The retail sector is set for significant growth thanks to enterprises adapting to changing demands, providing variety and convenience, and offering personalized experiences, all of which boost demand and drive industry growth. Hence, investors could consider buying strong retail stocks Tesco PLC (TSCDY), DFI Retail Group Holdings Limited (DFIHY), and The Kroger Co. (KR) poised for robust growth this May.
Despite inflation, the retail sector, including hypermarkets and e-commerce, performed well with increasing consumer spending. The 1.6% real GDP increase in Q1 2024 reflects higher consumer spending and investments despite lower private inventory investment and rising imports.
The retail industry is projected to grow from $32.68 trillion in 2024 to $47.24 trillion by 2029, with a 7.6% annual growth rate. Statista reports that the US will lead global retail e-commerce growth from 2024 to 2028, with an 11.8% CAGR. Notably, from January to April 2024, US online retail sales rose 7%, especially in food, non-food items, drugs, and groceries.
Furthermore, strong online sales, robust employment, and spending have raised the real GDP growth forecast to 2.1%. Investors’ interest in retail stocks is evident from the VanEck Retail ETF’s (RTH) 21.5% returns over the past year.
Considering these conducive trends, let’s examine the fundamentals of the three Grocery/Big Box Retailers stock picks mentioned above, beginning with the third choice.
Stock #3: Tesco PLC (TSCDY)
Headquartered in Welwyn Garden City, United Kingdom, TSCDY is a grocery retailer in the United Kingdom, the Republic of Ireland, the Czech Republic, Slovakia, and Hungary. It offers grocery products through its stores and online.
TSCDY’s trailing-12-month asset turnover ratio of 1.47x is 74.7% higher than the 0.84x industry average. Also, the stock’s trailing-12-month Return on Common Equity of 14.72% is 30.6% higher than the industry average of 11.28%.
During the fiscal year that ended on February 25, 2024, TSCDY’s revenue rose 4.4% year-over-year to £68.19 billion ($86.60 billion). Moreover, its adjusted profit and adjusted EPS amounted to £2.83 billion ($3.59 billion) and 23.41p, up 12.8% and 14% over the prior year.
Street expects TSCDY’s EPS and revenue for fiscal 2025 to increase 10.7% and 3.8% year-over-year to $1.02 and $88.77 billion, respectively. Over the past nine months, the stock has gained 27.4% to close the last trading session at $11.89.
TSCDY’s POWR Ratings reflect its strong fundamentals. It has an overall rating of B, equating to a 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 a B for Value. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #17 out of 36 stocks. To see TSCDY’s ratings for Growth, Momentum, Sentiment, and Quality, click here.
Stock #2: DFI Retail Group Holdings Limited (DFIHY)
Based in Quarry Bay, Hong Kong, DFIHY operates as a retailer in Asia. The company functions through five segments: Food; Health and Beauty; Home Furnishings; Restaurants; and Other Retailing.
In terms of the trailing-12-month levered FCF margin, DFIHY’s 7.91% is 35.7% higher than the 5.83% industry average. Similarly, the stock’s 1.27x trailing-12-month asset turnover ratio is 51.3% higher than the 0.84x industry average.
DFIHY’s revenue for the fiscal year ended December 31, 2023, stood at $9.17 billion. Likewise, the company's profit attributable to shareholders and earnings per share came in at $32.20 million and $2.38, respectively. In addition, as of December 31, 2023, its cash and bank balances amounted to $303.40 billion, compared to $230.70 billion as of December 31, 2022.
For fiscal 2024, DFIHY’s revenue is expected to increase 1.6% year-over-year to $9.31 billion. Over the past month, DFIHY’s stock has declined 7% to close the last trading session at $9.26.
DFIHY’s bright prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value, Stability, and Quality. It is ranked #12 in the same industry. To access the additional grades of DFIHY for Growth, Momentum, and Sentiment, click here.
Stock #1: The Kroger Co. (KR)
KR operates as a food and drug retailer in the United States. The company operates combination food and drug stores; multi-department stores; marketplace stores; and price-impact warehouses.
KR’s 10.13% trailing-12-month Return on Total Capital is 50.1% higher than the 6.75% industry average. Its trailing-12-month asset turnover ratio of 3x is 257% higher than the 0.84x industry average. Similarly, the stock’s 19.82% trailing-12-month Return on Common Equity is 75.8% higher than the 11.28% industry average.
KR’s sales for the fourth quarter ended January 31, 2024, came in at $37.06 billion, up 6.4% year-over-year. Its operating income came in at $1.19 billion, up 44.6% year-over-year. Its net earnings attributable to KR rose 63.6% year-over-year to $736 million. Also, its net earnings attributable to KR per common share grew 62.9% over the prior-year quarter to $1.01.
Analysts expect KR’s revenue for the quarter ending July 31, 2024, to increase marginally year-over-year to $34.04 billion. Its EPS for the quarter ending October 31, 2024, is expected to grow 7.3% year-over-year to $1.02. KR surpassed the consensus EPS estimate in each of the trailing four quarters. The stock has gained 28.1% over the past six months to close the last trading session at $54.28.
It’s no surprise that KR has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Value, and Quality. It is ranked #9 in the Grocery/Big Box Retailers industry. Beyond what we have stated above, we also have given KR grades for Growth, Momentum, Stability, and Sentiment. Get all the KR ratings here.
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KR shares were trading at $54.07 per share on Monday afternoon, down $0.13 (-0.24%). Year-to-date, KR has gained 19.68%, versus a 12.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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