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Kroger posts big digital sales gain in fiscal 2017

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Retailer stepping up investments in Restock Kroger strategy

CINCINNATI — Kroger Co. reported a 90% increase in digital sales in fiscal 2017, and said it increased market share for the 13th straight year. The company said the results validated its new Restock Kroger strategy.

“We launched Restock Kroger in the fall of 2017 and finished the year with positive momentum in our sales and overall business,” said Kroger chairman and chief executive officer Rodney McMullen. “Customers are letting us know that they see, feel and appreciate our efforts to redefine the customer experience – and they are rewarding us with growing loyalty. This is the cycle that creates long-term value for shareholders.”

Investors were wary about the company’s earnings forecast for 2018, however, and the stock price fell in early trading. Kroger said operating profit margin dollars will likely decline, as the company accelerates its investments in Restock Kroger initiatives. Savings from the tax reform legislation passed last year will also support those investments.

“The Tax Cuts and Jobs Act is a catalyst that is enabling us to accelerate investments in Restock Kroger,” McMullen said. “We are taking a balanced approach to ensure tax reform benefits our associates, customers and shareholders. What we’ve previously said is that sharing the benefits with our associates and customers will create a more sustainable and stronger business model for the future. This balanced approach is also consistent with our values and Kroger’s purpose, to Feed the Human Spirit.

“As we embark on our first full year of Restock Kroger, we are encouraged at the start of 2018 and confident in our ability to deliver on both our plan for the year and our long-term vision to serve America through food inspiration and uplift.”

Kroger’s reported net earnings for the fourth quarter of $854 million, up from the net earnings of $506 million posted in the prior year period.

Total sales increased 12.4% to $31.0 billion in the fourth quarter compared to $27.6 billion for the same period last year. Excluding fuel and the 53rd week, total sales increased 2.7% in the fourth quarter over the same period last year.

Gross margin was 21.9% of sales for the fourth quarter. Excluding fuel, the 53rd week and the LIFO credit and charge, gross margin decreased 31 basis points from the same period last year.

Kroger recorded a LIFO credit of $54 million in the fourth quarter, compared to a $0.2 million LIFO charge in the same quarter last year.

Operating, general and administrative costs as a rate of sales (excluding fuel, the 53rd week and the 2017 fourth quarter adjustment items) increased by 22 basis points; rent and depreciation with the same exclusions declined by 9 basis points.

For the full year, net earnings totaled $1.9 billion, or $2.09 per diluted share. That compares to net earnings of $2 billion in fiscal 2016.

Total sales increased 6.4% to $122.7 billion in 2017 compared to $115.3 billion in 2016. Excluding fuel, the 53rd week and the Modern Health merger, total sales increased 2.2% in 2017 compared to 2016.


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