At its Analyst Day, supermarket retail company Kroger (KR 21.64, +1.11 +5.41%) announced plans to explore strategic alternatives for its convenience store business, reaffirmed 2017 guidance and gave commentary on 2018 prospects.
The main point Kroger wanted to get across at the Investor Day was plans to redefine the grocery experience in America, which they dubbed Restock Kroger. The Restock Kroger Plan will be fueled by capital investments, cost savings and free cash flow. To progress shareholder value, Kroger will:
- Continue to invest in smarter pricing; Keep investing in Our Brands; Leverage space-planning decisions to disrupt shelf, optimize assortment and improve in-stocks; Optimize the digital experience and; Update investors on how it is using shopper data to create easier experiences
- The company plans to expand partnerships
- To achieve this, Kroger will redesign the front-end; The company will build its Internet of Things network; Also intends to create shareholder value by expanding its alternative revenue streams, including driving media and advertising revenues
- Invest in store associates by devoting $500 million to human capital during the next three years
This “Restock Kroger” plan is expected to generate $400 million in incremental operating margin by 2020. Kroger will also outline how it will prioritize its estimated $9 billion in capital investments to support Restock Kroger during the next three years. The company 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.
Also today, Kroger announced its intention to explore strategic alternatives for its convenience store business, including a potential sale. This is the result of a review of assets that are potentially of more value outside of the company than as part of Kroger.
As of today, Kroger's convenience store business includes 784 convenience stores located across 18 states. It includes 68 franchise operations. The stores employ 11,000 associates and operate under the following banner names: Turkey Hill Minit Markets, Loaf 'N Jug, KwikShop, Tom Thumb and QuickStop. Neither supermarket fuel centers nor Turkey Hill Dairy is included in this review. The company’s convenience store business generated revenue of $1.4 billion and sold 1.2 billion gallons of fuel in 2016. The business unit has delivered 62 consecutive quarters of identical store sales growth. The company has hired Goldman Sachs & Co. to identify, review and evaluate the options.
Additionally, with respect to 2018, the company expects identical supermarket sales to be stronger than 2017. For earnings per diluted share, the company is striving for flat to slightly-up from 52 week adjusted 2017 earnings per diluted share. While early in the planning process, the company further noted that it doesn't see anything in the environment that would cause 2018 earnings per diluted share to be below $1.80.
And lastly, Kroger in a separate press release issued a clarification to its convenience store business annual sales number. The aforementioned $1.4 billion in revenues from 2016 only reflects “inside sales” according to the company. Including fuel, Kroger’s convenience stores generated about $4 billion in total sales last year.