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Grocery Outlet's (GO) Q1 Earnings Miss, Comps Up 3.9% Y/Y
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Shares of Grocery Outlet Holding Corp. (GO - Free Report) witnessed a decline of 15.2% during the after-market trading session on May 7 following first-quarter 2024 results. While the top line beat the Zacks Consensus Estimate and increased year over year, the bottom line missed the same and fell sharply from the year-ago period. Management highlighted that additional systems conversion issues hurt the company’s profitability. Consequently, Grocery Outlet revised its full-year earnings forecast downward.
Q1 Insights
Grocery Outlet reported adjusted earnings of 9 cents a share, which fell short of the Zacks Consensus Estimate of 18 cents and decreased from 27 cents delivered in the year-ago quarter.
Net sales of $1,036.9 million came ahead of the Zacks Consensus Estimate of $1,025 million. The top line grew 7.4% year over year. The outperformance was driven by decent comparable store sales performance and the impact of new stores opened over the past 12 months.
Comparable store sales increased 3.9% in the quarter, driven by a 7% jump in the number of transactions, partly offset by a 2.9% decline in the average transaction size. We had anticipated 2% growth in the metric. In the year-ago period, the company had reported a comparable store sales increase of 12.1%.
Grocery Outlet Holding Corp. Price, Consensus and EPS Surprise
The gross profit rose 1.1% year over year to $303.9 million. However, the gross margin contracted 180 basis points 29.3% owing to systems transition issues that hurt the metric by 210 basis points. Adjusted EBITDA came in at $39.4 million, down from $63.1 million in the year-ago period. We note that the adjusted EBITDA margin shrunk 270 basis points to 3.8%.
We had anticipated a 70-basis point and 140-basis point contraction in the gross margin and the adjusted EBITDA margin, respectively.
SG&A expenses jumped 13.3% to $303.4 million during the quarter. This increase was driven by higher commission payments, store occupancy due to new unit growth and D&A expenses. As a percentage of net sales, SG&A expenses deleveraged 160 basis points to 29.3%.
Store Update
During the quarter, Grocery Outlet opened six new stores, bringing the total count to 474 stores in nine states. The company aims to inaugurate 58-62 net new stores in 2024. This encompasses the addition of 40 United Grocery Outlet stores, alongside the opening of 18 to 22 new Grocery Outlet stores in its existing markets.
Other Financial Aspects
Grocery Outlet ended the quarter with cash and cash equivalents of $66.9 million, long-term debt of $285.3 million and stockholders’ equity of $1,224.6 million.
Net cash provided by operating activities during the quarter was $7.8 million. The company incurred capital expenditures of $46.5 million (net of tenant improvement allowances). Management envisions capital expenditures (net of tenant improvement allowances) of about $175 million for 2024.
Outlook
Management foresees 2024 net sales between $4.30 billion and $4.35 billion compared with $3.97 billion reported in 2023. This Zacks Rank #2 (Buy) company now expects comparable store sales growth of 3.5-4.5%, up from the prior forecast of 3-4%. The company had reported a 7.5% increase registered in 2023. Grocery Outlet guided a full-year gross margin of 30.5%, down from 31.3% guided earlier. The current projection showed an 80-basis point contraction in the gross margin.
It now expects adjusted EBITDA between $252 million and $260 million in 2024, down from the prior forecast of $275 million to $283 million. The company had reported adjusted EBITDA of $252.6 million in 2023.
Grocery Outlet now envisions adjusted earnings in the band of 89-95 cents compared with $1.14-$1.20 per share projected earlier for 2024. The company reported adjusted earnings of $1.07 per share in 2023.
Management expects second-quarter 2024 comparable store sales to be approximately 3.2%. Grocery Outlet foresees the second-quarter gross margin to be approximately 30%, which includes an estimated 100-basis point impact from the system transition. The company expects a sequential improvement in gross margins in the back half of the year. Management estimates second-quarter adjusted EBITDA to be roughly 5.4% of sales.
Shares of this extreme-value retailer of quality, name-brand consumables and fresh products have advanced 1.4% in the past three months compared with the industry’s rise of 3.8%.
Other Stocks Hogging in the Limelight
Here, we have highlighted other top-ranked stocks, namely Sprouts Farmers Market (SFM - Free Report) , Target Corporation (TGT - Free Report) and Tractor Supply Company (TSCO - Free Report) .
The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and earnings suggests growth of around 8.1% and 7.4%, respectively, from the year-ago reported numbers.
Target, a general merchandise retailer in the United States, currently carries a Zacks Rank #2. TGT has a trailing four-quarter earnings surprise of 27.1%, on average.
The Zacks Consensus Estimate for Target’s current financial-year earnings suggests growth of around 5% from the year-ago reported numbers.
Tractor Supply, which operates as a rural lifestyle retailer in the United States, currently carries a Zacks Rank #2. Tractor Supply has a trailing four-quarter earnings surprise of 2.7%, on average.
The Zacks Consensus Estimate for Tractor Supply’s current financial-year sales and earnings suggests growth of 3% and 2.3%, respectively, from the year-ago reported numbers.
