CINCINNATI — Propelled by consumer behavior changes triggered by the COVID-19 pandemic, Kroger Co. saw its bottom line grow by more than 50% in fiscal 2020, despite a hefty charge to adjust union pension commitments that hammered results for the fourth quarter. Looking ahead, executives expressed confidence that their business model will be able to handle future turbulence in the marketplace.

Net income for the year vaulted 55.8% to $2.59 billion, or $3.27 per diluted share, as sales gained 8.4% to $132.5 billion, driven by a 14.1% increase in identical sales excluding fuel. According to chairman and chief executive officer Rodney McMullen, the double-digit growth in identical sales reflected trip consolidation by shoppers and larger transaction amounts.

“We grew digital sales triple digits in 2020, enabled by our team’s ability to pivot quickly and effectively in the first stage of the pandemic to ensure that we were meeting our customers’ demand for safe, low-touch and touchless shopping modalities,” he added during a conference call with analysts. “Our strong performance in digital is also a testament to the proactive investments we made over the last several years in our network, which positioned Kroger to respond with agility during this crisis. Beyond the numbers, we have built substantial momentum within our business and, more importantly, we continue to deepen our personalized relationships with our customers.”

Gross margin expanded 25 basis points to 23.32%, boosted by a $7 million LIFO credit compared with a LIFO charge of $105 million in 2019. FIFO gross margin, which excludes LIFO and adjustment items, in-
creased 14 basis points.

Kroger deleveraged on operating, general and administrative (OG&A) expense due to a $989 million pretax charge booked in the fourth quarter to adjust withdrawal liabilities related to a UFCW pension plan. As a result, OG&A expense swelled 115 basis points to 18.49% of sales. Nonetheless, operating profit leapt 23.5% to $2.78 billion.

Full-year interest expense decreased 9.8% to $544 million while the company recorded a $1.11 billion pretax gain on investment, fueling a 70.1% spike in pretax income to $3.37 billion.

McMullen noted that 2020 was the final year of Kroger Restock, a three-year transformational plan that consisted of strategic investments and changes to the grocer’s business model.

“We focused on widening and deepening our competitive moats, which include seamless, personalization, fresh and our brands,” he said. “As a result, we generated strong momentum and successfully repositioned our company to serve our customers in new and exciting ways.”

As mentioned above, the pension-related charge shaped results for the final quarter, as the bottom line swung to red ink totaling $77 million, or 10 cents per share, from a year-ago profit of $327 million, or 40 cents per share. Excluding the pension plan charge, the gain on investment and other lesser items, adjusted net income leapt 36.4% to $630 million from $462 million.

On a per share basis, adjusted earnings rose to 81 cents from 57 cents, easily surpassing the consensus estimate of 68 cents per share among analysts.

Fourth quarter sales advanced 6.4% to $30.74 billion, propelled by a 10.6% increase in identical sales excluding fuel. Total digital sales surged 118%, while delivery sales skyrocketed 249%.