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Category: Stock Market and Kroger Company
Date: 5 December 2019 Stock Price: $26.48 We take a look at the 3rd quarter earnings release of their 2019 fiscal year of Kroger one of the world's largest retail companies, with annual sales topping $120 billion.
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About The Kroger Company
With nearly 2,800 stores in 35 states under two dozen banners and annual sales of more than $121.1 billion, Kroger today ranks as one of the world’s largest retailers.
Mergers have played a key role in Kroger’s growth over the years. In 1983, 100 years after the company’s founding, Kroger merged with Dillon Companies Inc. in Kansas to become a coast-to-coast operator of food, drug and convenience stores.
The biggest merger in Kroger’s history came in 1999, when the company teamed up with Fred Meyer, Inc. in a $13 billion deal that created a supermarket chain with the broadest geographic coverage and widest variety of formats in the food retailing industry. The merger also enabled Kroger to generate huge economies of scale in purchasing, manufacturing, information systems and logistics. In an era when many larger mergers failed, the success of the Kroger-Fred Meyer merger stands out.
In 2014, Kroger finalized its merger with Harris Teeter, a regional chain of more than 200 stores. This merger brought to Kroger an exceptional brand and complementary base of stores in high-growth markets, primarily in the Mid-Atlantic region and the District of Columbia. Later that year, Kroger merged with Vitacost.com, one of the largest pure e-commerce companies in the nutrition and healthy living market. The company’s e-commerce platform accelerated Kroger’s entry into the e-commerce space by several years, bringing the ability to serve customers through ship-to-home orders, and expanding Kroger’s reach into all 50 states and internationally. Then in late 2015, Kroger merged with Roundy’s in Wisconsin, adding Pick ‘N Save, Metro Market and Mariano’s stores in Wisconsin and Illinois to the Kroger family.
Today Kroger offers a store format for nearly every kind of shopper. Our formats include supermarkets, multi-department stores, Marketplace stores, price-impact stores, and fine jewelry stores.
Mergers have played a key role in Kroger’s growth over the years. In 1983, 100 years after the company’s founding, Kroger merged with Dillon Companies Inc. in Kansas to become a coast-to-coast operator of food, drug and convenience stores.
The biggest merger in Kroger’s history came in 1999, when the company teamed up with Fred Meyer, Inc. in a $13 billion deal that created a supermarket chain with the broadest geographic coverage and widest variety of formats in the food retailing industry. The merger also enabled Kroger to generate huge economies of scale in purchasing, manufacturing, information systems and logistics. In an era when many larger mergers failed, the success of the Kroger-Fred Meyer merger stands out.
In 2014, Kroger finalized its merger with Harris Teeter, a regional chain of more than 200 stores. This merger brought to Kroger an exceptional brand and complementary base of stores in high-growth markets, primarily in the Mid-Atlantic region and the District of Columbia. Later that year, Kroger merged with Vitacost.com, one of the largest pure e-commerce companies in the nutrition and healthy living market. The company’s e-commerce platform accelerated Kroger’s entry into the e-commerce space by several years, bringing the ability to serve customers through ship-to-home orders, and expanding Kroger’s reach into all 50 states and internationally. Then in late 2015, Kroger merged with Roundy’s in Wisconsin, adding Pick ‘N Save, Metro Market and Mariano’s stores in Wisconsin and Illinois to the Kroger family.
Today Kroger offers a store format for nearly every kind of shopper. Our formats include supermarkets, multi-department stores, Marketplace stores, price-impact stores, and fine jewelry stores.
