Key Grocery Outlet Metrics
Grocery Outlet (GO) was able to build upon the momentum that it described early in the quarter and its deep value proposition won more new customers and higher frequency, despite the trend shift to grocers and clubs with fuel stations and fuel points (that are winning market share because of high gas prices). This is also true for Aldi (winning), while players like Sprouts (which we covered last week) and The Fresh Market have not fared as well.
- Grocery Outlet President RJ Sheedy shared, “With eating out becoming even more expensive, gas prices at record high levels, and government stimulus waning, we believe consumer behavior is shifting. Our most recent consumer survey results show an increase in the importance of value, both from our core and secondary customers.”
- Based upon a better-than-planned 1Q22 and strong results thus far in 2Q22 (both traffic and ticket), management raised its guidance for sales and profits for the year.
- During 1Q22, GO opened 4 (gross) new stores, bringing the total store opening to 418 units. New store productivity was 50%. Management reiterated their plans for 28 net new locations for 2022, including 10 in the Mid-Atlantic. Management also reiterated their plans to return to 10% unit growth in 2023.
- Comp-store sales increased +5.2% which took the 2- and 3-year compounded rates higher by +200 bps and trailing-twelve-month (TTM) sales per square foot to $585 (versus $681 at Kroger). Given the double-digit CPI for food-at-home and positive ticket, GO units per transaction (UPTs) are declining (similar to what Sprouts described), although GO likely benefitted from its initiative to stock a wider SKU assortment to help make its stores more of a primary shop (which has been a knock on the business), Also similar to Sprouts, management described the competitive environment as “pretty stable.” We've presented 1-year, 2-year, and 3-year comparable-store sales trends for group (below).
- TTM EBITDA of $178M was even with the $175M posted in 2019 (although EBITDA margins are down modesty over the same period due to inflationary cost pressures). TTM FCF was 32% of EBITDA which is substantially above the levels posted in 2019.
- Importantly, Grocery Outlet CEO Eric Lindberg shared, “Our supply pipeline remains strong and our IOs are excited about the positive trends in their business…and looking forward to delivering a very strong year.”
- Regarding supply, Sheedy said, “one, our suppliers continue to invest in capacity and ramp production to meet demand. At the same time, forecasting has been challenging for them due to inconsistency and demand patterns and continued supply chain challenges. Two, our suppliers are investing in innovation with planned introductions of new items, brand extensions and packaging changes. And three, not surprisingly, our suppliers are facing and trying to manage through unprecedented levels of inflation in their businesses. We are ideally positioned to capitalize on these dynamics as we are finding new and creative ways to help our supplier partners manage surplus inventory.” (If this were not the case GO’s gross margin would be contractive versus maintaining.)
- On delivery, they have now rolled out Instacart to all stores. During Q2, they intend to add additional delivery providers, including UberEats and DoorDash. GO’s other initiative of personalization on the mobile app with full visibility to the entire store’s inventory is on track to pilot over the summer.
