Shares of Grocery Outlet Holding Corp. GO advanced 4.7% during the after-market trading session on yesterday following third-quarter 2024 results. Both top and bottom lines surpassed the Zacks Consensus Estimate. While net sales improved, earnings declined from the year-ago period. The company’s net sales growth in the third quarter highlights the strong positioning of its consumer offering, with value continuing to resonate in the market and driving growth in consumer non-discretionary spending share.

GO’s Quarterly Performance: Key Insights

Grocery Outlet’s adjusted earnings of 28 cents per share beat the Zacks Consensus Estimate of 27 cents but declined from 31 cents delivered in the year-ago quarter.

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Net sales of $1,108.1 million beat the Zacks Consensus Estimate of $1,100 million. The top line grew 10.4% year over year. This outperformance was driven by decent comparable store sales performance and new stores opened.

Comparable store sales increased 1.2% in the quarter, driven by a 2% jump in the number of transactions, partly offset by a 0.7% decline in the average transaction size. We had anticipated a 1.5% growth in the metric. In the year-ago period, the company had reported a comparable store sales increase of 6.4%.

Grocery Outlet’s Margin & Cost Details

The gross profit rose 9.2% year over year to $344.9 million. However, the gross margin contracted 30 basis points to 31.1% due to the disruptions as a result of the implementation of new technology platforms. Adjusted EBITDA came in at $72.3 million, up 6% from $68.1 million in the year-ago period. The adjusted EBITDA margin of this Zacks Rank #4 (Sell) company shrunk 30 basis points to 6.5%.

We had anticipated a 40-basis point contraction in both the gross margin and the adjusted EBITDA margin.

SG&A expenses jumped 9.5% to $304.6 million in the quarter. As a percentage of net sales, SG&A expenses decreased 20 basis points to 27.5%.

GO’s Store Update

In the quarter, Grocery Outlet expanded its footprint with the opening of five new stores, bringing the total to 529 stores across 16 states.

The company aims to inaugurate 66 net new stores in 2024. This encompasses the addition of 40 United Grocery Outlet stores, alongside the opening of 26 new Grocery Outlet stores in its existing markets.

Grocery Outlet’s Financial Health Snapshot

Grocery Outlet ended the quarter with cash and cash equivalents of $68.7 million, net long-term debt of $419.9 million and stockholders’ equity of $1,226.1 million.

Net cash provided by operating activities during the quarter was $23 million. Capital expenditures totaled $49.1 million before accounting for tenant improvement allowances and $38.2 million after factoring these allowances. Management envisions capital expenditures (net of tenant improvement allowances) of about $200 million for 2024.

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GO’s 2024 Outlook

Management anticipates 2024 net sales to be slightly above $4.35 billion compared with the previous estimate between $4.30 billion and $4.35 billion. The company reported net sales of $3.97 billion in 2023. It now expects comparable store sales growth of 2.4%, lower than previous anticipation of 3.5% rise. The company had reported a 7.5% increase in 2023. 

Grocery Outlet guided a full-year gross margin of 30.4%, slightly down from earlier 30.5%. The current projection showed a 90-basis point contraction in the gross margin from the year-ago period.

GO expects adjusted EBITDA between $237 million to $242 million in 2024 as compared with the earlier projection of $252 million and $260 million. The company had reported adjusted EBITDA of $252.6 million in 2023. 

Grocery Outlet envisions adjusted earnings in the band of 77-80 cents, lower from earlier guidance of 89-95 cents. The company reported adjusted earnings of $1.07 per share in 2023.

Shares of this extreme-value retailer of quality, name-brand consumables and fresh products firm have lost 25.9% in the past three months against the industry’s growth of 2.3%.

Stocks Hogging the Limelight

Sprouts Farmers SFM, which is engaged in the retailing of fresh, natural and organic food products, currently sports a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

SFM has a trailing four-quarter earnings surprise of 15.3%, on average. The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and earnings implies growth of around 11.4% and 26.4%, respectively, from the year-ago reported numbers.

Walmart WMT, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2 (Buy). WMT has a trailing four-quarter earnings surprise of 6.9%, on average. 

The Zacks Consensus Estimate for Walmart’s current financial-year sales and earnings indicates growth of around 4.7% and 9.9%, respectively, from the year-ago reported numbers.

Vital Farms VITL offers pasture-raised products in the United States. It currently sports a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 82.5%, on average. 

The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings implies growth of around 27% and 88.1%, respectively, from the year-ago reported numbers.

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