The Wall Street Journal - 13.09.2019

THE WALL STREET JOURNAL. ** Friday, September 13, 2019 |B3

BYNORANAUGHTON

General ElectricCo. Chief
Executive Larry Culp said he
expects asset sales to bring in
about $38 billion in cash for
the company as it begins par-
ing down its large debt load,
and there are signs the long-
struggling power division is
gaining strength.
Speaking at a Morgan Stan-
ley investor conference Thurs-
day, Mr. Culp also said falling
interest rates will increase
GE’s pension benefits obliga-
tion by about $7 billion net of
investment returns and its in-

The company has harvested cash from a number of moves aimed at paying down its sizable debt.

LUKE SHARRETT/BLOOMBERG NEWS

for us,” he said. “We’re ener-

gized by that challenge.”

Kroger’s shares rose 2 cents

on Thursday, to $25.59.

The nation’s largest super-

market chain is trying to keep

its footing in the rapidly

changing grocery industry.

Like other food retailers,

Kroger faces pressure to keep

prices low as it invests in de-

livery to compete better

againstAmazon.comInc. and

WalmartInc., the nation’s top

grocery seller.

Walmart andTargetCorp.

posted higher sales in their

most recent quarters as a re-

sult of investments that have

boosted digital sales. Dis-

counterGrocery Outlet Hold-

ingCorp., which went public

in June, unveiled ambitious

plans to increase the number

of its stores by 10% annually.

Organic grocerSprouts Farm-

ers MarketInc. recently low-

ered its guidance for the full

year as growth continues to

slow.

Kroger is in the middle of a

three-year plan to revive its

business with investments in

technology and new hires. The

136-year-old company has

added clothing items and fi-

nancial services to its sales

strategy, as well as new gro-

cery items like store-branded

meatless burger patties.

Cincinnati-based Kroger has

expanded pickup and home de-

livery to more stores and has

opened automated warehouses

for delivery as part of its part-

nership with British retailer

Ocado Group PLC.

Digital sales growth in the

latest quarter slowed to 31%

from more than 50% a year

ago as delivery and pickup

services mature.

The owner of Fred Meyer,

Ralphs and Harris Teeter

stores has said the invest-

ments should generate $4 bil-

lion of free cash flow through

cost savings and better sales.

While sales improved, gross

margins declined in the quar-

ter amid lagging profitability

from Kroger’s pharmacies.

Kroger said it still expects

profit growth over 2019, but

pulled its previous guidance

for operating profit of $400

million by 2020.

Kroger maintained its guid-

ance for same-store sales

growth of 2% to 2.25% and ad-

justed earnings of $2.15 to

$2.25 per share for 2019.

Kroger Co. reported

slightly higher sales in its lat-

est quarter thanks to invest-

ments to draw in new custom-

ers that are also weighing on

profit.

The increase to $28.2 bil-

lion in sales from $28 billion a

year earlier reversed three

consecutive quarters of de-

clines. The grocer’s preferred

metric for sales, at stores

open at least 15 months, ex-

cluding fuel, rose 2.2%.

Chief Executive Rodney Mc-

Mullen said on a call with ana-

lysts that the higher sales

showed that Kroger’s invest-

ments in its digital operations

and new product lines are pay-

ing off.

“We had our work cut out

BYJAEWONKANG

Kroger Shows a Sales Turnaround

The supermarket chain said new product lines and digital investments are paying off as it faces challenges from Amazon and Walmart.

LUKE SHARRETT/BLOOMBERG NEWS

to eventually hit $10 billion

in annual sales. Old Navy

opened 145 stores between

2016 and 2018, the company

said.

The Gap brand, meanwhile,

has been closing hundreds of

stores in recent years after its

expansion around the world

left it with multiple stores in

many markets. The company

had about 3,800 total stores

world-wide.

Gap Inc. CEO Art Peck will

continue to run the parent

company, which will include

the Gap brand, Banana Repub-

lic, Athleta, Intermix and new

athletic brand Hill City.

It will retain its Gap name

and have about $9 billion in

annual revenue. Old Navy CEO

Sonia Syngal will run the

newly separated company,

which generates about $8 bil-

lion in annual revenue.

