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Grocery Outlet (GO) Q1 Earnings Beat Estimates, Increase Y/Y

Zacks Equity Research

Grocery Outlet Holding Corp. GO recently came out with its first-quarter 2020 financial results, wherein both the top and the bottom line improved year over year. While earnings surpassed the Zacks Consensus Estimate, net sales came in line. The company gained from coronavirus-led demand. As people started dining at home and maintaining social distancing, they have been stocking essential items.

Notably, shares of this Zacks Rank #1 (Strong Buy) company have gained 14% in the past three months against the industry’s decline of 2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s Take an Insight

The owner and operator of grocery store chains reported adjusted earnings of 36 cents a share that comfortably beat the Zacks Consensus Estimate of 32 cents and improving significantly from 15 cents in the prior-year period. Higher net sales and lower interest expense contributed to the bottom line. This was the fourth straight quarter of positive earnings surprise.

Net sales came in at $760.3 million, up 25.4% from year-ago quarter courtesy of comparable-store sales growth and contribution from 32 net new stores opened since the end of the first quarter last year. Management in its first-quarter preliminary results had highlighted that the company registered “the wave of customer pantry-loading” in the month of March. Grocery Outlet made sure to maintain both opportunistic and everyday products in high volumes. The company managed its inventory well to meet customers’ burgeoning demand amid the crisis.

Notably, this Emeryville, CA-based company registered comparable-store sales growth of 17.4% during the quarter under review on account of increases in both the number of customer transactions and average transaction size. We note that the company’s comparable-store sales rose a meager 4.2% in the prior-year period.

Management notified that through the first five weeks of the second quarter, comparable-store sales growth is tracking in the mid-teens. The increase in comparable-store sales reflects rise in average basket size partly offset by lower store traffic owing to “shelter-in-place restrictions.”

Grocery Outlet Holding Corp Price, Consensus and EPS Surprise


Grocery Outlet Holding Corp Price, Consensus and EPS Surprise

Grocery Outlet Holding Corp price-consensus-eps-surprise-chart | Grocery Outlet Holding Corp Quote

Margins & Costs

We note that gross profit increased 26.7% year over year to $237 million on account of new store growth and rise in comparable-store sales. Notably, adjusted EBITDA surged 45.8% to $57 million, while adjusted EBITDA margin increased 100 basis points to 7.5%.

Although SG&A expenses surged 22.3% to $186.9 million, as a percentage of net sales the same contracted 60 basis points to 24.6%. The increase in SG&A expenses led to a jump of 33.1% in overall operating expenses of $220.2 million. As a percentage of net sales, operating expenses increased 170 basis points to 29%.

Grocery Outlet anticipates incremental operating expenses related to the coronavirus outbreak during the second quarter. These include cleaning and safety costs, corporate and distribution center personnel expenditures, costs for protective equipment, and supply chain expenses.

Store Update

During the quarter under review, Grocery Outlet opened 10 new stores and closed two taking the total count to 355 stores in six states. The company plans to open 28-30 outlets this year with no additional store closure planned. The company remains optimistic about 10% annual unit growth.

Other Financial Aspects

Grocery Outlet ended first-quarter 2020 with cash and cash equivalents of $160.9 million compared with $19.6 million at the end of the same period in fiscal 2019.

Total debt, including the $90 million drawn on the revolving credit facility of First Lien Credit Agreement, was $550.2 million at the end of the quarter under review, compared with $873.7 million at the end of the prior-year period. The decline in total debt was due to the prepayment of debt in conjunction with initial public offering in June 2019 and an additional voluntary prepayment of debt in October 2019.

Net cash provided by operations during the quarter was $67.8 million, which reflects a considerable increase from $22.2 million in the year-ago period. The company incurred capital expenditures (excluding the impact of landlord allowances) of $28.2 million during the quarter under review. Management envisions capital expenditures between $90 million and $100 million for the full year.

Here are 3 More Key Stocks for You

Sprouts Farmers Market SFM has a trailing four-quarter positive earnings surprise of 37.2%, on average. The stock carries a Zacks Rank #1.

Hain Celestial Group HAIN has a trailing four-quarter positive earnings surprise of 9.9%, on average. The stock sports a Zacks Rank #1.

Campbell Soup Company CPB has long-term earnings per share growth rate of 7.2% and a Zacks Rank #2 (Buy).

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