Kroger's Growth Hits the Big 4-0; Will It Continue?

Kroger's Growth Hits the Big 4-0; Will It Continue?

It's not very often that you see a company hit a decade of nonstop quarterly growth, every quarter, but The Kroger Co. has done it. When Kroger reported its third-quarter results, it marked the 40th consecutive quarter of positive identical-store gains while blowing away the growth rates of competitors SUPERVALU and Safeway .

Kroger results
Kroger reported its third-quarter results on Dec. 5. Total sales jumped 3.2% to $22.5 billion or 4.7% excluding fuel. Identical-store sales excluding fuel lunged 3.5%. Adjusted earnings per share leaped 15% to $0.53.

CEO David Dillon said that Kroger is "uniquely positioned to grow and win in the U.S. food retail industry." This means that Kroger is taking market share from its competitors and it has been doing so continuously for a decade. He fully expects Kroger to keep going and report its 41st consecutive quarter of positive identical same-store gains. The identical-store sales gains were also seen in every department within the stores.

Kroger continues to use its large cash flows to pay down debt, buy back shares, pay an increasing dividend, and invest in the future.

Kroger guided for net earnings of $2.73 to $2.80 for fiscal 2013 or between 8% and 11% growth over 2012. Kroger also expects 8% to 11% growth in annual earnings for 2014 and beyond. In the conference call, COO Rodney McMullen pointed out that Kroger's phenomenal growth and success occurred not only because of larger purchases from each household but also because of an increase in the actual number of loyal households that shop its stores. In fact, there are 83% more loyal households that shop at Kroger-owned stores than there were a decade ago.

McMullen did warn that the economy continues to be only a "little" improved and for some it hasn't improved at all. However, he assuredly stated "No matter the environment, our customers and shareholders can depend on Kroger to deliver value."

Kroger continues to aggressively buy back shares. Share buybacks often speak louder than words when it comes to confidence. In the third quarter, the company bought back 3.6 million shares and spent a total of $148 million on buybacks last quarter. This comes out to an average of $41.11 per share which is higher than the current price at the time of this writing.

How Kroger stacks up against SUPERVALU and Safeway
In SUPERVALU's second-quarter report, sales nudged up slightly by 0.2% to $3.94 billion. Within its three segments, identical-store sales saw an across the board dip. Corporate stores within the Save-A-Lot network were up 4.7% but the overall segment saw a 0.3% drop. Independent business dipped 1.6% and retail food fell 0.9%. It seems like SUPERVALU is losing customers to somebody, and that somebody may just be Kroger.

SUPERVALU CEO Sam Duncan stated that the company's goal was to improve the business, but he also said "Our end goal won't be achieved overnight." That sounds like investors should prepare for near-future quarters to be weak as well.

Meanwhile, Safeway reported that revenue from continuing operations inched up 1.1% to $8.6 billion. Identical-store sales were up 1.9% which is much better than the number from SUPERVALU but still significantly below the number from Kroger. Adjusted earnings from continuing operations were $24.6 million or $0.10 per share which compares with $39.0 million or $0.16 per share last year. While this looks like a serious decline, it should be noted that Safeway has a lot of things going on that muddied the results such as its exit from the Chicago market. The top-line results from Safeway are more meaningful for now, and they showed positive growth but not as much as what Kroger reported.

Foolish final thoughts
While other supermarkets are seeing mixed results or even struggling, Kroger continues to deliver through good times and bad. The fact that Kroger has grown identical-store sales for 40 quarters through even the 2008 financial meltdown and all the way through the current period proves a long track record of excellent execution. Foolish investors looking for a reliable company that continues to grow steadily should take a peek at Kroger.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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