The Kroger Company (KR): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
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 super market sales growth. This is well reflected from the company's better-than-expected first-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 70% may hinder financial flexibility. Currently, we maintain our Neutral recommendation on the stock.

Overview:

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 2,642 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 787 convenience stores, 324 fine jewelry stores, 1,261 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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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.



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