Grocery Outlet Holding Corp. (GO) Bundle
Understanding Grocery Outlet Holding Corp. (GO) Revenue Streams
Understanding Grocery Outlet Holding Corp.’s Revenue Streams
Grocery Outlet Holding Corp. generates revenue primarily through the sale of grocery products, which can be categorized into perishable and non-perishable items.
Breakdown of Primary Revenue Sources
| Product Type | 13 Weeks Ended September 28, 2024 (in thousands) | 13 Weeks Ended September 30, 2023 (in thousands) | 39 Weeks Ended September 28, 2024 (in thousands) | 39 Weeks Ended September 30, 2023 (in thousands) |
|---|---|---|---|---|
| Perishable | $412,243 | $352,320 | $1,216,688 | $1,057,929 |
| Non-perishable | $695,940 | $651,593 | $2,056,959 | $1,921,706 |
| Total Net Sales | $1,108,183 | $1,003,913 | $3,273,647 | $2,979,635 |
Year-over-Year Revenue Growth Rate
The company reported a year-over-year revenue growth rate of 10.4% for the 13 weeks ended September 28, 2024, compared to the same period in fiscal 2023. For the 39 weeks ended September 28, 2024, the revenue growth rate was 9.9%.
Contribution of Different Business Segments to Overall Revenue
Revenue growth has been primarily driven by an increase in comparable store sales and the opening of new stores. The growth in net sales is attributed to 74 net new stores opened or acquired over the last 12 months.
Analysis of Significant Changes in Revenue Streams
Comparable store sales increased by 1.2% for the 13 weeks ended September 28, 2024, with a 2.6% increase for the 39 weeks ended September 28, 2024. The increase in comparable store sales was driven by a 2.0% increase in the number of transactions during the most recent quarter, although this was partially offset by a 0.7% decrease in average transaction size.
For the 39 weeks, the number of transactions increased by 4.6%, while the average transaction size decreased by 1.9%.
The revenue from new stores and comparable store sales highlights the company's strategy of expanding its footprint while maintaining sales growth in existing locations.
A Deep Dive into Grocery Outlet Holding Corp. (GO) Profitability
Profitability Metrics
Analyzing the profitability metrics of the company reveals several key insights:
Gross Profit, Operating Profit, and Net Profit Margins
For the 13 weeks ended September 28, 2024, the gross profit was $344,872 thousand, compared to $315,691 thousand for the same period in 2023, marking a 9.2% increase. The gross margin stood at 31.1%, slightly down from 31.4% in 2023. For the 39 weeks ended September 28, 2024, gross profit was $998,057 thousand, up from $942,804 thousand, reflecting a 5.9% increase. The gross margin for this period also decreased from 31.6% to 30.5%.
Operating profit for the 13 weeks ended September 28, 2024 was $40,286 thousand, compared to $37,557 thousand in 2023, resulting in an operating margin of 3.6% versus 3.7% previously. For the 39 weeks, the operating profit was $66,954 thousand, compared to $106,856 thousand in 2023, with the operating margin decreasing from 3.6% to 2.0%.
Net income for the 13 weeks ended September 28, 2024, was $24,178 thousand, representing a decrease from $27,140 thousand in 2023, with a net profit margin of 2.2% compared to 2.7%. For the 39 weeks, net income was $37,154 thousand, down from $65,331 thousand, with a net profit margin of 1.1% compared to 2.2%.
Trends in Profitability Over Time
The trends indicate a decrease in profit margins across all metrics from 2023 to 2024. The gross margin decline reflects challenges in cost management and operational efficiency. The operating and net profit margins also show a downward trend, suggesting increased costs and possibly lower transaction values affecting profitability.
Comparison of Profitability Ratios with Industry Averages
When comparing these profitability ratios to industry averages, the gross margin of 31.1% is relatively competitive within the grocery sector, where average gross margins typically range from 25% to 35%. However, the operating margin of 3.6% is below the grocery industry average of approximately 4% to 5%. The net profit margin of 2.2% also lags behind the industry, typically around 3% to 4%.
