Even in the face of economic uncertainties, the grocery industry is known for its stability. This resilience arises from the unwavering demand for essential food items, regardless of economic fluctuations, ensuring a reliable and consistent revenue stream for companies within this sector.
Given the industry’s resilience, in this piece, I have discussed the fundamentals of three quality grocery companies, PriceSmart, Inc. (PSMT), Wal-Mart de México, S.A.B. de C.V. (WMMVY), and Koninklijke Ahold Delhaize N.V. (ADRNY), which appear well-equipped to yield profitable gains.
The alluring factors of grocery retail stores, including fair pricing, product quality, diverse offerings, and convenience, are driving consumer interest and consequently fostering the growth of the global grocery retail market. The global grocery retail market is projected to hit $14.77 trillion by 2030, exhibiting a CAGR of 6.9% from 2023 to 2030.
Moreover, according to Statista, while consumers in the United States predominantly favor supermarkets as their go-to source for everyday food and products, there is an expected substantial growth in the digital segment in the upcoming years, building on the already notable expansion observed during the pandemic.
A growing number of Americans are turning to online channels to fulfill their grocery needs, with projections indicating that online sales will make up 13.5% of the total grocery market in 2023. The upswing in online grocery shopping is anticipated to result in sales nearing almost $190 billion by 2024, propelled by improved convenience and enhanced delivery options.
Additionally, the grocery industry is undergoing a significant transformation with the adoption of Artificial Intelligence (AI) and big data analytics. Retailers are incorporating AI to improve customer experiences and streamline operational processes.
The global market for AI in retail is anticipated to experience substantial growth, transitioning from $6 billion in 2023 to $85 billion by 2033, reflecting a robust CAGR of 30.3%.
In light of such encouraging trends and prospects, let us dive deeper into the fundamentals of the featured Grocery/Big Box Retailers stocks, beginning with number three:
Stock #3: PriceSmart, Inc. (PSMT)
PSMT owns and operates U.S.-style membership shopping warehouse clubs in the United States, Central America, the Caribbean, and Colombia. The company provides basic and private label consumer products under the Member's Selection brand, including groceries, cleaning supplies, health and beauty aids, meat, produce, deli, seafood, and poultry.
On November 30, PSMT inaugurated its latest warehouse club in Escuintla, Guatemala, marking the company's 53rd operational warehouse club. Situated on a five-acre property, this new addition becomes the sixth club in Guatemala, showcasing PSMT’s commitment to expanding its presence in the region.
The stock’s trailing-12-month Return On Total Capital (ROTC) of 9.68% is 40.9% higher than the 6.87% industry average. Likewise, its trailing-12-month asset turnover ratio of 2.31x is 177% higher than the 0.84x industry average. Furthermore, PSMT’s trailing-12-month cash per share of $7.83 is 383.9% higher than the industry average of $1.62.
In the fiscal fourth quarter, which ended on August 31, 2023, PSMT’s total revenues increased 9.5% year-over-year to $1.12 billion, while its adjusted EBITDA grew 1.2% from the prior-year quarter to $57.24 million.
During the same period, the company’s net income and EPS came in at $15.38 million and $0.49, respectively. Moreover, its total current assets stood at $877.11 million, up 13.4% compared to $773.58 million as of August 31, 2022
Street expects PSMT’s revenue and EPS for the fiscal first quarter (ended November 2023) to increase 9.8% and 6.7% year-over-year to $1.16 billion and $1.12, respectively.
PSMT’s shares have soared 15.1% year-to-date and 4.7% over the past month to close the last trading session at $69.94.
PSMT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value and Stability. In the 38-stock A-rated Grocery/Big Box Retailers industry, it is ranked #19. Click here to see PSMT’s ratings for Growth, Momentum, Sentiment, and Quality.
Stock #2: Wal-Mart de México, S.A.B. de C.V. (WMMVY)
Headquartered in Mexico City, Mexico, WMMVY owns and operates self-service stores in Mexico and Central America. The company operates discount warehouses and stores, hypermarkets, supermarkets, and membership self-service wholesale stores.
On November 17, WMMVY marked a significant milestone with the groundbreaking ceremony for its 33rd Distribution Center in the Huamantla municipality, situated in the state of Tlaxcala, Mexico.
