Grocery Outlet Shares Fall on Poor Q2 Results

Discount supermarket chain Grocery Outlet Holding Corp. (GO) delivered disappointing second-quarter results, with year-over-year declines and both sales and earnings falling short of expectations. Shares fell 2.4% following the news in the after-hours trading session on August 10.

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The company reported adjusted earnings of $0.23 per share, down 28% year-over-year, which also missed consensus estimates by $0.01 per share.

Net sales also declined 3.5% to $775.53 million compared to the year-ago period and marginally missed the Street’s estimate of $775.55 million. Additionally, the company’s comparable-store sales decreased 10% year-over-year. (See Grocery Outlet stock charts on TipRanks)

Eric Lindberg, CEO of the company, said, “While we continue to navigate changing consumer behaviors, we remain pleased with the health of opportunistic supply, our product assortment, and our strong engagement with customers and independent operators alike. We are also exploring new ways to expand our share of wallet and broaden our customer base.”

For the third quarter, GO forecasts comparable store sales to decline by mid-single digits. Notably, for the full year 2021, the company expects to open around 36 – 38 stores, with one closure.

In response to the disappointing results, MKM Partners analyst William Kirk downgraded the stock’s rating to Hold from Buy and lowered the price target to $29 (6.2% downside potential) from $45.

Commenting on the company’s performance, Kirk said, “Grocery Outlet resonates well with customers and has very favorable demographics, but the value proposition is not resonating in the current economic climate. In our view, GO’s valuation needs to rerate downward until: 1) two-year comp trends stabilize or 2) value-seeking consumer behavior returns.”

Overall, the stock has a Hold consensus rating based on 1 Buy and 5 Holds. The average Grocery Outlet price target of $35.83 implies 15.8% upside potential to current levels. Shares have lost 27.5% over the past year.