A month has gone by since the last earnings report for Grocery Outlet Holding Corp. (GO Quick QuoteGO - Free Report) . Shares have added about 13.9% in that time frame, outperforming the S&P 500.

But investors have to be wondering, 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.

GO Q4 Earnings Miss Estimates & Comps Dip Y/Y

Grocery Outlet reported results for the fourth quarter of 2025, wherein the top and bottom lines lagged the Zacks Consensus Estimate but increased year over year. Fourth-quarter results reflected ongoing operational and consumer-demand challenges. Management acknowledged that recent performance fell short of expectations and indicated that the company needs to take corrective actions to improve business momentum and execution.

During the quarter, comparable sales were pressured as customers purchased fewer items per visit amid increasing affordability concerns. The company also noted that its value perception weakened as the mix of opportunistic discounted products — a key driver of its treasure-hunt retail model — declined, limiting the compelling deals that typically encourage larger baskets.

Additionally, the company announced plans to close several underperforming stores and increase promotional activity while it works to rebuild its opportunistic product pipeline and strengthen the customer value proposition.

GO’s Quarterly Performance: Key Insights

Grocery Outlet’s adjusted earnings of 19 cents a share lagged the Zacks Consensus Estimate of 21 cents but increased from 15 cents in the year-ago quarter.

Net sales of $1,215.3 million fell short of the Zacks Consensus Estimate of $1,235 million. However, the top line grew 10.7% year over year. The rise was primarily driven by store openings and the impacts of an additional 53rd week, which contributed $82.4 million to quarterly sales.

Comparable-store sales declined 0.8% year over year. The decrease was mainly attributed to a 1.7% decline in average transaction size, partly offset by a 0.9% rise in the number of transactions. Sales were also impacted by the delayed disbursement of federally funded assistance benefits, including the Supplemental Nutrition Assistance Program, which many customers rely on.

Grocery Outlet’s Margin & Cost Details

Gross profit increased 11.5% year over year to $361 million in the fourth quarter. The gross margin expanded 20 basis points to 29.7%, driven mainly by better inventory management, partially offset by price investments and a mix shift toward lower-margin categories.

Selling, general and administrative (SG&A) expenses rose 13.6% to $337.1 million, accounting for 27.7% of net sales, up 70 basis points from the prior-year quarter. The increase mainly reflected higher incentive compensation, increased depreciation related to new store growth and higher operator commissions, along with other costs tied to the company’s long-term growth initiatives. Lower severance costs partly offset these increases.

Adjusted EBITDA came in at $68 million, up 18.8% year over year. We note that the adjusted EBITDA margin improved 40 basis points to 5.6% in the quarter under review.

GO’s Store Update

In the fourth quarter, Grocery Outlet opened seven stores and closed none, bringing its total store count to 570 locations across 16 states at the end of the period.

As part of efforts to optimize its store network and improve long-term profitability, the company’s board approved an Optimization Plan that includes the closure of 36 financially underperforming stores, along with actions such as terminating or subleasing related leases and adjusting certain operator agreements. These actions are expected to be substantially completed in 2026.

For 2026, the company expects 30-33 net new store openings, excluding closures related to the Optimization Plan.

Grocery Outlet’s Financial Health Snapshot

The company ended the quarter with cash and cash equivalents of $69.6 million, long-term debt of $477.9 million, and stockholders’ equity of $983.7 million. The company had $175 million remaining borrowing capacity under the revolving credit facility at the end of 2025. The company’s net leverage ratio stood at 1.7X adjusted EBITDA.

For 2025, net cash provided by operating activities totaled $222.1 million. The capital expenditure for the year was $220.3 million before tenant improvement allowances. After tenant improvement allowances, capital spending totaled $191.9 million. Management expects capital expenditure of $170 million (net of tenant improvement allowances) in 2026. These investments will support store openings and remodels, improvements to distribution centers and systems, and ongoing store maintenance projects.

GO’s Q1 Guidance

For the first quarter of 2026, the company expects comparable store sales to decline between 2.5% and 1.5%. The closure of underperforming stores will create temporary pressure on profitability during the quarter.

Inventory liquidation related to these store closures is expected to reduce the gross margin by 40 basis points, indicating $4 million of pressure in the first quarter. The company expects the first-quarter gross margin to be 29.6% to 29.8%. Excluding the impacts of inventory liquidation associated with the store closure plan, gross margin would be expected between 30% and 30.2%.

Adjusted EBITDA for the first quarter is projected between $39 million and $43 million. Adjusted earnings per share for the first quarter are expected to be 1 cent to 4 cents per share.

GO’s 2026 Outlook

Total net sales are projected between $4.60 billion and $4.72 billion. The closure of 36 stores under the optimization plan is expected to reduce overall revenue growth by 2%. The company expects comparable store sales to range from a decline of 2% to flat performance.

The gross margin for the full year is expected to be 29.7% to 30%. This outlook reflects promotional investments designed to stimulate sales in the first half of the year, along with the financial impacts of inventory liquidation associated with store closures.

Profitability metrics indicate cautious optimism. Adjusted EBITDA is expected between $220 million and $235 million, while adjusted earnings per share are projected to be 45 cents to 55 cents.

The company anticipates generating meaningful cash flow from operations in 2026. This cash flow will be used to support business growth, maintain operations and fund cash requirements associated with store closures, which are expected between $51 million and $63 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -39.77% due to these changes.

VGM Scores

Currently, Grocery Outlet has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock has a grade of B on the value side, putting it in the second quintile for value investors.

Overall, the stock has an aggregate VGM Score of B. 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. It's no surprise Grocery Outlet has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.