We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Grocery Outlet Down 46% From 52-Week High: Will GO Rebound From Here?
Read MoreHide Full Article
Grocery Outlet Holding Corp. (GO - Free Report) has experienced a pullback in its share performance losing nearly half of its value and falling far below its 52-week high of $30.33, touched in last September. Currently trading at $16.27, the stock has seen a 46.4% drop from its peak. Over the past three months, Grocery Outlet shares have plunged 21.2%, underperforming the broader industry, which has risen 9.4% and the S&P 500, which posted a 2.7% return during the same period.
The recent decline in share performance is attributed to the challenges stemming from its systems transition, which began last September. Also, the company is grappling with rising expenses, which are putting additional pressure on its already thin margins, further contributing to its underperformance.
Image Source: Zacks Investment Research
Moreover, Grocery Outlet’s stock has fallen below critical technical thresholds, including its 50-day and 200-day moving averages. This moving average is an important indicator for gauging market trends and momentum. The breach of this threshold heightens investor concerns about the stock’s short-term outlook.
Image Source: Zacks Investment Research
Reflecting the negative sentiment around Grocery Outlet, the Zacks Consensus Estimate for 2024 has seen a downward revision. Over the past 60 days, the consensus estimate for earnings for the current fiscal year has fallen by a penny to 92 cents per share. This implies a year-over-year earnings decline of 14%. For the next fiscal, the Zacks Consensus Estimate for earnings has declined from 3.4% to $1.13.
Image Source: Zacks Investment Research
What Derailed Grocery Outlet’s Stock?
The recent systems transition has posed significant challenges for Grocery Outlet and negatively impacting both its operational efficiency and financial performance. This disruption has resulted in lower-than-expected margins with the implementation of new technology platforms, which is reducing the gross margin by 100 basis points in the second quarter of 2024.
Although improvements have been made, the ongoing challenges could hinder margin expansion and operational scalability in the near term. 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 from the year-ago period.
The company is grappling with rising SG&A (Selling, General, and Administrative) expenses, driven by higher costs for independent operator commissions, store occupancy and incentive compensation. This upward trend in SG&A expenses has been evident over the past few quarters and could strain profits.
Does GO Have Enough Potential to Turn Things Around?
Despite challenges, Grocery Outlet's strategic focus on opportunistic purchasing, targeted marketing, store expansion and e-commerce initiatives is demonstrating potential. With its distinctive business model featuring opportunistic sourcing and an Independent Operator structure, GO differentiates itself from conventional retailers.
Another key factor that could turn things around for Grocery outlet is the 'WOW!' deals. The store’s compelling value proposition is expected to continue to attract bargain hunters, encourage customers to revisit stores and increase basket sizes. Notably, a typical 'Grocery Outlet basket' is priced roughly 40% below that of conventional grocers and approximately 20% below leading discounters.
With a customer-centric approach, Grocery Outlet recently announced the launch of its new private label program, GO Brands. Set to introduce 100 new products by the end of the year, the program will feature three distinct lines: SimplyGO, GO Home & Haven, and GO Paw & Pamper. This initiative, starting this month, underscores the company’s commitment to offering both affordability and quality, with the GO Brands program aimed at delivering exceptional value.
Does GO’s Stock Looks Attractive?
Investors might find Grocery Outlet appealing due to its relatively low valuation. GO is currently trading at a discount to its historical and industry benchmarks. The stock has a forward 12-month P/E ratio of 15.21, which is below the median level of 28.1 scaled in the past year. This compares to the forward 12-month P/E ratio of 18.55 for the industry.
Image Source: Zacks Investment Research
Final Words on Grocery Outlet
Quite apparent, Grocery Outlet’s system transition has weighed on its performance lately, but that does not mean the company is devoid of potential. Investors with a long-term horizon may stay invested in the stock. The recent decline in the stock price has made it look attractive and provides a better entry point for potential investors. However, with the margin yet to recover in full, Grocery Outlet comes with an element of caution.
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%, , 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.
