The expanding middle-class population in emerging countries is greatly influencing the retail food and grocery industry. With rising disposable incomes, there is a marked increase in demand for premium groceries and goods. Consequently, retailers are strategically modifying their product offerings to meet the preferences of this growing demographic.
The global food & grocery retail market is expected to grow at a CAGR of 3.2% from 2024 to 2030.
Additionally, technological progress is driving innovation in the retail industry. E-commerce platforms, artificial intelligence, and data analytics have transformed how consumers shop and engage with brands, advancing the sector. Furthermore, economic conditions play a crucial role in shaping the retail market.
Against this backdrop, let’s compare two retail stocks, The Kroger Co. (KR) and Dollar General Corporation (DG), to analyze which retail stock is a better buy.
The Case for The Kroger Co.
Valued at $39.12 billion by market cap, The Kroger Co. (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.
KR’s stock has gained 22% over the past nine months to close the last trading session at $54.20. Over the past month, the stock has surged 8.6%.
KR’s trailing-12-month ROCE of 18.32% is 62.9% higher than the industry average of 11.24%. Further, its trailing-12-month ROTC of 9.66% is 39% higher than the industry average of 6.95%.
KR’s sales for the first quarter ended April 30, 2024, came in at $45.27 billion, up marginally year-over-year. Its operating profit came in at $1.29 billion. Its net earnings attributable to KR were reported at $947 million, and net earnings attributable to KR at $1.29.
Analysts expect KR’s revenue for the quarter ending July 31, 2024, to increase marginally year-over-year to $34.11 billion. Its EPS for the quarter ending October 31, 2024, is expected to grow 3.7% year-over-year to $0.98. KR surpassed the consensus EPS estimate in each of the trailing four quarters.
KR’s POWR Ratings reflect its robust outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
KR has a B grade for Value, Sentiment, and Quality. It is ranked #10 out of 37 stocks in the A-rated Grocery/Big Box Retailers industry.
Click here for the additional POWR Ratings for KR (Growth, Stability, and Momentum).
The Case for Dollar General Corporation
Valued at $25.81 billion by market cap, Dollar General Corporation (DG) is a discount retailer that provides various merchandise products. It offers consumable products, including paper and cleaning products, packaged food, and perishables. The company’s consumable products also comprise snacks, health and beauty products, pet supplies and pet food, and tobacco products.
DG’s stock has plunged 31.2% over the past year and 11.2% over the past month to close the last trading session at $117.36.
DG’s trailing-12-month ROCE and ROTA of 23.35% and 4.87% are 107.7% and 11% higher than the industry averages of 6.95% and 4.93%, respectively. However, the stock’s trailing-12-month gross profit margin of 29.94% is 14.5% lower than the industry average of 35%.
DG’s net sales increased 6.1% year-over-year to $9.91 billion during the first quarter that ended May 3, 2024. Its gross profit rose 1% year-over-year to $2.99 billion. The company’s net income was reported at $363.32 million, and earnings per share at $1.65.
Analysts expect DG’s revenue for the second quarter (ending July 2024) to increase 6% year-over-year to $10.39 billion. However, the company’s EPS for the same quarter is expected to decline 15.4% year-over-year to $1.80. DG surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
DG’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.
The stock has a C grade for Quality, Stability, and Sentiment. DG is ranked #34 out of 37 stocks in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see DG’s ratings for Growth, Stability, Sentiment, and Quality here.
Kroger (KR) vs. Dollar General (DG): Which Retail Stock is a Better Buy?
The retail industry is experiencing a significant transformation driven by evolving consumer preferences, technological advancements, and market trends. E-commerce has become a dominant force, propelled by the widespread use of digital technologies, mobile commerce, and shifting shopping habits. Both KR and DG stand to capitalize on these burgeoning industry trends.
However, KR’s lower valuation, favorable analyst sentiments, and strong financials make it the better retail stock pick.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Grocery/Big Box Retailers industry here.
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KR shares were trading at $54.52 per share on Tuesday afternoon, up $0.32 (+0.59%). Year-to-date, KR has gained 20.67%, versus a 14.58% 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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