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The Kroger Company (KR - Analyst Report) reported better-than-expected first-quarter 2012 results on June 14, 2012. The Wall Street analysts had almost a week to ponder on the earnings results and eventually make their estimates revision. In subsequent paragraphs, we will cover the results of the recent earnings announcement, estimate revisions by analysts as well as the Zacks Rank and long-term recommendation on the stock.

Earnings Report Review

Kroger’s quarterly earnings of 78 cents a share beat the Zacks Consensus Estimate of 72 cents, and rose 11.4% from 70 cents earned in the prior-year quarter. Share repurchase activities provided cushion to the bottom line.

Total revenue (including fuel center sales) climbed 5.8% to $29,064.8 million from the comparable prior-year quarter, but fell short of the Zacks Consensus Estimate of $29,194 million.

Excluding fuel center sales, total revenue rose 4.3% and identical supermarket sales (stores that are open without expansion or relocation for five full quarters) climbed 4.2% to $21,652.7 million.

The Cincinnati-based Kroger now expects fiscal 2012 earnings of between $2.28 and $2.38 per share.

Kroger faces stiff competition from Wal-Mart Stores Inc. (WMT - Analyst Report) and Whole Foods Market Inc. (WFM - Analyst Report). The company reiterated its identical supermarket sales (excluding fuel) growth guidance of 3% to 3.5% for fiscal 2012, including the anticipated adverse impact from prescription drugs coming off patent.

(Read our full coverage on this earnings report: Kroger Beats, Ups Outlook)

Agreement of Estimate Revisions

Clearly, a positive sentiment is evident among analysts, signifying that they are hopeful about the company’s future earnings outlook. In the last seven days, of the 18 analysts providing estimates for 2012, 15 raised estimates, while none lowered the same. Looking out to fiscal 2013, 11 analysts raised their earnings estimates, while 2 moved in the opposite direction. 

The upward revision indicates that the analysts remain confident about the company’s growth prospects. Kroger’s strong corporate and national brands help to gain customer loyalty and sustain top-line growth. This in turn helped the company to expand its store base, thus boosting its market share.

However, analysts’ sentiments remain negatively biased for the next two quarters. In the last 7 days, 2 analysts raised their estimates, while 5 lowered for the current quarter. For the third quarter of 2012, 2 analysts made an upward revision, while 7 moved in the opposite direction.

Near term, analysts remain concerned about lingering secular headwinds, which continue to weigh upon the company’s profitability. Moreover, the firms believe that Kroger being a traditional retailer faces structural challenges.   

Magnitude of Estimate Revisions

In the last 7 days, the Zacks Consensus Estimate for fiscal 2012 and 2013 increased by 5 cents and 3 cents to $2.37 and $2.52, respectively.

Kroger’s second and third quarter 2012 estimate inched down by a penny each to 49 cents and 42 cents, respectively. 

The current Zacks Consensus Estimate for the second quarter of 2012 is pegged in the range of a low of 46 cents to a high of 53 cents. For fiscal 2012, the estimates range from $2.28 to $2.42.

Our Say

A dominant position among the nation’s largest grocery retailers enables Kroger to sustain growth in its top line, expand store base, and boost its market share. It is well positioned to continue its growth momentum primarily through identical supermarket sales growth.

Kroger is also actively managing its capital and returning much of its free cash to shareholders via share buybacks and dividends. Moreover, management continues to deploy capital to concentrate more on remodels, merchandising and other viable projects.

These include nearly 40 to 50 major capital projects comprising the opening of new stores, expansions and relocations, and 125 to 140 remodels. Management continues to expect fiscal 2012 capital expenditures in the range of $1.9 billion to $2.2 billion.

However, the grocery business is highly competitive and fragmented, and Kroger faces intense competition from big players, like Supervalu Inc. (SVU - Analyst Report), and other conventional and specialty gourmet retailers with respect to price, store expansion and promotional activities to drive traffic. This might weigh upon the company’s performance.

The company currently operates 2,425 supermarkets and multi-department stores in 31 states under approximately 24 local banners. Currently, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, Kroger’s shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

About Zacks Earnings Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

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