MOST TRUSTWORTHY
May 2010
MOST TRUSTWORTHY Arden Group, Inc.
Stock Price
12 months ending 5/4/2010
(NASD: ARDNA) th
AGR Rating: Average, 53 Percentile Equity Risk Rating: 3 (Market Neutral) th Litigation Ranking: 4 (8 Decile vs. Industry Peers) Bankruptcy Probability: Negligible th Bankruptcy Percentile: 90 percentile Industry:
®
Audit Integrity’s proprietary Accounting and Governance Risk (AGR ) th rating places Arden Group, Inc. in the 53 percentile among all rated companies in North America. This indicates that Arden Group is a well- managed and transparent organization, and can be expected to generate a higher return to shareholders with a lower incidence of negative events such as SEC Actions and litigation.
Market Cap: Previous Close:
Tenure of CEO and CFO No Litigation/Regulatory issues No Divestitures, Restructurings, M&A No material Accounting Issues or Amended Filings Low Leverage High Liquidity Low ratio of Accounts Receivable to Sales Low ratio of Inventory to Cost of Goods Sold Rate of Asset Turnover is Normal High ratio of Retained Earnings to Assets Low ratio of Goodwill to Total Assets High return on equity
Background Arden Group, Inc. (Arden) is a holding company, which conducts operations through its wholly owned subsidiary, Arden-Mayfair, Inc. (Arden-Mayfair) and Arden-Mayfair’s wholly owned subsidiary, Gelson’s Markets (Gelson’s) which operates supermarkets in Southern California. The Company also owns certain real estate properties through a subsidiary, Mayfair Realty, Inc. (Mayfair Realty) which is wholly owned by the Company and Arden-Mayfair. As of January 2, 2010, Gelson’s operated 18 full-service supermarkets in Southern California, which carry both perishable and dry grocery products. Gelson’s offers a range of local and national brands, as well as a limited number of private label items. Gelson’s also operates a distribution center in the City of Commerce, California.
USD 320.9mm 92.10
52wk Range:
89.98 – 134.14
Period End:
January 2, 2010
Key AGR Strengths
Food Distribution / Convenience Stores
Last Audit
Moss Adams LLP
Statement Filing:
March 10, 2010
Rating Published:
April 30, 2010
Short interest ratio: Percent held by Insiders: Average daily volume:
25.60
61.15% 1,460
Recent AGR Percentile History Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10
9 11 12 66 52 71 59 88 86 86 90 53
Very Aggressive Aggressive Aggressive Average Average Average Average Conservative Conservative Conservative Conservative Average
Quarter Ended SELECTED FINANCIAL DATA $mil
Historic Information: Annual Period Ending
1/2/2010
1/3/2009
12/29/2007
12/30/2006
12/31/2005
Total Revenue
431.2
Total Revenue
479.1
485.9
482.7
470.4
Gross Profit
166.2
Gross Profit
184.5
188.0
186.3
214.4
Net Income Before Taxes
36.3
Net Income Before Taxes
41.5
48.5
39.1
33.4
Dividends
3.2
Dividends
82.2
3.2
3.2
3.4
Dividends/share
1.0
Dividends/share
26.0
1.0
1.0
1.1
Revenues Growth (%)
-10.0%
Revenues Growth (%)
-1.4%
0.7%
2.6%
-6.5%
Gross Margin (%)
38.6%
Gross Margin (%)
38.5%
38.7%
%
%
Operating Income
36.0
Operating Income
40.3
45.2
36.7
31.8
MARKET VALUATION METRICS
Quarter Ended
Industry
Industry
1/2/2010
Average
1/2/2010
Average
Price/Earnings Ratio
13.978
13.978
Current Ratio
2.042
1.607
Price Sales Ratio
0.701
0.264
Leverage Ratio (Debt/Equity)
0.018
0.482
Price Book Ratio
4.342
1.588
Retained Earnings/Assets
0.581
0.265
0.010%
0.018%
Working Capital/Assets
0.295
0.142
Cash from Operating Activities (000s)
25,700
Dividend Yield Price/Tangible Book Value
4.342
2.757
Return on Equity (TTM)
35.9%
11.3%
Market Value of Equity/Total Liab.
