The Kroger Company
(
KR
), one of the largest grocery retailers, recently posted
better-than-expected first-quarter 2012 results. The quarterly
earnings of 78 cents a share beat the Zacks Consensus Estimate of
72 cents, and rose 11.4% from 70 cents earned in the prior-year
quarter. Share repurchase activities provided cushion to the bottom
line.
Healthy results prompted management to raise their outlook. The
Cincinnati-based company now expects fiscal 2012 earnings between
$2.33 and $2.40 per share, up from a range of $2.28 to $2.38
forecasted earlier.
The current Zacks Consensus Estimate for fiscal 2012 is $2.32
per share. Consequently, following an upbeat guidance, we could
witness a correction in the Zacks Consensus Estimates in the coming
days, with analysts revising their estimates to better align with
the company's earnings outlook.
Total revenue (including fuel center sales) climbed 5.8% to
$29,064.8 million from the prior-year quarter, but fell short of
the Zacks Consensus Estimate of $29,194 million.
Excluding fuel center sales, total revenue rose 4.3% and
identical supermarket sales (stores that are open without expansion
or relocation for five full quarters) climbed 4.2% to $21,652.7
million.
Kroger, which faces stiff competition from
Wal-Mart Stores Inc.
(
WMT
) and
Whole Foods Market Inc.
(
WFM
), reiterated its identical supermarket sales (excluding fuel)
growth guidance of 3% to 3.5% for fiscal 2012, including the
anticipated adverse impact from prescription drugs coming off
patent.
Including fuel center sales, identical supermarket sales jumped
5.5% to $26,100.6 million. We believe that Kroger's dominant
position enables it to sustain top-line growth, expand store base,
and boost market share.
Kroger's customer-centric business model provides a strong value
proposition to consumers. It is well positioned to continue its
growth momentum primarily through identical supermarket sales
growth.
However, Kroger is not immune to the tough economic environment.
The intensifying price war among grocery stores to lure
budget-constrained consumers may adversely impact Kroger's sales
and margins.
Kroger ended the first quarter with cash of $190.7 million,
temporary cash investments of $320.4 million, and total debt of
$8,105.9 million, reflecting a debt-to-capitalization ratio of
66.6%, and shareholders' equity of $4,067.3 million. Net debt
increased $662.1 million from the prior-year. Trailing-twelve
months' net total debt to EBITDA ratio was 1.91 compared with 1.79
in the prior-year period.
Capital investment, exclusive of acquisitions and purchases of
leased facilities, aggregated $539.1 million for the quarter.
During the quarter, Kroger bought back 14.6 million shares for
an aggregate amount of $345.3 million. The company's healthy free
cash flow generating ability has facilitated it to return over $1.6
billion to shareholders via dividends and share repurchases in the
trailing four quarters.
The company's board also authorized a new $1 billion share
buyback program replacing the prior one, which was recently
completed on June 12, 2012.
The company currently operates 2,425 supermarkets and
multi-department stores in 31 states under approximately 24 local
banners. Currently, we have a long-term 'Outperform' recommendation
on the stock. However, Kroger's shares maintain a Zacks #3 Rank
that translates into a short-term 'Hold' rating.
KROGER CO (KR): Free Stock Analysis Report
WHOLE FOODS MKT (WFM): Free Stock Analysis
Report
WAL-MART STORES (WMT): Free Stock Analysis
Report
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