Kroger (KR, Financial) is in a solid financial position, which can be seen by the recent fourth-quarter results where the retailer posted strong numbers also leading to the 45th consecutive quarter of positive identical supermarket sales growth. Having ended fiscal 2014 on a strong note, Kroger not only delivered improvement in its key financials but also delivered strong shareholder returns. The stock is expected to gain further market share in 2015; in fact, the stock is presently trading close to its 52-week high. The management is now coming forward with some strategic initiatives that might help Kroger in a smoother flow. It is now ramping up the investments to achieve better return of capital.
Making smart moves
Kroger is now showing exciting advancement in its efforts to drive its performance better. It is focusing on some key elements of its growth strategy. Customers remain Kroger’s prime priority and to deepen its relationship with the existing customers it is working on improving its digital capabilities. In order to attract new investors it is bringing new innovations in its operations. Moving ahead, acquisitions had been Kroger’s key strategy which has helped it. It is expecting better synergies from Vitacost and Harris Teeter mergers. With these mergers, Kroger thinks that it can build an experience that will enhance the abilities of its customers to interact with Kroger when and how they want.
Vitacost and Harris mergers in the past have also led Kroger’s entry to some new markets where it is seeing solid growth opportunities in future. To strengthen its presence, Kroger is investing significantly in both its new and existing markets. Kroger is also engaged in other social activities, which is beneficial for its image in the market. With this, Kroger has plans to continue to support some key priorities such as hunger relief, breast cancer awareness, etc. These will further enhance its reputation as a local connected retailer.
In addition, Kroger is pleased with the positive effects that it is seeing with the recovery in the U.S. economy. With the recovering economy, there has been improvement in customer spending. However, Kroger thinks that customers’ preference for economic recovery is still divided and expects to perform better once customer spending gets better. Furthermore, in order to see double-digit sales growth, Kroger is mainly focusing on selling natural and organic foods to the customers. Since these are still out of reach of many customers, Kroger is using its merchandising expertise to make them accessible.
Retail market outlook 2015
The outlook for the retail market in 2015 seems positive. The analysts are expecting low inflation, reviving growth in earnings and resilience in the labor market to impact the retail market in a positive way. Further, the fall in the prices of food, petrol and energy are also expected to boost spending in the retail sector. However, this growth can be curbed by the slowdown in the housing market. This might dent consumer confidence, and a hike in the interest rates might hold back disposable income growth. But overall, retail market outlook is positive for Kroger in the near term.
Conclusion
Moving on to the fundamentals now, the stock is reasonable with a trailing P/E of 22.07 and the forward P/E of 17.70 shows good growth in the earnings in the near term. Considering all these aspects I would like to suggest the investors to definitely pick Kroger as retail market prospects also appear strong in the long term.
