A Retailer That Looks Good to Go

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Kroger (NYSE: KR  ) reported its second-quarter earnings recently. While its second-quarter sales were strong and increased for the 31st consecutive quarter, the company failed to meet Wall Street's estimates.

Looking at the numbers
Sales for the quarter (excluding fuel) increased by 5.3% from a year ago. Added to that was a sluggish economy that strained the budget of Kroger's customers. But a closer look at the numbers shows that the rise in profits was basically because of higher prices on the products.

Net profit increased 7.3% to $280.8 million. The product prices had risen during the quarter, but Kroger chose not to transfer the higher prices completely to the customer. Though the profit margin was affected, Kroger gained the advantage of lower prices in the marketplace because its industry peers had transferred the effect of higher prices to the customers. This led to an increase in sales and helped Kroger outpace its strongest competitors such as Safeway (NYSE: SWY  ) , Whole Foods Market (Nasdaq: WFM  ) , and SUPERVALU (NYSE: SVU  ) .

Customers have been buying cheaper products, which seems to have shrunk profits for the second quarter. However, the fuel operations have generated higher earnings per share as compared to 2010.

Internal measures
Kroger's EBITDA return on net operating assets, or ERONOA, looks good at 19.91%, which is an increase of 106 basis points. ERONOA is four quarters EBITDA divided by net operating assets. This is used by the company to measure the efficiency of its operating units.

Kroger is planning new strategies like launching new soda flavors for its Big K brands on the basis of the customer feedback, which could attract more customers.

The Foolish bottom line
Even with the industry facing tough times because of rising prices, Kroger has managed to deliver in a tough environment. This is a really positive sign. Foolish investors should take notice.

Fool contributor Navneet Bajaj doesn't own any shares of the companies mentioned above. The Motley Fool owns shares of Whole Foods Market and SUPERVALU. Motley Fool newsletter services have recommended buying shares of Whole Foods Market and buying calls in SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1556992, ~/Articles/ArticleHandler.aspx, 10/26/2016 3:14:46 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,213.17 43.90 0.24%
S&P 500 2,138.88 -4.28 -0.20%
NASD 5,253.49 -29.91 -0.57%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 2:59 PM
KR $30.94 Up +0.03 +0.10%
Kroger CAPS Rating: ****
SVU $4.37 Down -0.11 -2.35%
SuperValu CAPS Rating: **
SWY.DL $0.00 Down +0.00 +0.00%
Safeway CAPS Rating: **
WFM $28.39 Down -0.20 -0.70%
Whole Foods Market CAPS Rating: ****