Kroger Earnings Preview

| About: Kroger Co. (KR)
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The Kroger Company (NYSE:KR), one of the largest grocery retailers, is slated to report second-quarter 2011 financial results on September 9. The current Zacks Consensus Estimate for the quarter is 43 cents a share. For the quarter under review, revenue is $20,510 million, according to the Zacks Consensus Estimate.

First-Quarter 2011

Kroger’s first-quarter earnings of 70 cents a share topped the Zacks Consensus Estimate of 64 cents, and jumped 20.7% from 58 cents delivered in the prior-year quarter.

Total revenue (including fuel center sales) climbed 11% to $27,460.9 million from the prior-year quarter, and handily beat the Zacks Consensus Estimate of $26,557 million.

Excluding fuel center sales, total revenue rose 4.8%; comparable supermarket sales jumped 4.7% to $21,276.6 million, whereas identical supermarket sales (stores that are open without expansion or relocation for five full quarters) rose 4.6% to $20,788.1 million.


At its last earnings call, Cincinnati-based Kroger forecast fiscal 2011 earnings to be near the high end of the increased guidance range of $1.85 to $1.95 per share. Earlier, the company had projected earnings between $1.80 and $1.92 per share.

The company also projected identical supermarket sales (excluding fuel) growth of 3.5% to 4.5% for fiscal 2011, up from 3% to 4% rise forecast previously.

Second-Quarter 2011 Zacks Consensus

The analysts considered by Zacks expect Kroger to post second-quarter 2011 earnings of 43 cents a share. The current Zacks Consensus Estimate reflects a growth of 4.9% from the prior-year quarter’s earnings. The current Zacks Consensus Estimates for the quarter range between 36 cents and 45 cents.

Zacks Agreement & Magnitude

In the last 30 or seven days, none of the 16 analysts covering the stock revised their estimates either upward or downward, thereby keeping the Zacks Consensus Estimate constant.

Mixed Earnings Surprise History

With respect to earnings surprises, Kroger has met as well as topped the Zacks Consensus Estimate over the last four quarters in the range of 0.0% to 13.9%. The average remained at 9.3%. This suggests that Kroger has beaten the Zacks Consensus Estimate by an average of 9.3% in the trailing four quarters.

Kroger in Neutral Lane

A dominant position among the nation’s largest grocery retailers enables Kroger to sustain top-line growth, expand store base and boost market share. The company is well positioned to deliver higher earnings primarily through strong super market sales (sans fuel). Kroger is also actively managing its capital and returning much of its free cash to shareholders via share buybacks and dividends.

However, sluggish economic recovery and rising food and fuel prices may affect consumers’ shopping pattern. Moreover, a higher debt-to-capitalization ratio also remains a matter of concern.

Kroger, which faces stiff competition from Wal-Mart Stores Inc. (NYSE:WMT) and Whole Foods Market Inc. (WFM), holds a Zacks #3 Rank, which translates into a short-term Hold recommendation. Currently, we have a long-term Neutral rating on the stock.