QUOTE AND NEWS
SeekingAlpha  Oct 2  Comment 
By Thomas Hughes: Ingles (NASDAQ:IMKTA) is the unsung hero among the super market chains. It is a smaller, regional operation with amazing growth potential and management with the vision to do it. The company is sitting on huge amounts of real...
SeekingAlpha  Aug 28  Comment 
By William Bias: Investors should always make a list of the qualities they are looking for in an investment. The following six-point inspection serves as an example that can help guide you in the research process. 1.) What does the company...
SeekingAlpha  Aug 4  Comment 
Ingles Markets, Incorporated (NASDAQ:IMKTA) Q3 2014 Earnings Conference Call August 04, 2014, 9:00 AM ET Executives Ron Freeman - CFO Robert Ingle II - CEO & Chairman Jim Lanning - President Tom Outlaw - VP, Sales ...
Bloomberg  May 5  Comment 
3:13 May 5 (Bloomberg) –-...
SeekingAlpha  May 2  Comment 
Ingles Markets (IMKTA) F2Q 2014 Results Earnings Conference Call May 2, 2014, 9:00 a.m. ET Executives Ron Freeman - CFO Robert Ingle, II - CEO Jim Lanning - President Tom Outlaw - Vice President of Sales and Marketing ...
DailyFinance  Apr 23  Comment 
SAN FRANCISCO, CA -- (Marketwired) -- 04/23/14 -- Continuing its mission to make high quality, Free Range eggs accessible across the U.S., the happy egg co. is once again expanding its distribution network with the addition of Ingles...
StreetInsider.com  Mar 31  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Dividends/Ingles+Markets%2C+Inc.+%28IMKTA%29+Declares+%240.165+Quarterly+Dividend%3B+2.8%25+Yield/9331887.html for the full story.
SeekingAlpha  Mar 4  Comment 
By Stephen Simpson, CFA: 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...
SeekingAlpha  Feb 3  Comment 
Ingles Markets, Incorporated (IMKTA) Q1 2014 Earnings Call February 3, 2014 9:00 AM ET Executives Ron Freeman - Chief Financial Officer Analyst Bryan Hunt - Wells Fargo Securities Damian Witkowski - Gabelli & Company Hale...




 

Business Overview

Founded by Robert P. Ingle and first incorporated in 1965, Ingles Markets, Inc. is a supermarket chain located in the southeastern part of the United States. Many of their stores are located in North Carolina. This is because their main warehouse and distribution center is located near Asheville, North Carolina. There are, however, four more stores operated by Ingles Markets in Georgia. Their main areas of operation are the suburbs, small towns and shopping centers.[1]

The company business model is a one-stop shop for everyone’s essential food and non-food needs. Non-food includes gas, pharmacy, clothing, health and beauty, etc. Within that model are company values based on convenience, customer service and competitive pricing. Another key value is the idea of a modern style shopping experience. To emphasize their devotion, Ingles Markets, Inc. spent $634 million in the past five years to ‘modernize’ their stores.

As of September 2010, the company operated 193 locations under the name “Ingles” and another nine under the name “Sav-Mor.” At the same time, the company also operated 70 pharmacies and 67 gas stations.[1]

Business Economics

Market Segmentation

Ingles Market (IMKTA) owns and operates 202 grocery supermarkets in Georgia (73), North Carolina (69), South Carolina (36), Tennessee (21), Virginia (2), and Alabama (1).Of these locations, nearly all of them are located within 280 miles of it's warehouse and distribution facility, which provides much of the grocery, meat, dairy, and produce product to the various Ingles supermarket locations. This singular location provides approximately 47% of the food sold by Ingles, while the other 53% is purchased from third party suppliers. The relative closeness of a distribution center allows for quality and freshness of goods sold by Ingles Market.

In addition to their distribution center, Ingles Markets also owns and operates a milk processing and packaging plant that supplies approximately 86% of the milk products sold by the Company’s supermarkets as well as a variety of organic milk, fruit juices and bottled water products. This processing plant also sells approximately 67% of their product to outside customers.

