The Kroger Co. (NYSE:KR) Q1 2019 Earnings Conference Call Transcript

Jun 20, 2019 • 10:00 am ET

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The Kroger Co. (NYSE:KR) Q1 2019 Earnings Conference Call Transcript

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Presentation
Executive
Gary Millerchip

like to take a few moments to talk a little bit more about YouTech. This is a great example of how Kroger leveraged the unique assets I mentioned earlier to create significant value for our shareholders. We acquired the business for a nominal value several years ago and developed it into a market leader in digital coupons. When the business reached a point where the potential value to someone else was higher than the future value to Kroger, we sold the business to maximize shareholder return.

As part of the terms of the sale, we protected the value to Kroger to a long-term services agreement with Inmar. YouTech is a great illustration of how we are leveraging our unique assets to create new asset-light, margin-rich businesses to drive incremental value for our shareholders.

Before I turn it back to Rodney, I'd like to discuss an accounting change that affects our financial reporting and reiterate our guidance for 2019. You may have noticed in our 8-K filing that we adopted the new leasing standard at the beginning of the fiscal year. This added nearly $7 billion of lease-related assets and liabilities to our balance sheet. The rating agencies already calculate and include a liability for operating leases in their ratings assessments. And this new standard is not expected to affect rent expense or earnings for the year.

Finally, I would like to reiterate our guidance for the year. For 2019 identical sales growth, excluding fuel, we continue to target identical sales that range from 2% to 2.25%. We continue to expect adjusted net earnings to range from $2.15 to $2.25 per diluted share, and adjusted FIFO operating profit to range from $2.9 billion to $3 billion for 2019. Kroger's EPS growth will come from adjusted FIFO operating profit growth in 2019, which positions us well to deliver on Restock Kroger.

Rodney, back to you.

Executive
W. Rodney McMullen

Thanks, Gary. We feel optimistic at the start of the second quarter. Sales momentum is building, and we are laser focused on serving our customers. We are clear-eyed about the challenges ahead and confident in our ability to deliver on our plans both for the year and our long-term vision to serve America through food inspiration and uplift.

Now, we look forward to your questions.