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On Wednesday, Telsey Advisory Group adjusted its price target for Grocery Outlet Holding (NASDAQ:GO) to $16.00, down from the previous $18.00, while keeping a Market Perform rating on the stock. The revision follows Grocery Outlet’s announcement of its fourth-quarter 2024 performance and projections for 2025, which demonstrated strong sales but were overshadowed by concerns over profitability. According to InvestingPro data, the stock has fallen nearly 40% over the past year, though current analysis suggests it may be slightly undervalued at its current price of $15.74.
Grocery Outlet reported earnings per share (EPS) of $0.15 for the fourth quarter of 2024, which fell short of both Telsey’s estimate and the FactSet consensus of $0.17. This miss was primarily attributed to a lower-than-expected adjusted EBITDA margin of 5.2%, compared to Telsey’s forecast of 5.7% and the FactSet consensus of 5.5%. Despite this, the company experienced a positive comparable store sales (comp) of 2.9%, surpassing Telsey’s forecast of 2.0%. InvestingPro data shows the company maintains profitability with trailing twelve-month revenue of $4.26 billion and a gross profit margin of 30.4%.
The company’s transaction growth remained robust, showing a 3.0% increase. However, profitability was negatively impacted by higher shrinkage as a result of ongoing issues with systems conversion. This issue, which has persisted, is expected to continue to affect profit margins, particularly in the first half of 2025. InvestingPro subscribers can access detailed financial health scores and additional insights, with 7 more exclusive ProTips available for this stock.
Grocery Outlet also provided insight into the start of the first quarter of 2025, indicating a weaker performance than anticipated. The company mentioned that while January’s results were satisfactory, February saw a deceleration in sales. Additionally, the later occurrence of Easter on April 20, 2025, as opposed to March 31, 2024, is expected to negatively influence comparable store sales by approximately 100 basis points.
The company is facing multiple challenges that are likely to pressure margins in the near term, including increased value penetration, rising egg prices, and continued elevated inventory shrinkage. Despite these issues, Grocery Outlet is actively working to resolve the systems conversion problem and is implementing new tools aimed at improving productivity. However, these efforts are anticipated to still present obstacles throughout 2025.
In other recent news, Grocery Outlet Holding Corp reported its fourth-quarter 2024 earnings, which showed a mixed performance. The company posted an earnings per share (EPS) of $0.15, falling short of the anticipated $0.17, but exceeded revenue expectations with $1.1 billion against a forecast of $1.09 billion. Despite the revenue beat, the company’s gross margin decreased by 70 basis points to 29.5%. In response to operational challenges, Grocery Outlet’s new management team has decided to slow down expansion, impacting the company’s growth strategy and earnings potential. DA Davidson analyst Katy Hallberg adjusted the company’s stock price target to $15.00 from $17.00, maintaining a Neutral rating, citing ongoing execution issues and system integration challenges. Hallberg noted that while comparable store sales have improved, the strategic decision to focus on operational efficiency could affect the company’s financial outlook in the near term. Additionally, Grocery Outlet plans to open 33 to 35 net new stores in 2025, a more measured pace compared to previous plans, to address these challenges.
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