No Need To Sell Kroger On Change

7/21/2014


  Recent Price
$49
  Dividend
$0.66
  Yield
1.3%
  P/E Ratio
16
  Shares (millions)
507
  Long-Term Debt as % of Capital
67%
  52-Week Price Range
$50.20 - $35.13

One reason investors like stocks in the consumer-staples sector is their steadiness. Companies that produce beverages or paper towels — and grocery-store chains like Kroger ($49; KR) — sell items that tend to remain in demand regardless of economic conditions.

Of course, while demand for food may not fluctuate much, Kroger must deal with change just like everyone else. Grocery stores have mostly dodged the internet bullet, yet even consumers who don't shop for food online increasingly want high-tech frills.

Kroger says its mobile app is in the top 2% of Apple ($95; AAPL) downloads, and the company communicates regularly with 9 million customers, each of whom receives customized coupons determined by their shopping history. The app also allows shoppers to refill prescriptions and create shopping lists. In an increasingly tech-savvy world, Kroger's internet investments should help the company stay at the top of the food chain.

The stock, yielding 1.3%, is a Focus List Buy and a Long-Term Buy.

Real food for a digital future

A PwC survey found just 1% of consumers use the internet as their primary source for purchasing groceries. That is likely to change as a generation that grew up shopping online starts building families. A survey by retail consultant Brick Meets Click projects online shopping will reach 11% of U.S. grocery spending by 2023, up from 3.3% now.

Kroger has a history of responding early to changes in the retail climate to protect its market share. For more than a decade, the grocery chain has partnered with London-based Dunnhumby to develop customer loyalty and marketing programs. In recent years, Kroger increased its selection of organic food sold under the Simple Truth brand and paid $2.4 billion for Harris Teeter, in part for its click-and-collect technology that allows shoppers to order online and pick up at a store. Early this month, Kroger agreed to pay about $280 million for nutritional-products vendor Vitacost.com ($8; VITC), a deal that expands both its online presence and its position in wellness and nutrition.

Growth and value

In June, Kroger declared higher-than-expected quarterly profits and raised its full-year targets for profits and same-store sales. Consensus estimates now project per-share-profit growth of 15% for the year ending January 2015, well above the industry average of 6%. Yet, at 16 times trailing earnings, Kroger trades 15% below the median for food retailers in the S&P 1500 Index. The stock's Quadrix® Value score of 75 is the highest among S&P 1500 grocery chains.

Kroger shares plenty of its cash flow with shareholders. The company has raised its quarterly dividend every year since initiating the payout in 2006, most recently a 10% increase in September. Kroger has also repurchased its stock aggressively, lowering the share count 3% over the last year and 17% over the last three years. During that three-year period, Kroger spent $4.48 billion (48% of operating cash flow) on dividends and buybacks.

Obtain an annual report for The Kroger Co. at 1014 Vine St., Cincinnati, OH 45202, (513) 762-4000, www.kroger.com.

KROGER
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Apr '14
1.09
vs.
0.92
10%
46.04
-
35.13
16 - 12
Jan '14
0.78
vs.
0.88
-4%
43.10
-
35.71
15 - 12
Oct '13
0.53
vs.
0.46
3%
43.85
-
35.91
15 - 13
Jul '13
0.60
vs.
0.51
5%
39.97
-
32.77
14 - 12
           
Year
(Jan.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2014
98.38
2.85
0.62
43.85
-
27.53
15 - 10
2013
96.75
2.63
0.50
28.00
-
20.98
11 - 8
2012
90.37
2.00
0.43
25.85
-
21.14
13 - 11
2011
82.19
1.74
0.39
24.14
-
19.08
14 - 11
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
91
55
75
78
41
94
85

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com