Updated Research Report on Kroger - Analyst Blog

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On Jun 24, 2014, we issued an updated research report on The Kroger Company KR, following the company's first-quarter fiscal 2014 results.

A dominant position among the nation's largest grocery retailers enables Kroger to sustain growth in top and bottom lines, expand its store base and boost its market share by introducing new products. The company's strong corporate and national brands helped garner customers' loyalty.

Kroger posted first-quarter fiscal 2014 earnings of $1.09 per share that surpassed the Zacks Consensus Estimate of $1.05, and surged 18.5% from the prior-year quarter, aided by its Customer 1st strategy and the acquisition of Harris Teeter. Total sales (including fuel center sales) grew 9.9% to $32,961 million from the prior-year quarter, and also came ahead of the Zacks Consensus Estimate of $32,636 million.

We believe that the company's strong identical-store sales growth and better-than-expected bottom-line performance position it well to achieve its long-term earnings per share growth rate target of 8% to 11%. Kroger now envisions fiscal 2014 earnings between $3.19 and $3.27, reflecting growth of 12% to 15%. We expect the company to sustain its earnings momentum buoyed by the Customer 1st strategy, effective cost management and share repurchase activities.

In our view, Kroger's customer-centric business model provides a strong value proposition to consumers, and makes it likely to deliver higher earnings primarily through strong identical supermarket sales growth (excluding fuel). Identical supermarket sales are expected to grow between 3% and 4% during the fiscal 2014.

However, soft economic recovery may affect the consumer shopping pattern. Moreover, higher debt-to-capitalization ratio of 70% may hinder financial flexibility.

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Currently, Kroger's shares maintain a Zacks Rank #3 (Hold).

Other Stocks to Consider

Other better-ranked stocks worth considering in the retail sector include Inventure Foods, Inc. SNAK, The Hain Celestial Group, Inc. HAIN and Sprouts Farmers Market, Inc. SFM, all carrying a Zacks Rank #2 (Buy).


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KROGER CO KR: Free Stock Analysis Report

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