Grocery Outlet Q1 Earnings Surpass Estimates, Margin Expands

Grocery Outlet Holding Corp. GO reported first-quarter 2025 results, wherein the top line was slightly short of the Zacks Consensus Estimate but increased year over year. Meanwhile, earnings surpassed the Zacks Consensus Estimate and improved from the same period last year.

Grocery Outlet's first-quarter results highlight solid performance, with comparable store sales and gross margins coming in slightly ahead of expectations, driven by increased store traffic and improved inventory management. The company's unique model, offering value through opportunistic products and locally operated stores, continues to resonate with consumers. Additionally, disciplined operational execution enabled it to surpass the high end of its guidance for gross margin, adjusted EBITDA and EPS.

GO’s Quarterly Performance: Key Insights

Grocery Outlet’s adjusted earnings of 13 cents per share exceeded the Zacks Consensus Estimate of 7 cents per share and gained 44.4% from 9 cents delivered in the year-ago quarter. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Grocery Outlet Holding Corp. Price, Consensus and EPS Surprise

 

Grocery Outlet Holding Corp. price-consensus-eps-surprise-chart | Grocery Outlet Holding Corp. Quote

Net sales of $1.126 billion slightly missed the Zacks Consensus Estimate of $1.128 billion. The top line grew 8.5% year over year. This outperformance was driven by contributions from store openings, including the acquired United Grocery Outlet locations in the prior year, and a 0.3% rise in comparable store sales.

Modest comp growth was driven by the timing shift of the Easter holiday relative to the prior year. During the quarter, transactions grew by 2.3%, while the average transaction size declined by 2%, reflecting evolving consumer purchasing behavior. We anticipated a flat comp for the first quarter.

Grocery Outlet’s Margin & Cost Details

The gross profit rose 12.7% year over year to $342.4 million. Gross margin expanded by 110 basis points to 30.4%, mainly driven by better inventory management, which had been affected by system issues in the previous year.

Adjusted EBITDA of $51.9 million increased 31.7% from $39.4 million in the year-ago period. The adjusted EBITDA margin of the company expanded 80 bps to 4.6%. Our model predicted a 50-bps expansion in the adjusted EBITDA margin.

SG&A expenses rose 9.1% to $331.1 million in the quarter. As a percentage of net sales, SG&A expenses increased 10 bps to 29.4%.

GO’s Store Update

In the first quarter, Grocery Outlet expanded its footprint with the opening of 10 new stores and closed one store, bringing the total to 543 stores across 16 states. The company aims to inaugurate 33-35 net new stores in 2025.

Grocery Outlet’s Financial Health Snapshot

Grocery Outlet ended the first quarter with cash and cash equivalents of $50.9 million, net long-term debt of $458.9 million and stockholders’ equity of $1.2 billion.

Net cash provided by operating activities was $58.9 million in the first quarter of 2025. Capital expenditures totaled $57.3 million (net of tenant improvement allowances). Management envisions capital expenditures (net of tenant improvement allowances) of about $210 million for 2025.

GO’s 2025 Outlook

Grocery Outlet's first-quarter results highlight continued confidence in its overall fiscal 2025 performance, as the management reiterates its full-year outlook for total net sales, net new store openings, gross margin, adjusted EBITDA and adjusted EPS. However, the company has updated its guidance for comparable store sales, restructuring charges and interest expense.

Management anticipates 2025 net sales between $4.7 billion and $4.8 billion. It expects comps growth of 1-2% compared with a 2-3% increase mentioned earlier.

Grocery Outlet guided a full-year gross margin in the range of 30-30.5%. It expects adjusted EBITDA of $260-$270 million in 2025. The company envisions adjusted earnings per share of 70-75 cents for 2025.

Grocery Outlet began a restructuring plan in late fiscal 2024, continuing into 2025, to boost long-term profits, improve cash flow and reduce costs. The plan includes ending 28 store leases in poor locations, canceling expensive warehouse projects and cutting some jobs to streamline operations.

The Zacks Rank #3 (Hold) company expects total restructuring charges of $59 million to $61 million, with approximately $49 million to $51 million related to store lease exits, including five additional closures. Of these charges, $9 million to $11 million is expected in the second quarter. Also, for fiscal 2025, Grocery Outlet has lowered its projected net interest expense to approximately $32 million, down from the previously forecasted $38 million.

Shares of this extreme-value retailer of quality, name-brand consumables and fresh products firm have lost 6% in the past three months as compared to the industry’s decline of 0.7%.

Key Picks

Sprouts Farmers SFM, which is engaged in the retailing of fresh, natural and organic food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SFM has a trailing four-quarter earnings surprise of 16.5%, on average. The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and earnings implies growth of around 13.4% and 32%, respectively, from the year-ago reported numbers.

United Natural Foods, Inc. UNFI distributes natural, organic, specialty, produce and conventional grocery and non-food products in the United States and Canada. At present, United Natural carries a Zacks Rank of 2 (Buy).

The consensus estimate for United Natural’s current fiscal-year sales and earnings implies growth of 1.9% and 485.7%, respectively, from the year-ago figures. UNFI delivered a trailing four-quarter earnings surprise of 408.7%, on average.

BRF Brasil Foods SA BRFS, formerly Perdigao S.A., is a Brazil-based food company. It carries a Zacks Rank #2 at present. BRFS delivered a trailing four-quarter average earnings surprise of 9.6%.

The consensus estimate for BRF’s current financial-year sales indicates growth of 0.3% from the prior-year reported levels.

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This article originally published on Zacks Investment Research (zacks.com).

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