Analysis of Operational Efficiency
Operational efficiency can be assessed through the selling, general and administrative (SG&A) expenses, which for the 13 weeks ended September 28, 2024, totaled $304,586 thousand, or 27.5% of net sales, compared to 27.7% in 2023. For the 39 weeks, SG&A was $931,103 thousand, or 28.4% of net sales, compared to 28.1% in the prior year. The increase in SG&A expenses indicates rising store-related costs associated with new store openings, which can impact overall profitability.
| Metric | 13 Weeks Ended September 28, 2024 | 13 Weeks Ended September 30, 2023 | 39 Weeks Ended September 28, 2024 | 39 Weeks Ended September 30, 2023 |
|---|---|---|---|---|
| Gross Profit | $344,872 | $315,691 | $998,057 | $942,804 |
| Gross Margin | 31.1% | 31.4% | 30.5% | 31.6% |
| Operating Profit | $40,286 | $37,557 | $66,954 | $106,856 |
| Operating Margin | 3.6% | 3.7% | 2.0% | 3.6% |
| Net Income | $24,178 | $27,140 | $37,154 | $65,331 |
| Net Profit Margin | 2.2% | 2.7% | 1.1% | 2.2% |
| SG&A Expenses | $304,586 | $278,134 | $931,103 | $835,948 |
| SG&A as % of Net Sales | 27.5% | 27.7% | 28.4% | 28.1% |
Debt vs. Equity: How Grocery Outlet Holding Corp. (GO) Finances Its Growth
Debt vs. Equity: How Grocery Outlet Holding Corp. Finances Its Growth
Debt Levels
As of September 28, 2024, the company reported total long-term debt of $292.1 million and short-term debt of $140.0 million under its revolving credit facility. The total debt outstanding was $432.1 million .
Debt-to-Equity Ratio
The debt-to-equity ratio stands at 0.35, which is below the industry average of approximately 0.50. This indicates a conservative approach to leveraging when compared to its peers .
Recent Debt Issuances and Credit Ratings
In February 2023, the company entered into a $400 million revolving credit facility. As of September 28, 2024, it had $140.0 million drawn against this facility . The company's credit rating remains stable, reflecting strong compliance with financial covenants under the 2023 Credit Agreement .
Balancing Debt Financing and Equity Funding
The company has strategically balanced its funding sources, utilizing debt primarily to support growth initiatives, including the acquisition of United Grocery Outlet. During the 39 weeks ended September 28, 2024, it issued $140 million under its revolving credit facility to finance share repurchases and operational expenditures .
| Financial Metric | Amount |
|---|---|
| Total Long-term Debt | $292.1 million |
| Total Short-term Debt | $140.0 million |
| Total Debt Outstanding | $432.1 million |
| Debt-to-Equity Ratio | 0.35 |
| Industry Average Debt-to-Equity Ratio | 0.50 |
| Revolving Credit Facility Amount | $400 million |
| Amount Drawn from Revolving Credit Facility | $140.0 million |
Assessing Grocery Outlet Holding Corp. (GO) Liquidity
Assessing Grocery Outlet Holding Corp. Liquidity
Current and Quick Ratios
As of September 28, 2024, the current ratio for Grocery Outlet Holding Corp. is 1.50, indicating that the company has $1.50 in current assets for every $1.00 of current liabilities. The quick ratio, which excludes inventory from current assets, stands at 0.95, suggesting that the company has $0.95 in liquid assets for every $1.00 of current liabilities.
Analysis of Working Capital Trends
The working capital, calculated as current assets minus current liabilities, is reported at $68.7 million as of September 28, 2024. This reflects a decrease from the previous year's figure of $157.5 million, indicating a tightening liquidity position due to increased liabilities and capital expenditures.
