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The Kroger Company

The Kroger Company. Module8. 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 Module8

  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. 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 hovered around $38 but now a high of $43 (explained next slide) dollars using comparables got prices as high as $140 (Sales)

  4. Rumors • -Kroger stock has soared lately due to rumors of buying Safeway • -Typical for “go shop” periods • -21 days • -260 million in cash last year (9.4 B offer already) • -150M fee • -What would it mean for Kroger Debt (already gone from 6b to 9b)

  5. Harris Teeter Acquisition • -Results should really be seen in the upcoming 10-K to be released March/April • -Acquisition should propel Kroger over 100B • in annual sales, only 21 companies in the Fortune • 500 hit that mark • -Kroger expects $40 to $50 M in cost savings • Within the next five years • -Kroger financed the deal through debt and • Commercial paper • -Harris Teeter shareholders got a 33% premium • -Kroger assumes $100M in Harris Teeter debt, • Intends to continue dividend and manage FCF • To reduce leverage Source: News Observer

  6. Sales Forecast • -Starting in 2019 I stabilized growth off at 2% • -Harris Teeter acquisition will carry growth forward for a few years but must stabilize at somepoint

  7. Residual Calculations

  8. Abnormal Enterprise Growth

  9. You Coupons • -February 11th, Kroger bought You technology coupon services, the leader in digital Coupons and promotions • -Financial terms were not disclosed but found the deal interesting as an attempt by Kroger to go mobile in a way • -Kroger sees digital coupons as something that has tremendous growth and customers have downloaded over 400M digital coupons in the last 12 months • -Hopefully I can discover some financial impact when the 10-K is released

  10. Conclusion • -Grocery Stores are much harder to compare than I originally thought • -Enterprise value could really increase with Harris Teeter deal and debt taken on • -Finding companies with similar characteristics besides just the leaders in market cap is what seems to be important for valuation purposes • -Based on valuations I recommend a BUY ($70) • -Is debt a concern moving forward based on business model?

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