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Kroger (KR) |
HenryTo
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 Posted: Wed Sep 16, 2009 12:50 am Post subject: Kroger (KR) |
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Latest Morningstar's notes on Kroger's 2Q 2009 earnings:
| Quote: | Kroger Reports 2Qby Michelle Chang | 09-15-09 | 12:14PM
Kroger's KR second-quarter results came in slightly weaker than expected. Although results confirm our view that it can continue to outperform its peers during this tough macro environment, the quarter also proved that the grocery chain is not immune to pressures in consumer spending. The company maintained its sales forecast but lowered its earnings expectations, indicating to us that it intends to be aggressive on pricing and promotions in order to drive top-line growth. We are making a slight cut to our fair value estimate to incorporate tempered expectations for the remainder of 2009.
Total revenue for the quarter declined 1.8% to $17.7 billion, driven by lower fuel prices. Excluding fuel, identical store sales increased 2.6%, which we find quite respectable considering that other supermarkets have reported declines in store productivity. Kroger reiterated its expectation for 3%-4% identical-store sales growth (excluding fuel), even in the face of higher promotions and deflation in key categories. However, it did lower its earnings per share forecast to a range of $1.90-$2.00, down from $2.00-$2.05. Competition for consumers' dollars is fierce, and the company intends to lower prices and be promotional in order to drive traffic. Supermarket selling gross margin (which excludes fuel) contracted 88 basis points in the quarter. The company exhibited good cost control, and ignoring the effects of fuel prices, other operating, general, and administrative expenses declined 7 basis points. We expect that these trends will persist for the rest of the year. |
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Kroger (KR) Replies |
HenryTo
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| Posted: Fri Mar 04, 2011 12:58 pm Post subject: |
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Morningstar on KR's 4Q earnings:
| Quote: | | Kroger's KR fourth-quarter results were largely in line with our expectations, and the firm missed our 2010 earnings per share forecast by just $0.02. The mid-single-digit identical-store sales growth supports our thesis that Kroger is outpacing its peers in terms of store productivity, and our fair value estimate remains intact. Despite Kroger's outperformance, we think there is very limited upside to the stock at current levels, and we continue to recommend investors look to Supervalu SVU for value in grocery stores. Total sales increased 7.4%, or 4.2% excluding fuel, to $19.9 billion, driven by a 3.8% increase in identical-store sales, excluding fuel. We view these as respectable results, considering that the firm was lapping a low-single-digit identical-store sales growth rate in the prior-year period. Going into 2011, we think efforts to drive store traffic will hold Kroger in good stead. However, like all grocery stores in the United States, the firm is likely to be forced to raise prices to mitigate rising prices from manufacturers. In the short term, Kroger may itself be forced to swallow some of the impact from food inflation, and the gross margin may come under pressure over the next few quarters. Kroger's fourth-quarter operating margin, excluding fuel, expanded 15 basis points to almost 3% on higher identical-store sales, but higher employment costs and credit card fees could provide margin pressure in 2011. We believe comparisons will remain depressed somewhat, since consumers' focus on price is still prevalent amid sluggish wage growth and rising gas prices. Nevertheless, we expect Kroger to continue to post respectable results, given its record as a solid operator in a competitive field. Kroger's stock was around 5% higher in premarket trading on the back of these fairly solid results. At around 12 times fiscal 2012 earnings, we think the stock has limited upside. We recommend investors take a look elsewhere for exposure to the supermarket industry. |
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HenryTo
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| Posted: Tue Sep 14, 2010 10:20 am Post subject: |
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Morningstar on KR's 2Q earnings:
| Quote: | | Kroger's KR second fiscal quarter showed resilient results again, and we are leaving our fair value estimate intact. The firm continued to deliver positive identical-store sales growth in an environment where its competitors are posting negative store productivity. We believe the company has benefited from its focus on price in the downturn as well as its robust private-label program. Total sales increased 6%, or 3.3% excluding fuel, to $18.8 billion, driven by a 4.7% increase in identical-store sales (2.7% excluding fuel). We view these as very respectable results, considering that the firm was lapping a 2.6% increase in the prior-year period. This also shows sequential improvement from the 2.4% growth in the first quarter. We expect a similar level of comparable growth for the remainder of the year and project a 2.5% increase in identical-store sales for the entire year, excluding fuel price fluctuations. Profitability continued to feel slight pressure from a competitive operating environment, as the operating margin declined to 2.6% from 2.8% in the prior-year quarter. Although we expect competition to remain challenging throughout the year, we do see signs of stabilization and believe extreme deflationary trends have moderated, which should provide some relief to all operators. |
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nodoodahs
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| Posted: Tue Mar 30, 2010 4:04 pm Post subject: |
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| nodoodahs wrote: | | ...If I had to commit to this sector purely on fundamentals, I’d simply overweight those with (1) higher ROE than their competitors and (2) higher YOY sales growth than their competitors, and leave it at that. ... |
In the food & staples retailing industry, there were only 7 stocks in the top 40% of industry for both YOY sales growth and ROE, presented in alpha order:
DIEDRICH COFFEE (DDRX)
G. WILLI-FOOD INTERNATIONAL, LTD. (WILC)
KONINKLIJKE AHOLD S/ADR (AHONY)
PRICESMART, INC. (PSMT)
QKL STORES, INC. (QKLS)
VILLAGE SUPER MARKET, INC. (VLGEA)
WALGREEN CO. (WAG)
Some of them I've never heard of ... some are .PK ... some are microcaps ... KR is low on ROE and YOY sales growth compared to its industry peers.
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nodoodahs
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| Posted: Tue Mar 30, 2010 3:46 pm Post subject: |
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In my big, preferred trading universe, I’m mostly long East European and Asian emerging markets, stuff like India, Indonesia, Turkey, Russia. Some others like Thailand, Singapore, Australia, Mexico, Brazil, are in consideration. In my earlier comment, I neglected to mention domestic U.S. REITs – I like them about as much as I like domestic U.S. industrials here; my bad for not including them in the first place.
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diesel
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Location: Australia & New Zealand
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| Posted: Tue Mar 30, 2010 2:49 pm Post subject: |
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Hi Bill,
Out of curiosity, when you say most of the action is overseas, which region are you referring too?
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nodoodahs
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| Posted: Tue Mar 30, 2010 12:31 pm Post subject: |
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Prices for agricultural goods, as measured by the DBA, have indeed been flat for 18 months. YOY change is around 3%. This theoretically puts pressure on top line for grocers, but!!! it does NOT necessarily put pressure on MARGINS. Not ALL changes in price are blindly passed on to the consumer.
For instance, from two years ago (or so) DBA prices fell from $38 (or so) to $25 (or so), around a 35% decrease. The DBE (energy products, used to make the cheap plastic stuff one buys at a grocer) had a similar two-year fall. The majority of that decrease took place in the first year, i.e. from early 2008 to early 2009. So if grocers are experiencing ONLY 2.1% deflation ... they might be doing OK, or even better, in margins.
Hurt grocers’ ability to leverage fixed costs like ... labor? Has Morningstar heard of “layoffs?” The UFCW ain’t the most powerful union in the world, folks. Lots of the rank and file grocery store employee base is part-timers and they get their hours reduced as business falls. Grocers will continue to metric their sales/man-hour by department, they did it 20 years ago and they do it now. More points in favor of improving (or not declining) margins in today’s market.
Bigger pressure on top line in this group comes from consumers’ cutting back on their discretionary purchases of staples. But to the extent they switch to store brands from name brands, they improve the stores’ margins. And I don’t know to what degree the move from “eating out” to “eating in,” and its coming reversal, has on grocers’ top lines.
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From a stock price perspective, the biggest problem that retailers like KR, and other members of the XLP, have had is that they didn’t get the “hammer of death” that the rest of the S&P 500 got in late 2008 – these were “defensive” names – so currently they are “underperforming” the broader market as the recovery spreads.