See More Zacks Research for These Tickers
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Grocery Outlet Down 46% From 52-Week High: Will GO Rebound From Here?
Grocery Outlet Holding Corp. (GO - Free Report) has experienced a pullback in its share performance losing nearly half of its value and falling far below its 52-week high of $30.33, touched in last September. Currently trading at $16.27, the stock has seen a 46.4% drop from its peak. Over the past three months, Grocery Outlet shares have plunged 21.2%, underperforming the broader industry, which has risen 9.4% and the S&P 500, which posted a 2.7% return during the same period.
The recent decline in share performance is attributed to the challenges stemming from its systems transition, which began last September. Also, the company is grappling with rising expenses, which are putting additional pressure on its already thin margins, further contributing to its underperformance.
Image Source: Zacks Investment Research
Moreover, Grocery Outlet’s stock has fallen below critical technical thresholds, including its 50-day and 200-day moving averages. This moving average is an important indicator for gauging market trends and momentum. The breach of this threshold heightens investor concerns about the stock’s short-term outlook.
Image Source: Zacks Investment Research
Reflecting the negative sentiment around Grocery Outlet, the Zacks Consensus Estimate for 2024 has seen a downward revision. Over the past 60 days, the consensus estimate for earnings for the current fiscal year has fallen by a penny to 92 cents per share. This implies a year-over-year earnings decline of 14%. For the next fiscal, the Zacks Consensus Estimate for earnings has declined from 3.4% to $1.13.
Image Source: Zacks Investment Research
What Derailed Grocery Outlet’s Stock?
The recent systems transition has posed significant challenges for Grocery Outlet and negatively impacting both its operational efficiency and financial performance. This disruption has resulted in lower-than-expected margins with the implementation of new technology platforms, which is reducing the gross margin by 100 basis points in the second quarter of 2024.
Although improvements have been made, the ongoing challenges could hinder margin expansion and operational scalability in the near term. 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 from the year-ago period.
The company is grappling with rising SG&A (Selling, General, and Administrative) expenses, driven by higher costs for independent operator commissions, store occupancy and incentive compensation. This upward trend in SG&A expenses has been evident over the past few quarters and could strain profits.
Does GO Have Enough Potential to Turn Things Around?
Despite challenges, Grocery Outlet's strategic focus on opportunistic purchasing, targeted marketing, store expansion and e-commerce initiatives is demonstrating potential. With its distinctive business model featuring opportunistic sourcing and an Independent Operator structure, GO differentiates itself from conventional retailers.
Another key factor that could turn things around for Grocery outlet is the 'WOW!' deals. The store’s compelling value proposition is expected to continue to attract bargain hunters, encourage customers to revisit stores and increase basket sizes. Notably, a typical 'Grocery Outlet basket' is priced roughly 40% below that of conventional grocers and approximately 20% below leading discounters.
With a customer-centric approach, Grocery Outlet recently announced the launch of its new private label program, GO Brands. Set to introduce 100 new products by the end of the year, the program will feature three distinct lines: SimplyGO, GO Home & Haven, and GO Paw & Pamper. This initiative, starting this month, underscores the company’s commitment to offering both affordability and quality, with the GO Brands program aimed at delivering exceptional value.
Does GO’s Stock Looks Attractive?
Investors might find Grocery Outlet appealing due to its relatively low valuation. GO is currently trading at a discount to its historical and industry benchmarks. The stock has a forward 12-month P/E ratio of 15.21, which is below the median level of 28.1 scaled in the past year. This compares to the forward 12-month P/E ratio of 18.55 for the industry.
Image Source: Zacks Investment Research
Final Words on Grocery Outlet
Quite apparent, Grocery Outlet’s system transition has weighed on its performance lately, but that does not mean the company is devoid of potential. Investors with a long-term horizon may stay invested in the stock. The recent decline in the stock price has made it look attractive and provides a better entry point for potential investors. However, with the margin yet to recover in full, Grocery Outlet comes with an element of caution.
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%, , 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.