A dominant position among the nation’s largest grocery retailers enables The Kroger Co. 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. Moreover, Kroger’s "Customer 1st" strategy enriches shopping experience, convincing buyers to return to the store. We expect the company to sustain its earnings growth momentum with the help of this plan and through its cost-containment efforts.
Kroger, which competes with Costco Wholesale Corporation COST, Target Corp. TGT and Wal-Mart Stores Inc. WMT, has an impressive earnings history. In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 9.6%, including a positive surprise of 10% registered in the second quarter of fiscal 2015.
Given its strong identical store sales growth for about 47 straight quarters and better-than-expected bottom-line performance, we believe that Kroger is poised to achieve its long-term earnings per share growth rate target of 8–11%.
Management now projects identical supermarket sales (excluding fuel) growth of 4–5% for fiscal 2015, up from 3.5–4.5% expected earlier. Also, Kroger envisions fiscal 2015 earnings between $1.92 and $1.98 per share, up from a range of $1.90–$1.95 forecast earlier.
We believe that the company has 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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