Kroger INVESTOR DAY Highlights

Executive Summary

• Kroger, the nation’s largest operator of traditional supermarkets, held its annual investor day on October 27in New York. The company’s general strategy is to improve the in-store experience and develop a personalized offering through the expansion of its e-commerce capabilities.
• Kroger is continuing to invest in the e-commerce segment to build a more personalized real-time digital experience. Management announced that its click-and-collect service, called ClickList, will continue to expand beyond the 19 markets in which it currently operates. When shopping online, customers receive personalized suggestions, and can view past purchases and shop by category. Kroger believes the click-and-collect experience will help it build a digital relationship with customers.
• A key focus of the presentation—and a topic that elicited several questions—was the correlation between return on invested capital (ROIC), market share and the opportunity for Kroger within fill-in markets. The table below shows Kroger’s growth in Michigan from 2009 to 2014. Despite operating fewer stores in 2014 than in 2009, Kroger achieved higher sales and market share in 2014 by investing in scale and the customer experience. Kroger stressed the importance of investing in the quality of stores rather than in the number of stores. The company will continue to drive square-foot utilization in markets by investing in high-volume, quality projects to increase ROIC over time.
• Kroger expects to increase its Michigan store count to 100 by year-end, with 6 million total square feet. CEO Rodney McMullen expects the company to reach $4 billion in sales in Michigan, basically doubling its volume within the market. The company expects to increase its market share by 30% in the state.
• The company reaffirmed its guidance for fiscal year 2015 (ending Jan. 31): same-store supermarket sales growth, excluding fuel, of 4% to 5% and earnings per share (EPS) of $1.92 to $1.98. Moreover, the company also reaffirmed its long-term EPS-growth-rate target of 8% to 11% and expects third-quarter earnings to be at the higher end of the range.