The Kroger Company (KR), one of the largest grocery retailers, recently posted better-than-expected fourth-quarter 2010 results. The quarterly earnings of 46 cents a share topped the Zacks Consensus Estimate of 44 cents, and jumped 17.9% from 39 cents delivered in the prior-year quarter.
The Zacks Consensus Estimate had remained stable prior to the earnings release, despite 3 out of 18 analysts covering the stock lowering their projections and one analyst raising the estimate in the last 30 days.
The Cincinnati-based Kroger, now expects fiscal 2011 earnings between $1.80 and $1.92 per share. The current Zacks Consensus Estimate of $1.92 lies at the high-end of the company’s guidance range. The company aims to achieve annual earnings per share growth of 6% to 8% over a period of 3 to 5 years.
Total revenue (including fuel center sales) climbed 7.4% to $19,928.4 million from the prior-year quarter, and handily beat the Zacks Consensus Estimate of $19,321 million.
Excluding fuel center sales, total revenue rose 4.2%; comparable supermarket sales jumped 4% to $16,231.5 million, whereas identical supermarket sales (stores that are open without expansion or relocation for five full quarters) rose 3.8% to $15,830.7 million.
Kroger, which faces stiff competition from Wal-Mart Stores Inc. (WMT) and Whole Foods Market Inc. (WFMI), now predicted identical supermarket sales (excluding fuel) growth of 3% to 4% for fiscal 2011.
Including fuel center sales, comparable supermarket sales climbed 6.6% to $18,483.9 million, whereas identical supermarket sales rose 6.3% to $18,021.3 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 fiscal 2010 with cash of $187.8 million, temporary cash investments of $636.8 million, and total debt of $7,891.7 million, reflecting a debt-to-capitalization ratio of 59.8%, and shareholders’ equity of $5,297.5 million. Net debt was down $243.5 million from the prior-year.
Since January 2000, the company has lowered its debt load by $1.1 billion. Trailing-twelve months’ net total debt to EBITDA ratio was 1.89 compared with 1.97 in the same period last year.
During the quarter, Kroger bought back 11.8 million shares at a price of $21.51 per share aggregating $253.4 million. The company still has $106.9 million at its disposal under the $500 million share repurchase program announced in June 2010.
In a separate story, Kroger’s Board of Directors announced an additional $1 billion share repurchase authorization. The company since January 2000 has returned $6.5 billion via share buyback to the shareholders. Moreover, since the inception of dividend program in 2006, the company has paid $1.1 billion in dividends.
The company currently operates 2,458 supermarkets and multi-department stores in 31 states under approximately 24 local banners. Kroger’s shares maintain a Zacks #3 Rank, which translates into a short-term Hold’ recommendation. Moreover, we have a long-term ‘Neutral’ rating on the stock.
KROGER CO (KR): Free Stock Analysis Report
WHOLE FOODS MKT (WFMI): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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