Since last year, the big-box retail industry has faced several challenges, such as supply chain constraints, high inflation, a tight labor market, and rising interest rates. Retail sales declined 1.1% sequentially in December.
The holiday sales were affected by high inflation and high-interest rates as they came below industry expectations as sales grew 5.3% year-over-year to $936.30 billion, compared to NRF’s expectations of between $942.60 billion and $960.40 billion.
However, the Fed’s interest rate hikes are showing results as inflation cooled for the sixth consecutive month in December. Moreover, the economy added more jobs in January than expected. This is expected to boost consumer spending.
Goldman Sachs now believes that the odds of the U.S. economy slipping into a recession is just 25%. This is expected to boost consumer confidence and help drive retail sales. Investors’ interest in retail stocks is evident from the VanEck Vectors Retail ETF’s (RTH) 5.9% return over the past three months.
Amid this backdrop, it could be wise for investors to buy fundamentally strong big box retailers Albertsons Companies, Inc. (ACI), Casey's General Stores, Inc. (CASY), and Ingles Markets, Incorporated (IMKTA).
Albertsons Companies, Inc. (ACI)
ACI engages in the operation of food and drug stores. The company offers grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services. It also manufactures and processes food products for sale in stores.
In terms of the trailing-12-month asset turnover ratio, ACI’s 2.64x is 218.6% higher than the 0.8x industry average. Likewise, its 81.65% trailing-12-month Return on Common Equity is 685.1% higher than the industry average of 10.40%.
On January 12, 2023, fresh food technology company Afresh Technologies and ACI announced the completion of an enterprise rollout of the Afresh predictive ordering and inventory management platform. ACI’s Chief Sustainability and Transformation Officer, Suzanne Long, believes that the partnership with Afresh helps better manage the company’s inventory in support of its environmental sustainability goals by reducing food waste.
ACI’s net sales and other revenue for the third quarter that ended December 3, 2022, increased 8.5% year-over-year to $18.15 billion. The company’s adjusted net income increased 10.5% year-over-year to $505.10 million.
Moreover, its adjusted EBITDA increased 10.2% year-over-year to $1.16 billion, while its adjusted net EPS came in at $0.87, representing a 10.1% increase from the prior-year quarter.
Analysts expect ACI’s EPS and revenue for the fiscal year 2023 to increase 4.3% and 7.9% year-over-year to $3.20 and $77.53 billion, respectively. The stock has gained 4% over the past three months to close the last trading session at $21.14.
ACI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Grocery/Big Box Retailers industry, it is ranked #7 out of 39 stocks. It has a B grade for Value, Sentiment, and Quality.
In total, we rate ACI on eight different levels. Beyond what we stated above, we have also given ACI grades for Growth, Momentum, and Stability. Get all ACI ratings here.
Casey's General Stores, Inc. (CASY)
CASY operates convenience stores under the Casey's and Casey's General Store names. It offers a selection of food, beverages, tobacco, and nicotine products; health and beauty aids; automotive products; and other non-food items. The company's stores also provide motor fuel, gasoline, and diesel fuel.
In terms of the trailing-12-month asset turnover ratio, CASY’s 2.71x is 226.5% higher than the 0.83x industry average. Likewise, its 9.54% trailing-12-month Return on Total Capital is 54.8% higher than the industry average of 6.17%.
For the fiscal second quarter that ended October 31, 2022, CASY's total revenue increased 21.9% year-over-year to $3.98 billion. The company’s net income increased 42.1% year-over-year to $137.56 million. In addition, its adjusted EBITDA increased 27.3% year-over-year to $276.30 million, while its EPS came in at $3.67, representing a 41.7% increase from the prior-year quarter.
CASY’s EPS and revenue for the quarter that ended January 31, 2023, are expected to increase 15.7% and 11.7% year-over-year to $1.98 and $3.41 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 11% to close the last trading session at $219.33.
CASY’s solid prospects are reflected in its POWR Ratings. The company has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It is ranked #4 in the same industry. In addition, it has a B grade for Growth, Value, Sentiment, and Quality.
To see the other ratings of CASY for Momentum and Stability, click here.
Ingles Markets, Incorporated (IMKTA)
IMKTA operates a chain of supermarkets in the southeast United States. It offers food products, including grocery, meat, and dairy products, produce, frozen foods, and other perishables, and non-food products, including fuel centers, pharmacies, health and beauty care products, and general merchandise, as well as private label items.
In terms of the trailing-12-month Return on Total Assets, IMKTA’s 11.77% is 230.3% higher than the 3.56% industry average. Likewise, its 2.61x trailing-12-month asset turnover ratio is 215.4% higher than the industry average of 0.83x.
For the fiscal first quarter that ended December 24, 2022, IMKTA’s net sales increased 7.3% year-over-year to $1.49 billion. Its gross profit increased 5.9% year-over-year to $371.16 million. Moreover, its net income increased 4.8% year-over-year to $69.37 million. In addition, its EPS came in at $3.65, representing an increase of 4.9% year-over-year.
Analysts expect IMKTA’s revenue for the fiscal year 2024 to increase 3% year-over-year to $4.84 billion. Its EPS is expected to increase 14.5% per annum over the next five years. Over the past year, the stock has gained 11.6% to close the last trading session at $93.39.
It is no surprise that IMKTA has an overall rating of A, translating to a Strong Buy in our POWR Ratings system. It is ranked first in the Grocery/Big Box Retailers industry. The company has an A grade for Value and a B for Stability and Quality.
Click here to see the additional POWR Ratings of IMKTA for Growth, Momentum, and Sentiment.
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ACI shares were trading at $21.21 per share on Friday morning, up $0.07 (+0.33%). Year-to-date, ACI has gained 2.85%, versus a 6.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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