As Grocery Outlet Holding Corp. (GO Quick QuoteGO - Free Report) prepares to announce its third-quarter fiscal 2024 earnings results on Nov. 5 after market close, investors are closely watching to see how the company has performed amid challenges and growth opportunities in the competitive grocery sector.

The Zacks Consensus Estimate for revenues is pegged at $1.1 billion, suggesting a solid 10% improvement over the prior-year period’s actual. However, the company’s bottom line is expected to face pressure. The Zacks Consensus Estimate for earnings per share has dropped by a penny over the past 60 days to 27 cents, indicating a year-over-year decline of 12.9%.

Grocery Outlet has a trailing four-quarter earnings surprise of 0.6%, on average. In the last reported quarter, this Emeryville, CA-based company’s bottom line outperformed the Zacks Consensus Estimate by a margin of 25%.

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Key Factors to Observe for Grocery Outlet's Q3 Earnings

Grocery Outlet’s focus on opportunistic purchasing, targeted marketing, store expansion and e-commerce initiatives is likely to have favorably impacted the top line. The implementation of a personalization app and the introduction of a private label program are expected to have enhanced customer engagement, and driven trip frequency.

The expansion of the store network has been ahead of schedule, with the acquisition of United Grocery Outlet and the opening of a few stores, including expansions into new regions. This wider footprint positions GO to capture a larger customer base, driving in-store traffic.

The company has been steadily ramping up customer engagement through technology and personalization. Its mobile app has gained significant traction, allowing customers to receive personalized deals and early access to promotions. By offering a range of affordable, quality products under its label, Grocery Outlet differentiates itself in a competitive market.

Despite steady transaction growth, Grocery Outlet saw its comparable store sales (comps) soften, particularly toward the end of June. While comps increased 2.9% in the second quarter, softness continued into the third quarter, indicating challenges. We expect comps growth to decelerate from the second quarter to 1.5% in the third quarter. Another red flag is the decline in average basket size. While customer count growth is positive, a declining basket size suggests that customers are likely to have been more price-sensitive or spending less per visit.

We note that Grocery Outlet has largely overcome the financial impacts of its system transition, but the lingering challenges could have hindered margin expansion and operational scalability. Any deleverage in SG&A expenses is likely to have exerted pressure on profitability. We anticipate SG&A expenses, as a percentage of net sales, to deleverage 60 basis points in the third quarter. As a result, we foresee an operating margin contraction of 100 basis points.

What the Zacks Model Predicts About GO

As investors prepare for Grocery Outlet's third-quarter earnings, the question looms regarding earnings beat or miss. Our proven model does not conclusively predict an earnings beat for Grocery Outlet this time. 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. However, that is not the case here. 

Grocery Outlet carries a Zacks Rank #4 (Sell) and has an Earnings ESP of -1.25%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Stocks With the Favorable Combination

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

Ollie's Bargain Outlet Holdings, Inc. (OLLI Quick QuoteOLLI - Free Report) currently has an Earnings ESP of +1.50% and a Zacks Rank #3. The Zacks Consensus Estimate for third-quarter fiscal 2024 earnings per share is pegged at 57 cents, suggesting 11.8% year-over-year growth. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ollie's Bargain’s top line is expected to ascend year over year. The Zacks Consensus Estimate for quarterly revenues is pegged at $519 million, which indicates an increase of 8.1% from the figure reported in the prior-year quarter. OLLI has a trailing four-quarter earnings surprise of 7.9%, on average.

Sweetgreen, Inc. (SG Quick QuoteSG - Free Report) currently has an Earnings ESP of +4.76% and a Zacks Rank of 3. SG is likely to register growth in its top and bottom lines when it reports third-quarter 2024 results. The Zacks Consensus Estimate for Sweetgreen’s quarterly revenues is pegged at $173.7 million, which indicates an increase of 13.2% from the figure reported in the prior-year quarter.

The consensus estimate for SG’s bottom line is expected to increase 27.3% from the year-ago quarter’s number. Sweetgreen delivered a negative average earnings surprise of almost 12% in the trailing four quarters.

Jack in the Box Inc. (JACK Quick QuoteJACK - Free Report) presently has an Earnings ESP of +1.28% and a Zacks Rank of 3. The company is likely to register a top-line decline when it reports fourth-quarter fiscal 2024 results. The Zacks Consensus Estimate for JACK’s quarterly revenues is pegged at $357.9 million, which indicates a dip of 3.9% from the figure reported in the prior-year quarter.

The consensus estimate for Jack in the Box’s quarterly earnings has declined by 2 cents over the past 30 days to $1.12 per share. The figure indicates growth of 2.8% from the year-ago quarter’s number. JACK delivered an average earnings surprise of 1.7% in the trailing four quarters.