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Module 3 Grocery Stores Costco
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  1. Module 3Grocery StoresCostco Megan Wiethoff

  2. Industry Performance • Fluctuations in disposable income has caused consumers to reduce the quality and quantity of goods they purchase • Growth in the past 5 years is mainly due to spending on consumables and expansion initiatives • The industry is highly saturated and has low profit margins • Warehouse clubs and Supercenters have increased their grocery offerings, which increases competition in the industry • High food prices have also limited profitability

  3. Costco Overview • Founded in 1983, in Seattle, WA • Originated the membership concept for wholesale club retailers • Offers members low prices on a limited selection of high-quality, popular brands • Warehouses are designed to be cost efficient • Has been increasing its fresh food selection, up to 13% of total sales

  4. Comparable Companies • Whole Foods: • World’s largest retailer of organic food. Focus on selling high quality natural and organic foods. • Walmart: • Large retail stores that focus on saving the customer money with everyday low prices. • Kroger: • One of the world’s largest grocery retailers.

  5. Market Multiples • In most of the market multiple categories, there is a large discrepancy between the companies

  6. Stock Price Using Each multiple Actual Stock Price = $112.13

  7. NEA Multiple • The grocery store industry has high assets

  8. Sales Multiple • The sales multiple is a commonly used multiple in the grocery store industry

  9. Sales Multiple without Whole Foods

  10. Book Value of Equity Multiple • Shows the value of the stock of the company compared to the book value of the company • Least variation between the companies’ multiples

  11. Net Income & Comprehensive Income Multiples • NI and CI multiples have very extreme results • NI of all 4 companies: • NI of 3 companies

  12. Continued

  13. Enterprise Profit after Taxes

  14. Combined Method • Using the average stock price from the 6 multiples used, the value of the stock price is lower than it is in the market • Therefore, my recommendation is: SELL • However, the market multiple valuation method is weak support

  15. Conclusion • There are more options for consumers when deciding where to buy groceries • All 4 companies have unique attributes that makes it difficult to compare • Although the companies do have some similarities, it is not appropriate to assume that the multiples will be accurately transferable to each other when calculating value

  16. Questions?