At first glance, Kroger (KR) might not seem like a very exciting stock. After all, it’s a supermarket chain, right? That hardly seems like an interesting business in this age of disruptive tech start-ups. But if your investment goal is to make money, you should start paying attention.
Did you know that Kroger recently was ranked the world’s third-largest retailer by National Retail Federation? That puts it behind only Wal-Mart Stores and Costco. What’s more, the last quarter marked the 11th straight year that Kroger has gained market share at the expense of rivals. And in the metric that really counts for retailers Kroger just passed an impressive landmark: 50 straight quarters of same-store sales growth.
Those results have helped KR stock crush the general market, outpacing the S&P 500 by more than 120% over the last five years and 139% over the last ten years.
Kroger reported quarterly earnings last week, and based on the results, it’s fair to say Kroger is the best grocer in the industry. The company reported revenue of $34.6 billion, up from $33.1 billion during the same quarter a year earlier, but just slightly lower than the $34.88 billion Wall Street was looking for. On the earnings side, Kroger posted earnings per share of 70 cents, beating the average estimate from analysts of 69 cents and an increase from 63 cents a year earlier.
It’s the other results that really make Kroger stand out. The company posted comparable-store sales of 2.4%, greater than the 1% Walmart and Target posted this quarter. Operating margins grew to 3.5% from 3.3%, and net cash provided by operating activities climbed to $2.05 billion from $1.76 billion.
There is nothing sexy about selling food, but we all need it in order to live. The demand is guaranteed and as the world’s population grows. The grocery industry is also one of those «recession-proof» industries. When the economy is bad, you might forgo buying a new car, a new house or new clothes. But you’re not going to stop shopping at grocery stores or stop eating, are you? Furthermore, while you may cut back a little or trade down from the brand name cereal, that only helps Kroger’s because you’re more likely to buy its house brand.
Kroger’s is best of the breed in its industry. It’s the largest retailer in the world that’s primarily a grocer, and it continues to grow. Being the biggest company in an industry that sells a commoditized product means it’s very unlikely anyone is going to knock you off the top spot. With already low margins, a competitor can’t just cut prices without negatively affecting some other part of its business.
Investors who buy Kroger today may not see another 50 consecutive quarters of growth, but if they want to leave shares for their grandchildren, they will likely have that opportunity with this stock. The company may not be a highflying fast mover, but it will make you a ton of money in the long run.
Fuente: The Street.
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