Growth prospects of the grocery industry are anticipated to be bolstered by persistent consumer spending. Given the industry’s recession-resistant nature, let us discuss why stocks like PriceSmart, Inc. (PSMT), The Kroger Co. (KR), George Weston Limited (WNGRF), and Tesco PLC (TSCDY) this November might be great investments.
Before delving into the fundamentals of these stocks, let’s understand the factors driving the grocery industry’s resilience amid uncertain macroeconomic climates.
Consumer demand aside, the persistent focus on innovation and value creation drives growth, broadens revenue streams, and enhances operational efficiency.
An overwhelming 85% of retailers are reported to have explored cutting-edge technologies to enrich customer experiences, and an estimated 35% of suppliers leverage AI technology to harness consumer data. These collaborations lift the grocery industry and notably improve e-commerce and in-store experiences.
The growth of e-commerce and the widespread return of store-shopping experiences are expected to influence the grocery sector’s performance this year and beyond. According to SkyQuest, the global online grocery market is expected to reach $2.18 trillion by 2030, growing at a CAGR of 25.3%.
Given the consumers’ resilient spending and the sector’s inelastic demand, it is no surprise that the global food and grocery retail market is expected to grow at a 3% CAGR, reaching a whopping value of $14.78 trillion by 2030.
Given the promising prospects of the Grocery/Big Box Retailers industry, let’s look at the stock fundamentals, starting with the fourth stock.
Stock #4: PriceSmart, Inc. (PSMT)
PSMT is an owner and operator of U.S.-style membership shopping warehouse clubs. Its warehouse clubs sell brand-name and private-label consumer products; essential goods; fresh produce; prepared foods, and fresh-baked goods, and provide services such as optical; tire center, and other ancillary services.
On September 5, PSMT announced that it had opened its tenth club in Colombia, expanding its warehouse club operations to 52 locations, with plans to open more clubs in the near future. This expansion indicates the company's continued growth and investment in Latin American and Caribbean markets, potentially strengthening its position in the region.
During the fiscal fourth quarter that ended on August 31, 2023, PSMT’s total revenue increased 9.5% year-over-year to $1.12 billion. Its adjusted EBITDA rose 1.2% from the prior-year quarter to $57.24 million. Additionally, as of August 31, 2023, PSMT’s cash and cash equivalents stood at $239.98 million, increasing marginally from $237.71 million as of August 31, 2022.
Analysts expect PSMT’s revenue to increase 9.8% year-over-year to $1.16 billion for the fiscal first quarter (ending November 2023). Its EPS is expected to grow 6.7% year-over-year to $1.12 for the same period.
The stock has gained 10.9% year-to-date and 5.2% over the past five days to close the last trading session at $67.41.
PSMT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating 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.
The stock has a B grade for Value, Momentum, and Stability. It is ranked #17 in the A-rated 38-stock Grocery/Big Box Retailers industry.
Beyond what is stated above, we’ve also rated PSMT for Growth, Sentiment, and Quality. Get all PSMT ratings here.
Stock #3: The Kroger Co. (KR)
KR is a food retailer that owns and operates combination food and drug stores, supermarkets, multi-department stores, and fulfillment centers. It sells its products under seven brand names: Private Selection, The Kroger, Big K, Check This Out, Heritage Farm, Simple Truth, and Simple Truth Organic.
On October 25, KR started accepting EBT payment acceptance for digital Pickup and Delivery orders at all KR Family of Stores, enhancing access to fresh, healthy foods under the Supplemental Nutrition Assistance Program (SNAP).
This move aligns with KR's commitment to providing affordable and nutritious food, potentially attracting more customers and fostering convenience in its shopping experience.
For the second quarter of 2023, adjusted net earnings attributable to KR increased 5.7% from the previous year’s value to $699 million. Its adjusted net earnings per common share came in at $0.96, up 6.7% year-over-year. Its sales for the quarter came in at $33.85 billion.
