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2 Supermarket Stocks Grabbing Attention on Strong Industry Trends
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Players in the Zacks Retail – Supermarkets industry have been capitalizing on their continuous efforts to improve both their physical stores and online operations. Effective delivery and payment options, coupled with robust omnichannel capabilities, have proven beneficial for these companies.
Despite a dynamic operational landscape and rising costs, the sustained demand for essential items and strong revenue-driving strategies keep supermarket giants like Walmart Inc. (WMT - Free Report) and The Kroger Co. (KR - Free Report) well-positioned for growth.
About the Industry
The Zacks Retail – Supermarkets industry includes supermarket retailers that offer grocery, health and beauty aids, household chemicals, electronics, stationery, automotive accessories, hardware and paint, sporting goods, fabrics and crafts, entertainment products, home furnishings and more. Players in this industry operate through various formats such as supermarkets, multi-department stores, retail stores, discount stores, supercenters, hypermarkets and warehouse clubs. Food retail accounts for a chunk of their business. The industry has undergone a significant transformation over the years, with e-commerce playing a strong role. Given consumers’ rising preference for online shopping, industry participants have enhanced pickup and delivery services and are offering easy payment options.
Major Trends Shaping the Future of the Supermarket Industry
Robust Omnichannel Strategies: Supermarket retailers have significantly invested in enhancing both online and offline operations. Their efforts to improve store layouts, product offerings, competitive pricing strategies and assortment replenishment have been fruitful. Additionally, companies are expanding their online presence in response to the surge in online shopping. This has led to increased efforts through acquisitions, partnerships and improvements in delivery and payment systems. Features like same-day delivery, buy online and pick-up in-store, curbside pickup and contactless payment options have been particularly beneficial. Concerted efforts to unite store and online operations to offer customers a solid omnichannel experience keep supermarket players well-placed for growth.
Consistent Demand: Supermarket companies have seen steady demand for essential items driven by increased at-home consumption habits. Strong demand for staple products, including groceries, medications and cleaning supplies, is bolstered by prevalent dine-at-home and work-from-home practices. These trends are likely to continue as many Americans prefer home-based work and cooking. Consequently, supermarket players have been agile and innovative in their offerings and merchandising strategies to effectively cater to evolving consumer needs.
Escalated Costs Erode Margins: Companies have been facing escalating operational expenses in their efforts to step up performance. Factors such as the costs associated with store renovations and increased wages are putting pressure on the profit margins of companies. The ongoing technological investments made by supermarket entities to strengthen their online operations, along with other promotional activities, further contribute to the strain on profit margins.
Zacks Industry Rank Indicates Strong Prospects
Zacks Industry Rank Indicates Strong ProspectsThe Zacks Retail – Supermarkets industry is housed within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #26, which places it in the top 10% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence about this group’s earnings growth potential. Since the beginning of February 2024, the industry’s consensus earnings estimate for the current fiscal year has increased about 4%.
Let’s look at the industry’s performance and current valuation.
Industry Versus Broader Market
The Zacks Retail – Supermarkets industry has outperformed the S&P 500 and the broader Zacks Retail – Wholesale sector in the past year.
The industry has risen 30.1% over this period compared with the S&P 500’s growth of 23.3%. Meanwhile, the broader sector has advanced 24.7% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staple stocks, the industry is currently trading at 24.35X compared with the S&P 500’s 20.96X and the sector’s 21.51X.
Over the last five years, the industry has traded as high as 24.87X and as low as 17.55X, with the median being at 21.78X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
2 Supermarket Stocks to Keep a Close Eye On
Walmart: This Zacks Rank #2 (Buy) company is thriving on its robust, diversified business across various segments, markets, channels and formats. The retail giant has seen a rise in both in-store and online traffic, showcasing its ability to adeptly manage the changing retail environment. Walmart is continuously expanding its product range and is committed to store renovations, integrating advanced in-store and digital innovations. The company has also made significant efforts to strengthen its position in the booming online grocery market, which remains a key driver of its e-commerce growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for WMT’s current fiscal year earnings per share (EPS) has risen by 2.1% to $2.41 in the past 30 days. Shares of Walmart have rallied 31.7% in the past year.
Price and Consensus: WMT
The Kroger Co.: Kroger has been reaping the benefits of its "Restock Kroger" program, which focuses on investments in its omnichannel platform, identifying high-margin alternative profit streams, optimizing merchandise and reducing costs. This Zacks Rank #3 (Hold) company is well-positioned with its clear customer segmentation strategy, emphasis on value and focus on its "Our Brands" portfolio.
Kroger's strategic moves, such as "Leading with Fresh" and "Accelerating with Digital," are also significant. The company's digital business has emerged as a major growth driver, supported by initiatives like the Delivery Now program, the Boost membership program and the expansion of customer fulfillment centers. The Zacks Consensus Estimate for KR’s current fiscal year earnings EPS has remained unchanged at $4.43 in the past 30 days. This Cincinnati-based retailer’s shares have jumped 13.5% in the past year.
