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Grocery Outlet Declines 37% YTD: Should You Hold or Sell the Stock?
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Grocery Outlet Holding Corp. (GO - Free Report) has been struggling in 2024, with its stock price declining 37.1% year to date (YTD). This contrasts significantly to the broader industry and the S&P 500 index, both of which have risen 4.3% and 14.5%, respectively.
The implementation of new technology platforms negatively impacted the company’s gross margin in the second quarter of 2024. However, management expressed optimism for the rest of the year, noting that the company does not expect any further adverse effect on its operations from these technological changes.
With Grocery Outlet shares closing at $16.95 yesterday, the stock is trading close to its 52-week low of $16.86, touched last Friday. This proximity to the low point indicates that investor sentiment may be cautious, possibly caused by concerns over the recent earnings decline and margin pressures.
In the past 60 days, the Zacks Consensus Estimate for earnings for the current fiscal year has moved down a penny to 92 cents per share. For the next fiscal year, the bottom-line estimate has declined 3.4% to $1.13.
Let’s analyze whether Grocery Outlet will hold on to its recent negative trend or make a deviation ahead.
Image Source: Zacks Investment Research
What’s Dragging Down GO Stock?
Grocery Outlet has faced challenges from its recent systems transition, which began last September. While the company has made progress in resolving these issues, residual effects from the transition continue to affect margins and business operations. These disruptions due to the implementation of new technology platforms lowered the gross margin in the second quarter by 100 basis points to 30.9%.
The company is juggling with higher Selling, General and Administrative (SG&A) expenses, which have been a key factor weighing on profitability. SG&A expenses surged 11.4% to $323.1 million, due to higher costs related to independent operator commissions, store occupancy and incentive in the second quarter of 2024. This trend of rising SG&A expenses could put additional pressure on the company's profit margins.
Has Recent Decline Made Grocery Outlet Attractive?
Grocery Outlet is currently trading at a discount with a forward 12-month Price to Earnings ratio (P/E) of 15.87X compared with the industry’s 18.53X and lower than the median of 28.19X. This lower valuation suggests that GO’s stock may be undervalued relative to its peers, potentially offering an attractive entry point. GO has a Value Score of B.
Potential Catalysts That Could Boost GO Stock
Despite all the setbacks, Grocery Outlet stands out with its unique business model, combining opportunistic sourcing and an Independent Operator structure. The company offers quality, name-brand consumables and fresh products at exceptional value, with merchandise acquired at substantial discounts from order cancellations, manufacturer overruns, packaging changes and nearing 'sell-by' dates.
Grocery Outlet is working to enhance its market presence through a combination of diverse product assortments, targeted marketing, in-store initiatives and e-commerce strategies. The collaboration with Instacart, DoorDash and Uber Technologies, providing same-day delivery, underscores its commitment to customer convenience. The company’s strategy is designed to appeal to consumers, especially in the current economic climate where value is increasingly important.
Conclusion
Despite the significant stock decline in 2024 and ongoing operational hurdles stemming from technology transitions, management remains optimistic about stabilizing performance in the latter half of the year. Trading near its 52-week low, GO shares reflect cautious investor sentiment amid concerns over recent earnings declines and margin pressures.
Nonetheless, the company's efforts to mitigate these challenges, coupled with a strategic focus on enhancing market presence and customer convenience through innovative partnerships and diverse product offerings, present potential catalysts for a recovery. GO currently carries a Zacks Rank #3 (Hold).
Three Stocks to Consider
Here, we have highlighted three better-ranked food stocks, namely The Chef's Warehouse (CHEF - Free Report) , Pilgrim’s Pride (PPC - Free Report) and Ollie's Bargain Outlet (OLLI - Free Report) .
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimated figure for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, currently sports a Zacks Rank #1. PPC delivered a positive earnings surprise of 27.3% in the trailing four quarters, on average. The Zacks Consensus Estimated figure for Pilgrim’s Pride’s current financial-year earnings indicates growth of 183.43%, respectively, from the prior-year reported level.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, currently carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 7.9%, on average. The Zacks Consensus Estimated figure for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 8.7% and 12.71%, respectively, from the year-earlier levels.
