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Grocery Outlet Q1 Sales to Gain From Coronavirus-Led Demand

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Grocery Outlet Holding Corp. (GO - Free Report) recently came out with first-quarter fiscal 2020 preliminary financial results. For 13-week period ended on Mar 28, 2020, the owner and operator of grocery store chains expects net sales to improve 25.4% to $760.3 million, thanks to coronavirus-led demand. As people started dining at home and maintaining social distancing, they have been stocking essential items.

Management highlighted that the company registered “the wave of customer pantry-loading” last month. Notably, the company anticipates comparable-store sales growth of 17.4% during the aforementioned period on account of increases in both the number of customer transactions and average transaction size. We note that the company’s comparable-store sales during 13-week period ended Mar 30, 2019 had risen only by 4.2%.

Grocery Outlet informed that though it faced difficulty in procuring high-velocity items such as toilet paper in bulk quantities, it made sure to maintain both opportunistic and everyday products in high volumes. It is quite obvious that the company managed its inventory well to meet customers’ burgeoning demand amid the crisis.

This Emeryville, CA-based company envisions first-quarter fiscal 2020 income from operations between $14.3 million and $15.3 million compared with $21.7 million reported in the year-ago period. It projects adjusted EBITDA in the band of $55-$56 million, up from $39.1 million reported in the prior-year quarter. Adjusted net income is projected in the range of $30.3-$31.4 million, up significantly from $9.9 million generated in the prior-year quarter.

Shares of this Zacks Rank #1 (Strong Buy) company have gained 10% in the past six months compared with the industry’s growth of 6.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Key Things to Note

Grocery Outlet opened 10 new outlets and shuttered two during the thirteen weeks ended Mar 28, 2020. It expects cash to be roughly $160.9 million and gross debt to be about $550 million for the period.

The company further notified that sales trend somewhat moderated in the month of April compared to March. However, comparable-store sales were up in high-single digits in the first three fiscal weeks of the month. Due to “shelter-in-place requirements,” the company said it has witnessed soft traffic across its stores, resulting in lower number of consumer transactions on a comparable-store basis. However, there has been a surge in average transaction size.

The company also said that it foresees considerable increase in expenses related to the pandemic. These include cleaning and safety costs, corporate and distribution center personnel expenditures, costs for protective equipment, and supply chain expenses. While these costs did not impact the first quarter much, the second quarter is likely to bear the burden.

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