KR - Kroger

[Rabbitisrich]

 

 

Safeway, in my opinion, accelerated two years worth of share repurchase because they genuinely believe Just For You is a game changer. To me, I agree. I think the idea is fantastic. I

 

As a customer, it's pretty fantastic. The discounts are steep, and they are updated on a weekly basis, which makes the website a regular destination. I noticed some interesting package discounts utilizing store brands. For example, the purchase of 1 OREO package includes another package as well as one of the Refreshe brand (Safeway owned) 12 packs.

[FCharlie]

 

 

Safeway, in my opinion, accelerated two years worth of share repurchase because they genuinely believe Just For You is a game changer. To me, I agree. I think the idea is fantastic. I

 

As a customer, it's pretty fantastic. The discounts are steep, and they are updated on a weekly basis, which makes the website a regular destination. I noticed some interesting package discounts utilizing store brands. For example, the purchase of 1 OREO package includes another package as well as one of the Refreshe brand (Safeway owned) 12 packs.

 

Can you give us some more real examples of how it works? I don't live in a Safeway market so all I know is what I can read about.

 

Also, is Safeway a regular visit for you for groceries, or are you trying Just for you because you are an interested investor,  shareholder? 

 

Can you see the average Safeway shoppers truly spending more because of this program? CEO says 50% of people who try it become regular users.

 

Thanks in advance and please give as much info as possible as to how the program works.

 

 

[Rabbitisrich]

I live within walking distance to QFC, Whole Foods, PCC, and Safeway, and the Just 4 U program definitely increased my commitment to Safeway. In the end, I have a few things I really want to buy regularly, and most purchases thereafter are opportunistic. The site provides a list of personalized sales. You browse and add your selections to your card (which makes you feel obligated to purchase), and then go about your normal shopping process. The store will also provide a print out of sales that you have added to the card.

 

Unlike some competitors, which provide you with a card and tell you to create an account when you get home, Safeway provided management with tablets and a laptop stand. They created a profile for me while I was standing in line.

[stahleyp]

This is kinda neat.

 

http://finance.yahoo.com/news/krogers-weapon-infrared-cameras-011800830.html

[fareastwarriors]

 

 

Safeway, in my opinion, accelerated two years worth of share repurchase because they genuinely believe Just For You is a game changer. To me, I agree. I think the idea is fantastic. I

 

As a customer, it's pretty fantastic. The discounts are steep, and they are updated on a weekly basis, which makes the website a regular destination. I noticed some interesting package discounts utilizing store brands. For example, the purchase of 1 OREO package includes another package as well as one of the Refreshe brand (Safeway owned) 12 packs.

 

Can you give us some more real examples of how it works? I don't live in a Safeway market so all I know is what I can read about.

 

Also, is Safeway a regular visit for you for groceries, or are you trying Just for you because you are an interested investor,  shareholder? 

 

Can you see the average Safeway shoppers truly spending more because of this program? CEO says 50% of people who try it become regular users.

 

Thanks in advance and please give as much info as possible as to how the program works.

 

 

I have became a regular user of Just 4 U. I load all the coupons and personalized deals at home.  The Personalized deals are pretty good. It often promotes the stuff I buy regularly. It definitely made me choose Safeway over other competitors.

 

However, the Safeway stores I go to are always understaffed...  My average time to check out is probably like 20 minutes when I shop at like 8 or 9 pm. There aren't any lanes open. There are usually 2 regular lanes opened and 4 self-checkout terminals. 

 

[fareastwarriors]

Kroger Deal Doesn't Mean a Supermarket Sweep Purchase of Harris Teeter Boosts Other Supermarket Stocks, but the Excitement Looks Premature.

 

News on Tuesday that Kroger KR +2.65%will buy Harris Teeter Supermarkets HTSI +1.53%for $2.44 billion whet investors' appetite for other grocery-store shares. Indigestion is the likely outcome.

