Unanswered questions surrounding the company’s search for a new CEO, and what is pressuring the company's profit outlook, led BofA Securities to downgrade Grocery Outlet (NASDAQ:GO) to Neutral from Buy.

Before Wednesday’s open, Grocery Outlet (GO) released preliminary Q3 results and announced an executive reshuffle, both of which spooked investors and drove shares to their lowest level on record.

The company expects net sales to increase 10.4% to $1.1B in Q3, in-line with expectations, with comparable store sales up 1.2%.

For FY24, however, the outlook is more cautious as the adjusted EBITDA forecast was lowered to below the low end of the previously disclosed range of $252M to $260M, while sales are expected to exceed the high end of its $4.30B to $4.35B range. This is in comparison to the consensus estimate of $4.36.

Concurrent with Q3 preliminary results, Grocery Outlet (GO) said board chairman Eric Lindberg will take over as interim president and CEO, replacing RJ Sheedy. Sheedy resigned effective immediately from his position as CEO and from the company’s board. Lindberg previously served as Grocery Outlet’s CEO from 2006 to 2022.

“Despite a positive long-term outlook supported by its differentiated model, extreme customer value proposition and long-term growth opportunity, we believe uncertainty could pressure the stock given important unanswered questions,” BofA’s Robert Ohmes said.

Ohmes questions what is pressuring the adjusted EBITDA outlook, and will soft comparable store sales continue, raising the need for greater price investments? Is the SAP implementation on track, or will system disruptions (which “significantly” impacted the company’s P&L from Q3 2023 to Q2 2024) continue into 2025? How long with the CEO search take, and how is the integration of 40 acquired United Grocery Outlet stores progressing?

In addition to a downgrade, Ohmes dropped his price target for Grocery Outlet (GO) by 40% to $17.

Grocery Outlet (GO) reports Q3 results after the close on November 5.