Kroger 2007 Annual Report Download

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ABOUT THE KROGER FACT BOOK
This Fact Book provides certain financial and operating performance about
The Kroger Co. and its consolidated subsidiaries. It is intended to provide
general information about Kroger and therefore does not include the
Company’s consolidated financial statements and notes. On January 22,
2003, the SEC issued release No. 33-8176 that set forth new requirements
relating to the disclosure of non-GAAP financial measures, as defined in
the release. The release allows for presentation of certain non-GAAP
financial measures provided that the measures are reconciled to the most
directly comparable GAAP financial measure. Any non-GAAP financial
measure discussed in this Fact Book complies with this requirement. More
detailed financial information can be found in Kroger’s filings with the SEC.
Kroger believes that the information contained in this Fact Book is correct
in all material respects as of the date set forth below or such earlier date as
indicated. However, such information is subject to change. Unless
otherwise noted, reference to “years” is to Kroger’s fiscal years.
July 2008
I. Preface & Overview Page 1
About the Kroger Fact Book
Shareholder Information
Financial Highlights
Sustainability
Corporate Overview
II. Retail Operations Page 7
Supermarkets
t Store Formats
t Geography & Markets
t Acquisition Strategy
Convenience Stores
Jewelry Stores
III. Sales Drivers Page 24
Corporate Brands
t Kroger Manufacturing
Pharmacy
Natural and Organic Foods
Retail Fuel Operations
Loyalty Data & Customer Insight
Kroger Personal Finance
IV. Technology & Logistics Page 38
V. Financial Information Page 42
Customer 1st Strategy
Market Share
Identical & Comparable Supermarket
Sales
Capital Expenditures
Debt Obligations
Free Cash Flow
Performance Graph
Financial & Operating Statistics
The Kroger Co. Page 1

Table of contents

  • Page 1
    .... Sales Drivers ƒ ƒ ƒ Corporate Brands t Kroger Manufacturing Page 24 ƒ ƒ ƒ Retail Fuel Operations Loyalty Data & Customer Insight Kroger Personal Finance Pharmacy Natural and Organic Foods IV. Technology & Logistics V. Financial Information ƒ ƒ ƒ ƒ Customer 1st Strategy Market Share...

  • Page 2
    SHAREHOLDER INFORMATION EXECUTIVE OFFICES The Kroger Co. 1014 Vine Street (513) 762-4000 Cincinnati, OH 45202 www.kroger.com Shareholder Services (513) 762-4808 Investor Relations & Financial (513) 762-4366 e-mail: [email protected] Materials Requests STOCK TRANSFER AGENT & REGISTRAR BNY ...

  • Page 3
    ... HIGHLIGHTS (in millions, except per share data, as reported) Calendar Year Ended December 31, Closing market price per share Fiscal Year End Closing market price per share Fiscal Year Total sales Operating profit Net earnings per diluted share Average number of common shares used in diluted...

  • Page 4
    ...kilowatthours. That's enough electricity to power every single family home in Denver, Colorado for one year! Our associates and our customers actively participate in our energy recycling efforts. Our associates reached a significant milestone in 2007 when our team recycled more than 1 billion pounds...

  • Page 5
    CORPORATE OVERVIEW OPERATIONS Headquartered in Cincinnati, Ohio, The Kroger Co. is one of the largest retailers in the United States based on annual sales, holding the #26 ranking on the Fortune 100 list. Kroger was founded in 1883 and incorporated in 1902. At the end of fiscal 2007, Kroger operated...

  • Page 6
    ... 70% of the Company's store employees are covered by collective bargaining agreements negotiated with local unions affiliated with one of several different international unions. There are approximately 330 such agreements, usually with terms of three to five years. The Kroger Co. Page 6

  • Page 7
    ...Kroger's existing distribution and manufacturing facilities. At year-end 2007, Kroger operated 2,486 supermarkets classified under the four primary formats listed in the table below. Store Formats Combination Food & Drug Stores Multi-Department Stores Marketplace Stores Price Impact Warehouse Stores...

