Despite signs of cooling, inflation remains well above the Fed's 2% target. Amid the potential for further rate hikes and an uncertain economic condition, seeking refuge in grocery retailer stocks could be wise. These stocks tend to perform steadily during economic downturns due to the inelastic demand for their products.
Considering the recession-resistant nature of the industry, investing in fundamentally sound grocery retailer stocks Koninklijke Ahold Delhaize N.V. (ADRNY), Village Super Market, Inc. (VLGEA) and Natural Grocers by Vitamin Cottage, Inc. (NGVC) could be wise.
Before discussing the fundamentals of these stocks in detail, let’s see what’s driving the prospects of the grocery retail industry.
Inflation moderated last month, marking the 11th consecutive monthly decline. The year-over-year rate dropped from 4.9% to 4%. However, core inflation, a more reliable underlying inflation gauge, remained high at an annual rate of 5.3%. It increased by 0.4% in May, in line with the previous two months.
Despite signs of cooling, inflation “remains well above” the Federal Reserve's 2% target. Chairman Jerome Powell stated that the current rate hike pause is a temporary break, not indicative of the central bank concluding its tightening cycle. In fact, he has emphasized the likelihood of future interest rate increases.
Investors could ensure stability by investing in grocery-retail stocks considering the prevailing economic uncertainty. Grocery stores tend to perform favorably during economic downturns due to the essential nature of their products.
U.S. retail and food service sales grew by 0.3% in May, surpassing economists' anticipated 0.1% decline. Brian Field, global leader of retail consulting and analytics at Sensormatic Solutions, confirmed that foot traffic at U.S. retailers remained strong and showed no signs of abating.
Meanwhile, the grocery retail industry is leveraging several technologies, such as AI, to make informed decisions regarding staffing and replenishment. This leads to reduced labor and replenishment costs, eradication of product shortages, maximization of sales and profits, and optimization of overall business processes.
To enhance customer experience, grocery stores are also renovating their brick-and-mortar outlets. The National Retail Federation (NRF) puts forward a positive outlook for online and brick-and-mortar retailers and forecasts retail sales to grow between 4% and 6% this year, reaching a range of $5.13 trillion to $5.23 trillion.
Additionally, grocery chain companies have been expanding their online presence due to the widespread adoption of e-commerce and the growing demand for fast delivery. As per ReportLinker, the online grocery market is expected to grow by $740.88 billion by 2027, accelerating at a CAGR of 13.14%.
Given the industry’s promising growth prospects, quality grocery retail stocks ADRNY, VLGEA, and NGVC could be ideal investments now.
Let’s take a closer look at the fundamentals of these stocks.
Koninklijke Ahold Delhaize N.V. (ADRNY)
Headquartered in Zaandam, Netherlands, ADRNY runs retail food stores and e-commerce. The company operates under the brand names Food Lion, Stop & Shop, FreshDirect, Delhaize, and more. Its segments include Ahold USA; Delhaize America; The Netherlands; Belgium; and Central and Southeastern Europe (CSE).
On May 10, ADRNY announced the launch of a cross-sell feature across its CSE brands to enhance personalized offerings and boost order value. It also reported that Food Lion achieved significant progress by transitioning its initial stores to an improved omnichannel model, resulting in energy efficiency and enhanced click-and-collect or home delivery capabilities.
Moreover, Alfa Beta in Greece opened its 150th Shop & Go store during the first quarter, with plans to reach 200 stores by year-end. These developments could benefit the company by expanding its reach and improving customer experience.
In terms of forward non-GAAP P/E, ADRNY is trading at 12.03x, 33.1% lower than the industry average of 17.98x. Its forward EV/EBITDA multiple of 6.32 is 46.6% lower than the industry average of 11.84x. In addition, the stock’s forward Price/Sales of 0.34x is 68.3% lower than the industry average of 1.06x.
For the first quarter that ended April 2, 2023, ADRNY’s net sales increased 9.4% year-over-year to €21.62 billion ($23.55 billion). Its underlying EBITDA grew 6.1% from the year-ago value to €1.74 billion ($1.89 billion). Also, the company’s underlying operating income rose 4.2% from the prior year’s period to €864 million ($940.95 million).
Moreover, the company’s net income increased 2.9% year-over-year to €561 million ($610.96 million), while underlying income per share from continuing operations came in at €0.61, up 10.6% year-over-year.
