Kroger 2011 Annual Report Download - page 3

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1
FE L L O W SH A R E H O L D E R S :
How does a company stay 129 years young?
Since its founding in 1883, Kroger has grown from a single grocery store in Cincinnati, Ohio to America’s
largest traditional grocery retailer. If there is one truth in our business, it is that in order to stay “young” – to
stay relevant – we need to keep changing and improving.
Kroger stays fresh and relevant for our Customers and delivers value for our Shareholders by Listening
to Our Customers, Engaging with our Associates and being a Leader in Retail Innovation.
Kroger is listening, engaging and innovating in more dynamic and sophisticated ways than ever before
– and our Shareholders are benefiting as a result.
* * *
2011 Highlights
Kroger’s strong financial performance in 2011 returned significant capital to Shareholders and enabled
us to invest for future growth. Our Company’s results are driven by our unique formula for success: continue
to reduce the overall cost of running our business and use those savings to fund investments that strengthen
our connection with Customers. Greater Customer loyalty produces additional identical store sales growth,
which generates substantial free cash flow that we use to reward Shareholders. This success formula enabled
us to deliver a total return to Shareholders of 16.3 percent in 2011 compared with 5.3 percent for the
S&P 500.
Fiscal 2011 sales grew $8.4 billion for total revenue of $90.4 billion—a 10 percent growth over
the prior year. Net earnings were $602.1 million, or $1.01 per diluted share. Excluding the effect of the
UFCW pension plan consolidation, earnings for the year were $1.2 billion, or $2.00 per diluted share – a 14
percent increase over 2010 earnings per diluted share. This compares with 2010 sales of $82.0 billion
and reported net earnings of $1.1 billion, or $1.76 per diluted share.
Kroger’s strong cash flow during the year enabled us to increase our quarterly dividend by almost
10 percent and repurchase a record 67 million shares.
Our team successfully delivered on several key commitments in 2011:
•฀ Effectively used free cash flow to reward Shareholders.
•฀ Continued to win Customer loyalty.
•฀ Grew market share.
•฀ Increased identical supermarket sales for an industry-leading thirty-three consecutive quarters.
•฀ Balanced cost reductions with investments in our Customer 1st strategy.
•฀ Increased FIFO operating margin, excluding fuel, for the year.
We achieved all of this in an environment marked by rapid cost inflation and weak consumer confidence
that affected shopping behavior throughout the year. Our outstanding Associates made a big difference
through their knowledge, feedback and engagement in serving every Customer. They deserve special thanks
for a job well done, and I encourage you to do that when you have an opportunity, whether at our annual
meeting in June or on your next visit to one of our stores.
* * *
Listening to Our Customers
More than a century in business has taught us that being a successful retailer begins with listening
to the Customer. Kroger employs sophisticated layers of listening through our unique partnership with
dunnhumbyUSA. This world-class firm specializes in mining complex data – such as the aggregation of
data from our widely-used shopper loyalty card – for strategic insights that we use to make marketing and
promotional decisions.
These unique Customer insights help us reward our most loyal Customers with highly-relevant,
personalized offers for the products they like and buy regularly.