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The Kroger Company (KR - Free Report) , one of the largest grocery retailers, recently posted second-quarter fiscal 2016 adjusted earnings of 47 cents a share that beat the Zacks Consensus Estimate by a couple of cents and increased 6.8% from 44 cents earned in the prior-year quarter. However, given the deflationary environment, Cincinnati-based Kroger lowered its fiscal 2016 earnings projection.
Management now expects adjusted earnings in the band of $2.10 to $2.20 per share, down from a range of $2.19 to $2.28. The current Zacks Consensus Estimate for fiscal 2016 stands at $2.21. Shares are down nearly 2% during pre-market trading hours.
Total sales (including fuel center sales and Roundy's Inc.) grew 4% to $26,565 million from the prior-year quarter but missed the Zacks Consensus Estimate of $26,783 million. Management stated that excluding fuel center sales, total sales rose 7.3%, while excluding Roundy's, total sales without fuel rose 2.9% in the final quarter.
The company’s identical supermarket sales (stores that are open without expansion or relocation for five full quarters), excluding fuel center sales, grew 1.7% to $21,264 million, whereas including fuel center sales, identical supermarket sales edged down 0.5% to $23,938 million. For the remainder of fiscal 2016, Kroger expects identical supermarket sales (excluding fuel) growth of 0.5% to 1.5%, translating into 1.4% to 1.8% growth for the fiscal year.
Operating income plunged 14.1% year over year to $665 million, whereas operating margin contracted 50 basis points to 2.5%.
Other Financial Aspects
Kroger, which competes with Target Corporation (TGT - Free Report) , ended the quarter with cash of $319 million, total debt of $12,420 million, and shareholders’ equity of $6,601 million. Total debt increased $1,150 million from the prior-year period. The company's net total debt to adjusted EBITDA ratio jumped to 2.11 compared with 2.02 in the year-ago period.
Management also trimmed its planned capital expenditures – excluding mergers, acquisitions and purchases of leased facilities – for fiscal 2016 to a range of $3.6 to $3.9 billion, down from the previous projection of $4.1 to $4.4 billion.
We believe that Kroger’s dominant position enables it to expand store base and boost market share. The company’s customer-centric business model provides a strong value proposition to consumers. The company is now providing ClickList and ExpressLane online ordering services in 400 locations. However, intensifying price war among grocery stores to lure budget-constrained consumers poses concern.
Kroger, which operates 2,781 retail food stores, maintain a Zacks Rank #3 (Hold). Better-ranked stocks include Omega Protein Corporation sporting a Zacks Rank #1 (Strong Buy) and Cal-Maine Foods, Inc. (CALM - Free Report) carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Kroger (KR) Q2 Earnings Beat, Revenues Miss; View Slashed
The Kroger Company (KR - Free Report) , one of the largest grocery retailers, recently posted second-quarter fiscal 2016 adjusted earnings of 47 cents a share that beat the Zacks Consensus Estimate by a couple of cents and increased 6.8% from 44 cents earned in the prior-year quarter. However, given the deflationary environment, Cincinnati-based Kroger lowered its fiscal 2016 earnings projection.
Management now expects adjusted earnings in the band of $2.10 to $2.20 per share, down from a range of $2.19 to $2.28. The current Zacks Consensus Estimate for fiscal 2016 stands at $2.21. Shares are down nearly 2% during pre-market trading hours.
Total sales (including fuel center sales and Roundy's Inc.) grew 4% to $26,565 million from the prior-year quarter but missed the Zacks Consensus Estimate of $26,783 million. Management stated that excluding fuel center sales, total sales rose 7.3%, while excluding Roundy's, total sales without fuel rose 2.9% in the final quarter.
The company’s identical supermarket sales (stores that are open without expansion or relocation for five full quarters), excluding fuel center sales, grew 1.7% to $21,264 million, whereas including fuel center sales, identical supermarket sales edged down 0.5% to $23,938 million. For the remainder of fiscal 2016, Kroger expects identical supermarket sales (excluding fuel) growth of 0.5% to 1.5%, translating into 1.4% to 1.8% growth for the fiscal year.
Operating income plunged 14.1% year over year to $665 million, whereas operating margin contracted 50 basis points to 2.5%.
Other Financial Aspects
Kroger, which competes with Target Corporation (TGT - Free Report) , ended the quarter with cash of $319 million, total debt of $12,420 million, and shareholders’ equity of $6,601 million. Total debt increased $1,150 million from the prior-year period. The company's net total debt to adjusted EBITDA ratio jumped to 2.11 compared with 2.02 in the year-ago period.
Management also trimmed its planned capital expenditures – excluding mergers, acquisitions and purchases of leased facilities – for fiscal 2016 to a range of $3.6 to $3.9 billion, down from the previous projection of $4.1 to $4.4 billion.
KROGER CO Price, Consensus and EPS Surprise
KROGER CO Price, Consensus and EPS Surprise | KROGER CO Quote
Bottom Line
We believe that Kroger’s dominant position enables it to expand store base and boost market share. The company’s customer-centric business model provides a strong value proposition to consumers. The company is now providing ClickList and ExpressLane online ordering services in 400 locations. However, intensifying price war among grocery stores to lure budget-constrained consumers poses concern.
Kroger, which operates 2,781 retail food stores, maintain a Zacks Rank #3 (Hold). Better-ranked stocks include Omega Protein Corporation sporting a Zacks Rank #1 (Strong Buy) and Cal-Maine Foods, Inc. (CALM - Free Report) carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>