Grocery stores enjoy inelastic demand irrespective of economic cycles. Therefore, investing in fundamentally sound grocery store chain stocks could be wise amid the current uncertain economic conditions and a likely recession.
To that end, I think Walmart Inc. (WMT), The Kroger Co. (KR), and Sprouts Farmers Market, Inc. (SFM) are ideal investments now.
Grocery stores are expected to be benefited from redirecting their efforts toward renovating their physical stores. By taking an innovative approach to the physical store, retail stores are expected to offer memorable shopping experiences to nurture consumer loyalty.
Moreover, artificial Intelligence significantly impacts the grocery retail market, improving efficiency, personalization, and customer experience. According to a survey by Salesforce, 51% of grocery retailers use AI to personalize the customer experience.
Let’s discuss the featured stocks:
Walmart Inc. (WMT)
WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S.; Walmart International; and Sam's Club.
On May 22, 2023, WMT opened its first high-tech Market Fulfillment Center in Arkansas at Store 100, located at 406 S Walton Blvd in Bentonville, on Monday, underlining the retailer’s strategic move toward expanding the use of its stores as fulfillment centers to enhance the shopping experience for customers everywhere.
On April 25, Sam's Club, a division of WMT and a leading membership warehouse club, announced the launch of its new partner program for Sam's Club Member Access Platform (MAP). MAP Partners Club connects advertisers with a certified network of agencies and technology providers to maximize campaign performance.
Sam's Club can enhance its advertising capabilities and campaign performance by connecting advertisers with a certified network of agencies and technology providers. This will enable the company to attract more advertisers and increase revenue from advertising partnerships.
WMT’s trailing-12-month asset turnover ratio of 2.53x is 180.5% higher than the 0.90x industry average. Its trailing-12-month ROTC of 10.77% is 71.1% higher than the 6.29% industry average.
The company pays an annual dividend of $2.28, which translates to a yield of 1.53% at the current price level. It has a four-year average dividend yield of 1.64%.
During the fiscal first quarter that ended April 30, 2023, WMT's total revenues increased 7.6% year-over-year to $152.30 billion. Its operating income increased 17.3% year-over-year to $6.24 billion. Also, consolidated net income attributable to WMT came to $1.67 billion. WMT’s adjusted EPS grew 13.1% year-over-year to $1.47.
WMT’s revenue is expected to increase 4.7% year-over-year to $158.42 billion for the fiscal second quarter ending July 2023. The company’s EPS for the same quarter is expected to be $1.67. Also, it has surpassed revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Shares of WMT have gained 11.9% over the past nine months to close the last trading session at $148.82.
WMT’s POWR Ratings reflect its promising 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.
The stock has an A grade for Stability and Sentiment and a B in Quality. It is ranked #9 out of 37 stocks in the A-rated Grocery/Big Box Retailers industry.
Beyond what is stated above, we’ve also rated WMT for Growth, Value, and Momentum. Get all WMT ratings here.
The Kroger Co. (KR)
KR operates as a food and drug retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price-impact warehouses.
On May 15, 2023, KR announced the launch of two new Mobile Food Kitchens sponsored by KR to support military service members. Through this collaboration, the USO and KR provide nutritious meals to military members, whether they are supporting natural disaster relief, serving in remote locations, or at basic training.
KR’s trailing-12-month asset turnover ratio of 3.00x is 232.7% higher than the 0.90x industry average. Its trailing-12-month ROTC of 9.41% is 49.5% higher than the 6.29% industry average.
The company pays an annual dividend of $1.04, which translates to a yield of 2.26% at the current price level. It has a four-year average dividend yield of 1.98%.
KR's sales increased 5.4% year-over-year to $34.82 billion in the fiscal fourth quarter that ended January 31, 2023. Net earnings attributable to the KR came in at $450 million or $0.62 per share. Its operating profit increased 18.7% over the prior-year quarter to $4.13 billion.
Street expects KR’s revenue for the fiscal first quarter that ended April 30, 2023, to increase 1.3% year-over-year to $45.17 million. Its EPS is expected to come to $1.43 for the same quarter. Also, it has surpassed EPS estimates in each of the trailing four quarters.
The stock has gained 3% year-to-date to close the last trading session at $45.92.
KR’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
KR has a B grade for Quality, Value, and Growth. It is ranked #11 in the same industry.
Click here to see the additional POWR Ratings for KR (Stability, Sentiment, and Momentum).
Sprouts Farmers Market, Inc. (SFM)
SFM retails fresh, natural, and organic food products in the United States. It provides perishable product categories, including fresh produce, meat, seafood, deli, bakery, floral, and dairy and dairy alternatives.
On March 22, 2023, SFM announced that it had acquired two independently owned stores in Chula Vista, California, operating under the Sprouts Farmers Market name under a legacy trademark license arrangement. This could increase the revenue stream of the company.
SFM’s trailing-12-month asset turnover ratio of 2.11x is 133.4% higher than the 0.90x industry average. Its trailing-12-month gross profit margin of 36.93% is 17.8% higher than the 31.36% industry average.
SFM’s net sales increased 5.6% year-over-year to $1.73 billion in the fiscal third quarter, which ended April 2, 2023. Gross profit increased 6.3% year-over-year to $650.06 million. Also, its adjusted EPS increased 24.1% year-over-year to $0.98, and adjusted EBITDA increased 10.2% year-over-year to $167.97 million.
The stock has gained 15.1% over the past nine months to close the last trading session at $33.06.
SFM’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.
SFM also has an A grade for Quality. It is ranked #25 in the same industry.
To access additional ratings for SFM’s Growth, Value, Stability, Sentiment, and Momentum, click here.
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WMT shares were trading at $149.91 per share on Monday afternoon, up $1.09 (+0.73%). Year-to-date, WMT has gained 6.56%, versus a 12.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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