It has been an eventful four months for Kroger (KR), the nation’s largest grocery pure-play. In September, KR announced that David Dillon, CEO for the past decade, will hand off the scepter to COO Rodney McMullen on Jan. 1. This came after Kroger announced a $2.5 billion deal to acquire the 212-store Harris Teeter (HTSI) chain.
When Kroger last reported earnings in September, it met Wall Street’s profit expectations of 60 cents per share, 9 cents higher than the same quarter last year. Its revenue came in at $22.7 billion — a hair above the consensus estimate and an increase of 4.6% from the prior year.
There are three reasons why I like KR now: size, the Harris Teeter deal and Big Data. Kroger was the second-largest food retailer/wholesaler in the U.S., behind only Walmart (WMT) — and in low-margin businesses like grocery, economies of scale are critically important. And the Harris Teeter deal gives KR a franchise that is perceived by customers as more upscale and better able to execute “fresh” and gourmet baked goods and prepared foods — in line with consumer trends. Finally, Kroger is betting big on Big Data — and the ability to mine data and personalize offers is so powerful it’s scary.
Oh, and the current 1.5% dividend yield doesn’t hurt.