California-based Grocery Outlet (GO) is a discount retailer with a network of more than 400 supermarket stores across six states. It recently launched a pilot delivery program in partnership with Instacart in an attempt to catch up with Amazon (AMZN) and Walmart (WMT).
For its Fiscal Q3 ended October 2021, Grocery Outlet’s revenue was mostly flat compared to the same quarter in the previous year at $768.9 million and missed the consensus estimate of $782.1 million. The company posted adjusted EPS of $0.24, down from $0.28 in the same quarter in the previous year but beat the consensus estimate of $0.22.
Grocery Outlet ended the quarter with $156 million in cash and $450.9 million in debt. The company’s board has recently approved a $100 million share repurchase program that has no expiration date.
With this in mind, we used TipRanks to take a look at the newly added risk factors for Grocery Outlet.
Risk Factors
According to the new TipRanks Risk Factors tool, Grocery Outlet’s main risk category is Finance and Corporate, representing 40% of the total 57 risks identified for the stock. Ability to Sell and Production are the next two major risk categories at 23% and 16%, respectively. The company recently updated its profile with two new risk factors.
Grocery Outlet informs investors that it is facing intense competition for qualified workers, including for management roles. As a result, the company cautions that it may not be able to attract and retain qualified personnel to operate its business. It goes on to warn that a shortage of employees could adversely affect its operations and customer support.
Regarding its online shopping pilot with Instacart, Grocery Outlet cautions that its investment in the program may be lost if the pilot fails to meet expectations. It explains that some of its rivals have established robust online operations and have seen their sales increase during the COVID-19 pandemic. Grocery Outlet informs investors that it has limited experience in online operations and it may struggle to satisfy its customers. The company cautions that if the program does not go well, its business and financial condition could suffer substantially.
In an updated risk factor, the retailer informs investors that offering lower prices to customers is one of its major differentiators. Therefore, it carefully monitors the market to maintain its price advantage and reputation. However, the company notes that inflation is driving costs across the board. It cautions that if the cost of goods continues to rise, it may be forced to raise its prices, which could result in the loss of customers and a decline in sales.
The Finance and Corporate risk factor’s sector average matches that of Grocery Outlet’s at 40%. Grocery Outlet’s stock has declined about 40% over the past 12 months.
Analysts’ Take
Bank of America Securities analyst Robert Ohmes recently downgraded Grocery Outlet stock rating to a Sell from a Hold. Furthermore, the analyst lowered his price target to $23 from $26. Ohmes’ reduced price target suggests 9.31% downside potential.
Consensus among analysts is a Hold based on 3 Buys, 4 Holds, and 1 Sell. The average Grocery Outlet Holding price target of $28.13 implies 10.92% upside potential to current levels.
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