Kroger reports strong Q4, fiscal year results

Still navigating a rapidly changing environment amid the pandemic, Kroger reported strong fourth quarter and fiscal year 2021 results.
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Still navigating a rapidly changing environment amid the pandemic, Kroger reported strong fourth quarter and fiscal year 2021 results, for the year ending Jan. 29, 2022.

The retailer shared that its total company sales reached $33 billion in the fourth quarter, compared to $30.7 billion for the same period last year. Total company sales, excluding fuel, increased 3.7% compared to the same period last year.

Gross margin was 22.2% of sales for the fourth quarter, and FIFO gross margin rate, excluding fuel, increased 3 basis points compared to the same period last year.

The stability in its gross margin rate reflects sourcing benefits, offset by strategic price investments and higher supply chain costs, the company said. 

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“Our strategy of leading with fresh and accelerating with digital propelled Kroger to record performance in 2021, on top of record results in 2020. We are incredibly proud of our associates who continue to deliver for our customers through the pandemic,” Kroger chairman and CEO  Rodney McMullen said. 

Kroger saw identical sales without fuel increase 4% for the quarter, and increase 14.6% on a two-year stack basis. Fourth-quarter digital sales grew 105% on a two-year stack basis.

Earnings per share in the fourth quarter were .75 cents, while adjusted EPS was .91 cents for the quarter. Operating profit for the quarter was $965 million; adjusted FIFO operating profit was $1.01 billion.

“As we look to 2022, we expect the momentum in our business to continue and have confidence in our ability to navigate a rapidly changing operating environment. We are leveraging technology, innovation, and our competitive moats to build lasting competitive advantages,” McMullen said. “Our balanced model is allowing us to deliver for shareholders, invest in our associates, continue to provide fresh affordable food to our customers and uplift our communities. We remain confident in our growth model and our ability to deliver total shareholder returns of 8% to 11% over time.”

[Read more: Kroger to reportedly end COVID-19 benefits for unvaccinated workers]

The LIFO charge for the fourth quarter was $20 million, compared to an $84 million credit for the same period last year. The company attributed the increase in the charge of $104 million to higher inflation in most categories, with grocery and meat being the largest contributors.

In addition, Kroger reported that its operating, general and administrative rate increased seven basis points, excluding fuel and adjustment items. The increase in OG&A was driven by significant investments in associates, including a year-end associate thank you reward and various asset impairments. This was offset by decreased COVID-19 related costs, sales leverage, and the execution of cost savings initiatives, Kroger said.

Among the retailer's fourth-quarter achievements was the successful completion of the initial phase of its in-store End-to-End Fresh initiative, to bring more days of fresh to customers, and that it is currently expanding the program to targeted stores across the country

“Our Brands launched 72 new items during the quarter, many in support of providing easy food at home meal solutions, including our Simple Truth skillet meals for two and Kroger brand multi-serve tray meals,” the company said.

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Kroger also completed the conversion of specialty cheese shops under the Murray's Cheese brand in 260 stores; launched Kroger Floral pilot in partnership with DoorDash in the Houston and Dallas divisions, enabling fresh floral delivery to customers in as little as 1-hour; and opened the first two Kitchen United MIX locations providing customers the opportunity to enjoy made to order restaurant meals from a variety of participating restaurants.

The total company sales for 2021were $137.9 billion, compared to $132.5 billion for the same period last year. Total company sales, excluding fuel, increased .2% compared to the same period last year. For the year, earnings per share were $2.17; adjusted EPS was $3.68. Kroger’s operating profit for the year was $3.5 billion; adjusted FIFO operating profit was $4.3 billion.

“Kroger's 2021 results demonstrate the strength of our value creation model, and in 2022 we expect to build on this momentum,” Kroger CFO Gary Millerchip said.

Gross margin was 22% of sales in 2021. The FIFO gross margin rate, excluding fuel, decreased 43 basis points compared to the same period last year. This decrease primarily related to higher supply chain costs and strategic price investments. This was partially offset by sourcing benefits and growth in alternative profits, Kroger said.

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The retailer also expects to grow identical sales without fuel by 2% to 3% and grow adjusted net earnings per share to between $3.75 to $3.85.

“This guidance contemplates continued investments in our associates and customers, balanced with cost savings and growth in alternative profits,” Millerchip said. “We will continue to be disciplined with capital allocation. In 2022, we are increasing capital investments in strategic priorities that will drive sustained future earnings growth. At the same time, we expect to generate strong free cash flow and we will continue to return excess cash to shareholders.”

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