The Kroger Company
), one of the largest grocery retailers, recently posted
first-quarter fiscal 2014 earnings of $1.09 per share that
surpassed the Zacks Consensus Estimate of $1.05, and surged 18.5%
from 92 cents earned in the prior-year quarter aided by its
Customer 1st strategy and the acquisition of Harris Teeter. The
better-than-expected results prompted management to raise its
Including one-time items, earnings came in at 98 cents a share,
up 6.5% year-over-year. Shares climbed 5.7% during
The Cincinnati-based Kroger now projects fiscal 2014 earnings in
the band of $3.19 to $3.27 per share, up from its earlier provided
range of $3.14 to $3.25. The current Zacks Consensus Estimate for
fiscal 2014 is $3.22 and could witness an uptrend in the coming
Total sales (including fuel center sales) grew 9.9% to $32,961
million from the prior-year quarter, and also came ahead of the
Zacks Consensus Estimate of $32,636 million. Management stated that
excluding fuel center sales, total sales rose 11.4%.
Identical supermarket sales (stores that are open without
expansion or relocation for five full quarters) excluding fuel
center sales, increased 4.6% to $24,949 million.
Kroger now envisions identical supermarket sales (excluding
fuel) growth of 3% to 4% for fiscal 2014, up from previous
projection of 2.5% to 3.5%.
Including fuel center sales, identical supermarket sales jumped
4.2% to $29,666 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 jumped 5.8% year-over-year to $930 million,
whereas operating margin contracted 10 basis points to 2.8%.
Kroger ended the quarter with cash of $265 million, total debt
of $11,316 million, reflecting a debt-to-capitalization ratio of
approximately 70%, and shareholders' equity of $4,770 million. Net
debt increased $3,370 million from the prior-year period due to
Harris Teeter transaction and share buyback activity.
Trailing-twelve months' net total debt to adjusted EBITDA ratio
was 2.42 compared with 1.85 in the prior-year period. Return on
invested capital on a rolling four quarters basis was 13.5%, in
line with the prior-year period.
Total capital expenditures during the quarter aggregated $709
million. Management anticipates capital investments between $2.8
billion and $3 billion for fiscal 2014.
During the quarter, Kroger bought back 25.7 million shares for
an aggregate amount of $1.1 billion. The company's healthy free
cash flow generating ability has facilitated it to return over $1.9
billion to stakeholders via dividends and share repurchases in the
last four quarters.
The company currently operates 2,642 supermarkets and
multi-department stores in 34 states and the District of Columbia
under approximately 24 local banners. We believe that the company's
strong corporate and national brands helped it gain customer
Currently, Kroger's shares maintain a Zacks Rank #2 (Buy). Other
better ranked stocks worth considering in the retail sector include
Inventure Foods, Inc.
The Hain Celestial Group, Inc.
Sprouts Farmers Market, Inc.
), all sporting a Zacks Rank #2 (Buy).
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