How Will Kroger Earnings Stack Up Against Safeway and SUPERVALU?

Kroger (KR 2.71%) will release its quarterly report on Thursday and, during the past year, investors have sent the grocery-store chain's shares to all-time highs. Once seen as a has-been in the shadow of faster-growing grocer Whole Foods Market (WFM +0.00%), Kroger has done an exceptionally good job of standing out from Safeway (NYSE: SWY) and SUPERVALU (SVU +0.00%) by emphasizing its traditional strengths, while not being afraid to venture into the Whole Foods territory of organic and natural food offerings. Kroger earnings have grown nicely as a result, and shareholders hope for further growth this quarter.

The traditional grocery business hasn't been the friendliest of environments for Kroger in recent years, as it and its rivals have suffered from the onslaught of new competition from big-box department-store retailers, as well as the high-end premium grocery offerings from Whole Foods and similar stores, which have taken away some of its highest-margin potential business. But Kroger hasn't simply accepted its fate; instead, it has been looking at store-count expansion, as well as shifts in the products it stocks in order to make the most of its unique characteristics. Will that strategy pay off for Kroger? 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 report.

Stats on Kroger

Source: Yahoo! Finance.

Can Kroger earnings grow faster than Safeway and SUPERVALU this quarter?
Analysts have had mixed views on Kroger earnings recently, raising October-quarter estimates by $0.02 per share, but cutting full-year projections for this year and next by $0.01 per share. The stock has continued its impressive upward run, rising more than 15% since late August.

Kroger's July quarter results show the multiple fronts on which the grocer has sought growth recently. Sales rose 4.6% during the quarter, sending earnings up by almost 18% as Kroger continued to employ its strategy of attractive pricing and broadening its product base. Like its big-box competitors, Kroger has started emphasizing its Marketplace format, stocking bed and bath, kitchen goods and small appliances, and even home furnishings. Kroger hopes that doing so will attract more shoppers and encourage them to spend more money there rather than making multiple trips to competitors.

Unlike Safeway and SUPERVALU, Kroger has looked to add to its reach through acquisitions. Its proposed purchase of Harris Teeter from this summer is a marked departure from the big sell-off of store chains that SUPERVALU completed earlier in 2013. Safeway also made the strategic move of selling off its Canadian division in order to raise cash to pay down debt. With the acquisition, though, Kroger hopes to aim at higher-end shoppers in the areas that Harris Teeter currently serves, making a play at Whole Foods while offering better value.

Kroger also hasn't shied away from making big investments to foster organic growth. Last month, Kroger said it would spend $150 million to build five new locations and expand three existing stores in the Dallas-Fort Worth area, and $120 million in spending on similar projects in Ohio markets like Cincinnati and Dayton. Such strategic moves allow Kroger to focus on key geographical areas with the most profit potential.

The real key for Kroger is whether it can successfully bill itself as a cheaper alternative to Whole Foods rather than just another offering in the same class as Safeway and SUPERVALU. Walking that line is challenging, but Kroger has done a better job of it than any of its traditional-grocery peers thus far.

In the Kroger earnings report, watch for an update on the Harris Teeter acquisition, which is still awaiting Federal Trade Commission approval. With most analysts expecting the FTC to approve the deal, Kroger could be a much different company by the time it next reports results in 2014.

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