Kroger 2012 Annual Report Download - page 85

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A-27
Statements elsewhere in this report and below regarding our expectations, projections, beliefs, intentions
or strategies are forward-looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934. While we believe that the statements are accurate, uncertainties about the general economy, our
labor relations, our ability to execute our plans on a timely basis and other uncertainties described below
could cause actual results to differ materially.
•฀ We฀expect฀net฀earnings฀per฀diluted฀share฀in฀the฀range฀of฀$2.71-$2.79฀for฀2013.฀This฀equates฀to฀our฀long-
term growth rate of 8% to 11% from our adjusted fiscal 2012 net earnings per diluted share of $2.52,
which excludes the UFCW consolidated pension accrual and credit card settlement adjustments in the
third quarter of 2012 and the extra week in the fourth quarter of 2012. We expect the first quarter
net earnings per diluted share growth rate for 2013 to be on the low end of the range primarily due to
expected inflation being lower in the first quarter of 2013, compared to 2012, and the growth of our
pharmacy business not being as substantial as in the first quarter of 2012. We expect the second and
third quarters net earnings per diluted share growth rate for 2013 to be at the high end to above the
range primarily due to expected inflation being more comparable in the second and third quarters of
2013, compared to the second and third quarters of 2012, and expecting our identical supermarket sales
to be trending upwards. We also expect the fourth quarter net earnings per diluted share growth rate
for 2013 to be lower than the prior year on a 12-week to 12-week basis primarily due to a budgeted LIFO
charge of $13 million compared to a LIFO credit of $41 million in the fourth quarter of 2012.
•฀ We฀expect฀identical฀supermarket฀sales฀growth,฀excluding฀fuel฀sales,฀of฀2.5%-3.5%฀in฀2013.฀We฀expect฀
identical supermarket sales growth to increase over time during 2013 relative to 2012. In 2012, we
experienced higher levels of inflation early in the year. In the second half of the year, several branded
prescription drugs came off patent, and when branded prescription drugs come off patent and are sold
as generics, sales are reduced because generic equivalents have lower retail prices than branded drugs.
We do not expect these conditions to continue to have the same impact for 2013.
•฀ Our฀long-term฀business฀model฀ seeks฀to฀produce฀ annual฀earnings฀per฀diluted฀ share฀growth฀averaging฀
8.0%-11.0%, plus a dividend of 2.0% to 2.5%, for a total shareholder return of approximately 10.0%-13.5%.
•฀ For฀2013,฀we฀intend฀to฀continue฀to฀focus฀on฀improving฀sales฀growth,฀in฀accordance฀with฀our฀Customer฀
1st strategy, by making investments in gross margin and customer shopping experiences. We expect to
finance these investments primarily with operating cost reductions. We expect FIFO non-fuel operating
margins for 2013 to expand slightly compared to 2012, excluding the UFCW consolidated pension plan
accrual and the credit card settlement adjustments in 2012.
•฀ For฀2013,฀we฀expect฀our฀annualized฀LIFO฀charge฀to฀be฀approximately฀$55฀million.฀This฀forecast฀is฀based฀
on estimated cost changes for products in our inventory.
•฀ For 2013, we expect interest expense to be approximately $440 million.
•฀ We plan to use cash flow primarily for capital investments, to maintain our current debt coverage ratios,
to pay cash dividends, and to repurchase stock. As market conditions change, we may re-evaluate these
uses of cash flow.
•฀ We expect to obtain sales growth from new square footage, as well as from increased productivity from
existing locations.
•฀ Capital฀investments฀reflect฀our฀strategy฀of฀growth฀through฀expansion,฀filling฀in฀targeted฀existing฀markets,฀
entering a new market and focusing on productivity increases from our existing store base through
remodels. In addition, we intend to continue our emphasis on self-development and ownership of real
estate, and logistics and technology improvements. Our continued capital spending on technology is
focused on improving store operations, logistics, manufacturing procurement, category management,
merchandising and buying practices, and is expected to reduce merchandising costs. We intend to
continue using cash flow from operations to finance capital expenditure requirements. We expect capital
investments for 2013 to increase to the range of $2.1-$2.4 billion, excluding acquisitions and purchases
of leased facilities. We also expect capital investments to increase incrementally $200 million over the