Inflation continues to impact consumers’ spending habits, and they have become quite cautious in their approach while spending on retail goods. However, the pace of food inflation has declined, making headway for food retailers to step up their usage of promotional tools for improving demand and cutting down costs. Retailers repeatedly focus on low prices to attract customers and enhance in-store profitability prospects.
The sector constantly evolves through personalized offers and enhanced customer tracking systems, providing a value-based shopping experience. In this light, it could be wise for investors to consider a few high-performing grocery stocks such as Walmart Inc. (WMT), Marui Group Co., Ltd. (MAURY), and PriceSmart, Inc. (PSMT).
As inflation eased and the job remained remarkably strong, Americans showed a strong willingness to spend, keeping their wallet open. Retail sales rose 0.2% from May to June, following a revised 0.5% increase the previous month, the Commerce Department reported.
The U.S. grocery industry is on track for 5.6% growth in 2023, reaching a staggering $1.5 trillion, as per Coresight Research. Various factors, including lower inflation rates and the rising prominence of non-traditional grocery retailers, fuel this growth.
Moreover, the supermarkets and hypermarkets segment is expected to grow at a CAGR of 6.5% to $4.35 trillion in 2027, thanks to the advancement in technology in analyzing retail data with accuracy that would aid in meeting the customers’ expectations.
Regardless of the swings in macroeconomic conditions and their effect on consumer behavior, grocery retailers enjoy an inelastic demand as consumers do not pull back on spending on essentials. Moreover, technological advancements should keep the retail sector buoyed this year as e-commerce continues to gain prominence since the pandemic.
The supermarket business, driven to digitalization by omnichannel mass merchandisers, is facing revolutionary trends in the global market. Grandview Research has forecasted that the global food & grocery retail market is expected to grow at a 3% CAGR, reaching a staggering value of $14.78 trillion by 2030.
Given this backdrop, it could be wise to buy a few fundamentally strong stocks like WMT, MAURY, and PSMT for significant returns. Let’s take a look at these stocks.
Walmart Inc. (WMT)
Retail giant WMT offers an assortment of merchandise and services at everyday low prices in both retail stores and through e-commerce websites. The company’s three business segments include- Walmart U.S.; Walmart International, and Sam’s Club.
On June 27, Genpact Limited (G) partnered with WMT to support its North American finance and accounting operations. This contract is a welcome change to build on the collaborative relationship of layering digital technology into finance operations. With this alliance, WMT is expected to improve its financial capabilities and increase its market share.
In the same month, WMT unveiled its largest fulfillment center in Indianapolis, spanning a massive 2.2 million sq. feet. By leveraging technology, this state-of-the-art facility is set to revolutionize the company’s order fulfillment process, allowing them to meet customer demands more efficiently and promptly.
In the fiscal first quarter (ended April 30, 2023), WMT’s total revenues increased 7.6% year-over-year to $152.30 billion. The company’s operating income improved by 17.3% from the year-ago value to $6.24 billion, while its attributable consolidated net income amounted to $1.67 billion in the same period.
In addition, its adjusted EPS stood at $1.47, up 13.1% year-over-year. Also, its free cash flow came in at $204 million, representing a 102.8% improvement from the prior-year quarter.
Street expects WMT’s revenue to increase 3.3% year-over-year to $657.85 billion for the fiscal year 2025. Its EPS for the next year is expected to increase 10.3% year-over-year to $6.88. The company surpassed the EPS estimates in each of the four trailing quarters, which is promising.
Its revenue and EBIT have increased at CAGRs of 5.2% and 5.4% over the past three years. Also, its levered FCF has increased at a 7.9% CAGR over the same period.
WMT’s trailing-12-month ROCE and ROTC of 15.14% and 10.61% are 48.8% and 68.6% higher than the industry averages of 10.17% and 6.29%, respectively. Likewise, its trailing-12-month asset turnover ratio of 2.53x compares to the industry average of 0.88x.
The stock has gained 19.5% over the past year to close the last trading session at $158.37.
WMT’s POWR Ratings reflect this favorable outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and B for Sentiment and Quality. In the 38-stock A-rated Grocery/Big Box Retailers industry, it is ranked #8. To see additional POWR Ratings for Growth, Value, and Momentum for WMT, click here.
Marui Group Co., Ltd. (MAURY)
Headquartered in Tokyo, Japan, MAURY is an investment holding company primarily engaged in the retail and fintech business. It offers design and construction of commercial facilities; advertising planning and production; property management; rental of real estate properties; small-amount short-term insurance policy business; and sale of investment trusts.
During the fiscal year that ended on March 31, 2023, MAURY’s revenue increased 4.1% year-over-year to ¥217.85 billion ($1.54 billion), while its gross profit improved by 5.9% from the year-ago value to ¥191.74 billion ($1.35 billion).
The company’s operating income stood at ¥38.77 billion ($273.32 million), up 5.4% year-over-year. Net income attributable to owners of parent rose 20.7% from the prior-year quarter to ¥21.47 billion ($151.37 million).
Over the past three years, the company’s total assets have increased at a CAGR of 2.8%.
In addition, the stock’s trailing-12-month gross profit and EBITDA margins of 88.01% and 22.76% are 49.4% and 10.3% higher than the industry averages of 58.91% and 20.63%, respectively. Likewise, its ROTA of 2.23% compares with the industry average of 1.12%.
MAURY’s shares have gained 15.6% over the past three months and 8.4% year-to-date to close the last trading session at $35.88.
MAURY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Stability, Sentiment, and Quality. Within the same A-rated industry, it is ranked #7. Click here to see the other ratings of MAURY for Value and Momentum.
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 June 1, PSMT expanded its presence in El Salvador with the opening of a new warehouse club in San Miguel, bringing the total number of warehouse clubs in operation to 51. The club features a new sales floor design, optimizing space utilization and enhancing the shopping experience. Moreover, this expansion is a significant step to strengthen the company’s overall presence in the country.
During the fiscal third quarter that ended on May 31, 2023, PSMT’s total revenue increased 6.4% year-over-year to $1.09 billion, with a 7.1% year-over-year increase in its net merchandise sales of $1.07 billion. Its operating income rose 27.5% from the prior-year quarter to $43.05 million.
The company’s adjusted net income attributable to PSMT came in at $31.88 million and $1.02 per share, representing a 65.5% and 64.5% improvement year-over-year.
The consensus EPS estimate of $0.85 for the fourth quarter (ending August 2023) represents a 13.3% improvement year-over-year. The consensus revenue estimate of $1.10 billion for the current quarter indicates a 7.4% increase from the prior-year period. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
PSMT’s revenue and net income have increased at CAGRs of 9.2% and 14.2%, respectively, over the past three years, while its EPS has grown at a 13.5% CAGR.
The stock’s trailing-12-month ROTC and ROTA of 9.51% and 6.06% are 51.1% and 47.9% higher than the 6.29% and 4.10% industry averages, respectively. Also, its trailing-12-month asset turnover ratio of 2.32x compares with the industry average of 0.88x.
Over the past nine months, the stock has gained 26% to close the last trading session at $78.61. Also, it has gained 29.3% year-to-date.
It’s no surprise that PSMT has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It has an A grade for Stability and a B for Value and Sentiment. Out of 38 stocks in the same industry, it is ranked #6.
In addition to the POWR Ratings we’ve stated above, we also have PSMT’s ratings for Growth, Momentum, and Quality. Get all PSMT ratings here.
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WMT shares were trading at $159.13 per share on Monday afternoon, up $0.76 (+0.48%). Year-to-date, WMT has gained 13.12%, versus a 19.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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