It has been about a month since the last earnings report for Grocery Outlet Holding Corp. (GO). Shares have added about 2.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Grocery Outlet Holding Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Grocery Outlet's Q1 Earnings Beat Estimates, Sales Miss
Grocery Outlet posted mixed results in first-quarter 2021, wherein sales missed the Zacks Consensus Estimate and earnings beat the same. Moreover, the top and bottom line declined year over year.
Decline in the company’s comparable store sales mainly hurt the top line. Notably, this Emeryville, CA-based company saw a comparable-store sales decline of 8.2% during the quarter under review. This followed an increase of 7.9% in the preceding quarter. We note that the company’s comparable-store sales rose 17.4% during the first quarter of last year.
Moving on, management informed that second-quarter-to-date comparable store sales are in the negative low-double digits.
The owner and operator of grocery store chains delivered adjusted earnings of 23 cents a share that beat the Zacks Consensus Estimate by a penny. However, the bottom line plunged 23.3% from 30 cents reported in the prior-year quarter.
Net sales of $752.5 million dropped 1% from the year-ago quarter level and lagged the Zacks Consensus Estimate of $759.8 million. However, this downside was partly offset by the sales contribution from 34 net stores opened since the end of the first quarter of last year. In fact, new stores performed in line with management’s expectations, thus contributing to sales volume.
Margins & Costs
We note that gross profit dropped 2.2% year over year to $231.9 million. Also, gross margin contracted 40 basis points (bps) to 30.8% on higher commodity and freight costs. During the quarter, adjusted EBITDA tumbled 13.7% to $48.8 million.
Selling, general and administrative (SG&A) expenses rose 0.9% to $188.6 million owing to higher investments in personnel and infrastructure as well as increased store occupancy and maintenance costs emerging from store expansions. As a percentage of net sales, the SG&A expenses increased 50 bps to 25.1%.
Grocery Outlet opened 10 stores and shuttered one during the first quarter, taking the total count to 389 stores in six states.
Moreover, the company has opened six additional stores so far in the second quarter and intends to open 36-38 stores and close one during 2021. Well, it remains consistent with its 10% annual target.
Other Financial Aspects
Grocery Outlet ended first-quarter 2021 with cash and cash equivalents of $95.3 million. Total net long-term debt was $449.7 million, while stockholders’ equity amounted to $948.1 million.
Net cash provided by operating activities were $26.4 million during the reported quarter.
The company incurred capital expenditures (excluding the impact of tenant improvement allowances) of $36.6 million during the quarter under review. Management continues to envision capital expenditures (net of tenant improvement allowances) of about $130 million for 2021.
Management expects second-quarter gross margin at roughly 30.5%, reflecting normalized inventory turns. Its flexible supply chain model is likely to mitigate headwinds such as commodity and freight costs. Moreover, the company projects adjusted EBITDA margin at nearly 6.5% of sales for the second quarter.
Further, management is encouraged by the company’s flexible business model and healthy inventory position. The company is also on track with plans to broaden its store base. In the long run, it is committed toward accomplishing objectives of 1-3% comps growth, 10% annual unit growth and strong margins.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -11.29% due to these changes.
Currently, Grocery Outlet Holding Corp. has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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. It's no surprise Grocery Outlet Holding Corp. has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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