'In 2022 we expect to build on this momentum'

CINCINNATI — Kroger delivered fourth-quarter results that topped expectations, with a total 3.7% sales gain (excluding fuel). Identical sales without fuel increased 4.0%, exceeding expectations for a 2.84% rise, and were up 14.6% on a two-year stack basis. Digital sales on a two-year stack grew 105%. Adjusted earnings per share of $0.91 also beat expectations.

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

“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. 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.”

Total company sales were $33.0 billion in the fourth quarter, compared to $30.7 billion for the same period last year. Kroger’s gross margin was 22.2% of sales for the fourth quarter. The FIFO gross margin rate, excluding fuel, increased 3 basis points compared to the same period last year. Kroger said that the stability in its gross margin rate reflects sourcing benefits, offset by strategic price investments and higher supply chain costs.

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

Highlights of the full 2021 fiscal year included:

• Identical Sales without fuel increased 0.2%; two-year stack increased 14.3%
• Digital Sales two-year stack grew 113%
• EPS of $2.17; Adjusted EPS of $3.68
• Operating Profit of $3.5 billion; Adjusted FIFO Operating Profit of $4.3 billion
• Cost savings exceeded $1 billion for fourth consecutive year
• Alternative profits contributed an incremental $150 million of operating profit
• Significantly increased associate wages resulting in average hourly wage of $17 and average hourly rate of over $22 with comprehensive benefits factored in.

Looking ahead, Kroger is upbeat about its prospects for 2022.

“Kroger’s 2021 results demonstrate the strength of our value creation model, and in 2022 we expect to build on this momentum,” chief financial officer Gary Millerchip said. “We expect to grow identical sales without fuel by 2.0% to 3.0% 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.

“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.

“We remain confident in our ability to achieve attractive and sustainable total shareholder returns of 8% to 11% over time.”