The Kroger Company (KR), one of the largest grocery retailers, recently posted better-than-expected first-quarter 2011 results. The quarterly earnings of 70 cents a share topped the Zacks Consensus Estimate of 64 cents, and jumped 20.7% from 58 cents delivered in the prior-year quarter.
The Zacks Consensus Estimate increased by a penny with 4 out of 15 analysts covering the stock raising their projections in the last 30 days. In the last 7 days, only 3 analysts revised their estimates upwards having no material impact on the Consensus. None of the analysts lowered their estimates in the last 30 or 7 days.
The Cincinnati-based Kroger now expects fiscal 2011 earnings to be near the high-end of the increased guidance range of $1.85 to $1.95 per share, thereby sending the shares up 6.5% or $1.50 to $24.45 during pre-market trading. Earlier, the company had projected earnings between $1.80 and $1.92 per share.
The current Zacks Consensus Estimate of $1.91 for fiscal 2011 dovetails with the company’s guidance range. However, following an improved earnings outlook, a positive sentiment may be palpable among the analysts, and we could witness a further rise in the Zacks Consensus Estimates in the coming days.
Total revenue (including fuel center sales) climbed 11% to $27,460.9 million from the prior-year quarter, and handily beat the Zacks Consensus Estimate of $26,557 million.
Excluding fuel center sales, total revenue rose 4.8%; comparable supermarket sales jumped 4.7% to $21,276.6 million, whereas identical supermarket sales (stores that are open without expansion or relocation for five full quarters) rose 4.6% to $20,788.1 million.
Kroger, which faces stiff competition from Wal-Mart Stores Inc. (WMT) and Whole Foods Market Inc. (WFM), now predicted identical supermarket sales (excluding fuel) growth of 3.5% to 4.5% for fiscal 2011, up from 3% to 4% rise forecasted previously.
Including fuel center sales, comparable supermarket sales climbed 10% to $25,260.7 million, whereas identical supermarket sales rose 9.8% to $24,683.6 million. We believe that Kroger’s dominant position enables it to sustain top-line growth, expand store base, and boost market share.
Kroger’s customer-centric business model provides a strong value proposition to consumers. It is well positioned to continue its growth momentum primarily through identical supermarket sales growth.
However, Kroger is not immune to the tough economic environment. The intensifying price war among grocery stores to lure budget-constrained consumers may adversely impact Kroger’s sales and margins.
Kroger ended the quarter with cash of $174.1 million, temporary cash investments of $256.8 million, and total debt of $7,380.2 million, reflecting a debt-to-capitalization ratio of 58.6%, and shareholders’ equity of $5,204.2 million. Net debt was up $47.3 million from the prior-year. Trailing-twelve months’ net total debt to EBITDA ratio was 1.79 compared with 1.91 in the same period last year.
During the quarter, Kroger bought back 23.1 million shares at a price of $23.55 per share aggregating $544.3 million. The company still has $602.7 million at its disposal under the $1 billion share repurchase program announced in March 2011.
The company currently operates 2,449 supermarkets and multi-department stores in 31 states under approximately 24 local banners. Kroger’s shares maintain a Zacks #2 Rank, which translates into a short-term Buy recommendation. However, we have a long-term Neutral rating on the stock.
KROGER CO (KR): Free Stock Analysis Report
WHOLE FOODS MKT (WFM): Free Stock Analysis Report
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