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Grocery Outlet Trades Below 200 & 50-Day SMA: How to Play the Stock?
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Grocery Outlet Holding Corp. (GO - Free Report) has encountered a notable resistance level, prompting caution among investors from a technical standpoint. GO has been trading below both the 200-day and 50-day simple moving averages (SMA) for quite some time now, suggesting a bearish trend.
Image Source: Zacks Investment Research
Closing at $17.55 yesterday, GO remains below its 200-day and 50-day SMA of $18.22 and $23.23, respectively, indicating a sustained downward trend.
GO has shown a lackluster performance on the bourses, with its shares declining 38.8% year to date against the Zacks Consumer Products - Staples industry's growth of 14.1%. The discount supermarket chain, renowned for its unique "treasure hunt" shopping experience, has faced headwinds such as changes in consumer spending habits and increased competition.
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 year, the Zacks Consensus Estimate for earnings has declined from 3.4% to $1.13.
Image Source: Zacks Investment Research
Factors Behind Grocery Outlet's Stock Decline
Grocery Outlet faced a slowdown in comparable sales in June and has continued to do so through the third quarter of 2024, influenced by a shift toward prioritizing profitability, heightened promotional activities across the grocery sector and the effect of comparing against last year's peak opportunistic purchases.
The company also continues to experience residual impacts from its recent systems transition, affecting operational efficiency and financial performance. The transition disrupted business operations and financial metrics since last September, leading to lower-than-expected margins in previous quarters. This led to a reduction of 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 escalating 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.
Do GO’s Strategic Initiatives Hold Potential?
Despite challenges, Grocery Outlet is strategically positioned, thanks to its distinctive business model that features opportunistic sourcing and an Independent Operator structure. This unique approach sets the company apart from conventional retailers. Grocery Outlet provides customers with quality, name-brand consumables and fresh products at exceptional value.
Another potential turnaround factor is Grocery Outlet’s new app, which focuses on promoting savings and driving in-store traffic. The company completed the rollout to all its stores in the first quarter and saw an immediate positive response from shoppers. The launch of the personalization app has shown promising results, with over 700,000 downloads and sales penetration increasing to 8% in the second quarter, up from 6% in the first quarter.
Grocery Outlet recently unveiled its customer-focused private label program, GO Brands, aiming to introduce 100 new products by year end. The program will feature three lines: SimplyGO, GO Home & Haven and GO Paw & Pamper, showing the company’s commitment to providing valuable products for its customers.
Final Words on Grocery Outlet
Quite apparent, shares of Grocery Outlets have struggled on the bourses of late, underperforming the industry. The system transition has weighed on its performance lately, but that does not mean the company is devoid of potential. With ongoing efforts to enhance profitability and operational efficiency, investors may find that now is an opportune time to consider Grocery Outlet as it positions itself for future growth. 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).
Don’t Miss These Solid Bets
The Chefs' Warehouse (CHEF - Free Report) is a premier distributor of specialty food products in the United States, the Middle East and Canada. It currently has a Zacks Rank #2 (Buy). CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Chefs' current financial-year sales and earnings suggests growth of around 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Sprouts Farmers (SFM - Free Report) , which is engaged in the retailing of fresh, natural and organic food products, currently sports a Zacks Rank #1. SFM has a trailing four-quarter earnings surprise of 12%, on average.
The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and earnings implies growth of around 9.6% and 18.7%, respectively, from the year-ago reported numbers.
Flowers Foods (FLO - Free Report) , one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings calls for growth of around 1% and 5%, respectively, from the year-ago reported numbers.
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Grocery Outlet Trades Below 200 & 50-Day SMA: How to Play the Stock?
Grocery Outlet Holding Corp. (GO - Free Report) has encountered a notable resistance level, prompting caution among investors from a technical standpoint. GO has been trading below both the 200-day and 50-day simple moving averages (SMA) for quite some time now, suggesting a bearish trend.
Image Source: Zacks Investment Research
Closing at $17.55 yesterday, GO remains below its 200-day and 50-day SMA of $18.22 and $23.23, respectively, indicating a sustained downward trend.
GO has shown a lackluster performance on the bourses, with its shares declining 38.8% year to date against the Zacks Consumer Products - Staples industry's growth of 14.1%. The discount supermarket chain, renowned for its unique "treasure hunt" shopping experience, has faced headwinds such as changes in consumer spending habits and increased competition.
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 year, the Zacks Consensus Estimate for earnings has declined from 3.4% to $1.13.
Image Source: Zacks Investment Research
Factors Behind Grocery Outlet's Stock Decline
Grocery Outlet faced a slowdown in comparable sales in June and has continued to do so through the third quarter of 2024, influenced by a shift toward prioritizing profitability, heightened promotional activities across the grocery sector and the effect of comparing against last year's peak opportunistic purchases.
The company also continues to experience residual impacts from its recent systems transition, affecting operational efficiency and financial performance. The transition disrupted business operations and financial metrics since last September, leading to lower-than-expected margins in previous quarters. This led to a reduction of 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 escalating 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.
Do GO’s Strategic Initiatives Hold Potential?
Despite challenges, Grocery Outlet is strategically positioned, thanks to its distinctive business model that features opportunistic sourcing and an Independent Operator structure. This unique approach sets the company apart from conventional retailers. Grocery Outlet provides customers with quality, name-brand consumables and fresh products at exceptional value.
Another potential turnaround factor is Grocery Outlet’s new app, which focuses on promoting savings and driving in-store traffic. The company completed the rollout to all its stores in the first quarter and saw an immediate positive response from shoppers. The launch of the personalization app has shown promising results, with over 700,000 downloads and sales penetration increasing to 8% in the second quarter, up from 6% in the first quarter.
Grocery Outlet recently unveiled its customer-focused private label program, GO Brands, aiming to introduce 100 new products by year end. The program will feature three lines: SimplyGO, GO Home & Haven and GO Paw & Pamper, showing the company’s commitment to providing valuable products for its customers.
Final Words on Grocery Outlet
Quite apparent, shares of Grocery Outlets have struggled on the bourses of late, underperforming the industry. The system transition has weighed on its performance lately, but that does not mean the company is devoid of potential. With ongoing efforts to enhance profitability and operational efficiency, investors may find that now is an opportune time to consider Grocery Outlet as it positions itself for future growth. 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).
Don’t Miss These Solid Bets
The Chefs' Warehouse (CHEF - Free Report) is a premier distributor of specialty food products in the United States, the Middle East and Canada. It currently has a Zacks Rank #2 (Buy). CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Chefs' current financial-year sales and earnings suggests growth of around 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Sprouts Farmers (SFM - Free Report) , which is engaged in the retailing of fresh, natural and organic food products, currently sports a Zacks Rank #1. SFM has a trailing four-quarter earnings surprise of 12%, on average.
The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and earnings implies growth of around 9.6% and 18.7%, respectively, from the year-ago reported numbers.
Flowers Foods (FLO - Free Report) , one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings calls for growth of around 1% and 5%, respectively, from the year-ago reported numbers.