The Kroger Company KR, one of the largest grocery retailers, recently posted second-quarter fiscal 2015 earnings of 44 cents a share that beat the Zacks Consensus Estimate of 40 cents, and surged 25.7% from 35 cents earned in the prior-year quarter. The company’s Customer 1st strategy and fuel margins expansion boded well.
The Cincinnati-based Kroger now projects fiscal 2015 earnings between $1.92 and $1.98 per share, up from a range of $1.90 to $1.95 forecasted earlier. The current Zacks Consensus Estimate for fiscal 2015 is $1.95. The better-than-expected results and upbeat guidance pushed the stock up 6.8% during pre-market trading hours.
Total sales (including fuel center sales) grew 0.9% to $25,539 million from the prior-year quarter but missed the Zacks Consensus Estimate of $25,594 million. Management stated that excluding fuel center sales, total sales rose 5.7%.
Identical supermarket sales (stores that are open without expansion or relocation for five full quarters) excluding fuel center sales, increased 5.3% to $19,865 million. Kroger now envisions identical supermarket sales (excluding fuel) growth of 4% to 5% for fiscal 2015, up from 3.5% to 4.5% projected previously.
Including fuel center sales, identical supermarket sales rose 1.3% to $22,951 million. We believe that Kroger’s dominant position enables it to 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, intensifying price war among grocery stores to lure budget-constrained consumers may adversely impact Kroger’s sales and margins.
Operating income jumped 20.2% year-over-year to $774 million, whereas operating margin expanded 50 basis points to 3%.
Kroger, which competes with Target Corporation TGT, ended the quarter with cash of $268 million, total debt of $11,270 million, and shareholders’ equity of $5,882 million. Total debt increased $130 million from the prior-year period.
Trailing-twelve months’ net total debt to adjusted EBITDA ratio was 2.02 compared with 2.32 in the prior-year period.
Total capital expenditures during the quarter aggregated $812 million.
During the quarter, Kroger bought back 1.1 million shares for an aggregate amount of $43 million. The company’s free cash flow generating ability has facilitated it to return over $1 billion to stakeholders via dividends and share repurchases in the last four quarters.