To widen its online reach, The Kroger Co. (KR) will be acquiring Vitacost.com, Inc. (VITC), an online vendor of health related products. Moreover, Kroger is eyeing a lucrative share in the fast growing nutrition and wellness market as consumers become more health conscious.
The all-cash deal is pegged at $280 million, representing a 51% premium to Vitacost’s closing stock price on Feb 19, 2014.
The acquisition of Vitacost would provide Kroger with an edge in the critical area of shipping and delivery of online products. Vitacost’s impressive online shopping and distribution platform would expand Kroger’s reach into new domestic markets as well as overseas. This is a crucial move as competition from online giants, particularly Amazon.com Inc. (AMZN), continues to escalate.
Kroger will finance the acquisition deal through debt. After the completion of the deal, Vitacost will become a subsidiary of Kroger. It will continue to operate its facilities in Lexington NC, Las Vegas NV and Boca Raton, FL. At the end of fiscal first quarter of 2014, Vitacost reported 2.3 million active customers and revenues of $382.7 million.
Moreover, Kroger reiterated its net earnings guidance of $3.19–$ 3.27 for fiscal 2014. Kroger expects to sustain its existing long-term earnings per share growth rate of 8– 11%, along with an increasing dividend. It expects net debt to EBITDA ratio to reach 2–2.2 by mid-to-late 2015.
Kroger holds a dominant position among the nation’s largest grocery retailers. The company boasts of 2,642 supermarkets and multi-department stores in 34 states. The company also runs 787 convenience stores, 1,261 supermarket fuel centers, 324 fine jewelry stores and 37 food processing plants in the U.S. It generated over $98 billion in revenues in the past fiscal.
Currently, Kroger carries a Zacks Rank #2 (Buy). Other retail stock worth consideration is The Hain Celestial Group, Inc. (HAIN), which also has a Zacks Rank #2.
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