Grocery Outlet's (NASDAQ:GO) Q4: Beats On Revenue, Stock Soars
Discount grocery store chain Grocery Outlet (NASDAQ:GO) reported results ahead of analysts' expectations in Q4 FY2023, with revenue up 6.3% year on year to $989.8 million. The company expects the full year's revenue to be around $4.33 billion, in line with analysts' estimates. It made a non-GAAP profit of $0.18 per share, down from its profit of $0.22 per share in the same quarter last year.
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Grocery Outlet (GO) Q4 FY2023 Highlights:
Revenue: $989.8 million vs analyst estimates of $980.6 million (0.9% beat)
EPS (non-GAAP): $0.18 vs analyst estimates of $0.16 (11.1% beat)
Management's EPS guidance for the upcoming financial year 2024 is $1.17 per share at the midpoint, better than analyst expectations of $1.14 (2.6% beat)
Free Cash Flow of $147.1 million, up from $528,000 in the same quarter last year
Gross Margin (GAAP): 30.2%, in line with the same quarter last year
Same-Store Sales were up 2.7% year on year (beat vs. expectations of up 2.1% year on year)
Store Locations: 468 at quarter end, increasing by 27 over the last 12 months
Market Capitalization: $2.58 billion
"Our value proposition continues to resonate with consumers resulting in strong traffic and transaction count growth. During 2023, we increased our market share, achieved record sales of $4 billion, and grew Adjusted EBITDA by 18%," said RJ Sheedy, CEO of Grocery Outlet.
Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ:GO) is a discount grocery store chain that offers substantial discounts on name-brand products.
Grocery Store
Grocery stores are non-discretionary because they sell food, an essential staple for life (maybe not that ice cream?). Selling food, however, is a notoriously tough business as grocers must deal with the costs of procuring and transporting oftentimes perishable products. Plus, the costs of operating stores to sell everything from raw meat to ice cream and fresh fruit are high. Competition is also fierce because grocers and other peers such as wholesale clubs tend to sell very similar brands and products. On the bright side, grocery is one of the least penetrated categories in e-commerce because customers prefer to buy their food in person. Still, the online threat exists and will likely increase over time rather than dwindle.
Sales Growth
Grocery Outlet is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the other hand, it has an edge over smaller competitors with fewer resources and can still flex high growth rates because it's growing off a smaller base than its larger counterparts.
As you can see below, the company's annualized revenue growth rate of 11.6% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was decent as it opened new stores and grew sales at existing, established stores.
This quarter, Grocery Outlet grew its revenue by 6.3% year on year, and its $989.8 million in revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 9.2% over the next 12 months, an acceleration from this quarter.
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Same-Store Sales
A company's same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.
Grocery Outlet's demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company's same-store sales have grown by 9.7% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Grocery Outlet is reaching more customers and growing sales.
In the latest quarter, Grocery Outlet's same-store sales rose 2.7% year on year. By the company's standards, this growth was a meaningful deceleration from the 15.1% year-on-year increase it posted 12 months ago. We'll be watching Grocery Outlet closely to see if it can reaccelerate growth.
Key Takeaways from Grocery Outlet's Q4 Results
It was great to see Grocery Outlet's strong earnings forecast for the full year, which exceeded analysts' expectations. We were also glad its EPS outperformed Wall Street's estimates. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is up 6.8% after reporting and currently trades at $28.27 per share.
Grocery Outlet may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