So while I can buy Morningstar’s argument that as spending picks up, the grocer’s top lines will, too, I don’t necessarily see that as a plus overall.
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If I had to commit to this sector purely on fundamentals, I’d simply overweight those with (1) higher ROE than their competitors and (2) higher YOY sales growth than their competitors, and leave it at that.
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From a trading perspective, at my preferred timeframe and in my primary universe, most of the action is still overseas. For U.S. sectors, I like (at the moment) industrials, financials, and small caps, in that order.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose. |
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HenryTo
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Location: Los Angeles, California
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| Posted: Tue Mar 30, 2010 9:44 am Post subject: |
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Morningstar's outlook on the food retailers, as well as its individual picks:
http://news.morningstar.com/articlenet/article.aspx?id=329022
| Quote: | Food Deflation Plagued 2009 but Should Improve as 2010 Progresses
Although price will likely remain the prime vehicle to drive traffic, we believe grocers should see some relief in the form of moderating food deflation. Excess inventory in 2009 drove down prices in key categories such as dairy, meat, and produce. For example, dairy prices reached their lowest levels in recent quarters. Because these categories are essentially commodities, changes in price are passed on to consumers. The recent wave of deflation has placed additional downward pressure on an already weak top line. Delhaize Group reported retail food deflation in its U.S. operations of 2.1% in the fourth quarter of 2009, compared to 6.5% inflation in the same period in 2008, an 860 basis point swing. In addition to negatively affecting identical-store sales, deflation also hurts operators' ability to leverage fixed costs like store overhead and labor. We anticipate that supply will become better matched with demand this year, helping to restore prices. The United States Department of Agriculture expects food inflation of 2.5%-3.5% this year, assuming economic conditions continue to improve. While at first blush this seems high to us, we do believe that inflation will be slightly positive in 2010.
When Will Grocers See Relief?
We expect operators to report tough fourth-quarter results in the upcoming weeks, and largely anticipate that challenging trends, particularly heightened competition, will persist through the first half of 2010. According to W. Rodney McMullen, the COO at Kroger, grocers typically lag an economic recovery by about six months to a year. This is roughly in line with our view that consumer spending (approximately 7% of which is attributable to grocery purchases, according to the U.S. Census) is tied closely to the unemployment rate. At the very least, food retailers should see some relief in the form of moderating deflation as 2010 progresses. Assuming the competitive environment also eases throughout the year, we expect operators to experience less pressure in the back half of the year. However, if retailers maintain their aggressive stance on promotional activity, we believe firms will not begin to see relief until the beginning of 2011. |
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HenryTo
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Location: Los Angeles, California
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| Posted: Tue Mar 09, 2010 5:14 pm Post subject: |
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Latest earnings notes on KR from Morningstar:
| Quote: | | Kroger KR reported fourth-quarter and full-year results in line with our expectation that grocers would deliver weak results to close out the year. We are maintaining our fair value estimate. Revenue for the quarter totaled $18.6 billion, representing 7.2% growth from the year-ago period, boosted by gas prices. Excluding fuel, revenue increased 2%, driven by identical-store sales growth of 1.2%. We continue to see resilience in Kroger's numbers compared with its peers, which have been delivering declines in store productivity throughout the downturn. We view Kroger's results as quite respectable, considering the extreme defla tion in categories like dairy and produce, as well as heavy price competition in all markets. The goal to drive the top line had a negative effect on profitability, however. Operating income declined 23% to $502 million in the quarter, as tight cost control was not able to offset gross profit declines caused by the promotional environment. The firm's initial outlook indicates that 2010 will progress in similar fashion, with positive same-store sales growth and pressure on margins. We expect to see Kroger continue to outpace its peers, but the deflationary environment and competitive pressures should persist at least through the first half of the year, with conditions moderating in the back half of 2010. |
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