Traders guess on Kroger, Costco as Covid-19 instances spook Wall Avenue

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As U.S. stocks tumbled on Monday, investors were betting on a familiar category that could grow if Covid-19 cases continue to rise: grocery stores.

Kroger, Albertsons, BJ’s Wholesale Club stocks were up on Monday lunchtime. Costco hit an all-time high of $ 415.32.

These stocks were among the rare rays of hope on Wall Street as the Dow Jones Industrial average appears to be heading for its biggest decline of the year. Several other stay-at-home stocks, including Clorox and Peloton, were also in the green.

Grocers were some of the biggest beneficiaries of the pandemic over the past year as restaurants temporarily closed and shoppers stocked up on basic groceries from the pantry and cooked at home.

Retailers face tough comparisons in the quarters ahead as they face unusually high sales growth numbers. Investors and companies have been trying to figure out when – and to what extent – consumers will return to their eating habits as more people are fully vaccinated and restrictions wear off. In recent weeks, however, the surge in the delta variant of Covid-19 – especially in parts of the country with low vaccination rates – has made these predictions difficult.

Brian Yarbrough, an Edward Jones retail analyst, said investors were startled by news of the Delta variant and the withdrawal of reopening in some parts of the country – such as the return of interior mask mandates in Los Angeles. He said this is causing some to revert to tried and tested pandemic names.

“You saw a flight to be safer,” he said. “If that happens and Covid shows up again and things shut down, you would see the grocery store benefiting from it.”

Michael Baker, retail analyst at DA Davidson, said the grocer pop in the market is “the opposite of what you see in airline stocks”. At lunchtime on Monday, airlines and cruises were among the hardest hit sectors as investors feared travel trends could slow or reverse.

Grocery sales are still above pre-pandemic levels, according to IRI, which tracks sales patterns in supermarkets, large retailers and convenience stores. Overall demand for packaged consumer goods in the week ending July 4 was roughly the same as last year, although sales of perishable and non-edible items declined slightly overall.

Baker said some people developed new habits over the past year from cooking more. He also said a labor shortage has affected customer service in some restaurants, which gives customers another reason to eat at home instead.

“The American public may have learned that it is good to eat at home,” he said. “You spend a lot of time at home with your family and that’s more economical.”

He said the latest data also corroborates the stickiness of foods at home. According to the Ministry of Commerce, sales in food and beverage stores rose 0.6% in June compared to the previous month. On the flip side, restaurant food was still down 8% year over year in July based on OpenTable reservations tracking seating through online, phone, and walk-in reservations.

However, not all beneficiaries of the pandemic saw their fate change on Monday. Walmart, Home Depot and Lowe’s shares fell Monday.

Yarbrough attributed this to Walmart, which sold general merchandise and discretionary items instead of being a pure grocer. And, he said, investors might assume that retailers that do better during the Delta variant’s proliferation might look different as the government takes different measures. For example, instead of shutting down non-essential retailers, local officials can bring back masking requirements and consumers can choose to skip or cut back trips to restaurants. That would mean less dramatic sales increases for home improvement retailers who could stay open as essential retailers during the lockdown, he said.

Yarbrough said he remains convinced dining out will return at the expense of selling groceries. However, he said this could take longer – and could be interrupted by spikes in Covid cases.

“Since there is the Delta variant, it can make people afraid of saying, ‘You know what, I’m going to start staying at home. We started eating out again, but we’re going to start to eat at home for a while, ‘”he said.

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