Kroger Earnings Beat Zacks Expectations - Analyst Blog


The Kroger Company ( KR ), one of the largest grocery retailers, recently posted fourth-quarter fiscal 2013 earnings of 78 cents a share that surpassed the Zacks Consensus Estimate of 73 cents, buoyed by its Customer 1 st strategy. However, quarterly earnings fell 11% from 88 cents earned in the prior-year quarter.

However, excluding the extra week in the prior-year quarter and other items, earnings jumped 10% from 71 cents earned in the year-ago period.

The Cincinnati-based Kroger now projects fiscal 2014 earnings in the band of $3.14 to $3.25 per share, including Harris Teeter transaction that concluded on Jan 28, 2014. The current Zacks Consensus Estimate for fiscal 2014 is $3.12 and could witness an uptrend in the coming days.

Total sales (including fuel center sales) dropped 4% to $23,222 million from the prior-year quarter, and also fell short of the Zacks Consensus Estimate of $23,280 million. Excluding the extra week in the prior-year quarter, total sales jumped 4.8%. Management stated that excluding fuel center sales and the extra week in the year-ago period, total sales rose 4.4%.

Identical supermarket sales (stores that are open without expansion or relocation for five full quarters) excluding fuel center sales, grew 4.3% to $17,971 million.

Kroger now projects identical supermarket sales (excluding fuel) growth of 2.5% to 3.5% for fiscal 2014.

Including fuel center sales, identical supermarket sales jumped 4% to $21,039 million. We believe that Kroger's dominant position enables it to 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.

Operating income declined 12% year-over-year to $718 million, whereas operating margin contracted 30 basis points to 3.1%.

Kroger ended the quarter with cash of $260 million, total debt of $11,309 million, reflecting a debt-to-capitalization ratio of approximately 68%, and shareholders' equity of $5,395 million. Net debt increased $2,265 million from the prior-year period due to Harris Teeter transaction.

Trailing-twelve months' net total debt to adjusted EBITDA ratio was 2.43 compared with 2.04 in the prior-year period. Return on invested capital on a rolling four quarters basis was 13.4%, in line with the prior-year period.

Total capital expenditures during fiscal 2013 aggregated $2.3 billion. Management anticipates capital investments between $2.8 and $3 billion for fiscal 2014.

During fiscal 2013, Kroger bought back 16.1 million shares for an aggregate amount of $609 million. The company's healthy free cash flow generating ability has facilitated it to return over $928 million to stakeholders via dividends and share repurchases in fiscal 2013.

The company currently operates 2,640 supermarkets and multi-department stores in 34 states under approximately 24 local banners. We believe that the company's strong corporate and national brands helped it gain customer loyalty.

Currently, Kroger's shares maintain a Zacks Rank #3 (Hold). Other better ranked stocks worth considering in the retail sector include Diamond Foods, Inc. ( DMND ), The Hain Celestial Group, Inc. ( HAIN ) and Spartan Stores Inc. ( SPTN ), all sporting a Zacks Rank #2 (Buy).

DIAMOND FOODS (DMND): Free Stock Analysis Report

HAIN CELESTIAL (HAIN): Free Stock Analysis Report

KROGER CO (KR): Free Stock Analysis Report

SPARTAN STORES (SPTN): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: DMND , HAIN , KR , SPTN

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