Declining inflation, robust consumer spending, expectations of strong holiday sales, and a growing trend toward online shopping are some of the factors expected to bolster the long-term growth prospects of the retail industry. Therefore, it could be wise to invest in fundamentally strong retail stocks like The Kroger Co. (KR), Jerónimo Martins, SGPS, S.A. (JRONY), and Marks and Spencer Group plc (MAKSY) for potential gains.

Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the prospects of the retail industry.

October saw a decline in retail spending due to interest rates being at a 22-year high. Retail sales decreased sequentially by 0.1%, albeit less than what economists had predicted. However, October saw a 2.5% year-over-year increase in retail sales to $705 billion. Between August 2023 and October 2023, overall retail sales increased by 3.1%.

October’s inflation numbers came below Wall Street estimates as it remained flat sequentially but rose 3.2% year-over-year. The unemployment rate declined to 3.7% in November, compared to the forecast of 3.9%, indicating a resilient job market. The trend of easing inflation and a resilient job market bodes well for retail sales as it will likely bolster consumer spending.

Moreover, the National Retail Federation has forecast that holiday spending is expected to reach record levels during November and December and will grow between 3% and 4% year-over-year to between $957.30 billion and $966.60 billion.

Also, the use of technology is expected to enhance the retail shopping experience. The adoption and implementation of connected technologies, such as Bluetooth Low Energy (BLE) and Near-Field Communication (NFC), will enhance the shopping and payment experience and are anticipated to be the reason for the growth of IoT in retail.

According to a new report by Grand View Research, the global IoT retail market is expected to reach $297.44 billion by 2030, growing at a CAGR of 28.4% from 2023 to 2030.

The big box retail sector is well-positioned for long-term growth thanks to the easing of supply chains, the availability of an omnichannel experience, internet shopping, and the expanding use of automation and artificial intelligence. By 2024, global retail sales are forecasted to total $31.10 trillion, indicating a 4.9% annual growth. Additionally, this will be the first time that retail sales have exceeded $30 trillion.

The global retail market is expected to grow to $37.67 trillion in 2027 at a CAGR of 7.4%.

In light of these encouraging trends, let’s look at the fundamentals of the three Grocery/Big Box Retailers stocks, beginning with number 3.

Stock #3: The Kroger Co. (KR)

KR operates as a food and drug retailer. The company operates combination food and drug stores, marketplace stores, multi-department stores, and price-impact warehouses. The company’s stores provide diverse products, including apparel, pharmacies, general merchandise, fresh seafood, organic produce, home fashion and furnishings, electronics, automotive goods, toys, etc.

On October 25, 2023, KR announced that it has started accepting EBT payment for digital Pickup and Delivery orders across Kroger Family of Stores, enhancing access to fresh, healthy foods under the Supplemental Nutrition Assistance Program (SNAP).

This move aligns with KR’s commitment to providing affordable and nutritious food, potentially attracting more customers and fostering convenience in its shopping experience.

In terms of forward non-GAAP P/E, KR’s 9.78x is 44.2% lower than the 17.52x industry average. Its 0.34x forward EV/Sales is 79.8% lower than the 1.66x industry average. Likewise, its 0.21x forward Price/Sales is 81.4% lower than the 1.15x industry average.

KR’s sales for the third quarter ended November 4, 2023, came in at $33.96 billion. Its operating profit increased 8.4% year-over-year to $912 million. Its adjusted net earnings rose 8.6% over the prior-year quarter to $698 million. Its adjusted EPS came in at $0.95, representing an increase of 8% year-over-year.

Analysts expect KR’s EPS and revenue for the quarter ending January 31, 2024, to increase 14.4% and 6.3% year-over-year to $1.13 and $37.01 billion, respectively. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 1.6% to close the last trading session at $44.58.

KR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

It has a B grade for Growth, Value, and Quality. KR is ranked #13 out of 38 stocks in the A-rated Grocery/Big Box Retailers industry. To see the other ratings of KR for Momentum, Stability, and Sentiment, click here.

Stock #2: Jerónimo Martins, SGPS, S.A. (JRONY)

Headquartered in Lisbon, Portugal, JRONY operates in the food distribution and specialized retail sectors in Portugal, Poland, and Colombia. The company operates through Portugal Retail; Portugal Cash & Carry; Poland Retail; Colombia Retail; and Others, Eliminations and Adjustments segments.

In terms of forward non-GAAP PEG, JRONY’s 1.64x is 29.8% lower than the 2.33x industry average. Its 0.56x forward EV/Sales is 66.1% lower than the 1.66x industry average. Likewise, its 8.01x forward EV/EBITDA is 27.6% lower than the 11.07x industry average.

For the fiscal third quarter ended September 30, 2023, JRONY’s net sales and services revenue increased 22% year-over-year to €7.94 billion ($8.54 billion). Its EBITDA increased 18.1% over the prior-year quarter to €586 million ($630.33 million). Its net profit attributable to JRONY rose 28.2% year-over-year to €202 million ($217.28 million).

Street expects JRONY’s EPS and revenue for the quarter ending December 31, 2023, to increase 7% and 17.3% year-over-year to $0.74 and $8.91 billion, respectively. The company has an impressive surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

Over the past nine months, the stock has gained 22.6% to close the last trading session at $50.82.

JRONY’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.

It is ranked #11 in the same industry. It has a B grade for Growth, Stability, and Quality. To see the additional ratings of JRONY for Value, Momentum, and Sentiment, click here.

Stock #1: Marks and Spencer Group plc (MAKSY)

MAKSY operates various retail stores. It operates through five segments: UK Clothing & Home, UK Food, International, Ocado, and All Other. The company offers protein deli and dairy; produce; ambient and in-store bakery; meals dessert and frozen; and hospitality and Food on the Move' products.

The company also provides womenswear, menswear, lingerie, kids wear, and home products; financial services, including credit cards, payment solutions, insurances, savings, and loans; and renewable energy services.

In terms of forward EV/Sales, MAKSY’s 0.59x is 64.2% lower than the 1.66x industry average. Its 5.80x forward EV/EBITDA is 47.6% lower than the 11.07x industry average. Likewise, its 10.15x forward EV/EBIT is 32.1% lower than the 14.94x industry average.

On November 4, 2023, MAKSY announced that it would open nine new stores throughout November, the highest number of stores it opened in a month. This move is part of MAKSY’s aim to become the UK’s leading omnichannel retailer. It will also help it cater to new customers.

For half year that ended September 30, 2023, MAKSY’s group sales increased 10.8% year-over-year to £6.16 billion ($7.73 billion). Its profit after tax increased 24.1% year-over-year to £206.90 million ($259.57 million), while its adjusted EPS came in at 12.7 pence, up 55.8% over the prior-year period.

In addition, its free cash flow from operations came in at £27.70 million ($34.75 million), compared to a negative free cash flow from operations of £116.80 million ($145.53 million) during the prior-year period.

For fiscal 2024, MAKSY’s EPS and revenue are expected to increase 25.6% and 8.8% year-over-year to $0.54 and $16.05 billion, respectively. The stock has gained 112.4% year-to-date to close the last trading session at $6.52.

It’s no surprise that MAKSY has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.

It has a B grade for Growth, Value, Stability, Sentiment, and Quality. It is ranked first in the Grocery/Big Box Retailers industry. Click here to access MAKSY’s rating for Momentum.

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.

2024 Stock Market Outlook >

KR shares were trading at $44.59 per share on Monday morning, up $0.01 (+0.02%). Year-to-date, KR has gained 2.41%, versus a 21.80% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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