 

Traditional grocery stores have led a troubled existence in recent years. Competition from Wal-Mart, WMT +0.42%dollar stores and fast-food restaurants has drawn lower-income customers away from supermarket aisles. Upscale purveyors like Whole Foods WFM +1.60%have been luring the better-heeled, arugula-eating subset of the population. Meanwhile, grocery stores' core middle-class customers have been pinched, with median household income falling by 6.7% from 2001 to 2011, adjusted for inflation.

 

It is an environment that Kroger has negotiated well. It launched a campaign in late 2001 to reduce the price gap between it and Wal-Mart for staples, and lately has carried higher-end items to capture more high-income customers. The payoff: In the fiscal year ended January, Kroger sales were 87% higher than a decade ago, versus a 35% gain for the wider industry.

 

The upscale Harris Teeter fits in well with Kroger's strategy, giving it a bigger presence in growing Southeastern markets, like the Raleigh-Durham area in North Carolina.

 

The acquisition doesn't seem to fit in with any argument that challenges for other grocery stores are somehow diminishing. Yet shares of Safeway SWY +2.25%rose 2.3% Tuesday, while those of Fresh Market TFM +2.56%rose 2.6% and Roundy's RNDY +4.95%rose 5%.

 

The obvious hope is that the apparent value Kroger saw in Harris Teeter shares, which have risen 33% since it emerged in January that the company was exploring a sale, might extend to others. But the acquisition might just as easily be a signal that competition is about to get even more heated. Not everybody can be a winner.

 

http://online.wsj.com/article/SB10001424127887324867904578596000290801788.html?mod=WSJ_Heard_LEFTTopNews

[fareastwarriors]

Kroger Earnings: Sales Growth Continues

 

Supermarket Chain's Profit Rises 14% Despite Stiff Competition.

 

 

For the quarter ended Aug. 17, profit rose to $317 million, or 60 cents a share, from $279 million, or 51 cents a share, a year earlier. Kroger's total sales grew 4.6% to $22.72 billion, and were up 3.9% excluding fuel sales.

 

Operating margin edged up to 2.6% from 2.5%.

 

Identical-store sales, which includes locations open at least 15 months, rose 4%, and by 3.3% excluding fuel sales.

 

For the full fiscal year, Kroger now expects identical-store sales growth of about 3% to 3.5%, excluding fuel; it previously projected growth of 2.5% to 3.5%. Kroger also backed its full-year earnings outlook.

 

 

 

 

http://online.wsj.com/article/SB10001424127887324549004579070874266555250.html?mod=WSJ_business_whatsNews

[pau_]

Kroger posted Q1 2017 results. Beat on lower earnings, slightly lower same store sales, guiding down for the next year. Stock is down 18% today; 35% from a year ago. Everyone's worried about German discounters, Amazon, etc. I think the valuation is attractive at this price ($27.6B market cap, ~$115B in revenue, ~$2B in earnings) but what do I know, I thought that 18% ago ¯\_(ツ)_/¯

 

WSJ: https://www.wsj.com/articles/kroger-shares-slide-as-grocer-is-battered-by-price-fight-1497531764

[topofeaturellc]

It's not actually that cheap unless you think the 2 dollar eps # is real, achievable and a temporary dislocation in earnings.  You are still paying like 12.5x for a cost of capital at best business.  And that's assuming this is the full reset that matches wmt's reset and the WMT won't have to reset margins again in the face of the hard discounters - which really I have no idea about, but things do seem to skew negative. 

[Viking]

Kroger is the best managed food retailer in the US.

1.) strong management? Yes

2.) long term focus to running business? Yes

3.) shareholder friendly? Yes

4.) solid capital allocator? Yes

 

Having said all of the above food retailing in the US is a very competitive business. For the past year food deflation has been a big drag on the business. Currently, Walmart is cutting prices, German discounters are entering/expanding and Amazon continues to expand. The big losers in this scanario will be the other grocery chains who are already struggling.

