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In an effort to focus on core operations, The Kroger Co. KR recently concluded the sale of its convenience store business to EG Group for $2.15 billion. As part of the "Restock Kroger" program initiated last October, Kroger has been looking to weigh strategic alternatives for its convenience stores.Notably, Blackburn, England-based EG Group is an operator of convenience stores in Europe.
Going into details of the deal, Kroger vended 762 stores (including 66 franchise operations in 18 states, employing 11,000 associates) under the Turkey Hill, Loaf 'N Jug, Kwik Shop, Tom Thumb and Quik Stop brands. However, management highlighted that supermarket fuel centers and Turkey Hill Dairy are not part of the deal.
Planned in February, the sale is expected to yield $1.7 billion after taxes, out of which $1.2 billion will be used for an accelerated share repurchase program. The rest of the proceeds will be used to lower its net total debt to adjusted EBITDA ratio.
The sale seems like a fitting move by Kroger, which has been grappling with stiff competition in the grocery industry, volatile food prices, an aggressive promotional environment and declining store count.
Kroger, which shares space with the likes of Wal-Mart WMT, Amazon AMZN and Target TGT, is leaving no stone unturned to draw consumers and gain incremental revenues. The company is expanding its store base and introducing items and digital coupons along with other attractions like online ordering and pick-up at store.
Apart from such bold moves, this Zacks Rank #3 (Hold) company has been ramping up its shareholder-friendly activities. It has entered an agreement with Goldman Sachs & Co. LLC to buy back shares, close on the heels of a $1-billion repurchase program announced on Mar 15. Per the agreement, the Cincinnati-based company will pay $1.2 billion to Goldman Sachs on Apr 24. In turn, Goldman Sachs will initially deliver around 36.1 million common shares of Kroger. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We believe that these measures will enhance Kroger’s performance and lift its stock. In the past six months, shares of the company have risen 13.5%, outperforming the industry’s gain of 0.9%.
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