Kroger (KR) Tops Q1 EPS by 1c; Adj. Comps Lighter than Expected

Kroger (NYSE: KR) reported Q1 EPS of $0.70, $0.01 better than the analyst estimate of $0.69. Revenue for the quarter came in at $34.61 billion versus the consensus estimate of $34.88 billion.

Comps rose 0.4 percent, versus 1.3 percent expected. Excluding fuel, comps rose 2.4 percent, with expectations calling for a 2.5 percent gain.

Financial Strategy:

Kroger's long-term financial strategy is to use its financial flexibility to drive growth while also returning capital to shareholders. Maintaining its current investment grade debt rating allows the company to use its cash flow to take advantage of strategic and financially compelling opportunities, to continue its fill-in strategy, repurchase shares and fund the dividend, which is expected to increase over time.

The company's net total debt to adjusted EBITDA ratio increased to 2.12, compared to 2.09 during the same period last year (see Table 5). This result illustrates Kroger's commitment to use free cash flow to both grow its business and return cash to shareholders, while maintaining an appropriate level of leverage for the company's credit rating. Over the last year, Kroger has used free cash flow to:

• Repurchase $1.1 billion in common shares
• Pay $397 million in dividends
• Invest $3.6 billion in capital, and
• Merge with Roundy's, Inc. for $866 million.

Kroger's strong EBITDA performance resulted in a return on invested capital, excluding Roundy's, for the first quarter of 14.08%, compared to 14.03% for the first quarter of 2015.

Fiscal 2016 Guidance

Kroger confirmed its net earnings guidance range of $2.19 to $2.28 per diluted share for 2016. Based on current fuel margin trends, the company believes it will be at the low-end to mid-point of this range. Kroger expects fuel margins will be at or slightly below the five-year average.

Shareholder return will be further enhanced by a dividend which is expected to increase over time.

Kroger confirmed its identical supermarket sales growth guidance, excluding fuel, of approximately 2.5% to 3.5% for 2016.

The company continues to expect capital investments excluding mergers, acquisitions and purchases of leased facilities, to be in the $4.1 to $4.4 billion range for the year.

For earnings history and earnings-related data on Kroger (KR) click here.

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