Kroger's Earnings Growth a Huge Bonus

Large Cap Watch List member Kroger Co. (KR) yesterday reported strong fourth quarter results:

The Kroger Co. today reported total sales increased 14.5% to $16.9 billion for the fourth quarter ended February 3, 2007. After adjusting for the extra week in the fourth quarter of fiscal 2006, total sales increased 5.7% over the fourth quarter of fiscal 2005. Identical supermarket sales increased 5.6% with fuel and 5.3% without fuel, based on a 13-week period in both years.

Net earnings in the fourth quarter totaled $384.8 million, or $0.54 per diluted share. The current quarter benefited by $0.03 per diluted share from the adjustments of certain deferred tax balances. This was not contemplated in the Company’s guidance.

No matter. Even after deducting the $0.03 per share, EPS were well above the consensus estimate of $0.45. Guidance was also knocked out of the park when compared to consensus estimates of $1.46 per share:

Based on the momentum of its fiscal 2006 performance, Kroger anticipates earnings of $1.60 - $1.65 per diluted share in fiscal 2007. This equates to 9 - 12% growth from the adjusted fiscal 2006 earnings per diluted share shown in Table 5. Shareholder return will be further enhanced by the Company’s dividend.

All this for a lowly grocer. Given the weakness in retail overall, it would be worth looking at a defensive non-cyclical play just for safety. To get growth on top of that is a huge bonus.

• Kroger F4Q06 (Qtr End 2/3/07) Earnings Call Transcript

KR 1-yr chart: