Grocery Outlet Reports Q3 Gains Despite Declining Earnings
Shares of Grocery Outlet Holding Corp. (GO) rose 4.7% in after-market trading following the release of its third-quarter 2024 results. Both the company’s revenue and earnings exceeded the Zacks Consensus Estimate. The increase in net sales reflects Grocery Outlet’s ability to appeal to value-seeking consumers, boosting its market share in non-discretionary spending.
Examining GO’s Quarterly Performance
Grocery Outlet reported adjusted earnings of 28 cents per share, surpassing the Zacks Consensus Estimate of 27 cents; however, this figure represented a decline from the 31 cents per share recorded in the same quarter last year.
For the latest EPS estimates and surprises, check Zacks Earnings Calendar.
Net sales reached $1,108.1 million, exceeding the Zacks Consensus Estimate of $1,100 million. This figure reflects a year-over-year growth of 10.4%, attributed to positive comparable store sales and the opening of new locations.
Comparable store sales rose 1.2% during the quarter, fueled by a 2% increase in transactions, despite a 0.7% drop in the average transaction size. This growth fell slightly short of our anticipated 1.5% increase. In the previous year, comparable store sales had increased by 6.4%.
Margins and Costs: A Detailed Look
The gross profit increased 9.2% year over year to $344.9 million. However, the gross margin contracted by 30 basis points to 31.1% due to disruptions caused by the introduction of new technology platforms. Adjusted EBITDA reached $72.3 million, up 6% from $68.1 million year over year. The adjusted EBITDA margin fell 30 basis points to 6.5%.
Our forecasts had predicted a 40-basis point decrease in both the gross margin and adjusted EBITDA margin.
SG&A expenses grew by 9.5% to $304.6 million during the quarter, although as a percentage of net sales, these expenses decreased by 20 basis points to 27.5%.
Expansion Efforts: Store Update
Grocery Outlet continued its expansion by opening five new stores in the quarter, bringing its total count to 529 locations across 16 states.
The company plans to launch 66 new stores in 2024, which includes 40 United Grocery Outlet stores and 26 additional Grocery Outlet stores in existing markets.
Financial Health Overview
Grocery Outlet finished the quarter with cash and cash equivalents of $68.7 million, net long-term debt of $419.9 million, and stockholders’ equity amounting to $1,226.1 million.
During the quarter, net cash generated from operating activities was $23 million. Capital expenditures totaled $49.1 million before accounting for tenant improvement allowances, and $38.2 million after considering these allowances. Management expects capital expenditures (net of allowances) to reach approximately $200 million in 2024.
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Forecast for 2024
Management projects that 2024 net sales will exceed $4.35 billion, slightly up from the previous estimate of $4.30 billion to $4.35 billion. In 2023, the company recorded net sales of $3.97 billion. The expected growth in comparable store sales is 2.4%, a decrease from the prior estimate of 3.5%, falling from a 7.5% increase in 2023.
Grocery Outlet anticipates a full-year gross margin of 30.4%, a slight drop from the earlier expectation of 30.5%. This projection indicates a 90-basis point contraction compared to the previous year.
The company’s forecast for adjusted EBITDA in 2024 ranges from $237 million to $242 million, revising down from the previous estimate of $252 million to $260 million. Adjusted EBITDA was $252.6 million in 2023.
Adjusted earnings are expected to be in the range of 77 to 80 cents, down from the earlier guidance of 89 to 95 cents. The adjusted earnings were reported at $1.07 per share in 2023.
Notably, shares of this value-driven retailer have dropped 25.9% over the past three months, contrasting with a 2.3% growth in the industry.
Market Movements: Stocks to Watch
Sprouts Farmers (SFM), which specializes in fresh, natural, and organic food products, currently holds a Zacks Rank #1 (Strong Buy). View the complete list of Zacks’ #1 Rank stocks here.
SFM has delivered an average earnings surprise of 15.3% over the last four quarters. The Zacks Consensus Estimate anticipates approximately 11.4% growth in sales and 26.4% growth in earnings, compared to last year’s results.
Walmart (WMT), known for its hypermarkets and grocery store operations, currently has a Zacks Rank #2 (Buy). WMT’s trailing four-quarter earnings surprise averages 6.9%.
The Zacks Consensus Estimate for Walmart suggests projected growth of about 4.7% in sales and 9.9% in earnings from the previous year.
Vital Farms (VITL), a provider of pasture-raised products, also holds a Zacks Rank #2. The company has an impressive trailing four-quarter earnings surprise of 82.5%.
Current estimates for Vital Farms indicate a projected growth of approximately 27% in sales and 88.1% in earnings from the previous year.
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Walmart Inc. (WMT): Free Stock Analysis Report
Sprouts Farmers Market, Inc. (SFM): Free Stock Analysis Report
Grocery Outlet Holding Corp. (GO): Free Stock Analysis Report
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