Price and Consensus: KR
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2 Supermarket Stocks Grabbing Attention on Strong Industry Trends
Players in the Zacks Retail – Supermarkets industry have been capitalizing on their continuous efforts to improve both their physical stores and online operations. Effective delivery and payment options, coupled with robust omnichannel capabilities, have proven beneficial for these companies.
Despite a dynamic operational landscape and rising costs, the sustained demand for essential items and strong revenue-driving strategies keep supermarket giants like Walmart Inc. (WMT - Free Report) and The Kroger Co. (KR - Free Report) well-positioned for growth.
About the Industry
The Zacks Retail – Supermarkets industry includes supermarket retailers that offer grocery, health and beauty aids, household chemicals, electronics, stationery, automotive accessories, hardware and paint, sporting goods, fabrics and crafts, entertainment products, home furnishings and more. Players in this industry operate through various formats such as supermarkets, multi-department stores, retail stores, discount stores, supercenters, hypermarkets and warehouse clubs. Food retail accounts for a chunk of their business. The industry has undergone a significant transformation over the years, with e-commerce playing a strong role. Given consumers’ rising preference for online shopping, industry participants have enhanced pickup and delivery services and are offering easy payment options.
Major Trends Shaping the Future of the Supermarket Industry
Robust Omnichannel Strategies: Supermarket retailers have significantly invested in enhancing both online and offline operations. Their efforts to improve store layouts, product offerings, competitive pricing strategies and assortment replenishment have been fruitful. Additionally, companies are expanding their online presence in response to the surge in online shopping. This has led to increased efforts through acquisitions, partnerships and improvements in delivery and payment systems. Features like same-day delivery, buy online and pick-up in-store, curbside pickup and contactless payment options have been particularly beneficial. Concerted efforts to unite store and online operations to offer customers a solid omnichannel experience keep supermarket players well-placed for growth.
Consistent Demand: Supermarket companies have seen steady demand for essential items driven by increased at-home consumption habits. Strong demand for staple products, including groceries, medications and cleaning supplies, is bolstered by prevalent dine-at-home and work-from-home practices. These trends are likely to continue as many Americans prefer home-based work and cooking. Consequently, supermarket players have been agile and innovative in their offerings and merchandising strategies to effectively cater to evolving consumer needs.
Escalated Costs Erode Margins: Companies have been facing escalating operational expenses in their efforts to step up performance. Factors such as the costs associated with store renovations and increased wages are putting pressure on the profit margins of companies. The ongoing technological investments made by supermarket entities to strengthen their online operations, along with other promotional activities, further contribute to the strain on profit margins.
Zacks Industry Rank Indicates Strong Prospects
Zacks Industry Rank Indicates Strong ProspectsThe Zacks Retail – Supermarkets industry is housed within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #26, which places it in the top 10% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence about this group’s earnings growth potential. Since the beginning of February 2024, the industry’s consensus earnings estimate for the current fiscal year has increased about 4%.
Let’s look at the industry’s performance and current valuation.
Industry Versus Broader Market
The Zacks Retail – Supermarkets industry has outperformed the S&P 500 and the broader Zacks Retail – Wholesale sector in the past year.
The industry has risen 30.1% over this period compared with the S&P 500’s growth of 23.3%. Meanwhile, the broader sector has advanced 24.7% in the said time frame.
One-Year Price Performance
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Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staple stocks, the industry is currently trading at 24.35X compared with the S&P 500’s 20.96X and the sector’s 21.51X.
Over the last five years, the industry has traded as high as 24.87X and as low as 17.55X, with the median being at 21.78X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
2 Supermarket Stocks to Keep a Close Eye On
Walmart: This Zacks Rank #2 (Buy) company is thriving on its robust, diversified business across various segments, markets, channels and formats. The retail giant has seen a rise in both in-store and online traffic, showcasing its ability to adeptly manage the changing retail environment. Walmart is continuously expanding its product range and is committed to store renovations, integrating advanced in-store and digital innovations. The company has also made significant efforts to strengthen its position in the booming online grocery market, which remains a key driver of its e-commerce growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for WMT’s current fiscal year earnings per share (EPS) has risen by 2.1% to $2.41 in the past 30 days. Shares of Walmart have rallied 31.7% in the past year.
Price and Consensus: WMT
The Kroger Co.: Kroger has been reaping the benefits of its "Restock Kroger" program, which focuses on investments in its omnichannel platform, identifying high-margin alternative profit streams, optimizing merchandise and reducing costs. This Zacks Rank #3 (Hold) company is well-positioned with its clear customer segmentation strategy, emphasis on value and focus on its "Our Brands" portfolio.
Kroger's strategic moves, such as "Leading with Fresh" and "Accelerating with Digital," are also significant. The company's digital business has emerged as a major growth driver, supported by initiatives like the Delivery Now program, the Boost membership program and the expansion of customer fulfillment centers. The Zacks Consensus Estimate for KR’s current fiscal year earnings EPS has remained unchanged at $4.43 in the past 30 days. This Cincinnati-based retailer’s shares have jumped 13.5% in the past year.
Price and Consensus: KR
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