(KR) Kroger First Quarter 2011Earnings Scorecard

Specialty retailer The Kroger Co. (KR) announced its financial results for the first quarter of fiscal 2011.

Street analysts had almost a week to ponder on the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.

Earnings Review

The Kroger Company posted better-than-expected first-quarter 2011 results. The quarterly earnings of 70 cents a share topped the Zacks Consensus Estimate of 64 cents, and jumped 20.7% from 58 cents delivered in the prior-year quarter.

Total revenue (including fuel center sales) climbed 11% to $27,460.9 million from the prior-year quarter, and handily beat the Zacks Consensus Estimate of $26,557 million.

Excluding fuel center sales, total revenue rose 4.8%; comparable supermarket sales jumped 4.7% to $21,276.6 million, whereas identical supermarket sales (stores that are open without expansion or relocation for five full quarters) rose 4.6% to $20,788.1 million.

Agreement of Estimate Revisions

The first-quarter 2011 performance has left 5 out of 14 analysts to revise their estimates in the downward direction over the past one week, with 3 upward estimate revisions, for the second quarter of fiscal 2011. For fiscal 2011, 12 analysts have revised their estimates in the upward direction while none moved in the opposite direction in the last 7 days.

Analysts have tweaked their estimates so as to align the forecasts with the management’s guidance. Kroger now expects fiscal 2011 earnings to be near the high end of the increased guidance range of $1.85 to $1.95 per share, thereby sending the shares up 6.5% or $1.50 to $24.45 during pre-market trading. Earlier, the company had projected earnings between $1.80 and $1.92 per share.

Magnitude of Estimate Revisions

With no net effect from analyst estimate revisions, for the second quarter of fiscal 2011, the consensus estimate has remained stagnant at earnings of 43 cents a share. As a result of upward movement in estimates seen over the past one week, the Zacks Consensus Estimate for fiscal 2011 increased by 4 cents to $1.95.

Our Recommendation

A dominant position among the nation’s largest grocery retailers enables Kroger to sustain top-line growth, expand store base and boost market share. The company is well positioned to deliver higher earnings primarily through strong super market sales (sans fuel). Kroger is also actively managing its capital and returning much of its free cash to shareholders via share buybacks and dividends.

However, sluggish economic recovery and rising food and fuel prices may affect consumers’ shopping pattern. Moreover, a higher debt-to-capitalization ratio also remains a matter of concern.

Kroger, which faces stiff competition from Wal-Mart Stores Inc. (WMT) and Whole Foods Market Inc. (WFM), holds a Zacks #3 Rank, which translates into a short-term Hold recommendation. Currently, we have a long-term Neutral rating on the stock.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

KROGER CO (KR): Free Stock Analysis Report

WHOLE FOODS MKT (WFM): Free Stock Analysis Report

WAL-MART STORES (WMT): Free Stock Analysis Report

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