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 has an impressive earnings history. In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 9.8%, including a positive earnings surprise of 10.3% registered in the third quarter of fiscal 2015.
Kroger recently posted third-quarter fiscal 2015 earnings of 43 cents a share that beat the Zacks Consensus Estimate of 39 cents, and surged 22.9% from 35 cents earned in the prior-year quarter. Identical supermarket sales (excluding fuel) increased 5.4%. Given its strong identical store sales (excluding fuel) growth for about 48 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 envisions identical supermarket sales (excluding fuel) growth of 4%–4.5% for the fourth quarter of fiscal 2015, resulting in an annual growth rate of about 5%–5.25% for the full fiscal year. The Cincinnati-based Kroger now projects fiscal 2015 earnings between $2.02 and $2.04 per share, up from a range of $1.92–$1.98 predicted earlier.
We believe that the company has 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.
Zacks Rank
Kroger currently carries a Zacks Rank #2 (Buy). Investors may also consider favorably ranked stocks such as Campbell Soup Company CPB and Boulder Brands, Inc. BDBD, both sporting a Zacks Rank #1 (Strong Buy), and Wal-Mart Stores Inc. WMT carrying a Zacks Rank #2.
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