NEW YORK – For potential buyers, there may never be a better time to go grocery shopping in the United States.
Kroger Co., the largest U.S. grocery-store chain and owner of regional powerhouse Fred Meyer, is trading at an 86 percent discount to its projected sales this fiscal year. That leaves it cheaper than 99 percent of companies in the Standard & Poor’s 500 Index, according to data compiled by Bloomberg.
The Cincinnati-based company, which lost $4.7 billion in market capitalization during the last recession, is now valued at 10.8 times estimated earnings, the lowest level for a U.S. food retailer greater than $2 billion, the data show.
Kroger, which has increased sales in every year since at least 1987 even as Target and Walmart Stores grabbed market share from other supermarkets, may now become a target for retailers outside the U.S. or private equity firms, according to Northcoast Research Holdings. Valued at $13.7 billion, Kroger could still attract a takeover offer 30 percent above its current price, Point View Wealth Management Inc. said, making it the largest grocery acquisition on record.
“Of the traditional pure-play grocery stores, Kroger is the crown jewel,” David Dietze, president and chief investment strategist at Summit, N.J.-based Point View, which owns shares of Kroger, said in a telephone interview. “They have a long consistent record of positive same-store sales performance. It’s timely to acquire Kroger because it’s cheap.”
Keith Dailey, a spokesman for Kroger, said the company doesn’t comment on rumor or speculation.
Kroger traces its roots back to 1883, when Barney Kroger used his life savings of $372 to open a grocery store in downtown Cincinnati. Since then, the company has grown to more than 2,000 Kroger supermarkets, selling Kroger brand food items. The company also operates retailers including 131 Fred Meyer grocery and department stores, the Turkey Hill convenience shops and Littman Jewelers.
After losing $4.7 billion in market value during the longest recession since the Great Depression, Kroger has lagged behind a rebound in consumer stocks. Since June 2009, when the 18-month contraction ended, shares of Kroger have gained just 4.9 percent, versus a 41 percent advance for the S&P 500 Consumer Staples Index.
While Kroger was able to boost sales through the recession, its profitability declined in each of the past five years as the company lowered prices to compete with discount store chains such as Walmart.
While Kroger is an attractive business, its size may make buyers hesitant to do a deal that large as the industry faces increasing challenges and competition from unconventional food retailers, according to Edward Kelly, a New York-based analyst at Credit Suisse Group.
“Kroger would be too large,” Kelly said in a telephone interview. “It’s a good, well-run company, but it’s in a tough business. There’s a lot of different places that consumers can go to buy food today and the supermarkets are kind of caught in the middle because they’re losing share.”
Size may not be an issue if private equity were to team up with an overseas grocery chain such as Delhaize or Carrefour, the world’s second-largest retailer, Point View’s Dietze said.
A group of buyers could pick and choose which brands and assets they want and private equity could decide to restructure the real estate, he said. “It’s doable,” Dietze said.
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