Ms. Syngal said at the in-

vestor event that the new Old

Navy stores will be slightly

smaller than some current lo-

cations and that the retailer is

also considering expanding its

presence in Asia, where it had

17 stores as of Aug. 3.

Shares of Gap fell 7 cents

Thursday to $19.18. The com-

pany’s stock is down more

than 30% over the past 12

months.

Gap said it is anticipating

between $400 million to $450

million in separation expenses

and between $300 million and

$350 million in separation

capital-related costs between

2019 and 2021.

GapInc.’sOldNavy brand
plans to open hundreds of
stores as it prepares to split
from its parent company at a
time when slower sales and
online rivals are challenging
many bricks-and-mortar
chains.
Clothing retailer Gap said
earlier this year that it would
separate its fast-growing bud-
get brand from the rest of the
business, creating two publicly
traded companies.

For several years, Old Navy
has outperformed its sister
brands Gap and Banana Re-
public with its lower price
points and catchy marketing.
Old Navy now exceeds the
original brand in sales, mak-
ing up nearly half of the par-
ent company’s $16.6 billion of
sales in 2018.
At its investor event on
Thursday, Old Navy, which
has about 1,200 stores, said it
wants to reach 2,000 loca-
tions by opening stores,
mostly in smaller, under-
served markets.
The company didn’t spec-
ify a timeline and said it aims

BYPATRICKTHOMAS

Old Navy Bucks

Trend With Plans

To Add 800 Stores

A high-ranking official at
the United Auto Workers
union was charged with em-
bezzlement of union money on
Thursday, as a federal corrup-
tion investigation into the
union gains momentum just as
contract negotiations with De-
troit auto makers come to a
head.
Vance Pearson, director of
theUAW’sRegion5officein
Missouri, was charged with
conspiring with other union
officials to embezzle hundreds
of thousands of dollars in
union money, the U.S. attor-
ney’s office said.
Mr. Pearson, who is on the
union’s executive board, also
was charged with fraud and

BUSINESS NEWS

money laundering.

Mr. Pearson is the first sit-

ting union official charged in

the yearslong investigation,

which had previously en-

snared former union officials

and executives atFiat Chrys-

ler AutomobilesNV and has

since spread to the union’s

General MotorsCo. depart-

ment.

“While these allegations are

very concerning, we strongly

believe that the government

has misconstrued any number

of facts,” the union said

Thursday. “We will not let this

distract us from the critical

negotiations underway with

GM.”

Mr. Pearson couldn’t be im-

mediately reached for com-

ment.

Last month, federal agents

also searched the homes of

UAW President Gary Jones and

his predecessor, Dennis Wil-

liams, marking a significant

escalation of the investigation.

Mr. Jones led the Region 5 of-

fice before he became presi-

dent last year.

The union has said it is co-

operating with the investiga-

tion and that there was no

need for the search warrants.

Neither man has been charged

with a crime.

The charges against Mr.

Pearson come two days before

UAW contracts with GM,Ford

MotorCo. and Fiat Chrysler

are set to expire. The union

top officials are negotiating

first with GM. Union leaders

from the auto maker’s facto-

ries across the country are ex-

pected to meet on Sunday in

Detroit for an update on the

talks.

“GM is outraged and deeply

concerned by the conduct of

union officials as uncovered by

the government’s investiga-

tion,” the company said on

Thursday.

It added: “These serious al-

legations represent a stunning

abuse of power and trust.”

The Justice Department’s

investigation has resulted in

nine convictions, including a

prison sentence for Fiat

Chrysler’s former head of la-

bor relations.

In a federal criminal com-

plaint, Mr. Pearson, 58 years

old, is accused of conspiring

with other union officials to

conceal lavish personal ex-

penses, paid for with union

money, during UAW Region 5

conferences held in California

and Missouri between 2014

and 2018.

Mr. Pearson led UAW’s Re-

gion 5 office since June 2018,

covering 17 states in the west-

ern and southwestern U.S. He

was previously the office’s as-

sistant director under Mr.

Jones, who hosted Region 5

conferences when he served as

director.

