Kroger, an operator of the US largest chain of supermarkets and convenience stores, issued solid financial report for its fiscal 2014 fourth quarter. Total sales (including fuel center sales) grew 8.5% y-o-y to $25.2 bn matching consensus estimate. Identical supermarket sales (stores that are open without expansion or relocation for five full quarters) excluding fuel center sales, increased 6% to $20.2 bn. The acquisition of Harris Teeter also supported the top-line. Operating income jumped 27% y-o-y to $912 mn, whereas operating margin expanded 50 basis points to 3.6%. The company posted earnings of $1.04 per share that beat analysts’ average forecast of 89 cents, and surged 33.3% y-o-y. Kroger ended the quarter with cash of $268 mn and total debt of $11.7 bn. The company’s trailing-twelve months’ net total debt to adjusted EBITDA ratio was 2.15 compared with 2.43 in the prior-year period, and in the desired range of 2.00-2.20. Kroger’s free cash flow generating ability allowed it to return over $1.6 bn to stakeholders via dividends and share repurchases in fiscal 2014. A quarterly dividend was 18.5 cents per share, with indicated dividend yield of 1%. Kroger anticipates identical supermarket sales growth, excluding fuel, of approximately 3-4% for fiscal 2015. This range takes into account the expectation of lower inflation during the year. Adjusted earnings are expected in the range of $3.8-3.9 per diluted share, which is consistent with the company's long-term earnings per share growth goal of 8-11% My outlook for Kroger remains optimistic as the company’s customer-centric business model provides a strong value proposition to consumers. Kroger, I believe, is well positioned to continue its growth momentum primarily through identical supermarket sales growth. However, intensifying price war among grocery stores to lure budget-constrained consumers may adversely impact the company’s sales and margins going forward. With target price of $80, Kroger’s shares look nice for medium-term investment, I think. $KR, Kroger Company (The) / 1440