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Grocery Outlet (GO) to Post Q2 Earnings: What's in the Offing?

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Grocery Outlet Holding Corp. (GO - Free Report) is scheduled to release second-quarter 2021 results on Aug 10 after market close. Although the Zacks Consensus Estimate for second-quarter earnings has been stable at 23 cents over the past 30 days, the same suggests a plunge of more than 45% from the year-ago quarter’s tally. The consensus estimate for quarterly revenues is pegged at $770.5 million, which indicates a decrease of about 4% from the year-ago period’s level.

A glance at the EmeryVille, CA-based company’s performance in the trailing four quarters shows that it has an earnings surprise of 52.2%, on average.

Key Factors to Note

Grocery Outlet is likely to have faced tough year-over-year comparisons in sales as COVID-19 benefits are lapped. Industry experts believe that lower at-home consumption activities and a drop in pantry-loading trends might have hurt the company’s top-line performance. Management had earlier forecast comp sales in the negative low-double digits for the to-be-reported quarter.

On the flip side, the company’s flexible sourcing and distribution business model that helps it offer quality, name-brand consumables and fresh products at exceptional values appears encouraging. Management had previously said that the company’s flexible supply-chain model is likely to mitigate headwinds, such as commodity and freight costs.

However, Grocery Outlet has been witnessing elevated SG&A expenses for a while now. Higher investments in personnel and infrastructure as well as increased store occupancy and maintenance costs emerging from store expansions are adding up to its SG&A. The company has also been making key investments in technology and incurring pandemic-related expenses to preserve the health and safety of its team members. Any deleverage in these expenses might have affected the company’s margins and in turn, the bottom line in the quarter under review.

On its last earnings call, management had anticipated a gross margin of roughly 30.5%, indicating normalized inventory turns for the second quarter. The company delivered a gross margin of 31.5% in the year-earlier quarter.

What the Zacks Model Unveils

Our proven model does not conclusively predict 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 odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Grocery Outlet currently carries a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With a Favorable Combination

Here are a few companies worth considering as our model shows that these have the right combination of elements to beat on earnings this season:

Chewy (CHWY - Free Report) currently has an Earnings ESP of +20.00% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Darling Ingredients (DAR - Free Report) currently has an Earnings ESP of +10.09% and a Zacks Rank #2.

Celsius Holdings (CELH - Free Report) has an Earnings ESP of +0.05% and a Zacks Rank of 3 at present.