A month has gone by since the last earnings report for Grocery Outlet Holding Corp. (GO). Shares have added about 22.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Grocery Outlet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Grocery Outlet Q3 Earnings & Sales Beat Estimates, Comps Jump 1.2%
Grocery Outlet reported better-than-expected third-quarter 2024 results. While net sales improved, earnings declined from the year-ago period. The company’s net sales growth in the third quarter highlights the strong positioning of its consumer offering, with value continuing to resonate in the market and driving growth in consumer non-discretionary spending share.
GO’s Quarterly Performance: Key Insights
Grocery Outlet’s adjusted earnings of 28 cents per share beat the Zacks Consensus Estimate of 27 cents but declined from 31 cents delivered in the year-ago quarter.
Net sales of $1,108.1 million beat the Zacks Consensus Estimate of $1,100 million. The top line grew 10.4% year over year. This outperformance was driven by decent comparable store sales performance and new stores opened.
Comparable store sales increased 1.2% in the quarter, driven by a 2% jump in the number of transactions, partly offset by a 0.7% decline in the average transaction size. In the year-ago period, the company had reported a comparable store sales increase of 6.4%.
Grocery Outlet’s Margins & Costs Details
The gross profit rose 9.2% year over year to $344.9 million. However, the gross margin contracted 30 basis points to 31.1% due to the disruptions as a result of the implementation of new technology platforms. Adjusted EBITDA came in at $72.3 million, up 6% from $68.1 million in the year-ago period. The adjusted EBITDA margin shrunk 30 basis points to 6.5%.
SG&A expenses jumped 9.5% to $304.6 million in the quarter. As a percentage of net sales, SG&A expenses decreased 20 basis points to 27.5%.
GO’s Store Update
In the quarter, Grocery Outlet expanded its footprint with the opening of five new stores, bringing the total to 529 stores across 16 states. The company aims to inaugurate 66 net new stores in 2024. This encompasses the addition of 40 United Grocery Outlet stores, alongside the opening of 26 new Grocery Outlet stores in its existing markets.
Grocery Outlet’s Financial Health Snapshot
Grocery Outlet ended the quarter with cash and cash equivalents of $68.7 million, net long-term debt of $419.9 million and stockholders’ equity of $1,226.1 million.
Net cash provided by operating activities during the quarter was $23 million. Capital expenditures totaled $49.1 million before accounting for tenant improvement allowances and $38.2 million after factoring these allowances. Management envisions capital expenditures (net of tenant improvement allowances) of about $200 million for 2024.
During the quarter under discussion, the company repurchased 1.2 million shares at an average price of $21.50 per share, totaling $25 million. Following the quarter, an additional 1.5 million shares were repurchased at an average price of $16.62 per share. The board approved a new share repurchase authorization of up to $100 million, replacing the previous program.
GO’s 2024 Outlook
Management anticipates 2024 net sales to be slightly above $4.35 billion compared with the previous estimates between $4.30 billion and $4.35 billion. The company reported net sales of $3.97 billion in 2023. It now expects comparable store sales growth of 2.4%, lower than previous anticipation of a 3.5% rise. The company had reported a 7.5% increase in 2023.
Grocery Outlet guided a full-year gross margin of 30.4%, slightly down from the earlier projection of 30.5%. The current projection showed a 90-basis point contraction in the gross margin from the year-ago period.
GO expects adjusted EBITDA between $237 million to $242 million in 2024 as compared with the earlier projection of $252 million and $260 million. The company had reported adjusted EBITDA of $252.6 million in 2023.
Grocery Outlet envisions adjusted earnings in the band of 77-80 cents, lower from earlier guidance of 89-95 cents. The company reported adjusted earnings of $1.07 per share in 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -44.02% due to these changes.
VGM Scores
At this time, Grocery Outlet has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Grocery Outlet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Grocery Outlet is part of the Zacks Consumer Products - Staples industry. Over the past month, Clorox (CLX), a stock from the same industry, has gained 3%. The company reported its results for the quarter ended September 2024 more than a month ago.
Clorox reported revenues of $1.76 billion in the last reported quarter, representing a year-over-year change of +27.1%. EPS of $1.86 for the same period compares with $0.49 a year ago.
Clorox is expected to post earnings of $1.39 per share for the current quarter, representing a year-over-year change of -35.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.1%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Clorox. Also, the stock has a VGM Score of C.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
