The retail industry’s growth prospects appear promising due to changing consumer preferences, a strong jobs market, higher wages, and rising disposable incomes. Given the industry’s solid growth prospects, investors could consider buying fundamentally strong retail stocks, Natural Grocers by Vitamin Cottage, Inc. (NGVC), Village Super Market, Inc. (VLGEA), and Walmart Inc. (WMT).
Despite facing inflationary pressures, retail sales increased by 0.7% in March from the previous month. According to a FactSet poll, this exceeded economists' expectations of a 0.4% gain. Bankrate’s senior industry analyst Ted Rossman said, “Retail sales aren’t increasing just because prices are going up. Americans are actually buying more stuff. This is one of the strongest retail sales reports we’ve seen in the past couple of years.”
The National Retail Federation forecast that retail sales in 2024 will rise between 2.5% and 3.5% to between $5.23 trillion and $5.28 trillion. NRF President and CEO Matthew Shay said, “The resiliency of consumers continues to power the American economy, and we are confident there will be moderate but steady growth through the end of the year.”
The retail industry is looking to provide seamless shopping experiences by providing an omnichannel experience across their channels by utilizing technologies such as Artificial Intelligence (AI), Virtual Reality (VR), Augmented Reality (AR), and the Internet of Things (IoT). The global smart retail market is expected to grow at a CAGR of 29% to $299.74 billion until 2031.
Moreover, the global retail market is expected to grow to $47.24 trillion in 2029 at a CAGR of 7.7%. Investors’ interest in retail stocks is evident from the VanEck Retail ETF’s (RTH) 22.9% returns over the past year.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Grocery/Big Box Retailers picks, beginning with the third choice.
Stock #3: Natural Grocers by Vitamin Cottage, Inc. (NGVC)
NGVC retails natural and organic groceries and dietary supplements. It runs 164 stores in 21 states, a bulk food repackaging facility, and a distribution center. The company also provides science-based nutrition education programs.
NGVC’s trailing-12-month asset turnover ratio of 1.76x is 109.2% higher than the 0.84x industry average. Its 3.26% trailing-12-month CAPEX / Sales is marginally higher than the 3.28% industry average. Also, its 17.04% trailing-12-month Return on Common Equity is 46.4% higher than the 11.64% industry average.
NGVC’s net sales for the first quarter that ended December 31, 2023, rose 7.6% year-over-year to $301.75 million. Its gross profit rose 12.8% year-over-year to $88.76 million. Its net income increased 76% year-over-year to $7.76 million. The company’s net income per share of common stock increased 78.9% year-over-year to $0.34.
Street expects NGVC's revenue for fiscal 2024, to increase 4.2% year-over-year to $1.19 billion. Its EPS is expected to grow 5.1% per annum over the next five years. The stock has gained 57.8% over the past year to close the last trading session at $16.33.
NGVC’s POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NGVC has an A grade for Sentiment and a B for Growth, Value, Stability, and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #3 out of 36 stocks. To see NGVC's rating for Momentum, click here.
Stock #2: Village Super Market, Inc. (VLGEA)
VLGEA is a supermarket chain offering a variety of groceries, including meat, produce, dairy, deli, seafood, prepared foods, bakery, and frozen foods. The company also sells non-food items like health and beauty products, general merchandise, liquor, and pharmacy items through both physical and online stores.
VLGEA’s trailing-12-month Return on Total Assets of 5.40% is 10.2% higher than the industry average of 4.90%. Its trailing-12-month Return on Common Equity of 12.29% is 5.6% higher than the industry average of 11.64%. Its 2.29x trailing-12-month asset turnover ratio is 172.2% higher than the 0.84x industry average.
During the second quarter, which ended January 27, 2024, VLGEA’s net sales and gross profit rose 2.1% and 5.5% year-over-year to $575.58 million and $163.44 million, respectively. The company generated net income of $14.48 million, up 17.5% year-over-year. Also, its net income per share to class A common stock grew 14.1% from a year-ago quarter to $0.97.
Over the past year, the stock has gained 25.8% to close the last trading session at $27.30.
VLGEA’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 is ranked #2 in the same industry. It has an A grade for Value and Stability and a B grade for Quality. Click here to see VLGEA's Growth, Momentum, and Sentiment ratings.
Stock #1: Walmart Inc. (WMT)
WMT operates retail, wholesale, and other units globally. Its segments include Walmart U.S.; Walmart International; and Sam’s Club. The company operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, and discount stores under the Walmart and Walmart Neighborhood Market brands.
WMT’s trailing-12-month Return on Total Assets of 6.15% is 25.5% higher than the industry average of 4.90%. Its trailing-12-month Return on Total Capital of 11.30% is 69.3% higher than the industry average of 6.67%. Its 19.32% trailing-12-month Return on Common Equity is 66% higher than the 11.64% industry average.
For the fiscal fourth quarter that ended January 31, 2024, WMT’s total revenues increased 5.7% year-over-year to $173.39 billion. Its adjusted operating income grew 13.2% from the year-ago value to $7.25 billion. Its consolidated net income attributable to WMT came in at $5.49 billion for the fourth quarter.
In addition, the company’s adjusted EPS increased 5.3% year-over-year to $1.80. Its free cash flow came in at $15.12 billion as of January 31, 2024, compared to free cash flow of $11.98 billion as of January 31, 2023.
Analysts expect WMT’s EPS and revenue for the quarter ending April 30, 2024, to increase 6.8% and 4.7% year-over-year to $0.52 and $158.11 billion, respectively. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters. Shares of WMT have gained 20.9% over the past year to close the last trading session at $59.84.
It’s no surprise that WMT has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Growth, and Stability and a B for Momentum, Sentiment, and Quality. It is ranked first in the Grocery/Big Box Retailers industry. Beyond what is stated above, we’ve also rated WMT for Value. Get all WMT ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
WMT shares were trading at $60.07 per share on Wednesday morning, up $0.23 (+0.38%). Year-to-date, WMT has gained 14.70%, versus a 6.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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