Supergrocer Kroger (NYSE:KR) will report third-quarter results tomorrow. Here's the express line to what's expected.

What analysts say:

  • Buy, sell, or waffle? Half of the 14 analysts covering the supermarket chain believe the stock is a hold, three see it as an outperform, and two say buy. On the other end, one says Kroger will underperform and and one says sell.
  • Revenues. Revenues are expected to grow 6% to $14.9 billion.
  • Earnings. Earnings, though, are expected to grow by 12%, to $0.28 per share.

What management says:
Management has been anticipating 6% growth in identical-store sales (without fuel), which are stores opened for five full quarters, excluding expansions and relocations. The company noted that it was executing at its best rate since it merged with Fred Meyer in 1999. Twelve consecutive quarters of positive identical-supermarket sales is pretty nice. It raised guidance for the full year, expecting identical sales to come in 4.9% higher, with earnings up 6% to 8% from the year before.

As has been the case for awhile now, fuel has been hurting the grocer's gross margins, and fuel sales probably reduced the company's gross margins by four basis points in the second quarter. With fuel prices having abated a bit in the third quarter, it will be interesting to see what part, if any, fuel costs play in the company's results.

Management has been buying back its stock, and over the first half of the year it had repurchased some 14 million shares at an average price of around $21 per share. Now that the stock is trading in that range once again -- after having peaked back in September -- will Kroger be scooping up more?

What management does:
As noted above, fuel costs have eaten into Kroger's margins, but it's been able to hold the line on expenses, so operating margins have generally improved and net margins, now positive, have held steady. The company was able to save money on energy usage in its stores and made its employees more productive to reduce costs.

Margins %

7/05

10/05

1/06

4/05

7/06

Gross

23.8

23.7

23.7

23.5

23.3

Op.

3.1

3.2

3.4

3.4

3.3

Net

(0.0)

0.0

1.6

1.6

1.6
All data courtesy of CapitalIQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
For all that Kroger has achieved as a supermarket, it has encountered some labor relations problems at some of its subsidiaries and plants. A few years ago, Ralph's came under fire for its hiring practices and the supermarket chain had to pay $70 million to settle the suit. Those reserves cost Kroger $0.03 per share in the second quarter. And it only recently averted a strike at a distribution plant when it delayed the transfer of the facility to two logistics firms till after the new year. Moreover, with labor contracts expiring this year, it might find itself in a more contentious situation, particularly if the stores are performing well. It's a balancing act to talk tough in negotiations and not give away the store.

In September, I thought Kroger was richly valued. Fellow Fool Ryan Fuhrmann chimed in a few days later, noting that even though the grocer was top-shelf, from a valuation standpoint it was still too close to call. Even with its stock contracting some since then, I'd continue to hold out for extra baggers before buying in.

Competitors:

  • Wal-Mart (NYSE:WMT)
  • Safeway (NYSE:SWY)
  • SUPERVALU (NYSE:SVU)
  • Pathmark (NASDAQ:PTMK)

Related Foolishness

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Fool contributor Rich Duprey owns shares of Wal-Mart, but does not own shares of any of the other stocks appearing in this article. The Fool has a disclosure policy.