Another way in which Ingles Markets segments itself is by focusing much of their expansion in suburban areas, small towns and neighborhood shopping centers. The Company expands and remodels locations in these areas to provide the best possible customer service and to provide a "one stop shop" location for it's demographic. Ingles Markets provide their consumers with both national name-brand products, non national brands (such as those provided by Ingles), and non-grocery items, including fuel, pharmaceuticals, health and beauty products, and general merchandise.

Finally, Ingles Markets further segments itself by their involvement in Real Estate purchases and ownerships. IMKTA currently owns and operates 70 shopping centers, with an additional 93 properties that contain a free-standing Ingles Market supermarket. Another 14 properties are owned that are undeveloped, but have free-standing market potential. Nearly all of these properties are located in the same geographic region of existing Ingles Market locations.[2]

Ingles Markets (IMKTA) is part of the services sector, and included in the grocery stores industry. [3]

Sources of Revenue

Ingles Markets (IMKTA), relies on three main divisions for the majority of its income: retail grocery sales, shopping center rentals, and a fluid dairy processing plant. Revenues from each of these segments are as follows (all numbers in millions of dollars, and also as a percentage of Ingles Markets' total revenue )[4]

The secondary table listed breaks down the Grocery Sales segment (noted in blue on the first chart) of Ingles Markets, as it is this segment that has consistently produced a high percentage of annual revenue within the company (all numbers are in millions of dollars). Included in each of the segments within Grocery Sales are:

  • Grocery: grocery, dairy and frozen food products.
  • Non-foods: alcoholic beverages, tobacco, pharmacy, health and video products.
  • Perishables: meat, produce, deli and bakery products.
  • Gasoline: fuel based products.
Revenue of Ingles Market by segment 2008-2010
Grocery Sales Segment product revenues 2008-2010

Financial Statement Analysis

By looking at the financial statements provided by Ingles Market for the year ended September 30, 2010, any large factors contributing to final asset, liability, income, or expense numbers, as well as determining the free cash flow of the corporation moving forward can be evaluated and explained.[5]

Consolidated Balance Sheet

When looking at Ingles Markets' current assets, it is noted that a large portion (68.2%) are inventory-based items. This large chunk of assets is not uncommon among grocery stores nation-wide, but it does cause concern when determining the liquidity of the company. Although a current ratio may show that a company such as Ingles Markets may be relatively liquid, when looking at a ratio such as the quick ratio, which takes out inventory and includes only your "quick" assets, the amount of liquidity and available quick assets that the company has to pay off its creditors decreases significantly.

After observing Ingles Markets' long-term assets, the largest area of note is the company's construction in progress value in relation to its valuation of buildings that are in company ownership. As of the most recent year end, construction in progress represented about 6.2% of the total building value. This can help to determine the rate at which the company is expanding. By looking at this data in one point in time, it is observed that the company is actively trying to grow its operations not only by remodeling existing locations, but by investing in new buildings and other property developments.

The Liabilities section of the consolidated balance sheet shows that almost US $100 million is due to come off the books for the company during the next fiscal year, which represents approximately 8% of total liabilities currently held by the company. However, the company is still obligated to pay off US $725 million in long term debt to creditors, which represents a much more significant portion of total liabilities. Overall, the amount of debt held by IMKTA is much more significant than the amount of money invested or retained by the company to finance their assets, which can be concerning when looking at the size of the company and their aggressive plans for growth.

Consolidated Statement of Incomes

As previously discussed, a large portion of Ingles Markets' revenues comes from that of grocery sales, and this number is represented within the sales (less allowances and returns) section of the income statement. The company has a gross profit of about US $763 million, which represents 22.5% of their net sales, a solid number for a company in the industry. The largest portion of expense of the company comes from operating and administrative activities. Some of the areas that this account can affect are distribution and manufacturing costs, employee salaries, and the costs associated with the equipment that may need to be altered to suit the needs of IMKTA. The company also has a significant amount of interest expense, which is not surprising as they have more creditor debt than assets financed through the company or outside investors. Ingles Markets' has a bottom line net income of US $31,739,404, which represents about 1% of their net sales. This figure could potentially be improved on by becoming more vertically integrated and less dependent on third party suppliers, as well as making changes to existing advertising, marketing, and supply chain strategies. Ingles Markets' is known for selling a majority of products from their own distribution and manufacturing centers, so the room for better income margins may be slim.

