On the whole, food retailing is not a particularly attractive
business in developed markets like the U.S.. Same-store sales growth is
typically lackluster, competition is fierce, and margins are thin. New
concepts can certainly distinguish themselves, but it is all in all a
tough business in which to earn strong returns on capital.
Ingles Markets (IMKTA)
is not exactly a tremendous exception. While the company's sales per
square foot and margins hold up pretty well relative to the likes Harris Teeter, they definite lag those of Kroger (KR) (which now owns Harris Teeter) or Safeway (SWY),
same-store sales growth has been sluggish, and the company's free cash
flow generation is not all that impressive. Add in the value of the
company's real estate, though, and the picture brightens. The shares
currently trade above my "base case" value estimate, but there is upside
if commercial real estate prices improve further and/or another
supermarket chain looks at Ingles as an incremental growth opportunity.
Follow this link to read more:
Ingles Markets An Okay Supermarket, Sweetened With Real Estate
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