The Kroger Co. unveiled its long-term strategy for enhanced growth at its investor conference in New York. Building on strong momentum from its proven Customer 1st strategy, the company said it will invest in a targeted expansion strategy to increase square footage and store penetration in existing markets and enter new markets.
Kroger raised its long term, fully-diluted earnings per share growth target from 6 to 8 percent to 8 to 11 percent, plus a current dividend of 2.5 percent. To support its growth strategy, Kroger expects to increase capital spending by an incremental $200 million annually and increase return on invested capital.
Also today, Kroger’s Board of Directors approved a $500 million share repurchase program, replacing the existing authorization that had approximately $340 million remaining.
Kroger to Accelerate Growth
During the conference, Kroger’s leadership highlighted the significant opportunities the company sees across the broad food retailing market, which extends beyond traditional supermarkets and includes discount stores, drug stores, restaurants and many others.
“Our proven strategy and market position provide a tremendous platform to accelerate growth and increase value creation for Kroger shareholders,” said David B. Dillon, Kroger’s chairman and chief executive officer. “We are confident that Kroger’s unmatched knowledge of the customer and disciplined approach to deploying capital will drive growth at attractive levels of return. We will continue to use our strong free cash flow to deliver shareholder value through actions such as our recent 30 percent dividend increase and the continuation of our substantial share repurchase program.”
During the past five years, Kroger’s customer-centric strategy has resulted in a 200 basis point increase in market share – defined as overall share of the products Kroger sells in the markets where the company operates – to 21.1 percent, according to Nielsen Homescan data. Today, nearly half of all U.S. households hold a Kroger loyalty card, and that figure increases to 85 percent in the markets where Kroger operates. The company has reported an industry-leading 35 consecutive quarters of positive identical store sales.
“Even through the worst of the recession, Kroger created 29,000 new jobs during the last five years. We are going to invest to grow and expand our store base, which will create more job opportunities over the next five years, and beyond,” Mr. Dillon said.
In addition to selectively expanding its store base and the markets it serves, Kroger will also pursue other initiatives to drive growth, including:
- New customer channels – Enhancing the company’s digital and mobile platforms by leveraging its world-class customer insights program.
- New store formats – Testing new store formats to provide greater access and shopping flexibility to customers.
The company will measure its progress across several key performance metrics including return on invested capital (ROIC), identical sales excluding fuel, FIFO operating margin excluding fuel, and market share growth.