4 Retailers Poised for Stellar Q3 on Booming Grocery Demand

While the coronavirus pandemic has severely impacted the retail ecosystem, grocery chains and major retailers have been in good shape thanks to declining demand. Items such as toilet paper, disinfectants, masks, gloves, packaged water, medication, and related staples have been high on the shopping list for some time as people still prefer to buy essentials and other household products before engaging in fashion and leisure items.

Well, this change in consumer behavior is set to continue as working and eating at home has become the new normal. A survey by Acosta shows that more than 50% of US consumers have eaten at home more often since the onset of COVID-19. Also, consumers are largely reducing the frequency of their shopping trips to maintain social distancing, and in turn, load pantries at once or shop online.

No wonder retailers have gone the extra mile to stay connected with consumers and provide a smooth shopping experience. Product innovation, prudent pricing and digitization are obviously the order of the day. Industry experts believe that the demand for groceries is likely to remain high and that players will notice them with better retail space, strong omni-channel capabilities, and improved delivery and payment systems.

To that end, companies' same-day and last mile delivery services, as well as online purchase and in-store pickup, are a good sign. In fact, corporate initiatives to expand delivery options and contactless payment solutions have been a boon amid the pandemic and have helped them meet the increasing demand resulting from home trends and social distancing.
Our pick for now
Although locks have been lifted and businesses resumed in most states, the recurrence of coronavirus cases has fueled fears of a second wave of COVID-19. And since there is currently no safe shot treatment available, there is great uncertainty about the duration and severity of the virus. Given these concerns, investing in food stocks is a tempting option right now. Food stocks have always been safe bets, and the pandemic has only made it clear how safe these stocks can be in times of extreme market volatility.

All in all, we have shortlisted four stocks here based on a Zacks rank 1 (strong buy) or 2 (buy) and a VGM value of A or B. The full list of today's Zacks Rank 1 stocks can be found here.

Target Corporation TGT has cemented its position in the food and beverage space with a robust portfolio of proprietary and exclusive brands. It is worth mentioning the company's commitment to offering a unique shopping experience with safe and convenient options such as contactless drive-up and pick-up of orders and same-day delivery with Shipt. Customers respond positively to such shopping tools, making Target a destination for groceries. In particular, Target's thriving grocery brand Good & Gather had sales of over $ 1 billion in less than a year. The brand is expected to become Target's largest own brand, with around 2,000 items on the list. The expansion of the Good & Gather brand includes the Signature line with 60 premium products with special ingredients and flavors. Here, guests can enjoy pizza, pasta and coffee, similar to an Italian café.

The stock has a Zacks Rank 1 and a VGM value of A. This general goods retailer has a trailing earnings surprise averaging 37.6% in the fourth quarter. It has a long-term earnings growth rate of 7.2%. In addition, the Zacks consensus estimate for sales and earnings for the third quarter of fiscal 2020 shows an improvement of 10.8% and 12.5%, respectively, compared to the same period of the previous year.

Kroger Co. KR has been completely redesigned not only in terms of products, but also in terms of the way consumers shop for groceries. The company focuses on herbal products and technological expansion. The acquisition of the food equipment company Home Chef and the partnership with the UK online grocery company Ocado strengthen its position. The company recently announced the introduction of two on-site ghost kitchens at its stores in Metro Indianapolis, IN and Metro Columbus, OH in partnership with ClusterTruck. The on-site kitchen optimizes ordering, preparation and delivery, and enables Kroger to efficiently serve growing customer demand for quick, fresh, restaurant-quality meals. Most recently, the company has expanded its Simple Truth Plant Based private label to include over 50 fresh and flavorful plant foods at reasonable prices.

The stock has a Zacks Rank 1 and a VGM value of A. This supermarket and department store operator has a trailing earnings surprise averaging 13% in the fourth quarter. It has a long-term earnings growth rate of 6.2%. In addition, the Zacks consensus estimate for sales and earnings for the third quarter of fiscal 2020 shows an improvement of 7.1% and 38.3%, respectively, compared to the same period of the previous year.

Walmart Inc. WMT has made its way into the burgeoning online grocery space. The company recently unveiled its Walmart + membership program, which offers unlimited free delivery of more than 160,000 items sold in stores, including groceries. Additionally, customers can take advantage of discounts on fuel and have Scan and Go options to skip the checkout. Previously, in the first quarter of fiscal 2021, the company rolled out Express Delivery in multiple stores to deliver orders to customers in less than two hours. In previous developments, Walmart's deal with Postmates, the deal with DoorDash and the acquisition of Parcel underscore the focus on improving grocery sales.

The stock has a Zacks Rank 2 and a VGM value of A. This supermarket, warehouse club, and cash & carry operator has a trailing earnings surprise averaging 9.5% in the fourth quarter. It has a long-term earnings growth rate of 5.6%. In addition, the Zacks consensus estimate for sales and earnings for the third quarter of fiscal 2021 shows an improvement of 2.9% and 1.7%, respectively, compared to the same period last year.

Investors can also rely on SpartanNash Company SPTN, which distributes and sells food products. The company benefited from increased consumer spending on essential goods like groceries amid the coronavirus pandemic. The trend was evident in the company's results for the second quarter of fiscal 2020. Consolidated net sales increased 9.4% in the second quarter of 2020, the 17th quarter in a row. The results exceeded management's expectations as the company benefited from increased consumer demand related to COVID-19 in the retail and food distribution segments and the strong growth of existing customers in the food distribution segment. The company's robust e-commerce platform, data insights and understanding of consumer preferences, and the company's systems and infrastructure are essential to its success. In addition, by deepening relationships with Amazon AMZN, the company should cement its presence in the food sector. In fact, the pact with Amazon should bolster SpartanNash's e-commerce business, which grew more than 300% in the second quarter.

The company recorded a profit surprise averaging 21.5% after four quarters. The share has a Zacks rank of 2 and a VGM value of A. In addition, the Zacks consensus estimate for sales and earnings for the third quarter of fiscal year 2020 indicates an improvement of 7.6% and 106.7% respectively compared to the same period of the previous year down.
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Target Corporation (TGT): Free Stock Analysis Report

Amazon.com, Inc. (AMZN): Free Stock Analysis Report

Walmart Inc. (WMT): Free Stock Analysis Report

The Kroger Co. (KR): Free Stock Analysis Report

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