Filed Under: ,
Tickers in this Article: KR, K, UN, UL, GIS
National grocery chain Kroger (NYSE:KR) makes a living offering consumers a convenient and affordable array of food products. Recent market malaise makes it an appealing play for a number of investment types, as it offers a balanced variety of growth, value and income in an increasingly uneven stock market environment.

IN PICTURES: Learn To Invest In 10 Steps

Current Results
On March 10, Kroger reported fourth-quarter and full-year results that saw sales and earnings grow steadily. Fourth-quarter sales rose a modest $0.1 billion to $17.3 billion on a 3.8% increase in same-store sales. Full-year growth was more impressive, rising 8.2% to $76 billion on a 5% improvement in comps. Management detailed that its own Kroger brands grew to 27% of fourth-quarter sales and a "record-high 35% of grocery unit sales." A higher percentage of these private-label brands should improve profits, which was the case for the quarter but not for the full year, as rising commodity costs offset the benefits of higher pricing. (Take a deeper look at a company's profitability with the help of profit-margin ratios, in The Bottom Line On Margins.)

In the long term, private label should boost margins, which will be at the expense of outside brands from the likes of Unilever (NYSE:UL) (NYSE:UN), Kellogg (NYSE:K) and General Mills (NYSE:GIS). A recession is accelerating the trade downtrend, as consumers become even more cost-conscious. This benefits grocers such as Kroger by increasing profits and improving its bargaining position with key suppliers.

Fourth-quarter and full-year earnings grew 10% and 12% to $0.53 and $1.90 per diluted share, respectively, as Kroger proved able to grow market share and keep costs in check. The company expects diluted earnings to grow somewhere between 5% and 8%.

Bottom Line
Kroger ended the year with 2,481 supermarkets in 31 states. For a number of years, the company has been able to consistently grow its top and bottom lines, which means a lot given the current economic climate. It comes as little surprise that Kroger's stock has far outpaced the market over the past two years, even though a recent swoon has left it at about 10 times forward earnings. This makes it appealing to value investors, and a dividend yield of 1.8%, although not overly high, is as reliable as income investors are likely to find these days. (For further reading on investing in grocery stores, be sure to check out our Retailing Industry Handbook.)

comments powered by Disqus

Trading Center