Through Dec. 31, 2021, inflation rose to its highest level since 1982, with the consumer price index (CPI) jumping 7%. Rising food prices were one of the most significant contributors to this inflation surge. And because food prices are expected to continue rising, grocery store operators should see increasing revenues, considering the near-inelastic demand for groceries.
According to research firm IRI, food prices are estimated to rise 5% in the first half of 2022. Persistent supply chain disruptions and labor shortages should drive prices higher.
Several major food distribution companies have announced price hikes by as much as 20%, relying on brand confidence and customer loyalty. However, increasing consumer spending should keep driving grocery stores’ revenue growth. Grocery stores will “mark up the full rate of inflation plus a little bit more,” asserted Burt Flickinger, the managing director of retail consultancy Strategic Resource Group. Given this backdrop, we think quality grocery stocks Albertsons Companies, Inc. (ACI), BJ’s Wholesale Club Holdings, Inc. (BJ), and Weis Markets, Inc. (WMK) should keep benefiting.
Albertsons Companies, Inc. (ACI)
ACI operates food and drug retail stores, offering grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services in the United States. The Boise, Idaho-based company operates more than 2,200 supermarkets under 20 banners across 34 states and the District of Columbia.
On December 21, Picadeli, one of Europe’s leading food tech companies, announced its arrival in the U.S. market through its debut partnership with ACI. Picadeli has launched in six Safeway, ACME, and Kings locations across Washington, D.C., Maryland, and New Jersey, offering fresh, healthy food through its modular store-in-store salad bars. Given Picadeli’s innovative, technology-forward solutions, this partnership should enable ACI to cater to strong demand for healthy, affordable foods that can be customized quickly.
In December, ACI launched its two new digital schemes–Meal Planning and Schedule & Save. With the growing demand for digitalization, ACI aims to automate the task of everyday routine shopping and help customers choose their meals. These new capabilities should enhance its customer experience and help expand its customer base.
ACI’s net sales and other revenues increased 8.6% year-over-year to $16.73 billion in its fiscal fourth quarter, ended December 4. Its operating income grew 132% from its year-ago value to $599.60 million, while its net income improved 243.2% year-over-year to $424.50 million over the period. The company’s adjusted EPS increased 19.7% year-over-year to $0.79.
A $16.74 billion consensus revenue estimate for its fiscal fourth quarter, ending February 2022 indicates an increase of 6.1% from the same period last year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 76.2% in price over the past year and 53.2% over the past six months to close yesterday’s trading session at $30.47.
ACI’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ACI is also rated an A in Growth and a B in Value, Sentiment, and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #2 of 39 Stocks. To see additional POWR Ratings for Stability and Momentum for ACI, click here.
BJ’s Wholesale Club Holdings, Inc. (BJ)
BJ operates warehouse clubs offering perishable, edible grocery, non-edible grocery products, gasoline, and other ancillary services. The Westborough, Mass.-based company currently operates 224 warehouse clubs and 154 gas locations.
BJ recently announced its plan to open a club in Port Charlotte, FL, on Jan. 21, 2022, bringing the retailer’s total number of U.S. locations to 225. The club will also have BJ’s Gas location, offering members everyday low fuel prices with the BJ’s Gas Saving Program. This new location further expands its footprint in Florida. The company also recently opened a new club in Commack, N.Y.
BJ’s total revenue increased 14.3% year-over-year to $4.26 billion in the third quarter, ended October 30, while its income from continuing operations increased 3% year-over-year to $126.60 million. Its net income improved 3.03 % from its year-ago value to $126.52 million. In addition, its EPS came in at $0.92, indicating a rise of 4.5% year-over-year.
The company’s EPS is expected to grow 3.9% year-over-year to $0.73 in its fiscal quarter ending January 2022. The Street expects BJ’s revenue to increase 10.3% from the same period last year to $4.35 billion in the current quarter. Also, BJ topped the consensus EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 50.3% in price over the past year to close yesterday’s trading session at $59.99.
BJ’s POWR Ratings reflect its solid fundamentals. The company has an overall B rating, which translates to Buy in our proprietary rating system. BJ is also rated a B in Value. BJ is ranked #26 in the Grocery/Big Box Retailers industry.
In addition to the POWR Ratings grades highlighted, one can see the BJ’s ratings for Growth, Momentum, Sentiment, Quality, and Stability here.
Weis Markets, Inc. (WMK)
WMK in Sunbury, Pa., is a retail seller of groceries, dairy products, frozen foods, and household products. The company owns and operates approximately 197 retail food stores, many of which have online order and pick-up customer service.
WMK selected Collaborative Solutions, a Workday services partner, to deploy Workday Financial Management and Workday Human Capital Management (HCM) to drive operational efficiencies in its core financial and HR business processes while enhancing its digital transformation strategy.
For the third quarter, ended September 25, 2021, WMK’s net sales were $1.06 billion, up 6.1% year-over-year. Its comparable-store sales increased 4.6% on an individual year-over-year basis, and they increased 19.4% on a two-year stacked basis.
The stock has gained 33.5% in price over the past year. WMK shares have gained 20.1% over the past six months to close yesterday’s trading session at $63.91.
It is no surprise that WMK has an overall rating of A, which translates to Strong Buy in our proprietary rating system. WMK is also rated an A for Stability and a B for Value and Quality. It is ranked #9 in the Grocery/Big Box Retailers industry. Click here for additional POWR Ratings for WMK.
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ACI shares fell $0.02 (-0.07%) in premarket trading Wednesday. Year-to-date, ACI has gained 0.93%, versus a -3.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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