Consolidated Statement of Cash Flows

Ingles Markets uses the commonly applied indirect method when determining cash flows from operations, starting with its' net income as a base and altering it based on inflows and outflows of cash or changes in income that had no bearing on cash, such as depreciation. When looking at these figures, it is seen that IMKTA has a large amount of depreciation, which can be attributed to the aging of their buildings and equipment. An area that stands out as a concern is the fact that the company had an estimated US $15 million increase in inventory during their fiscal year, which may show that they were not selling as many goods near the end of their year; within the grocery industry, one would expect this value to be near zero, as the inventory does not become obsolete and is usually quickly sold. Overall, IMKTA had a net cash inflow from operations of approximately US $125,000,000. Many companies, both within the industry and in general, will have their largest inflows from operations, so this figure is not uncommon.

When looking at the investments made by Ingles Markets, it is observed that the only real outside investments they made were in certificates of deposit, having invested US $3.5 million in them during their fiscal year. They also collected on US $15 million in CD's (the interest on these investments would be included under their cash flows from operations). These investments may be a tool to battle inflation, but it isn't uncommon for a mid-sized grocery chain to have minimal outside investments. Overall, the company had a cash outflow during their last fiscal year of about US $79,000,000. The main contributing factor to this large outflow were their capital expenditures, which may be to extend the useful life or increase the performance of their existing assets, or in the design and creation of their new locations that were in the process of being completed.

Finally, the financing section of Ingles Markets' statement of cash flows shows that the company repaid nearly US $32 million in long term debt, which can be viewed as either a strong indicator of the companies ability to pay off debt, or as a weak indication, seeing as the amount paid off represents a minuscule percentage of the total amount of debt owed. The only other significant financing activity by IMKTA was the payment of dividends to investors, which represented a US $15.5 million outflow. Overall, the company had a cash outflow due to financing activities of about US $48 million during their previous fiscal year.

Business Strategy

SWOT Analysis

Strengths:

The Company believes that today’s supermarket customers are focused on convenience, quality and value in an attractive store environment. As a result, the Company’s “one-stop” shopping experience combines a high level of customer service, convenience-oriented quality product offerings and low overall pricing. The Company’s modern stores provide products and services such as home meal replacement items, delicatessens, bakeries, floral departments, video rental departments, greeting cards and broad selections of organic, beverage and health-related items. At September 25, 2010, the Company operated 70 pharmacies and 67 fuel stations.

The Company believes that customer service and convenience, modern stores and competitive prices on a broad selection of quality merchandise are essential to developing and retaining a loyal customer base. The Company’s new and remodeled supermarkets provide an enhanced level of customer convenience in order to accommodate the lifestyle of today’s shoppers. Substantially all of the Company’s stores are located within 280 miles of its 919,000 square foot warehouse and distribution facilities, near Asheville, North Carolina, from which the Company distributes grocery, produce, meat and dairy products to all Ingles stores. The warehouse supplies the stores with approximately 47% of the goods the Company sells and the remaining 53% is purchased from third parties. The close proximity of the Company’s purchasing and distribution operations to its stores facilitates the timely distribution of consistently high quality meat, produce and other perishable items.

To further ensure product quality, the Company also owns and operates a milk processing and packaging plant that supplies approximately 86% of the milk products sold by the Company’s supermarkets as well as a variety of organic milk, fruit juices and bottled water products. In addition, the milk processing and packaging plant sells approximately 68% of its products to other retailers, food service distributors and grocery warehouses in 17 states, which provides the Company with an additional source of revenue.

