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Grocery Outlet-store exterior-customer lineup.jpg Grocery Outlet
Grocery Outlet plans to open 28 net new stores in fiscal 2022, including about 10 stores in the Mid-Atlantic.

Grocery Outlet posts 10.5% net sales gain for Q1

Value grocer set to add Uber Eats, DoorDash as online delivery partners after Instacart rollout

After cycling pandemic-related gains a year ago, Grocery Outlet Holding Corp. got back on the sales growth track in the fiscal 2022 first quarter.

For the quarter ended April 2, net sales totaled $831.4 million, up 10.5% from $752.5 million a year earlier, while same-store sales grew 5.2% year over year, Grocery Outlet reported yesterday after the market close. That compared with decreases of 1% in net sales and 8.2% in comparable-store sales in the 2021 first quarter.

The Emeryville, Calif.-based value grocer noted, however, that comp-stores sales are up 14.3% on a three-year stack, covering the period since the onset of COVID-19.

“We are very pleased with our first-quarter performance and the continued advancement of our long-term growth strategies. We delivered strong top-line growth, as comparable-store sales increased 5.2%, well ahead of expectations,” Grocery Outlet CEO Eric Lindberg told analysts in a conference call late Tuesday.

Grocery OutletGrocery Outlet-checkout lanes.jpg

CEO Eric Lindberg said Grocery Outlet saw 'increasingly positive' traffic and ticket trends throughout Q1, and the momentum is extending into Q2.

“While average ticket was a primary driver of comp growth, we saw increasingly positive year-over-year traffic trends throughout the quarter. Traffic was also up sequentially compared to Q4,” Lindberg explained. “The momentum in our business is extending into the second quarter, with continued strength in both traffic and ticket, further validating our belief that consumers are increasingly prioritizing value again. Our supply pipeline remains strong, and our IOs [independent owner-operators] are excited about the positive trends in the business. We are making continued progress on our new initiatives to expand customer reach and increased share of wallet into e-commerce, SKU expansion and development of our mobile app.”

In late October, Grocery Outlet unveiled a 68-store online grocery delivery pilot with Instacart in California, a couple of months after the retailer disclosed that it was in talks with potential e-commerce partners. Then last month, the retailer said it had expanded Instacart same-day service to nearly 400 stores in California, Oregon, Washington and Pennsylvania.

“On e-commerce, we remain excited about the long-term potential of this initiative,” President RJ Sheedy said in the call. “Following positive results from our Instacart pilot, we recently completed a rollout to nearly all of our stores, and while it’s only been a few weeks since the rollout, we are pleased with the smooth execution and the favorable response from IOs and customers so far. In addition, later this quarter, we will launch a pilot with additional [delivery] partners in the same 68 stores that were part of the Instacart pilot, enabling us to expand our customer reach even further.”

In response to an analyst question, Lindberg said Grocery Outlet will soon be launching pilots of Uber Eats and DoorDash delivery service.

"Instacart's working well. We've got it in a majority of our stores. We plan to roll out Uber Eats and DoorDash, a couple other platforms, pretty quickly to the first set of pilot stores," Lindberg said in the call. "[Store] operators continue to tell us [online shopping and delivery] is working well for them. We're looking at [customer] surveys rating the experience high. The basket continues to be north of our in-store basket, which we like. We think we're seeing some incremental customers that would not necessarily come in and see our values. So they're seeing our values online. We think that's creating a nice cross-shop opportunity."

On the product side, so far this year, Grocery Outlet has added more than 175 new SKUs, in addition to the 275 new items launched in the fiscal 2021 second half, according to Sheedy.

“We remain pleased with the customer response to the new everyday items we have added since last year,” he said. “For the remainder of this year, we plan to increase our new SKU count by another 150 as we strive to provide a fuller shop, greater convenience and value to our customers on a consistent, everyday basis. In terms of target items, we remain focused on growth categories such as NOSH [Natural, Organic, Specialty, Healthy], fresh, ethnic and local.”

Grocery OutletGrocery Outlet-deli aisle.jpg

As part of an ongoing SKU expansion, Grocery Outlet has added more than 175 new items thus far this year.

Grocery Outlet, too, is making strides on its personalization initiative and stands on track to pilot its mobile app this summer, Sheedy noted. “We are excited to extend the treasure hunt experience beyond the four walls of the store and further tailor our customer messaging,” he said. “This program will offer our customers real-time item visibility to exciting deals and allow us to customize our communication based on their preferences.”

During the first quarter, Grocery Outlet opened four new stores and closed one location, ending the period with 418 stores in California, Washington, Oregon, Pennsylvania, Idaho, Nevada and New Jersey.

“We remain on track to open 28 net new stores during the year, including approximately 10 stores in the Mid-Atlantic area as we expand our footprint in the East,” Lindberg said. “The challenges we discussed on our last call related to labor and material shortages, along with longer lead times and lease execution and site permitting, continue to persist. However, based on our pipeline of deals already approved and the potential sites identified, we expect to return to a 10% unit growth beginning in 2023. Meanwhile, we remain pleased with the new-store performance across markets, including recent vintages, as they continue to ramp in line with our underwriting expectations.”

At the bottom line, Grocery Outlet posted first-quarter 2022 net earnings of $11.57 million, or 12 cents per diluted share, down from $18.89 million, or 19 cents per diluted share, a year ago. Adjusted net income came in at $21.51 million, or 22 cents per diluted share, compared with $23.12 million, or 23 cents per diluted share, in the prior-year period.

Analysts, on average, had projected Q1 adjusted earnings per share of 20 cents, with estimates ranging from 18 cents to 23 cents, according to Refinitiv.

Looking ahead, Grocery Outlet boosted its fiscal 2022 outlook, with adjusted earnings per share now projected at 94 cents to 99 cents, up from 92 cents to 97 cents previously. Wall Street’s consensus estimate, before the analyst call, was for adjusted EPS of 95 cents, with a range of 92 cents to $1.01.

“Based on outperformance in the first-quarter and strong quarter-to-date trends, we are raising our full-year top-line and bottom-line guidance,” Chief Financial Officer Charles Bracher said in the call. “We are increasing our full-year comp-sales range to 5.5% to 6.5% [from 4% to 5%], an increase of 150 basis points compared to previous guidance. With respect to new store openings, we remain on track to open 28 net new stores in 2022, with the majority of stores opening in the back half of the year. Due to our higher comp expectations, we are raising our fiscal 2022 sales guidance range to $3.39 billion to $3.42 billion [from $3.33 billion to $3.38 billion].”

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