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Grocery Outlet Up 10% in a Month: Is the Stock Still a Good Buy?
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Grocery Outlet Holding Corp.’s (GO - Free Report) shares have gained 10% in the past month, outperforming both the industry and the broader S&P 500 index’s decline of 0.9% and 5.5%, respectively. This upswing reflects growing investor confidence in the company’s differentiated value proposition, operational resilience and strategic initiatives aimed at enhancing long-term growth.
GO Stock Past Month Performance
Image Source: Zacks Investment Research
GO stock last traded at $14.24 and is 48.5% below its 52-week high of $27.64, touched on April 25, 2024. This presents a compelling opportunity for value-focused investors, as the company steadily regains ground. The recent rally indicates the effectiveness of Grocery Outlet's strategic initiatives and a strong market position, setting the stage for growth.
Let us take a deeper dive into Grocery Outlet's fundamentals, market position and prospects to assess the optimal course of action for investors. Should they invest more or hold their current position? Let us analyze the situation further.
Understanding GO’s Business Model
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.
The company 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. GO is accelerating the rollout of its private-label portfolio, which has shown promising traction. By the end of 2024, around 180 items were introduced with plans for an additional 150 in 2025.
GO is shifting gears toward a more disciplined approach in its store expansion strategy to maximize Return on Invested Capital. Instead of rapid, widespread expansion, the company plans to open 33-35 net new stores in 2025, focusing on high-return markets and clustering locations for operational synergy. This strategic pivot aims to boost new store sales productivity while optimizing capital efficiency amid rising build-out costs.
GO is actively optimizing its supply-chain infrastructure to support sustainable growth without compromising financial flexibility. The recent opening of a 680,000 square-foot distribution center in Vancouver, WA, marks a significant step toward consolidating regional operations and improving logistical efficiency across the Pacific Northwest. By centralizing distribution, GO aims to reduce costs associated with multiple facilities while enhancing service quality for stores in key markets like Washington, Oregon and Idaho.
Grocery Outlet’s distinct value-driven model continues to resonate strongly with consumers. The company expects comparable store sales to grow between 2% and 3% in fiscal 2025, supported by continued customer traffic and improved execution. Total net sales are projected to reach $4.7 billion to $4.8 billion, up from $4.4 billion in fiscal 2024.
GO Stock Valuation
Grocery Outlet is currently trading at a discount to its historical and industry benchmarks. GO’s forward 12-month price-to-earnings (P/E) multiple is 18.36X, down from its median level of 22.16X in the past year and the industry’s multiple of 20.78X. This implies that, relative to its earnings potential, GO stock might still be undervalued. For investors, this presents an attractive opportunity, which is further underscored by GO’s current Value Score of B.
GO P/E Ratio (Forward 12 Months)
Image Source: Zacks Investment Research
Can GO Sustain its Recent Momentum?
The company's August 2023 migration to an SAP enterprise system introduced significant operational friction. The rollout affected core functions like purchasing, inventory planning and real-time data visibility, reducing buyer productivity and hampering store-level efficiency. These challenges have driven up operating costs and contributed to margin compression. Notably, gross margin fell 70 basis points to 29.5% in the fourth quarter of fiscal 2024, with increased inventory shrinkage largely tied to system-related issues.
Grocery Outlet continues to face elevated selling, general and administrative (SG&A) expenses. In the fiscal fourth quarter, SG&A expenses rose 11.6% to $312.5 million. As a percentage of net sales, SG&A expenses increased 20 bps to 28.5%. The rise was primarily caused by $15.9 million in restructuring charges, along with higher store-related expenses and depreciation costs.
Consensus Estimates for GO Showing Downtrend
Reflecting a cautious sentiment around Grocery Outlet, the Zacks Consensus Estimate for earnings per share has seen downward revisions. Over the past 60 days, the consensus estimate has declined 24 cents to 73 cents for the current fiscal and 25 cents to 88 cents per share for the next fiscal. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
Image Source: Zacks Investment Research
Grocery Outlet Stock Analysis
Grocery Outlet stock has demonstrated resilience, supported by its unique business model, value-driven offering and ongoing strategic initiatives. Despite operational headwinds stemming from its SAP transition and rising expenses, GO’s strong customer traction and expansion potential highlight its long-term promise.
Valuation remains attractive and recent momentum suggests improving investor sentiment. However, near-term challenges and downward earnings revisions may warrant caution. All said, current investors are likely to benefit from holding, while new investors might want to wait for clear signs of stabilization before initiating a position. Currently, Grocery Outlet carries a Zacks Rank #3 (Hold).
The consensus estimate for United Natural’s current fiscal-year sales and earnings implies growth of 1.9% and 485.7%, respectively, from the year-ago figures. UNFI delivered a trailing four-quarter earnings surprise of 408.7%, on average.
Utz Brands (UTZ - Free Report) engages in the manufacture, marketing and distribution of snack foods in the United States and presently carries a Zacks Rank of 2. Utz Brands delivered a trailing four-quarter earnings surprise of 8.8%, on average.
The Zacks Consensus Estimate for Utz Brands’ current financial-year sales and earnings indicates growth of 1.2% and 10.4%, respectively, from the year-ago numbers.
Pilgrim's Pride Corporation (PPC - Free Report) , which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products to retailers, distributors and foodservice operators in the United States, Europe and Mexico, currently holds a Zacks Rank #2. PPC delivered an earnings surprise of 25.7% in the trailing four quarters, on average.
The Zacks Consensus Estimate for Pilgrim’s Pride’s current quarter earnings indicates growth of 64.9%, respectively, from the prior-year reported level.
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Grocery Outlet Up 10% in a Month: Is the Stock Still a Good Buy?