Real estate ownership is an important component of the Company’s operations. The Company owns and operates 70 shopping centers, of which 58 contain an Ingles supermarket, and owns 93 additional properties that contain a free-standing Ingles store. Shopping center ownership provides tenant income and can enhance store traffic through the presence of additional products and services that complement grocery store operations. The Company also owns 14 undeveloped sites suitable for a free-standing store. The Company’s owned real estate is generally located in the same geographic region as its supermarkets, giving Ingles Market with multiple markets of investment.

Weaknesses:

The Company has, and expects to continue to have, a significant amount of indebtedness. At September 25, 2010, the Company had total consolidated indebtedness for borrowed money of $817.5 million and had $185.0 million of availability under its lines of credit. A portion of the Company’s cash flow is used to service such indebtedness. The Company owns a significant amount of real estate, which has been and will continue to be a factor in the Company’s overall level of indebtedness. Real estate can be used as collateral for indebtedness and can be sold to reduce indebtedness. The Company’s significant indebtedness could have important consequences, including the following:

  • It may be difficult for the Company to satisfy its obligations under its existing credit facilities and its other indebtedness and commitments
  • The Company is required to use a portion of its cash flow from operations to pay interest on its current and future indebtedness, which may require the Company to reduce funds available for other purposes
  • The Company may have a limited ability to obtain additional financing, if needed, to fund additional projects, working capital requirements, capital expenditures, debt service, general corporate or other obligations and
  • The Company may be placed at a competitive disadvantage to its competitors that are not as highly leveraged.

Opportunities:

The Company’s strategy is to locate its supermarkets primarily in suburban areas, small towns and neighborhood shopping centers. The Company remodels, expands and relocates stores in these communities and builds stores in new locations to retain and grow its customer base with an enhanced “one stop” product offering while retaining a high level of customer service and convenience. The Company plans to continue to incorporate these departments in substantially all future new and remodeled stores. The Company trains its employees to provide friendly service and to actively address the needs of customers. These employees reinforce the Company’s distinctive service oriented image. The Company has an ongoing renovation and expansion plan to add stores in its target markets and to modernize the appearance and layout of its existing stores. Over the past five fiscal years, the Company has spent approximately $634 million to modernize and remodel its existing stores, relocate older stores to larger, more convenient locations and construct new stores in order to maintain the quality shopping experience that its customers expect. As part of the Company’s renovation and expansion plan, the Company generally includes full-service pharmacies and gas stations at both new and expanded store properties and at selected existing store properties.

Threats:

The supermarket industry is highly competitive and characterized by narrow profit margins. The degree of competition the Company’s stores encounter varies by location, primarily based on the size of the community in which the store is located and its proximity to other communities. The Company’s principal competitors are, in alphabetical order, Aldi, Inc., Bi-Lo, LLC., Food City (K-VA-T Food Stores, Inc.), Food Lion (Delhaize America, Inc.), The Kroger Co., Publix Super Markets, Inc., Target Corporation, and Wal-Mart Stores, Inc. Increasingly over the last few years, competition for consumers’ food dollars has intensified due to the addition of, or increase in, food sections by many types of retailers such as specialty grocers, drug and convenience stores, national general merchandisers and discount retailers, membership clubs, warehouse stores and super centers. Restaurants are another significant competitor for food dollars.

There are also a few environmental concerns. Under applicable environmental laws, the Company may be responsible for remediation of environmental conditions and may be subject to associated liabilities relating to its stores and other buildings and the land on which such stores and other buildings are situated (including responsibility and liability related to its operation of its gas stations and the storage of gasoline in underground storage tanks), regardless of whether the Company leases or owns the stores, other buildings or land in question and regardless of whether such environmental conditions were created by the Company or by a prior owner or tenant. The Company’s liabilities may also include costs and judgments resulting from lawsuits brought by private litigants. The presence of contamination from hazardous or toxic substances, or the failure to properly remediate such contaminated property, may adversely affect the Company’s ability to sell or rent such real property or to borrow using such real property as collateral. Although the Company typically conducts an environmental review prior to acquiring or leasing new stores, other buildings or raw land, there can be no assurance that environmental conditions relating to prior, existing or future stores, other buildings or the real properties on which such stores or other buildings are situated will not have a material adverse effect on the Company’s business, financial condition and results of operations.

