If you listen to the analyst and traders, the big grocery store chains are in big trouble. On the low end, fierce competition from the likes of Wal-Mart Stores, Inc. (WMT) and Target Corporation (TGT) superstores are crushing margins and drawing away customers. On the high end, consumers prefer the more organic approach and are flocking to stores like Whole Foods Market, Inc. (WFM) and The Fresh Market Inc (TFM).
So, big grocery chains are on the way out as competition on both ends of the scale is going to make them largely irrelevant in the future. While there is some evidence suggesting the demise of big grocery stores, it seems someone forgot to tell the folks at The Kroger Co. (KR).
Kroger reported earnings last week and had another solid quarter. Total sales rose by 11.2% year over year while total sales excluding fuel were up 13.7%. Kroger’s same stores sales were up 5.6% year over year, which was the 44th consecutive quarter of same store sales growth for Kroger.
Kroger earnings were 72 cents per share compared to 57 cents per share last year. Analysts were only expecting 61 cents per share. So, it was the fourth consecutive positive earnings surprise for Kroger. Kroger management also raised its forecast for the full year to $3.32 – $3.36 from its previous projection of $3.22 – $3.28 per share.
Kroger has been very shareholder-friendly with its cash flow. In the last four quarters, Kroger returned $1.8 billion to shareholders in the form of dividends and buybacks. KR stock yields 1.21% at the current price, and Kroger repurchased 600,000 common shares for a total cost of about $29 million. Kroger still has all $500 million of the buyback announced in June available.
On the conference call following the earnings release, CEO Rodney McMullen credited Kroger’s workforce for the continued strong performance. McMullen told analysts and investors:
“Few can deliver this level of sustainable high performance. After a while, it can be easy to take this consistency and reliability for granted. So, it’s important to keep in mind that these results are possible only because 375,000 associates engage with our customers every single day.”
While others have dismissed grocery stores due to the competitive marketplace, Portfolio Grader has continually noted that Kroger is the best stock in the sector. KR stock has been rated as a “buy” all year, and last month, Kroger was upgraded to an “A.” Kroger stock is a “strong buy” at the current price.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
