Kroger Company (The) (KR)

KR 
$50.13
*  
0.58
1.14%
Get KR Alerts
*Delayed - data as of Jul. 28, 2014  -  Find a broker to begin trading KR now
Exchange: NYSE
Industry: Consumer Services
Community Rating:
View:    KR Pre-Market
 
 
Symbol List Views
FlashQuotes InfoQuotes
Stock Details
Summary Quote Real-Time Quote After Hours Quote Pre-market Quote Historical Quote Option Chain
CHARTS
Basic Chart Interactive Chart
COMPANY NEWS
Company Headlines Press Releases Market Stream
STOCK ANALYSIS
Analyst Research Guru Analysis Stock Report Competitors Stock Consultant Stock Comparison
FUNDAMENTALS
Call Transcripts Annual Report Income Statement Revenue/EPS SEC Filings Short Interest Dividend History
HOLDINGS
Ownership Summary Institutional Holdings Insiders
(SEC Form 4)
 Save stocks for next time

Kroger Co. (KR)

Morgan Stanley Retail & Restaurant Conference

April 04, 2013 10:40 am ET

Executives

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

Analysts

Mark Wiltamuth - Morgan Stanley, Research Division

John S. Glass - Morgan Stanley, Research Division

Presentation

Mark Wiltamuth - Morgan Stanley, Research Division

All right. Okay, are we ready? Okay, welcome back. Again, I'm Mark Wiltamuth, the grocery, drug store and discount analyst. We're here to welcome Kroger, Kroger CFO, Mike Schlotman, to the stage. So thank you so much for coming, Mike.

J. Michael Schlotman

Absolutely.

Mark Wiltamuth - Morgan Stanley, Research Division

We're covering you for 10 years now. I think you've come down to this event several of those years. So wherever should the event be then, in Arizona, in Texas and now Florida. This -- we were in Florida last year, too.

J. Michael Schlotman

Very good.

Question-and-Answer Session

Mark Wiltamuth - Morgan Stanley, Research Division

Mike, if you look back, at the October Analyst Meeting, you really started to shift your tone for the investment community. You started talking about -- more about return on invested capital for investors, more margin and more offensive expansion story. You've taken your growth rate from 6% to 8% EPS growth to up to 8% to 11%. Let's talk about the returns part of it. Where do you think you're going to get the better returns? Is it going to be more of a margin story? Or is it going to be asset turns where you kind of push sales and control your capital spend?

J. Michael Schlotman

I actually think the return part will be a little bit of both. As we talked about in October, the ROIC growth won't be a rocket ship, it will be a slow ROIC growth because we are expanding and increasing the amount of capital we deploy. But as you saw at our year end, we spent a lot of capital, we spent $2 billion of capital last year and maintained the 13.4% ROIC on the metric that we use. So we were pretty pleased with that given the amount of capital we spent. And that was fueled by the asset turns, as well as the slightly expanding operating profit margin we had.

Mark Wiltamuth - Morgan Stanley, Research Division

Have you gone back and kind of adjusted the management compensation plans and built that return metric in there?

J. Michael Schlotman

We have -- actually, there's -- for the top 150 people in the company, there's actually 2 incentive plans out there. One is an annual plan that the basic tenets of that everybody that's on an incentive plan in the company has the same basic principles. And that's ID sales growth, EBITDA and how we do on different attributes of our Customer 1st strategy that we want to deploy that year. So it's more tactical things to support the long-term strategy. That remains unchanged. We also have a 3-year long-term incentive plan, and there's a new one out there every year. So there's a payoff every March based on the previous 3 years. The new one that was instituted this year, so it will pay out in March of 2016, does have an element in it now that's dependent on growth and ROIC.

Mark Wiltamuth - Morgan Stanley, Research Division

Okay. If you look at how you kind of bucket your stores, you kind of talk about your top third, your middle third and your bottom third. Is there one of those you're focusing on in bringing performance up?

J. Michael Schlotman

All 3 thirds. Say -- there's -- there are different focuses depending on what spot you're in, in that group. We actually don't break it down exactly like that. But if you break it down like that, there are certainly things that every one of the stores, no matter where you are in that metric, there's something you can improve. And there's some department inside your store you can improve. One of the other things we do is when -- no matter when you make a list, there's always something at the bottom of the list. So if I look at my 100 worst-performing stores, frankly, most of those -- they would have negative EBITDA generation on a fully allocated basis. When you take overhead allocation out, it wouldn't be nearly that way. But one of the things we do with them is we don't go into those stores and those divisions that have those stores and say, "You have to turn these from red to black." In some of those cases, it would be a fairly daunting task on a one-off basis. But a lot of times, what we'll do is we'll go to those store managers in those divisions and say, "What's your strategy to make the store 10% better this year than last year?" And make it a goal that they can easily execute on an annual basis. And typically, if you give them a reasonable goal and they beat it, you'll wind up getting a 15% or 20% improvement. And before you know it, they're back to the point of being red without just acting like they have to do that all in 1 year.

Mark Wiltamuth - Morgan Stanley, Research Division

And if you look over the long term for you, you've now done 37 quarters of positive ID same-store sales growth. Did everybody catch that, 37 quarters? So a lot of this has been self-driven. You've been cutting gross margins purposely to drive the sales. A lot of times, we get questions from people, "How long does Kroger have to keep this up?" And when is enough, enough? And is that gap close enough to Walmart that you don't have to keep cutting gross margins at some point?

Read the rest of this transcript for free on seekingalpha.com