Federal, state and local governments could enact laws or regulations concerning environmental matters that affect the Company’s operations or facilities or increase the cost of producing or distributing the Company’s products. The Company believes that it currently conducts its operations, and in the past has conducted its operations, in substantial compliance with applicable environmental laws. The Company, however, cannot predict the environmental liabilities that may result from legislation or regulations adopted in the future, the effect of which could be retroactive. Nor can the Company predict how existing or future laws and regulations will be administered or interpreted or what environmental conditions may be found to exist at its facilities or at other properties where the Company or its predecessors have arranged for the disposal of hazardous substances. The enactment of more stringent laws or regulations or stricter interpretation of existing laws and regulations could require expenditures by the Company, some of which could have a material adverse effect on its business, financial condition and results of operations.

Porter’s 5 Forces

Rivalry among Existing Rivalry

High:The supermarket industry is highly competitive and continues to be characterized by intense price competition, increasing fragmentation of retail formats, entry of non-traditional competitors and market consolidation. Furthermore, some of the Company’s competitors have greater financial resources and could use these financial resources to take measures, such as altering product mix or reducing prices, which could adversely affect the Company’s competitive position. Ingles Market competes with many well-established supermarket chains on the basis of the variety of products offered, location, and price. Wal-Mart is the greatest external force affecting any grocer. In markets that Wal-Mart has entered, grocery prices drop by an average of 10-15%. Additionally, Wal-Mart is able to drop grocery prices 10-30% drastically during promotional periods because it can remain profitable on extremely low margins due to its volume of sales. Although Ingles Market has introduced its price impact warehouse stores to compete with Wal-Mart (WMT) and other low cost competitors such as Kroger, its other stores may suffer from increased price competition. Despite Wal-Mart's large size though, Ingles Market has been able to create its own niche in the market. While Wal-mart has a big piece of its sales coming from general merchandise, Ingles has oriented itself by treading around Wal-Mart and offering products that balances its own mix so it will not go into direct competition with Wal-Mart. By doing so, Ingles has allowed Wal-Mart to continue its foreign markets for expansion and Ingles has focused on developing its domestic markets.

Threat of Substitutes

Medium/High: The Company’s results of operations are sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending. Future economic conditions such as employment levels, business conditions, interest rates, energy and fuel costs and tax rates could reduce consumer spending or change consumer purchasing habits. A general reduction in the level of consumer spending or the Company’s inability to respond to shifting consumer attitudes regarding products, store location and other factors could adversely affect the Company’s business, financial condition and/or results of operations. The Company faces competition from restaurants and fast food chains due to the increasing proportion of household food expenditures for food prepared outside the home. In addition, certain of the Company’s stores also compete with local video stores, florists, book stores, pharmacies and gas stations. Convenience stores and fast food restaurants have dramatically expanded their reach into this competitive space in recent years. Alternative shopping formats continue to lure value-driven shoppers.

Threat of New Entrants

Medium: Competition in the U.S. supermarket industry has never been greater. In addition to traditional grocers, there are now dozens of different types of retailers attempting to gain their share of the food wallet. It is estimated that shoppers spend over $500 billion annually on food in various store formats. The supermarket industry is faced with the challenges of maintaining market share and profits while attempting new concepts and store formats in an effort to differentiate themselves from other types of retailers. Major demographic and consumer lifestyle changes have affected not only how consumers shop, but also where they choose to shop and eat their meals. Traditional supermarkets have seen a decline in how much shoppers spend and how frequently they shop in a particular store. While some supermarket operators continue to attempt to cut costs so they can offer reduced everyday prices, they find this to be a tough approach when competing with low cost operators like Wal-Mart and Costco. Due to the intense amount of existing competition, the ability for new supermarket chains to start up and remain competitive would be difficult. For the new chain to be competitive, they must have the funding to create a shopping experience unique to that of existing chains such as Food Lion, Walmart, and Kroger.