The consensus revenue estimate of $97.93 billion for the fiscal year (ending December 2023) reflects a 5.4% year-over-year improvement. Likewise, the consensus EPS estimate of $2.81 for the ongoing year indicates a 3.3% rise year-over-year. Over the past six months, the stock has gained 15.5% to close the last trading session at $33.60. It has a 24-month beta of 0.17.
ADRNY’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
ADRNY has an A grade for Stability and Quality and a B for Value. It is ranked #4 in the A-rated 38-stock Grocery/Big Box Retailers industry.
In addition to the POWR Ratings I’ve just highlighted, you can see ADRNY’s ratings for Growth, Momentum, and Sentiment here.
Village Super Market, Inc. (VLGEA)
VLGEA is a retailer of both food and non-food items. The company runs four specialty markets under the Gourmet Garage brand and a chain of approximately 34 supermarkets under the ShopRite and Fairway brands. It sells groceries, health and beauty care, general merchandise, liquor pharmacy supplies, and more.
In terms of trailing-12-month P/E, VLGEA is trading at 6.82x, 69.6% lower than the industry average of 22.48x. Moreover, its trailing-12-month EV/EBITDA multiple of 6.05 is 55.3% lower than the 13.53x industry average. Furthermore, the stock’s trailing-12-month Price/Sales of 0.15x is 86.2% lower than the industry average of 1.05x.
For the third quarter that ended April 29, 2023, VLGEA’s sales increased 5.4% year-over-year to $529.29 million. Its gross profit grew 6.8% from the year-ago value to $151.22 million. Moreover, the company’s adjusted net income rose 92.8% from the prior year’s period to $10.19 million, while net income per class A common share stood at $0.75, compared to a loss per share of $0.22 in the prior year’s period.
The stock has gained 7.6% over the past month to close the last trading session at $22.48. VLGEA has a 24-month beta of 0.34.
VLGEA’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of A, translating to Strong Buy in our proprietary rating system.
VLGEA has an A grade for Stability, Value, and Growth and a B for Quality. It has topped the 38-stock Grocery/Big Box Retailers industry.
Click here to access additional VLGEA ratings (Momentum and Sentiment).
Natural Grocers by Vitamin Cottage, Inc. (NGVC)
NGVC is a specialty retailer of natural and organic groceries, body care products, 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.
On June 20, NGVC unveiled the addition of Sparkling Spring Water to its premium quality house brand. The Sparkling Water would be available in two sizes, 16 oz., and 25.3 oz. This launch is expected to enhance NGVC's product portfolio, catering to customer preferences and diversifying revenue streams.
Moreover, on May 11, NGVC launched four scented varieties of Epsom Salt Bath & Foot Soaks under its house brand. The expansion of body care products showcases the company's commitment to diversifying its brand’s product line, catering to a wider range of customer preferences, and bolstering its market presence.
In terms of forward non-GAAP P/E, NGVC is trading at 14.42x, 19.8% lower than the industry average of 17.98x. Moreover, its forward EV/EBITDA multiple of 10.42 is 12% lower than the industry average of 11.84x.
For the second quarter that ended March 31, 2023, NGVC’s net sales increased 4.2% year-over-year to $283.25 million. Its gross profit grew 7.4% from the year-ago value to $82.48 million. Also, the company’s adjusted EBITDA grew 4.6% from the prior year’s period to $16.82 million.
Furthermore, as of March 31, 2023, the company’s cash and cash equivalents stood at $18.98 million, compared to $12.04 million as of September 30, 2022.
The consensus revenue estimate of $285 million for the next fiscal quarter ending September 2023 reflects a 3.9% year-over-year improvement. Likewise, the consensus EPS estimate of $0.19 for the same period indicates a 111.1% rise year-over-year. Shares of NGVC have gained 31.7% over the past six months to close the last trading session at $12.10. The stock has a 24-month beta of 0.72.
NGVC’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
NGVC has an A grade for Stability and Sentiment and a B for Value and Quality. It has ranked #3 out of 38 stocks within the same industry.
Click here to access additional NGVC ratings for Momentum and Growth.
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ADRNY shares were unchanged in premarket trading Friday. Year-to-date, ADRNY has gained 18.82%, versus a 15.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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