  • Page 8
    Combination Food & Drug Stores Baker's City Market Dillons Fry's Gerbes Banners Hilander Jay C Food Stores King Soopers Kroger Owen's Pay Less Super Markets QFC Ralphs Scott's Smith's The combination store (combo) is Kroger's primary format. This format typically draws customers from ...

  • Page 9
    ... merchandise items such as apparel, home fashion and furnishings, outdoor living, electronics, automotive, and toys. Several locations offer fine jewelry and fuel. Fred Meyer stores are similar to supercenters, but are differentiated by a famous brand strategy, including: KitchenAid®, Krups®, Nike...

  • Page 10
    ... poultry) Fresh seafood Natural foods center & organic produce Extensive wine selection with wine stewards in many stores Large selection of gourmet and international foods t Competitive Advantages In Apparel: The shopping experience is that of a department store and features national brands in...

  • Page 11
    ...expertise and top-quality plants, flowers, and other garden items. Competitive Advantages In Home Electronics: t Fred Meyer offers several of the best brands in audiovisual equipment, phones, flat screen TVs, MP3 players, digital cameras, as well as the latest CDs and DVDs. The Kroger Co. Page 11

  • Page 12
    ... and pharmacy departments as well as an expanded general merchandise area that includes outdoor living products, home goods, and toys. Ranging in size from 100,000 to 130,000 square feet, most of our marketplace stores are smaller than our multi-department stores. They require an average investment...

  • Page 13
    Price Impact Warehouse Stores ƒ Food 4 Less Banners ƒ Foods Co Our price impact warehouse stores offer a "no frills, low cost" shopping experience that features everyday low prices for a wide selection of grocery, health and beauty care items. Quality meat, dairy, baked goods, and fresh produce ...

  • Page 14
    ... Indiana Michigan Colorado Washington Arizona Tennessee Kentucky Kansas Virginia Illinois Nevada Oregon Utah West Virginia Arkansas Mississippi New Mexico Missouri N. Carolina Idaho Nebraska S. Carolina Alaska Alabama Louisiana Wyoming Montana TOTAL Banners Food 4 Less, Foods Co, Ralphs Kroger...

  • Page 15
    ...City Market Kroger Michigan Smith's Fred Meyer Stores Kroger Mid-Atlantic Kroger Columbus Fry's Kroger Delta Kroger Cincinnati Dillon Stores Quality Food Centers (QFC) Jay C TOTAL Headquarters Los Angeles, CA Atlanta, GA Houston, TX Louisville, KY Indianapolis, IN Los Angeles, CA Denver, CO Novi, MI...

  • Page 16
    ... CA Atlanta GA Houston TX Seattle WA Detroit MI Phoenix AZ Cincinnati OH Denver CO Columbus OH Riverside CA Dallas TX Las Vegas NV Nashville TN Indianapolis IN Louisville KY Portland OR San Diego CA Memphis TN Fort Worth TX Wichita KS Salt Lake City UT Dayton OH Little Rock AR Toledo OH Lexington KY...

  • Page 17
    ... WV Kansas City KS / MO Lynchburg VA Provo UT Saginaw MI Shreveport LA Huntsville AL Myrtle Beach SC Owensboro KY San Francisco CA Springfield OH Steubenville OH Blacksburg VA Bloomington IN Clarksville TN - Hopkinsville KY Columbia SC Decatur IL Elkhart IN Eugene OR Greeley CO Jackson TN Lafayette...

  • Page 18
    ... (Year-End 2007) KROGER DIVISIONS/ Major MSAs ATLANTA Atlanta Knoxville Savannah CENTRAL Indianapolis Fort Wayne Peoria CINCINNATI Cincinnati Dayton COLUMBUS Columbus Toledo DELTA Memphis Little Rock Jackson DILLON STORES Wichita Omaha FOOD 4 LESS Los Angeles Riverside Las Vegas Chicago San Diego...