 

The silver lining for Kroger is there will be a wave of consolidation in the industry and Kroger will be an acquirer and will benefit mightily. Kroger with a depressed PE of 12.5 (due to food deflation and competition) looks like a solid buy at $24.60/share. Food deflation is already abating. current price issues will also subside (as the always do).

[topofeaturellc]

All of those things are true and yet depending on how you want to capitalize the lease book it's been a 9% roic business during a five year period when their only competition who matters took the foot off the pedal on price competition.

 

That's how hard the business is.  For me 12.5x for a number that may not actually be underearning isn't compelling enough to take the risk an even bigger re set to margin is coming.

[Viking]

Topo, yes, food retailing is a very challenging business and Kroger's share price could continue lower if its business continues to face margin pressures. I purchased shares today but did not go 'all in'.

 

One concern I have is the company has been taking on more debt the last couple of years to fund not only acquisitions but also repurchase shares at much higher prices.

 

The company is not perfect and the industry is very competitive. However, I do believe Kroger will continue to grow their business and provide a solid return for shareholders over a multi year period (with shares priced at $24.60 today).

[topofeaturellc]

Yeah and the MEPP exposure isn't very fun.

 

I hear you on the historical quality of management.  You really couldn't say they've done anything other than a great job.  What really give me pause is that if you look at grocery margin re-sets globally, especially those that were reactive rather than proactive, very rarely is the first move enough.

[HJ]

With Amazon buying Whole Foods, is the grocery business about to get more difficult?

[PLynchJr]

Wow...didn't see that one coming!  :o

[pau_]

Thanks for the counterpoints topofeaturellc. My thesis largely rests (rested?) on agreeing with Viking re. management. We'll see how quickly and how well Amazon can take Whole Foods online. We all know Bezos' MO with margins, so this "competitors running hot features" problem is going to get a lot worse.

 

Take-away: any time I type "competition from Amazon" in a thesis or post, back away from the keyboard and think a little more about how that could happen.

[Viking]

I sold my shares of KR into the close today for a 10% hit in one day, fortunately on a small position. The part of investing that I have had the hardest time with is the 'when to sell' decision. Peter Lynch's advice is sell when the story changes (for the worse). What I do not like about Amazon (as an investor) is their low (or no) margin strategy. It is unclear what Amazon intends to do with Whole Foods; however, I think it is a safe to forecast that margins and profitability for food retailers will be coming down in future years. I continue to think that Kroger is best in class when it comes to traditional food retailers. However, given Amazon's purchase of Whole Foods my guess is Kroger will need to accelerate its investment (in price and building its offline presence) and this will lower profitability. One too many headwinds. I am happy to take a small hit and move on; lots of other great opportunities to focus on.

[Ballinvarosig Investors]

Retail grocery is just a horrible, horrible sector to be in. Five years ago, I was in Tesco when it signalled a very unexpected and catastrophic profit warning (2011). I held on for another 3 years or so as things just got worse and worse before I took my lumps. It's been another three years since then and profits have evaporated and the share price has declined even further. This is what grocery has been like in the UK, profits have just disappeared entirely thanks to intense competition. When I look at the likes of Walmart and their relatively fat 5% margin, I think this is going to be eaten into. I think you have so many competitors in grocery now who are all willing to cut each others throats to achieve market share. Consumers will be big winners, but I suspect investors are best off staying away, and in this, I include Amazon. If they're going to push the nuclear button to win in grocery, the battleground they win might be something that was not even worth having. Please note, I haven't even mentioned Lidl or Aldi - private German companies that have said they don't even care about margin - they want market share. If you want to compete against that, good luck. Personally, I am not and will stay out.

[WneverLOSE]

I sold my shares of KR into the close today for a 10% hit in one day, fortunately on a small position. The part of investing that I have had the hardest time with is the 'when to sell' decision. Peter Lynch's advice is sell when the story changes (for the worse). What I do not like about Amazon (as an investor) is their low (or no) margin strategy. It is unclear what Amazon intends to do with Whole Foods; however, I think it is a safe to forecast that margins and profitability for food retailers will be coming down in future years. I continue to think that Kroger is best in class when it comes to traditional food retailers. However, given Amazon's purchase of Whole Foods my guess is Kroger will need to accelerate its investment (in price and building its offline presence) and this will lower profitability. One too many headwinds. I am happy to take a small hit and move on; lots of other great opportunities to focus on.