6.645
1.075
Inventory Turnover
16.222
11.534
Accounts Receivable Turnover
75.261
45.563
Asset Turnover
3.986
2.776
FINANCIAL CONDITION
Quarter Ended
Selected AGR Strengths – Corporate Governance Tenure of CEO and CFO Length of service is a sign of stability. Experience and consistency are guiding the company’s direction. No Litigation/Regulatory Issues The company has had no litigation/regulatory Issues, such as shareholder lawsuits or SEC enforcements, in the past three years, indicating that strong internal controls are in place and generally operating as designed. No Divestitures, Restructurings, M&A The company has had no divestitures or restructurings, or M&A in the past three years. Thus, there is less motivation for cookie jar reserves, ‘big bath’ charges, or creative acquisition accounting. Restructuring can indicate a lack of consistency in the business. No Material Accounting Issues/Amended Filings The company has had no financial restatements, late filings, or changes in auditors in the past three years. This indicates adherence to timely and accurate financial reporting, and signifies broader operational competence and sound internal accounting systems and policy.
Selected AGR Strengths – Accounting Low Leverage (ratio of Debt to Equity) Companies that have high levels of long term debt in relation to equity can experience problems in debt repayment and reduced flexibility in funding future projects. The leverage ratio indicates the extent to which the business is reliant on debt financing (creditor money versus owner's equity). Generally, the higher this ratio, the more risky a creditor will perceive its exposure in the business, making it correspondingly harder to obtain credit. Arden Group’s ratio ohas consistently fallen well below the industry median, currently 0.018 vs. 0.482.
High Liquidity A low quick ratio is an indicator of liquidity problems; that is, an inability to meet operational expenses without recourse to capital financing. Examine this ratio in conjunction with the current ratio and the cash ratio. Though Arden Group’s quick ratio dropped at the end of 2008, it doubled in 2009 and is trending higher than the industry average.
Ratio of Accounts Receivable to Sales is Low Accounts receivable build-ups can signal a broad range of revenue recognition issues. Unusual increases in accounts receivable relative to revenues may indicate questionable revenues. Similarly, large accounts receivable may indicate underreserving for uncollectible or doubtful accounts. Arden Group has maintained a healthy ratio of Receivables to Sales for the past three years, curently 0.013 against in industry median of 0.023.
Low Ratio of Inventory to Cost of Goods Sold Comparably large inventories is a red flag for revenue recognition issues. Inventory can be manipulated through a number of schemes such as: falsified or fictitious inventory count, obsolete/scrap inventory not reserved for, inventory not valued at LCM, consigned inventory not properly accounted for, overpricing of inventory costs, or a transfer of expenses out of Cost of Goods Sold (COGS) into the inventory balance. Arden Group’s ratio of inventory to COGS is consistently in the normal range and below the industry average.
Rate of Asset Turnover is Normal Low asset turnovers indicate potential problems in the efficiency of a company's operations, and can adversely affect profit margins. On the other hand, markedly high turnover could indicate "creative accounting" and overstated revenue recognition. Arden Group’s ratio is consistently within the industry norm.
High ratio of Retained Earnings to Assets This indicates a cumulative measure of both profitability and money reinvested in the business. Arden Group has consistently maintained a high ratio of retained earnings relative to its peer group and is currently in the 93rd percentile.
Low ratio of Goodwill to Total Assets When a company is acquired for more than the value of its fixed assets and intangibles, the buying company books a large amount of goodwill on its balance sheet. In future periods, managers of big acquisition firms often are forced to book impairment expenses on this goodwill. For the last three years Arden Group has maintained a ratio of 0.000.
Return on Equity is High A commonly used measure of profitability, with a focus on the return to equity investors. More highly leveraged companies will be at an advantage in this measure of profitability, but at a cost of greater solvency risk. Arden Group’s return has been consistently high within the industry range.