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Grocery Outlet's (GO) Q1 Earnings Miss, Comps Up 3.9% Y/Y
Shares of Grocery Outlet Holding Corp. (GO - Free Report) witnessed a decline of 15.2% during the after-market trading session on May 7 following first-quarter 2024 results. While the top line beat the Zacks Consensus Estimate and increased year over year, the bottom line missed the same and fell sharply from the year-ago period. Management highlighted that additional systems conversion issues hurt the company’s profitability. Consequently, Grocery Outlet revised its full-year earnings forecast downward.
Q1 Insights
Grocery Outlet reported adjusted earnings of 9 cents a share, which fell short of the Zacks Consensus Estimate of 18 cents and decreased from 27 cents delivered in the year-ago quarter.
Net sales of $1,036.9 million came ahead of the Zacks Consensus Estimate of $1,025 million. The top line grew 7.4% year over year. The outperformance was driven by decent comparable store sales performance and the impact of new stores opened over the past 12 months.
Comparable store sales increased 3.9% in the quarter, driven by a 7% jump in the number of transactions, partly offset by a 2.9% decline in the average transaction size. We had anticipated 2% growth in the metric. In the year-ago period, the company had reported a comparable store sales increase of 12.1%.
Grocery Outlet Holding Corp. Price, Consensus and EPS Surprise
Grocery Outlet Holding Corp. price-consensus-eps-surprise-chart | Grocery Outlet Holding Corp. Quote
Margins & Costs
The gross profit rose 1.1% year over year to $303.9 million. However, the gross margin contracted 180 basis points 29.3% owing to systems transition issues that hurt the metric by 210 basis points. Adjusted EBITDA came in at $39.4 million, down from $63.1 million in the year-ago period. We note that the adjusted EBITDA margin shrunk 270 basis points to 3.8%.
We had anticipated a 70-basis point and 140-basis point contraction in the gross margin and the adjusted EBITDA margin, respectively.
SG&A expenses jumped 13.3% to $303.4 million during the quarter. This increase was driven by higher commission payments, store occupancy due to new unit growth and D&A expenses. As a percentage of net sales, SG&A expenses deleveraged 160 basis points to 29.3%.
Store Update
During the quarter, Grocery Outlet opened six new stores, bringing the total count to 474 stores in nine states. The company aims to inaugurate 58-62 net new stores in 2024. This encompasses the addition of 40 United Grocery Outlet stores, alongside the opening of 18 to 22 new Grocery Outlet stores in its existing markets.
Other Financial Aspects
Grocery Outlet ended the quarter with cash and cash equivalents of $66.9 million, long-term debt of $285.3 million and stockholders’ equity of $1,224.6 million.
Net cash provided by operating activities during the quarter was $7.8 million. The company incurred capital expenditures of $46.5 million (net of tenant improvement allowances). Management envisions capital expenditures (net of tenant improvement allowances) of about $175 million for 2024.
Outlook
Management foresees 2024 net sales between $4.30 billion and $4.35 billion compared with $3.97 billion reported in 2023. This Zacks Rank #2 (Buy) company now expects comparable store sales growth of 3.5-4.5%, up from the prior forecast of 3-4%. The company had reported a 7.5% increase registered in 2023. Grocery Outlet guided a full-year gross margin of 30.5%, down from 31.3% guided earlier. The current projection showed an 80-basis point contraction in the gross margin.
It now expects adjusted EBITDA between $252 million and $260 million in 2024, down from the prior forecast of $275 million to $283 million. The company had reported adjusted EBITDA of $252.6 million in 2023.
Grocery Outlet now envisions adjusted earnings in the band of 89-95 cents compared with $1.14-$1.20 per share projected earlier for 2024. The company reported adjusted earnings of $1.07 per share in 2023.
Management expects second-quarter 2024 comparable store sales to be approximately 3.2%. Grocery Outlet foresees the second-quarter gross margin to be approximately 30%, which includes an estimated 100-basis point impact from the system transition. The company expects a sequential improvement in gross margins in the back half of the year. Management estimates second-quarter adjusted EBITDA to be roughly 5.4% of sales.
Shares of this extreme-value retailer of quality, name-brand consumables and fresh products have advanced 1.4% in the past three months compared with the industry’s rise of 3.8%.
Other Stocks Hogging in the Limelight
Here, we have highlighted other top-ranked stocks, namely Sprouts Farmers Market (SFM - Free Report) , Target Corporation (TGT - Free Report) and Tractor Supply Company (TSCO - Free Report) .
Sprouts Farmers, a renowned grocery retailer, holds a Zacks Rank #2. SFM has a trailing four-quarter earnings surprise of 9.2%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and earnings suggests growth of around 8.1% and 7.4%, respectively, from the year-ago reported numbers.
Target, a general merchandise retailer in the United States, currently carries a Zacks Rank #2. TGT has a trailing four-quarter earnings surprise of 27.1%, on average.
The Zacks Consensus Estimate for Target’s current financial-year earnings suggests growth of around 5% from the year-ago reported numbers.
Tractor Supply, which operates as a rural lifestyle retailer in the United States, currently carries a Zacks Rank #2. Tractor Supply has a trailing four-quarter earnings surprise of 2.7%, on average.
The Zacks Consensus Estimate for Tractor Supply’s current financial-year sales and earnings suggests growth of 3% and 2.3%, respectively, from the year-ago reported numbers.