Kroger CEO McMullen Urges Investors to Bear With Him Through Strategic Reset

Kroger’s CEO made a case for the company’s ongoing strategic repositioning—and told investors they’d be rewarded for it.

In an annual letter to shareholders published as part of the retailer’s proxy statement, President and CEO Rodney McMullen reiterated that the Restock Kroger initiative is expected to generate $6.5 billion of free cash flow before dividends and $400 million in incremental FIFO operating profit over the next three years.

Many changes have taken place since the retailer launched its Restock Kroger initiative back in October. Around that same time, officials discussed in an investor call the "need for retail companies to constantly reinvent themselves to remain relevant," which McMullen said Kroger is "right in the middle of."

"We are proactively addressing customer changes and we’re making strategic investments to create the future of retail: a seamless digital experience, customer-centric technology solutions, an enhanced associate experience, space-optimized stores and smart-priced products," he wrote in the letter to investors. 

McMullen highlighted four key aspects of Restock Kroger, calling them "several aggressive plays that we haven’t run before." The initiatives included redeploying capital to prioritize the digital experience and a seamless shopping experience; forming strategic partnerships to grow alternative revenue streams (for example, its new Precision Marketing program powered by 84.51); redoubling efforts to expand its data and personalization work with 84.51; and investing in associates more than ever before, starting with a $500 million investment in wages. 

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McMullen said the federal Tax Cuts and Jobs Act is an "important catalyst as it is enabling us to accelerate these Restock Kroger investments," adding that shareholders will benefit from approximately one-third of the tax savings flowing through to net earnings per diluted share. But what McMullen said he is most excited about is Kroger's new tuition assistance program, Feed Your Future, which provides employees with up to $3,500 in annual assistance and allows them to take a leave of absence to complete their studies while ensuring their job security.

"All of these efforts are built on the foundation of operational excellence and everyday productivity improvements that have long defined the Kroger way," McMullen said. "We won’t leave a penny on the table as we seek to reinvest savings to grow our business. Today more than ever, I am optimistic and confident about Kroger’s future."