The retail sector is expected to grow substantially due to solid consumer spending, sustained demand, rising wages, lower layoffs, increasing disposable incomes, growth of e-commerce, and ever-changing consumer preferences.
Given this backdrop, investors could consider buying quality retail stocks such as Colruyt Group N.V. (CUYTY), PriceSmart, Inc. (PSMT), and Marks and Spencer Group plc (MAKSY). Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the retail industry’s prospects.
The retail sector has shown impressive growth despite the challenges of high borrowing costs and lingering inflation. Consumer spending, or personal consumption expenditure (PCE), rose 0.8% for the second consecutive month in March.
Moreover, retail sales in the U.S. rose higher than expected in March, notching up sales growth for the second consecutive month. Retail sales increased 0.7% in March sequentially, beating the consensus estimates of 0.4%. Retail sales have risen in seven of the past ten months through March. As per Statista, total retail sales in the U.S. are expected to amount to $7.90 trillion by 2026.
Although sticky inflation has pushed the prices of groceries higher, the demand for grocery products remains unaffected due to their inelastic demand. Grocers are capitalizing on the popularity of e-commerce and are looking to enhance customer experiences by providing personalized services and products through various digitalization initiatives.
The global grocery delivery market is expected to achieve revenues of $786.80 billion this year and grow at a CAGR of 12.7% to reach revenues of $1.27 trillion by 2028. Also, the online grocery market is expected to grow at a CAGR of 26.8% to reach revenues of $305.13 billion by 2030.
In light of these encouraging trends, let's examine the fundamentals of the three Grocery/Big Box Retailers stock picks, starting with the third in line.
Stock #3: Colruyt Group N.V. (CUYTY)
Headquartered in Halle, Belgium, CUYTY engages in retail, wholesale, food service, and other activities in Belgium, France, Luxembourg, and internationally. It operates through three segments: Retail, Wholesale and Foodservice, and Other Activities.
On April 17, CUYTY announced that it received the final approval from the BCA to acquire 28 Match and 26 Smatch stores in Belgium, proceeding with the integration and conversion of these stores to the 'Comarkt' or 'Comarché' format by the end of April 2024, aiming for a smooth transition for customers and employees.
On April 16, CUYTY announced the reopening and rebranding of the Spar store in Wanfercée-Baulet on March 14, focusing on a quality product range, local service, and the introduction of the Xtra app for customer benefits, with special offers available during the reopening week in April.
CUYTY’s trailing-12-month CAPEX / Sales of 4.12% is 22.7% higher than the industry average of 3.36%. Similarly, its trailing-12-month net income margin of 9.44% is 81.4% higher than the industry average of 5.20%. Also, its 1.68x trailing-12-month asset turnover ratio is 104.1% higher than the industry average of 0.82x.
For the six months that ended September 30, 2023, CUYTY’s revenue and gross profit stood at €5.48 billion ($5.90 billion) and €1.62 billion ($1.74 billion), up 16% and 22.2% year-over-year, respectively.
For the same quarter, its profit for the period and earnings per share increased 908.9% and 924.6% from the year-ago value to €896.90 million ($965.93 million) and €7.07, respectively.
Analysts expect CUYTY’s revenue for the year ending March 31, 2025, to increase 6.1% year-over-year to $12.21 billion. Over the past nine months, the stock has gained 29.7%, closing the last trading session at $11.79.
CUYTY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating 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.
It has an A grade for Growth and Stability and a B for Value. It is ranked #17 out of 36 stocks in the A-rated Grocery/Big Box Retailers industry. To see CUYTY’s Momentum, Sentiment, and Quality ratings, click here.
Stock #2: PriceSmart, Inc. (PSMT)
PSMT owns and operates U.S.-style membership shopping warehouse clubs in the U.S., Central America, the Caribbean, and Colombia.
On March 1, PSMT announced opening its newest warehouse club in Santa Ana, El Salvador. This brings the company's total number of warehouse clubs in operation to 54.
PSMT’s trailing-12-month asset turnover ratio of 2.38x is 189.3% higher than the industry average of 0.82x. Its trailing-12-month Return on Total Assets of 6% is 21.1% higher than the industry average of 4.96%. Furthermore, its trailing-12-month Return on Total Capital of 9.78% is 45.3% higher than the 6.73% industry average.
PSMT’s total revenues and operating income for the fiscal second quarter that ended February 29, 2024, stood at $1.29 billion and $63.62 million, up 13.1% and 18.2% year-over-year, respectively. In addition, its adjusted net income stood at $39.27 million or $1.31 per share, up 1.9% and 4.8% over the prior-year quarter, respectively.
For the quarter ending May 31, 2024, PSMT’s revenue and EPS are expected to increase 10% and 11.7% year-over-year to $1.21 billion and $1.05, respectively. The stock has gained 24.4% over the past six months to close the last trading session at $83.14.
PSMT’s POWR Ratings reflect its positive prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
PSMT has a B grade for Value, Momentum, and Stability. Within the same industry, it is ranked #13. Click here for the additional POWR Ratings for PSMT (Growth, Sentiment, and Quality).
Stock #1: Marks and Spencer Group plc (MAKSY)
Headquartered in London, the United Kingdom, MAKSY operates various retail stores through five segments: UK Clothing & Home, UK Food, International, Ocado, and All Other.
On April 10, MAKSY and HSBC UK signed a new agreement focused on MAKSY’s credit offering, payment solutions, and combining digital payments and loyalty for MAKSY customers.
This agreement has enabled MAKSY to combine rewards, Sparks, digital payments, and credit to create an easier-to-access and more personalized in-app experience for customers. Customers can shop, pay, earn, and redeem rewards all in one place.
On March 7, MAKSY announced the expansion of Nobody's Child pop-up shops to 48 new MAKSY stores, bringing the total to 60 across the UK. This follows a successful trial that boosted MAKSY dress sales by 16.5% last summer, marking a key phase in their partnership.
MAKSY’s trailing-12-month Return on Common Equity and Return on Total Capital of 13.85% and 8.08% are 19.9% and 20% higher than the industry averages of 11.55% and 6.73%, respectively. Likewise, its 36.95% trailing-12-month gross profit margin is 4.6% higher than the industry average of 35.34%.
For the six months that ended September 30, 2023, MAKSY’s revenue and operating profit stood at £6.13 billion ($7.71 billion) and £315 million ($395.75 million), up 10.8% and 83.7% year-over-year, respectively.
Its profit for the period attributable to owners of the parent and adjusted earnings per share increased 25.2% and 55.8% from the year-ago value to £208 million ($261.32 million) and 12p, respectively.
Street expects MAKSY’s revenue and EPS for fiscal 2024 to increase 8.9% and 32% year-over-year to $16.05 billion and $0.57, respectively. MAKSY’s stock has gained 53.1% over the past year to close the last trading session at $6.52.
MAKSY’s POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
MAKSY has a B grade for Growth, Value, Stability, and Sentiment. Within the Grocery/Big Box Retailers industry, it is ranked #6. In total, we rate MAKSY on eight different levels. Beyond what we stated above, we have also given MAKSY grades for Momentum and Quality. Get all the MAKSY ratings here.
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MAKSY shares were trading at $6.68 per share on Tuesday morning, up $0.16 (+2.45%). Year-to-date, MAKSY has declined -4.02%, versus a 9.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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