Kroger

1014 Vine St.
Cincinnati, OH 45202
http://www.thekrogerco.com

Kroger is the largest conventional supermarket operator in the U.S., and the second largest U.S. grocery retailer after Walmart.

Store count

Store type Count as of 1/29/2011 (end of fiscal year 2010)
Conventional Supermarkets 2,126
Marketplace Stores (with some general merchandise) 61
Multi-Department Stores (with extensive general merchandise) 125
Price Impact Warehouses 146
Total Supermarkets 2,458
Convenience Stores 786
Jewelry Stores 361
Total Stores 3,605
Number of stores with fuel centers 1,014
Number of stores with in-store pharmacies 1,970
Number of states in which the company operates 31
(Source: Kroger Website, http://www.thekrogerco.com/operations/operations.htm)

 Key Banners

Kroger, Ralphs, King Soopers, City Market, Dillons, Smith’s, Fry’s, QFC, Baker’s, Owen’s, JayC, Hilander, Gerbes, PayLess, Scott’s, Kroger Fresh Fare, Food 4 Less, Foods Co, Fred Meyer, Kroger Marketplace, Dillons Marketplace, Smith’s Marketplace, Fry’s Marketplace.

(Source: Kroger Website, http://www.thekrogerco.com/index.htm)

Employees

  • Kroger had 338,000 employees at the end of fiscal year 2010, with a “majority” being unionized, primarily by the UFCW and Teamsters. (Source: Kroger’s 10-K report for fiscal year 2010, Part I Item 1, p. 2)
  • The UFCW represents almost 208,000 Kroger workers. (Source: UFCW Contract Directory)

Financial Performance

Sales

Company-wide sales were $82.2 billion in fiscal year 2010, up 24% from $66.1 billion in fiscal year 2006. (Source: Standard & Poor’s Compustat database)

Operating profits

Profits from operations of the company (prior to paying interest on debt and taxes) were $2.2 billion in fiscal year 2010, down 1.6% from $2.24 billion in fiscal year 2006. As a share of sales, operating profit was 2.68% in fiscal year 2010, compared to 3.38% in fiscal year 2006. (Source: Standard & Poor’s Compustat database)

Net profits

Profits after paying interest and taxes were $1.1 billion in fiscal year 2010, essentially unchanged from fiscal year 2006. As a share of sales, net profit was 1.36% in fiscal year 2010, compared to 1.69% in fiscal year 2006. (Source: Standard & Poor’s Compustat database)

Why was profit growth negative over a 5-year window? Primarily because Kroger chose to keep prices low for competitive advantage. The cost of procuring goods grew 28% over the five-year period, while sales grew only 24%. The gross margin (defined as the amount by which a company’s total sales exceed the cost of procuring goods, expressed as a share of total sales), declined from 24.2% to 22.2%. (Source: Standard & Poor’s Compustat database)

Same store sales growth. Same store sales growth, or growth in sales at stores open for at least a year, is a key measure of retail sales growth since it shows how much a retailer is able to grow sales from an existing store base (excluding new store openings and mergers and acquisitions). By this measure, Kroger’s performance has been outstanding. In fiscal year 2010, same store sales (excluding fuel sales) grew 3.1% (or 2.8% for “identical store sales,” which excludes stores that were relocated or remodeled). For the fourth quarter of 2010, same store sales (excluding fuel) grew 4% (or 3.8% for “identical store sales”). Unlike key competitors such as Walmart, Kroger has had positive same store sales growth for every quarter over the last several years, including during the depths of the recession. (Source: Standard & Poor’s Compustat database, Kroger’s 3/3/2011 press release announcing 2010 fourth quarter and full-year results.)

Stock price

As of the close of the trading day on June 23, 2011, Kroger’s stock traded for $24.74, which was 20.5% greater than its price of $20.53 five years earlier. By comparison, the S&P 500 index rose by just 3.1% over the same period. (Source: Yahoo Finance)

Market Shares

Nielsen Homescan data

Kroger reports in its 10-K that Nielsen Homescan market share data for 2010 showed that Kroger increased its overall market share by 80 basis points across all 19 market areas that Nielsen reported on (1 basis point = 0.01%). Kroger’s market share increased in 13 of the 19 areas, decreased slightly in four areas, and remained unchanged in two areas. Most significantly, Kroger’s market share increased by 75 basis points in the 17 market areas in which Walmart is a key competitor. (Source: Kroger’s 10-K report for fiscal year 2010, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, p. 11)

Market shares in key metropolitan markets. Kroger has dominant market shares in a number of major metropolitan areas. The following are all the top 20 markets by population in which Kroger operates:

Metropolitan market Kroger share (%) Kroger rank
Los Angeles-Long Beach-Santa Ana, CA 22.4% 1
Dallas-Fort Worth-Arlington, TX 14.4% 2
Houston-Sugar Land-Baytown, TX 22.0% 2
Atlanta-Sandy Springs-Marietta, GA 25.3% 2
Detroit-Warren-Livonia, MI 27.1% 1
Phoenix-Mesa-Glendale, AZ 26.7% 1
Riverside-San Bernardino-Ontario, CA 14.2% 2
Seattle-Tacoma-Bellevue, WA 25.3% 1
San Diego-Carlsbad-San Marcos, CA 15.3% 4

This shows that Kroger is a strong competitor in all the major markets in which it operates. (Source: Metro Market Studies, 2010)

Executive Compensation

  • In fiscal year 2010, Kroger CEO David Dillon made a total of $7.55 million in all forms of compensation, and the five most highly paid executives made a combined total of $18.66 million. (Source: Kroger’s Proxy Statement for 2011 Shareholders’ Meeting, Summary Compensation Table, p. 34)
  • Assuming 40 hours per week for 52 weeks in the year, Dillon’s equivalent hourly rate of pay in fiscal year 2010 was $3,630.

Dividends and Share Repurchases

  • Kroger paid $255 million in cash dividends to shareholders in fiscal year 2010, which represents a 36% growth in dividends over the $187 million paid out to shareholders in fiscal year 2006, the start of the current dividend program. (Source: Standard & Poor’s Compustat database)
  • Kroger repurchased $545 million in shares in fiscal year 2010, and almost $3.5 billion in shares over the last five fiscal years. (Source: Standard & Poor’s Compustat database)

What Wall Street thinks of Kroger

Here is a sampling of what some key Wall Street investment analysts think of Kroger’s financial performance and competitive position:

  • “Kroger put up a good quarter driving above-expectations ex-fuel ID (identical store sales) and EPS (earnings per share)…..market share gains and an underlying improvement in the employment picture are all likely to drive solid results.” (Jefferies Equity Research, 3/4/2011)
  • “Kroger continues to gain share, underscoring key advantages like its scale, strong local market shares, and a deep private brand portfolio.” (Deutsche Bank, 3/4/2011)
  • “Identical Store Sales Remain Strong and Kroger Is Gaining Market Share…These id (identical store) sales results are significantly stronger than those of KR’s traditional supermarket competitors.” (Barclay’s Capital Equity Research, 3/4/2011)
  • “In 2010, we remained impressed with KR’s ability to drive strong ID (identical store) sales and traffic.  Of the supermarkets we cover, KR was the only one to post positive ID sales in 2010 (+2.8%)…..In addition, KR has been able to gain market share over the last year as the company continues to differentiate itself from its traditional and non-traditional competitors.” (Citigroup Global Markets, 4/10/2011)