Volatile is an apt description of the Kroger Co.’s financial performance during fiscal 2019. Costs pressured earnings earlier in the year, but the retailer managed to improve its performance in the fourth quarter.

Fourth-quarter net income for the period ended Feb. 2 rose to $327 million, equal to 40¢ per share on the common stock, and an improvement compared to the fourth quarter of fiscal 2019 when the retailer earned $259 million, equal to 32¢ per share.

Sales ticked up to $28.8 billion from $28.2 billion the year prior.

“The underlying trends in the business was strong,” said Gary Millerchip, chief financial officer, during a March 5 conference call to discuss the results. “November and December identical sales were consistent with third-quarter performance. As expected, January was negatively impacted as we lapped incremental SNAP dollars in the market in January 2019 and we experienced milder weather this year. February bounced back nicely and performed in line with our expectations and slightly ahead of the trend in the third quarter and November and December.”

The company did incur a non-cash impairment charge of $174 million during the quarter related to the divestment of its interest in Lucky’s Market.

“Kroger made the decision to divest our interest in Lucky’s Market in the third quarter of 2019 and we took the appropriate impairment charge based on the information available at that time,” Mr. Millerchip said. “Subsequently, the decision was made by Lucky’s Markets to file for bankruptcy in January, which led us to fully write off the value of our investment and deconsolidate Lucky’s Market from our consolidated financial statements.”

Net income for the year totaled $1.65 billion, equal to $2.05 per share, and down when compared to fiscal 2018 when the company earned $3.11 billion, or $3.80 per share. Items affecting comparability included a pre-tax adjustment for gain on the sale of the company’s convenience store business in fiscal 2018.

Sales for the year were $122.2 billion, which compared with $121.8 billion a year ago.

“By executing against the Restock Kroger framework, we are repositioning our business by widening and deepening our competitive moats,” said William Rodney McMullen, chairman and chief executive officer.

He said the retailer’s private brand generated more than $23 billion in sales, with Simple Truth sales exceeding $2.5 billion.

“After identifying plant-based foods as a key food trend well before 2019, we introduced the Simple Truth Plant Based collection in 2019, and that launch is off to a strong start,” he said. “The Simple Truth brand expanded into plant-based meats with Emerge grinds and patties in January. In only one month, these products ranked third in the category for the entire fourth quarter.”

Mr. McMullen also said the company is a year away from opening its first fully functional customer fulfillment center with Ocado in Monroe, Ohio.

“These facilities will accelerate our ability to provide customers with a seamless experience in a much more cost-effective way,” he said. “We’re designing a flexible distribution network, combining disaggregated demand and proximity of our stores, medium-sized facilities and large facilities. Our network will flex as demand matures, and the optionality will allow us to fulfill same-day or next-day delivery or pickup and the customer or store replenishment.”

For fiscal 2020, Kroger is guiding that sales without fuel will rise 2.25% and earnings per share will fall in the range of $2.30 to $2.40 per share.

“Looking at the cadence of EPS growth in 2020, we expect the first quarter to be below our annual EPS growth range of 5% to 10% as we cycle real estate gains in the first quarter of 2019,” Mr. Millerchip said. “Overall, I’m encouraged with the momentum created in 2019, which provides a solid platform from which to deliver on our commitments in 2020.”

Source: Food Business News