Grocery Outlet Holding Corp.’s (GO - Free Report) shares have gained 10% in the past month, outperforming both the industry and the broader S&P 500 index’s decline of 0.9% and 5.5%, respectively. This upswing reflects growing investor confidence in the company’s differentiated value proposition, operational resilience and strategic initiatives aimed at enhancing long-term growth.
GO Stock Past Month Performance
Image Source: Zacks Investment Research
GO stock last traded at $14.24 and is 48.5% below its 52-week high of $27.64, touched on April 25, 2024. This presents a compelling opportunity for value-focused investors, as the company steadily regains ground. The recent rally indicates the effectiveness of Grocery Outlet's strategic initiatives and a strong market position, setting the stage for growth.
Let us take a deeper dive into Grocery Outlet's fundamentals, market position and prospects to assess the optimal course of action for investors. Should they invest more or hold their current position? Let us analyze the situation further.
Understanding GO’s Business Model
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.
The company 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. GO is accelerating the rollout of its private-label portfolio, which has shown promising traction. By the end of 2024, around 180 items were introduced with plans for an additional 150 in 2025.
GO is shifting gears toward a more disciplined approach in its store expansion strategy to maximize Return on Invested Capital. Instead of rapid, widespread expansion, the company plans to open 33-35 net new stores in 2025, focusing on high-return markets and clustering locations for operational synergy. This strategic pivot aims to boost new store sales productivity while optimizing capital efficiency amid rising build-out costs.
GO is actively optimizing its supply-chain infrastructure to support sustainable growth without compromising financial flexibility. The recent opening of a 680,000 square-foot distribution center in Vancouver, WA, marks a significant step toward consolidating regional operations and improving logistical efficiency across the Pacific Northwest. By centralizing distribution, GO aims to reduce costs associated with multiple facilities while enhancing service quality for stores in key markets like Washington, Oregon and Idaho.
Grocery Outlet’s distinct value-driven model continues to resonate strongly with consumers. The company expects comparable store sales to grow between 2% and 3% in fiscal 2025, supported by continued customer traffic and improved execution. Total net sales are projected to reach $4.7 billion to $4.8 billion, up from $4.4 billion in fiscal 2024.
GO Stock Valuation
Grocery Outlet is currently trading at a discount to its historical and industry benchmarks. GO’s forward 12-month price-to-earnings (P/E) multiple is 18.36X, down from its median level of 22.16X in the past year and the industry’s multiple of 20.78X. This implies that, relative to its earnings potential, GO stock might still be undervalued. For investors, this presents an attractive opportunity, which is further underscored by GO’s current Value Score of B.
GO P/E Ratio (Forward 12 Months)
Image Source: Zacks Investment Research
Can GO Sustain its Recent Momentum?
The company's August 2023 migration to an SAP enterprise system introduced significant operational friction. The rollout affected core functions like purchasing, inventory planning and real-time data visibility, reducing buyer productivity and hampering store-level efficiency. These challenges have driven up operating costs and contributed to margin compression. Notably, gross margin fell 70 basis points to 29.5% in the fourth quarter of fiscal 2024, with increased inventory shrinkage largely tied to system-related issues.
Grocery Outlet continues to face elevated selling, general and administrative (SG&A) expenses. In the fiscal fourth quarter, SG&A expenses rose 11.6% to $312.5 million. As a percentage of net sales, SG&A expenses increased 20 bps to 28.5%. The rise was primarily caused by $15.9 million in restructuring charges, along with higher store-related expenses and depreciation costs.
Consensus Estimates for GO Showing Downtrend
Reflecting a cautious sentiment around Grocery Outlet, the Zacks Consensus Estimate for earnings per share has seen downward revisions. Over the past 60 days, the consensus estimate has declined 24 cents to 73 cents for the current fiscal and 25 cents to 88 cents per share for the next fiscal. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
Image Source: Zacks Investment Research
Grocery Outlet Stock Analysis
Grocery Outlet stock has demonstrated resilience, supported by its unique business model, value-driven offering and ongoing strategic initiatives. Despite operational headwinds stemming from its SAP transition and rising expenses, GO’s strong customer traction and expansion potential highlight its long-term promise.
Valuation remains attractive and recent momentum suggests improving investor sentiment. However, near-term challenges and downward earnings revisions may warrant caution. All said, current investors are likely to benefit from holding, while new investors might want to wait for clear signs of stabilization before initiating a position. Currently, Grocery Outlet carries a Zacks Rank #3 (Hold).
Stocks to Consider
United Natural Foods, Inc. (UNFI - Free Report) distributes natural, organic, specialty, produce and conventional grocery and non-food products in the United States and Canada. At present, United Natural carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for United Natural’s current fiscal-year sales and earnings implies growth of 1.9% and 485.7%, respectively, from the year-ago figures. UNFI delivered a trailing four-quarter earnings surprise of 408.7%, on average.
Utz Brands (UTZ - Free Report) engages in the manufacture, marketing and distribution of snack foods in the United States and presently carries a Zacks Rank of 2. Utz Brands delivered a trailing four-quarter earnings surprise of 8.8%, on average.
The Zacks Consensus Estimate for Utz Brands’ current financial-year sales and earnings indicates growth of 1.2% and 10.4%, respectively, from the year-ago numbers.
Pilgrim's Pride Corporation (PPC - Free Report) , which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products to retailers, distributors and foodservice operators in the United States, Europe and Mexico, currently holds a Zacks Rank #2. PPC delivered an earnings surprise of 25.7% in the trailing four quarters, on average.
The Zacks Consensus Estimate for Pilgrim’s Pride’s current quarter earnings indicates growth of 64.9%, respectively, from the prior-year reported level.