On Wednesday, Grocery Outlet Holding Corp's (NASDAQ: NASDAQ:GO) share price target was lowered to $37.00 from the previous $40.00, while Telsey maintained the Outperform rating. The discount grocery chain reported fourth-quarter earnings that surpassed expectations, highlighting the robustness of the discount grocery sector and the benefits of specific company initiatives.
Grocery Outlet announced an adjusted earnings per share (EPS) of $0.18 for the fourth quarter of 2023, which exceeded both the analyst's estimate of $0.17 and the FactSet consensus of $0.16. This outperformance was attributed mainly to a higher comparable store sales (comp), even as the adjusted EBITDA margin met forecasts. The Telsey analyst noted that ongoing system transition issues had a negative impact, reducing the fourth-quarter comp by approximately 200 basis points and the gross margin by around 130 basis points.
"Grocery Outlet reported better-than-anticipated 4Q23 results, reflecting the strength of the discount grocery business and gains from company-specific initiatives." Said the analyst.
Despite these challenges, Grocery Outlet's fourth-quarter sales saw a 6.3% increase to $990 million. This growth was fueled by the addition of 27 net new stores over the last twelve months and a strong comp of 2.7%, with transaction growth of 7.5%. These figures outpaced the analyst's sales target of 2.0% and the FactSet consensus of 2.1%. The company's performance was bolstered by consumers seeking value, increased at-home consumption, and effective merchandising strategies.
The adjusted EBITDA margin for the quarter fell by 70 basis points to 5.1%. This decline was anticipated due to the higher costs associated with the systems transition and increased commission payments to independent operators. Despite these headwinds, the report concluded that Grocery Outlet executed well in the fourth quarter of 2023.
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