Discount grocery store chain Grocery Outlet (NASDAQ: GO) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 8.5% year on year to $1.13 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $4.75 billion at the midpoint. Its non-GAAP profit of $0.13 per share was 82.9% above analysts’ consensus estimates.
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Grocery Outlet (GO) Q1 CY2025 Highlights:
- Revenue: $1.13 billion vs analyst estimates of $1.12 billion (8.5% year-on-year growth, in line)
- Adjusted EPS: $0.13 vs analyst estimates of $0.07 (82.9% beat)
- Adjusted EBITDA: $51.89 million vs analyst estimates of $48.8 million (4.6% margin, 6.3% beat)
- The company reconfirmed its revenue guidance for the full year of $4.75 billion at the midpoint
- Management reiterated its full-year Adjusted EPS guidance of $0.73 at the midpoint
- EBITDA guidance for the full year is $265 million at the midpoint, below analyst estimates of $268.2 million
- Operating Margin: -2%, down from 0.1% in the same quarter last year
- Free Cash Flow was -$1.51 million compared to -$38.43 million in the same quarter last year
- Locations: 543 at quarter end, up from 474 in the same quarter last year
- Same-Store Sales were flat year on year (3.9% in the same quarter last year)
- Market Capitalization: $1.60 billion
“We delivered solid first quarter results, with comp-store sales and gross margins slightly ahead of our outlook, driven by traffic growth and tighter inventory management,” said Jason Potter, President and CEO of Grocery Outlet.
Company Overview
Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ: GO) is a discount grocery store chain that offers substantial discounts on name-brand products.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.
With $4.46 billion in revenue over the past 12 months, Grocery Outlet is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the bright side, it can grow faster because it has more white space to build new stores.
As you can see below, Grocery Outlet’s 11.3% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was decent as it opened new stores and increased sales at existing, established locations.
This quarter, Grocery Outlet grew its revenue by 8.5% year on year, and its $1.13 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 7.9% over the next 12 months, a deceleration versus the last six years. Despite the slowdown, this projection is noteworthy and implies the market is forecasting success for its products.
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Store Performance
Number of Stores
A retailer’s store count influences how much it can sell and how quickly revenue can grow.
Grocery Outlet operated 543 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years, averaging 10.7% annual growth, much faster than the broader consumer retail sector. This gives it a chance to scale into a mid-sized business over time.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Same-Store Sales
The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.
Grocery Outlet’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 3.7% per year. This performance along with its meaningful buildout of new stores suggest it’s playing some aggressive offense.
In the latest quarter, Grocery Outlet’s year on year same-store sales were flat. This was a meaningful deceleration from its historical levels. We’ll be watching closely to see if Grocery Outlet can reaccelerate growth.
Key Takeaways from Grocery Outlet’s Q1 Results
We were impressed by how significantly Grocery Outlet blew past analysts’ EPS and EBITDA expectations this quarter. On the other hand, its full-year EBITDA guidance slightly missed. Overall, we think this was still a solid quarter with some key areas of upside. The stock remained flat at $16.41 immediately following the results.
Grocery Outlet may have had a good quarter, but does that mean you should invest right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.
