What’s next for the grocery-store industry? With many of the constituents’ stocks recently soaring to unforeseen levels, they appear to still have positive momentum. Investors can likely continue to benefit from climbing profitability, as well as the reinvestment of cash flow in the form of dividends and repurchases unfolding at these companies. A look at several, across a range of market capitalizations, should help to decide where to invest.
Investments in existing store base productive
Starting with one of the larger supermarket firms, The Kroger Co. (NYSE:KR) targets year-over-year sales growth of around 3%, supporting share-earnings expansion of 8% to 11%. It is enjoying the benefits of the remodeling of stores for a better shopping atmosphere. Accordingly, despite the counter-cyclical nature of the grocery business, marked by a potential loss of share to restaurants when discretionary spending rises, The Kroger Co. (NYSE:KR)’s results may well remain on an upward path.
The main story here, though, is financing cash flow. Specifically, The Kroger Co. (NYSE:KR) this year is reducing its debt level, bringing down interest costs, as well as raising the dividend, and buying back a significant amount of shares, thus lifting share net. These measures are all in addition to capital expenditures for in-store features.
The Kroger Co. (NYSE:KR) shares remain a good selection for yield and long-term price appreciation.
An expanding grocer carving out its niche
I have blogged about The Fresh Market Inc (NASDAQ:TFM) previously, such as in a posting on June 10. It can be classified as a growth company that is still capturing market share at a considerable rate. The company added 15 units over the course of a year ending April 28, for a total of 131 locations. Plus, comparable-store sales advanced 3% in the latest quarter.
The company, marketing itself as a home-away-from-home with classic charm shop, offers a higher-quality mix of perishables along with a smaller format. Indeed, such grocers, along with those operating in the organic-food sector, are gaining ground on the major chains, reflecting consumer preferences toward health and convenience.
The stock’s premium value (the shares were trading at nearly 27x forward share earnings, based on current-year share net of $1.57) is warranted, given its stellar prospects. Investors may profit as The Fresh Market Inc (NASDAQ:TFM) expands beyond its current 25-state presence.
This North Carolina-based firm is on the block.
When this grocer, Harris Teeter Supermarkets Inc (NYSE:HTSI), announced in February that it is considering a sale of the company, investors did not take much notice. Around the same time, SUPERVALU INC. (NYSE:SVU) divested several of its affiliates to a private equity group. It is not as if the company is not performing well, as share earnings rose to $0.67 from $0.62 in the latest quarter. Thus, speculation of a buyout might not be the only incentive to purchase shares of this North Carolina-based chain.