Kroger Q2 Earnings Beat, Revenues Miss; View Slashed
The Kroger Company (KR - Free Report) , one of the largest grocery retailers, recently posted second-quarter fiscal 2016 adjusted earnings of 47 cents a share that beat the Zacks Consensus Estimate by a couple of cents and increased 6.8% from 44 cents earned in the prior-year quarter. However, given the deflationary environment, Cincinnati-based Kroger lowered its fiscal 2016 earnings projection.
Management now expects adjusted earnings in the band of $2.10 to $2.20 per share, down from a range of $2.19 to $2.28. The current Zacks Consensus Estimate for fiscal 2016 stands at $2.21. Shares are down nearly 2% during pre-market trading hours.
Total sales (including fuel center sales and Roundy's Inc.) grew 4% to $26,565 million from the prior-year quarter but missed the Zacks Consensus Estimate of $26,783 million. Management stated that excluding fuel center sales, total sales rose 7.3%, while excluding Roundy's, total sales without fuel rose 2.9% in the final quarter.
The company’s identical supermarket sales (stores that are open without expansion or relocation for five full quarters), excluding fuel center sales, grew 1.7% to $21,264 million, whereas including fuel center sales, identical supermarket sales edged down 0.5% to $23,938 million. For the remainder of fiscal 2016, Kroger expects identical supermarket sales (excluding fuel) growth of 0.5% to 1.5%, translating into 1.4% to 1.8% growth for the fiscal year.
Operating income plunged 14.1% year over year to $665 million, whereas operating margin contracted 50 basis points to 2.5%.
Other Financial Aspects
Kroger, which competes with Target Corporation (TGT - Free Report) , ended the quarter with cash of $319 million, total debt of $12,420 million, and shareholders’ equity of $6,601 million. Total debt increased $1,150 million from the prior-year period. The company's net total debt to adjusted EBITDA ratio jumped to 2.11 compared with 2.02 in the year-ago period.
Management also trimmed its planned capital expenditures – excluding mergers, acquisitions and purchases of leased facilities – for fiscal 2016 to a range of $3.6 to $3.9 billion, down from the previous projection of $4.1 to $4.4 billion.
KROGER CO Price, Consensus and EPS Surprise
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Bottom Line
We believe that Kroger’s dominant position enables it to expand store base and boost market share. The company’s customer-centric business model provides a strong value proposition to consumers. The company is now providing ClickList and ExpressLane online ordering services in 400 locations. However, intensifying price war among grocery stores to lure budget-constrained consumers poses concern.
Kroger, which operates 2,781 retail food stores, maintain a Zacks Rank #3 (Hold). Better-ranked stocks include Omega Protein Corporation (OME - Free Report) sporting a Zacks Rank #1 (Strong Buy) and
Cal-Maine Foods, Inc. (CALM - Free Report) carrying a Zacks Rank #2 (Buy).
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