Conclusion Analysis of comprehensive metrics related to accounting results and corporate governance is essential in building a complete picture of a company’s risk profile. Transparent and conservative financial reporting, combined with consistent corporate governance, indicates a higher incidence of equity returns compared to companies within the respective industry. Stronger governance also indicates a lower exposure to certain other negative events, such as shareholder litigation, SEC actions, and financial restatement. The absence of both accounting and corporate governance issues contributes to the company’s low risk profile and high AGR rating. Arden Group, Inc. is currently rated in Average, in the 53rd percentile of all rated companies, and has maintained a Conservative or Average rating for the past nine Quarters. Audit Integrity has found that companies with consistently high AGR ratings have generated measurably better returns for shareholders and have a lower incidence of negative events.
“MOST TRUSTWORTHY” SELECTION CRITERIA Most Trustworthy companies are selected from the more than 8,000 public U.S. corporations tracked in our proprietary quantitative model, using the following criteria: • • • • • • • •
North America exchange listed companies only Market capitalization of $50 million or more AGR rating of “Conservative” or “Average” each of the last four quarters No SEC or shareholder class action litigation over the last four quarters No material amended filings or material restatements over the last four quarters No substantial insider trading in comparison to peers over the last four quarters No excessive executive incentive compensation metrics within the AGR analysis over the last four quarters Negligible probability of Bankruptcy
Audit Integrity’s “Top 100” Trustworthy Companies list is published annually by Forbes. Profiles of all North American companies meeting the criteria are available at www.TrustworthyCorporations.com.
Audit Integrity Client Services Phone: (888) 44-AUDIT E-mail: [email protected] www.auditintegrity.com/ www.TrustworthyCorporations.com
Audit Integrity, Inc. and its affiliates, Directors and Officers of the company may own stock or options to purchase or sell stock in the companies mentioned on our website and in our publications and may elect to increase or decrease the size of these positions at any time. Audit Integrity, Inc. however, is not directly or indirectly compensated for the specific views, opinions or recommendations expressed in its research reports. This document is for information purposes only and is not to be considered a solicitation to buy or sell any security. Neither Audit Integrity nor any other party guarantees its accuracy nor makes any warranties regarding its usage. Modification or reproduction of this report is forbidden without explicit permission. Copyright © 2010 Audit Integrity, Inc.
MOST TRUSTWORTHY Arden Group, Inc.
Stock Price
12 months ending 5/4/2010
(NASD: ARDNA) th
AGR Rating: Average, 53 Percentile Equity Risk Rating: 3 (Market Neutral) th Litigation Ranking: 4 (8 Decile vs. Industry Peers) Bankruptcy Probability: Negligible th Bankruptcy Percentile: 90 percentile Industry:
®
Audit Integrity’s proprietary Accounting and Governance Risk (AGR ) th rating places Arden Group, Inc. in the 53 percentile among all rated companies in North America. This indicates that Arden Group is a well- managed and transparent organization, and can be expected to generate a higher return to shareholders with a lower incidence of negative events such as SEC Actions and litigation.
Market Cap: Previous Close:
Tenure of CEO and CFO No Litigation/Regulatory issues No Divestitures, Restructurings, M&A No material Accounting Issues or Amended Filings Low Leverage High Liquidity Low ratio of Accounts Receivable to Sales Low ratio of Inventory to Cost of Goods Sold Rate of Asset Turnover is Normal High ratio of Retained Earnings to Assets Low ratio of Goodwill to Total Assets High return on equity
Background Arden Group, Inc. (Arden) is a holding company, which conducts operations through its wholly owned subsidiary, Arden-Mayfair, Inc. (Arden-Mayfair) and Arden-Mayfair’s wholly owned subsidiary, Gelson’s Markets (Gelson’s) which operates supermarkets in Southern California. The Company also owns certain real estate properties through a subsidiary, Mayfair Realty, Inc. (Mayfair Realty) which is wholly owned by the Company and Arden-Mayfair. As of January 2, 2010, Gelson’s operated 18 full-service supermarkets in Southern California, which carry both perishable and dry grocery products. Gelson’s offers a range of local and national brands, as well as a limited number of private label items. Gelson’s also operates a distribution center in the City of Commerce, California.
