By John Whitefoot for Daily Gains Letter
With the S&P 500 on pace for the best yearly gain in a decade, well-heeled shareholders are rejoicing—at the other end of the scale, many employees aren’t.
You know it’s a touchy economic climate when Wal-Mart Stores, Inc. (NYSE/WMT), the world’s biggest retailer, which reported third-quarter profits of $3.7 billion, is asking employees to donate food to fellow associates in need, so they can enjoy Thanksgiving this year.
A weak economy and stiff competition is taking a toll on Wal-Mart. While Wal-Mart reported third-quarter earnings that beat Wall Street estimates by a mere penny, revenues of $114.9 billion were shy of the $116.8-billion mark Wall Street was hoping for. Not surprisingly, perhaps, Wal-Mart said holiday sales would be flat. (Source: “Walmart reports Q3 EPS of $1.14, updates full year guidance; Aggressive holiday plans to drive sales,” Wal-Mart Stores, Inc. web site, last accessed November 14, 2013.)
In light of Wal-Mart’s recent employee Thanksgiving food drive, it’s interesting to note that third-quarter sales from Neighborhood Market, Wal-Mart’s chain of grocery stores, rose a solid 3.4%.
Where other grocery store chains have reported underwhelming third-quarter results, Wal-Mart’s grocery chain actually bucked the trend. Fourth-quarter results may be muted. Thanks to a U.S. economy that continues to look fragile, grocery store stocks are competing this Thanksgiving and in the subsequent holiday season by actually lowering their prices.
Aside from wanting a better marketing edge, retailers and grocers are lowering their prices because wholesales prices unexpended slipped in September with falling food costs, suggesting that inflation, a barometer of growth, remains weak. The 0.1% decrease in the producer price index in September comes on the heels of gains of 0.3% in August, 0.8% in June, and 0.5% in May. (Source: “Producer Price Indexes – September 2013,” Bureau of Labor Statistics, October 29, 2013.)
Lower prices don’t necessarily mean lower profits. After all, discount stores like Wal-Mart make their money by offering products at more competitive prices. But Wal-Mart aside, there are a large number of grocery store stocks and food retailers out there that could be bargains for both consumers and investors.
The Kroger Co.’s (NYSE/KR) share price is up 61% year-to-date and provides a 1.5% dividend yield. On September 12, Kroger reported record second-quarter net earnings of $317 million, or $0.60 per share; total sales increased 4.6% year-over-year to $22.7 billion. (Source: “Kroger Reports Record Second Quarter Results,” The Kroger Co. web site, September 12, 2013.)
The share price of Caseys General Stores, Inc. (NASDAQ/CASY) is up 39% year-to-date. The company recently reported record sales for the first quarter of fiscal 2014, with strong gas and inside sales. In 2014, the company expects to replace 20 existing stores and to add to its 1,750 locations by building or acquiring 70–105 stores. The company also provides an annual one-percent dividend. (Source: “Casey’s Reports Record Quarter with Strong Gas and Inside Sales,” Caseys General Stores, Inc., September 9, 2013.)
Both of these grocery store stocks have already experienced solid gains this year.