Yahoo Finance Why Is Grocery Outlet (GO) Up 1.9% Since Last Earnings Report?
A month has gone by since the last earnings report for Grocery Outlet Holding Corp. (GO). Shares have added about 1.9% in that time frame, underperforming 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 drivers.
Grocery Outlet’s Q1 Earnings Miss, Comps Up 3.9% Y/Y
Grocery Outlet Holding Corp. came up with first-quarter 2024 results. While the top line beat the Zacks Consensus Estimate and increased year over year, the bottom line missed the same and fell sharply from the year-ago period. Management highlighted that additional systems conversion issues hurt the company’s profitability. Consequently, Grocery Outlet revised its full-year earnings forecast downward.
Q1 Insights
Grocery Outlet reported adjusted earnings of 9 cents a share, which fell short of the Zacks Consensus Estimate of 18 cents and decreased from 27 cents delivered in the year-ago quarter.
Net sales of $1,036.9 million came ahead of the Zacks Consensus Estimate of $1,025 million. The top line grew 7.4% 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 3.9% in the quarter, driven by a 7% jump in the number of transactions, partly offset by a 2.9% decline in the average transaction size. In the year-ago period, the company had reported a comparable store sales increase of 12.1%.
Margins & Costs
The gross profit rose 1.1% year over year to $303.9 million. However, the gross margin contracted 180 basis points 29.3% owing to systems transition issues that hurt the metric by 210 basis points. Adjusted EBITDA came in at $39.4 million, down from $63.1 million in the year-ago period. We note that the adjusted EBITDA margin shrunk 270 basis points to 3.8%.
SG&A expenses jumped 13.3% to $303.4 million during the quarter. This increase was driven by higher commission payments, store occupancy due to new unit growth and D&A expenses. As a percentage of net sales, SG&A expenses deleveraged 160 basis points to 29.3%.
Store Update
During the quarter, Grocery Outlet opened six new stores, bringing the total count to 474 stores in nine states. The company aims to inaugurate 58-62 net new stores in 2024. This encompasses the addition of 40 United Grocery Outlet stores, alongside the opening of 18 to 22 new Grocery Outlet stores in its existing markets.
Other Financial Aspects
Grocery Outlet ended the quarter with cash and cash equivalents of $66.9 million, long-term debt of $285.3 million and stockholders’ equity of $1,224.6 million.
Net cash provided by operating activities during the quarter was $7.8 million. The company incurred capital expenditures of $46.5 million (net of tenant improvement allowances). Management envisions capital expenditures (net of tenant improvement allowances) of about $175 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. Grocery Outlet now expects comparable store sales growth of 3.5-4.5%, up from the prior forecast of 3-4%. The company had reported a 7.5% increase registered in 2023. Grocery Outlet guided a full-year gross margin of 30.5%, down from 31.3% guided earlier. The current projection showed an 80-basis point contraction in the gross margin.
It now expects adjusted EBITDA between $252 million and $260 million in 2024, down from the prior forecast of $275 million to $283 million. The company had reported adjusted EBITDA of $252.6 million in 2023.
Grocery Outlet now envisions adjusted earnings in the band of 89-95 cents compared with $1.14-$1.20 per share projected earlier for 2024. The company reported adjusted earnings of $1.07 per share in 2023.
Management expects second-quarter 2024 comparable store sales to be approximately 3.2%. Grocery Outlet foresees the second-quarter gross margin to be approximately 30%, 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 second-quarter adjusted EBITDA to be roughly 5.4% of sales.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -36.22% 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 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 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.
Performance of an Industry Player
Grocery Outlet is part of the Zacks Consumer Products - Staples industry. Over the past month, International Flavors (IFF), a stock from the same industry, has gained 0.8%. The company reported its results for the quarter ended March 2024 more than a month ago.
International Flavors reported revenues of $2.9 billion in the last reported quarter, representing a year-over-year change of -4.2%. EPS of $1.13 for the same period compares with $0.87 a year ago.
For the current quarter, International Flavors is expected to post earnings of $0.86 per share, indicating no change from the year-ago quarter. The Zacks Consensus Estimate has changed -4.7% over the last 30 days.
International Flavors has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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