Grocery Outlet's (GO) Q3 Earnings Beat Estimates, Comps Up Y/Y
Grocery Outlet Holding Corp. GO reported third-quarter 2023 results, wherein the top line missed the Zacks Consensus Estimate, while the bottom line beat the same. Markedly, both the metrics improved year over year. The company registered a decent comparable store sales performance in the quarter.
However, the transition to upgraded systems resulted in operational disruptions, hurting comparable store sales by about 150 basis points and the gross margin by 50 basis points in the quarter.
Q3 Insights
Grocery Outlet reported adjusted earnings of 31 cents per share, which comfortably surpassed the Zacks Consensus Estimate of 27 cents. The bottom line also increased from 25 cents delivered in the year-ago quarter.
Net sales of $1,003.9 million fell short of the Zacks Consensus Estimate of $1,007 million. However, the top line grew 9.3% 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 6.4% in the quarter, driven by an 8.6% jump in the number of transactions, partly offset by a 1.9% decline in the average transaction size. We had anticipated 6.5% growth in the metric. In the year-ago period, the company had reported a comparable store sales increase of 15.4%.
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
The gross profit jumped 12.5% year over year to $315.7 million. The gross margin expanded 80 basis points to 31.4%. Adjusted EBITDA came in at $68.1 million compared with $56.8 million in the year-ago period. We note that the adjusted EBITDA margin expanded 60 basis points to 6.8%.
We had anticipated 70 basis points and 20 basis points expansion in the gross margin and the adjusted EBITDA margin, respectively.
SG&A expenses jumped 8.7% to $278.1 million during the quarter. This increase was driven by higher expenses related to independent operator commissions, store occupancy costs and increased incentive compensation. As a percentage of net sales, SG&A expenses declined 20 basis points to 27.7%.
Store Update
During the quarter, Grocery Outlet opened eight new stores, bringing the total count to 455 stores in eight states. In the fourth quarter, the company plans to open 13 new stores. It intends to open 27 net new stores in 2023.
Other Financial Aspects
Grocery Outlet ended the quarter with cash and cash equivalents of $155.7 million, long-term debt of $288.9 million and stockholders’ equity of $1,203.1 million.
Net cash provided by operating activities during the quarter was $119.1 million. The company incurred capital expenditures of $42.7 million (net of tenant improvement allowances). Management envisions capital expenditures (net of tenant improvement allowances) of about $155 million for 2023.
Outlook
Management expects 2023 net sales of $3.95 billion compared with $3.58 billion in 2022. It expects comparable store sales growth of 7-7.5% compared with an 11.8% increase registered in 2022. Grocery Outlet had earlier projected 7-8% growth in comparable store sales.
The company guided a full-year gross margin of 31.2% compared with 30.5% reported in 2022. It projected adjusted EBITDA between $248 million and $252 million in 2023. Grocery Outlet reported adjusted EBITDA of $214.7 million in 2022. The company had previously expected a full-year gross margin of 31.3% and adjusted EBITDA between $254 million and $260 million.
Grocery Outlet now envisions adjusted earnings in the band of $1.04-$1.06 per share for 2023 compared with the 94 cents reported in 2022. It had earlier guided adjusted earnings in the range of $1.04-$1.08 per share for 2023.
Management expects fourth-quarter 2023 comparable store sales to be approximately 2% compared with the 15.1% growth registered in the year-ago period. The company anticipates a 300-basis point headwind from the system transition.
Grocery Outlet foresees the fourth-quarter gross margin to be approximately 30% compared with 30.2% reported in the year-ago period. The company foresees a 150-basis point impact due to the system transition. The company estimates fourth-quarter adjusted EBITDA to be roughly 5% of sales.
Shares of this extreme-value retailer of quality, name-brand consumables and fresh products have fallen 2.5% year to date compared with the industry’s decline of 25.9%.
Grocery Outlet currently has a Zacks Rank #3 (Hold).
Stocks Hogging in the Limelight
Here, we have highlighted three better-ranked stocks, namely Costco COST, Ross Stores ROST and Walmart WMT.
Costco, which operates membership warehouses, currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Costco’s current financial-year sales and earnings suggests growth of 4.3% and 6.9%, respectively, from the year-ago reported numbers. COST has a trailing four-quarter earnings surprise of 2.1%, on average.
Ross Stores, which operates off-price retail apparel and home fashion stores, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Ross Stores’ current financial-year sales and earnings indicates growth of 7.1% and 19.4%, respectively, from the year-ago reported numbers. ROST has a trailing four-quarter earnings surprise of 11.4%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Walmart’s current financial-year sales and earnings implies growth of 5% and 2.4%, respectively, from the year-ago reported numbers. WMT has a trailing four-quarter earnings surprise of 11.6%, on average.
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Grocery Outlet Holding Corp. (GO) : Free Stock Analysis Report
