Kroger's Customer 1st Strategy Supports Consistent Growth - Analyst Blog

A dominant position among the nation's largest grocery retailers enables The Kroger Company (KR) to expand its store base and boost market share through product launches. The company's strong corporate and national brands have helped garner customers' loyalty. The company's Customer 1st strategy enriches shopping experience and convinces buyers to return to the store. We expect the company to sustain its earnings growth momentum with this strategy and through its cost-containment efforts.

Kroger posted three consecutive quarters of earnings beat in fiscal 2014. After positive earnings surprises of 3.8% and 1.5% in the first and second quarters, earnings surpassed the Zacks Consensus Estimate by 13.1% in the third quarter. We believe that given the company's strong identical store sales growth for about 44 successive quarters and better-than-expected bottom-line performance, Kroger is poised to achieve its long-term earnings per share growth rate target of 8% to 11%.

In the last concluded quarter, Kroger posted earnings of 69 cents a share that beat the Zacks Consensus Estimate of 61 cents, and surged 30.2% from 53 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 raise its earnings guidance.

This Zacks Rank #2 (Buy) stock now projects fiscal 2014 earnings between $3.32 and $3.36 per share, up from its earlier provided range of $3.22 to $3.28.

We believe that there remains enormous opportunities to augment identical supermarket sales, alleviate gross margin pressure, improve operating margin and enhance return on invested capital. Management continues to deploy capital to concentrate more on remodels, merchandising, and other viable projects.

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