Kroger Co Ringing Up Strong Growth

There's a lot of ringing in Kroger's (NYSE: KR) cash registers these days. Last week, the company released very impressive second quarter results, cementing its position as the hot Big Grocery stock of the moment. Let's dive into the results and see whether that momentum is sustainable.

Estimates beat in aisle fourFor the quarter, Kroger posted total sales of $25.54 billion, a slight improvement over the $25.31 billion it logged last year. On the other hand, net profit growth was a robust 25%, landing at $443 million ($0.44 per diluted share). Both figures exceeded market expectations with average analyst estimates calling for a top line of $25.50 billion and per-share profit of $0.39.

Sales growth would have been higher had it not been for the decline in gasoline prices. Excluding the company's take from fuel, sales grew by nearly 6%.

In terms of operations, Kroger benefited from a rise in the number of households shopping at its ever-growing network of stores (which includes Harris Teeter, acquired in 2013). All of the company's geographic regions and departments showed same-store sales growth.

Unsurprisingly, a particular standout product category was natural foods, in which Kroger recorded double-digit growth. Over the past few years, customer preferences have tilted in favor of such goods, and the company is doing a fine job capturing this business.

The solid second quarter performance has made the company more optimistic. On the back of these improvements, management raised forward guidance -- for the second time this year, by the way. It now believes it will post diluted earnings per share of $1.92 to $1.98 for the entirety of fiscal 2015, up from the preceding $1.90 to $1.95. It also upped its same-store sales growth projection to 4% to 5% on a year-over-year basis (excluding fuel) -- this was formerly 3.5% to 4.5%.

Several months in advance of these results, Kroger put its shareholder payout where its mouth is, lifting its dividend by 14% (adjusted for a recent stock split) to just over $0.10 per share. That new distribution was paid at the beginning of this month.

A natural winnerKroger is a head down, get-the-job-done sort of company. Its management team is low key and not flashy, while its growth strategies are clever, sensible, and effective.

One particularly sharp move was the company's big ($3.5 billion) spend on price cuts last year, an initiative that covered more than a few of its organic offerings -- a boon for shoppers who want to eat healthy but don't want to go broke doing so.

Looking toward the future, Kroger looks well positioned to maintain its encouraging growth and profitability. Increasing consumer taste for organic/natural foods will benefit it substantially, as these products are -- Kroger's recent cuts notwithstanding -- comparatively pricier and boast wide profit margins. Meanwhile, the company's anchor store brands -- such as Ralph's -- have a strong presence in major U.S. markets and as such will continue to bring in the crowds eager to spend.

Kroger's stock performance has well outpaced that of many rivals, and going forward, the company has more than enough potential for this winning streak to continue.

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