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Here's How Grocery Outlet (GO) is Poised Going Into 2021

Zacks Equity Research
·4 min read

Grocery Outlet Holding Corp. GO is benefiting from its unique business model, which positions it well for sustainable growth. The company has also been capitalizing on store-growth opportunities as it believes there is potential to establish 4,800 locations nationally over the long term. Apart from these, the company is focusing on efficient marketing communications to bolster sales and build dynamic relationships with customers. Markedly, the company is emphasizing on digital marketing. These factors coupled with a strong inventory pipeline and efficient distribution networks are likely to keep fueling growth in 2021.

We believe Grocery Outlet will continue to benefit from the coronavirus-induced stock hoarding, at least in the foreseeable future, given the burgeoning demand for essential grocery and stay-at-home trends. Impressively, the EmeryVille, CA-based company’s shares have increased 24.6% over the course of a year, outperforming the industry’s rise of 5.9%. A VGM Score of B for the Zacks Rank #3 (Hold) stock further speaks of its inherent potential. The company’s expected long-term earnings growth rate of 14.7% is ahead of the industry’s 12.4%.

Let’s Closely Analyze

Grocery Outlet’s flexible sourcing and distribution model differentiates it from traditional retailers. This helps the company offer quality, name-brand consumables and fresh products at exceptional value. In addition, the company’s “WOW!” deals are laudable. Moreover, it has refreshed its brand image by updating website, modernizing logo and adopting new marketing campaign -- Welcome to Bargain Bliss. These factors help drive consumers and in turn boost traffic and sales.



Speaking of store-growth endeavors, Grocery Outlet continues to build its real estate pipeline to support 10% annual unit growth. Notably, the company has been undertaking strategic investments to improve functionality and scalability. These include enhanced point of sale, warehouse management, vendor tracking, store communications, real estate lease management, and financial planning and analysis.

Markedly, the company opened 10 new stores during the third quarter of 2020, taking the total count to 372 stores in six states — California, Washington, Oregon, Pennsylvania, Idaho and Nevada. Management had earlier stated plans of opening seven stores in the fourth quarter, with no additional closure. This will lead to 34 new outlets for 2020.

The aforementioned strengths have helped Grocery Outlet deliver comparable-store sales growth for 16 straight years, with the metric rising 5.2% for 2019. We believe that Grocery Outlet’s compelling value proposition will continue to attract bargain hunters, encourage customers to revisit stores and increase basket sizes. Cumulatively, these will drive comparable-store sales growth. The company’s opportunistic purchasing strategy, inventory optimization, marketing initiatives and new product offerings will keep boosting the metric. Management had earlier notified that for the fourth quarter to date through Nov 11, comparable store sales are tracking in the positive mid-single digits.

Don’t Miss These Solid Bets

B&G Foods BGS has delivered an average earnings surprise of 9.3% in the last four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hain Celestial HAIN has delivered an average earnings surprise of 9.3% in the last four quarters. It has a Zacks Rank #2 (Buy).

Sprouts Farmers Market SFM, also a Zacks Rank #2 stock, has a long-term earnings growth rate of 9.2%.

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