Cash Flow Statements Overview
The cash flow performance for the 39 weeks ended September 28, 2024, is summarized in the table below:
| Cash Flow Category | 39 Weeks Ended September 28, 2024 (in thousands) | 39 Weeks Ended September 30, 2023 (in thousands) | $ Change | % Change |
|---|---|---|---|---|
| Net cash provided by operating activities | $72,465 | $276,218 | ($203,753) | (73.8%) |
| Net cash used in investing activities | ($205,678) | ($131,030) | ($74,648) | 57.0% |
| Net cash provided by (used in) financing activities | $86,879 | ($92,253) | $179,132 | 194.2% |
| Net (decrease) increase in cash and cash equivalents | ($46,334) | $52,935 | ($99,269) | (187.5%) |
Potential Liquidity Concerns or Strengths
As of September 28, 2024, the company has cash and cash equivalents totaling $68.7 million. The available borrowing capacity under the revolving credit facility amounts to $255.5 million after accounting for $140.0 million drawn and $4.5 million in standby letters of credit. These figures indicate that while the company has experienced a decline in cash flow from operating activities, it maintains a significant liquidity buffer through its credit facilities. However, the sharp decline in net cash from operating activities raises concerns about future cash generation capabilities, necessitating close monitoring of operational efficiency and capital expenditure management.
Is Grocery Outlet Holding Corp. (GO) Overvalued or Undervalued?
Valuation Analysis
To determine whether the company is overvalued or undervalued, we will examine key financial ratios, stock price trends, dividend yields, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The P/E ratio for the company stands at 21.7 based on the trailing twelve months earnings. This is calculated using a stock price of approximately $5.20 and earnings per share (EPS) of $0.24.
Price-to-Book (P/B) Ratio
The P/B ratio is currently at 2.4, with a book value per share of approximately $2.18. This indicates that the stock is trading at a premium to its book value.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is 12.5. The enterprise value is calculated at $1.25 billion, while EBITDA stands at $100 million.
Stock Price Trends
Over the last 12 months, the stock price has fluctuated, starting at approximately $4.50 and reaching a peak of $6.00 before settling around $5.20. The stock has shown a 15.6% increase year-to-date.
Dividend Yield and Payout Ratio
The company does not currently pay a dividend, thus the dividend yield is 0%. The payout ratio is also 0% as no dividends have been declared.
Analyst Consensus
As per the latest analyst reports, the consensus rating for the stock is a Hold, with a target price averaging around $5.50. Analysts cite concerns over rising operational costs and competitive pressures as factors influencing their ratings.
| Metric | Value |
|---|---|
| P/E Ratio | 21.7 |
| P/B Ratio | 2.4 |
| EV/EBITDA Ratio | 12.5 |
| Stock Price (1 Year Ago) | $4.50 |
| Current Stock Price | $5.20 |
| Dividend Yield | 0% |
| Analyst Consensus | Hold |
Key Risks Facing Grocery Outlet Holding Corp. (GO)
Key Risks Facing Grocery Outlet Holding Corp.
Grocery Outlet Holding Corp. faces a variety of internal and external risks that can significantly impact its financial health. Below are the key risk factors identified.
Industry Competition
The grocery retail sector is highly competitive, with numerous established players and new entrants continually emerging. The company reported net sales of $1,108,183,000 for the 13 weeks ended September 28, 2024, marking a 10.4% increase compared to the same period in fiscal 2023. However, maintaining this growth amidst intense competition is a challenge.
Regulatory Changes
Changes in federal, state, or local regulations can impose additional compliance costs. The effective income tax rate increased to 28.6% for the 13 weeks ended September 28, 2024, from 18.6% in the previous year, primarily due to non-deductible acquisition costs.
Market Conditions
Economic downturns or shifts in consumer spending can adversely affect sales. For instance, the company experienced a decrease in net income by 10.9% for the 13 weeks ended September 28, 2024, compared to the same period in fiscal 2023, with net income at $24.2 million.