  • Page 19
    ... (Year-End 2007) KROGER DIVISIONS/ Major MSAs KING SOOPERS Denver Boulder Colorado Springs MICHIGAN Detroit Flint MID-ATLANTIC Richmond Roanoke Charleston WV Raleigh Hampton Roads MID-SOUTH Nashville Louisville Lexington QFC Seattle Portland RALPHS Los Angeles Riverside San Diego Oxnard SMITH'S Las...

  • Page 20
    ...Winn-Dixie Buehler Food Markets Scott's Food & Pharmacy Farmer Jack [Individual stores] Date June 2003 Sept. 2003 Oct. 2003 2003 June 2004 Sept. 2004 2004 Mar. 2005 April 2006 April 2007 June 2007 2007 # Stores (A) 13 6 4 7 8 3 7 1 1 18 20 2 Location Toledo OH Illinois Denver CO [Various] Cincinnati...

  • Page 21
    ... our gasoline facilities offer pay-atthe-pump convenience for our customers. Over 300 of our convenience stores are tied into the Company's successful loyalty card program. MARKETS Kroger's convenience stores continue to concentrate on small to mediumsized towns located near interstate highways. Two...

  • Page 22
    tobacco products. Gasoline sales represented approximately 70% of the Company's total convenience store sales in 2007. C-Store Division Kwik Shop Quik Stop Loaf 'N Jug Tom Thumb Turkey Hill Minit Markets TOTAL States IA KS NE CA NV CO MT ND NE NM OK SD WY AL FL PA # Stores 2005 2006 2007 151 133 131...

  • Page 23
    ...com. During 2007, the jewelry stores produced 0.6% of Kroger's total sales. STATE Alabama Alaska Arizona California Colorado Connecticut Delaware Florida Georgia Idaho Illinois Indiana # STORES 1 12 10 32 3 5 3 16 1 12 6 7 STATE Iowa Kansas Maryland Massachusetts Michigan Minnesota Missouri Nebraska...

  • Page 24
    ... part of the everyday value that is found in all our products. All corporate brand items, whether manufactured or procured, are held to the same high standards. This consistent focus on quality provides the foundation of our corporate brands program. Kroger's corporate brands strategy focuses on...

  • Page 25
    .... Our Valueâ„¢ brand is designed to offer our price sensitive customers a choice of basic products that are priced to fit their budget. The Valueâ„¢ brand offers practical, economical solutions for everyday needs. 3. Kroger's three-tier corporate brands strategy generates enhanced profit margins...

  • Page 26
    ... corporate brands, lead by "Everyday Living®". In 2007, we re-launched our Everyday Living® kitchen gadget offering, which delivers quality products that help our customers with their kitchen chores. Other important general merchandise brands include seasonal "Holiday Home®" items, upscale...

  • Page 27
    .... By manufacturing our own products, we lower our costs and pass on savings to our customers. Kroger's 15 dairies and three ice cream plants operate at nearly full capacity and produce all varieties of fluid milk, orange juice, cultured products such as yogurt and cottage cheese, ice cream, novelty...

  • Page 28
    ... Dairy -Southern Ice Cream Specialties -Tara Foods South Carolina -Anderson Bakery -Pontiac Foods Oregon -Clackamas Bakery -Swan Island Dairy Minnesota - Pace Dairy California -Compton Creamery -Riverside Creamery -La Habra Bakery -Ralphs Deli Kitchen -Vernon Meat Utah -Layton Dough -Layton Dairy...

  • Page 29
    ...Icings/Glazes ƒ Danish ƒ Salads ƒ Dessert Salads ƒ Meat Salads ƒ Seafood Salads ƒ Salsa ƒ Cakes ƒ Pies ƒ Cupcakes ƒ Cookies ƒ Bagels ƒ Muffins BEVERAGE ƒ Soft Drinks (A) ƒ Spring Water ƒ Purified Water MEAT ƒ Packaged Meats ƒ Retail Meats ƒ Sausages PET FOOD ƒ Dry Dog Food ƒ Dry...