The consensus EPS estimate of $1.16 for the fourth quarter of 2023 (ending January 2024) represents a 16.8% improvement year-over-year. The consensus revenue estimate of $37.08 billion for the same quarter indicates a 6.5% increase from the same period last year. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has gained 3.8% to close the last trading session at $45.11.
KR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has a B grade for Value and Quality. KR is ranked #16 among 38 stocks in the same industry. To see the other ratings of KR for Growth, Momentum, Stability, and Sentiment, click here.
Stock #2: George Weston Limited (WNGRF)
Based in Toronto, Canada, WNGRF provides food, drug retailing, and finance services globally. Its Loblaw segment provides grocery, pharmacy, health and beauty, apparel, general merchandise, and financial services, while the Choice Properties segment owns, manages, and develops a portfolio of commercial and residential properties across Canada.
On October 6, WNGRF established an Automatic Share Purchase Plan (ASPP) to facilitate the repurchase of its common shares under a previously announced Normal Course Issuer Bid (NCIB). The ASPP allows the company to repurchase shares at specific times, which may enhance its capital management and potentially benefit shareholders.
For the second quarter that ended on June 17, 2023, WNGRF’s revenue increased 7% year-over-year to C$13.88 billion ($10.10 billion), while its operating income improved 69.3% from the prior-year quarter to C$1.09 billion ($799.67 million).
The company’s adjusted net earnings from continuing operations came in at C$377 million ($274.32 million) and C$2.68 per share, representing increases of 14.9% and 20.2% year-over-year, respectively. Also, its adjusted EBITDA grew 9.1% from the year-ago value to C$1.73 billion ($1.26 billion).
Street expects WNGRF’s revenue for the fourth quarter (ending December 2023) to increase 2.2% year-over-year to $10.63 billion. For the current fiscal year, revenue is projected to reach $43.55 billion, showing an increment of 3.8% year-over-year. Furthermore, the company topped revenue estimates in three out of the trailing four quarters.
WNGRF’s shares have gained 8.4% over the past year and 5.4% over the past three months to close the last trading session at $119.37.
WNGRF’s POWR Ratings reflect this robust outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system. WNGRF has a B grade for Stability and Quality. Within the same industry, it is ranked #12.
Beyond what we stated above, we also have WNGRF’s ratings for Growth, Value, Momentum, and Sentiment. Get all WNGRF ratings here.
Stock #1: Tesco PLC (TSCDY)
Headquartered in Welwyn Garden City, the United Kingdom, TSCDY is a retailer that offers grocery products through its stores and online. The company is also involved in wholesaling food and drink and provides banking, insurance, and mobile operating services.
On October 30, TSCDY announced a new range of festive decorations in collaboration with Dragons’ Den-backed brand March Muses. The company also introduced the two-pack of Mini Mince Pies. Additionally, the launch of the popular stationary brand Paperchase in its stores was reported. Such developments should bolster the company’s revenue stream.
For the 26 weeks that ended August 26, 2023, TSCDY’s revenue and operating profit stood at £34.15 billion ($42.03 billion) and £1.48 billion ($1.82 billion), up 5% and 105.5% year-over-year, respectively. Its adjusted earnings per share stood at 12.26p, up 16.8% year-over-year.
Street expects TSCDY’s EPS for the fiscal year ending February 2024 to increase 8.3% year-over-year to $0.89, while its revenue for the same year is expected to increase marginally from the year-ago value to $83 billion.
The stock has gained 29.9% over the past year and 25.8% year-to-date to close the last trading session at $10.18.
TSCDY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
TSCDY has an A grade for Stability and a B for Growth and Value. Within the same industry, it is ranked #7.
To see the other ratings of TSCDY for Momentum, Sentiment, and Quality, click here.
What To Do Next?
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KR shares were trading at $43.86 per share on Wednesday afternoon, down $1.25 (-2.77%). Year-to-date, KR has gained 0.08%, versus a 15.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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