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Grocery Outlet Declines 37% YTD: Should You Hold or Sell the Stock?
Grocery Outlet Holding Corp. (GO - Free Report) has been struggling in 2024, with its stock price declining 37.1% year to date (YTD). This contrasts significantly to the broader industry and the S&P 500 index, both of which have risen 4.3% and 14.5%, respectively.
The implementation of new technology platforms negatively impacted the company’s gross margin in the second quarter of 2024. However, management expressed optimism for the rest of the year, noting that the company does not expect any further adverse effect on its operations from these technological changes.
With Grocery Outlet shares closing at $16.95 yesterday, the stock is trading close to its 52-week low of $16.86, touched last Friday. This proximity to the low point indicates that investor sentiment may be cautious, possibly caused by concerns over the recent earnings decline and margin pressures.
In the past 60 days, the Zacks Consensus Estimate for earnings for the current fiscal year has moved down a penny to 92 cents per share. For the next fiscal year, the bottom-line estimate has declined 3.4% to $1.13.
Let’s analyze whether Grocery Outlet will hold on to its recent negative trend or make a deviation ahead.
Image Source: Zacks Investment Research
What’s Dragging Down GO Stock?
Grocery Outlet has faced challenges from its recent systems transition, which began last September. While the company has made progress in resolving these issues, residual effects from the transition continue to affect margins and business operations. These disruptions due to the implementation of new technology platforms lowered the gross margin in the second quarter by 100 basis points to 30.9%.
The company is juggling with higher Selling, General and Administrative (SG&A) expenses, which have been a key factor weighing on profitability. SG&A expenses surged 11.4% to $323.1 million, due to higher costs related to independent operator commissions, store occupancy and incentive in the second quarter of 2024. This trend of rising SG&A expenses could put additional pressure on the company's profit margins.
Has Recent Decline Made Grocery Outlet Attractive?
Grocery Outlet is currently trading at a discount with a forward 12-month Price to Earnings ratio (P/E) of 15.87X compared with the industry’s 18.53X and lower than the median of 28.19X. This lower valuation suggests that GO’s stock may be undervalued relative to its peers, potentially offering an attractive entry point. GO has a Value Score of B.
Potential Catalysts That Could Boost GO Stock
Despite all the setbacks, Grocery Outlet stands out with its unique business model, combining opportunistic sourcing and an Independent Operator structure. The company offers quality, name-brand consumables and fresh products at exceptional value, with merchandise acquired at substantial discounts from order cancellations, manufacturer overruns, packaging changes and nearing 'sell-by' dates.
Grocery Outlet is working to enhance its market presence through a combination of diverse product assortments, targeted marketing, in-store initiatives and e-commerce strategies. The collaboration with Instacart, DoorDash and Uber Technologies, providing same-day delivery, underscores its commitment to customer convenience. The company’s strategy is designed to appeal to consumers, especially in the current economic climate where value is increasingly important.
Conclusion
Despite the significant stock decline in 2024 and ongoing operational hurdles stemming from technology transitions, management remains optimistic about stabilizing performance in the latter half of the year. Trading near its 52-week low, GO shares reflect cautious investor sentiment amid concerns over recent earnings declines and margin pressures.
Nonetheless, the company's efforts to mitigate these challenges, coupled with a strategic focus on enhancing market presence and customer convenience through innovative partnerships and diverse product offerings, present potential catalysts for a recovery. GO currently carries a Zacks Rank #3 (Hold).
Three Stocks to Consider
Here, we have highlighted three better-ranked food stocks, namely The Chef's Warehouse (CHEF - Free Report) , Pilgrim’s Pride (PPC - Free Report) and Ollie's Bargain Outlet (OLLI - Free Report) .
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimated figure for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, currently sports a Zacks Rank #1. PPC delivered a positive earnings surprise of 27.3% in the trailing four quarters, on average. The Zacks Consensus Estimated figure for Pilgrim’s Pride’s current financial-year earnings indicates growth of 183.43%, respectively, from the prior-year reported level.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, currently carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 7.9%, on average. The Zacks Consensus Estimated figure for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 8.7% and 12.71%, respectively, from the year-earlier levels.