Back to top

Image: Bigstock

Grocery Outlet (GO) Beats on Q1 Earnings, Raises FY22 Guidance

Read MoreHide Full Article

Grocery Outlet Holding Corp. (GO - Free Report) reported first-quarter 2022 results, wherein both the top and the bottom lines beat the Zacks Consensus Estimate. While net sales increased year over year, earnings per share declined from the year-ago period. The company registered solid comparable store sales performance in the quarter under discussion. The better-than-expected results and robust traffic trends in the second quarter prompted management to lift the net sales and earnings view for 2022.

This California-based company continues to navigate through the challenging operating environment on the back of strategic growth efforts. Grocery Outlet’s flexible sourcing and distribution business model, which helps it in offering products at exceptional values as well as excellent service from independent operators, bodes well. The company’s opportunistic purchasing strategy, marketing efforts, store-growth endeavors and e-commerce initiatives to deepen customer reach appear encouraging.

Shares of Grocery Outlet have risen 11.9% in the past six months against the industry’s decline of 27%.

Q1 Insights

The extreme value retailer of quality, name-brand consumables and fresh products reported adjusted earnings of 22 cents a share that surpassed the Zacks Consensus Estimate of 20 cents. However, the bottom line fell from 23 cents reported in the prior-year quarter.

Net sales of $831.4 million beat the Zacks Consensus Estimate of $810.9 million and improved 10.5% year over year, driven by stellar comparable store sales performance combined with the impact of 29 net new stores opened since the first quarter of 2021. Comparable store sales increased 5.2% during the first quarter of 2022 against a decline of 8.2% in the year-ago period. Average ticket and positive year-over-year traffic trends were primary drivers behind comparable store sales growth.

Margins & Costs

Gross profit jumped 8.2% year over year to $250.9 million. However, gross margin contracted 60 basis points (bps) to 30.2%. During the quarter, adjusted EBITDA rose 0.8% to $49.3 million, while adjusted EBITDA margin shrunk 60 basis points to 5.9%.

SG&A expenses increased 10% to $207.4 million owing to increased independent operator commission expenses and store occupancy costs related to new store growth as well as higher personnel expenses.

Store Update

Grocery Outlet opened four new stores and closed one during the quarter, taking the total count to 418 stores in seven states. It remains on track to open 28 net new stores in 2022. During second-quarter 2022, the company plans to open seven new stores, including one store opening that shifted from the first quarter.

Other Financial Aspects

Grocery Outlet, which has a Zacks Rank #4 (Sell), ended the quarter with cash and cash equivalents of $138 million, long-term debt of $452 million and stockholders’ equity of $1,024.1 million.

Net cash provided by operating activities during the first quarter was $36.3 million. The company incurred capital expenditures of $27.2 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 between $3.39 billion and $3.42 billion (versus $3.08 billion in 2021) as well as comparable store sales growth of 5.5% to 6.5% (against a decline of 6% in 2021).

The company had earlier projected net sales in the range of $3.33 billion to $3.38 billion and comparable store sales increase in the band of 4% to 5% for 2022.

Grocery Outlet guided a full-year gross margin of 30.6% compared with 30.8% reported in 2021. It projected adjusted EBITDA between $213 million and $220 million compared with $198.5 million in 2021. The company forecast adjusted earnings in the bracket of 94 cents to 99 cents a share for 2022, suggesting an increase from 90 cents reported in 2021.

The company had earlier forecast 2022 adjusted EBITDA between $210 million and $217 million and adjusted earnings per share in the range of 92 cents to 97 cents.

Management envisions second-quarter 2022 net sales to be approximately $855 million compared with $775.5 million reported in second-quarter 2021. It guided comparable store sales growth of 6% against a decline of 10% witnessed in the prior-year quarter.

It expects second-quarter 2022 gross margin to be approximately 30.6% and an adjusted EBITDA margin of about 6.3%. The company had reported a gross margin of 30.7% and an adjusted EBITDA margin of 6.6% in the year-ago period. With respect to second-quarter expenses, Grocery Outlet expects modest SG&A deleverage.

3 Stocks Hogging the Limelight

Here we highlight three better-ranked stocks, namely, Kroger (KR - Free Report) , Target (TGT - Free Report) and Tractor Supply Company (TSCO - Free Report) .

Kroger, the renowned grocery retailer, carries a Zacks Rank #2 (Buy) at present. The company has an expected EPS growth rate of 9.9% for three-five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Kroger’s current financial-year sales and EPS suggests growth of 2.4% and 1.9%, respectively, from the year-ago reported number. KR has a trailing four-quarter earnings surprise of 22.1%, on average.

General merchandise retailer Target currently carries a Zacks Rank #2. TGT has an expected EPS growth rate of 16.5% for three-five years.

The Zacks Consensus Estimate for Target’s current financial-year sales and EPS suggests growth of 3.7% and 7.3%, respectively, from the corresponding year-ago period’s levels. TGT has a trailing four-quarter earnings surprise of 21.3%, on average.

Tractor Supply Company, a rural lifestyle retailer in the United States, carries a Zacks Rank of 2 at present. TSCO has an expected EPS growth rate of 9.8% for three-five years.

The Zacks Consensus Estimate for Tractor Supply Company’s current financial-year sales and EPS suggests growth of 8.8% and 10.2%, respectively, from the corresponding year-ago period’s actuals. TSCO has a trailing four-quarter earnings surprise of 12.4%, on average.