Zacks Industry Outlook Highlights Walmart, Kroger and Companhia Brasileira

·8 min read

For Immediate Release

Chicago, IL – November 8, 2022 – Today, Zacks Equity Research discusses Walmart Inc. WMT, The Kroger Co. KR and Companhia Brasileira de Distribuicao CBD.

Industry: Supermarket


Players in the Zacks Retail – Supermarkets industry are grappling with elevated cost concerns and supply-chain bottlenecks. Increased raw material, transportation and warehouse costs have been hurting the margins of several industry participants. A challenging macroeconomic landscape is also a concern.

Nonetheless, continued efforts to enhance store and online operations have been working well. Robust efforts to boost omnichannel operations keep Walmart Inc., The Kroger Co. and Companhia Brasileira de Distribuicao well placed.

About the Industry

The Zacks Retail – Supermarkets industry includes supermarket retailers, which 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 much more. Players in this industry operate through various formats such as supermarkets, multi-department stores, retail stores, discount stores, supercenters, hypermarkets and warehouse clubs.

Nevertheless, 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 been enhancing pickup and delivery services as well as offering easy payment options.

3 Trends Shaping the Future of the Supermarkets Industry

Supply-Chain Bottlenecks & Margin Woes:  The industry is dealing with supply-chain disruptions, rising freight charges as well as labor shortages. Due to supply issues across the world, companies have been witnessing inventory delays, product shortages and manufacturing delays. Rising raw material costs, increased transportation costs, higher wages and elevated warehouse costs have been hurting the margins of players in the industry.

Apart from this, companies’ constant technological investments to bolster online operations, and costs related to employee benefits pose a threat to margins. Continued price investments and other promotion activities also come at the cost of margins.

Tough Macroeconomic Landscape: A tough macroeconmic environment, marked by heightened inflation, has been weighing on consumer spending, thereby limiting shopping capacity. Continuation of these trends may hurt demand (particularly for discretionary products) and lead to reduced average ticket size, especially during the holiday season.

Solid Omnichannel Efforts: Supermarket retailers have been firing on all cylinders to strengthen operations – both in stores and online. To this end, they have been focused on store improvisation, merchandise enhancement, prudent pricing strategy and efforts to replenish assortments.

Additionally, companies have been pushing the edge out of the envelope to bolster online operations. In fact, pandemic-led social distancing has taken online shopping to another level – causing industry players to constantly step up their efforts in this arena through meaningful buyouts, alliances, and improved delivery and payment systems. In this regard, companies have been benefiting from their same-day delivery, buy online and pick-up in-store, curbside pickup as well as contactless payment options.

Despite an improvement in-store traffic with things getting back to normal and people stepping out, online shopping remains popular. Companies’ concerted efforts to unite store and online operations to offer customers a solid omnichannel experience certainly keep them well placed for growth.

Zacks Industry Rank Indicates Drab Prospects

The Zacks Retail – Supermarkets industry is housed within the broader Zacks Retail - Wholesale sector. The industry currently carries a Zacks Industry Rank #141, which places it in the bottom 44% 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 dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms 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 becoming less confident about this group’s earnings growth potential. Since the beginning of July 2022, the industry’s consensus earnings estimate for 2022 has decreased 7.6%.

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 as well as the broader Zacks Retail – Wholesale sector over the past year.

The industry has declined 3.9% over this period compared with the S&P 500’s decline of 21.5%. Meanwhile, the broader sector has decreased 33.5% in the said time frame.

Industry's Current Valuation

On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staples stocks, the industry is currently trading at 20.4X compared with the S&P 500’s 16.64X and the sector’s 20.34X.

Over the last five years, the industry has traded as high as 24.48X and as low as 16.23X, with the median being at 20.44X.

3 Supermarket Stocks to Keep a Close Eye On

The Kroger Co.: The company, which has been benefiting from its strong digital business, has been focusing on a no-contact delivery option, low-contact pick-up service and ship-to-home orders. Apart from this, the company’s “Restock Kroger” program involving investments in the omni-channel platform, identifying margin-rich alternative profit streams, merchandise optimization, and lowering of expenses has been gaining traction. A dominant position among the nation’s largest grocery retailers enables The Kroger Co. to boost market share with the expansion of plant-based products, digital coupons, order online pick up in-store and smart shopping lists.

Further, KR’s Customer 1st strategy enriches consumers’ shopping experience and convinces them to return to stores. The Kroger Co. has seen upward estimate revisions for its current fiscal year’s bottom line over the past 60 days by nearly 3%. This Cincinnati-based retailer has an estimated long-term earnings growth rate of 11.7% as well as a trailing four-quarter earnings surprise of 15.7%, on average. This Zacks Rank #2 (Buy) stock has risen 11.3% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Companhia Brasileira:  This Zacks Rank #2 company is gaining on its digital transformation efforts in the face of consumers’ increased preference for online shopping. Certainly, Companhia Brasileira’s delivery models, including same-day delivery — Express and Click & Collect, Traditional or next-day delivery, and Last Mile or next-hour delivery — James Delivery and Open Platform, have been working well. Apart from this, Companhia Brasileira’s focus on store expansion is noteworthy. The Zacks Consensus Estimate for CBD’s fiscal-year bottom line has remained unchanged over the past 30 days.

This Brazilian retailer of food, clothing, home appliances, electronics, and other products has seen its shares decline 3.3% in a year’s time.

Walmart: The supermarket giant has been benefiting from its robust omnichannel efforts and last-mile delivery capabilities. With more customers and members returning to stores and clubs, demand seems to be strong. Walmart has been gaining from its sturdy comp sales, which. in turn. are driven by its constant expansion efforts and splendid e-commerce performance.  WMT has been focused on store remodeling in an attempt to upgrade them with advanced in-store and digital innovations.

Walmart has been taking several e-commerce initiatives, including buyouts, alliances, and improved delivery and payment systems. Additionally, Walmart is making aggressive efforts to expand in the booming online grocery space, which has long been a major contributor to e-commerce sales. The consensus mark for this omnichannel retailer’s current fiscal year earnings has remained the same in the past 30 days. This Zacks Rank #3 (Hold) stock has dipped 5.5% in the past year.

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