Grocery retailer Kroger (NYSE:KR) has had plenty of reasons to celebrate of late. The stock has generated a return of 26% year to date and has doubled that return over the past year. It's a stellar performance for a defensive stock like Kroger, and it is especially compelling in light of the fact that food inflation has been on the rise. Let's examine what's been driving shares higher and determine whether or not the company has peaked.  

Kroger vs. Whole Foods 
The most recent boost to Kroger shares came in response to a standout quarterly performance. In the first quarter, which was the maiden period in which Kroger's acquisition of Harris Teeter was reflected, total sales jumped nearly 10% to almost $33 billion. Kroger continued on its roll with identical supermarket sales, which represent sales at Kroger supermarkets open for at least a year; this metric climbed 4.2% higher compared to a 2.9% increase in the year-ago period. Net earnings rose to $501 million from $481 million in the year-ago period.  

Kroger also lifted the high end of its fiscal 2014 guidance, as illustrated in the table below:  

Kroger Fiscal 2014 Revised Guidance
 Previous GuidanceRevised Guidance
Adjusted Net Earnings Per Diluted Share $3.14-$3.25 $3.19-$3.27
Identical Supermarket Sales (ex-fuel) 2.5%-3.5% 3%-4%

Meanwhile, Whole Foods Market (NASDAQ:WFM) told a slightly different story in its most recent quarter. While it generated a 10% increase in total sales to a record $3.3 billion and delivered a 4.5% increase in comparable store sales (those open for at least a year), rising costs weighed on Whole Foods' outlook. As a result, it was forced to lower its fiscal 2014 guidance, as reflected in the table below. And it wasn't the first time that Whole Foods was forced to lower its fiscal 2014 guidance, which is a bit worrying. 

Whole Foods' Fiscal Year Outlook
 Previous OutlookRevised Outlook
Sales Growth 11%-12% 10.5%-11%
Comp-Store Sales Growth 5.5%-6.2% 5%-5.5%
Operating Margin 6.7%-7% 6.5%-6.6%
Capital Expenditures $600 mil-$650 mil $675 mil-$725 mil

In terms of costs, Kroger's operating, general, and administrative expenses (including rent and depreciation; excluding fuel and pension-related items) fell by 9 basis points as a percentage of sales versus the same period a year ago. At Whole Foods, general and administrative expenses rose 22 basis points amid a one-time charge and spending on technology, the latter of which will continue as per the company's capital expenditures guidance.  

ROE comparison
With both Kroger and Whole Foods both growing sales, investors might find themselves between a rock and a hard place trying to decide which grocer to invest in. To help with that, let's take a look at return on equity, which measures how efficient a company is being with shareholders' capital.

In the case of Kroger vs. Whole Foods, the former comes out on top. Kroger's trailing-12 month ROE of 31.3% about doubles that of Whole Foods, which is at about 15%. The ROE for both companies surpasses that of the grocery retail sector as a whole as of January, at which time the average ROE stood at about 11%.

Share buybacks could affect a company's equity, as the more shares that a company repurchases the smaller its equity will be, which in turn would drive the ROE higher. Over the past four quarters, Kroger returned $1.9 billion to shareholders, although that was via share buybacks and dividends. In its last fiscal year, Whole Foods bought back $125 million worth of shares and distributed $508 million in dividends. 

Where's the value?
But none of this would mean anything without the stock performance to back it up. Over the past year, Kroger has the advantage. Whole Foods shares have fallen 22% versus Kroger's 51% advance. In fact, Whole Foods has had the unfortunate distinction of being the worst stock in the S&P 500 index this year.

Looking ahead, analysts' sales growth estimates for the year are pretty neck and neck for Kroger and Whole Foods at 9% and 10.6%, respectively. But Kroger appears to be the better value, trading at a forward P/E of only 15 versus Whole Foods at about 26. 

Final Foolish thoughts
So there you have it. Kroger is operating on numerous cylinders and it is not leaving shareholders behind. The question becomes can this performance continue in the future, and signs suggest it will.  

Kroger is an efficiency machine. It is generating more of its earnings from higher-margin, private-label items and is depending less on lower-margin items such as gasoline. Meanwhile, Whole Foods has fallen out of favor with investors of late and may need to become more efficient at managing its costs before it's worth another look. Perhaps it should consider using its cash flow for an acquisition of a smaller rival instead of focusing on bolstering its store count to 1,000-plus locations. Meanwhile, if Kroger delivers on its promises, there could be more gas left in the tank for shares to run for the foreseeable future.