Key Takeaways:
Grocery Outlet Holding Corp. reported first-quarter earnings that beat analyst estimates, sending shares up 16.4% in after-hours trading despite a decline in comparable-store sales.
"Results reflected improving traffic trends and progress in restoring the company’s opportunistic product mix," management highlighted in the earnings release, noting that higher-value branded deals are resonating with customers.
The discounter posted adjusted earnings of 5 cents per share on revenue of $1.17 billion. This topped the Zacks Consensus Estimate of 2 cents and $1.15 billion, respectively. However, comparable-store sales fell 1% as a 3.1% decrease in average basket size offset a 2.1% gain in transactions.
The stock reaction suggests investors are focused on the earnings beat and reaffirmed guidance, which projects full-year adjusted EPS of 45 to 55 cents. The company is navigating a challenging consumer environment while executing a store optimization plan that involved 27 closures in the quarter.
Gross margin for the quarter contracted 80 basis points year-over-year to 29.6%, with management attributing 50 basis points of the decline to inventory markdowns and store closure costs under its optimization plan. Adjusted EBITDA fell 16.9% to $43.1 million.
The company is undergoing a significant restructuring, closing 36 underperforming stores to improve long-term profitability. It closed 27 of these locations in the first quarter and the remaining nine in April, finishing the quarter with 549 stores.
For the second quarter, Grocery Outlet expects comparable-store sales to decline between 1.5% and 2%, which includes an estimated 50-basis-point headwind from the Easter calendar shift.
The strong share price reaction indicates investors are prioritizing the earnings beat and stable outlook over the soft comparable sales figures. Investors will watch the second-quarter results to see if the company's strategy to improve traffic and restore its product mix can successfully counter persistent pressure on customer basket sizes.
This article is for informational purposes only and does not constitute investment advice.
