Despite the inflationary pressure and uncertain macroeconomic environment, the grocery industry has been thriving as the inelastic demand for the products these retailers sell is helping them pass on the rising prices to consumers. Rising prices usually do not deter consumers from spending on essentials, keeping the overall demand stable for this sector.
Given the recession-resistant nature of the industry, investing in fundamentally sound grocery stocks Seven & i Holdings Co., Ltd. (SVNDY), The Kroger Co. (KR), and George Weston Limited (WNGRF) could be wise.
Inflation moderated in June to its lowest annual rate in over two years. The Consumer Price Index (CPI) rose 0.2% sequentially and 3% year-over-year as consumers got a break from price increases.
Moreover, core inflation, a more reliable underlying inflation gauge, rose 4.8% from a year ago and 0.2% monthly, comparatively below the consensus estimates of 5% and 0.3%, respectively.
Americans kept their wallets open on the backs of easing inflation and a remarkably strong jobs market, showing a strong willingness to spend. Retail sales rose 0.2% from May to June, following a revised 0.5% increase the previous month, the Commerce Department reported.
Given the consumers’ resilient spending and the sector’s inelastic demand, it is no surprise that the global food & grocery retail market is expected to grow at a 3% CAGR, reaching a whopping value of $14.78 trillion by 2030.
The grocery industry is also undergoing a period of rapid change, with new technologies and trends emerging all the time. Technology is changing how we shop for groceries with innovations like self-checkout and online grocery delivery.
Grocery chain companies have been expanding their online presence due to the widespread adoption of e-commerce and the growing demand for fast delivery. As per ReportLinker, the online grocery market is expected to grow by $740.88 billion by 2027, accelerating at a CAGR of 13.1%.
Driven by rising demand, smart technology integration, and store expansions, the global supermarket market is expected to reach $23.69 billion by 2028, growing at an 8% CAGR.
Given the industry’s promising growth prospects, quality grocery stocks SVNDY, KR, and WNGRF could be ideal watchlist additions now. Let’s take a closer look at the fundamentals of these stocks.
Seven & i Holdings Co., Ltd. (SVNDY)
SVNDY is a Tokyo-based company that operates through six segments: Domestic Convenience Store Operations; Overseas Convenience Store Operations; Superstore Operations; Department and Specialty Store Operations; Financial Services; and Others. Its operations encompass various retail formats, including convenience stores and superstores.
SVNDY’s revenue from operations increased 8.3% year-over-year to ¥2.65 trillion ($18.51 billion) for the fiscal first quarter that ended May 31, 2023. Its gross profit from operations rose 6.2% from the year-ago value to ¥783.13 billion ($5.47 billion), while its operating income amounted to ¥81.99 billion ($572.54 million).
The company’s net cash from operating activities came in at ¥317.63 billion ($2.22 billion), up 13.4% year-over-year. In addition, the company’s cash and cash equivalents at the end of the period amounted to ¥1.65 trillion ($11.49 billion), representing a 7.8% increase from the prior-year quarter.
Analysts expect SVNDY’s revenue for the second quarter (ending August 2023) to be $20.88 billion. For the fiscal year 2023, its revenue is expected to grow significantly year-over-year, reaching $79.51 billion. Moreover, it surpassed the revenue estimates in each of the trailing four quarters.
The stock has gained 7.8% over the past nine months to close the last trading session at $20.69.
SVNDY’s POWR Ratings reflect this robust outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SVNDY has a B grade for Stability and Quality. It is ranked #17 out of 38 stocks in the A-rated Grocery/Big Box Retailers industry.
Beyond what we stated above, we also have SVNDY’s rating Growth, Value, Momentum, and Sentiment. Get all SVNDY ratings here.
The Kroger Co. (KR)
KR is a food retailer that owns and operates combination food and drug stores, supermarkets, multi-department stores, and fulfillment centers. It sells its products under seven brand names: Private Selection, The Kroger, Big K, Check This Out, Heritage Farm, Simple Truth, and Simple Truth Organic.
On July 27, the company announced opening a new spoke location in Independence, Kentucky. It expanded its footprint in Mt. Zion, Northern Kentucky area by adding a new facility through which customers can tap into KR’s incredible selection of fresh items, unique Our Brands products, and individualized offers for essential products.
Such expansions should enable the company to serve more customers and boost its revenues.
On June 22, KR increased its dividend by 11.5% from $1.04 to $1.16 per share annually, marking the 17th consecutive year of dividend increases. The next quarterly dividend of 29 cents per share is payable to its shareholders on September 1, 2023.
KR’s annual dividend yields 2.37% at the current price level, while its four-year average yield is 1.96%. Its dividend payouts have increased at a 17.6% CAGR over the past three years and a 15.8% CAGR over the past five years.
KR’s sales increased marginally year-over-year to $45.16 billion in the first quarter (ended May 20, 2023). Its net EBIT grew 53.7% from the year-ago value to $1.25 billion. The company’s adjusted EBITDA increased 10.4% year-over-year to $8.21 billion, while its attributable net earnings rose 44.9% from the prior-year quarter to $962 million. KR’s adjusted EPS came in at $1.51, up 4.1% year-over-year.
The consensus EPS estimate of $4.52 for the fiscal year 2023 (ending January 2024) represents a 6.9% improvement year-over-year. The consensus revenue estimate of $151.23 billion for the current year indicates a 2% increase from the same period last year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 10.4% to close the last trading session at $48.87.
KR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has a B grade for Value and Quality. KR is ranked #14 among 38 stocks in the same industry. To see the other ratings of KR for Growth, Momentum, Stability, and Sentiment, click here.
George Weston Limited (WNGRF)
Based in Canada, WNGRF provides food, drug retailing, and finance services globally. Its Loblaw segment provides grocery, pharmacy, health and beauty, apparel, general merchandise, and financial services, while Choice Properties owns, manages, and develops a portfolio of commercial and residential properties across Canada.
On June 16, the company entered into an Automatic Share Purchase Plan (ASPP) with a broker in order to facilitate the repurchase of WNGRF’s common shares under its Normal Course Issuer Bid (NCIB). During the effective period of the ASPP, the company’s broker may purchase common shares when the company would not be active in the market. Share repurchases could increase shareholder value.
During the second quarter that ended on June 17, 2023, WNGRF’s revenue increased 7% year-over-year to $13.88 billion, while its operating income improved 69.3% from the prior-year quarter to $1.09 billion.
The company’s adjusted net earnings from continuing operations came in at $377 million and $2.68 per share, representing increases of 14.9% and 20.2% year-over-year, respectively. Also, its adjusted EBITDA grew 9.1% from the year-ago value to $1.73 billion.
Street expects WNGRF’s revenue for the third quarter (ending September 30, 2023) to increase 4.4% year-over-year to $13.67 billion. Further, its revenue is expected to grow 6.7% and 3.7% year-over-year in the fiscal years 2023 and 2024. Additionally, it topped the revenue estimates in three of the trailing four quarters, which is impressive.
WNGRF’s shares have gained marginally over the past nine months to close the last trading session at $112.03.
WNGRF’s POWR Ratings reflect this robust outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system. WNGRF has an A grade for Stability and B for Quality. Within the same A-rated industry, it is ranked #11.
Beyond what we stated above, we also have WNGRF’s ratings for Growth, Value, Momentum, and Sentiment. Get all WNGRF ratings here.
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SVNDY shares were trading at $21.01 per share on Wednesday afternoon, up $0.32 (+1.56%). Year-to-date, SVNDY has declined -1.80%, versus a 17.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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