Kroger Company (The) (KR)

KR 
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The Kroger (KR)

Q4 2012 Earnings Call

March 07, 2013 10:00 am ET

Executives

Cindy Holmes - Director of Investor Relations

David B. Dillon - Chairman, Chief Executive Officer and Member of Proxy Committee

W. Rodney McMullen - President, Chief Operating Officer and Director

J. Michael Schlotman - Chief Financial Officer and Senior Vice President

W. McMullen

Analysts

Stephen W. Grambling - Goldman Sachs Group Inc., Research Division

Andrew P. Wolf - BB&T Capital Markets, Research Division

Mark Wiltamuth - Morgan Stanley, Research Division

Ajay Jain - Cantor Fitzgerald & Co., Research Division

John Heinbockel - Guggenheim Securities, LLC, Research Division

Meredith Adler - Barclays Capital, Research Division

Jason DeRise - UBS Investment Bank, Research Division

Karen F. Short - BMO Capital Markets U.S.

Edward J. Kelly - Crédit Suisse AG, Research Division

Kelly A. Bania - BofA Merrill Lynch, Research Division

Gregory Hessler - BofA Merrill Lynch, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2012 The Kroger Co. Earnings Conference Call. My name is Kirstie, and I'll be your operator for this -- for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd now like to turn the call over to Ms. Cindy Holmes, Director of Investor Relations. Please proceed, ma'am.

Cindy Holmes

Thank you, Kirstie. Good morning, and thank you for joining us. Before we begin, I want to remind you that today's discussion will include forward-looking statements. We want to caution you that such statements are predictions, and actual events or results can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings, but Kroger assumes no obligation to update that information. Both our fourth quarter press release and our prepared remarks from this conference call will be available on our website at www.thekrogerco.com.

After our prepared remarks, we look forward to taking your questions. [Operator Instructions] Thank you.

I will now turn the call over to Dave Dillon, Chairman and Chief Executive Officer of Kroger.

David B. Dillon

Thank you, Cindy. Good morning, everyone, and thank you for joining us today. With me to review Kroger's fourth quarter and full year 2012 results are Rodney McMullen, Kroger's President and Chief Operating Officer; and Mike Schlotman, Senior Vice President and Chief Financial Officer.

Kroger had an outstanding fourth quarter and an outstanding year. We accomplished a lot in fiscal 2012. We delivered on ID sales growth, we exceeded expected earnings per share growth, we increased FIFO operating margin and we increased our dividend 30%. Kroger's unique value offering of better service, great products and enjoyable shopping experience and lower prices continues to resonate with a full range of customers. The result is an industry-leading 37 consecutive quarters of positive identical sales growth. In this morning's press release, we provided you with details to make it easier for you to do an apples-to-apples comparison and understand how we look at our business internally. Table 6 in our press release was designed to help you understand the details behind the growth figures we reported.

We delivered value to shareholders by increasing our dividend and exceeding our own earnings per share guidance through the combination of solid operating results and share buyback. We returned more than $1.5 billion to shareholders through dividends and stock buyback in 2012. Our associates delivered an outstanding year that underscores Kroger's growing connection with customers remains the key to shareholder value creation. In a moment, Rodney will outline how we got there, and Mike will discuss the numbers.

First, I'd like to give you some insight into what our customers are facing today. Consumer confidence was fragile throughout the year, and it hit its lowest point this January as customers voiced heightened concern over taxes. We believe 4 factors will continue to affect consumer confidence: the overall state of the economy, fluctuating gas prices, payroll taxes and government policy uncertainty. These factors are causing sales comparisons between days and weeks to be highly variable. But overall, we continue to have strong ID sales trends.

We remain confident in our ability to deliver growth despite the economic uncertainty. Our team has delivered strong results by executing our Customer 1st Strategy over the last 5 years. And as you know, the last 5 years has been highly volatile, and we have continued to consistently deliver through that time. A cornerstone of our Customer 1st Strategy is the value our associates deliver to our customers. Our customers are stressed at the pump, they look to our Fuel Points program for meaningful savings. And when families have less to spend in restaurants, our ready-to-heat and ready-to-eat meals help them eat well at home.

When you want convenience of finding everything you need plus a little in one place and save time at the checkout, nobody does it better than our family of stores. So whatever the economic and operating environment, Kroger is situated to deliver on our growth targets for 2013 and beyond. Our ability to do this is what makes Kroger a compelling investment.

Rodney will now provide deeper insight into our business performance and share our year-end market share statistics with you. Rodney?

W. Rodney McMullen

Thank you, Dave, and good morning, everyone. We exceeded our expectations for the quarter and the year, thanks to our associates performing to deliver growth. We are implementing our long-term growth strategy, which includes: targeting capital to grow our business in new and existing markets, leveraging dunnhumby insights to solve varied customer needs through both traditional and digital channels and continuing our share buyback program.

We continue to make good progress, adding square footage in 4 fill-in markets, and we've identified others based on various metrics. We have narrowed the list of new markets for future expansions. In 2013, we plan to build, expand or relocate 45 to 50 supermarkets compared to 44 in fiscal 2012.

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