Bargaining Power of Buyers

Medium: Most retailers sell many of the same common goods, making it easier for customers to choose one retailer over another. That being said, location is a key factor for many customers in choosing a retailer to shop at. Ingles has chosen* sites of location that would put it near major shopping centers or local neighborhoods. With gas prices rising daily, there has been a trend for customers choosing retailers closer to their homes rather than a specific brand.

Bargaining Power of Suppliers

Low: The Company receives funds for a variety of merchandising activities from the many vendors whose products the Company buys for resale in its stores. These incentives and allowances are primarily comprised of volume or purchase based incentives, advertising allowances, slotting fees, and promotional discounts. The purpose of these incentives and allowances is generally to help defray the costs incurred by the Company for stocking, advertising, promoting and selling the vendors’ products. These allowances generally relate to short term arrangements with vendors, often relating to a period of a month or less, and are negotiated on a purchase-by-purchase or transaction-by-transaction basis. Whenever possible, vendor discounts and allowances that relate to buying and merchandising activities are recorded as a component of item cost in inventory and recognized in merchandise costs when the item is sold. Due to system constraints and the nature of certain allowances, it is sometimes not practicable to apply allowances to the item cost of inventory. In those instances, the allowances are applied as a reduction of merchandise costs using a rational and systematic methodology, which results in the recognition of these incentives when the inventory related to the vendor consideration received is sold. Vendor allowances applied as a reduction of merchandise costs totaled $105.2 million, $101.0 million, and $97.5 million for the fiscal years ended September 25, 2010, September 26, 2009 and September 27, 2008, respectively. Vendor advertising allowances that represent a reimbursement of specific identifiable incremental costs of advertising the vendor’s specific products are recorded as a reduction to the Company. Vendors often compete with substitutes for the right shelf space, advertising, etc, causing them to be at the mercy of the Company. The Company could always choose to go with another brand offering the same product, if the supplier does not match the Company's needs.

Marketing/Advertising

Net expense for Marketing/Advertising for Ingles Markets, Inc. in 2010 totaled $14.8 million. This apparently is $2.1 million less than they had spent in the previous fiscal year. Their reason being to focus more on the ‘target.’[1]

Ingles Markets, Inc. receives vendor allowances from some of their vendors to go towards different areas of the business. Using these allowances, Ingles Market, Inc. is able to allocate more money towards smaller core activities such as marketing and advertising.

As far as advertising goes, Ingles Markets, Inc. uses what they call, the traditional vehicles of advertising.[1]These include radio, television, direct mail, and newspaper. One can assume this means radio and television commercials promoting the company’s latest sales included with a number of coupons and flyers that can be cut out from mail or the local newspapers.[6] Ingles Markets, Inc. also likes to include themselves in whatever promotional activities their vendors are holding. These mostly include large giveaways from companies such as Unilever.

Ingles Markets, Inc. also provides an ‘Ingles Advantage Card’ to promote customer loyalty and track the patterns of their customers likes and dislikes.

Supply Chain Strategy

Central Distribution

Company owned warehouse and distribution centers are responsible for approximately 47% of product requirements. The warehouse and distribution centers transfer groceries, produce, meat and dairy products daily to Ingles Stores. These facilities are expected to be able to overcome the company's potential expansion in the future. Also, the company owns 46 acres of land of additional distribution centers for possible future expansion.[1]

Centrally managed strategy has its advantages. The company has greater bargaining power over its suppliers, less variable costs including overhead costs and greater control over its inventories.

