Wednesday, June 15, 2011

Kroger Co. (NYSE: KR): Q1 Earnings Preview 2011

Kroger Co. (NYSE: KR) is scheduled to release its first quarter earnings after the closing bell on Thursday, June 16, 2011. Analysts, on average, expect the company to report earnings of 64 cents per share on revenue of $26.48 billion. In the year ago quarter, the company reported earnings of 58 cents per share on revenue of $24.76 billion.

Kroger Co., together with its subsidiaries, operates as a retailer in the United States. The company also manufactures and processes food for sale in its supermarkets. The company operates 2,458 supermarkets and multi-department stores in 31 states under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry's, King Soopers, QFC, Ralphs and Smith's. The Company also operates 786 convenience stores, 361 fine jewelry stores, 1,014 supermarket fuel centers and 40 food processing plants in the U.S.

In the preceding fourth quarter, the Cincinnati, Ohio-based company's net income was $278.8 million, or 44 cents per share, compared to $255.4 million, or 39 cents per share, in the prior year quarter. On an adjusted basis, the company earned 36 cents per share in the fourth quarter. Revenue grew 7.4 percent to $19.93 billion from $18.55 billion a year ago. Analysts, on average, expected the company to report earnings of 44 cents per share on revenue of $19.38 billion.

At its last earnings call in March, the company said that it expects earnings in the range of $1.80 to $1.92 per share for fiscal year 2011. Identical supermarket sales growth, excluding fuel, for the year is anticipated in the range of 3 percent to 4 percent. During fiscal year 2011, Kroger plans to use cash flow from operations and cash on hand to fund capital expenditures, repay debt maturing on April 1, repurchase shares, pay dividends to shareholders, and maintain its current debt rating.

The company aims to achieve annual earnings per share growth of 6% to 8% over a period of 3 to 5 years.

Kroger is facing rising prices for meat, dairy, coffee and other grocery products from suppliers who have higher commodity and energy costs. When Kroger reported fourth-quarter earnings in March, the company said it expects to see more of the same inflation levels this year.However, the company has been passing along some higher costs to consumers while increasing fuel rewards for regular shoppers. However, modest level of inflation generally has a positive impact on Kroger’s business.The company may benefit from fuel prices going up because the discounts it offers on gasoline could attract more shoppers.

A dominant position among the nation’s largest grocery retailers enables Krogerto sustain growth in its top line, expand its store base and boost its market share.

The company's stock currently trades at a forward P/E (fye Jan 29, 2013) of 10.85 and PEG Ratio (5 yr expected) of 1.34. In terms of stock performance, Kroger shares have gained 6% since the beginning of the year.

Full Disclosure: None.
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