Fitch Affirms Rating for Kroger, Citing Ops Strategy

Fitch Ratings said yesterday that it's debt ratings outlook for the Kroger Co. is "stable," reflecting the chain's "successful operating strategy, which has allowed the company to achieve industry-leading identical store sales trends, its ability to generate cost efficiencies and strong cash flow, and its conservative financial management."

Fitch said its ratings also consider the economic environment and intense competition in the grocery sector, which it expects to continue to pressure operating profitability over time.

Kroger, with 2,477 supermarket and multi-department stores across 31 U.S. states as well as 1,170 convenience and jewelry stores, benefits from the geographic breath and diverse formats of its store base, Fitch said.

The grocer's vaunted Customer 1st operating strategy, focused on improving the shopping experience through competitive pricing, service, assortment, and store experience, has allowed it to maintain leading market share positions in most of its major markets and mid-single-digit non-fuel identical store sales, among the strongest in the industry.

Kroger's significant investment in price over the past five years and its merchandising initiatives have allowed it to build a strong price perception with customers which, in the current challenging economic and competitive environment, is helping it continue to gain share, Fitch added in its ratings note.

"The company has funded its price investments with an acute focus on cost management, which has allowed it to maintain relatively stable operating EBIT margins in the low 3 percent range," Fitch said. "In addition, cash flow generation has remained strong, allowing the company to continue to invest about $2 billion to $2.2 billion in capital expenditures per year and maintain stable credit metrics."
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