Publix stock price decreased Tuesday to $13.19 after snowballing economic conditions resulted in a 54% decrease in net earnings despite higher sales for the third quarter.
Publix Super Markets Inc. also paid a 9-cent-per-share dividend on Tuesday.
Net earnings for the Lakeland-based grocer were down, even while same-store sales and overall sales increased, a Publix release said.
Publix and grocery retail peers such as Kroger are experiencing lower net earnings based on recent filings.
Previously, 2nd quarter:Publix to pay 9-cent dividend to employees, stock price remains unchanged
Hurricane's path:Publix begins reopening some stores along the Gulf Coast after Ian
South Lakeland shopping center:Oakbridge shops to remain open as Publix rebuilds 1980s era grocery store
“Publix, like Kroger and perhaps more so, is a higher-end grocery chain," said Valrie Chambers, a professor of taxation and accounting at Stetson University in DeLand. "Wages have risen, but inflation, especially in some key grocery items, has risen more. What’s a family to do?
“We shop at Publix less often, and substitute Winn Dixie, Walmart, dollar storesand wholesale warehouses like BJ’s, Costco and Sams," she said.
"We still shop at Publix, but the mix of store shopping has shifted to cheaper stores, which in aggregate would hurt Publix’s bottom line.
“Stock prices today are buying potential future earnings, not just past ones,” Chamberssaid. “The ability of Publix to keep raising in-store prices to produce the same increase in earnings as in the recent past may be waning and reflected in muted grocery store stock prices.”
The impact of inflation on food buying
A recent survey by CouponBirds found that 45% of adults in Florida said they have eaten less food as a result of inflated food prices in 2022 (compared with a national average of 42%).
“We're nine or 10 months into a bear market, meaning the market has come down in general by 20% or so," saidJoseph Fitter, a professor of finance at the Indiana University Kelley School of Business."And so, you know, that means all companies are contributing to that downward [trajectory] and so the grocery sector would be no different than others.
“As future earnings go up, you would expect the stock price to go up.As future earnings go down, you would expect stock prices to go down,” hesaid. “How far up or down that may go is somewhat dependent also on the underlying interest rates, the cost of money.
On Wednesday, the Federal Reserve approved a fourth-straight rate hike of 0.75%in an effort to halt a 40-year high inflation rate. Thishelps make borrowing and investing more expensive, which is intended to slow the economy and moderate price increases.
As of May, the food-at-home sector saw an overall 12%surgein the cost of groceries compared with May last year. From the 12 months starting in May 2021, eggs rose in price by32.2%;meat, poultry and fish increased by14.2%;and dairy products climbed 11.8%, according to the Consumer Price Index.
Other factors impacting profitability include sales. They are one of the drivers of stock prices, especially for a company such as Publix.
Grocery sales are determined by what consumers are putting in their shopping carts, Fitter said. With inflation, consumers are likely to trade down at the supermarket more than they would have six or 12 months ago before inflation rates shot up.
Last year, shoppers may have bought nicer cuts of meat or brand-name organic vegetables, but now they look for store brands or generics to stretch their household budgets, he said. This type of consumer behavior can reduce profit margins for grocery retailers that have been makingmore money offpremium brands.
And while same-store sales can be higher for grocery retailers, those sales are not keeping up with inflation, Fitter said.
“In other words, last month I sold $500,000 at my store, this month I sold $600,000. But if inflation says the prices were higher and therefore, I should have sold $700,000, it means the consumers are probably trading down,” he said.
There is also often a lag between rising costs for a grocer to put products on shelves and the amount consumers are paying for their grocery cart of food, which lowers profitability for the company, he said. Stores are hesitant to raise prices because that could push away customers to lower-priced grocery stores. But eventually, they have to raise prices, or they will lose money.
“There's a lot of different dynamics in the market that can drive this profitability picture from a grocery standpoint,” Fitter said.
Expenses can also be a factor for profitability including labor costs, utilities and the cost of leasing retail space, he said. He added fuel costs and the price of commodities such as wheat used to make bread have impactedthe price grocers are paying to put food onstore shelves.
Publix stock is not publicly traded and is only available to current Publix associates and its board of directors.
The third quarter, by the numbers
In a Publix press release Tuesday, it said sales for the three months ended Sept. 24 were $13 billion, a 9.2% increase from $11.9 billion in the same period of 2021. Comparable store sales for the three months ended Sept. 24 increased to 7.6%.
However, net earnings were $394.1 million, compared with $856.9 million a year ago, a decrease of 54%.
Earnings per share for quarter decreased to 12 cents per share, down from 25 cents per share in 2021, adjusted for the effect of the 5-for-1 stock split on April 14.
Excluding the impact of net unrealized gains and losseson equity securities, net earnings would have been $808.9 million, compared with $802.5 million in the same period a year ago, an increase of 0.8%.
An unrealized loss is the result of holding an asset that has decreased in price but has not yet been sold, according to Investopedia.com. Stock holders, for example, can do this to wait and see if the asset will rise in price. Similarly, unrealized gains are assets that have increased in price "on paper" and have not yet been sold. Sales of the assets are subject to capital gains taxes.
Earnings per share would have been 24 cents per share, compared with 23 cents per share a year ago, adjusted for the effect of the stock split, Publix said.
Pubix's SEC filings also show the year-to-date results as of the third quarter.The grocer's sales for the nine months ended Sept. 24 were $39.2 billion, a 10.7% increase from $35.4 billion the same period of 2021. Comparable store sales for the first nine months of the yearincreased 9%.
Net earnings for the nine months ended Sept. 24,were $1.6 billion, compared with $3.4 billion in 2021, a decrease of 51.2%, Publix said.
Earnings per share for the nine months ended Sept. 24 decreased to 48 cents per share, down from 97 cents per share in 2021, adjusted for the effect of the stock split.
Excluding the impact of net unrealized gains and losses on equity securities, net earnings for the nine months would have been $2.8 billion, compared with $2.6 billion in 2021, an increase of 4.7%.Earnings per share would have been $0.81 per share, compared with $0.76 per share a year ago, adjusted for the effect of the stock split.
These amounts are based on unaudited financial statements filed Tuesday by Publix with the U.S. Securities and Exchange Commission. The filings are available at corporate.publix.com/stock.
“Unfortunately, the stock market continues to be a challenge, but I could not be more proud of Publix’s response to Hurricane Ian,” Publix CEO Todd Jones said in the company's prepared statement. “Our associates’ efforts to serve our customers, our communities and each other during this difficult time have been amazing.”
Publix Super Markets Inc. is the largest employee-owned company in the United States with 240,000 employees, its website said.The grocery chain operates 1,311 stores in seven Southeastern states with stores under construction in aneighth state, Kentucky..
Publix also operates 10 distribution centers, with seven in Florida and one each in Alabama, Georgia and North Carolina. It has 10 manufacturing facilities in Georgia and Florida and 33 warehouses. As of 2019, it hadmore than 1,225 truck drivers and nine dispatch locations within its seven-state operating area.