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Factors Shaping Grocery Outlet's (GO) Q3 Earnings Outcome

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Grocery Outlet Holding Corp. (GO - Free Report) is likely to register an increase in the top line when it reports third-quarter 2020 results on Nov 10, after the closing bell. The Zacks Consensus Estimate for revenues is pegged at $748.2 million, indicating an improvement of 14.7% from the prior-year reported figure.

Further, the bottom line of this extreme value retailer of quality, name-brand consumables and fresh products is expected to improve year over year. We note that the Zacks Consensus Estimate for earnings for the quarter under review has risen by a penny to 23 cents over the past 30 days. The figure suggests growth of 4.6% from the prior-year quarter.

Notably, the company has a trailing four-quarter earnings surprise of 33.6%, on average. In the last reported quarter, this Emeryville, CA-based company surpassed the Zacks Consensus Estimate by a significant margin.

Factors to Note

Grocery Outlet’s third-quarter results are likely to have benefited from coronavirus-led demand spike as dining at home become the new normal. Moreover, the company’s flexible sourcing and distribution business model that helps it in offering quality, name-brand consumables and fresh products at exceptional values is commendable. The company has also been focused on store-growth endeavors alongside making strategic investments to improve functionality and scalability.

Aforementioned strengths along with the company’s opportunistic purchasing strategy, inventory optimization, marketing initiatives and new product offerings have been aiding Grocery Outlet’s comparable-store sales. In terms of offerings, the company sources on-trend products based on consumer preferences. On its last earnings call management highlighted that for the third quarter through Aug 10 comparable store sales growth is tracking at approximately 10%.

Clearly, aforementioned factors raise optimism about the outcome of the results. However, margins still remain an area to watch. Impact of higher commodity costs and incremental expenses related to cleaning and safety, protective equipment, and corporate and distribution center personnel expenditures, on margins cannot be ruled out. Management had earlier highlighted that adjusted EBITDA margins for the second half of 2020 will be modestly below prior year levels.

What the Zacks Model Unveils

Our proven model conclusively predicts an earnings beat for Grocery Outlet this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Grocery Outlet has a Zacks Rank #2 and an Earnings ESP of +10.76%.

3 More Stocks With a Favorable Combination

Here are three other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Dollar General (DG - Free Report) has an Earnings ESP of +8.17% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco (COST - Free Report) has an Earnings ESP of +1.60% and a Zacks Rank #3.

Walmart (WMT - Free Report) has an Earnings ESP of +11.51% and a Zacks Rank #3.

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