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Grocery Outlet (GO) Rides on Unique Business Model & Comps

·4 min read

Grocery Outlet Holding Corp. GO seems to be on a roll, thanks to its unique business model which poises it well for sustainable growth. Moreover, the company’s comparable-store sales (comps) trend is quite impressive.

We expect comps trend to continue in the future given the company’s compelling value proposition, strength in product offerings and WOW! Deals. In addition, it has been capitalizing on store-growth opportunities as management believes that there is a room to establish 4,800 locations nationally, in the long term.

Impressively, the EmeryVille, CA-based company’s shares have appreciated 14.8% so far this year, outperforming its broader Consumer Staples sector’s 0.7% gain and the industry’s 1.5% dip. Let’s delve deeper.

Robust Business Strategies

Speaking of Grocery Outlet’s operating design, it is a flexible sourcing and distribution business model that differentiates the company from traditional retailers. This helps the company offer quality, name-brand consumables and fresh products at exceptional values. Its product offering is ever-changing, with constant rotation of opportunistic products, complemented by everyday staple products.

Moreover, it has refreshed its brand image by updating its website, modernizing its logo and adopting new marketing campaign, "Welcome to Bargain Bliss." This is expected to drive customers and keep them well informed about price, quality and service.


 

Coming to store-growth endeavors, Grocery Outlet continues to build its real estate pipeline to support 10% annual unit growth. Notably, the company has been undertaking strategic investments to improve its functionality and scalability. These include enhanced point of sale, warehouse management, vendor tracking, store communications, real estate lease management, and financial planning and analysis.

Going ahead, the company intends to open seven stores in the fourth quarter of 2020 with no additional closures. This will lead to 34 new outlets for the year.

Quarterly Performance

Despite the ongoing uncertainties and cost pressures, Grocery Outlet has managed to deliver a stellar third-quarter 2020 performance. Both the top and the bottom lines beat the Zacks Consensus Estimate and grew year over year in the same quarter. Results benefited from coronavirus-led demand.

As people continue to dine at home and maintain social distancing, they have been stocking essential items. Net sales jumped 17.1% from year-ago quarter’s figure, courtesy of comparable-store sales growth and contribution from 35 net additional stores opened since the end of the third quarter last year.

Management highlighted that it witnessed broad-based growth across all regions and categories during the reported quarter. Higher net sales and lower interest expenses contributed to the bottom line. This was the sixth straight quarter of positive earnings surprise for Grocery Outlet.

Going ahead, Grocery Outlet is encouraged regarding its strong inventory pipeline and efficient distribution networks. Prudent deals with suppliers have also been helping the company to generate value for customers. Apart from these, it is focusing on efficient marketing communications, to bolster sales and build dynamic relationships with customers. Markedly, the company is emphasizing on digital marketing.

Wrapping Up

Given the company’s solid strategic efforts including a strong store footprint as well as a robust financial show, are likely to continue fueling growth for this Zacks Rank #1(Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.

Encouragingly, the Zacks Consensus Estimate for Grocery Outlet’s sales and earnings for 2020 are pegged at $3.11 billion and $1.48, which, respectively, suggests growth of about 21.7% and 87.3% year over year.

Don’t Miss These Solid Bets

Dollar General DG has a long-term earnings growth rate of 11.1% and a Zacks Rank #2 (Buy).

Target (TGT), also a Zacks Rank #2 stock, has a long-term earnings growth rate of 8.5%.

Chewy CHWY has delivered an average earnings surprise of 22.3% in the trailing four quarters. It displays a Zacks Rank #2.

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