This facility, requiring an investment of MXN$4.80 billion ($277.14 million), is expected to create over 896 direct permanent positions and boasts the capability to cater to more than 680 stores and clubs across Mexico City, Hidalgo, Oaxaca, Puebla, Tlaxcala, and Veracruz.
The stock’s trailing-12-month net income margin of 5.91% is 20.7% higher than the 4.90% industry average. Its trailing-12-month asset turnover ratio of 2.01x is 140.2% higher than the 0.84x industry average. Also, WMMVY’s trailing-12-month Return On Common Equity (ROCE) of 27.53% is 135.7% higher than the industry average of 11.68%.
For the fiscal third quarter, which ended on September 30, 2023, WMMVY’s total revenue increased 7.7% year-over-year to MXN$213.07 billion ($12.30 billion), while its gross profit rose 10.8% from the prior-year quarter to MXN$51.96 billion ($3 billion).
Moreover, the company’s operating income and net income amounted to MXN$17.75 billion ($1.02 billion) and MXN$13.63 billion ($786.97 million), up 8.8% and 12.2% from the year-ago value, respectively. Also, its EBITDA rose 8.5% year-over-year to MXN$22.97 billion ($1.33 billion).
The consensus revenue estimate of $14.16 billion for the fourth quarter (ending December 2023) reflects a 10.6% increase year-over-year. While, the consensus EPS estimate of $0.53 for the same quarter represents a 16.9% year-over-year improvement.
WMMVY’s shares have gained 7.8% year-to-date to close the last trading session at $37.89.
WMMVY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has a B grade for Stability and Quality. Within the same A-rated industry, it is ranked #15. Click here to see the other ratings of WMMVY for Growth, Value, Momentum, and Sentiment.
Stock #1: Koninklijke Ahold Delhaize N.V. (ADRNY)
Headquartered in Zaandam, the Netherlands, ADRNY operates retail food stores and e-commerce primarily in the United States and Europe. The company’s offerings include dairy, meat, deli, bakery, seafood, frozen products, etc.
On October 30, ADRNY announced its agreement to acquire 100% ownership of Profi Rom Food SRL (Profi), a prominent Romanian grocery retailer. Romania, marked by robust economic fundamentals, is an enticing market experiencing continual growth in public wealth and spending power.
Thus, this strategic acquisition aims to enhance ADRNY’s presence across both urban and rural regions in Romania. By leveraging this acquisition, the company anticipates to not only increase its sales growth but also improve its overall profitability.
ADRNY’s trailing-12-month cash per share of $5.28 is 226.2% higher than the $1.62 industry average. Its trailing-12-month asset turnover ratio of 1.75x is 109.6% higher than the 0.84x industry average. Also, the stock’s trailing-12-month ROCE of 14.26% is 22.1% higher than the industry average of 11.68%.
For the fiscal third quarter, which ended on October 1, 2023, ADRNY’s net sales amounted to €21.93 billion ($23.79 billion), while its net income came in at €394 million ($427.59 million). Additionally, its free cash flow grew 285.3% from the prior-year quarter to €512 million ($555.65 million).
During the same period, the company’s cash and cash equivalents stood at €4.77 billion ($5.18 billion), up 54.6% compared to €3.08 billion ($3.34 billion) as of January 1, 2023.
Analysts expect ADRNY’s revenue for the fiscal fourth quarter (ending December 2023) to increase 1.2% year-over-year to $25.25 billion, while its revenue for the fiscal period ending December 2023 is expected to increase 4% year-over-year to $96.77 billion. Additionally, the company’s EPS is projected to improve by 3.1% per annum over the next five years.
The stock has surged marginally year-to-date to close the last trading session at $28.84.
It’s no surprise that ADRNY has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Stability and a B for Value and Quality. In the same industry, it is ranked #11.
In addition to the POWR Ratings we’ve stated above, we also have ADRNY’s ratings for Growth, Momentum, and Sentiment. Get all ADRNY ratings here.
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WMMVY shares were trading at $37.97 per share on Tuesday afternoon, up $0.08 (+0.21%). Year-to-date, WMMVY has gained 11.72%, versus a 20.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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