Grocery Outlet keeps up strong sales growth in Q2

Grocery Outlet Holding Corp. CEO Eric Lindberg cited “strong execution across the organization” as driving double-digit sales gains and strong earnings growth for the extreme-value retailer’s fiscal 2020 second quarter.

For the quarter ended June 27, net sales jumped 24.5% to $803.4 million from $645.3 million a year earlier. Same-store sales growth more than doubled, up 16.7% versus a 5.8% increase in the 2019 quarter.

“Approximately one year ago today, we conducted our first earnings call as a public company. We’re very pleased to have delivered strong and consistent financial performance since our IPO,” Lindberg told analysts in a conference call after yesterday’s market close. “We’re equally proud of our ability to navigate the unprecedented challenges and opportunities presented by COVID-19 in recent months.”

Sales from 32 new store openings since the 2019 second quarter also lifted results, Lindberg noted. The Emeryville, Calif.-based company opened seven new stores during the 2020 second quarter, ending the period with 362 stores in California, Washington, Oregon, Pennsylvania, Idaho and Nevada.

“Our retail expansion strategy remains a significant investment priority. We opened seven new stores in the second quarter and now expect to open 30 to 32 new stores for the year,” Lindberg said. “We remain pleased with the performance of our new stores, which, like our broader store base, are benefiting from the elevated customer demand. Looking forward, we remain excited about the availability of attractive real estate sites as we continue to build our store pipeline to support 10% annual growth.”

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

Grocery Outlet is reinvesting its financial gains into opportunistic buying, including targeting smaller high-growth suppliers, and improved category management to stock more relevant items, drive higher sales productivity and sharpen seasonal planning, according to President RJ Sheedy.

Under its business model, Grocery Outlet offers big discounts on brand-name products, with a typical shopper basket priced about 40% lower than that of conventional grocers and 20% lower than leading discounters, the company said. Stores are run by independent owner-operators from the communities they serve, enabling locations to cater closely to changing customer preferences. Shopper savings is achieved via a sourcing model of purchasing surplus inventory and product overruns directly from thousands of supplier partners. That includes a changing assortment of products with “WOW!” prices that are highlighted in-store.

Related:Hellman & Friedman to divest stake in Grocery Outlet

Grocery Outlet is using personalized emails to better engage with customers, including regular WOW! alerts that communicate the best deals.

“Extreme value on quality branded products resonates with customers now more than ever,” Sheedy said in the call. “We continue to see strong engagement from existing customers and a healthy flow of new customers shopping Grocery Outlet. These new customers represent a mix of different shopping behaviors and patterns, consistent with our overall customer base. We are the primary source for some, and secondary or tertiary stores with others. We continue to target bargain-minded customers with value. This approach has served us well and offer us ample opportunity for growth.”

To convey its value proposition, Grocery Outlet also has fine-tuned its marketing by shifting from print to digital to communicate real-time, store-specific information on changing WOW! deals, Sheedy explained. The company, too, is using personalized emails to better engage with both new and existing customers, including regular WOW! alerts that communicate the best deals available.

“Our marketing strategies are focused on attracting new customers as well as staying top of mind to drive repeat visits with those that already shop us,” said Sheedy. “We continue to evolve our media mix and messaging to capture the attention of our target customer.”

At the bottom line in the second quarter, net earnings totaled $29.3 million, or 30 cents per diluted share, compared with a net loss of $10.6 million, or 15 cents per diluted share, in the prior-year period. Grocery Outlet noted that, due to employee stock option exercises, it recorded a $2.2 million tax benefit, resulting in an effective tax rate of (8.3)% that increased net income by $9.6 million, or 10 cents per diluted share.

Adjusted net earnings came in at $41.8 million, or 42 cents per diluted share, versus $14.5 million, or 20 cents per diluted share, in the 2019 quarter, Grocery Outlet reported. Analysts, on average, projected adjusted earnings per share of 23 cents, with estimates ranging from a low of 21 cents to a high of 27 cents, according to Refinitiv/Thomson Reuters.

For the fiscal 2020 first half, Grocery Outlet saw net sales rise 24.9% to $1.56 billion from $1.25 billion in the year-ago period. Comparable-store sales surged 17%, compared with a 5% uptick in the 2019 first half. The retailer opened 17 new stores and closed two locations.

Net income for the 2020 half was $42 million, or 43 cents per diluted share, versus net loss of $6.9 million, or 10 cents per diluted share, a year earlier. A tax benefit from employee stock option exercises lifted net earnings by $14.6 million, or 15 cents per diluted share, Grocery Outlet said. On an adjusted basis, net income climbed to $75.9 million, or 78 cents per diluted share, from $24.4 million, or 35 cents per diluted share, a year ago.

“The strong financial results we delivered in the first half of 2020 set us up to accelerate investments in our business to support our long-term growth objectives,” Lindberg said in the analyst call.

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