Transportation

The company owns and leases 109 tractors and 485 trailers that it uses to transfer goods from distribution facilities to the stores. The company strives to improve efficiency and effectiveness of transporting goods by investing in newer trailers and tractors. The company also offers truck servicing and fuel storage facilities at its warehouse and distribution facilities. The company seeks back-haul opportunities to reduce the overall distribution costs.[1]

Wholesale Distributor & Local Distributors

Merchant Distributors, Inc.(MDI), a wholesale grocery distributor, is responsible for approximately 9% of product requirements. MDI distributes frozen food and slower moving items that the company feels unnecessary to carry. MDI has been working with Ingles Markets since the beginning.

Local distributors and manufacturers are responsible for the remaining 44% of product requirements including beverages, gasoline, bread and snack foods.[1]

Financial Analysis

Overview

Ingles Market is a supermarket chain that provides a vast range of food products and non-food products such as pharmacies, health, and beauty products. In this industry, the inventory needs to be "turned over" at a faster rate. Efficiency is a primary driver in this market. They diversify their products to fit the bill of a one-stop shop through their different lines of health products, organic food products, and basic daily cosmetics and toiletries. Financially, the focus is placed on the management effectiveness and the quickness of liquidating the inventories.

Some financial strengths with Ingles Market, in comparison to the industry average, are the current ratio (IMKTA: 1.27, Industry: 0.97) and inventory turnover ratio (IMKTA: 9.26, Industry: 3.72). Some financial aspects that Ingles Market falters in are long-term debt to equity ratio (IMKTA: 166.35%, Industry: 28.92%) and quick ratio (IMKTA: 0.31, Industry: 0.77). Although the management is handling inventories and re-sale well, they have financed their position through long-term debt which effectively can constrict their future growth. Overall, the management style and the liquidity determine the success of Ingles Market, since it is in the Retail (Grocery) industry.

Valuation

Ingles Market's price indicates whether their position in the market is calculated efficiently. In other words, certain ratios suggest that the factors taken into consideration either underestimate, overestimate, or efficiently values the price of the corporation. Below are the ratios that provide some insight on Ingles Market's price:

Image:IMKTA_Valuation.jpg

Analyzing the changes that have occurred within Ingles Market over the past five fiscal years, it is quite noticeable that the value of the stock plummeted during the economic recession in 2008. However, an obvious downswing was the Price/Book ratio, which indicated that the value of the price in correspondence to book value was declining steadily due to macroeconomic factors. Overall, the value of the stock has declined due to the recession but the price of the stock seems to have a direct correlation with the value of the market.

Solvency and Leverage

As stated in the Overview section, Ingles Market finances a lot of their products through their long term debt. A primary indication was the Long-Term Debt to Equity ratio, which is at an immense amount of 166.35%. The following ratios show how Ingles Market manage their debt and how they are capable of leveraging it to maintain a positive business model.

Image:IMKTALeverage.jpg

Observing their asset management, Ingles Market seems to finance their capital through their debt. This can be a pressing issue to sufficiently pay off these debts. Over the past five fiscal years, Ingles Market has had over 75% more debt than they have equity. Leveraging these debts seems to be the risk that this supermarket chain is willing to take in order to effectively maintain their growth. Comparing these metrics to the competitors determines the strengths and weaknesses of Ingles Market. Below is a table of comparisons in respect to leverage (Winn Dixie Stores: WINN, Safeway Inc: SWY, and Fresh Market Inc: TFM):

Image:IMKTA_Comparison_Leverage.png

The primary driver of determining leverage is the debt in comparison to the assets that the company has. Ingles Market's competitors seem to manage their finances with less debt and efficiently fund their assets to have a similar ratio to Ingles Market for Assets/Equity. This shows that the competitors are managing their debt and solvency more effectively in order to provide the maximum output compared to Ingles Market. Moreover, the amount of debt that Ingles Market has accumulated can essentially cause issues to their financing.

