On Tuesday, Sept. 12, supermarket operator Kroger (NYSE:KR) released Q2 2006 earnings for the period ended Aug. 12, 2006.

  • Kroger is a firmly established player in an industry so mature it walks with a cane. Sales growth of 9.2% is very impressive under those circumstances, outpacing the overall economy's 4.2% growth rate plus 4.1% inflation.
  • The company's low-cost strategy leads to lower gross margins, but the impact where it really matters -- on the bottom line -- appears to be minuscule.
  • Free cash flow of five times net earnings gives Kroger freedom to pay well-funded dividends and expand.

(Figures in millions, except per-share data)

Income Statement Highlights

Avg. Est.

Q2 2006

Q2 2005

Change

Sales

$14,640

$15,139

$13,865

9.2%

Net Profit

--

$209

$196

6.6%

EPS

$0.29

$0.29

$0.27

7.4%

Diluted Shares

725

730

(0.7%)



Get back to basics with a look at the income statement.

Margin Checkup

Q2 2006

Q2 2005

Change*

Gross Margin

23.39%

24.53%

(1.14)

Operating Margin

2.96%

3.13%

(0.17)

Net Margin

1.38%

1.41%

(0.03)

*Expressed in percentage points.

Margins are the earnings engine. See how they work.

Balance Sheet Highlights

Assets

Q2 2006

Q2 2005

Change

Cash + ST Invest.

$803

$379

111.9%

Accounts Rec.

$709

$641

10.7%

Inventory

$4,428

$4,250

4.2%



Liabilities

Q2 2006

Q2 2005

Change

Accounts Payable

$3,629

$3,421

6.1%

Long-Term Debt

$6,131

$6,879

(10.9%)



Learn the ways of the balance sheet.

Cash Flow Highlights

YTD 2006

YTD 2005

Change

Cash From Ops.

$1,846

$1,792

3%

Capital Expenditures

$763

$672

13.6%

Free Cash Flow

$1,083

$1,120

(3.3%)



Find out why Fools always follow the money.

Related Companies:

  • Safeway (NYSE:SWY)
  • SUPERVALU (NYSE:SVU)
  • Wal-Mart (NYSE:WMT)
  • Target (NYSE:TGT)
  • Whole Foods Market (NASDAQ:WFMI)
  • Pantry (NASDAQ:PTRY)

Related Foolishness:

Whole Foods is a Motley Fool Stock Advisor selection and Wal-Mart is an Inside Value pick. Sign up for a free 30-day trial to one of our newsletters to find more outstanding businesses.

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At the time of publication, Fool contributor Anders Bylund had no position in any stock mentioned. Fool rules are here .