Despite the resurgence of COVID-19 cases, rising inflation, a slowdown in third-quarter GDP growth, and supply chain logjams, retail sales have been rising since August, with a 1.7% month-over-month rise in October, owing to declining jobless claims and rising consumer spending ahead of the holiday season.
Although supply chain constraints and rising costs continue to worry grocery retailers, the rise in online grocery sales and pickup/delivery services, increasing consumer spending, and increasing foot traffic to the stores should help grocery retailers offset the consequences of inflation and benefit substantially this holiday season. The National Retail Federation (NRF) forecasts retail sales to rise between 8.5% -10.5% during November and December.
Therefore, we think fundamentally sound grocery retailers The Kroger Company (KR), Albertsons Companies, Inc. (ACI), Casey’s General Stores, Inc. (CASY), and Sprouts Farmers Market, Inc. (SFM) could be solid bets now.
The Kroger Company (KR)
KR operates combination food and drug stores, multi-department stores, marketplace stores, and price impact warehouses that offer natural food and organic sections, pharmacies, general merchandise, fresh seafood, apparel, home fashion and furnishings, electronics, and automotive products. The Cincinnati, Ohio-based company also sells fuel through 1,596 fuel centers. As of January 30, 2021, the company operated 2,742 retail food stores.
On November 2, 2021, KR and Bed Bath & Beyond Inc. (BBBY), a leading omnichannel retailer for home, baby, and wellness products, announced a strategic collaboration to directly offer BBBY’s selected home and baby products through Kroger.com as well as a small-scale physical store pilot at select KR’s family of stores beginning in 2022.
KR’s sales rose 3.9% year-over-year to $31.68 billion for its fiscal second quarter, ended August 14, 2021. The company’s operating profit came in at $839 million, indicating a 2.3% increase from the prior-year period. The company had $339 million in cash as of August 14, 2021.
A $135.88 billion consensus revenue estimate for the current year represents a 2.6% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock’s EPS is expected to grow at a 6.4% rate per annum over the next five years.
The stock has gained 32.1% in price over the past year and 6.5% over the past month. It closed yesterday’s trading session at $42.86.
KR’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Value and Quality. Click here to see the additional ratings for KR (Momentum, Stability, Sentiment, and Growth).
Of the 40 stocks in the A-rated Grocery/Big Box Retailers industry, KR is ranked #18.
Albertsons Companies, Inc. (ACI)
ACI in Boise, Idaho, operates as a food and drug retailer that offers grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services through its stores. As of February 27, 2021, it operated 2,277 stores under various banners.
On November 3, 2021, ACI, in partnership with the Centers for Disease Control and Prevention (CDC), announced its initiative to support the nationwide effort to provide COVID-19 vaccine to children aged 5-11 years through school clinics, following the FDA’s recommendation of Emergency Use Authorization. As one of the CDC’s largest retail partners, ACI is looking forward to delivering quick, convenient, and equitable access to the COVID-19 vaccine.
For its fiscal second quarter, ended September 11, 2021, ACI’s total net sales and revenues increased 4.7% year-over-year to $16.51 billion. The company’s gross profit came in at $4.72 billion, up 3.1% from the prior-year period. ACI’s adjusted net income was $369.50 million, up 3.7% from the year-ago period. Its adjusted EPS increased 6.7% year-over-year to $0.64. The company had $2.85 billion in cash and cash equivalents as of September 11, 2021.
Analysts expect ACI’s revenue to improve marginally year-over-year to $69.80 billion for the current year. It surpassed the consensus EPS estimates in each of the trailing four quarters.
ACI shares have gained 130.3% in price over the past year and 17.4% over the past month. It ended yesterday’s trading session at $36.18.
It is no surprise that ACI has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
Casey’s General Stores, Inc. (CASY)
With its subsidiaries, CASY operates convenience stores under the Casey’s and Casey’s General Store names that offer a selection of food, beverage products, health and beauty aids, electronic accessories, housewares, automotive products, and pet supplies. The stores also provide motor fuel for sale on a self-service basis, gasoline, and diesel fuel. It also sells tobacco and nicotine products and runs one liquor store and one grocery store. As of April 30, 2021, it operated 2,243 convenience stores. CASY is headquartered in Ankeny, Iowa.
On October 6, 2021, CASY and IRI, a data analytics and market research company focused on consumer-packaged goods, retail, and healthcare companies, expanded their point-of-sale data-sharing partnership to include frequent shopper loyalty program data from CASY’s Rewards. This move should provide merchants and supplier partners with data and insights needed to create a differentiated product assortment where the right products are optimally placed, priced, and promoted to drive traffic, revenue, and profitability. This should enable CASY to elevate its shopping experience.
For its fiscal first quarter, ended July 31, 2021, CASY’s total revenue increased 51.2% year-over-year to $3.18 billion. The company’s adjusted EBITDA came in at $243.19 million, up 2.3% from the prior-year period. CASY had $198.93 million in cash and cash equivalents as of July 31, 2021.
Analysts expect the stock’s EPS to grow 6.1% year-over-year to $8.89 in the current year. A $11.95 billion consensus revenue estimate for the current year represents a 37.2% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Analysts expect the stock’s EPS to grow at a 7.4% rate per annum over the next five years.
The stock has gained 6.6% in price over the past year and 2% over the past month. CASY closed yesterday’s trading session at $199.96.
CASY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has a B grade for Sentiment and Quality. Click here to see the additional ratings for CASY (Growth, Value, Momentum, and Stability). CASY is ranked #15 in the Grocery/Big Box Retailers industry.
Sprouts Farmers Market, Inc. (SFM)
Phoenix, Ariz.-based SFM is a specialty retailer of fresh, natural, and organic food products. Through its healthy grocery stores, the company sells a variety of products categorized under perishable and non-perishable. Its products include fresh produce, vitamins and supplements, grocery, meat and seafood, bakery, dairy, body care, and natural household items.
SFM announced plans to open a new store in Smyrna, Georgia, on December 1, 2021. This will be the company’s first Georgia Sprouts to feature the specialty market’s updated design and layout. Also, the company is looking forward to providing the freshest deals and hundreds of digital coupons to its customers through the Sprouts app.
SFM’s adjusted EBITDA came in at $117.08 million for its fiscal third quarter, ended October 3, 2021, up 4.1% from its year-ago period. While its adjusted net income increased 3% year-over-year to $63.87 million, its adjusted EPS increased 7.7% to $0.56. As of October 3, 2021, the company had $260.22 million in cash and cash equivalents.
SFM surpassed the Street’s EPS estimates in each of the trailing four quarters. Its EPS is expected to grow at a marginal rate per annum over the next five years.
The stock has gained 36.5% in price over the past year and 22% over the past month. It ended yesterday’s trading session at $27.35.
SFM’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
SFM has an A grade for Quality, and a B grade for Value. In addition to the POWR Ratings grades we have just highlighted, one can see SFM’s Growth, Stability, Momentum, and Sentiment here. SFM is ranked #27 in the Grocery/Big Box Retailers industry.
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KR shares were trading at $43.23 per share on Tuesday afternoon, up $0.37 (+0.86%). Year-to-date, KR has gained 38.89%, versus a 26.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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