The Kroger Company
), one of the largest grocery retailers, recently posted
better-than-expected third-quarter 2012 results on the back of
its "Customer 1
strategy and effective cost management.
The quarterly earnings of 46 cents a share beat the Zacks
Consensus Estimate of 43 cents, and surged 39.4% from 33 cents
earned in the prior-year quarter. Share repurchase activities
provided cushion to the bottom line. However, including a gain of
14 cents a share, earnings came in at 60 cents for the
Healthy results prompted management to raise the outlook. The
Cincinnati-based Kroger now envisions fiscal 2012 earnings
between $2.44 and $2.46 per share, up from a range of $2.35 to
$2.42 forecasted earlier. The current Zacks Consensus Estimate
for fiscal 2012 is $2.41 per share that lies below the company's
Total revenue (including fuel center sales) climbed 5.9% to
$21,807 million from the prior-year quarter, and came ahead of
the Zacks Consensus Estimate of $21,664 million.
Excluding fuel center sales, total revenue rose 3.7% and
identical supermarket sales (stores that are open without
expansion or relocation for five full quarters) grew 3.2% to
$16,056.8 million, marking the 36th successive quarter of
Kroger, which faces stiff competition from
Wal-Mart Stores Inc.
Whole Foods Market Inc.
), now expects identical supermarket sales (excluding fuel)
growth of 3% to 3.5% during the fourth quarter.
Including fuel center sales, identical supermarket sales
jumped 5.2% to $19,456.9 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
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 quarter with cash of $269.1 million,
temporary cash investments of $165.9 million, and total debt of
$8,859.6 million, reflecting a debt-to-capitalization ratio of
70.2%, and shareholders' equity of $3,762.7 million. Net debt
increased $1,012.1 million from the prior-year period.
Trailing twelve months' net total debt to adjusted EBITDA
ratio was 2.08 compared with 1.89 in the prior-year period.
Return on invested capital for the quarter was 13.3% compared
with 13.5% during the prior-year period.
Capital expenditures, exclusive of acquisitions and purchases
of leased facilities, aggregated $473.5 million for the
During the quarter, Kroger bought back 14.5 million shares for
an aggregate amount of $333 million. The company's healthy free
cash flow generating ability has facilitated it to return over
$1.7 billion to stakeholders via dividends and share repurchases
in the trailing four quarters.
The company currently operates 2,422 supermarkets and
multi-department stores in 31 states under approximately 24 local
banners. Currently, we have a long-term Neutral recommendation on
the stock. Moreover, 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
WAL-MART STORES (WMT): Free Stock Analysis
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