 

Hi, would you be willing to share what are those other great opportunities you see ?

 

[Spekulatius]

Retail grocery is just a horrible, horrible sector to be in. Five years ago, I was in Tesco when it signalled a very unexpected and catastrophic profit warning (2011). I held on for another 3 years or so as things just got worse and worse before I took my lumps. It's been another three years since then and profits have evaporated and the share price has declined even further. This is what grocery has been like in the UK, profits have just disappeared entirely thanks to intense competition. When I look at the likes of Walmart and their relatively fat 5% margin, I think this is going to be eaten into. I think you have so many competitors in grocery now who are all willing to cut each others throats to achieve market share. Consumers will be big winners, but I suspect investors are best off staying away, and in this, I include Amazon. If they're going to push the nuclear button to win in grocery, the battleground they win might be something that was not even worth having. Please note, I haven't even mentioned Lidl or Aldi - private German companies that have said they don't even care about margin - they want market share. If you want to compete against that, good luck. Personally, I am not and will stay out.

 

The US groceries are very fat compared to German Grocers. I am a German transplat and was surprised how inefficient US grocers operate (except Costco) relative to their german counterparts. We don't have public numbers for Aldi and Lidl, but for all we know, they are very profitable. They are simply very cost efficient, run their operation well and source their products at low costs. Note that WLmart folded in Germany because they simply were not cost competitive in their stores (I visited some of their stores while they were still in Germany and prices were surprisingly high).

 

As for AMZN, I think their game is to their prime membership even more sticky and expensive in the end, by offering groceries now as well. They will break even on goods sold and the money is going to be made from membership fees, just like Costco.

[Viking]

WneverLOSE, my favourite sector the past 18 months has been the large US banks. Since the Trump election the sector has done very well. I think there is still lots of upside the next couple of years as there are many tailwinds (unlike food retailers where there are headwinds):

1.) capital return - Citi will return more than 100% of earnings for many years starting July 1 = +$15 billion in dividends and share buybacks

2.) peak regulation - is behind us. Significant compliance costs will be coming down and this will boost profitability

3.) Fed tightening: the Fed just confirmed they will be raising Fed funds one more time this year and three times next year; each increase will boost banks net interest income and profits meaningfully.

4.) top line growth - despite all the capital return the banks will continue to grow their top line. Citi has been investing heavily in its credit card business and will only start to reap the rewards starting July 1.

5.) Fed shrinking its balance sheet starting 2H 2017 - this will lead to higher interest rates on 10 year Treasuries. This will really help banks like BAC (C not so much).

6.) wild card: tax reform in US. If this happens it will be a windfall gain for US banks.

7.) wild card: infrastructure spending. Anything Trump is able to get passed that that stimulates the US economy will be VERY bullish for US banks

8.) safety: US banks are safest they have been in decades (more capital, less leverage, better credit quality). They are more like a utility and as such deserve a higher PE multiple.

9.) sentiment: US banks were hated investments right up until the Trump election. In another year or two investors will fall back in love with the banks and will assign them a much higher PE multiple. Just look at what has happened to Apple the last 4 years (their PE multiple has increased but their business has not changes all that much).

 

Growing top line, growing profits, much lower share count, higher PE multiple = much higher share price.

 

I am also doing a deep dive into Fairfax. It looks pretty cheap. If they get their investing mojo back the stock looks dirt cheap. I will be closely watching to see what they do with all the cash they are holding. If they continue to throw it at stocks like Resolute Forest Products then I will likely take a pass. If they put their cash into higher quality stocks I likely will get more aggressive with my position.

