Kroger Eyes Expansion to New Markets

NEW YORK — Declaring confidence in its momentum but fed up with a languishing stock price, Kroger on Tuesday announced a plan to boost its annual earnings growth in part by increasing capital spending and growing square footage in new and existing markets.

Speaking at an investor conference here, David Dillon, Kroger’s chief executive officer, said the company has raised its long-term, fully diluted earnings per share growth target from current levels of 6% to 8% to a new goal of 8% to 11%. To support that growth, Kroger expects to increase capital spending by an incremental $200 million annually and increase its focus on improving its return on invested capital.

Kroger has long resisted Wall Street’s calls to grow earnings more aggressively while investing in its "Customer First" strategy. Dillon however on Tuesday acknowledged the company was not happy with its stock price and returns and as a result developed tactical steps to accelerate its growth rate.

“We decided we had to step out and say, ‘We can do this,’” Dillon told investors and analysts. “This is not based on wishing and hoping. We are stepping out to be counted.”

Kroger officials did not identify new markets for growth but indicated a general preference to grow organically rather than by acquisition. The company previously said it would spend between $1.9 billion and $2.2 billion during the fiscal year ending in late January.

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Mike Schlotman, Kroger’s chief financial officer, said capital spending would increase by around $200 million beginning next fiscal year, adding that he would indicate more about Kroger’s spending plans when reviewing fourth-quarter results in March.

In a statement Tuesday, Dillon said: “Our proven strategy and market position provide a tremendous platform to accelerate growth and increase value creation for Kroger shareholders. 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% dividend increase and the continuation of our substantial share repurchase program.”

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