Grocery Outlet (GO) Rides High on Strategies: Apt to Hold


Grocery Outlet Holding Corp. (GO Quick QuoteGO ) seems well-poised for growth, thanks to its unique business model, strength in product offerings and store-growth endeavors. Management is focused on efficient marketing strategies to bolster sales and overall profitability. GO’s opportunistic purchasing strategy and e-commerce initiatives to deepen customer reach appear encouraging as well. Impressively, the grocery retailer’s shares increased 15.9% in the year-to-date period against the industry’s 0.9% dip.

Let’s Delve Deeper

Grocery Outlet’s flexible sourcing and distribution business model that differentiates it from traditional retailers places it well for sustainable growth. This helps it offer quality, branded consumables and fresh products at exceptional values. GO’s product offering is ever-changing with a constant rotation of opportunistic products, complemented by everyday staple products. In addition, GO’s “WOW!” deals coupled with updated website and marketing campaigns appear impressive. These factors help drive consumers and in turn, boost traffic and sales.

Grocery Outlet’s underlying business strength across areas, such as opportunistic supply, product assortments, and engagement with customers and independent operators looks solid. GO is offering same-day delivery of everyday essentials and staples from all its stores in collaboration with Instacart and DoorDash.

Grocery Outlet also teamed up with Uber Technologies to pilot on-demand and scheduled grocery delivery. Additionally, GO is piloting a mobile app in Washington State, whereby customers can view the trending items in stores on a real-time basis and access curated product recommendations based on their preferences.

Coming to its store-growth opportunities, Grocery Outlet has been making strategic investments for a while to improve its functionality and scalability. These include enhanced point of sale, warehouse management, vendor tracking, store communications, real-estate lease management, and financial planning and analysis. Management believes that there is a room to establish 4,800 locations nationally, in the long term.

What’s More?

Grocery Outlet’s first-half 2022 results gave a strong start to the third quarter and its sustained reinvestments in the business prompted management to provide robust net sales and earnings view for 2022. GO now expects 2022 net sales between $3.46 billion and $3.48 billion, indicating growth from $3.08 billion reported in 2021. It also predicts comparable store sales growth of 8%-8.5% against a decline of 6% recorded in 2021.

Management had earlier projected net sales in the range of $3.39-$3.42 billion and a comparable store sales increase in the band of 5.5-6.5% for 2022. Grocery Outlet envisioned adjusted earnings in the bracket of 97 cents to $1.00 per share for 2022, suggesting an increase from 90 cents reported in 2021.

Analysts look optimistic about Grocery Outlet. For 2022, the Zacks Consensus Estimate for GO’s sales and earnings per share (EPS) is currently pegged at $3.48 billion and 99 cents, respectively. These estimates suggest respective growth of 12.9% and 10% from the year-ago period’s corresponding figures. Also, for 2023, the consensus mark for sales and EPS is currently pegged at $3.86 billion and $1.16, respectively, suggesting an increase of 11.1% and 17.2% from the year-earlier corresponding tallies.

On a concluding note, Grocery Outlet will continue performing well ahead on the aforesaid strengths. A VGM Score of A coupled with an expected long-term earnings growth rate of 11.9% further speaks volumes for this presently Zacks Rank #3 (Hold) stock’s creditworthiness.

Don’t Miss These Solid Bets

Some better-ranked stocks are Lamb Weston (LW Quick QuoteLW ) , TreeHouse Foods (THS Quick QuoteTHS ) and General Mills (GIS Quick QuoteGIS ) .

Lamb Weston is a leading global manufacturer, marketer and distributor of value-added frozen potato products, which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales suggests growth of 14.8% and 42.3%, respectively, from the year-ago period’s reported figures. LW has a trailing four-quarter earnings surprise of 47.3%, on average.

TreeHouse Foods, a manufacturer of packaged foods and beverages, currently sports a Zacks Rank of 1. THS has a trailing four-quarter earnings surprise of 355.9%, on average.

The Zacks Consensus Estimate for TreeHouse Foods’ current financial-year sales and EPS suggests growth of 16.8% and 15.1%, respectively, from the corresponding year-ago reported figures.

General Mills, which manufactures and markets branded consumer foods worldwide, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 6.1%, on average.

The Zacks Consensus Estimate for General Mills’ current financial-year sales and EPS suggests growth of 2.6% and 3.6%, respectively, from the corresponding year-ago reported figures.

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