What Happened?

Shares of discount grocery store chain Grocery Outlet (NASDAQ:GO) jumped 7.1% in the morning session after Jefferies upgraded the stock's rating from Neutral to Buy. The firm added, "We upgrade GO to BUY, given our view that the company's defensive positioning as a low-price grocer could drive outperformance during periods of economic uncertainty."

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What The Market Is Telling Us

Grocery Outlet’s shares are very volatile and have had 26 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was about 2 months ago when the stock dropped 29.3% on the news that the company reported weak fourth-quarter 2024 results: its EPS, EBITDA, and full-year guidance for both metrics missed. Revenue narrowly topped Wall Street estimates. However, gross margin contracted due to higher inventory shrinkage from system conversion issues. 

Looking ahead, full-year guidance pointed to low-double-digit EBITDA growth, but margins remained under pressure, and restructuring costs could weigh on near-term profitability. 

The company recently appointed Jason Potter as its new CEO, bringing over 30 years of industry experience. His leadership would be closely watched as Grocery Outlet works to strengthen its operations and drive long-term growth. Overall, this quarter had some bright spots in revenue growth, but profitability challenges and a soft outlook made it a tough period for investors​.

Grocery Outlet is down 9.3% since the beginning of the year, and at $14.79 per share, it is trading 46.1% below its 52-week high of $27.44 from April 2024. Investors who bought $1,000 worth of Grocery Outlet’s shares 5 years ago would now be looking at an investment worth $424.98.

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