Grocery Outlet Sees Double-Digit Q1 Sales Growth
For its first quarter of fiscal 2020 ended March 18, in results similar to many food retailers operating amid the COVID-19 pandemic, Grocery Outlet Holding Corp. saw dramatic sales lifts, reporting a 25.4% net sales increase to $760.3 million, from $606.3 million in the year-ago period, while comparable-store sales grew 17.4%, compared to a 4.2% rise last year. Further, CEO Eric Lindberg noted that the discount grocer was poised to thrive when the current health crisis winds down.
“While we continue to focus on our response to COVID-19, we are incorporating learnings to capture opportunities that we believe will arise as we emerge from this pandemic,” said Lindberg. “We are confident in the long-term potential of our business and remain committed to making investments that will support our future growth.”
Grocery Outlet’s net income soared 235% to $12.6 million, or 13 cents per diluted share, from $3.8 million, or 6 cents per diluted share, in the first quarter of fiscal 2019. Adjusted EBITDA rose 45.8% to $57.0 million, compared with $39.1 million in the year-ago period. Adjusted net income was up 242.2% to $34 million, or 36 cents per non-GAAP diluted share, versus $9.9 million, or 15 cents per non-GAAP diluted share, last year.
The company opened eight net new stores, ending the quarter with 355 stores in six states. Capital expenditures for Q1, excluding the impact of landlord allowances, were $28.2 million. Grocery Outlet said that it currently expects to open between 28 and 30 stores this year, with no further closures planned, and that it’s continuing to build its real estate pipeline to support 10% annual unit growth in the future. The grocer did admit, however, that COVID-19 could affect its ability to open all of the stores on time, and that its gross margin rate may be impacted in the near term because of such virus-related factors as higher distribution and supply chain costs, short-term product mix shifts, and potential rises in commodity prices.
The company’s total debt came to $550.2 million at the end of the first quarter, compared with $873.7 million in the year-ago period, which Grocery Outlet attributed to the prepayment of debt in conjunction with its June 2019 initial public offering and an additional voluntary prepayment of debt last October.
“Our strong first-quarter performance reflects the tremendous efforts of our corporate and independent operator [IO] teams, our suppliers, and other partner companies,” observed Lindberg. “We continue to leverage the many strengths of our business model and adapt processes to meet the demands of the current environment. Our top priorities remain centered around ensuring the safety of our team and communities, supporting IOs, working with suppliers to purchase product, and continuing to deliver strong operational execution.”
According to the grocer, quarter-to-date comps growth is tracking in the mid-teens, spurred by an increase in average basket size, but partly offset by decreases in store traffic because of shelter-in-place restrictions. “The impact of the COVID-19 situation remains fluid, and therefore it is difficult to predict the impact of potential changes to shelter-in-place restrictions,” the company noted, adding that it anticipated incurring incremental operation expenses, mainly in Q2, related to COVID-19, among them further cleaning and safety measures; corporate and distribution center personnel expense, including premium pay, overtime and temporary labor; and protective equipment and supplies at its stores and facilities.
“Our performance and liquidity position remain strong, allowing us to continue investing in pursuit of our long-term growth strategies,” asserted Grocery Outlet CFO Charles Bracher. “Although we are not providing formal 2020 earnings guidance at this time, due to the uncertainty related to COVID-19, we remain confident in our ability to execute in this fluid environment and in the strength of our business model.”
Additionally, the company recently hired Andrea Bortner to the newly created role of chief human resources officer, a role to which the seasoned professional brings 30 years of experience in talent acquisition and development, as well as organizational development.