Grocery Outlet shares slide on concerns the retailer can’t hold on to customers gained during COVID

Grocery Outlet Holding Corp. inventory fell almost 11% in Wednesday buying and selling after the retailer reported an earnings miss and was downgraded at MKM Companions.

Grocery Outlet

reported second-quarter web earnings of $19.6 million, or 20 cents per share, down from $29.3 million, or 30 cents per share, final 12 months. Adjusted EPS of 23 cents was beneath the FactSet consensus for twenty-four cents.

Gross sales totaled $775.5 million down from $803.4 million however consistent with the FactSet consensus. Identical-store gross sales dropped 10% beating the FactSet consensus for an 11.1% drop.

For the quarter-to-date, Grocery Outlet has seen a 6% same-store gross sales decline. The corporate expects the quarter to complete at a mid-single-digit decline. The FactSet consensus is for a 2.8% decline.

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“With 2Q and 3Q QTD comparable-store gross sales beneath our expectations… we don’t have faith in Grocery Outlet’s capacity to retain enterprise received in the course of the interval of COVID-related disruption,” wrote Invoice Kirk, government director at MKM Companions.

MKM downgraded Grocery Outlet to impartial from purchase and minimize its truthful worth estimate to $29 from $45.

“Grocery Outlet’s worth proposition doesn’t play effectively in an setting the place shoppers’ monetary well being and low-end wage prospects are enhancing,” Kirk wrote. “Absent a unfavourable macro shock or channel shift through elevated COVID case counts, we fear that Grocery Outlet’s two-year stack comparable-store gross sales will proceed to decelerate and profitability shall be pressured.”

Quo Vadis can be pessimistic concerning the firm’s future.

“Grocery Outlet shares proceed to commerce at legacy post-IPO premium multiples (15x EV to EBITDA) that don’t mirror the corporate’s fundamentals, in our view,” wrote John Zolidis, president of Quo Vadis.

Grocery Outlet started buying and selling in June 2019.

“The corporate is a low-margin (mid-3% EBIT), low-return enterprise (M-HSD% ROIC), with mediocre progress (LDD% annual EPS) and restricted free money circulation era.”

Quo Vadis charges Grocery Outlet promote.

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Cowen analysts maintained their outperform inventory ranking, although they minimize their value goal to $36 from $42.

“Implementation of e-comm and new supply choices, broadening the product assortment, and constructing East Coast infrastructure and expertise bode effectively for long-term buyer engagement and attain,” analysts mentioned.

Grocery Outlet mentioned on the earnings name that three to 5 retailer openings deliberate this 12 months shall be within the East, together with the corporate’s first New Jersey location. The corporate is planning as many as 38 retailer openings.

And the corporate is testing e-commerce fashions.

“Grocery Outlet was beforehand hesitant to pilot e-comm because the treasure hunt mannequin doesn’t translate effectively to on-line,” analysts wrote.

Grocery Outlet inventory has fallen 29.8% for the 12 months to this point whereas the S&P 500 index

is up 18.3% for the interval. | Grocery Outlet shares slide on issues the retailer can’t maintain on to prospects gained throughout COVID


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