Kroger Q4 Earnings Beat on Higher Sales, Gives Upbeat View - Analyst Blog

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.

Currently, Kroger's shares maintain a Zacks Rank #3 (Hold). Other stocks better ranked stocks include Whole Foods Market, Inc. WFM and Flowers Foods, Inc. FLO both sporting a Zacks Rank #2 (Buy).

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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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