Earnings Preview: Kroger - Analyst Blog

The Kroger Company (KR), one of the largest US grocery retailers, is scheduled to report its second-quarter 2010 financial results on Tuesday, September 14, 2010. The current Zacks Consensus Estimate for the quarter is 36 cents a share.

 

 

Kroger posted first-quarter 2010 results that topped the Zacks expectations. Quarterly earnings of 58 cents a share outpaced the Zacks Consensus Estimate of 54 cents but dropped 12.1% from 66 cents delivered in the prior-year quarter. Total revenue for the quarter was $24,764.1 million (including fuel center sales), up 8.7% from the year-ago quarter.

 

Excluding fuel center sales, total revenue climbed 3.1%; comparable supermarket sales jumped 2.7% to $20,376 million, whereas identical supermarket sales (stores that are open without expansion or relocation for five full quarters) rose 2.4% to $19,781.8 million.

 

Kroger, a Cincinnati-based company, reaffirmed its fiscal year 2010 earnings guidance range of $1.60 to $1.80 per share at its last earnings call.

 

 

Analysts surveyed by Zacks expect Kroger to post second-quarter 2010 earnings of 36 cents a share. The current Zacks Consensus Estimate represents a year-over-year decline of 7.7%. The estimates in the current Zacks Consensus for the quarter range from a low of 32 cents to a high of 40 cents.

 

The current Zacks Consensus Estimate has remained stagnant over the last 30 days; with only 2 out of 17 analysts covering the stock revising their estimates downward. In the last 7 days too, only one analyst has lowered the forecast, while the others have kept their estimates unaltered, leaving the consensus unchanged.

 

 

With respect to earnings surprises, Kroger has veered from the Zacks Consensus Estimate over the last four quarters from negative 25% to positive 14.7%. The average remained at negative 3.6%. This suggests that Kroger has underperformed the Zacks Consensus Estimate by an average of 3.6% in the last four quarters.

 

 

We believe that the company's dominant position enables it to sustain top line growth, 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, the intensifying price war among grocery stores to lure price-focused consumers has compelled Kroger to cut prices, hurting its sales and margins. Consumers are trading down to cheaper substitute brands and shopping for groceries at low-price leaders such as Wal-Mart Stores Inc. (WMT) and Costco Wholesale Corporation (COST).

 

Kroger currently operates 2,470 supermarkets and multi-department stores in 31 states under approximately 24 local banners. It maintains a Zacks #3 Rank (Hold), and is in line with our long-term Neutral recommendation for the stock.