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Kroger Reaffirms Guidance and Evaluates Convenience Stores for Potential Sale

Kroger Reaffirms Guidance and Evaluates Convenience Stores for Potential Sale


CINCINNATI, OH
Wednesday, October 11th, 2017

Kroger is once again creating retail sector buzz, announcing a slew of new plans to create value for shareholders entitled the “Restock Kroger Plan,” including a potential sale of Kroger’s various c-store banners.

Rodney McMullen, CEO, Kroger

"We know that when we serve America through food inspiration and uplift, we create value for our shareholders, customers, and associates," said Rodney McMullen, Chairman and CEO. "We understand that today's marketplace is shifting rapidly. Kroger's success has always depended on our ability to proactively address changes by focusing relentlessly on our customers…Restock Kroger builds on our strengths and strategically repositions Kroger to accelerate our customer-centered efforts in order to create shareholder value."

Under the new plan Kroger outlined several new proposals, all of which seem to be fueled by capital investments, cost savings, and free cash flow.

Kroger storefront

The company plans to generate  $400 million in incremental operating margin by 2020 under the Restock Kroger plan, with an estimated $9 billion in capital investments to support Restock Kroger over the next three years. The company also noted that it expects to generate more than $4 billion of free cash flow over the next three years—nearly double what was generated over the previous three years

One major source of profit for the company may be the sale of Kroger’s c-store division. In a section entitled “Exploring Strategic Alternatives for Convenience Store Business,” the company outlined plans that could result in the sale of 768 c-stores across 18 states and a variety of banners, including: Turkey Hill Minit Markets, Loaf 'N Jug, KwikShop, Tom Thumb, and QuickStop.

Mike Schlotman, EVP and CFO, Kroger

"Our convenience stores are strong, successful and growing with the potential to grow even more. We want to look at all options to ensure this part of the business is meeting its full potential. Considering the current premium multiples for convenience stores, we feel it is our obligation as a management team to undertake this review," said Mike Schlotman, Kroger's EVP and CFO. "Our convenience store management and associates are an important part of our success. They put our customer first every day.  We value what they do and thank them for what they will continue to do as we conduct this evaluation."

Including fuel, the company noted, Kroger's convenience store business generated $4 billion in total sales last year.

Kroger one month stock report

Bloomberg and other financial news sources reported that Kroger’s stock jumped yesterday with the company's announcement–also with speculation that potential suitors for Kroger’s c-store division could include 7-Eleven and  Quebec-based Alimentation Couche-Tard, two of the largest North American c-store operators.

In addition, Kroger reaffirmed its 2017 guidance, including:

  • Identical supermarket sales growth of 0.5 to 1.0%, excluding fuel, for the remainder of 2017
  • Net earnings of $1.74 to $1.79 per diluted share, including an estimated $.09 for the 53rd week
  • Adjusted net earnings of $2.00 to $2.05 per diluted share, including the 53rd week and excluding charges related to the withdrawal liability for certain multi-employer pension funds and a voluntary retirement offering (the "2017 adjustment items")

To view the Restock Kroger Plan in its entirety, click here

Does this move signal to grocers that what was once viewed as a c-store revival could be coming to an end? Deli Market News will bring you the latest.

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