High inflation, supply chain disruptions, and contraction of the economy have been weighing heavily on the retail sector lately and hurting investor sentiment, especially after retail giant Walmart Corporation’s (WMT) warning of declining demand.
However, the inelastic demand for food, groceries, and other general merchandise and resilient consumer spending have been helping retailers profit by passing rising costs to customers.
Investors’ interest in retail stocks is evident from the SPDR S&P Retail ETF’s (XRT) 4.2% returns over the past week versus the SPDR S&P 500 Trust ETF’s (SPY) 0.6% gains. The global food and grocery retail market is expected to grow at a 3% CAGR to reach $14.78 trillion by 2030.
Therefore, amid these tough times, investors could invest in retail stocks Sprouts Farmers Market, Inc. (SFM) and Ingles Markets, Incorporated (IMKTA), which have the potential to stay resilient to market fluctuations.
Sprouts Farmers Market, Inc. (SFM)
SFM is a specialty retailer of fresh, natural, and organic food products. It sells various products categorized under perishable and non-perishable, including fresh produce, vitamins and supplements, grocery, meat and seafood, bakery, dairy, body care, and natural household items.
Followed by the United States Department of Agriculture Food and Nutrition Service’s most recent approval, on June 15, 2022, SFM announced to accept Electronic Benefits Transfer Supplemental Nutrition and Assistance Program (EBT SNAP) for same-day delivery and curbside pickup for orders placed via the Instacart website and mobile app.
This launch will help customers use their SNAP benefits, allowing them greater convenience, accessibility, and affordability and help expand SFM’s reach.
For the fiscal 2022 second quarter ended July 3, 2022, SFM’s net sales increased 4.8% year-over-year to $1.60 billion. The company’s gross profit came in at $580.36 million, representing a 5.5% year-over-year improvement. Its income from operations came in at $86.51 million for the quarter, up 3.4% from the year-ago period.
While its net income increased 1.6% year-over-year to $62 million, its EPS grew 9.6% to $0.57. As of July 3, 2022, the company had $288.97 million in cash and cash equivalents.
Analysts expect an EPS estimate of $2.13 for fiscal 2022 ending December 31, 2022, indicating a rise of 1.5% from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive.
The consensus revenue estimate of $6.33 billion for the same fiscal year represents a 3.8% year-over-year improvement. SFM’s EPS is expected to grow at a rate of 5.4% per annum over the next five years.
Its 25.2% trailing-12-month ROE is 88.1% higher than the 13.4% industry average. The company’s trailing-12-month ROA of 8.3% is 76.2% higher than the industry average of 4.7%. Over the past month, the stock has gained 5.6% to close the last trading session at $27.17.
SFM’s POWR Ratings reflect this promising outlook. It 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 an A grade for Quality. Click here to see the additional ratings for SFM’s Growth, Stability, Value, Sentiment, and Momentum. SFM is ranked #13 of 38 stocks in the A-rated Grocery/Big Box Retailers industry.
Ingles Markets, Incorporated (IMKTA)
IMKTA operates a chain of supermarkets that offers food products, including grocery, meat, and dairy products, produce, frozen foods, and other perishables, and non-food products, including fuel centers, pharmacies, and health and beauty care products, general merchandise, and private label items.
The company focuses on selling its own developed organic products to its customers, including bakery departments, prepared foods, and delicatessen sections.
IMKTA’s net sales for its fiscal 2022 third quarter ended June 25, 2022, increased 14.2% year-over-year to $1.46 billion. The company’s gross profit came in at $351.88 million, indicating a 4.3% rise from the prior-year period. As of June 25, 2022, it had $126.05 million in cash and cash equivalents.
The company’s EPS is expected to grow at a 14.5% rate per annum over the next five years. Its 28.3% trailing-12-month ROE is 111.4% higher than the 13.4% industry average. The company’s trailing-12-month ROA of 13.1% is 177.6% higher than the industry average of 4.7%. Over the past month, the stock has gained 11.5% to close the last trading session at $97.70.
IMKTA’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth, Value, and Stability. In addition to the POWR Ratings grades we have just highlighted, one can see IMKTA’s Sentiment and Momentum ratings here. IMKTA is ranked #2 in the same industry.
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SFM shares were trading at $30.83 per share on Thursday afternoon, up $3.66 (+13.47%). Year-to-date, SFM has gained 3.87%, versus a -12.13% 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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