Grocery Outlet Beats Q4 Expectations Amid Restructuring
Grocery Outlet Holding Corp. has released its fourth-quarter and fiscal year 2024 financial results as the company also shares its plans to restructure the business.
During Q4, Grocery Outlet began to initiate a restructuring plan that it hopes will improve long-term profitability and cash flow generation, while also optimizing the footprint of new store growth and lowering its cost base. The overall plan includes the termination of leases for unopened stores in suboptimal locations, the cancellation of certain warehouse projects and a reduction in workforce.
Grocery Outlet expects to complete those planned actions by the first half of fiscal 2025, and estimates that it will incur total costs between $52 million and $61 million, of which between $36 million and $45 million are expected to be cash expenditures.
The company anticipates opening 33 to 35 stores this year, as opposed to the 50 to 55 it had been planning. According to Eric Lindberg, chairman of the board of directors, the company's opening schedule for the next two years was too robust in too many new underperforming markets, as well as in existing markets or new adjacent markets.
"Thus, we are narrowing the focus in our future new store openings to target existing markets and -- in a smaller set of high priority adjacent new markets and that will help us improve new store sales productivity and the return on invested capital," Lindberg shared.
As for Q4, the value retailer saw net sales increase by 10.9% to $1.10 billion for the term ended Dec. 28, 2024, while comparable-store sales increased by 2.9% during the quarter.
Grocery Outlet’s net income for Q4 was $2.3 million, or 2 cents per diluted share, compared to $14.1 million, or 14 cents per diluted share, last year. Adjusted net income was $14.5 million, or 15 cents per adjusted diluted share, compared to $18.2 million, or 18 cents per adjusted diluted share, last year. Adjusted EBITDA increased by 12.5% to $57.2 million, or 5.2% of net sales.
“We delivered solid fourth-quarter results, generating comps above expectations as customers responded to our improved value assortments,” said Lindberg. “We continue to make progress on multiple fronts, and we are keenly focused on key strategic initiatives that will strengthen our foundation and support future growth while ensuring we deliver best-in-class execution for our customers and independent operators.”
Additionally during Q4, transactions increased by 3%, while average transaction size was flat. Grocery Outlet opened five new stores and closed one store, closing out the quarter with 533 stores across 16 states.
[RELATED: Grocery Outlet Readies 3 New Stores in Ohio]
“We have filled key leadership positions to take us forward, including new President and CEO Jason Potter, who has over 30 years of industry experience, most recently leading The Fresh Market,” continued Lindberg. “I couldn’t be more pleased to have Jason leading the business, given his strong capabilities and track record of value creation. I remain very encouraged about the prospects of Grocery Outlet, with our highly differentiated model and significant runway for growth and long-term value creation for our shareholders.”
For the company’s full FY24, net sales increased by 10.1% to $4.37 billion, due to new store sales and a 2.7% increase in comparable-store sales that were driven by a 4.2% increase in the number of transactions. Gross profit increased 6.5% over FY23 to $1.32 billion, while gross margin declined 110 basis points to 30.2%, which the company attributed to higher inventory shrinkage related to issues with its systems conversion.
That systems conversion has spurred a proposed class action alleging that Grocery Outlet possibly violated the Securities Exchange Act of 1934. Several law firms have shared releases with the public asking investors if they want to join the complaint, filed under Liberato v. Grocery Outlet Holding Corp. in the Northern District of California.
At the crux of the complaint are losses sustained by investors during a period from November 2023 to May 2024. The federal securities case maintains that Grocery Outlet and its then-leaders shared what the plaintiff deems to be misleading statements and potentially concealed information related to the retailer’s transition to new and upgraded tech platforms. In May 2024, Grocery Outlet reported worse-than-expected results and a lowered full-year outlook, which it attributed to tech challenges, among other factors.
Potter, who officially took the helm of Grocery Outlet on Feb. 3, remains positive about the company’s outlook.
“I am honored to lead this unique and differentiated company as we embark on the next stage of our strategic roadmap,” said Potter. “In my first few weeks, Eric and I have been working closely together and are aligned on the company's strategic direction to drive disciplined, sustainable growth and improve returns on capital.”
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.
