Kroger Reaffirms Guidance and Evaluates Convenience Stores for Potential Sale
- by Robert Schaulis
CINCINNATI, OH – Kroger started today with aplomb, announcing plans to create value for shareholders and focus on redefining the food and customer experience through digital and technology, expanding partnerships to create customer value, developing talent, and creating social impact. Perhaps the most compelling part of the company’s plan, though, may be the reevaluation and potential sale of Kroger’s various c-store banners.
"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, in a press release. "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."
With a new plan called the “Restock Kroger Plan,” the company outlined a slate of propositions fueled by capital investments, cost savings, and free cash flow.
The Restock Kroger plan is expected to generate $400 million in incremental operating margin by 2020, the company noted, and Kroger is purportedly planning to outline how it will prioritize its 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 cash 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.
"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.
Bloomberg and other financial news sources reported that Kroger’s stock jumped this morning, buoyed by the news of a c-store sale. Bloomberg also speculated that potential suitors for Kroger’s c-store division could include 7-Eleven 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 entirety of the Restock Kroger Plan, click here.