Grocery Outlet Beats on Q3 Earnings, Trims Comparable Sales Outlook

Grocery Outlet Holding Corp. GO reported mixed results for the third quarter of 2025, wherein the top line lagged the Zacks Consensus Estimate but increased year over year. Meanwhile, earnings surpassed the Zacks Consensus Estimate but declined from the same period last year. Comparable-store sales grew year over year but fell short of management’s expectations. The slowdown in the latter part of the quarter stemmed from changes in the promotional strategy and marketing execution that failed to generate desired results. Shares of Grocery Outlet fell 10% in the after-hours trading session yesterday.GO’s Quarterly Performance: Key InsightsGrocery Outlet’s adjusted earnings of 21 cents a share beat the Zacks Consensus Estimate of 19 cents but fell from 28 cents reported in the year-ago quarter. Net sales of $1,168.2 million fell short of the Zacks Consensus Estimate of $1,182 million. However, the top line grew 5.4% year over year, driven by contributions from store openings and a modest uptick in comparable-store sales.Comparable-store sales increased 1.2%, supported by a 1.8% rise in the number of transactions, partially offset by a 0.6% decrease in the average transaction size. We anticipated 2% growth in comparable store sales for the quarter.Grocery Outlet Holding Corp. Price, Consensus and EPS Surprise Grocery Outlet Holding Corp. price-consensus-eps-surprise-chart | Grocery Outlet Holding Corp. QuoteGrocery Outlet’s Margin & Cost DetailsGross profit grew 3% year over year to $355.1 million during the quarter. However, the gross margin contracted 70 basis points to 30.4%. Still, the result was consistent with management’s outlook range. The metric shrank 20 basis points on a sequential basis, reflecting higher promotional activity and markdowns related to seasonal inventory. We projected a gross margin contraction of 80 basis points year over year. SG&A expenses increased 8.7% to $331 million, or 28.3% of net sales (in line with our expectation), up 80 basis points from last year. The rise primarily stemmed from new store costs, software amortization and higher incentive compensation. However, SG&A leveraged 20 basis points on a sequential basis.Adjusted EBITDA of $66.7 million declined 7.7% year over year, with the margin down 80 basis points to 5.7%. We projected a 90-basis-point contraction in the adjusted EBITDA margin.GO’s Store UpdateDuring the quarter, Grocery Outlet added 13 new stores and closed two, bringing its total to 563 stores across 16 states. The company aims to inaugurate 37 net new stores in 2025 compared to 33 to 35 stores projected earlier.During the quarter, the company launched a store refresh program in select pilot stores, featuring improved layouts, expanded core assortments and enhanced in-store messaging. Encouraged by early results, management plans to roll out the program to 20 stores by year-end 2025 and at least 150 stores by the end of 2026.Grocery Outlet’s Financial Health SnapshotGrocery Outlet ended the quarter with cash and cash equivalents of $52.1 million, long-term debt of $481.5 million and stockholders’ equity of $1,198.6 million. The company had $175 million remaining borrowing capacity under the revolving credit facility at the end of the quarter. The company’s net leverage ratio stood at 1.8x adjusted EBITDA.Net cash provided by operating activities was $17.3 million in the quarter. Capital expenditure totaled $39.4 million (net of tenant improvement allowances). Management maintained its capital expenditure outlook of $210 million (net of tenant improvement allowances) for 2025.GO’s 2025 OutlookManagement revised its fiscal 2025 guidance to reflect softer comparable sales trends and late-quarter promotional headwinds. Grocery Outlet now expects net sales between $4.70 billion and $4.72 billion, slightly narrowing the range from its prior projection of $4.7 billion to $4.8 billion. Comparable-store sales are anticipated to rise 0.6-0.9%, down from the earlier guided range of 1-2%, while the gross margin is now forecast between 30.3% and 30.4% versus 30%-30.5% estimated earlier. The company projects adjusted EBITDA in the band of $258 million-$262 million compared with the earlier estimate of $260 million to $270 million. GO guided adjusted earnings of 78 cents to 80 cents a share, tightened from the previous outlook of 75 cents to 80 cents. The company had reported adjusted earnings of 77 cents in 2024.For the fourth quarter of 2025, Grocery Outlet expects flat to 1% comparable-store sales growth, with the gross margin between 30% and 30.3%. It expects adjusted EBITDA in the range of $72 million-$76 million, and adjusted earnings between 21 cents and 23 cents a share compared with 15 cents reported in the year-ago period. Although near-term sales momentum remains modest, management expressed confidence that its ongoing store refresh initiatives, improved inventory visibility tools and strengthened IO execution will set the stage for sustainable comparable-store sales growth and stronger profitability in fiscal 2026.Shares of this extreme-value retailer of quality, name-brand consumables and fresh products have fallen 30.4% in the past three months compared with the industry’s decline of 7.4%.Stocks Looking Red HotThe Chefs' Warehouse, Inc. CHEF, a premier distributor of specialty food products in the United States, currently sports a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 14.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for CHEF’s current financial-year sales and EPS calls for growth of 8.1% and 29.3%, respectively, from the year-ago reported numbers.The TJX Companies, Inc. TJX, the leading off-price apparel and home fashion retailer in the United States and worldwide, currently carries a Zacks Rank #2 (Buy). TJX has a trailing four-quarter earnings surprise of 5.4%, on average. The Zacks Consensus Estimate for The TJX Companies’ current financial-year sales and EPS implies growth of 6.9% and 8.9%, respectively, from the year-ago reported numbers.Ollie's Bargain Outlet Holdings, Inc. OLLI, a leading off-price retailer of brand-name household products, currently carries a Zacks Rank #2. OLLI has a trailing four-quarter earnings surprise of 4.2%, on average. The Zacks Consensus Estimate for Ollie's Bargain’s current financial-year sales and EPS suggests growth of 17.4% and 16.5%, respectively, from the year-ago reported numbers.Zacks Names #1 Semiconductor StockThis under-the-radar company specializes in semiconductor products that titans like NVIDIA don't build. It's uniquely positioned to take advantage of the next growth stage of this market. And it's just beginning to enter the spotlight, which is exactly where you want to be.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $971 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report The TJX Companies, Inc. (TJX): Free Stock Analysis Report The Chefs' Warehouse, Inc. (CHEF): Free Stock Analysis Report Ollie's Bargain Outlet Holdings, Inc. (OLLI): Free Stock Analysis Report Grocery Outlet Holding Corp. (GO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks