The Kroger CompanyKR , one of the largest grocery retailers, recently posted fourth-quarter fiscal 2014 earnings of $1.04 per share that beat the Zacks Consensus Estimate of 89 cents, and surged 33.3% from 78 cents earned in the prior-year quarter aided by its Customer 1st strategy, increase in sales and strong fuel margins. The acquisition of Harris Teeter also supported the bottom-line. The better-than-expected results prompted management to provide an upbeat outlook.
The Cincinnati-based Kroger now projects fiscal 2015 earnings between $3.80 and $3.90 per share. The current Zacks Consensus Estimate for fiscal 2015 is $3.70, which could witness an upward revision in the coming days.
Total sales (including fuel center sales) grew 8.5% to $25,207 million from the prior-year quarter, and also came ahead of the Zacks Consensus Estimate of $25,048 million. Management stated that excluding fuel center sales, total sales rose 14.2%.
Identical supermarket sales (stores that are open without expansion or relocation for five full quarters) excluding fuel center sales, increased 6% to $20,234 million. Kroger now envisions identical supermarket sales (excluding fuel) growth of 3% to 4% for fiscal 2015.
Including fuel center sales, identical supermarket sales jumped 2.5% to $22,728 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 27% year-over-year to $912 million, whereas operating margin expanded 50 basis points to 3.6%.
Kroger, which competes with Target Corporation TGT , ended the quarter with cash of $268 million, total debt of $11,656 million, and shareholders' equity of $5,442 million. Net debt increased $487 million from the prior-year period.
Trailing-twelve months' net total debt to adjusted EBITDA ratio was 2.15 compared with 2.43 in the prior-year period, and in the desired range of 2.00 to 2.20.
Total capital expenditures during fiscal 2014 aggregated $2.8 billion. Management anticipates capital investments to come in the band of $3-$3.3 billion for fiscal 2015.
During fiscal 2014, Kroger bought back 28.4 million shares for an aggregate amount of $1.3 billion. The company's free cash flow generating ability has facilitated it to return over $1.6 billion to stakeholders via dividends and share repurchases in fiscal 2014.
The company currently operates 2,625 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.
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