The retail sector's outlook is optimistic, buoyed by shifting consumer tastes, robust employment conditions, increased retail sales, and growing disposable incomes. Given the industry’s solid growth prospects, investors could consider buying top retail stocks Tesco PLC (TSCDY), Target Corporation (TGT), and Village Super Market, Inc. (VLGEA), which offer steady dividends, for steady returns.
U.S. retail sales surged in March, particularly in online sales, indicating a strong end to the first quarter for the economy. Retail sales in March rose by 0.7%, following a revised 0.9% increase in February. On top of that, personal income rose by $122 billion (0.5% monthly rate) in March, as per estimates from the Bureau of Economic Analysis. Disposable personal income (DPI) increased by $104 billion (0.5%). Despite high prices, the rise in personal income should bode well for the retail sector.
Moreover, the retail industry is booming due to rapid economic growth, urbanization, and rising demand for supermarkets, hypermarkets, and discount stores. Besides, the sector also aims to offer seamless shopping through omnichannel experiences, integrating technologies like AI, VR, AR, and IoT. As a result, the National Retail Federation forecasts that retail sales in 2024 will rise between 2.5% and 3.5% to between $5.23 trillion and $5.28 trillion.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Grocery/Big Box Retailers picks, beginning with the third choice.
Stock #3: Tesco PLC (TSCDY)
Headquartered in Welwyn Garden City, the United Kingdom, TSCDY is a grocery retailer in the United Kingdom, the Republic of Ireland, the Czech Republic, Slovakia, and Hungary. It offers grocery products through its stores and online. The company is also involved in food and drink wholesale activities.
TSCDY’s trailing-12-month asset turnover ratio of 1.46x is 76.7% higher than the industry average of 0.83x. Also, the stock’s trailing-12-month ROCE of 14.72% is 27.3% higher than the industry average of 11.57%.
With a four-year average dividend yield of 9.53%, TSCDY pays an annual dividend of $0.42, which yields 5.33% on the current market price.
On May 3, 2024, TSCDY’s subsidiary Tesco Ireland introduced a new, more sustainable packaging format for its fresh mince-meat products. The 'pillow pack', trialed successfully last year on its Tesco Irish lean steak mince, will replace traditional plastic trays and film lids, leading to a significant reduction in plastic usage. This move aligns with TSCDY's commitment to minimizing packaging waste and utilizing sustainable sources for packaging materials.
During the fiscal year that ended February 25, 2024, TSCDY’s continuing operations revenue rose 7.2% year-over-year to £65.76 billion ($82.13 billion). Its adjusted profit for the year stood at £744 million ($929.20 million), and adjusted EPS from continuing operations amounted to 10.80 pence.
As of February 25, 2024, TSCDY reported cash and cash equivalents of £2.47 billion ($3.08 billion), up from £2.35 billion ($2.93 billion) as of February 26, 2023.
Street expects TSCDY’s revenue and EPS for the fiscal year (ending February 2025) to increase 2.8% and 10.7% year-over-year to $87.87 billion and $1.02, respectively.
Over the past nine months, the stock has gained 21.2% to close the last trading session at $11.62.
TSCDY’s POWR Ratings reflect its healthy outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
TSCDY has an A grade for Stability and a B in Value. The stock is ranked #21 out of 36 stocks within the A-rated Grocery/Big Box Retailers industry.
To see the other ratings of TSCDY for Sentiment, Growth, Momentum, and Quality, click here.
Stock #2: Target Corporation (TGT)
TGT is a general merchandise retailer. It provides apparel for women, men, boys, girls, toddlers, infants, and newborns, along with jewelry, accessories, and shoes; beauty and personal care; paper products; and pet supplies. The company also offers dry grocery, dairy, frozen food, beverages, meat, food service, electronics, furniture, and more.
TGT’s trailing-12-month asset turnover ratio of 1.98x is 138.6% higher than the 0.83x industry average. Its trailing-12-month CAPEX/Sales of 4.47% is 33.8% higher than the industry average of 3.34%.
On March 13, 2024, TGT declared a quarterly dividend of $1.10 per share to shareholders, payable on June 10, 2024. TGT has raised its dividends for 55 consecutive years.
The company pays an annual dividend of $4.40, which translates to a yield of 2.74% at the current share price, higher than its four-year average dividend yield of 2.17%. Moreover, the company’s dividend payouts have increased at a CAGR of 17.5% over the past three years.
In the fourth quarter that ended on February 3, 2024, TGT’s total revenue increased 1.7% year-over-year to $31.92 billion. Its operating income grew 60.9% from the year-ago value to $1.86 billion. The company’s EBITDA of $2.62 billion indicates growth of 40.3% year-over-year. The company’s adjusted EPS reached $2.98, up 57.6% from the prior year’s quarter.
Furthermore, the company’s cash and cash equivalents stood at $3.80 billion as of February 3, 2024, versus $2.23 billion as of January 28, 2023.
Analysts expect TGT’s revenue and EPS for the fiscal first quarter (ending July 2024) to increase 2.2% and 21.8% year-over-year to $25.31 billion and $2.19, respectively. Also, the company has topped the consensus EPS estimate in all four trailing quarters, which is remarkable.
Shares of TGT have surged 45.3% over the past six months to close the last trading session at $159.59.
TGT’s robust fundamentals shine in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
TGT has a B grade for Sentiment, Momentum, Quality, and Value. It is ranked #10 in the same industry.
Beyond the POWR Ratings we’ve stated above, we also have TGT ratings for Growth and Stability. Get all TGT ratings here.
Stock #1: Village Super Market, Inc. (VLGEA)
VLGEA is a supermarket chain, providing a diverse range of groceries such as meat, produce, dairy, deli, seafood, prepared foods, bakery items, and frozen foods. Additionally, the company offers non-food products, including health and beauty items, general merchandise, liquor, and pharmacy products, both in its physical stores and online platforms.
VLGEA’s 2.29x trailing-12-month asset turnover ratio is 176.2% higher than the 0.83x industry average. Its trailing-12-month cash per share of $9.01 is 410.8% higher than the industry average of $1.76.
It pays an annual dividend of $1, which yields 3.40% on the current market price, compared to a four-year average dividend yield of 4.28%.
As of January 27, 2024, VLGAE’s sales rose modestly by 2.6% year over year, with same-store sales up by 2.1% from the prior year. Digital sales from existing stores surged by 12% year-over-year.
During the second quarter, which ended January 27, 2024, VLGEA’s net sales and gross profit rose 2.1% and 5.5% year-over-year to $575.58 million and $163.44 million, respectively. The company generated net income of $14.48 million, up 17.5% year-over-year. Also, its net income per share to class A common stock grew 14.1% from a year-ago quarter to $0.97.
Over the past year, the stock has gained 38.7%, closing the last trading session at $29.30. It has soared 23.7% over the past six months.
VLGEA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and Stability and a B for Quality. It is ranked #2 in the same industry.
Click here to see VLGEA’s additional ratings (Growth, Momentum, and Sentiment).
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TGT shares rose $0.59 (+0.37%) in premarket trading Thursday. Year-to-date, TGT has gained 13.80%, versus a 9.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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