The past few years have been challenging for the wholesale industry due to obstacles caused by the COVID-19 pandemic, supply chain disruptions aggravated by an unstable geopolitical environment, and record-high inflation. Despite lingering macroeconomic concerns, retail sales increased 6% year-over-year.
Moreover, cooling inflation and a slowdown in interest rate hikes might boost consumer spending this year. Furthermore, resale goods market expansion, increased e-commerce usage, and improved supply chain conditions are projected to keep the wholesale and retail industry buoyant this year.
According to the Business Research Company, the wholesale market is expected to reach $61.53 trillion by 2027, growing at a 5.9% CAGR. Also, the International Monetary Fund (IMF) now expects the global economy to grow 2.9% this year, indicating a 0.2% increase from its previous forecast in October. Steady economic growth should boost the wholesale market’s growth.
Against this backdrop, it could be wise to invest in quality wholesale stocks The Kroger Co. (KR) and BJ's Wholesale Club Holdings, Inc. (BJ) this year.
The Kroger Co. (KR)
KR is a retailer of food products. It owns and manages supermarkets, multi-department stores, and fulfillment facilities. It also manufactures and processes part of the food sold in its supermarkets. The company operates roughly 2,800 owned or leased supermarkets, distribution warehouses, and food production units.
On February 6, 2023, KR and Gotham Greens, a pioneer in indoor farming, teamed up to expand access to fresh, plant-based foods and products. Greens' product is already available to KR’s customers in more than 300 locations, and by the end of 2023, the company has planned to raise the number to nearly 1,000.
The attempt to provide healthy food options to its customers should benefit the company strategically.
On February 1, the company announced the establishment of a new spoke facility in South Florida. The expansion to South Florida, including Miami, represents an extension of a collaboration between KR and Ocado Group, a global leader in supermarket e-commerce technology.
This might enable KR to broaden its business operations, grow its customer base, and boost its revenue stream.
For the third quarter that ended November 5, 2022, KR’s sales increased 7.3% year-over-year to $34.20 billion, and its adjusted FIFO operating profit grew 12.3% from the year-ago value to $1.09 billion. Also, adjusted net earnings attributable to KR rose 9.2% from the prior year’s quarter to $643 million, while its adjusted EPS grew 12.8% year-over-year to $0.88.
The consensus revenue estimate of $148.54 billion for the fiscal year that ended January 2023 indicates a 7.7% year-over-year improvement. The consensus EPS estimate of $4.14 for the same year reflects a 12.5% rise from the previous year. Also, KR surpassed its consensus EPS estimates in all four trailing quarters, which is impressive.
In addition, the consensus revenue and EPS estimate of $151.85 billion and $4.22 for the current fiscal year (ending January 2024) indicates a 2.2% and 1.9% rise from the prior year. Shares of KR have gained 1.3% over the past five days to close the last trading session at $44.89.
KR’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Value and Quality. In the A-rated 39-stock Grocery/Big Box Retailers industry, it is ranked #14.
Beyond what we stated above, we also have KR’s ratings for Growth, Stability, Sentiment, and Momentum. Get all KR ratings here.
BJ's Wholesale Club Holdings, Inc. (BJ)
BJ owns and manages warehouse clubs on the east coast. It offers gasoline, general merchandise, perishable goods, and other ancillary services. The company sells its products through its mobile application and various websites.
On February 9, 2023, BJ announced its plans to expand its new club locations in the coming months, including opening its first club in Tennessee within the first half of the year. In addition to the La Vergne location, the company expects to launch clubs in Davenport, Florida, and McDonough, Georgia, this month.
BJ's club openings in Davenport and McDonough are part of the company's ongoing expansion in the Orlando and Atlanta markets. Moreover, the club's launch in La Vergne marks the first of a series of locations in the greater Nashville market. The new additions should aid in the company's expansion and development.
The company’s net sales grew 12.3% year-over-year to $4.69 billion in the fiscal third quarter that ended October 29, 2022. Its operating income rose 12.8% from the year-ago value to $191.97 million, while its adjusted EBITDA grew 19.2% from the prior year’s period to $272.31 million.
Furthermore, the company’s adjusted net income and EPS rose 7.9% and 8.8% year-over-year to $135.83 million and $0.99, respectively.
Analysts expect BJ’s revenue to increase 15.2% year-over-year to $19.20 million for the fiscal year that ended January 2023. The company’s EPS for the same year is expected to rise 16.4% from the previous year to $3.78. Furthermore, the company surpassed its consensus estimates in all four trailing quarters.
The stock has gained 8.1% over the past month and 16.5% over the past year to close the last trading session at $74.96.
BJ’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
BJ has a Value grade of B. Within the same industry, it is ranked #22 of 39 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see BJ ratings for Growth, Stability, Quality, Sentiment, and Momentum here.
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KR shares were trading at $44.30 per share on Tuesday morning, down $0.59 (-1.31%). Year-to-date, KR has declined -0.63%, versus a 7.48% 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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