It’s an ugly day for retail—or at least most retail.
Grocery Outlet Holding
(GO) is bucking that trend, up 10% after its upbeat second-quarter earnings report.
(KR) down 19% year to date, as deep-pocketed players from
(AMZN) muscle into the historically slim-margin food-retailing space. Moreover, to many investors, IPOs are synonymous these days with tech startups, and Grocery Outlet is neither. It may hail from California, but the company dates back to 1946 and members of its founding family are still involved in the business. Yet its off-price model resonates with value-conscious consumers, and it benefits from the treasure-hunt model we’ve seen work for
s. (TJX) and others in apparel and home goods.
What’s new. Late Thursday, Grocery Outlet delivered second-quarter results, its first results as a publicly-traded company. It said it earned 20 cents a share on revenue of $645.3 million, while analysts were looking for EPS of 13 cents on revenue of $626.6 million. Same-store sales rose 5.8%.
For the full year, Grocery Outlet expects to earn between 68 cents and 71 cents a share on revenue of $2.5 billion to $2.53 billion. Consensus calls for EPS of 59 cents on revenue of $2.51 billion. The company is modeling for comparable-sales growth of 3% to 4%.
Looking ahead. While the food-retail space may not seem like a growth area, Grocery Outlet continues to open stores and expand its reach, while also enjoying a bit of the defensive nature of the supermarket business (after all, food isn’t an optional purchase). The company’s traffic shows it’s resonating with consumers, and it called out its natural and organic offerings as a particular area of strength.
Not surprisingly, the report fueled bulls’ optimism about the stock. Cowen & Co.’s Oliver Chen reiterated an Outperform rating on the stock and raised his price target by $6 to $48. “We appreciate the portability of Grocery Outlet’s operating model and believe the retailer can drive consistent comps and stable-to-slightly-expansionary gross margins over the longer-term as the company appears to be well positioned to excel during various economic environments.”
“Wow!” was Jefferies’ Randal Konik’s summary. He has a Buy rating on the shares and added $9 to his target price, to $51, writing that the results “illustrated Grocery Outlet’s unique company qualities: predictable & stable fundamentals, a topnotch leadership team,” and a scalable model.
Telsey Advisory Group’s Joseph Feldman boosted his price target by $5 to $45, keeping his Outperform rating and writing that the quarter “reflects continued high-level execution and the ongoing strength of its unique business model.”
Grocery Outlet was up 10.2% to $41.45 at recent check.
Write to Teresa Rivas at firstname.lastname@example.org