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The Kroger Company

The Kroger Company. Module5. Kroger. 343,000 Employees Headquarter in Cincinnati Primary store is “combo store ” (supermarket) Multi-department (Fred-Meyer), Marketplace, Price Impact Stores (Food for Less) as well Last Saturday in January Comparables are Whole Foods, Costco, Walmart.

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The Kroger Company

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  1. The Kroger Company Module5

  2. Kroger • 343,000 Employees • Headquarter in Cincinnati • Primary store is “combo store” (supermarket) • Multi-department (Fred-Meyer), Marketplace, Price Impact Stores (Food for Less) as well • Last Saturday in January • Comparables are Whole Foods, Costco, Walmart

  3. Source: Mergent Online Quick flashback to module 2, Kroger is very different in that using 2% for NEA calculations would not work. They have very little cash on their balance sheet relatively.

  4. Trouble So Far -Tough to find comparables with grocery stores so far. Whole Foods and Costco have not seemed to fit, Walmart is a possibility. -Has to do with business models -Stock price is $38 dollars using comparables got prices as high as $140 (Sales)

  5. Enterprise Profit Margin • -This is where we are really going to see a difference across the board • -Think back to Whole Foods and the premium Eva talked about • -Also blended companies EPM (Kroger) 2013 2012 2011 2010 0.0187 0.0073 0.0169 0.0049 Walmart 2010 2011 2012 2013 EPM 4.67% 4.62% 3.39% 4.33% Costco EPM 0.017 0.0168 0.0208 Whole Foods EPM 3.11% 3.35% 3.97% 4.17%

  6. EPM from sales -Overall, not a large difference here with the exception of 2010. -Impairment charges -Discontinued operations -Gains/Loss from hedging

  7. Enterprise Asset Turnover -Generally pretty stable, especially with a grocery store company -Fluctuation is due to inventory as mentioned earlier -Whole Foods had the lowest EATO out of the industry comparables

  8. Kroger sales growth -Overall, very steady company in terms of growth the past couple of years -This if from last module, but decided to make an adjustment to 4.5% moving forward. The whole talk about sustainability changed that -Feel steady about 4.5% because of the business model of Kroger

  9. EPM/EATO averages -Took EPM from sales since it was more steady without the impairment charge in 2010 -With inventory fluctuation, took down estimate for average EATO a touch

  10. Projections

  11. FCF Calculations • Kroger has a very small EPM and also relatively small NEA. If it had larger NEA FCF would most likely be negative

  12. Conclusion • -Grocery Stores are much harder to compare than I originally thought • -Free Cash Flow has been the closest comparison so far for Kroger • -Feel confident with Kroger’s growth in the future • -Finding companies with similar characters besides just the leaders in market cap is what seems to be important for valuation purposes • -Look forward to actually finding some comparable companies to Kroger QUESTIONS?

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