  • Page 30
    ... of locations, operating retail pharmacies in over 1,900 of our food stores. During fiscal 2007, Kroger pharmacists filled over 121 million prescriptions at a retail value of approximately $6.5 billion, an increase of approximately 0.5% versus fiscal 2006. (Fiscal 2006 contained one additional week...

  • Page 31
    ... 510 new drive-thru windows. At year-end 2007, 676 of our stores offered this convenience to customers. In addition to convenience, our pharmacies strive to provide good value to customers. During 2007 we began rolling out our $4 generic pricing program. The program includes over 300 drugs priced at...

  • Page 32
    ...; ƒ Nutrition Centers are located in Fred Meyer stores; ƒ Ralphs, King Soopers, Smith's, QFC, and City Market use a variety of formats, including both segregated and integrated sets. Our stores typically offer 3,000 SKUs of all-natural and organic foods, vitamins, energy bars, sports drinks, and...

  • Page 33
    ... our customers tremendous convenience and value. Fuel centers also allow Kroger to build on our decades of experience in selling gasoline at our convenience stores. Despite low margins, fuel centers can deliver a high return on investment because of their extraordinary inventory turns and positive...

  • Page 34
    ... and 2007, respectively. A portion of the decrease in our FIFO gross margin rate is due to Kroger's growing retail fuel business. The decrease in our non-fuel FIFO gross margin rate reflects Kroger's continued reinvestment of operating cost savings into lower prices for our customers. The Kroger Co...

  • Page 35
    ... 2007, respectively. A portion of the decrease in our OG&A rate is due to the growth in Kroger's retail fuel sales. The decrease in our non-fuel OG&A rate reflects Kroger's strategy of producing operating cost leverage through strong identical sales growth, increased productivity, and cost control...

  • Page 36
    ...evolve. Each year this partnership helps us analyze our business in ways we may not have considered before. In addition to helping Kroger build customer loyalty and brand value, dunnhumbyUSA serves other manufacturing and non-grocery retail clients through offices in Atlanta, Chicago, and Cincinnati...

  • Page 37
    ...-based reward program that provides the highest rewards for customers purchasing Kroger's corporate brand products. Customers also receive up to 15 cents per gallon off their qualified gasoline purchases at Kroger fuel centers in certain markets. KPF offers many other personal financial products...

  • Page 38
    ... & mobile technologies ƒ New data center & network implementations ƒ Customer loyalty systems ƒ Supply chain & transportation management programs ƒ Manufacturing planning & control systems ƒ Web-based application focus & improvement in user interfaces All of these investments are producing...

  • Page 39
    ... our customers while delivering improved operating efficiencies for our business. LOGISTICS Kroger's logistics network includes 33 distribution centers and has been restructured to improve efficiency, lower costs, and improve product safety and quality. Since 1995, Kroger has closed 44 distribution...

  • Page 40
    ... dry grocery merchandise. These regional consolidation centers allow Kroger to purchase in larger quantities at the lowest possible price bracket. The product is piece-picked, sleeve-picked, or case-picked depending on value and movement, and shipped directly to stores two or three times each week...

  • Page 41
    ... for select case and piece picking operations, which dramatically improves store service and reduces cost. Transportation Management With rising fuel and operational costs, Kroger is further leveraging its investments in network-based transportation management systems to improve utilization of its...

  • Page 42
    ...ƒ Our people are great! ƒ I get the products I want, plus a little. ƒ The shopping experience makes me want to return. ƒ Our prices are good. This is a journey that we began over six years ago. Since then, our strategy has helped us strengthen our connection with customers. Our business model is...

  • Page 43
    ... as a metropolitan area in which we operate nine or more stores. Over 70% of our stores are located in these markets. The 2007 market share figures reported below are based on internal estimates. We include all retail outlets that sell merchandise comparable to our own - including supercenters and...

