Grocery Outlet Is Hot Out of the Gate with IPO
Extreme value retailer Grocery Outlet began selling shares on the Nasdaq Global Select Market (under the symbol GO) with an initial public offering of 17,187,500 shares of its common stock at $22.00 per share on June 19. By June 20, the price of shares had increased to $30.19, a 37 percent increase. The offering is expected to close on June 24, 2019, subject to customary closing conditions.
Grocery Outlet has granted the underwriters a 30-day option to purchase up to an additional 2,578,125 shares of its common stock at the initial public offering price less the underwriting discount.
Grocery Outlet, which first announced its intention to go public in May, intends to use the net proceeds from the offering to repay the term loan outstanding under its second lien credit agreement and any remainder to repay a portion of the term loan outstanding under its first lien credit agreement.
"This marks a milestone in our company’s long history of growth," Grocery Outlet President RJ Sheedy told Progressive Grocer. "We continue to focus on operating the business by investing in forward growth and staying true to the model that made us successful when we started."
The Emeryville, Calif.-based chain operates more than 300 stores in California, Idaho, Nevada, Oregon, Pennsylvania and Washington and is known for its ever-changing assortment of “WOW!” deals, complemented by everyday staple products. Similar in size to Trader Joes, Aldi and Lidl, the German retailers have received the bulk of media attention, but that may change as investors learn more about the company and like what they see.
“We feel bullish about Grocery Outlet’s growth prospects, which are driven by a stable economic model, opportunistic sourcing model, and a greenfield growth opportunity,” wrote MKM Partners’ Rohit Kulkarni, according to a Barron’s report. That feeling is driven by Grocery Outlet posting net profit growth for 15 consecutive years as well as increasing revenues.
Grocery Outlet plans to expand by 10 percent annually, eventually operating 2,000 more stores in its markets. Long-term plans call for 4,800 stores across the country. It opened 26 stores in 2018 and plans call for 32 additional locations in 2019. Stores are licensed to independent operators who make all the staffing decisions as well as determine the marketing plan and product assortment. Store managers control about 75 percent of the product that comes into the stores and split the gross profit margin on the store 50-50.
"Going forward, we are going to continue to do the things that made us successful with our customers to begin with," Sheedy noted to PG. "We are going to continue to offer great value on quality name-brand products. We are going to continue to offer our customers an ever-changing treasure-hunt experience within the stores, what we call the 'WOW!' experience. And we are going to continue to focus on our independent operator (IO) model, supporting our current IOs and placing new operators in new stores as we open them in new and existing markets. Our IOs really provide a unique level of customer service and connection with the communities and markets in which they operate their stores. And in the end, it is all about the value we provide our customers. Our unique offerings have resonated with our customers for a long, long time, and we want to continue to do that as we open more stores and grow in the future."
Emeryville, Calif.-based Grocery Outlet is No. 38 on PG's 2019 Super 50 list of top grocers in the United States.