The Kroger Company (KR), one of the largest grocery retailers, recently posted second-quarter 2011 results. The quarterly earnings of 41 cents a share jumped 7.9% from 38 cents delivered in the prior-year quarter. Management hinted that the increase in the bottom-line remains consistent with Kroger’s long-term goal of 6% to 8% growth.
On a reported basis, including certain tax benefit, earnings came in at 46 cents a share, up 12.2% from 41 cents earned in the year-ago quarter.
Analysts polled by Zacks had expected Kroger to deliver earnings of 43 cents a share. The Zacks Consensus Estimate had remained constant with none of the 15 analysts following the stock revised their estimates in the last 30 or 7 days.
The Cincinnati-based Kroger, reiterated its fiscal 2011 earnings guidance range of $1.85 to $1.95 per share. The current Zacks Consensus Estimate of $1.96 for fiscal 2011 remains a penny ahead of the company’s high-end of the guidance range.
Total revenue (including fuel center sales) climbed 11.5% to $20,913.4 million from the prior-year quarter, and handily beat the Zacks Consensus Estimate of $20,477 million.
Excluding fuel center sales, total revenue rose 5.2% and identical supermarket sales (stores that are open without expansion or relocation for five full quarters) climbed 5.3% to $15,719.5 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 4% to 5% for fiscal 2011, up from 3.5% to 4.5% rise forecasted previously.
Including fuel center sales, identical supermarket sales jumped 10.4% to $18,715.8 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 $181.9 million, temporary cash investments of $461.1 million, and total debt of $7,347.4 million, reflecting a debt-to-capitalization ratio of 58.5%, and shareholders’ equity of $5,209.9 million. Net debt was down $49 million from the prior-year. Trailing-twelve months’ net total debt to EBITDA ratio was 1.71 compared with 1.87 in the same period last year.
Capital investment, exclusive of acquisitions and purchases of leased facilities, aggregated $428.5 million for the quarter under review.
During the quarter, Kroger bought back 10.6 million shares at a price of $24.30 per share aggregating $258.6 million. The company at the end of the quarter still had $403.4 million at its disposal under the $1 billion share repurchase program announced in March 2011. Subsequent to the quarter end, the company has repurchased 4.5 million shares at a price of $22.87 per share totaling $103.5 million.
The company currently operates 2,439 supermarkets and multi-department stores in 31 states under approximately 24 local banners. Currently, we have a long-term Neutral rating on the stock. Moreover, Kroger’s shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation and correlates with our long-term view.
