Kroger Is Destined for More Glory

What makes Kroger a great long-term buy?

Apr 4, 2014 at 1:18PM

Kroger (NYSE:KR) remains a favorite grocer in the US. The company's recent quarter marked its 41st consecutive quarter of comps growth and reflected its ability to keep attracting shoppers. Let's see where the company is heading and why it is one of the best retail buys.

Fourth-quarter results
In the fourth quarter, Kroger reported earnings of $0.81 per share, $0.09 more than the analysts' consensus estimate of $0.72. Adjusting for the extra week in 2012, the company earned $0.78 per share in comparison with $0.71 in the previous year. Although total sales for the quarter sank 3.7% to $23.22 billion, this comfortably topped analysts' expectation of $23.14 billion. When adjusted for the extra week, sales grew 4.8% from last year. 

For fiscal 2013, adjusted EPS surged 13% to $2.85 per share. Total sales for the year climbed 3.9% to $98.4 billion, buoyed by 3.6% growth in comparable sales.

What is Kroger up to?
The American Customer Satisfaction Index (ACSI) recently ranked Kroger among the top retailers in the US. The company received its rating for its competitive prices and the fresh products it offers at its stores. Moreover, management's friendly behavior toward shoppers has also improved the overall customer experience. Kroger is confident that it will continue to satisfy its valued customers so it can keep growing in the future as well.

Since the last two years, Kroger's corporate brand, Simple Truth, has grown at an astonishing pace. The company expects Simple Truth sales to reach around $1 billion this year. Kroger's management invested heavily in Simple Truth last year as well; out of 937 new products introduced, 100 belonged to Simple Truth. In the latest quarter, corporate brand items made up more than 27% of units sold, which depicts once again the importance of these products for the company. The retailer anticipates that its corporate brands will grow even further in the coming years.

Digital coupons provide a huge way for retailers to reach customers through the Internet. To capture more market share with digital coupons, Kroger recently acquired YOU Technology, a San Francisco-based company which creates digital coupon platforms. At the moment, YOU Tech's network comprises 10,000 stores and it serves around 24 companies.

Kroger launched its first digital coupons in 2009; more than 500 million coupons were downloaded within the first three years, while 400 million coupons were downloaded during the last year alone. This shows that the digital coupons are getting more popular day by day, justifying Kroger's acquisition of YOU Tech.

Kroger has recently approached Safeway about buying some of its stores. Kroger is also in contact with Cerberus Capital Management, the private-equity firm which is the lead bidder for Safeway. However, it's still too early to say if Kroger will be able to buy Safeway's stores, as some analysts think that Safeway will prefer to be sold as a whole.

Kroger expects its full-year earnings to grow by 8%-11%; the EPS range now stands at $3.14-$3.25. It anticipates that identical-store sales will grow by 2.5% to 3.5%.

Competitors
Whole Foods Market (NASDAQ:WFM) delivered strong results in the first quarter of fiscal 2014. Total sales for the company picked up their pace to stand at $4.2 billion. Same-store sales also witnessed an increase of 5.4%. On the earnings front, Whole Foods once again did pretty well by posting diluted EPS of $0.42.

The company is trying to change its tag of being a high-priced retailer by adding more store-branded foods along with conventional fruits and vegetables. In addition, the company plans to expand its store base to 500 by 2017; currently, it has 373 stores.

In the current quarter, Whole Foods expects same-store sales of 5.5%-6.2%. However, its earnings forecast for fiscal 2014 has been trimmed down to $1.58-$1.65 per share from $1.65-$1.69 per share.

Over the last few quarters, SUPERVALU (NYSE:SVU) has been trying its best to achieve a major turnaround. Results from the latest quarter show that the company's efforts are finally paying off. In the third quarter, SUPERVALU's earnings jumped 8% to $0.12 thanks to several cost-cutting initiatives. However, its sales dipped from $4.05 billion to $4.01 billion as the company lost two big customers for its wholesale grocery operation.

Save A Lot's performance provided one of the highlights of the quarter, as it achieved comparable-sales growth of 1.7%. SUPERVALU expects Save A Lot to keep up the good work in the coming years as well.

Final thoughts
Once again, Kroger did a great job as its earnings and comps continued to grow. The company's top ranking from ACSI explains why it's one of the favorite stores for shoppers. Going forward, the retailer will keep growing, especially in its corporate brands. The acquisition of YOU Technology will ensure that Kroger keeps ahead of its competitors in the digital coupons market, which is growing at a tremendous pace. Kroger has a solid outlook for this year's earnings, which indicates the company's confidence in its future growth prospects. Taking all this into account, I believe Kroger is still one of the best retail investments at this point in time.

3 stocks poised to be multi-baggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Zahid Waheed has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers