Grocery Outlet Comps Still Humming Despite Traffic Dip

Shut-in consumers are shopping for food less frequently than they typically do, but they are buying considerably more food when they do shop, figures from Grocery Outlet released this week show.

The Emeryville, Calif.-based discounter's preliminary financial results show that comps in the fiscal quarter ending March 30 increased by 17.4% and sales climbed by 25.4%, reflecting a surge in “pantry-loading” that occurred over late February and early March as the coronavirus panic set in. In April, with stay-at-home orders affecting nearly all of its shoppers, trips are down vs. the same period a year ago, but sales remain elevated, with “high single-digit” comps reflecting bigger average baskets.

Grocery Outlet issued the preliminary quarterly report in conjunction with plans by an affiliate of its majority owner to sell up to 11.5 million shares of its stock in a secondary offering. The private equity firm Hellman & Friedman has gradually reduced its shares since an initial public offering last summer. The latest offering would reduce its stake in the company from 29.5% currently to as little as 17.2% if underwriter options to buy 1.5 million shares are exercised.

Proceeds from the stock sale will benefit the sellers and not the company.  

“While April sales trends have moderated compared to the wave of customer pantry loading experienced in March, comparable store sales trends for the first three fiscal weeks of April were in the positive, high single digits in percentage terms,” the company said in a release. “As shelter-in-place requirements continued, we have experienced reduced store traffic and, as a result, year-over-year declines in the number of customer transactions on a comparable-store basis.  However, the reduction in shopper visits have been more than offset to date by an increase in average transaction size.

“While specific high-velocity items such as toilet paper have remained challenging to procure in ample quantities, we continue to purchase high volumes of both opportunistic and everyday products. As a result, we have been able to manage overall inventory positions to meet higher customer demand."

In the first quarter, Grocery Outlet’s sales increased by 25.4% to $760.3 million, and comparable-store sales jumped by 17.4% on top of a 4.2% comp rise in last year’s first quarter. Net income is expected to increase by 147.7% to a midrange estimate of about $9.4 million. The company said gross margins in the quarter were consistent with last year’s 30.8% rate.

Grocery Outlet expects income from operations to decrease to a range of $14.3 million and $15.3 million, compared to $21.7 million a year ago, reflecting a $20.5 million stock compensation expense incurred in a February sale of stock by Hellman & Friedman. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is expected to increase by $16.4 million, or 41.9%, based on a midrange estimate, and adjusted net income is expected to increase by 209.6% based on a midrange estimate of $30.3 million to $31.4 million.

The company expects to take a greater hit on expenses associated with increased safety measures in stores in the current quarter and said new store openings could be delayed.