The gatherings typically

lasted about a week, but pros-

ecutors allege Mr. Pearson and

other unnamed UAW officials

paid for weeks- or monthslong

trips to Palm Springs, Calif.,

with union funds. Some

$60,000 in UAW funds spent

there were falsely represented

as part of the conference, ac-

cording to Mr. Pearson’s

charging document.

A scandal that began with

what federal prosecutors say

was a conspiracy by Fiat

Chrysler executives to keep

UAW officials “fat, dumb and

happy” has now ensnared a

range of union officials.

Former UAW Vice President

Norwood Jewell, who as a top-

ranking official led bargaining

with Fiat Chrysler, was re-

cently sentenced to 15 months

in federal prison after plead-

ing guilty to violating the La-

bor Management Relations

Act.

Prosecutors disclosed in the

sentencing memo for Mr. Jew-

ell that he had used the

union’s training-center funds

to rent private villas in Palm

Springs.

Prosecutors say Mr. Pearson

and other UAW leaders bought

more than $100,000 worth of

golf clubs, golf clothing, golf

balls and other accessories at

various pro shops in California

and Missouri.

Investigators also claim to

have uncovered evidence of

designer clothing, visits to

steak houses and spa, exotic

sports cars and high-end shot-

guns purchase with funds des-

ignated for worker training.

During the search warrant

executed at Mr. Pearson’s of-

fice and home in Missouri,

agents found dozens of cigars,

high-end bottles of liquor, and

tens of thousands of dollars in

cash, prosecutors said.

UAW Official Charged as Probe Widens

Federal corruption

investigation ensnares

union leader just as

labor contracts expire

Earlier Thursday, GE dis-

closed that it would pay down

up to $5 billion in debt

through a tender offer as it

puts incoming cash to work.

The company said it is also

looking at other actions like

pension funding and paying

down loans from GE to its fi-

nancial-services division GE

Capital.

GE has harvested cash from

a number of moves aimed at

paying down its more than

$100 billion of debt. It sold its

transportation business and

airplane-finance operation and

is in the process of selling its

biotech business toDanaher

Corp. for $21 billion. This

week, GE began selling down

its controlling stake inBaker

Hughes, giving up its majority

holding and getting net pro-

ceeds of about $2.7 billion.

The sale will trigger a write-

down of more than $7 billion

because of the higher carrying

value for the company.

The company’s insurance

operation is closely watched

by investors as regulators re-

quired a commitment to boost

reserves by $15 billion last

year. GE is currently conduct-

ing an annual examination of

its reserves.

Mr. Culp said GE is watch-

ing the effects of the U.S.’s

trade battle with China, espe-

cially for its health-care divi-

sion, along with the continued

grounding ofBoeingCo.’s 737

MAX jet that uses engines

made by a GE joint venture.

want to be grounded,” he said.

GE in July raised its financial

projections for the first time

in years, citing positive signs

in the power business and say-

ing it wouldn’t burn through

as much cash as feared.

Mr. Culp said there is

“plenty of wood to chop” in

power, renewable energy and

in the corporate organization,

where he is cutting head count

and costs, as well as improv-

ing day-to-day operations.

“We know we have a lot more

to do both with respect to the

balance sheet and the way we

run the business,” he said.

surance reserve funding by

less than $1.5 billion. Neither

of the adjustments will require

a cash contribution.

Mr. Culp, who took over as

CEO almost a year ago, said

2019 is progressing as

planned, with no major sur-

prises. He said the company’s

power division is seeing some

signs of stronger-than-ex-

pected demand this year that

may continue into early 2020.

But he warned that GE won’t

be running the business with

that assumption in mind.

“We want to be optimistic,

we want to be positive, but we

BYTHOMASGRYTA

GE to Net Billions From Unloading Assets

$10B

Annual sales the retailer is
eventually hoping to reach

Accusations include

conspiring to conceal

lavish expenses paid

for with union money.

BumpStep®XL

©2018 by MacNeil IP LLC

FloorLiner™

New!

Non-Toxic

Feeding

System

PetComfort.com

24" Hitch Mounted

Bumper Protection

800.441.6287

International #001.630.769.1500