Liquidity

A primary driver in the retail market is liquidity. Without the capability of turning assets to cash, an extraordinary occurrence could completely destroy a corporation. As a retailing-grocery store, Ingles Market needs to maintain a solid base of assets that can quickly be turned over to cash for safety purposes. Below are the ratios that show a good indication of Ingles Market's capability of creating assets into cash:

Image:IMKTALiquidity.jpg

Although they have a big amount of debt to fund their equity, their liquidity for their assets is pretty sufficient to cover their current liabilities. The importance of liquidity cannot be undermined for supermarket chain since the inventory needs to be replenished consistently for freshness. However, a true comparison of Ingles Market's liquidity has to be between its competitors and how they manage their assets.

Image:IMKTA_Comparison_Liquidity.jpg

Ingles Market is the most liquid amongst its competitors, based on the ratios that dictate the capability of turning their assets into cash. They manage to cover all of their current liabilities with their assets but are the slowest in producing their inventories to cash. This balance in asset management to liquidity provides a solid foundation for Ingles Market.

Profitability

Inevitability, a corporation cannot sustain without producing a profit on the products that they sell. Ingles Market is no different in this discussion. Ingles Market is in a tight margin arena, the retail industry, which simply resales products that it has purchased (i.e. perishable food items). Since the pricing structure cannot alleviate from the original price that was brought in for (due to immense competition), the margins for this supermarket chain are extremely low compared to various other industries. This issue does not necessarily lie within Ingles Market, but rather the structure of the business model of a retailer.

Image:IMKTAProfitability.jpg

Margins have decreased post-recession, but the stability throughout the recession indicates that the company is not affected by the volatility of the market. However, their investments with their capital seem to be diminishing by approximately three percent over the past 5 years (per annum). Although the declines have affected Ingles Market, a comparison of other competitors can truly demonstrate whether it is the stability of Ingles Market or rather the strength of the industry that has sustained throughout the recession.

Image:IMKTA_Comparison_Profitability.jpg

Amongst competitors, Safeway Inc. is the most profitable of the companies. They manage their assets to provide the highest return. Although Safeway is the most profitable, Ingles Market does post positive returns in comparison to Winn Dixie. However, Ingles Market seems to fall short of managing their buying prices and their selling prices to provide a higher margin. The resale return indicates that Ingles Market does not have the power to increase prices on resale to provide a higher margin. The competitors display more of a profitable business model.

Comparison to Industry Average- Financial Strength

Image:IMKTAComparison.jpg [7]

Although Ingles Market cannot cover their liabilities as efficiently as the industry average, they are more efficient in making their inventory into cash. Further, Ingles Market has a better return on their assets compared to the industry average, which provides a positive to their pricing model in their supermarket chains. The primary risk for Ingles Market on a financial basis is the debt that they have racked up. Overall, Ingles Market creates an efficient supermarket chain at the risk of the debt leveraging their assets.

Executive Compensation & Human Resource

The company's key executives are Robert P. Ingle, II(Chief Executive Officer), James W. Lanning(Chief Operating Officer/President), Ronald D. Freeman(Chief Financial Officer), and Charles L. Gaither, Jr.(President/Director).[8] Their yearly compensations are fairly higher than the executives at its competitor, Wal-Mart Stores, Inc..

However, the company's outside directors including Charles L. Gaither, were compensated significantly lower than the outside directors at Wal-Mart Stores, Inc.. The 2010 compensations of directors at Wal-Mart Stores Inc. ranged from $186,892 to $30,156,490. Below table shows the directors' compensation paid in 2010 for Ingles Markets.[8]

Image:Picture 9.png[9]

References

  1. 1.0 1.1 1.2 1.3 1.4 1.5 1.6 2010 IMKTA Form K-10
  2. "2010 Form 10-K (Business item 1; page 4)" SEC Edgar
  3. "IMKTA Industry Analysis" Yahoo! Finance
  4. "2010 Form 10-K (Sources of Revenue)" SEC Edgar
  5. "2010 Form 10-K (Financial Statements and Supplementary Data)" SEC Edgar
  6. Ingles Market: Weekly Report
  7. Reuters Financials-Ingles Market
  8. 8.0 8.1 Forbes People Search: IMKTA Executive Structure
  9. Bank of New York Mellon: IMKTA
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki