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Grocery Outlet (GO) Beats on Q1 Earnings, Raises FY23 View

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Grocery Outlet Holding Corp. (GO - Free Report) came up with first-quarter 2023 results, wherein the top line 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. The bottom line also beat the consensus mark and improved from the year-ago period. Following the results, management raised its full-year view.

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 an 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.

Q1 Insights

Grocery Outlet reported adjusted earnings of 27 cents a share, which comfortably surpassed the Zacks Consensus Estimate of 23 cents and our estimate of 22 cents. The bottom line also increased meaningfully from 19 cents delivered in the year-ago period.

Net sales of $965.5 million beat the Zacks Consensus Estimate of $948 million and our estimate of $941 million. The top line grew 16.1% year over year. The outperformance was driven by the stellar comparable store sales performance and contributions from the new stores opened since the first quarter of 2022.

Comparable store sales increased 12.1% in the first quarter compared with a 5.2% jump in the year-ago period. The increase in the metric was driven by a 7.9% jump in the number of transactions combined with 3.9% growth in the average transaction size.

Margins & Costs

The gross profit jumped 19.8% year over year to $300.5 million. The gross margin expanded 90 basis points to 31.1%. Adjusted EBITDA came in at $63.1 million compared with $46.1 million in the year-ago period. We note that the adjusted EBITDA margin expanded 100 basis points to 6.5%.

SG&A expenses jumped 15.7% to $267.7 million due to increased independent operator commission expenses and store occupancy costs. As a percentage of net sales, SG&A expenses shrunk 10 basis points to 27.7% due to occupancy and fixed-cost leverage.

Store Update

During the quarter, Grocery Outlet opened three new stores, thereby taking the total count to 444 stores in eight states. In the second quarter, the company plans to open two stores and close one outlet, with balance openings to be split evenly between the third and the fourth quarter. It intends to open 25 to 28 stores in 2023.

Other Financial Aspects

Grocery Outlet, which carries a Zacks Rank #3 (Hold), ended the quarter with cash and cash equivalents of $82.1 million, long-term debt of $317.4 million and stockholders’ equity of $1,127.5 million.

Net cash provided by operating activities during the 13-week period ended Apr 1, 2023 was $87.6 million. The company incurred capital expenditures of $38.5 million (net of tenant improvement allowances). Management envisions capital expenditures (net of tenant improvement allowances) of about $155 million for 2023.


Management now expects 2023 net sales of $3.90 billion compared with $3.58 billion in 2022. It guided comparable store sales growth of 5% to 6% compared with an 11.8% increase registered in 2022.

Grocery Outlet had earlier projected 2023 net sales between $3.85 billion and $3.90 billion and comparable store sales between 4.5% and 5.5%.

The company guided a full-year gross margin of 30.7% compared with the 30.5% reported in 2022. It projected adjusted EBITDA between $240 million and $246 million in 2023. Grocery Outlet reported adjusted EBITDA of $214.7 million in 2022.

The company had previously expected a full-year gross margin of 30.6% and adjusted EBITDA between $237 million and $243 million.

Grocery Outlet now envisions adjusted earnings in the band of 96 cents-$1.00 per share for 2023 compared with the 94 cents reported in 2022. It had earlier guided adjusted earnings in the range of 94-99 cents a share for 2023.

Management expects second-quarter 2023 comparable store sales to be approximately 5% compared with the 11.2% growth registered in the year-ago period. Grocery Outlet foresees the second-quarter 2023 gross margin to be approximately 30.7% compared with the 31.1% reported in the year-ago period. The company estimates second-quarter adjusted EBITDA to be roughly 6.3% of sales.

Shares of this extreme-value retailer of quality, name-brand consumables and fresh products have risen 3.2% year to date against the industry’s decline of 2.1%.

Stocks Hogging in the Limelight

Here we have highlighted three better-ranked stocks, namely Kroger (KR - Free Report) , The TJX Companies (TJX - Free Report) and General Mills (GIS - Free Report) .

Kroger, which operates supermarkets and multi-department stores, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 6%. 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 revenues and EPS suggests growth of 2.5% and 6.6%, respectively, from the year-ago reported figure. Kroger has a trailing four-quarter earnings surprise of 9.8%, on average.

The TJX Companies, which operates as an off-price apparel and home fashion retailer, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 10.5%.

The Zacks Consensus Estimate for The TJX Companies’ current financial-year sales and earnings suggests growth of 6.4% and 12.9% from the year-ago period. TJX has a trailing four-quarter earnings surprise of 6%, on average.

General Mills, which manufactures and markets branded consumer foods, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 7.5%.

The Zacks Consensus Estimate for General Mills’ current financial-year sales and earnings suggests growth of 6.3% and 7.4% from the year-ago period. GIS has a trailing four-quarter earnings surprise of 8.1%, on average.

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