Kroger Co. Earnings Beat All Expectations

Kroger (KR 1.80%) saved the best for last. After posting accelerating sales gains in each of the first three quarters of 2014, the grocery store chain today announced that it finished the year on an even higher note. Comparable-store sales improved by a stellar 6% to close out Kroger's fiscal year.

Source: Company financial filings.

Strong fourth-quarter results
The result beat management's and Wall Street's already high expectations. Analysts were looking for Kroger to post closer to 4% comps as revenue rose by 8% to $25 billion. Instead, sales were up 9% to $25.2 billion, or 14% higher when you exclude volatile gasoline sales. 

Kroger outpaced Whole Foods' 4.5% comps growth in the fourth quarter, and handily beat other national retailers including Target and Wal-Mart on that metric. Only Costco, which today posted 8% quarterly comps growth, is keeping pace with Kroger right now. According to Kroger's management, 2014 ended as the company's 10th straight year of market share gains in the food business.

Source: The Motley Fool.

Profit growth came as an even bigger surprise to Wall Street. Kroger's $1.04 in per-share earnings was much better than the $0.90 that analysts expected. It was powered by a jump in profitability as operating margin grew to 3.6% of sales from 3.1% in the year-ago period. Some of that bounce had to do with one-time beneficial charges, but the company also did a good job holding its expenses down. "2014 was an outstanding year by all measures. Kroger captured more share of the massive food market, delivered on our commitments, and invested to grow our business," CEO Rodney McMullen said in a press release announcing the results.

Meanwhile, the company hit its goal of paying down the debt that it had taken on to fund the Harris Teeter purchase in 2013. With its debt leverage back at historical levels, Kroger can more freely spend on dividend hikes, share buybacks, or even another major grocery store purchase on par with the $2 billion Harris Teeter acquisition. 

Aggressive guidance for 2015
Kroger also issued an aggressive outlook for 2015 that calls for comps growth of as much as 4%. Earnings are expected to climb by 11% to $3.90 per share, which is at the high end of management's long-term goal of improving earnings at a pace of between 8% and 11% each year.

Wall Street had been modeling lower earnings per share of just $3.72 this year. That is likely the biggest reason why Kroger's stock bounced higher by 6% immediately following today's earnings announcement.