Supermarket chain Kroger (NYSE:KR) will report Q4 2006 financial results tomorrow, March 13.

What analysts say:

  • Buy, sell, or waffle? Nothing screams success like success, and it also attracts analysts. We've got two more covering Kroger this quarter, and nine of the 16 now say buy. Six rate the stock a hold, and one says sell.
  • Revenues. The cash registers are expected to ring 14% higher this quarter, with revenues coming in at $16.79 billion. That's a lot of Cheerios.
  • Earnings. Profits are expected to track revenue growth and post at $0.45 per share, or 15% higher than last year.

What management says:
Organic foods have been driving sales lately, and grocers like Kroger may be starting to eat away at the traditional organic produce markets like Whole Foods Markets (NASDAQ:WFMI) and Wild Oats (NASDAQ:OATS). Whole Foods has agreed to buy Wild Oats in a $565 million deal. Some wonder whether that's because of limitations on its ability to expand further.

Whole Foods saw a 7% increase in comps -- that's sales at stores open for at least a year -- last quarter, which is obviously better than the 5% growth Kroger is forecasting, but less than the 13% it had been achieving. The more Kroger and Safeway (NYSE:SWY) expand their selection of organic foods, the more difficult it may be for Whole Foods to find ways to expand, other than by acquiring some ailing competitors.

What management does:
Supermarkets in general are a thin-margin business, as Kroger's chart below shows. It's been performing well against the competition, even though it must contend with the ever-present Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), both of which are continually seeking to advance their grocery presence. It has more than 2,500 stores operating under the Kroger, Fred Meyer, Ralphs, and Dillon names, as well as the jewelry stores Littman and Barclay. Add a chain of convenience stores into the mix, and Kroger is running a fairly diversified outfit.

























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

One Fool says:
While I've never shopped at a Kroger supermarket (I have been in their Littman jewelry stores), I was recently treated to the experience of eating at Whole Foods. Quite different from my expectations, but what translates well into a shopping experience doesn't necessarily mean the same is true operationally.

There are synergies in Whole Foods' Wild Oats acquisition that will boost earnings in the future, but Kroger has the opportunity to eat into that market share. As the nation's largest grocer, it can continue to offer greater organic selections that should boost its own earnings without providing any of the drag a merger would cause. Still, it continues to trade at some of its highest levels, which makes it pricey for a supermarket chain.

Related Foolishness:

Kroger has earned a three-star rating from Motley Fool CAPS, our new investor-intelligence community. You can add your voice to the stock-rating service by joining today. It's free!

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Fool contributor Rich Duprey owns shares of Wal-Mart, but does not own any of the other stocks mentioned in this article. You can see his holdings here. Wal-Mart is an Inside Value recommendation. The Motley Fool has a disclosure policy.