Overview of Kroger's 3rd quarter 2019 earnings report
The numbers we are interested in (for the quarter):
- Sales: $27.974 billion (up from $27.831 billion from the same quarter of the previous year)
- Sales increased by 0.51% over the last 12 months
- Net income: $263 million (down from $317 million for the same quarter of the previous year)
- Diluted earnings per share: $0.32 (down from $0.39 for the same quarter of the previous year)
- PE ratio: 12 (assuming the earnings per share this quarter is repeated for all quarters of the fiscal year)
- Dividend declared for the quarter: $0.16 (up from $0.14 for the same quarter of the previous year)
- Dividend yield: 2.4% (assuming the dividend paid this quarter is repeated for all quarters of the fiscal year)
- Diluted weighted-average shares outstanding: 807 million (unchanged from 807 million for the same quarter of the previous year)
- Cash and cash equivalents: $417 million
- Cash and cash equivalents per share: $0.52
- Cash and cash equivalents makes up 1.95% of Kroger's market capital
- Cash and cash equivalents makes up 0.92 % of Kroger's total assets
- Accounts receivable: $1.6 billion
- Accounts receivable makes up 3.51% of the Kroger's total assets.
- Inventories: $7.412 billion (up from $6.241 billion for the same quarter of the previous year)
- Inventories makes up 16.3% of Kroger's total assets
- Inventories grew by 4.6% over the last 12 months
- Stockholders equity: $8.728 billion
- Stockholders equity per share: $10.81
- The Kroger Company is trading at 2.44 times its stockholders equity per share which is within the expected range of between 2 and 4 times that most firms tend to trade at
Kroger's management commentary on the results and earnings guidance
CINCINNATI, Dec. 5, 2019 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported its third quarter 2019 results and provided a Restock Kroger progress update on the company's three-year transformation plan.
"Kroger's customer obsession and focus on operational excellence continued to generate positive results in the third quarter. Identical sales were the strongest since we started Restock Kroger and gross margin rate, excluding fuel and pharmacy, improved slightly in the quarter. At the same time, we continued to reduce costs as a percentage of sales.
We are using the power of Kroger's stable and growing supermarket business to create meaningful incremental operating profit through the alternative profit stream businesses, which adds up to a business built for long-term growth that generates consistently attractive total shareholder returns. Kroger continues to generate strong and durable free cash flow as reflected by the fact that the company has reduced debt by $1.5 billion over the prior four quarters and continues to increase its dividend to create shareholder value. Restock Kroger is the right framework to reposition our business to create value for all of our stakeholders, both today and in the future."
"Kroger's customer obsession and focus on operational excellence continued to generate positive results in the third quarter. Identical sales were the strongest since we started Restock Kroger and gross margin rate, excluding fuel and pharmacy, improved slightly in the quarter. At the same time, we continued to reduce costs as a percentage of sales.
We are using the power of Kroger's stable and growing supermarket business to create meaningful incremental operating profit through the alternative profit stream businesses, which adds up to a business built for long-term growth that generates consistently attractive total shareholder returns. Kroger continues to generate strong and durable free cash flow as reflected by the fact that the company has reduced debt by $1.5 billion over the prior four quarters and continues to increase its dividend to create shareholder value. Restock Kroger is the right framework to reposition our business to create value for all of our stakeholders, both today and in the future."
Capital Allocation Strategy
Kroger's financial strategy is to use its free cash flow to drive growth while also maintaining its current investment grade debt rating and returning capital to shareholders. The company actively balances the use of its cash flow to achieve these goals.
Consistent with its financial strategy, Kroger reduced net total debt by $1.5 billion over the last four quarters. Kroger's net total debt to adjusted EBITDA ratio is 2.50, compared to 2.72 a year ago (see Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50. As a result of being within its targeted debt range, Kroger plans to initiate share repurchases in the fourth quarter under its $1 billion board authorization. Earlier this year, Kroger increased the dividend by 14 percent, marking the 13th consecutive year of dividend increases.
The image below shows the fiscal guidance for the rest of Kroger's 2019 fiscal year as well as their expectation for their 2020 fiscal year.
Kroger's financial strategy is to use its free cash flow to drive growth while also maintaining its current investment grade debt rating and returning capital to shareholders. The company actively balances the use of its cash flow to achieve these goals.
