Kroger (KR, Financial), together with its subsidiaries, operates as a retailer in the United States and internationally. The company operates retail food and drug stores, multi-department stores, jewellery stores, and convenience stores. The company hasn’t fared well in the last few weeks as the stock has lost about 10% of its value within a month. However, the drop isn’t much compared to Kroger’s 60%+ rise in 2014. Despite competition, Kroger managed to grow its top and bottom-line inconsistently and the latest quarter was no different.
Kroger’s earnings for FY2014 increased $3.52 a share a 23.5% over FY2013. Total sales in the fourth quarter were $25.2 billion, an increase of 8.5%. Excluding fuel, total sales improved 14.2%. Net earnings for the fourth quarter totalled $518 million, or $1.04 per diluted share.
Strong identical supermarket sales and cost controls allowed Kroger to reduce operating expenses as a rate of sales for their tenth consecutive year. Total operating expenses for 2014, excluding retail fuel operations, the contributions to the pension and foundation, and the adjustment items, decreased 13 basis points compared to the prior year. Kroger's strong EBITDA performance resulted in a return on invested capital for fiscal 2014 of 13.74%, compared to 13.43% for fiscal 2013.
Plans for Expansion
Kroger has some replacement strategies to tap expansion opportunity in new markets. It is expanding into the markets of Baltimore and Washington D.C., which have customer demand for natural and organic food, in which the company is shining over time as discussed in detail later in the article. The company plans to enlarge into eight new markets in the upcoming period, which will not only help it grab acknowledgement in a new market, but will also expand its potential customer base, following the variety of customers in different areas, and will also help the company reach its square footage growth target of 2%-2.5% for the current year.
Other Positives
For 2015, company’s planned uses of cash remain unaffected: maintain their current investment grade debt rating, repurchase shares, fund the dividend, and increase capital investments. Kroger achieved it's objective prior than expected due to solid fiscal 2014 operating outcomes. Based on their current 2015 expectations, they should maintain a ratio below the 2.2 times target all over the year. Capital investments, excluding mergers, acquisitions and purchases of leased facilities, totalled $2.8 billion for the year, compared to $2.3 billion in 2013. For 2015, the company expects capital investment to be in the $3 billion to $3.3 billion range.
Conclusion
Kroger has taken advantage of the opportunities it needs to develop its business, making great utilization both of acquisitions and of boosting its own business from inside. Investors shouldn't hope to see great profits year in and year out, yet going ahead, Kroger has a few promising techniques that could produce more positive additions for long haul shareholders for a considerable length of time to come.
