00 0.00 0.00
--------- --------- --------- ---------
NET INCOME PER DILUTED COMMON SHARE $ 0.31 $ 0.25 $ 0.67 $ 0.36
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SHARES USED IN DILUTED CALCULATION 826.6 846.6 830.5 848.8
ONE-TIME EXPENSES IN MERCHANDISE COSTS (b) $ 2.4 $ 3.8 $ 5.2 $ 18.8
ONE-TIME EXPENSES IN OG&A (b) 7.2 4.0 18.4 69.8
IMPAIRMENT CHARGES (c) -- -- -- 190.9
MERGER RELATED COSTS 1.6 2.0 3.9 10.8
--------- --------- --------- ---------
TOTAL ONE-TIME ITEMS, MERGER COSTS,
AND IMPAIRMENT CHARGES $ 11.2 $ 9.8 $ 27.5 $ 290.3
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(a) The Extraordinary Items are from the early retirement of debt.
(b) The one-time items in both 2000 and 2001 are costs related to the Fred
Meyer merger. The merchandise charges primarily relate to inventory
revaluations. The operating, general and administrative charges primarily
relate to system conversions, store conversions or closures.
(c) Relates primarily to the write-down of certain impaired assets in
accordance with Statements of Financial Accounting Standards No. 121.
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SUPPLEMENTAL FINANCIAL INFORMATION
WITH ONE-TIME ITEMS
SECOND QUARTER YEAR TO DATE
----------------------- ----------------------
2001 2000 2001 2000
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EBITDA (d) $ 836.8 $ 763.2 $1,887.8 $1,735.1
LIFO CHARGE 8.0 4.0 20.0 16.0
GROSS PROFIT % (EXCLUDING LIFO CHARGE)
WITH ONE-TIME ITEMS 27.53% 26.96% 27.24% 26.87%
NET WORKING CAPITAL (e) $ 430.0 $ 194.7
NET TOTAL DEBT (f) 8,477.0 8,086.5
ERONOA (g) 25.88% 24.57%
% TO SALES FOR INCOME STATEMENT WITH ONE-TIME ITEMS
SECOND QUARTER YEAR TO DATE
----------------------- -----------------------
2001 2000 2001 2000
------- ------- ------- -------
MERCHANDISE COSTS, INCLUDING ADVERTISING,
WAREHOUSING AND TRANSPORTATION 72.54% 73.08% 72.84% 73.19%
OPERATING, GENERAL AND ADMINISTRATIVE 18.95% 18.69% 18.85% 18.97%
EFFECTIVE TAX RATE 39.05% 41.80% 39.05% 41.23%
(d) EBITDA, as defined in Kroger's credit agreements, represents earnings
before interest, taxes, depreciation, amortization, LIFO , and one-time
items.
(e) Net working capital, as defined by The Kroger Co., is calculated as current
operating assets less current operating liabilities. The components of this
calculation are detailed following the Consolidated Balance Sheet.
(f) Net total debt, as defined by The Kroger Co., is calculated as the amount
of total debt, including capital leases, net of Kroger's investment in debt
securities issued by lenders of certain of Kroger's structured financings
and net of prefunded employee benefits.
(g) ERONOA, as defined by The Kroger Co., represents the EBITDA return on net
operating assets and is calculated as rolling four quarters EBITDA before
rent expense divided by the sum of total assets plus LIFO reserve less
goodwill less accounts payable plus 8 times rolling four quarters rent
expense.
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CONSOLIDATED BALANCE SHEET
Subject to Reclassification
(in millions)
August 18, August 12,
2001 2000
----------- -----------
ASSETS
Current Assets
Cash $ 136.7 $ 154.9
Receivables 648.9 583.5
Inventories 4,039.0 3,794.9
Prepaid and other current assets 331.6 260.9
----------- -----------
Total current assets 5,156.2 4,794.2
Property, plant and equipment, net 9,428.7 8,494.2
Goodwill, net 3,625.2 3,683.5
Other assets 317.0 312.0
----------- -----------
Total Assets $ 18,527.1 $ 17,283.9
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt including
capital leases $ 350.2 $ 618.5
Accounts payable 3,118.2 2,940.0
Accrued salaries and wages 535.6 605.7
Other current liabilities 1,620.8 1,338.3
----------- -----------
Total current liabilities 5,624.8 5,502.5
Long-term debt including capital leases 8,212.5 7,593.1
Other long-term liabilities 1,471.7 1,467.9
Stockholders' equity 3,218.1 2,720.4
----------- -----------
Total liabilities and stockholders' equity $ 18,527.1 $ 17,283.9
=========== ===========
Total common shares outstanding at end of period 802.8 821.5
Total diluted shares Year to Date 830.5 848.8
NET WORKING CAPITAL CALCULATION
August 18, August 12,
2001 2000
--------- ---------
Cash $ 136.7 $ 154.9
Receivables 648.9 583.5
FIFO Inventory 4,374.7 4,132.5
Operating prepaid and other assets 256.2 252.4
Accounts payable (3,118.2) (2,940.0)
Operating accrued liabilities (1,850.4) (1,932.0)
--------- ---------
Prepaid VEBA (17.9) (56.6)
Net working capital $ 430.0 $ 194.7