Kroger, the nation’s largest grocer, is in a good, supposedly recession-proof industry. It’s simple: People need food. Sell it to them.
But of course, business is never that easy.
The retailer reports earnings Tuesday, and most analysts are positive on the company.
That’s primarily because the lion’s share of Kroger’s revenues are from its supermarket chains. And food stocks are often considered “defensive.”
Morningstar analyst Josh Peters said he likes Kroger because it has a history of running the business for cash. That is, managers are given incentives based on cash flow and their performance ratings are tied to how well they use company assets.
But Wall Street is not unanimous in its bullish outlook.
Neil Currie, an analyst at UBS Warburg, isn’t at all positive on the stock, on which he has a “hold” rating.
“There’s no such thing as a defensive retailer,” he said.
Currie has a cautious view on Kroger because its margins are the highest in the world – too high to sustain.
“The competitive environment is increasing,” he said. “Going forward they are going to find it hard to maintain the 15 percent growth they’ve had.”
Kroger is losing market share to Wal-Mart and other discount stores, Currie said.
“At some point, all the strain is going to make a difference,” he said.
Lehman Brothers analyst Meredith Adler, on the other hand, has a “strong buy” recommendation. She expects the company to report earnings per share of 31 cents, a cent below the mean estimate.
“I don’t think that, given the value equation that [Kroger] gives customers, pricing and margins are too high,” said Adler.
Nevertheless, all three of these analysts agree that Kroger’s management team is very experienced and doing a good job.
A group of Kroger’s black employees, however, may have a different opinion. A class-action lawsuit was filed against the company last week alleging racial discrimination.
“Kroger has a long-standing commitment to workplace diversity and has a strong track record of hiring and promoting minorities,” said a spokesman for Kroger.