Grocery Outlet hits $1B net sales in Q3, despite tech system upgrade challenges

Grocery Outlet Holding Corp. held on to its strong results as its third quarter net sales topped $1 billion—but the quarter was not without its challenges.  

For the quarter ended Sept. 30, net sales increased 9.3% to $1 billion, the Emeryville, California-based discount grocer reported on Tuesday. Gross margin increased to 31.4%, 80 basis points over the third quarter of last year.

Comparable-store sales rose 6.4% during the period, driven by an 8.6% jump in the number of transactions that was partially offset by a 1.9% decline in average transaction size.

Net income increased 55.1% to $27.1 million, or $0.27 per diluted share. Adjusted EBITDA increased by 20% to $68.1 million, or 6.8% of net sales.

"We are pleased with our third quarter performance and the underlying trends in our business," said RJ Sheedy, CEO of Grocery Outlet, in a statement.

In August, Grocery Outlet upgraded its tech systems, an overhaul that included enhanced data analytics capabilities. But the Q3 upgrades led to operational disruptions that are estimated to have muted same-store sales by about 150 basis points and gross margin by 50 basis points, the grocer said.

"During the third quarter, we implemented new systems to improve capabilities and drive efficiencies as we scale for future growth,” Sheedy said in a statement. “Despite operational challenges during the transition, we delivered strong results including same store sales growth, gross margin expansion, and bottom-line leverage. Our value proposition continues to resonate with consumers, and we are gaining market share."

Unit growth for the third quarter included the opening of eight new stores, ending the quarter with 455 stores in eight states. Looking ahead, Grocery Outlet’s pipeline for future store growth remains “massive,” Sheedy told analysts.

Grocery Outlet said it expects full-year earnings to be in the range of $1.04 to $1.06 per share, with revenue expected to be $3.95 billion.