Grocery Outlet (GO) Beats Q3 Earnings, Raises FY22 View

Grocery Outlet Holding Corp. GO reported third-quarter 2022 results, wherein the top and bottom lines not only beat the Zacks Consensus Estimate but also improved year over year. The company registered a solid comparable store sales performance in the quarter.

Stellar third-quarter results and strong quarter-to-date trends prompted management to lift the net sales and earnings view for 2022.

This California-based company continues to navigate through the challenging operating environment with strategic growth efforts. Grocery Outlet’s flexible sourcing and distribution business model, which helps it offer products at exceptional value and excellent service from independent operators, bodes well.

The company’s opportunistic purchasing strategy, marketing efforts, store-growth endeavors and e-commerce initiatives to deepen the customer reach appear encouraging.

Shares of GO have risen 10.2% in the past six months against the industry’s decline of 19.3%.

Q3 Insights

The extreme value retailer of quality, name-brand consumables and fresh products reported adjusted earnings of 27 cents a share, which beat the Zacks Consensus Estimate by a couple of cents. The bottom line increased from the 24 cents reported in the prior-year quarter due to robust sales.

Net sales of $918.2 million beat the Zacks Consensus Estimate of $880.5 million and grew 19.4% year over year. The outperformance was driven by the stellar comparable store sales performance and contributions from the new stores opened since the third quarter of 2021.

Comparable store sales increased 15.4% in the third quarter against a decline of 4.3% in the year-ago period, driven by higher traffic and ticket.

Grocery Outlet Holding Corp. Price, Consensus and EPS Surprise

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 jumped 18.4% year over year to $280.6 million. However, the gross margin contracted 20 basis points to 30.6%. During the quarter, adjusted EBITDA rose 15% to $59.1 million. However, the adjusted EBITDA margin shrunk 30 basis points to 6.4%.

SG&A expenses jumped 18.7% to $227.5 million due to higher store-related expenses and increased corporate-related costs. As a percentage of net sales, SG&A expenses decreased 10 basis points to 24.8%.

Store Update

During the quarter, Grocery Outlet opened six new stores, thereby taking the total count to 431 stores in eight states. It now plans to open 26 net new stores in 2022 and expects 10% annual unit growth. In the fourth quarter, the company plans to open 10 new stores.

Other Financial Aspects

Grocery Outlet, which carries a Zacks Rank #4 (Sell), ended the quarter with cash and cash equivalents of $107.3 million, long-term debt of $379.3 million and stockholders’ equity of $1,085.3 million.

Net cash provided by operating activities during the quarter was $55.1 million. The company incurred capital expenditures of $32.1 million (net of tenant improvement allowances).

Management envisions capital expenditures (net of tenant improvement allowances) of about $115 million for 2022.

Outlook

Management expects 2022 net sales of $3.55 billion (compared with $3.08 billion in 2021) and comparable store sales growth of 11% (against a decline of 6% in 2021).

The company earlier projected net sales in the range of $3.46-$3.48 billion and a comparable store sales increase in the band of 8%-8.5% for 2022.

Grocery Outlet guided a full-year gross margin of 30.5% compared with the 30.8% reported in 2021. It projected adjusted EBITDA at $224 million in 2022. The company now envisions adjusted earnings of $1.00 per share for 2022, suggesting an increase from the 90 cents reported in 2021.

The company earlier forecast 2022 adjusted EBITDA between $218 million and $223 million and adjusted earnings per share between 97 cents and $1.00.

Management guided fourth-quarter comparable store sales growth of 12% against a decline of 1.2% witnessed in the prior-year quarter. Grocery Outlet expects the fourth-quarter 2022 gross margin to be approximately 30.3% compared with the 30.9% reported in the year-ago period.

Management foresees fourth-quarter SG&A expenses as a percentage of sales to decline year over year due to store expense leverage from fixed cost and independent operator commissions. These might be partly offset by higher incentive compensation expenses.

Stocks Hogging the Limelight

Here we have highlighted three better-ranked stocks, namely Crocs CROX, Chipotle Mexican Grill CMG and Kroger KR.

Crocs, a leader in innovative casual footwear for women, men and children, carries a Zacks Rank #2 (Buy). CROX has an expected EPS growth rate of 15% for three to five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Crocs’ current financial-year sales and EPS suggests growth of 51.5% and 23.7%, respectively, from the year-ago period. CROX has a trailing four-quarter earnings surprise of 18.2%, on average.

Chipotle Mexican Grill, an operator of fast-casual restaurants, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 23.4%.

The Zacks Consensus Estimate for Chipotle Mexican Grill’s current financial-year revenues and EPS suggests growth of 15.2% and 30.8%, respectively, from the year-ago reported figure. CMG has a trailing four-quarter earnings surprise of 4.1%, on average.

Kroger, one of the leading grocery retailers, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 11.7%.

The Zacks Consensus Estimate for Kroger’s current financial-year revenues and EPS suggests growth of 7.8% and 10.3%, respectively, from the year-ago reported figure. Kroger has a trailing four-quarter earnings surprise of 15.7%, on average.

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