Market Overview

Kroger Earnings Preview: Strong EPS Growth Expected

Kroger (NYSE: KR), which earlier this month bought Axium Pharmacy Holdings, is scheduled to report its third-quarter fiscal 2012 results Thursday, November 29, before the opening bell. Investors will be looking to see how much customer Kroger's loyalty programs have helped fend off the growing competition from dollar stores, drugstores and big-box retailers.

Expectations

Analysts on average predict that Kroger will report that revenue for the quarter rose about five percent year-over-year to $21.63 billion. Per-share earnings are expected to come to $0.43, or up more than 23 percent from same quarter of last year. That consensus earnings estimate was $0.42 per share 60 days ago. Note that Kroger has exceeded analysts' EPS expectations in the past four quarters. The positive surprise in the second quarter was about four percent.

Kroger attributed strong results in the second quarter to its customer loyalty program. Furthermore, the company said it repurchased 23.7 million shares for $525 million. On the strength of the customer loyalty efforts and the share buybacks, Kroger increased its full-year EPS guidance. The share price rose more than five percent following the second-quarter report.

Looking ahead to the current quarter, the analysts' consensus forecast calls for EPS to rise more than 27 percent year-on-year on sales that are almost 12 percent higher. So far, full-year EPS are expected to be up more than 17 percent on a rise of more than six percent in revenues, relative to the previous year.

The Company

Kroger is the nation's largest strictly supermarket chain operator, with more than 1,000 supermarket locations. It also manufactures food products and operates department stores, jewelry stores and convenience stores. The company is headquartered in Cincinnati, is an S&P 500 component and has a market capitalization near $13 billion. The company was founded in 1883, and David B. Dillon has been the chairman and chief executive since 2004.

Competitors include Safeway (NYSE: SWY), SuperValu (NASDAQ: SVU) and Whole Foods (NASDAQ: WFM), as well as the likes of Costco (NASDAQ: COST) and Walmart (NYSE: WMT). Safeway posted better-than-expected EPS in the most recent quarter, but revenues in the current quarter are expected to be flat, relative to last year. SuperValu surprised analyst by reporting no per-share profit in the fiscal third quarter. And when Whole Foods reported earlier this month, EPS matched analysts' expectations.

During the three months that ended in October, Kroger launched new exclusive organic brands, raised its dividend by 30 percent, announced its expansion plans and appointed some new senior vice presidents.

Performance

The long-term EPS growth forecast is almost nine percent, and the return on equity is more than 13 percent. But the price-to-earnings (P/E) ratio is greater than the industry average. Kroger's dividend yield is about 2.4 percent. Short interest is less than four percent of the float. Of the 23 analysts surveyed by Thomson/First Call who follow the stock, 14 recommend buying shares -- nine of them rate the stock at Strong Buy. Their mean price target, or where they expect the stock to go, is about 10 percent higher than the current share price. That is a level it has not seen since 2009.

Though shares are up more than 13 percent in the past 90 days, the share price is only marginally higher than at the beginning of the year. The share price is above the 200-day and 50-day moving averages. Over the past six months, the stock has outperformed Safeway, Whole Foods and even Walmart.

Posted-In: Earnings Long Ideas News Guidance Short Ideas Previews Movers Trading Ideas Best of Benzinga

 

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