Kroger Raises Its Sales Outlook As Growth Turns 'Predictable'

Investor's Business Daily

Kroger's (KR) second-quarter results met analyst expectations Thursday, and shares jumped as the grocery store increased its comparable sales outlook.

The largest U.S. supermarket operator's Q2 earnings climbed 17.6% to 60 cents per share. Sales rose 4.6% to $22.7 billion, also in line with estimates of analysts polled by Thomson Reuters. Without fuel sales, revenue rose 3.9%.

Shares jumped 3% to 38.86 in the stock market today.

Kroger raised its full-year same-store sales growth projection to 3%-3.5%, excluding fuel, from an earlier outlook of 2.5%-3.5%. Same-store sales is an important metric that measures sales in stores open at least a year, so the comparison isn't affected by recently opened or closed stores.

The company maintained its full-year EPS guidance range of $2.73-$2.80. Analysts are expecting $2.80. Kroger plans to have a "long-term earnings per share growth rate of 8% to 11% in fiscal 2013 and beyond," according to CEO David Dillon in the earnings release.

Kroger has been outperforming its rivals in recent years as it slashes prices to be within 10% of those charged by big-box discounter Wal-Mart (WMT).

Meantime, Supervalu (SVU) had to sell most of its conventional retail supermarkets to a private equity firm, and in June Safeway (SWY) announced a $5.8 billion deal to sell its Canadian stores to Sobeys.

Instead of selling assets, Kroger has been expanding its reach and announced plans in July to buy Harris Teeter (HTSI) for $2.44 billion to give it more exposure in the Southeast. Kroger already operates Ralphs, Food 4 Less and Fred Meyer brand stores.

The chain is also cutting operating and administrative costs, which fell 17 basis points as a percent of sales in Q2 vs. Q2 2012.

Its natural and organic offerings are on the rise too, with entire store sections devoted to such fare.

Trends like gluten-free and juicing diets have boosted the popularity of markets like Whole Foods (WFM) and recent IPO Sprouts Farmers Market (SFM).

Whole Foods shares rose 0.7% to 56.50. Sprouts shares were up 0.5% to 38.39.

Organic and natural food sales overall expanded about 15% a year from 2005 to 2012, according to Brian Yarbrough, a consumer analyst with Edward Jones, in an earlier interview with IBD.

The grocery store group is ranked No. 46 out of the 197 industry groups IBD tracks, up from 117 26 weeks ago.

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