The retail industry is well-poised for significant expansion, thanks to consumer spending power and technological adoption embracing trends like e-commerce platforms and data analytics. Also, keeping up with industry trends and evolving consumer preferences enables retailers to offer innovative products and experiences, fostering the sector’s growth.
Given the industry’s tailwinds, investors could consider buying fundamentally sound retail stocks Tesco PLC (TSCDY), George Weston Limited (WNGRF), and Marks and Spencer Group plc (MAKSY) to fuel portfolio growth.
Retail sales in the U.S. rose 0.7% month-over-month in March 2024, following an upwardly revised 0.9% increase in February and much higher than estimates of 0.3%. This surge in retail sales shows robust consumer spending, which could support overall economic growth.
Rapid economic growth, increasing urbanization, and surging demand for supermarkets, hypermarkets, and discount stores are primary drivers driving the retail industry’s growth. Further, expansion into new geographical markets, both physical and online, fuels growth for big box retailers via strategies like new store openings and e-commerce platform launches.
According to the Business Research Company report, the retail market is expected to grow to $42.76 trillion by 2028 at a CAGR of 8.1%.
Additionally, the integration of cutting-edge technologies into the retail space is driving the expansion of the retail market. Big box retailers provide engaging experiences tailored to the taste of individual customers by utilizing smart technologies like augmented reality (AR), virtual reality (VR), and Internet of Things (IoT) devices.
The global smart retail market is expected to grow at a CAGR of 29% to $299.74 billion until 2031.
Moreover, investors’ interest in retail stocks is evident from the VanEck Retail ETF’s (RTH) 21.9% returns over the past year.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Grocery/Big Box Retailers industry stocks, beginning with the third choice.
Stock #3: Tesco PLC (TSCDY)
Headquartered in Welwyn Garden City, the United Kingdom, TSCDY operates as a grocery retailer in the United Kingdom, the Republic of Ireland, the Czech Republic, Slovakia, and Hungary. It offers grocery products through its stores and online. The company is also involved in the food and drink wholesaling activities.
TSCDY’s trailing-12-month ROCE of 14.72% is 26.4% higher than the industry average of 11.64%. Also, the stock’s trailing-12-month asset turnover ratio of 1.46x is 74.1% higher than the industry average of 0.84x.
As per the preliminary results for the fiscal year that ended February 24, 2024, TSCDY’s revenue and adjusted operating profit were £68.19 billion ($84.89 billion) and £2.83 billion ($3.52 billion), up 4.4% and 12.8% year-over-year, respectively. Its adjusted EPS grew 14% from the previous year to 23.41p.
Street expects TSCDY’s revenue and EPS for the fiscal year (ending February 2025) to increase 1.8% and 10.7% year-over-year to $87.05 billion and $1.02, respectively.
Over the past nine months, the stock has gained 10.1% to close the last trading session at $10.70.
TSCDY’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
TSCDY has an A grade for Stability and a B in Value. The stock is ranked #25 out of 36 stocks within the A-rated Grocery/Big Box Retailers industry.
To see the other ratings of TSCDY for Sentiment, Growth, Momentum, and Quality, click here.
Stock #2: George Weston Limited (WNGRF)
Based in Toronto, Canada, WNGRF provides food and drug retailing and financial services in Canada. The company operates through two segments: Loblaw Companies Limited (Loblaw) and Choice Properties Real Estate Investment Trust (Choice Properties).
WNGRF’s trailing-12-month ROCE of 25.18% is 116.3% higher than the 11.64% industry average. Likewise, the stock’s trailing-12-month ROTC of 8.02% is 20.2% higher than the 6.67% industry average.
In terms of forward EV/Sales, WNGRF is trading at 0.78x, 52.1% lower than the industry average of 1.30x. Also, its forward EV/EBITDA multiple of 6.85 is 33.7% lower than the industry average of 10.33.
On March 22, 2024, WNGRF announced that it had entered into an automatic share purchase plan (ASPP) with a broker to facilitate repurchases of Weston's common shares under its previously announced normal course issuer bid.
Weston had previously disclosed that it had received approval from the Toronto Stock Exchange (TSX) to buy back up to 6,954,013 common shares, commencing May 25, 2023, and terminating May 24, 2024, which equates to nearly 5% of the 139,080,273 common shares that were issued and outstanding as of May 11, 2023.
In the fourth quarter that ended December 31, 2023, WNGRF’s revenue increased 3.9% year-over-year to $14.70 billion. Its adjusted EBITDA of $1.69 billion indicates a growth of 6.5% year-over-year. In addition, as of December 31, 2023, the company’s cash and cash equivalents stood at $2.45 billion, compared to $2.31 billion as of December 31, 2022.
Analysts expect WNGRF’s revenue for the first quarter (ended March 2024) to grow 2.9% year-over-year to $10.09 billion. For the fiscal year ending December 2024, the company’s revenue is expected to grow 3.6% from the prior year to $45.89 billion.
Shares of WNGRF have surged 15.1% over the past six months and 9.4% over the past nine months to close the last trading session at $127.52.
WNGRF’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
WNGRF has a B grade for Quality and Stability. It is ranked #6 in the same industry.
In addition to the POWR Ratings highlighted above, you can check WNGRF’s ratings for Value, Growth, Momentum, and Sentiment here.
Stock #1: Marks and Spencer Group plc (MAKSY)
Headquartered in London, the United Kingdom, MAKSY operates diverse retail stores, spanning clothing, home goods, and food across segments, including UK Clothing & Home; UK Food; and International. Additionally, the company is involved in financial services, renewable energy, real estate, and online retail.
MAKSY’s trailing-12-month gross profit margin of 36.95% is 6.1% higher than the 34.82% industry average. Also, its trailing-12-month levered FCF margin of 5.92% is 22.4% higher than the 4.84% industry average. The stock’s trailing-12-month ROCE of 13.85% is 19.5% higher than the 11.59% industry average.
During the half year ended September 30, 2023, MAKSY’s statutory revenue grew 10.8% year-over-year to £6.13 billion ($7.63 billion). The company’s operating profit and profit for the period amounted to £315 million ($392.12 million) and £206.90 million ($257.56 million), up 83.7% and 24.1% from the previous-year period, respectively.
Moreover, the company’s adjusted EPS rose 62.8% year-over-year to 12.7p.
The consensus revenue of $16.18 billion for the fiscal year (ended March 2024) represents a 9.7% increase year-over-year. Its EPS is expected to grow 32% year-over-year to $0.57 for the same period.
Over the past year, MAKSY’s stock has gained 45.2% to close the last trading session at $6.20.
MAKSY’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
MAKSY has a B grade for Growth, Sentiment, Stability, and Value. Within the same industry, it is ranked #5.
To see MAKSY’s additional ratings for Momentum and Quality, click here.
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TSCDY shares were trading at $10.67 per share on Thursday morning, down $0.03 (-0.28%). Year-to-date, TSCDY has declined -4.39%, versus a 5.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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