Grocery Outlet (GO) Rides on Unique Business Model & Comps
Grocery Outlet Holding Corp. GO seems well poised from a long-term perspective, given its flexible sourcing and distribution model that differentiates it from traditional retailers. In addition, the company is capitalizing on store-growth opportunities, as it believes that there is potential to establish 4,800 locations nationally over the long term. We believe that Grocery Outlet’s compelling value proposition, coupled with strength in product offerings and WOW! deals, will continue fueling comparable-store sales growth ahead. Notably, the company has seen growth in the metric for 16 straight years now.
Impressively, the EmeryVille, CA-based company’s shares have increased 18.6% so far this year, outperforming the broader S&P 500 Index’s 2.4% rise and the industry’s 4.9% decline.
Let’s Analyze Further
Grocery Outlet’s business model helps the company offer quality name-brand consumables and fresh products at exceptional values. Its product offering is ever-changing, with a constant rotation of opportunistic products, complemented by everyday staples. In addition, the company’s WOW! deals, coupled with an updated website, modernized logo and new marketing campaigns, look impressive. These factors help drive consumers and in turn boost traffic and sales.
Speaking of store-growth endeavors, Grocery Outlet plans to open 30-32 outlets this year with no additional store closure planned. The company remains optimistic about 10% annual unit growth. Notably, the company has been making strategic investments 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.
Aforementioned strengths, along with the company’s opportunistic purchasing strategy, inventory optimization, marketing initiatives and new product offerings have been aiding Grocery Outlet’s comparable-store sales. In terms of offerings, the company sources on-trend products based on consumer preferences. With consumers now looking for fresh and healthy options, the company has shifted its focus to Natural, Organic, Specialty and Healthy or NOSH products, and fresh seafood and grass-fed meat.
Encouragingly, Grocery Outlet registered comparable-store sales growth of 16.7% during second-quarter 2020, following an increase of 17.4% in the preceding period, courtesy of increase in average transaction size. We note that the company’s comparable-store sales rose a meager 5.8% in the prior-year period. Management notified that for the third quarter through Aug 10, comparable-store-sales growth is tracking at approximately 10%. The increase in comparable-store sales reflects rise in average basket size.
Given the encouraging prospects, this Zacks Rank #1 (Strong Buy) stock appears to be a prudent investment option now. You can see the complete list of today’s Zacks #1 Rank stocks here.
Don’t Miss These Solid Bets
Ollie's Bargain Outlet OLLI has a long-term earnings-growth rate of 21.6% and a Zacks Rank #2 (Buy).
Kroger KR has a long-term earnings-growth rate of 5.5%. Currently, it carries a Zacks Rank #2.
Sprouts Farmers Market SFM, also a Zacks Rank #2 stock, has a long-term earnings-growth rate of 9.2%.
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