Grocery Outlet Holding Corp. hit the high end of Wall Street’s earnings-per-share forecast for the fiscal 2021 third quarter but posted its third straight quarter of same-store sales decreases after lapping last year’s COVID-fueled gains.
In the quarter ended Oct. 2, net sales inched up 0.6% to almost $768.9 million from about $764.1 million a year earlier, Grocery Outlet reported yesterday after the market close. Comparable-store sales fell 4.3% year over year, the Emeryville, Calif.-based value grocer said.
The results compare with gains of 17.1% in net sales and 9.1% in comp-store sales for the 2020 quarter, when food-at-home demand remained elevated and shoppers continued to stock up on groceries, food and essential supplies. Net and same-store sales were down 3.5% and 10%, respectively, in the 2021 second quarter and after declining 1% and 8.2% in the first quarter.
“We are pleased with our third-quarter results across our key performance metrics. Comparable-store sales decreased 4.3% on top of an increase of 9.1% in the third quarter last year. While third-quarter traffic and basket size were stable relative to Q2, our comp-sales decline versus last year was the result of lower traffic,” Chief Financial Officer Charles Bracher told analysts in a conference call late Tuesday.
“Net sales were $768.9 million, up slightly compared to the same period last year, contributing to total sales of the impact of 35 net new stores opened since the end of the third quarter last year,” Bracher said. “We remain pleased with the performance of our newly opened stores in both in-fill and new markets. Both our 2021 openings as well as recent vintages continue to deliver sales productivity in line with our expectations.”
At the bottom line, third-quarter net income totaled $17.1 million, or 17 cents per diluted share, compared with $40.5 million, or 13 cents per diluted share, a year ago. Emeryville, Calif.-based Grocery Outlet reported adjusted net earnings of $23.4 million, or 24 cents per diluted share, down from $27.7 million, or 28 cents per diluted share, in the prior-year period.
Analysts, on average, had projected adjusted EPS of 22 cents, with estimates ranging from a low of 20 cents to a high of 24 cents, according to Refinitiv.
During the third quarter, Grocery Outlet opened seven new stores, finishing the period with 407 stores in California, Washington, Oregon, Pennsylvania, Idaho and Nevada, compared with 372 a year earlier.
“Our new-store growth engine, which we believe remains our biggest driver of long-term shareholder value, remains healthy both in terms of future pipeline and new-store performance,” CEO Eric Lindberg said in the call. “During Q3, we opened seven new sites, ending the quarter with 407 stores. In terms of new-unit productivity, we continue to be pleased with the early performance of the stores opened this year as well as the continued sales ramp of recent vintages across both infill and new markets.”
Grocery Outlet said it expects to open eight stores in the fourth quarter, including locations in the East, for a total of 36 new stores added in fiscal 2021. “With respect to our real estate pipeline, we’re tracking towards the new-store goal we set forth at the beginning of the year,” he noted.
Lindberg also cited Grocery Outlet’s recent entry into the e-commerce arena. In late October, the value grocer announced an online grocery delivery pilot with Instacart in California, a couple of months after the company disclosed that it was in talks with potential e-commerce partners.
“While our stores remain our priority, we’re also very excited about the potential to reach more customers by adding the convenience of e-commerce. After giving careful consideration to the unique aspects of our opportunistic purchasing independent operator model, we recently initiated a pilot program with Instacart,” Lindberg said. “While the pilot has only just commenced, we — along with our independent operators — are very excited about the potential of this new channel to expand our reach and further leverage our existing retail footprint.”
Key to Grocery Outlet’s online offering is retention of the “treasure hunt” experience in its stores. Describing itself as an “extreme value” retailer, the chain touts big discounts on brand-name products and has said a typical shopper basket is priced about 40% lower than that of conventional grocers. Stores are run by independent owner-operators (IOs) from the communities they serve, allowing locations to cater to shifting customer preferences. Shopper savings is achieved through a sourcing model of procuring surplus inventory and product overruns directly from thousands of supplier partners. That includes a changing assortment of products with “WOW!” prices, creating a discovery environment for shoppers.
“We are currently offering same-day delivery from 68 pilot stores in California markets, including Los Angeles, Fresno, the Bay Area and Sacramento,” Grocery Outlet President RJ Sheedy told analysts. “As a reminder, we are conducting this pilot, first, to learn how our offering translates online in order to deliver a positive WOW! shopping experience, and second, to understand the potential incremental sales opportunity it can generate. While too early to share any results, we along with our IOs are pleased with the operational execution so far and are excited about the potential to provide value with the convenience of e-commerce.”