Year in review: 2023 food retail stocks — Sprouts, Costco, Natural Grocers outpace a flattish industry

Investors would have been better off putting their money in low-interest savings accounts than buying food retailing company stocks in 2023, with a handful of exceptions.

While a late-year surge sent stock indices soaring as 2023 was coming to a close, most publicly traded food retailers’ shares did not catch that wave and instead bobbed at sea, as investors instead poured money into technology, communications, and consumer discretionary stocks. Many food retailers have been struggling to drive sales gains beyond those driven by inflation, while at the same time facing increased competitive and cost pressures.

Among the food retailers that saw significant gains in their share price were Sprouts Farmers Markets, which recorded a share-price gain of about 52% year-to-date, through about mid-day on Dec. 15. Natural Grocers by Vitamin Cottage was also up in double digits, with a 67.8% gain for the year, and Costco Wholesale saw its share price rise 35.4%.

Most other food retailing share prices were relatively flat, or showed a decline for the year.

That compared with gains of 21.3% for the S&P 500, 10.9% for the Dow Jones Industrial Average, and about 40.4% for the NASDAQ.

Sprouts Farmers Market continued to open stores at a rapid pace in 2023 and expected to continue to do so efficiently and effectively, analysts said. The company’s efforts around marketing, expanding private label, and reducing the size of its stores also appear to be bearing fruit.

In the third fiscal quarter, Sprouts reported an 8% gain in sales and 3.9% comparable-store sales growth, driving a 7% increase in earnings per share.

“I think that the strategic plan that began as an idea in 2020 is already beginning to materialize and is proving to have a positive effect on the present and future of the company,” said one Sprouts investor in a post on Seeking Alpha.

Natural Grocers by Vitamin Cottage, another natural and organic specialist, has also had a strong financial performance in 2023. For its recently ended fiscal year, the company said its daily average comp-store sales grew 3.6%. In the fiscal fourth quarter, daily average comp-store gains were up 6.9%, including a 3.6% increase in daily average transaction count, indicating that the company’s sales growth has not been driven entirely by inflation.

At Costco, meanwhile, the company continues to expand at a rapid pace and recently said it plans to open 31 stores in the year ahead, including 24 in the U.S. The company recently posted a 6.1% gain in sales for the fiscal first quarter, including comp-store sales gains of 3.8%, and net income was up about 16.5%, compared with year-ago results.

Other food retailing stocks that eked out gains in the year included Albertsons Cos., up about 9.5%; and Walmart, up about 3.5%.

Several companies saw flattish stock performance, including Kroger Co., Ahold Delhaize, BJ’s Wholesale, and Grocery Outlet.

United Natural Foods Inc. was among the biggest decliners for the year, with a drop of about 60%. The company recently reported a challenging outlook for profitability in the year ahead, despite positive sales.

Shares of Dollar General also tumbled, with a drop of about 47% for the year; SpartanNash slipped about 25%, and Target’s share price was down about 12%.

Dollar General has been undertaking some significant changes in its operations, including working through some of its supply chain issues “getting back to basics.” In its recent earnings call for the fiscal third quarter, the company said it was starting to see improvements in store traffic, but the company still posed a 1.3% decrease in same-store sales. The decline was primarily driven by a decrease in unit volume, which was spread throughout all store categories, the company said.