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Kroger’s ID sales fall in Q4, ending 13-year streak

Modest outlook reflects continued deflation, tough operating environment

Kroger Co. on Thursday said identical-store sales excluding fuel declined in the fiscal fourth quarter, ending a remarkable streak of consecutive quarters of positive ID sales dating back 13 years.

The Cincinnati-based retailer last reported a comparable-store sales decline in the third quarter of 2003. The 0.7% ID sales decline in the fourth quarter comes amid persistent food price deflation and stepped-up price competition from Wal-Mart Stores, which as previously reported in SN, recently expanded price rollbacks further into geographies where Kroger has significant market share. Results were slightly worse than expected: the company in December had forecast “slightly positive” non-fuel ID sales for the quarter, which ended Jan. 28, although some analysts had anticipated they might slide, citing recent increases in produce deflation, competition and consumer sentiment in January.

In a news release, Kroger highlighted tonnage and market share growth achieved over the course of the fiscal year, and emphasized that it was maintaining long-term financial goals of 8%-11% share growth, plus an increasing dividend, while forecasting modest ID sales growth for the fiscal year in a range of flat to +1%.

“True to our history, we will continue making proactive investments in our Customer 1st Strategy to maintain our strong competitive position,” CEO Rodney McMullen said in a statement. “We are lowering costs to invest those savings in our people, our business, and technology. This approach will enable us to deliver on our long-term net earnings per diluted share growth rate target of 8 – 11%, plus an increasing dividend, as it has in the past.

“In 2016, Kroger grew market share, increased tonnage, and hired more than 12,000 new store associates. For 2017 and beyond, we will continue delivering for our customers while also setting the company up for our next phase of growth and customer-first innovation.”

Total sales in the quarter increased 5.5% to $27.6 billion. Net earnings of $506 million decreased by 9.5%. Earnings per share of 53 cents was a penny above analyst estimates. Gross margin was 22.2% of sales for the fourth quarter. Excluding fuel, recent mergers and the LIFO charge, gross margin decreased 22 basis points from the same period last year.

For the fiscal year, Kroger posted net earnings of $2 billion, down 3.1% from last year, on sales of $113.3 billion, a 5% increase. Non-fuel ID sales for the fiscal year increased by 1%. Earnings per share of $2.05 was within range of a narrowed estimate announced in December.

Kroger said it expected net earnings to range from $2.21 to $2.25 per diluted share in the 53-week fiscal year, including an estimated 9-cent benefit for the extra week.

The company said it anticipated that the operating environment in the first half of 2017 would be similar to the second half of 2016, when ID sales slowed with the onset of retail price deflation. It said it expected results in the second half of 2017 to show improvement as the company cycles the previous year.

Capital expenditures for the year are expected to be in the range of $3.2 billion to $3.5 billion, down slightly from $3.6 billion the company spent in 2016.



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