Growth is always in stock at Kroger

Still going strong after more than 100 years in business, this grocery chain is rewarding shareholders with increased dividend payouts.

By MoneyShow.com Apr 26, 2013 2:40PM

Full Shopping Cart in Grocery Store copyright Fuse, Getty ImagesBy Richard Moroney, Dow Theory Forecasts


Since Barney Kroger invested his life savings, $372, to open a grocery store in the late 1800s, Kroger (KR) has grown into a chain of 2,400 supermarkets in the U.S., operating under two dozen different names.


Nearly half of its stores are paired with gasoline stations, while many are supercenters, offering general merchandise, such as apparel and electronics. Through subsidiaries, Kroger also operates more than 780 convenience stores and 320 jewelry stores.


Kroger's sales have increased in 26 consecutive years, helped by modest inflation, a handful of acquisitions, and steady organic expansion. 


Scoring above 80 in five of six Quadrix categories, Kroger earns an overall score of 98, while both sector-specific scores exceed 95. The Forecasts initiated coverage of Kroger in the April 1 issue as a "buy" and a "long-term buy."


Name-brand products share shelf space with Kroger's corporate brands (about 26% of grocery sales). Unlike most grocers, Kroger manufactures about 40% of the products sold under its own brand.


The company separates its products into four main groups: nonperishable (50% of total revenue in the year ended January), perishable (21%), fuel (20%), and pharmacy (8%). All these groups have grown sales in each of the past three years, though none faster than fuel, up 111% from fiscal 2010.


However, fuel sales have contributed to the decline in Kroger's gross profit margins, down for three straight years. However, operating margins widened last year.


Increased use of generic drugs has pressured Kroger's pharmacy sales, but growth in prescriptions filled remains strong. Kroger is pushing further into health care, last year acquiring Axium Pharmacy Holdings, which offers specialty drugs and support services to patients with cancer, multiple sclerosis, and other chronic diseases.


By steadily taking market share from rivals, Kroger's grocery business now ranks first or second in 38 of the 42 major markets where it operates. Same-store sales, excluding fuel, have risen for 37 straight quarters.


Kroger targets 2.5% to 3.0% higher same-store sales in fiscal 2014, with the slowest growth projected for the April quarter. However, unlike rival Walmart (WMT), Kroger says the April quarter started strong, with same-store sales growth exceeding 3% early in the period. Management expects profit growth of 8% to 11% this year.


Kroger has $1.19 billion in cash, versus long-term debt of $6.15 billion. Operating cash flow rose 7% to $2.84 billion last year, enough to cover interest expense six times over.


Kroger hiked its quarterly dividend 30% last year, and currently yields 1.9%. Management plans to raise the payout at least once a year in the future. Kroger has also spent more than $3 billion on buybacks over the last three years, lowering its share count by 20%.


The company targets long-term growth of 8% to 11% in per-share profits, plus a dividend yield of 2% to 2.5%, for a total return of 10% to 13.5%.


More from The MoneyShow

Tags: KRWMT
0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123
123 rated 1
262
262 rated 2
480
480 rated 3
651
651 rated 4
649
649 rated 5
629
629 rated 6
616
616 rated 7
496
496 rated 8
346
346 rated 9
111
111 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
EXCEXELON CORPORATION9
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.