Kroger (KR, Financial), one of the biggest supermarket chains in the United States, posted some fantastic numbers for the second quarter 2014 that beat Wall Street expectations. Its profit rose approximately 10% driven by strong sales for organic and natural foods. Also, the recent acquisition of North Carolina-based Harris Teeter Supermarkets contributed to its performance this quarter, as it added around 200 supermarkets in the southeast regions of the United States.
Performing impressively
The Cincinnati-based supermarket chain reported net sales of $25.3 billion, an uptick of 11.6% from $22.7 billion in the same quarter a year ago. This also surpassed $24.91 billion sales estimates by the analysts. Its net profit for the quarter came in at $347 million, or earnings of $0.70 per share, compared to net profit of $317 million or earnings of $0.60 per share in the same quarter last year. The analysts were expecting earnings of $0.69 per share for the second quarter 2014.
Looking forward, Kroger has also raised its full year forecasts for both the top and bottom lines. It now sees its identical supermarket sales to grow approximately 3.5% to 4.25% from previously announced 3% to 4%. Its bottom line is expected to rise in the range between $3.22 to $3.28 per share from the previous $3.19 to $3.27 per share. The analysts also expect earnings of $3.28 per share for the full year. CEO Rodney McMullen said, "We are accelerating core business growth and investing to create unique competitive positioning for today and the future."
The road is bright
Meanwhile, Kroger continues to win customers due to a strong growth plan and various initiatives such as excellent customer service, a complete assortment for both national and corporate brand products, product improvements and everyday low prices and promotional offerings. These smart moves are undoubtedly accelerating its sales.
It witnessed strong double-digit unit and sales growth for its Simple Truth and Simple Truth Organic brands during the quarter. It is also consistently creating customer fit innovative product that should fuel its growth going forward. It registered approximately 5% sales growth in its identical supermarket for the quarter, which is higher than 4.2% analyst’s expectation for the quarter.
Moreover, the grocery retailer is in tune with growing online consumer demand and purchasing mode. Its recent acquisition of online vitamin supplement and organic grocery retailer Vitacost will certainly increase its online presence and yield healthy returns in the future. Vitacost has an extensive e-commerce platform that should deliver a great return to Kroger over the years. The grocery retailer has tremendous opportunities under e-commerce platform and this acquisition should certainly create a unique position for the company in the online space. Further, the company is planning to effectively exploit Vitacost technology platform and remains on track to integrate its existing online business.Â
It is also merging its business with Harris Teeter and is currently focused on constructing a combined business plans for Harris Teeter associates and Kroger. Kroger expects this acquisition to deliver an accretive long-term growth rate of 8% to 10%, excluding dividends. The company is looking to tap the growth potential of the fast-growing organic market that promises a great return for its Omni-Channel capabilities.
Conclusion
Kroger looks like an impressive investment. It has increased its bottom line guidance, and is effectively executing its strategic growth initiatives that should complement its earnings growth for the year. The grocery retailer should also benefit in the future from its online offerings going forward and expansion of its organic offerings. The stock is currently trading at the trailing P/E of 17.74 and forward P/E of 14.85 that reflects a rational valuation for the company and promises certain growth in the future.
Moreover, its PEG ratio of 1.40 continues to complement its growth for the next five years. In addition, the analysts have forecasted CAGR of 11.78% for the next five years that indicate remarkable growth for the company over the years. The company is expected to grow at CAGR of 15.5% this year and 10.9% by next year that unveils strong short-term prospects for the grocery retailer.
