A dominant position among the nation's largest grocery retailers
enables Kroger to sustain growth, expand store base, and boost
market share. It also remains well positioned to deliver higher
earnings, primarily through strong identical supermarket sales
growth. This is well reflected from the company's
better-than-expected third-quarter fiscal 2014 results and an
encouraging outlook. We believe there remain enormous opportunities
to augment identical supermarket sales, alleviate gross margin
pressure and improve operating margin. In our view, Kroger's long
term earnings per share growth rate target of 8% to 11% seem
achievable. Management also continues to deploy capital to
concentrate more on remodels, merchandising, and other viable
projects. However, soft economic recovery may affect consumer
shopping pattern. Moreover, higher debt-to-capitalization ratio of
68% may hinder financial flexibility. Currently, we maintain our
Neutral recommendation on the stock.
Founded in 1883 and incorporated in 1902 with headquarters in
Cincinnati, Ohio, The Kroger Company (KR), is one of the nation's
largest grocery retailers operating 2,631 supermarkets and
multi-department stores in 34 states and the District of Columbia
under approximately 24 local banners including Kroger, City Market,
Dillons, Food 4 Less, Fred Meyer, Fry's, Harris Teeter, Jay C, King
Soopers, QFC, Ralphs and Smith's. In addition, Kroger directly, or
through subsidiaries or franchisee and operating agreements, runs
783 convenience stores, 325 fine jewelry stores, 1,293 supermarket
fuel centers, and 37 food-processing plants.
Kroger's supermarket and multi-department stores operate under
four formats combo stores (combination of food and drug stores),
multi-department stores, marketplace stores, and price impact
warehouses. The combo stores include natural food and organic
sections, pharmacies, general merchandise, and pet centers, as well
as offer perishables items such as fresh seafood and organic
produce. The multi-department stores offer a collection of general
merchandise products such as apparel, home fashion and furnishings,
electronics, automotive products, toys, and fine jewelry. The
marketplace stores include full-service grocery and pharmacy
departments and a general merchandise area that includes outdoor
living products, electronics, home goods, and toys. The combo
stores, multi department stores, and marketplace stores also have
fuel centers. The price impact warehouse offers grocery, health,
and beauty care items.
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