[DTEJD1997]

Hey all:

 

I'm trying to get my head wrapped around the WFM purchase by AMZN...

 

In the past, I've shopped at WFM.  I used to buy the Indian "TV dinners" there, as they were quite tasty and that was the ONLY place that I could get them...Fast forward to today.

 

Kroger carries the same brand...but it is $1 less in price EVERY DAY.  Sometimes KR runs a sale and I can get them for even less...

 

WFM still has some things that are unique OR very hard to find elsewhere...but I'm not going out of my way for 1 or 2 items...

 

ALSO, in my neck of the woods...the nearest WFM is about 15 minutes away.  The nearest Kroger is within walking distance.  If I expand my circle to a 10 minute driving radius, there are 3 Krogers. A 15 minute circle and the number expands much higher than that even.

 

Everybody that I know and associate in this area shops at Kroger to some degree.  NOT EVERYBODY I know/associate with shops at WFM.

 

I think it is a given that prices are coming down at WFM.  Let us theorize that prices at WFM are lowered 20% across the board, how much more business are they going to pick up?  In my area, I doubt Kroger will even see any reduction in market share.  What if WFM lowers prices 40% across the board?  OK, I very well might be tempted to drive to one of their locations and start doing some shopping.  However, with a 40% reduction in prices, I suspect WFM would be losing money HAND OVER FIST.

 

In my area, the real competitors are Trader Joes, Trader Joes, and Aldi.

 

There is also some amount of competition from locally owned, higher end grocers.  These guys have 5-7-12 locations and are VERY upscale and put a BIG emphasis on prepared and imported foods.  Also, they are big on high quality produce.  I didn't pay too much attention to some of these locals...but lately that has changed.  They have some really good stuff, especially prepared foods.

 

I have no doubt that WFM market can take market share AND cause trouble WHERE they already have established locations.  IN my area, I think they would get killed if they have to build/buy to get a new physical location.

 

So I've got to question just how much market share and deflation is going to occur. 

 

I also think that AMZN's Achille's Heel is their dependence on the capital markets.  They've been able to play their "no margin" game because they pass on Wall St.  What happens if the capital markets change their mind?  Very, very different situation for AMZN.

 

Of course, this is just Detroit and Michigan.  Things are probably radically different on the coasts.

[solobz]

I picked up some KR Friday due to valuation but may punt half or all of it this week. only thing I seem to like about it is valuation and management being strong operators, but starting to think it'll get cheaper over next 6mo..a lot of facets to the bear case.

 

-food deflation persisting

-long runway for price competition - no longer "temporary"- with aldi/lidl/wfm/wmt competition

-wfm may finally be able to invest in price (eventually) under amzn - couldn't really as independent public co

-consumer habits changing, assuming amzn delivery will take some share

-consumer brand deterioration meme persisting, consumer shift to value vs. full scale experience

-wage inflation/labor issues

-kr perceived edge in data/analytics deteriorating, shifted to wfm/amzn

-y/y loyalty changes for kr not great - loyal +3.2% but non-loyal decline

-mgmt strong operators, but their non conservative guidance has been missed as of late - is there any visibility into the biz for next 12m?

-UK grocery model is littered with bodies in a share-at-all-costs environment, and starting to think the US market is heading there now.

 

so today we're around 12x ntm earnings which looks reasonable, but starting to think bear case of ~10x on ~1.90-2.00 earnings is within the realm of reasonable possibilities with sentiment heading lower

 

[Viking]

Kroger was very aggressive the past 12 months buying back stock at much higher prices (financed with long term debt). Kind on reminds me of Gilead who borrowed heavily to buy back shares at prices over $100 only to see its shares fall to $65. With elevated long term debt Kroger now has one fewer option to respond to current situation. Unfortunate.

[fareastwarriors]

Kroger exploring sale of convenience stores

http://www.reuters.com/article/us-kroger-investors/kroger-exploring-sale-of-convenience-stores-shares-rise-idUSKBN1CG1R9