Grocery Outlet (GO) Set to Expand Horizons With UGO Acquisition

CASY OLLI GO VITL

In a strategic move to broaden its footprint, Grocery Outlet Holding Corp. (GO - Free Report) has unveiled its plan to acquire United Grocery Outlet (“UGO”), a prominent discount grocery retailer operating across the Southeastern United States. This acquisition, slated to finalize in the early second quarter pending customary closing conditions, marks a significant expansion for Grocery Outlet into key markets such as Tennessee, North Carolina, Georgia, Alabama, Kentucky and Virginia.

With 40 stores and a distribution center, UGO aligns seamlessly with Grocery Outlet's vision of offering unparalleled value to customers. RJ Sheedy, the president and CEO of Grocery Outlet, expressed confidence in the acquisition, highlighting the synergies between the two companies' business strategies and customer-centric approaches.

With a rich history spanning half a century, UGO has built a reputation for delivering significant savings in a unique shopping environment. By leveraging strong relationships with national and regional brands, UGO has consistently provided quality products at unparalleled value. Lisa Bryson, the CEO of UGO, echoed the sentiment of excitement, highlighting the potential for both companies to make a positive impact on the community together.

This acquisition not only strengthens Grocery Outlet's foothold in the market but also sets the stage for further expansion in the Southeast. The company plans to open an additional 15 to 20 stores in existing markets in 2024, aiming for a total of 55 to 60 net new stores by year-end. Moreover, the acquisition is expected to contribute modestly to the company's earnings for the fiscal year.

In conclusion, Grocery Outlet’s acquisition of UGO marks a significant milestone in the company's growth trajectory. With a shared commitment to providing value to customers and serving communities, this strategic move sets the stage for continued success and expansion in the dynamic grocery retail landscape. Investors can anticipate exciting prospects ahead as Grocery Outlet continues to capitalize on emerging opportunities and strengthen its position in the market.

Stock Performance

Shares of Grocery Outlet may have experienced a downturn in the past six months due to operational challenges stemming from the transition to upgraded systems. This transition led to ordering and inventory disruptions, which adversely impacted comparable store sales by approximately 150 basis points and gross margin by 50 basis points in the third quarter of 2023.

With management anticipating a significant impact on financial results in the fourth quarter compared to the third quarter, the company projects further headwinds, expecting a 300-basis point drag on comparable store sales and 150-basis point pressure on the gross margin for the final quarter of the year. Consequently, Grocery Outlet adjusted its 2023 guidance, revising the expected adjusted earnings range to $1.04-$1.06 per share from the previously projected $1.04-$1.08 per share range.

Shares of this Zacks Rank #4 (Sell) company have fallen 20.1% in the past six months compared with the industry’s decline of 10.5%.

3 Stocks Looking Red Hot

Here, we have highlighted three better-ranked stocks, namely Casey's General Stores (CASY - Free Report) , Vital Farms (VITL - Free Report) and Ollie's Bargain (OLLI - Free Report) .

Casey's General Stores, the third largest convenience retailer and fifth largest pizza chain in the United States, currently carries a Zacks Rank #2 (Buy). CASY has a trailing four-quarter earnings surprise of 17.8%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Casey's current financial-year sales and earnings suggests growth of around 0.3% and 9%, respectively, from the year-ago reported numbers.

Vital Farms offers a range of produced pasture-raised foods. It currently has a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 145%, on average.

The Zacks Consensus Estimate for Vital Farms’ current financial-year sales suggests growth of 29% from the year-ago reported figure.

Ollie's Bargain, America’s largest retailer of closeout merchandise and excess inventory, currently carries a Zacks Rank #2. Ollie's Bargain has a trailing four-quarter earnings surprise of 7%, on average.

The Zacks Consensus Estimate for Ollie's Bargain’s current financial-year sales and earnings suggests growth of 15.1% and 74.7%, respectively, from the year-ago reported numbers.

Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.

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