Consistent with its financial strategy, Kroger reduced net total debt by $1.5 billion over the last four quarters. Kroger's net total debt to adjusted EBITDA ratio is 2.50, compared to 2.72 a year ago (see Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50. As a result of being within its targeted debt range, Kroger plans to initiate share repurchases in the fourth quarter under its $1 billion board authorization. Earlier this year, Kroger increased the dividend by 14 percent, marking the 13th consecutive year of dividend increases.
The image below shows the fiscal guidance for the rest of Kroger's 2019 fiscal year as well as their expectation for their 2020 fiscal year.
The Kroger Company (NYSE: KR) stock price history
The image below shows the stock price history of The Kroger Company over the last 5 years. And to be honest its not been a good time for The Kroger Company over the last 5 years. 5 years ago the stock of Kroger was trading at $30.50 and its currently trading at $26.48. That's a loss of -% suffered by Kroger stockholders over the last 5 years.
The stock of Kroger Company is trading at closer to its 52 week low of $20.70 than it is to its 52 week high of $30.40 which to us is an indication that the short term sentiment and momentum of Kroger Company stock is negative.
The stock of Kroger Company is trading at closer to its 52 week low of $20.70 than it is to its 52 week high of $30.40 which to us is an indication that the short term sentiment and momentum of Kroger Company stock is negative.
Recent coverage of The Kroger Company
The extract below touches on the latest news regarding Kroger Company as obtained from TheStreet.com
Investors bulked up on Kroger (KR) - Get Report after the supermarket giant boosted its 2020 earnings forecast above the projections of industry analysts. Kroger's stock at last check jumped 11% as Kroger said Tuesday that earnings for next year will range from $2.30 to $2.40 a share, above current analyst estimates of $2.19 a share.
The Cincinnati chain is also expecting same-store sales to rise next year as well, coming in a bit higher than the 2.25% growth, excluding fuel, it is anticipating for 2019. Kroger also said it planned a $1 billion share buyback, replacing the existing program, which had $546 million remaining. The grocery giant's bullish forecast comes as it forges ahead with an ambitious Restock Kroger campaign to revamp its business amid mounting competition for shoppers' dollars.
Read the full article here.
Investors bulked up on Kroger (KR) - Get Report after the supermarket giant boosted its 2020 earnings forecast above the projections of industry analysts. Kroger's stock at last check jumped 11% as Kroger said Tuesday that earnings for next year will range from $2.30 to $2.40 a share, above current analyst estimates of $2.19 a share.
The Cincinnati chain is also expecting same-store sales to rise next year as well, coming in a bit higher than the 2.25% growth, excluding fuel, it is anticipating for 2019. Kroger also said it planned a $1 billion share buyback, replacing the existing program, which had $546 million remaining. The grocery giant's bullish forecast comes as it forges ahead with an ambitious Restock Kroger campaign to revamp its business amid mounting competition for shoppers' dollars.
Read the full article here.
The Kroger Company (NYSE: KR) latest stock valuation
So what are The Kroger Company stock worth considering their latest earnings release? Based on the earnings released and the outlook provided our valuation models set a target (full value) price for The Kroger Company of $36.80 a stock (up from our 2nd quarter 2019 earnings report valuation of Kroger) . We therefore believe Kroger Company stock is undervalued.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price which in this case is $36.80. a good entry point into the stock of Kroger Company would therefore be at $ 33.10 or below.
We expect that the stock of Kroger Company will kick upwards from its current price to levels closer to our target price/ full value price in coming weeks and months.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price which in this case is $36.80. a good entry point into the stock of Kroger Company would therefore be at $ 33.10 or below.
We expect that the stock of Kroger Company will kick upwards from its current price to levels closer to our target price/ full value price in coming weeks and months.
Next earnings release of Kroger Company
It is expected that Kroger Company will release their 4th quarter and full fiscal 2019 earnings report towards in early March 2020