USD 320.9mm 92.10
52wk Range:
89.98 – 134.14
Period End:
January 2, 2010
Key AGR Strengths
Food Distribution / Convenience Stores
Last Audit
Moss Adams LLP
Statement Filing:
March 10, 2010
Rating Published:
April 30, 2010
Short interest ratio: Percent held by Insiders: Average daily volume:
25.60
61.15% 1,460
Recent AGR Percentile History Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10
9 11 12 66 52 71 59 88 86 86 90 53
Very Aggressive Aggressive Aggressive Average Average Average Average Conservative Conservative Conservative Conservative Average
Quarter Ended SELECTED FINANCIAL DATA $mil
Historic Information: Annual Period Ending
1/2/2010
1/3/2009
12/29/2007
12/30/2006
12/31/2005
Total Revenue
431.2
Total Revenue
479.1
485.9
482.7
470.4
Gross Profit
166.2
Gross Profit
184.5
188.0
186.3
214.4
Net Income Before Taxes
36.3
Net Income Before Taxes
41.5
48.5
39.1
33.4
Dividends
3.2
Dividends
82.2
3.2
3.2
3.4
Dividends/share
1.0
Dividends/share
26.0
1.0
1.0
1.1
Revenues Growth (%)
-10.0%
Revenues Growth (%)
-1.4%
0.7%
2.6%
-6.5%
Gross Margin (%)
38.6%
Gross Margin (%)
38.5%
38.7%
%
%
Operating Income
36.0
Operating Income
40.3
45.2
36.7
31.8
MARKET VALUATION METRICS
Quarter Ended
Industry
Industry
1/2/2010
Average
1/2/2010
Average
Price/Earnings Ratio
13.978
13.978
Current Ratio
2.042
1.607
Price Sales Ratio
0.701
0.264
Leverage Ratio (Debt/Equity)
0.018
0.482
Price Book Ratio
4.342
1.588
Retained Earnings/Assets
0.581
0.265
0.010%
0.018%
Working Capital/Assets
0.295
0.142
Cash from Operating Activities (000s)
25,700
Dividend Yield Price/Tangible Book Value
4.342
2.757
Return on Equity (TTM)
35.9%
11.3%
Market Value of Equity/Total Liab.
6.645
1.075
Inventory Turnover
16.222
11.534
Accounts Receivable Turnover
75.261
45.563
Asset Turnover
3.986
2.776
FINANCIAL CONDITION
Quarter Ended
Selected AGR Strengths – Corporate Governance Tenure of CEO and CFO Length of service is a sign of stability. Experience and consistency are guiding the company’s direction. No Litigation/Regulatory Issues The company has had no litigation/regulatory Issues, such as shareholder lawsuits or SEC enforcements, in the past three years, indicating that strong internal controls are in place and generally operating as designed. No Divestitures, Restructurings, M&A The company has had no divestitures or restructurings, or M&A in the past three years. Thus, there is less motivation for cookie jar reserves, ‘big bath’ charges, or creative acquisition accounting. Restructuring can indicate a lack of consistency in the business. No Material Accounting Issues/Amended Filings The company has had no financial restatements, late filings, or changes in auditors in the past three years. This indicates adherence to timely and accurate financial reporting, and signifies broader operational competence and sound internal accounting systems and policy.
Selected AGR Strengths – Accounting Low Leverage (ratio of Debt to Equity) Companies that have high levels of long term debt in relation to equity can experience problems in debt repayment and reduced flexibility in funding future projects. The leverage ratio indicates the extent to which the business is reliant on debt financing (creditor money versus owner's equity). Generally, the higher this ratio, the more risky a creditor will perceive its exposure in the business, making it correspondingly harder to obtain credit. Arden Group’s ratio ohas consistently fallen well below the industry median, currently 0.018 vs. 0.482.
High Liquidity A low quick ratio is an indicator of liquidity problems; that is, an inability to meet operational expenses without recourse to capital financing. Examine this ratio in conjunction with the current ratio and the cash ratio. Though Arden Group’s quick ratio dropped at the end of 2008, it doubled in 2009 and is trending higher than the industry average.
