Grocery Outlet fuels expansion as third-quarter sales climb

Grocery Outlet Holding Corp. saw net sales climb by double digits and earnings per share more than triple in its fiscal 2020 third quarter.

In reporting the quarterly results late yesterday, CEO Eric Lindberg also announced that veteran retail grocery technology executive Harrison Lewis has joined the company as chief information officer.

For the quarter ended Sept. 26, Grocery Outlet tallied net sales of $764.1 million, up 17.1% from $652.5 million a year earlier. Comparable-store sales rose 9.1% year over year.

“For the third quarter, we generated 17% revenue growth driven by 35 net store openings since the end of the same period last year in combination with 9.1% comp increase. This follows a 5.8% comp increase in the third quarter last year,” CEO Eric Lindberg said in a conference call with analysts. “Our strong comp performance was driven by higher basket size as customers continue to consolidate their shopping trips.”

As at other grocery retailers, quarterly sales growth at Grocery Outlet remained strong but has moderated since the initial spike from pandemic-driven stockpiling purchases earlier this year. Net and comp-store sales increased 25.4% and 17.4%, respectively, in the first quarter ended March 28 and were up 24.5% and 16.7%, respectively, for the second quarter ended June 27.

Related:Grocery Outlet raises $3 million to combat food insecurity, adds $1 million to total

“Our strong comp performance in the quarter was broad-based across all regions, vintages and categories,” Chief Financial Officer Charles Bracher said of third-quarter results. “Trends were in line with our expectations, driven by an increase in average transaction size partially offset by a reduction in traffic as customers continued to consolidate trips. Over the quarter, traffic trends remained stable. While the average basket size moderated, food-away-from-home spending increased.”

The company projects fourth-quarter comp sales to grow in the mid-single digits, fueled by a bigger average basket size and partially offset by declines in store traffic.

New stores showed a solid performance in the third quarter, executives said in the call. During the period, Grocery Outlet opened 10 new stores, expanding its retail base to 372 stores in California, Washington, Oregon, Pennsylvania, Idaho and Nevada.

“Sales productivity trends in our new stores — including recent vintages as well as 2020 openings — remain healthy, reflecting elevated demand compared to last year,” Bracher said.

Grocery Outlet plans to open another seven stores in the fourth quarter, which will bring its total 2020 store openings to 34, for approximately 10% unit growth, according to Lindberg.

Related:Hellman & Friedman to divest stake in Grocery Outlet

Harrison Lewis, Grocery Outlet's new CIO.

“Looking forward, we remain pleased with the health of our real estate pipeline in support of our 10% annual unit growth objective. As we have discussed previously, we have significant white space in front of us, which we believe supports over 1,500 new stores in existing states and neighboring markets,” he said. “Our business model is rooted in value and has a broad customer appeal. This has resulted in a store model that has proven to be highly portable, with strong performance across geographies, cities and with customers at various income levels.”

Grocery Outlet, which describes itself as an “extreme value” retailer, touts big discounts on brand-name products and has said a typical shopper basket is priced about 40% lower than that of conventional grocers and 20% lower than leading discounters. Stores are run by independent owner-operators from the communities they serve, enabling locations to cater closely to changing customer preferences.

“We have made great progress this year in establishing our foundation for growth in the Mid-Atlantic region, where we plan to open approximately three to five stores next year,” Lindberg said. “We remain focused on building our pipeline to support ongoing growth in this region. And we're very encouraged by both the quality of the real estate sites we’re seeing and the operator talent we’re finding. While we’re energized about the growth potential of the East, we will manage this expansion with the same disciplined growth we have taken in the West.”

At the bottom line, third-quarter net income came in at $40.5 million, or 41 cents per diluted share, compared with $12.4 million, or 13 cents per diluted share, a year ago.

Grocery Outlet noted that earnings reflect a $15 million net tax benefit from employee stock option exercises, lifting quarterly net income by $21.9 million, or 22 cents per diluted share. On an adjusted basis, net earnings were $49.9 million, or 50 cents per diluted share, versus $20.6 million, or 22 cents per diluted share, in the prior-year period.

Analysts, on average, projected adjusted earnings per share of 23 cents, with estimates ranging from a low of 21 cents and a high of 25 cents, according to Refinitiv/Thomson Reuters.

“As we look forward, we remain committed to reinvesting back in the business across talent and infrastructure as well as operational and systems enhancements as we scale for long-term growth. We’ve added some incredible talent to our organization over the last 12 months, and I’m very pleased to share that we recently hired Harrison Lewis to be our chief information officer,” Lindberg said.

Lewis (left) joined Grocery Outlet as senior vice president and CIO in September, coming over from Northgate Gonzalez Market, where he served as CIO, chief product officer and digital business head. Before that, he held a range of technology roles at grocery retailers, including vice president and CIO at Haggen, vice president and chief architect at A&P, and director of e-commerce at H-E-B.

“Harrison brings over 30 years of business leadership and IT experience to Grocery Outlet, including the design and integration of digital platforms, AI and Big Data adoption, and cloud-based operations,” Lindberg said. “His knowledge and expertise make him a great complement to our leadership team, and we are excited to have him on board.”