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Kroger Q3 Earnings Beat, Revenue Miss; Lifts FY15 Outlook

The Kroger CompanyKR , one of the largest grocery retailers, recently posted third-quarter fiscal 2015 earnings of 43 cents a share that beat the Zacks Consensus Estimate of 39 cents, and surged 22.9% from 35 cents earned in the prior-year quarter.

The Cincinnati-based Kroger now projects fiscal 2015 earnings between $2.02 and $2.04 per share, up from a range of $1.92 to $1.98 forecasted earlier. The current Zacks Consensus Estimate for fiscal 2015 is $1.99.

Total sales (including fuel center sales) grew 0.4% to $25,075 million from the prior-year quarter but missed the Zacks Consensus Estimate of $25,224 million due to lower retail fuel prices. Management stated that excluding fuel center sales, total sales rose 5.5%.

Identical supermarket sales (stores that are open without expansion or relocation for five full quarters) excluding fuel center sales, increased 5.4% to $19,978 million. Kroger now envisions identical supermarket sales (excluding fuel) growth of 4% to 4.5% for the fourth quarter of fiscal 2015, resulting in annual growth rate of about 5% to 5.25% for fiscal full year.

Including fuel center sales, identical supermarket sales rose 1% to $22,597 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, intensifying price war among grocery stores to lure budget-constrained consumers may adversely impact Kroger's sales and margins.

Operating income jumped 18.6% year-over-year to $772 million, whereas operating margin expanded 50 basis points to 3.1%.

Kroger, which competes with Target Corporation TGT , ended the quarter with cash of $274 million, total debt of $11,259 million, and shareholders' equity of $6,245 million. Total debt decreased $216 million from the prior-year period.

Trailing-twelve months' net total debt to adjusted EBITDA ratio was 1.99 compared with 2.27 in the prior-year period.

Total capital expenditures during the quarter aggregated $832 million.

During the quarter, Kroger bought back 853000 shares for an aggregate amount of $31 million. The company's free cash flow generating ability has facilitated it to return over $1.1 billion to stakeholders via dividends and share repurchases in the last four quarters.

The company currently operates 2,620 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 maintain a Zacks Rank #2 (Buy). Other better ranked stocks include Campbell Soup Co. CPB sporting a Zacks Rank #1 (Strong Buy) and Boulder Brands, Inc. BDBD carrying a Zacks Rank #2.

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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 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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