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Grocery Outlet (GO) Up 10.9% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Grocery Outlet Holding Corp. (GO - Free Report) . Shares have added about 10.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Grocery Outlet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Grocery Outlet’s Q4 Earnings Beat Estimates, Comps Up Y/Y
Grocery Outlet Holding Corp. reported fourth-quarter 2023 results, wherein both the top and the bottom line beat the respective Zacks Consensus Estimate. While net sales increased year over year, adjusted earnings declined from the year-ago period. The company registered a decent comparable store sales performance in the quarter.
However, the implementation of new technology platforms in late August 2023 led to disruptions that hurt comparable store sales by approximately 200 basis points and the gross margin by 130 basis points during the fourth quarter.
Q4 Insights
Grocery Outlet reported adjusted earnings of 18 cents per share, which surpassed the Zacks Consensus Estimate by a couple of cents. However, the bottom line decreased from 22 cents delivered in the year-ago quarter.
Net sales of $989.8 million came ahead of the Zacks Consensus Estimate of $982 million. The top line grew 6.3% year over year. The outperformance was driven by decent comparable store sales performance and the impact of new stores opened over the past 12 months.
Comparable store sales increased 2.7% in the quarter, driven by a 7.5% jump in the number of transactions, partly offset by a 4.5% decline in the average transaction size. In the year-ago period, the company had reported a comparable store sales increase of 15.1%.
Margins & Costs
The gross profit jumped 6.3% year over year to $298.9 million. The gross margin remained flat at 30.2%. Adjusted EBITDA came in at $50.9 million, down from $54.3 million in the year-ago period. We note that the adjusted EBITDA margin contracted 70 basis points to 5.1%.
SG&A expenses jumped 8.8% to $279.9 million during the quarter. This increase was driven by higher commission payments to independent operators, store occupancy due to new unit growth and D&A expenses. As a percentage of net sales, SG&A expenses deleveraged 70 basis points to 28.3%.
Store Update
During the quarter, Grocery Outlet opened 13 new stores, bringing the total count to 468 stores in nine states.
In a strategic move to broaden its footprint, Grocery Outlet unveiled its plan to acquire United Grocery Outlet, a prominent discount grocery retailer operating across the Southeastern United States. The acquisition is expected to conclude at the beginning of the second quarter of 2024.
The company aims to inaugurate 55-60 net new stores in 2024. This encompasses the addition of 40 United Grocery Outlet stores, alongside the opening of 15 to 20 new stores in its existing markets.
Other Financial Aspects
Grocery Outlet ended the quarter with cash and cash equivalents of $115 million, long-term debt of $287.1 million and stockholders’ equity of $1,219.3 million.
Net cash provided by operating activities during the year was $303.4 million. The company incurred capital expenditures of $175.6 million (net of tenant improvement allowances). Management envisions capital expenditures (net of tenant improvement allowances) of about $170 million for 2024.
Outlook
Management foresees 2024 net sales between $4.30 billion and $4.35 billion compared with $3.97 billion reported in 2023. It expects comparable store sales growth of 3-4% compared with a 7.5% increase registered in 2023.
The company guided a full-year gross margin of 31.3% flat year over year. It projected adjusted EBITDA between $275 million and $283 million in 2024. Grocery Outlet reported adjusted EBITDA of $252.6 million in 2023.
Grocery Outlet envisions adjusted earnings in the band of $1.14-$1.20 per share for 2024 compared with the $1.07 reported in 2023.
Management expects first-quarter 2024 comparable store sales to be approximately 2%. The company anticipates a 50-basis point headwind from the system transition.
Grocery Outlet foresees the first-quarter gross margin to be approximately 30.4%, which includes an estimated 100-basis point impact from the system transition. The company expects a sequential improvement in gross margins in the back half of the year. Management estimates first-quarter adjusted EBITDA to be roughly 5% of sales, reflecting a lower gross margin and higher IO commission support.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -40.35% due to these changes.
VGM Scores
At this time, Grocery Outlet has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Grocery Outlet has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Grocery Outlet belongs to the Zacks Consumer Products - Staples industry. Another stock from the same industry, International Flavors (IFF - Free Report) , has gained 17% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
International Flavors reported revenues of $2.7 billion in the last reported quarter, representing a year-over-year change of -5%. EPS of $0.72 for the same period compares with $0.97 a year ago.
For the current quarter, International Flavors is expected to post earnings of $0.85 per share, indicating a change of -2.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -9.2% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for International Flavors. Also, the stock has a VGM Score of D.
