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Grocery Outlet's Robust Business Strategies Cheer Investors

·3 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. In addition, the company has been capitalizing on store-growth opportunities, as it believes that there is potential to establish 4,800 locations nationally over the long term. Being a grocery dealer, the company is also benefiting from coronavirus-led demand, evident from its solid first-quarter 2020 results.

We believe Grocery Outlet will continue to benefit from the coronavirus-induced stockpiling at least in the foreseeable future, given the stay-at-home trends. Impressively, the EmeryVille, CA-based company’s shares have increased as much as 21.4% so far this year, outperforming its broader Consumer Staples sector’s 10.4% fall and the S&P 500 Index’s 0.3% gain. Meanwhile, its industry witnessed a decline of 6.7%. A VGM Score of A for this Zacks Rank #3 (Hold) stock further speaks of its inherent potentials.

Let’s Closely Analyze

Grocery Outlet’s flexible sourcing and distribution business model differentiates it from traditional retailers. This helps the company offer quality, name-brand consumables and fresh products at exceptional values. We note that a typical “Grocery Outlet basket” is priced roughly 40% below conventional grocers and about 20% below leading discounters. Its product offering is ever-changing, with constant rotation of opportunistic products, complemented by everyday staple products.

Speaking of store-growth endeavors, Grocery Outlet plans to open 28-30 outlets this year with no additional store closure planned. The company remains optimistic about 10% annual unit growth. In the last reported quarter, it inaugurated 10 new stores and closed two, taking the total count to 355 stores in six states — California, Washington, Oregon, Pennsylvania, Idaho and Nevada. Notably, the company has also been making 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.

Aforementioned strengths have aided Grocery Outlet to deliver comparable-store sales growth for 16 straight years, with the metric rising 5.2% in 2019. During the first quarter of 2020, the company registered comparable-store sales growth of 17.4%, courtesy of increases in both the number of customer transactions and average transaction size. Management had earlier notified that through the first five weeks of second quarter, comparable-store sales growth is tracking in the mid-teens. We believe Grocery Outlet’s compelling value proposition, along with strength in product offerings and “WOW!” deals will continue to fuel sales.

Don’t Miss These Solid Bets

Ollie's Bargain Outlet OLLI has a long-term earnings growth rate of 19.2% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sprouts Farmers Market SFM, also a Zacks Rank #1 stock, has a long-term earnings growth rate of 9.2%.

Kroger KR has a long-term earnings growth rate of 5.5%. Currently, it carries a Zacks Rank #1.

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The Kroger Co. (KR) : Free Stock Analysis Report
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