It has been about a month since the last earnings report for Grocery Outlet Holding Corp. (GO). Shares have lost about 7.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Grocery Outlet Holding Corp. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Grocery Outlet Beats Q3 Earnings, Raises FY22 View
Grocery Outlet Holding Corp. reported third-quarter 2022 results, wherein the top and bottom lines not only beat the Zacks Consensus Estimate but also improved year over year. The company registered a solid comparable store sales performance in the quarter. Stellar results and strong quarter-to-date trends prompted management to lift the net sales and earnings view for 2022.
Grocery Outlet continues to navigate through the challenging operating environment with strategic growth efforts. The company’s flexible sourcing and distribution business model, which helps it offer products at exceptional value and excellent service from independent operators, bodes well. The company’s opportunistic purchasing strategy, marketing efforts, store-growth endeavors and e-commerce initiatives to deepen the customer reach appear encouraging.
Grocery Outlet reported adjusted earnings of 27 cents a share, which beat the Zacks Consensus Estimate by a couple of cents. The bottom line increased from the 24 cents reported in the prior-year quarter due to robust sales.
Net sales of $918.2 million beat the Zacks Consensus Estimate of $880.5 million and grew 19.4% year over year. The outperformance was driven by the stellar comparable store sales performance and contributions from the new stores opened since the third quarter of 2021. Comparable store sales increased 15.4% in the third quarter against a decline of 4.3% in the year-ago period, driven by higher traffic and ticket.
Margins & Costs
The gross profit jumped 18.4% year over year to $280.6 million. However, the gross margin contracted 20 basis points to 30.6%. During the quarter, adjusted EBITDA rose 15% to $59.1 million. However, the adjusted EBITDA margin shrunk 30 basis points to 6.4%. SG&A expenses jumped 18.7% to $227.5 million due to higher store-related expenses and increased corporate-related costs. As a percentage of net sales, SG&A expenses decreased 10 basis points to 24.8%.
During the quarter, Grocery Outlet opened six new stores, thereby taking the total count to 431 stores in eight states. It now plans to open 26 net new stores in 2022 and expects 10% annual unit growth. In the fourth quarter, the company plans to open 10 new stores.
Other Financial Aspects
Grocery Outlet ended the quarter with cash and cash equivalents of $107.3 million, long-term debt of $379.3 million and stockholders’ equity of $1,085.3 million. Net cash provided by operating activities during the quarter was $55.1 million. The company incurred capital expenditures of $32.1 million (net of tenant improvement allowances). Management envisions capital expenditures (net of tenant improvement allowances) of about $115 million for 2022.
Management expects 2022 net sales of $3.55 billion (compared with $3.08 billion in 2021) and comparable store sales growth of 11% (against a decline of 6% in 2021).
The company earlier projected net sales in the range of $3.46-$3.48 billion and a comparable store sales increase in the band of 8%-8.5% for 2022.
Grocery Outlet guided a full-year gross margin of 30.5% compared with the 30.8% reported in 2021. It projected adjusted EBITDA at $224 million in 2022. The company now envisions adjusted earnings of $1.00 per share for 2022, suggesting an increase from the 90 cents reported in 2021.
The company earlier forecast 2022 adjusted EBITDA between $218 million and $223 million and adjusted earnings per share between 97 cents and $1.00.
Management guided fourth-quarter comparable store sales growth of 12% against a decline of 1.2% witnessed in the prior-year quarter. Grocery Outlet expects the fourth-quarter 2022 gross margin to be approximately 30.3% compared with the 30.9% reported in the year-ago period.
Management foresees fourth-quarter SG&A expenses as a percentage of sales to decline year over year due to store expense leverage from fixed cost and independent operator commissions. These might be partly offset by higher incentive compensation expenses.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -5.02% due to these changes.
Currently, Grocery Outlet Holding Corp. has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Grocery Outlet Holding Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Grocery Outlet Holding Corp. is part of the Zacks Consumer Products - Staples industry. Over the past month, Kimberly-Clark (KMB), a stock from the same industry, has gained 10.4%. The company reported its results for the quarter ended September 2022 more than a month ago.
Kimberly-Clark reported revenues of $5.05 billion in the last reported quarter, representing a year-over-year change of +0.9%. EPS of $1.40 for the same period compares with $1.62 a year ago.
For the current quarter, Kimberly-Clark is expected to post earnings of $1.50 per share, indicating a change of +15.4% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Kimberly-Clark. Also, the stock has a VGM Score of C.
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