Kroger Earnings Beat Zacks Expectations - Analyst Blog


The Kroger Company ( KR ), 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 earnings guidance.

Including one-time items, earnings came in at 98 cents a share, up 6.5% year-over-year. Shares climbed 5.7% during pre-market trading hours.

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 days.

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 loyalty.

Currently, Kroger's shares maintain a Zacks Rank #2 (Buy). Other better ranked stocks worth considering in the retail sector include Inventure Foods, Inc. ( SNAK ), The Hain Celestial Group, Inc. ( HAIN ) and Sprouts Farmers Market, Inc. ( SFM ), all sporting a Zacks Rank #2 (Buy).

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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: KR , HAIN , SFM , SNAK

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