This Retailer is a Customer Delight
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Amidst the agony of grocers such as Supervalu (NYSE: SVU) and Safeway (NYSE: SWY) who have been fighting the unfavorable effects of a tough economy, restrained customer spending and increasing input prices, there is one rare star which continues to shine brightly. Kroger (NYSE: KR) has defied the industry trend and left its competitors behind both in terms of market share and performance.
With its continuous focus on customers’ overall shopping experience, Kroger posted a great quarter which beat the Street’s estimates. Let’s dig deeper to see what it has in store.
A Smart Winner!
Kroger’s top priority has always been the delight of its customers. The company keeps strategizing new ways of keeping them hooked to its stores by way of improved service and different loyalty programs. Its move of offering discounts to the more frequent customers was a hit which drove revenue north by 3.9% to $21.7 billion. In fact, this time Kroger went a step further to improve customers’ shopping experience by improving its service at the checkout counters which saved customers’ waiting time. This pleased the customers even more.
In a situation where Kroger’s peers such as Safeway and Supervalu are witnessing negative same store sales growth each quarter, the Cincinnati-based grocer continues to post remarkable growth in the metric. In fact, Supervalu has been closing down several stores in order to save itself from an increasing cost burden. Kroger, along with its low price strategy, keeps innovating which attracts shoppers’ attention. The addition of new flavors to its snack chips lured consumers to its stores.
Future Plans – Well Made!
The grocer has some bright plans coming up its way. It has planned to introduce a new range of single-serve coffee pods in addition to the branded ones it currently offers. Hence, customers will have more variety to choose from, especially due to the fact that the new coffee pods will have different flavors.
Kroger also intends to enhance its potential yogurt business which has been growing well. It plans to bring 15 new variants to its yogurt category. The company expects that the new yogurt flavors will attract the young crowd, especially children boosting its top line further.
Some Great Numbers
When it comes to valuation, Kroger becomes even more attractive. Though currently Kroger’s trailing P/E multiple shows that the company is expensive, it’s worth an investment. The retailer’s trailing P/E multiple of 21.65 is higher than that of Target (NYSE: TGT) and Wal-Mart (NYSE: WMT) which have multiples of 14.59 and 15.49 respectively. However, when we take a look at the forward P/E we get a different picture.
Kroger’s forward multiple is 8.99 which highlights analyst expectations for immense growth in the future. On the other hand, Target and Wal-Mart have their forward P/Es at 13.02 and 13.71, respectively. Going forward, even they are expected to grow but the extent of growth is much higher in the case of Kroger.
If we consider PEG ratios, it becomes even clearer. The PEG ratio, which tells us how much future growth is currently priced in, is 0.99 for Kroger. This is much lower than Target and Wal-Mart which have PEG ratios at 1.2 and 1.76 respectively. PEG ratio should be lower. Hence, Kroger’s lower PEG ratio highlights that it is expected to grow much faster than Target and Wal-Mart.
A company expected to grow at a much faster rate than its competitors makes for it an attractive investment option. Additionally, Kroger has the quality of attracting customers with its innovative offerings and it keeps them hooked by providing them with loyalty benefits. This strategy works incredibly well for the retailer.
Moreover, along with innovation it manages costs well, using the saved cash in the right marketing strategy. It is an all in one package for a customer’s delight. This enables Kroger to post continuous growth in same store sales growth in spite of the economic headwinds. With great plans in place and a bright outlook this retailer seems to be a potential buy for the long run.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of SUPERVALU INC. 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.If you have questions about this post or the Fool’s blog network, click here for information.