The Kroger Company
), one of the largest grocery retailers, recently posted
third-quarter fiscal 2013 earnings of 53 cents a share that came
in line with the Zacks Consensus Estimate, and surged 15% from 46
cents earned in the prior-year quarter buoyed by Customer 1
strategy. Share repurchase activities also provided cushion to
the bottom line.
Including one-time items, quarterly earnings came in at 57
cents a share, down from 60 cents delivered in the year-ago
The Cincinnati-based Kroger reiterated its fiscal 2013
earnings of $2.73 to $2.80 per share. The current Zacks Consensus
Estimate dovetails with the company's high-end of the guidance
Total sales (including fuel center sales) climbed 3.2% to
$22,505 million from the prior-year quarter, but fell short of
the Zacks Consensus Estimate of $22,853 million.
Excluding fuel center sales, total sales rose 4.7% and
identical supermarket sales (stores that are open without
expansion or relocation for five full quarters) grew 3.5% to
$16,866 million, marking the 40th successive quarter of
Kroger now projects identical supermarket sales (excluding
fuel) growth of 3% to 3.5% for the fourth quarter of fiscal
Including fuel center sales, identical supermarket sales
jumped 2.5% to $20,211 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.
Operating income declined 10.4% year-over-year to $534 million
due to higher merchandise costs, SG&A expenses and
depreciation; whereas operating margin contracted 30 basis points
Kroger ended the quarter with cash of $242 million, total debt
of $8,270 million, reflecting a debt-to-capitalization ratio of
approximately 62.4%, and shareholders' equity of $4,990 million.
Net debt declined $525 million from the prior-year period.
Trailing-twelve months' net total debt to adjusted EBITDA
ratio was 1.86 compared with 2.08 in the prior-year period.
Return on invested capital on a rolling four quarters basis was
13.4%, up 10 basis points from the prior-year period.
Total capital expenditures during the quarter aggregated $641
million. Management anticipates capital investments of $2.4
billion for fiscal 2013.
During the quarter, Kroger bought back 3.6 million shares for
an aggregate amount of $148 million. The company's healthy free
cash flow generating ability has facilitated it to return over
$752 million to stakeholders via dividends and share repurchases
in the last four quarters.
The company currently operates 2,414 supermarkets and
multi-department stores in 31 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
Harris Teeter Supermarkets, Inc.
The Hain Celestial Group, Inc.
Spartan Stores Inc.
), all sporting a Zacks Rank #2 (Buy).
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