Funny how the market can change its collective mind so quickly. One day, it's risk-seeking and looking for the highest nominal growth it can find. The next day, it becomes risk-averse, and investors start eyeballing companies with less robust, but perhaps more certain, growth. And if that's what's playing out today, it will probably work in favor of a stock like Kroger (NYSE:KR).
It doesn't hurt that Kroger is also making a good case for itself. Revenue in this recent quarter rose more than 8%, with identical sales -- Kroger's version of comps -- up more than 7%, and still up in excess of 5% excluding the sale of gasoline. Heck, Gap (NYSE:GPS) would be thrilled with same-store sales like that, and it's in the theoretically higher-growth retail clothing business.
Kroger's performance under the top line, however, wasn't quite so impressive. Gross margins shrank a bit -- though not so much when you exclude fuel -- and operating profits rose just 4% for the quarter. Still, we're talking about a company with really good internal returns, so I'm not going to get too worked up about it.
I also like it that Kroger management does what it says it will do. Company execs talked a while back about improving the competitiveness of their stores -- lowering prices, improving selection, shortening wait times, cleaning the stores more often, and so on. And as someone who shops at Kroger fairly often, I can tell you that they've done exactly that. It makes an interesting contrast, then, to BJ's (NYSE:BJ), which spends more time talking about in-store improvements than actually making them.
There's not a whole lot of growth in this business model, but the growth that's there is pretty consistent -- even in the face of competition from Wal-Mart (NYSE:WMT) and Target (NYSE:TGT). I expect the company to disproportionately increase dividends in the coming years.
This is not a stock that's going to rock your world, but I'm sure that some investors have had more than their fill of "excitement" in the past month or two.
For more Foolish food for thought:
Wal-Mart and Gap are both Inside Value recommendations. Gap is also a Stock Advisor pick. Try out any of our investing newsletters free for 30 days.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
