Grocery store leader
Thursday, June 20 before market open; EPS $0.88 / Revenue $30.2B
The Cincinnati, OH headquartered The Kroger Co. (NYSE:KR) is a leader in the competitive high volume, low margin grocery business. In recent years, Kroger has withstood the entrance of non-traditional grocery retailers such as Dollar General Corp. (NYSE:DG) and Target Corporation (NYSE:TGT) and increased its market share in the face of these competitors.
The Kroger Co. (NYSE:KR) is widely-considered to be the No. 1 grocery chain, with 2013 revenue expected to reach nearly $100 billion. Shares have risen a massive 35% this year heading into first quarter earnings, compared to a 15% return for the broader S&P 500 index.
On a fundamental basis, I believe significant gains can still be made for long-term investors. The Kroger Co. (NYSE:KR) has achieved success by investing in price and offering the best in-store experience for customers. However, traditional grocers still maintain greater than 50% market share in The Kroger Co. (NYSE:KR)’s end markets, indicating the grocery giant could make further in-roads in the years to come.
Ahead of Thursday’s earnings report, analysts at Cleveland Research Company upgraded Kroger to a “buy” rating. The investment firm believes that Kroger’s growing scale will give it the upper hand with its supplier base. The Kroger Co. (NYSE:KR) consistently generates an above-average return on equity, a rarity in the food and grocery industry.
In addition to upcoming earnings, Kroger is hosting its annual meeting on June 27.
Embattled drugstore chain
Thursday, June 20 before market open; EPS $0.09 / Revenue $6.27B
Retail drugstore chain Rite Aid Corporation (NYSE:RAD) is struggling to compete in a world where larger rivals Walgreen Company (NYSE:WAG) and CVS Caremark Corporation (NYSE:CVS) achieve greater economies of scale.
The company has reported successive decreases in same-store sales so far this year. March, April, and May sales have fallen 2%, 4%, and 1.5% respectively at a time when pharmacy customers are filling their prescriptions elsewhere.
In April, I wrote positively on rival Walgreen following its 10-year contract agreement with drug supplier AmerisourceBergen Corp. (NYSE:ABC). The deal is likely to transform the pharmaceutical industry supply chain, making it difficult for Rite-Aid to compete on a similar scale. I believe Rite Aid Corporation (NYSE:RAD) will be forced to reach a new agreement with suppliers and form its own alliance.
While I believe Rite Aid Corporation (NYSE:RAD) is non-investable for the long-term, the company has several near-term catalysts which could propel shares higher. First, management announced a debt refinancing on June 7 which extends the debt maturity and lowers interest expense. Second, the company raised the lower end of its earnings guidance based on strong generic drug sales.
I remain cautious on Rite Aid Corporation (NYSE:RAD) for the long-term, but shares could rally following Thursday’s earnings report.
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John Macris has no position in any stocks mentioned. The Motley Fool recommends FedEx.
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