Q3 Preview: Kroger's (KR) 'Fresh' Approach to Costs, Margins May Drive Earnings Growth
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Price: $56.15 +0.93%
Overall Analyst Rating:
NEUTRAL (
Up)
Dividend Yield: 2.1%
EPS Growth %: -11.3%
Overall Analyst Rating:
NEUTRAL (
Up)Dividend Yield: 2.1%
EPS Growth %: -11.3%
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Kroger Co. (NYSE: KR) is trading higher today ahead of the company's third quarter earnings release, expected out before the market opens tomorrow, December 2. Shares are up 2.3% in the afternoon session.
Kroger is expected to report an EPS of $0.32 on revs of $18.51 billion. The Cincinnati, OH-based grocer reported a second quarter EPS of $0.41 on revs of $18.8 billion, beating the consensus looking for an EPS of $0.36 on revs of $18.73 billion. Last year, for Q309, KR flubbed with an EPS of $0.27 and revs of $17.7 billion.
Shares gained 3.4% through the quarter, to $21.90 at the end of October. Shares are up 10% since the end of the quarter, and nearly 20% since the start of 2010.
Data from Bloomberg has 12 analysts with a Buy on KR, 5 with a hold, and three suggesting to Sell. The analyst price target average is $24, with a high of $28.50 and low of $17.
Summary
J.P. Morgan thinks that their EPS estimate of $0.33 may be conservative for the following reasons: 1) checks indicate that Kroger’s relative pricing advantage remains intact, we have no reason to believe that traffic/tonnage trends have lost momentum; 2) they expect a more rational approach to price investment to drive at least 15 basis points of core GPM expansion Y/Y; and 3) JPM is modeling a 4.9% increase in SG&A on an absolute dollar basis, which they think is a little too high given Kroger's renewed focus on cost reductions. They note that management's comments for slight margin compression in FY10 implies a positive trend in H210. JPM is also looking for ongoing stock buyback this quarter.
JPM rates Kroger with an Overweight and price target of $24.
Hapoalim Securities sees more favorable gross margins relative to other food retailers, though they don't believe there is a "compelling foundation for underlying earnings growth at this time." Incremental growth in Q310 could be accompanied with modest gross margin pressure relative to Q309, as Kroger is now set to cycle against high tonnage growth comparisons from H209. Hapoalim is looking for an EPS of $0.29.
Hapoalim rates Kroger with a Sell rating and $17 price target.
The Kroger Co. is expected to release their Q310 earnings on Thursday, December 2, 2010, at approximately 7:00am EST. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results within seconds of their release.
Kroger is expected to report an EPS of $0.32 on revs of $18.51 billion. The Cincinnati, OH-based grocer reported a second quarter EPS of $0.41 on revs of $18.8 billion, beating the consensus looking for an EPS of $0.36 on revs of $18.73 billion. Last year, for Q309, KR flubbed with an EPS of $0.27 and revs of $17.7 billion.
Shares gained 3.4% through the quarter, to $21.90 at the end of October. Shares are up 10% since the end of the quarter, and nearly 20% since the start of 2010.
Data from Bloomberg has 12 analysts with a Buy on KR, 5 with a hold, and three suggesting to Sell. The analyst price target average is $24, with a high of $28.50 and low of $17.
Summary
J.P. Morgan thinks that their EPS estimate of $0.33 may be conservative for the following reasons: 1) checks indicate that Kroger’s relative pricing advantage remains intact, we have no reason to believe that traffic/tonnage trends have lost momentum; 2) they expect a more rational approach to price investment to drive at least 15 basis points of core GPM expansion Y/Y; and 3) JPM is modeling a 4.9% increase in SG&A on an absolute dollar basis, which they think is a little too high given Kroger's renewed focus on cost reductions. They note that management's comments for slight margin compression in FY10 implies a positive trend in H210. JPM is also looking for ongoing stock buyback this quarter.
JPM rates Kroger with an Overweight and price target of $24.
Hapoalim Securities sees more favorable gross margins relative to other food retailers, though they don't believe there is a "compelling foundation for underlying earnings growth at this time." Incremental growth in Q310 could be accompanied with modest gross margin pressure relative to Q309, as Kroger is now set to cycle against high tonnage growth comparisons from H209. Hapoalim is looking for an EPS of $0.29.
Hapoalim rates Kroger with a Sell rating and $17 price target.
The Kroger Co. is expected to release their Q310 earnings on Thursday, December 2, 2010, at approximately 7:00am EST. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results within seconds of their release.
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