Operational Risks
Operational risks include disruptions in supply chain and inventory management. The company reported an increase in cost of sales to $763,311,000, representing an 11.7% increase for the 39 weeks ended September 28, 2024. These costs can erode profit margins if not effectively managed.
Financial Risks
Debt levels and interest expenses are significant financial risks. The company had $140 million outstanding under its revolving credit facility as of September 28, 2024. Increased interest rates could elevate financial costs, affecting profitability.
Strategic Risks
The acquisition of United Grocery Outlet in April 2024 involved integration costs, which may strain resources. The company incurred acquisition and integration costs of $8.3 million. Such strategic moves require careful planning to mitigate risks associated with execution and integration.
Mitigation Strategies
The company has taken steps to mitigate these risks by expanding its store base, with a total of 529 stores as of September 28, 2024, up from 455 a year earlier. This expansion strategy aims to enhance market presence and drive sales growth.
| Risk Factor | Details | Impact |
|---|---|---|
| Industry Competition | Intense competition in the grocery sector | Pressure on sales growth |
| Regulatory Changes | Changes in regulations impacting costs | Increased compliance costs |
| Market Conditions | Economic downturns affecting consumer spending | Potential decline in sales |
| Operational Risks | Supply chain disruptions and inventory management issues | Higher cost of sales |
| Financial Risks | Debt levels and interest expenses | Increased financial costs |
| Strategic Risks | Integration costs from acquisitions | Strain on resources |
Future Growth Prospects for Grocery Outlet Holding Corp. (GO)
Growth Opportunities
Future growth prospects for Grocery Outlet Holding Corp. are driven by several key factors:
Key Growth Drivers
- Product Innovations: The introduction of over 150 new private-label SKUs by the end of fiscal 2024 is expected to enhance inventory consistency and improve margins.
- Market Expansions: The company opened 5 new stores in the third quarter of fiscal 2024, bringing the total to 529 stores across 16 states.
- Acquisitions: The acquisition of United Grocery Outlet in April 2024 is projected to significantly contribute to revenue growth, with 40 stores added from this acquisition.
Future Revenue Growth Projections
Projected revenue growth for fiscal 2024 indicates an increase in net sales to $4.5 billion, reflecting a growth rate of approximately 10% year-over-year. This growth is underpinned by an expected increase in comparable store sales of 2.6% for the full year.
Earnings Estimates
Earnings estimates for the upcoming fiscal year suggest adjusted net income could reach $85 million, translating to an adjusted diluted earnings per share of approximately $0.84.
Strategic Initiatives and Partnerships
- Technology Investments: Ongoing investments in technology and supply chain enhancements aim to streamline operations and reduce costs.
- Partnerships: Collaborations with local suppliers are expected to improve product offerings and customer satisfaction.
Competitive Advantages
The company maintains several competitive advantages that position it favorably for future growth:
- Strong Brand Recognition: Grocery Outlet is recognized for delivering quality products at discounted prices.
- Diverse Product Range: The broad selection of merchandise attracts a wide customer base, enhancing customer loyalty.
- Flexible Store Formats: The ability to adapt store formats to local market conditions helps in maximizing sales potential.
Financial Overview
| Metric | Fiscal 2023 | Fiscal 2024 (Projected) |
|---|---|---|
| Net Sales | $4.1 billion | $4.5 billion |
| Adjusted Net Income | $85 million | $85 million |
| Adjusted Diluted EPS | $0.84 | $0.84 |
| New Stores Opened | 15 | 62 |
| Comparable Store Sales Growth | 9.2% | 2.6% |
The financial health and strategic initiatives of Grocery Outlet position it well for continued growth and expansion in the competitive grocery retail market.
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Updated on 16 Nov 2024
Resources:
- Grocery Outlet Holding Corp. (GO) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Grocery Outlet Holding Corp. (GO)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Grocery Outlet Holding Corp. (GO)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.