• Net Sales: Increased 10.4% to $1.11 billion.
• Comparable Store Sales: Increased 1.2%, representing 7.6% growth on a two-year basis.
• Gross Profit: Increased 9.2% to $344.9 million.
• Gross Margin Rate: 31.1%, a 20-basis-point sequential improvement from the second quarter.
• SG&A Expense: Increased 9.5% to $304.6 million.
• Net Income: GAAP net income of $24.2 million, or $0.24 per fully diluted share.
• Adjusted EBITDA: Increased by 6% to $72.3 million, with a margin of 6.5% of net sales.
• Store Count: Opened five net new stores, totaling 529 locations at quarter end.
• Cash: Ended the quarter with $68.7 million.
• Total Debt: $429.3 million with net leverage of about 1.5x.
• Share Repurchases: Repurchased about 1.2 million shares for $25 million during the quarter.
• Guidance for Full Year 2024: Net sales slightly above $4.35 billion, adjusted EBITDA range of $237 million to $242 million.

• Warning! GuruFocus has detected 5 Warning Signs with GO.

Release Date: November 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Grocery Outlet Holding Corp (NASDAQ:GO) reported a 10.4% increase in net sales to $1.11 billion during the third quarter, driven by new store sales and a 1.2% increase in comparable store sales.
• The company opened five net new stores, increasing its store count to 529 locations by the end of the quarter, indicating a strong growth trajectory.
• Gross profit increased by 9.2% to $344.9 million, with a gross margin rate of 31.1%, which was 10 basis points ahead of expectations.
• The company repurchased approximately 1.2 million shares of stock during the third quarter, demonstrating a commitment to returning value to shareholders.
• Grocery Outlet Holding Corp (NASDAQ:GO) has a strong opportunistic buying model, which continues to resonate with consumers, as evidenced by a 2% increase in comp transaction count in Q3.

Negative Points

• The company experienced significant issues with its transition to SAP from legacy systems, impacting data visibility and operational efficiency.
• Comparable store sales growth was weaker than expected at 1.2%, with execution challenges cited as a contributing factor.
• The company revised its full-year adjusted EBITDA guidance downward by approximately $16 million, reflecting higher-than-anticipated expenses and execution challenges.
• Grocery Outlet Holding Corp (NASDAQ:GO) is facing increased competitive pricing pressures, which have impacted its value proposition and required adjustments.
• The departure of RJ Sheedy from the President and CEO positions has created a transitional leadership period, with Eric Lindberg stepping in as Interim President and CEO.

Q & A Highlights

Q: Eric, you mentioned the need to execute better. What are your first priorities to improve execution, and how are the system integration issues affecting this? A: Eric Lindberg, Chairman of the Board, emphasized doubling down on value and supporting independent operators by providing them with the necessary tools. He aims to put the systems transition issues behind and focus on a short list of priorities that matter most.

Q: Can you provide more color on RJ's departure and the type of CEO you're looking for? Also, where do the systems disruptions currently stand? A: Eric Lindberg explained that the decision for RJ Sheedy's departure was mutual and not due to any major disagreement. The systems are fully functional but still require enhancements for efficiency. The search for a new CEO will focus on candidates with public company experience, a proven track record, and an understanding of Grocery Outlet's unique model.

Q: How should we think about the appropriate margin profile for the business over a longer timeframe, and what strategic priorities are being reconsidered? A: Lindsay Gray, Interim CFO, stated that the long-term gross margin target remains at 30.5%. Eric Lindberg mentioned that they are reviewing their strategic priorities to focus on a smaller set of initiatives, but specific changes have not yet been decided.

Q: How is the United Grocery Outlet (UGO) acquisition progressing, and are there any changes in plans for transitioning these stores to independent operators? A: Eric Lindberg noted that the UGO acquisition is proceeding as expected, with no immediate plans to convert these stores to independent operators until after 2025. The focus is on integrating UGO into Grocery Outlet's systems and enhancing product offerings.

Q: With the challenges and opportunities ahead, what are your key priorities, and how will you continue to support independent operators? A: Eric Lindberg highlighted the importance of restoring value and maintaining strong relationships with independent operators. He plans to visit operators to ensure they have the support needed to overcome challenges and continue serving their communities effectively.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.