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Grocery Outlet (GO) Up 10.9% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Grocery Outlet Holding Corp. (GO - Free Report) . Shares have added about 10.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Grocery Outlet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Grocery Outlet’s Q4 Earnings Beat Estimates, Comps Up Y/Y
Grocery Outlet Holding Corp. reported fourth-quarter 2023 results, wherein both the top and the bottom line beat the respective Zacks Consensus Estimate. While net sales increased year over year, adjusted earnings declined from the year-ago period. The company registered a decent comparable store sales performance in the quarter.
However, the implementation of new technology platforms in late August 2023 led to disruptions that hurt comparable store sales by approximately 200 basis points and the gross margin by 130 basis points during the fourth quarter.
Q4 Insights
Grocery Outlet reported adjusted earnings of 18 cents per share, which surpassed the Zacks Consensus Estimate by a couple of cents. However, the bottom line decreased from 22 cents delivered in the year-ago quarter.
Net sales of $989.8 million came ahead of the Zacks Consensus Estimate of $982 million. The top line grew 6.3% year over year. The outperformance was driven by decent comparable store sales performance and the impact of new stores opened over the past 12 months.
Comparable store sales increased 2.7% in the quarter, driven by a 7.5% jump in the number of transactions, partly offset by a 4.5% decline in the average transaction size. In the year-ago period, the company had reported a comparable store sales increase of 15.1%.
Margins & Costs
The gross profit jumped 6.3% year over year to $298.9 million. The gross margin remained flat at 30.2%. Adjusted EBITDA came in at $50.9 million, down from $54.3 million in the year-ago period. We note that the adjusted EBITDA margin contracted 70 basis points to 5.1%.
SG&A expenses jumped 8.8% to $279.9 million during the quarter. This increase was driven by higher commission payments to independent operators, store occupancy due to new unit growth and D&A expenses. As a percentage of net sales, SG&A expenses deleveraged 70 basis points to 28.3%.
Store Update
During the quarter, Grocery Outlet opened 13 new stores, bringing the total count to 468 stores in nine states.
In a strategic move to broaden its footprint, Grocery Outlet unveiled its plan to acquire United Grocery Outlet, a prominent discount grocery retailer operating across the Southeastern United States. The acquisition is expected to conclude at the beginning of the second quarter of 2024.
The company aims to inaugurate 55-60 net new stores in 2024. This encompasses the addition of 40 United Grocery Outlet stores, alongside the opening of 15 to 20 new stores in its existing markets.
Other Financial Aspects
Grocery Outlet ended the quarter with cash and cash equivalents of $115 million, long-term debt of $287.1 million and stockholders’ equity of $1,219.3 million.
Net cash provided by operating activities during the year was $303.4 million. The company incurred capital expenditures of $175.6 million (net of tenant improvement allowances). Management envisions capital expenditures (net of tenant improvement allowances) of about $170 million for 2024.
Outlook
Management foresees 2024 net sales between $4.30 billion and $4.35 billion compared with $3.97 billion reported in 2023. It expects comparable store sales growth of 3-4% compared with a 7.5% increase registered in 2023.
The company guided a full-year gross margin of 31.3% flat year over year. It projected adjusted EBITDA between $275 million and $283 million in 2024. Grocery Outlet reported adjusted EBITDA of $252.6 million in 2023.
Grocery Outlet envisions adjusted earnings in the band of $1.14-$1.20 per share for 2024 compared with the $1.07 reported in 2023.
Management expects first-quarter 2024 comparable store sales to be approximately 2%. The company anticipates a 50-basis point headwind from the system transition.
Grocery Outlet foresees the first-quarter gross margin to be approximately 30.4%, which includes an estimated 100-basis point impact from the system transition. The company expects a sequential improvement in gross margins in the back half of the year. Management estimates first-quarter adjusted EBITDA to be roughly 5% of sales, reflecting a lower gross margin and higher IO commission support.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -40.35% due to these changes.
VGM Scores
At this time, Grocery Outlet has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Grocery Outlet has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Grocery Outlet belongs to the Zacks Consumer Products - Staples industry. Another stock from the same industry, International Flavors (IFF - Free Report) , has gained 17% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
International Flavors reported revenues of $2.7 billion in the last reported quarter, representing a year-over-year change of -5%. EPS of $0.72 for the same period compares with $0.97 a year ago.
For the current quarter, International Flavors is expected to post earnings of $0.85 per share, indicating a change of -2.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -9.2% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for International Flavors. Also, the stock has a VGM Score of D.