  • Page 44
    ... include expansions and relocations and more closely resemble industry-defined "same store sales". Other companies in our industry may calculate identical or comparable sales differently than Kroger does, limiting the comparability of these measures. Gasoline sales at our supermarket fuel centers...

  • Page 45
    ... internal hurdle Logistics 13.1% rate of 11.3% after-tax. Supermarkets, including real estate 67.4% These projects include new stores, major remodels and expansions of existing stores, as well as distribution facilities, technology and manufacturing investments. We primarily target existing markets...

  • Page 46
    ...ƒ Kroger continues to aggressively close underperforming stores. In fiscal 2007, we closed 52 stores - 43 of these were operational closures. The term "operational closure" describes a store location that has been closed without opening another store in the same vicinity to replace it. The chart on...

  • Page 47
    ... C-stores Jewelry Stores Fuel Centers Pharmacies FY 2007 Beginning # Stores New Acquired - New Acquired - Relocation Relocations Total Stores Opened Expansions Total Store Projects Operational Closures Ending # Stores Remodels Square Footage (millions) % Increase C-stores Jewelry Stores Fuel Centers...

  • Page 48
    ... capital. Maintain a strong capital program. Smooth debt maturities. Use free cash flow to repurchase stock and pay a cash dividend while maintaining a solid investment grade rating. DEBT ISSUES At year-end 2007, Kroger had one credit facility: ƒ $2.5 Billion Five-Year Credit Agreement maturing in...

  • Page 49
    ...2007) $ millions Credit Facility 7.450% Notes - FMY (A) 6.375% Senior Notes (A) 7.250% Senior Notes 8.050% Senior Notes 6.800% Senior Notes 6.750% Senior Notes 6.200% Senior Notes 5.500% Senior Notes 4.950% Senior Notes 6.400% Senior Notes 7.000% Senior Notes 9.200% Certificates - Smith...Kroger issued $...

  • Page 50
    ... manage free cash flow to repurchase shares and pay dividends, while maintaining a leverage ratio that supports our solid investment grade rating. Kroger believes maintaining a solid investment grade rating provides the best cost of capital and the flexibility to execute our Customer 1st strategy in...

  • Page 51
    ...June 1, 2008, to shareholders of record at the close of business on May 15, 2008. Kroger paid a total of $202 million and $140 million in cash dividends during fiscal 2007 and 2006, respectively. Kroger's Board of Directors reviews the dividend annually, with an objective of increasing the amount of...

  • Page 52
    ... on the market price of the common stock and assuming reinvestment of dividends, with the cumulative total return of companies in the Standard & Poor's 500 Stock Index and the Peer Group composed of food and drug companies. Historically, the Company's peer group has consisted of the major food store...

  • Page 53
    ... Albertson's, Inc., Costco Wholesale Corp., CVS Corp, Delhaize Group SA (ADR), Great Atlantic & Pacific Tea Company, Inc., Koninklijke Ahold NV (ADR), Marsh Supermarkets Inc. (Class A), Safeway Inc., Supervalu Inc., Target Corp., Wal-Mart Stores Inc., Walgreen Co., Whole Foods Market Inc., and Winn...

  • Page 54
    ...weeks) Sales 2007 2006 (A) 2005 $20,726 $19,415 $17,948 Q2 (12 weeks) $16,139 $15,138 $13,865 Q3 (12 weeks) $16,135 $14,699 $14,020 Q4 (12 weeks) $17,235 $16,859 $14,720 Year (52 weeks...649 $661 Depreciation & Amortization 2007 $404 2006 (A) $388 2005 $389 Interest Expense 2007 2006 (A) 2005 $311 $...

  • Page 55
    ... $1.54 $1.31 Average Number of Common Shares Used in Diluted Calculation 2007 715 709 685 676 2006 (A) 729 725 720 715 2005 732 730 732 730 (A) 2006 was a 53-week fiscal year. The extra week fell in the Fourth Quarter. (B) Includes advertising, warehousing, and transportation. (C) Certain per share...