Pandemic Shoppers Cram Grocery Outlet

Grocery Outlet's first-quarter sales surged, but the company has hinted at slower near-term growth, while its private equity owner may be eyeing an exit.

Just a few weeks after reporting impressive fourth-quarter sales, Grocery Outlet Holding Corp. announced preliminary financial results for its first quarter, and, unsurprisingly, they were robust as a result of pandemic-led demand.

For the 13 weeks ended March 28, the company said that it expects net sales growth of 25.4% to $760.3 million, compared with $606.3 million for the 13 weeks ended March 30, 2019. Same-store sales growth is expected to be 17.4%, driven by increases in both the number of customer transactions and average transaction size as a result of COVID-19-related pantry loading.

The company said that sales trends may be affected by consumer demand and shopping behavior as the pandemic continues.

Grocery Outlet said that it foresees a considerable increase in expenses related to the pandemic. These include cleaning and safety costs, corporate and distribution center personnel expenditures, costs for protective equipment, and supply chain expenses. While these costs didn't affect the first quarter much, the second quarter is likely to bear the burden.

“In addition, our results may be impacted by existing or possible future governmental requirements concerning the operations of our stores or distribution facilities,” the company said.

Although construction activities for the majority of new stores under development continue, the retailer expects that the timing of new store openings will be negatively impacted as a result of shelter-in-place requirements. 

“Because of the timing of accelerated customer purchasing beginning in mid-March, only a portion of these costs impacted our first-quarter preliminary results," the company noted. "However, we expect that COVID-19-related expenses will more significantly burden our second-quarter financial results."

The announcement of preliminary first-quarter results coincided with the retailer’s private equity owner filing to sell 10 million shares. Grocery Outlet is a closeout grocery chain that was acquired by private equity firm Hellman & Friedman from Berkshire Partners for an undisclosed sum in September 2014. A new SEC filing provided additional details about risk factors in the quarters ahead.

"We do not currently compete in the growing online retail marketplace, and any online retail services or e-commerce activities that we may launch in the future may require substantial investment and may not be successful," the company's latest S-1 filing noted. "Increased competition from online grocery retailers and our lack of an online retail presence may reduce our customers’ desire to purchase products from us and could have a material adverse effect on our business, financial condition and results of operations."

Based in Emeryville, Calif., Grocery Outlet has more than 300 stores in California, Washington, Oregon, Pennsylvania, Idaho and Nevada.