Kroger Earnings: An Early Look

Earnings season is winding down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Kroger (KR -0.58%) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk reaction to news that turns out to be exactly the wrong move.

The grocery business is a tough, low-margin industry that's hard to earn a big profit in. Over the years, Kroger has grown steadily despite increasing headwinds from higher food prices and competition from big-box retailers and organic specialists. Let's take an early look at what's been happening with Kroger over the past quarter and what we're likely to see in its quarterly report on Thursday.

Stats on Kroger

Source: Yahoo! Finance.

Will Kroger feed investors a good quarter?
Analysts have been rock-solid on their calls for Kroger's earnings over the past few months, keeping their estimates unchanged for the just-ended quarter and raising them by a single penny per share for the full 2014 fiscal year. The stock has performed nicely, rising 10% since early December.

Traditional grocery chains have generally struggled over the past year. Competition from Wal-Mart and Target has put pressure on major chains that have already been facing the challenge of dealing with razor-thin margins. That pressure finally forced SUPERVALU (SVU) to accept a deal to sell some of its top supermarket chains to private equity firm Cerberus.

But Kroger managed to withstand the tough environment for grocery stores last year by adopting the gas station approach that its warehouse competitors have used to perfection. With fuel at more than 1,000 Kroger grocery stores, the company attracts customers who then shop for groceries, boosting overall sales. Its private-label business has also helped Kroger keep margins higher, and an increase in healthier organic and natural products represents Kroger's answer to Whole Foods (WFM), which has used those offerings to keep its margins at much-higher levels than traditional grocer usually see.

So far in 2013, though, grocery chains's shares have done better. Safeway (NYSE: SWY) reported earnings that were far higher than analysts had expected, although a big share repurchase program was largely responsible for the gains. Dividend-hungry investors have also liked Safeway's and Kroger's yields, both of which are above 2%.

In Kroger's quarterly report, it'll be interesting to see whether the grocer can buck the trend of weak comps in light of the new payroll tax hike that took effect Jan. 1. With strong management at the helm, Kroger is better positioned to handle the challenges of the industry than many of its rivals.

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