Grocery Outlet Delivers Solid Q1 Amid Restructuring
Grocery Outlet Holding Corp. has turned in Q1 results slightly above its expectations even as it undertakes a restructuring plan to improve its long-term profitability. For Q1 of fiscal 2025, the value retailer saw year-over-year (YoY) net sales increase by 8.5% to $1.13 billion, and comparable store sales increase by 0.3%
Gross margin was 30.4% compared to 29.3% YoY, while selling, general and administrative expenses rose 9.1% to $331.1 million. The company’ adjusted EBITDA increased by 31.7% to $51.9 million, which represented 4.6% of net sales.
“We delivered solid first quarter results, with comp-store sales and gross margins slightly ahead of our outlook, driven by traffic growth and tighter inventory management,” said President and CEO Jason Potter. “We are encouraged by the improvement in our margins and the progress we have made on our real-time order guide.”
Additionally in Q1, store transactions increased by 2.3%, though average transaction size decreased by 2.0%. Grocery Outlet opened 11 new stores and closed one store during the reporting period, ending the quarter with 543 stores in 16 states.
Operating loss during the quarter was $22.5 million, including $33.9 million related to Grocery Outlet’s restructuring plan, which has been underway since Q4 of fiscal 2024. The company is looking to improve long-term profitability, cash flow generation and return on invested capital, while also optimizing the footprint of new store growth and lowering its cost base.
During the restructuring phase, Grocery Outlet will terminate 28 leases for unopened stores in suboptimal locations, cancel certain capital-intensive warehouse projects and reduce headcount. At the end of Q1, the company estimated that it would incur total costs between $59 million and $61 million as part of the restructuring, which is expected to be completed by the end of the first half of FY25.
“I’m very confident about the long-term potential of Grocery Outlet. Our model remains highly differentiated and our performance should continue to accelerate as we improve our level of execution,” Potter said. “Consumers love saving money and our model creates tremendous value by delivering opportunistic products through our friendly, helpful local independent operators in the communities they serve across this country.”
Continued Potter: “The value we offer consumers becomes even more important in uncertain economic times. Our vision is to become one of the country's most-loved brands and the foundational work we are currently undertaking should enable us to achieve that goal while driving significant shareholder value through strong top-line growth and improved profitability.”
Finally, Grocery Outlet shared that Ramesh Chikkala, EVP, chief operations officer, is slated to retire this June, while Pamela Burke, EVP, chief stores officer, will retire later this year. The retailer is starting a search for a new store operations leader, and is also looking to fill other key management roles.
Emeryville, Calif.-based Grocery Outlet offers products sold through a network of independently operated stores at more than 520 locations in California, Washington, Oregon, Pennsylvania, Tennessee, Idaho, Nevada, Maryland, North Carolina, New Jersey, Georgia, Ohio, Alabama, Delaware, Kentucky and Virginia. The company is No. 66 on The PG 100, Progressive Grocer’s 2024 list of the top food and consumables retailers in North America.
