The Kroger Company KR, one of the largest grocery retailers, recently posted fourth-quarter fiscal 2015 earnings of 57 cents a share that beat the Zacks Consensus Estimate of 54 cents, and surged 9.6% from 52 cents earned in the prior-year quarter. Despite the earnings beat, shares are down nearly 8% during pre-market trading hours on account of revenue miss.
Nevertheless, the Cincinnati-based Kroger now projects fiscal 2016 earnings per share in the range of $2.19–$2.28 per share. The current Zacks Consensus Estimate for fiscal 2016 stands at $2.23.
Total sales (including fuel center sales and Roundy's Inc.) grew 3.8% to $26,165 million from the prior-year quarter but missed the Zacks Consensus Estimate of $26,193 million. Management stated that excluding fuel center sales, total sales rose 6.5%, while excluding Roundy's, total sales without fuel rose 4.4% in the final quarter.
The company’s identical supermarket sales (stores that are open without expansion or relocation for five full quarters), excluding fuel center sales, grew 3.9%, marking 49th consecutive quarter of growth. However, taking into account six weeks of Roundy's results, identical supermarket sales without fuel rose 3.7%. Kroger now envisions identical supermarket sales (excluding fuel) growth of 2.5% to 3.5% for fiscal 2016. Including fuel center sales, identical supermarket sales rose 1.7%.
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 rose 1.8% year over year to $928 million, however, operating margin contracted 10 basis points to 3.5%.
Kroger, which competes with Target Corp. TGT, ended the quarter with cash of $277 million, total debt of $12,079 million, and shareholders’ equity of $6,789 million. Total debt increased $482 million from the prior-year period.
Total capital expenditures during the fiscal year aggregated $3.3 billion. Management anticipates capital expenditures, excluding mergers, acquisitions and purchases of leased facilities, to be in the band of $4.1–$4.4 billion in fiscal 2016.
During fiscal 2015, Kroger bought back 19 million shares for $703 million. The company’s free cash flow generating ability has facilitated it to return over $1.1 billion to stakeholders via dividends and share repurchases in fiscal 2015.