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Grocery Outlet's (GO) Q4 Earnings Beat Estimates, Comps Up Y/Y

Grocery Outlet Holding Corp. GO reported fourth-quarter 2023 results, wherein both the top and the bottom line beat the respective Zacks Consensus Estimate. While net sales increased year over year, adjusted earnings declined from the year-ago period. The company registered a decent comparable store sales performance in the quarter.

However, the implementation of new technology platforms in late August 2023 led to disruptions that hurt comparable store sales by approximately 200 basis points and the gross margin by 130 basis points during the fourth quarter.

Q4 Insights

Grocery Outlet reported adjusted earnings of 18 cents per share, which surpassed the Zacks Consensus Estimate by a couple of cents. However, the bottom line decreased from 22 cents delivered in the year-ago quarter.

Net sales of $989.8 million came ahead of the Zacks Consensus Estimate of $982 million. The top line grew 6.3% 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 2.7% in the quarter, driven by a 7.5% jump in the number of transactions, partly offset by a 4.5% decline in the average transaction size. We had anticipated 2% growth in the metric. In the year-ago period, the company had reported a comparable store sales increase of 15.1%.

Grocery Outlet Holding Corp. Price, Consensus and EPS Surprise

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

The gross profit jumped 6.3% year over year to $298.9 million. The gross margin remained flat at 30.2%. Adjusted EBITDA came in at $50.9 million, down from $54.3 million in the year-ago period. We note that the adjusted EBITDA margin contracted 70 basis points to 5.1%.

We had anticipated 20-basis point and 80-basis point contraction in the gross margin and the adjusted EBITDA margin, respectively.

SG&A expenses jumped 8.8% to $279.9 million during the quarter. This increase was driven by higher commission payments to independent operators, store occupancy due to new unit growth and D&A expenses. As a percentage of net sales, SG&A expenses deleveraged 70 basis points to 28.3%.

Store Update

During the quarter, Grocery Outlet opened 13 new stores, bringing the total count to 468 stores in nine states.

In a strategic move to broaden its footprint, Grocery Outlet unveiled its plan to acquire United Grocery Outlet, a prominent discount grocery retailer operating across the Southeastern United States. The acquisition is expected to conclude at the beginning of the second quarter of 2024.

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The company aims to inaugurate 55-60 net new stores in 2024. This encompasses the addition of 40 United Grocery Outlet stores, alongside the opening of 15 to 20 new stores in its existing markets.

Other Financial Aspects

Grocery Outlet ended the quarter with cash and cash equivalents of $115 million, long-term debt of $287.1 million and stockholders’ equity of $1,219.3 million.

Net cash provided by operating activities during the year was $303.4 million. The company incurred capital expenditures of $175.6 million (net of tenant improvement allowances). Management envisions capital expenditures (net of tenant improvement allowances) of about $170 million for 2024.

Outlook

Management foresees 2024 net sales between $4.30 billion and $4.35 billion compared with $3.97 billion reported in 2023. It expects comparable store sales growth of 3-4% compared with a 7.5% increase registered in 2023.

The company guided a full-year gross margin of 31.3% flat year over year. It projected adjusted EBITDA between $275 million and $283 million in 2024. Grocery Outlet reported adjusted EBITDA of $252.6 million in 2023.

Grocery Outlet envisions adjusted earnings in the band of $1.14-$1.20 per share for 2024 compared with the $1.07 reported in 2023.

Management expects first-quarter 2024 comparable store sales to be approximately 2%. The company anticipates a 50-basis point headwind from the system transition.

Grocery Outlet foresees the first-quarter gross margin to be approximately 30.4%, which includes an estimated 100-basis point impact from the system transition. The company expects a sequential improvement in gross margins in the back half of the year. Management estimates first-quarter adjusted EBITDA to be roughly 5% of sales, reflecting a lower gross margin and higher IO commission support.

Shares of this extreme-value retailer of quality, name-brand consumables and fresh products have fallen 14.7% in the past six months compared with the industry’s decline of 12.8%.

Stocks Hogging in the Limelight

Here, we have highlighted three better-ranked stocks, namely Casey's General Stores CASY, Target Corporation TGT and Costco Wholesale Corporation COST.

Casey's General Stores, the third largest convenience retailer and fifth largest pizza chain in the United States, currently carries a Zacks Rank #2 (Buy). CASY has a trailing four-quarter earnings surprise of 17.8%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Casey's current financial-year earnings suggests growth of around 11.1% from the year-ago reported numbers.

Target Corporation operates as a general merchandise retailer in the United States. It currently has a Zacks Rank #2. TGT has a trailing four-quarter earnings surprise of 30.8%, on average.

The Zacks Consensus Estimate for Target’s current financial-year earnings suggests growth of 38.9% from the year-ago reported figure.

Costco Wholesale Corporation, which operates membership warehouses, currently carries a Zacks Rank #2. COST has a trailing four-quarter earnings surprise of 2.6%, on average.

The Zacks Consensus Estimate for Costco’s current financial-year sales and earnings suggests growth of around 4.7% and 6.5%, respectively, from the year-ago reported numbers.

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Target Corporation (TGT) : Free Stock Analysis Report

Costco Wholesale Corporation (COST) : Free Stock Analysis Report

Casey's General Stores, Inc. (CASY) : Free Stock Analysis Report

Grocery Outlet Holding Corp. (GO) : Free Stock Analysis Report

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