Ratio of Accounts Receivable to Sales is Low Accounts receivable build-ups can signal a broad range of revenue recognition issues. Unusual increases in accounts receivable relative to revenues may indicate questionable revenues. Similarly, large accounts receivable may indicate underreserving for uncollectible or doubtful accounts. Arden Group has maintained a healthy ratio of Receivables to Sales for the past three years, curently 0.013 against in industry median of 0.023.
Low Ratio of Inventory to Cost of Goods Sold Comparably large inventories is a red flag for revenue recognition issues. Inventory can be manipulated through a number of schemes such as: falsified or fictitious inventory count, obsolete/scrap inventory not reserved for, inventory not valued at LCM, consigned inventory not properly accounted for, overpricing of inventory costs, or a transfer of expenses out of Cost of Goods Sold (COGS) into the inventory balance. Arden Group’s ratio of inventory to COGS is consistently in the normal range and below the industry average.
Rate of Asset Turnover is Normal Low asset turnovers indicate potential problems in the efficiency of a company's operations, and can adversely affect profit margins. On the other hand, markedly high turnover could indicate "creative accounting" and overstated revenue recognition. Arden Group’s ratio is consistently within the industry norm.
High ratio of Retained Earnings to Assets This indicates a cumulative measure of both profitability and money reinvested in the business. Arden Group has consistently maintained a high ratio of retained earnings relative to its peer group and is currently in the 93rd percentile.
Low ratio of Goodwill to Total Assets When a company is acquired for more than the value of its fixed assets and intangibles, the buying company books a large amount of goodwill on its balance sheet. In future periods, managers of big acquisition firms often are forced to book impairment expenses on this goodwill. For the last three years Arden Group has maintained a ratio of 0.000.
Return on Equity is High A commonly used measure of profitability, with a focus on the return to equity investors. More highly leveraged companies will be at an advantage in this measure of profitability, but at a cost of greater solvency risk. Arden Group’s return has been consistently high within the industry range.
Conclusion Analysis of comprehensive metrics related to accounting results and corporate governance is essential in building a complete picture of a company’s risk profile. Transparent and conservative financial reporting, combined with consistent corporate governance, indicates a higher incidence of equity returns compared to companies within the respective industry. Stronger governance also indicates a lower exposure to certain other negative events, such as shareholder litigation, SEC actions, and financial restatement. The absence of both accounting and corporate governance issues contributes to the company’s low risk profile and high AGR rating. Arden Group, Inc. is currently rated in Average, in the 53rd percentile of all rated companies, and has maintained a Conservative or Average rating for the past nine Quarters. Audit Integrity has found that companies with consistently high AGR ratings have generated measurably better returns for shareholders and have a lower incidence of negative events.
“MOST TRUSTWORTHY” SELECTION CRITERIA Most Trustworthy companies are selected from the more than 8,000 public U.S. corporations tracked in our proprietary quantitative model, using the following criteria: • • • • • • • •
North America exchange listed companies only Market capitalization of $50 million or more AGR rating of “Conservative” or “Average” each of the last four quarters No SEC or shareholder class action litigation over the last four quarters No material amended filings or material restatements over the last four quarters No substantial insider trading in comparison to peers over the last four quarters No excessive executive incentive compensation metrics within the AGR analysis over the last four quarters Negligible probability of Bankruptcy
Audit Integrity’s “Top 100” Trustworthy Companies list is published annually by Forbes. Profiles of all North American companies meeting the criteria are available at www.TrustworthyCorporations.com.
Audit Integrity Client Services Phone: (888) 44-AUDIT E-mail: [email protected] www.auditintegrity.com/ www.TrustworthyCorporations.com
Audit Integrity, Inc. and its affiliates, Directors and Officers of the company may own stock or options to purchase or sell stock in the companies mentioned on our website and in our publications and may elect to increase or decrease the size of these positions at any time. Audit Integrity, Inc. however, is not directly or indirectly compensated for the specific views, opinions or recommendations expressed in its research reports. This document is for information purposes only and is not to be considered a solicitation to buy or sell any security. Neither Audit Integrity nor any other party guarantees its accuracy nor makes any warranties regarding its usage. Modification or reproduction of this report is forbidden without explicit permission. Copyright © 2010 Audit Integrity, Inc.
