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Kroger (KR) Tops Q3 Views, Boosts Outlook; Analysts Dissect Results

Kroger ( KR ) is in positive territory following strong third-quarter results and boosted outlook.

Earnings in the quarter were 33 cents per share on revenue of $20.59 billion, beating consensus views calling for earnings of 32 cents per share and revenue of $20.4 billion.

Looking to fiscal 2011, Kroger sees earnings of $1.95 to $2.00, up from its prior outlook calling for a range of $1.85 to $1.95. The Street average is calling for earnings of $1.96.

Click here for more on the quarter.

Following the numbers, two firms chimed in on results:

  • Deutsche Bank though Kroger's earnings quality was just "okay." The firm commented that "total sales and non-fuel ID's were in-line with our forecast, while core FIFO GPM came in a bit weaker (-34 bp YOY vs. our -25 bp est) as did non-fuel SG&A margin (-29 bp YOY vs, our -40 bp est). Operating margins were 1.96%, down 22 bp YOY and 5 bp below our 2.01% estimate."

    Comps up 5 percent was a positive in the quarter, with Kroger being able to do so without investing aggressively in price. Supermarket selling gross profit margin ( GPM ) was more stable than in the second quarter. Obviously ,the boosted outlook was a plus.

    For bad news, Deutsche points out that core EBIT margins compressed 5 basis points versus their 15 basis point gain outlook. The drop was due to weaker than expected core FIFO GPM, which was impacted by food inflation, and core SG&A margins, which fell 29 basis points versus Deutsche's 40 basis point expectation.

    Deutsche has Buy rating and $28 price target on Kroger.

  • Goldman Sachs notes that EBIT was 2 cents better than expectations, with non-ID sales growing and leverage on rent offsetting gross margin pressure. Goldman commented, "The weaker gross margin was driven by a combination of a higher than expected LIFO charge ($61 million versus our $39 million) and greater than expected FIFO gross margin compression."

    The firm noted Kroger's prior outlook included a one-time 5 cent per share impact from second-quarter tax benefits. Should the new guidance include the same estimate, than the consensus is still ahead of management's guidance range.

    For implications in the quarter, Goldman said, "While KR's 3Q EPS exceeded our estimates, the sustainability of the drivers is uncertain. Additionally, the weaker ID-sales and greater gross margin pressure confirmed our concerns." Goldman has a Neutral rating and $20.50 price target on the stock.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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