Despite the inflationary pressure and uncertain macroeconomic environment, grocery/big box retailers have benefited from the inelastic demand for their products. Although high inflation is a major concern for the retail industry, rising prices usually do not deter consumers from spending on essentials. As a result, grocery/big box retailers benefit by passing on the rising costs to consumers.
U.S. retail sales were flat sequentially in July but increased from a year ago. Grocery stores witnessed a similar trend. Given its defensive nature, the Grocery/Big Box Retailers industry is currently positioned at the top of the industry list in our proprietary rating system.
Therefore, fundamentally sound stocks from this hottest industry Walmart Inc. (WMT), The Kroger Co. (KR), Albertsons Companies, Inc. (ACI), and Casey's General Stores, Inc. (CASY), could be solid investments now.
Walmart Inc. (WMT)
The retail giant WMT operates supercentres, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, discount stores, membership-only warehouse clubs, and e-commerce websites, including walmart.com and Walmart.com.mx flipkart.com, and others. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club.
On August 5, 2022, WMT announced the acquisition of Volt Systems to fortify store insights and decisions on customer demand. Such investments in technology and innovation will enable the company to offer a seamless omni-shopping experience to its customers with reduced friction due to out-of-stocks.
For the fiscal second quarter that ended July 31, 2022, WMT’s total revenues increased 8.4% year-over-year to $152.86 billion. Its consolidated net income grew 20.4% from the year-ago value to $5.15 billion, while its EPS came in at $1.88, representing an increase of 23.7% year-over-year. Also, the company’s total assets increased 3.6% from the prior-year value to $247.20 billion.
Analysts expect WMT’s revenue for the third quarter (ending October 31, 2022) to increase 4.6% year-over-year to $145.62 billion. For fiscal 2023, its EPS is expected to increase 13.1% year-over-year to $6.61. It has surpassed the Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 3.4% to close the last trading session at $132.88.
WMT’s POWR Ratings reflect solid prospects. According to our proprietary rating system, it has an overall rating of A, translating to a Strong Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Stability, Sentiment, and Quality. Among 38 stocks in the A-rated Grocery/Big Box Retailers industry, it is ranked #8. Click here to see the other ratings of WMT for Value and Momentum.
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.
In August, the company announced opening a new spoke location in Louisville, Kentucky. It expanded its footprint in Greater Nashville and the Chicago Metro Area by adding new facilities. Such expansions should enable the company to serve more customers and boost its revenues.
KR’s sales increased 8% year-over-year to $44.60 billion in the first quarter that ended May 21, 2022. Its operating profit increased 87% year-over-year to $1.50 billion. The company’s adjusted EBITDA grew 9.5% year-over-year to $7.43 billion, while its net earnings rose 374.2% from the prior-year quarter to $664 million. KR’s adjusted EPS came in at $1.45, representing 21.9% year-over-year.
The consensus EPS estimate of $0.78 for the fiscal third quarter (ending October 2022) represents a marginal improvement year-over-year. The consensus revenue estimate of $33.74 billion for the third quarter ending October 2022 indicates a 5.9% 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 nine months, the stock has gained 14% to close the last trading session at $48.30.
KR’s POWR Ratings reflect this promising outlook. The company's overall A rating translates to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, and Quality. Within the same industry, it is ranked #5.
To see the additional POWR Ratings of KR for Momentum, Stability, and Sentiment, click here.
Albertsons Companies, Inc. (ACI)
ACI is engaged in the operation of food and drug stores in the United States. It offers grocery, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services.
For the fiscal quarter that ended June 18, 2022, ACI’s net sales and other revenue increased 9.6% year-over-year to $23.31 billion. Its gross margin grew 5.7% from the year-ago value to $6.54 billion, while its operating income was up 10.6% year-over-year, to $760.10 million.
The company’s adjusted net income came in at $582 million, representing an increase of 12.5% year-over-year. Also, its adjusted net income per share rose 12.3% year-over-year to $1. In addition, the ACI’s adjusted EBITDA increased 8.6% from the prior-year value to $1.42 billion.
Analysts expect ACI’s EPS for the quarter ending August 31, 2022, to increase 7.3% year-over-year to $0.56. Its revenue for the current quarter is expected to increase 6.7% year-over-year to $17.62 billion. It has surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 4.8% over the past month to close the last trading session at $28.13.
ACI’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It has an A grade for Value and a B for Growth and Quality. Again, in the same industry, it is ranked #2.
In addition to the POWR Rating grades I have highlighted, you can check the other ratings of ACI for Momentum, Stability, and Sentiment, here.
Casey's General Stores, Inc. (CASY)
CASY operates convenience stores under the Casey’s and Casey’s General Store names and offers freshly prepared foods, such as pizza, donuts, and sandwiches; beverages; tobacco and nicotine products; health and beauty aids; automotive products; and other non-food items.
On June 14, 2022, CASY and MTN DEW announced the launch of a new flavor line-up, MTN DEW OVERDRIVE, that would be available in more than 2400 Casey’s convenience stores. Adding a new flavorful product is expected to have a strong demand and boost the company’s revenues.
CASY’s total revenue increased 45.4% year-over-year to $3.46 billion in the fiscal fourth quarter that ended April 30, 2022. The company’s net income came in at $59.78 million, up 43.4% year-over-year, while its net income per share grew 42.9% from the year-ago value to $1.60. Also, its adjusted EBITDA increased 17.7% year-over-year to $165.51 million.
For the quarter that ended July 31, 2022, CASY’s EPS and revenue are expected to increase 9.3% and 41.9% year-over-year to $3.49 and $4.52 billion, respectively. It surpassed consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 15.6% to close the last trading session at $217.47.
CASY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The stock has a B grade for Sentiment and Quality. It is ranked #10 in the Grocery/Big Box Retailers industry.
Click here to see the other ratings of CASY for Growth, Value, Momentum, and Stability.
WMT shares were trading at $132.76 per share on Tuesday afternoon, down $0.12 (-0.09%). Year-to-date, WMT has declined -7.15%, versus a -15.40% 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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