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Grocery Outlet: More Consumers Visiting the Outlet

Thomas Paulson
Aug 12, 2022
Grocery Outlet: More Consumers Visiting the Outlet

Key Grocery Outlet Metrics

Grocery Outlet (GO) reported an excellent 2Q22 with sales growth broadly distributed among new units, comparable store traffic, and higher average ticket. In addition, profitability improved. Clearly the current inflationary environment has households shifting their spending to the brand and GO is well executing on the opportunity and providing a lot of "WOW!" (GO aspires to offer a 40% savings on a basket versus a traditional grocery competitor.) SG&A expense was higher due to increases in incentive pay and independent owner-operator (independent operators that "franchise" and manage the store, or IOs) commissions given that the chain is beating plan.

  • GO's 11% comparable-store sales increase was driven by strength across product categories and store vintages and split roughly even between traffic and ticket. Ticket was up with inflation and added selection, including its everyday assortment. Management didn’t describe fewer units or lower weights (i.e., fewer potatoes in the sack) as a headwind to comps, something that peers like Sprouts and Kroger have described. Management expects 3Q22 comparable sales to increase +10%.
  • Trailing-twelve-month sales per square foot increased $14 QoQ to $576. Given the breadth of strength and the traffic gains, it seems likely that comps and sales per square foot will increase by mid-single-digits over the next year. While it’s great to see the increased sales momentum YTD, as shown in the table below, that momentum is against steep declines, and as such, the 2- and 3-year CAGRs are little changed. After GO laps those declines and as inflation eases (which we expect), one should expect comps to slow.

  • GO added 7 new locations during the quarter, ending the period with 425 stores in eight states. CEO Eric Lindberg shared, "We believe that the greater Mid-Atlantic market represents roughly 250 store opportunity on our way towards our long-term target of approximately 4,800 stores nationally." In addition, the goal of returning to +10% unit growth beginning next year was reiterated. Lindberg also stated, "Inbound interest [by prospective IOs] remains high, and our current pipeline of IOs is healthy."
  • TTM EBITDA and free cash flow were $164M and $48M, respectively. Both metrics are likely to be up mid-single-digits or better over the next twelve months.
  • Profitability was roughly even for the quarter and gross margins better than plan as "it was a slightly more favorable buying environment."

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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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