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Grocery_Outlet_Bargain_Market_store_opening.png Grocery Outlet
Grocery Outlet posted adjusted EPS in line with analysts' projections for both the fourth quarter and full year.

Grocery Outlet ‘successfully navigated macro challenges’ in fiscal 2021

CEO Eric Lindberg expects extreme-value model to win market share in inflationary environment

Grocery Outlet Holding Corp. posted earnings in line with Wall Street’s forecast for its fiscal 2021 fourth quarter and year, as the value grocer cycled sales lifted by COVID-driven gains and an extra week in the year-ago period.

In the 13-week quarter ended Jan. 1, net sales declined 3% to $782.7 million from $806.8 million in the 14-week quarter a year earlier, Emeryville, Calif.-based Grocery Outlet reported after yesterday’s market close. Excluding the extra week’s sales of $53.3 million, net sales grew 3.8%. On a 13-week basis, comparable-store sales decreased 1.2% year over year. Those results compared with gains of 23.1% in net sales and 7.9% in comp sales during the fiscal 2020 quarter.

Eric_Lindberg-Grocery_Outlet_CEO.jpg“We are very pleased with our fourth-quarter performance, which exceeded our sales and gross margin expectations and reflected sequential improvement in trends from the third quarter,” CEO Eric Lindberg (pictured left) told analysts in a conference call late Wednesday. “Comparable store sales declined 1.2% and on a two-year stack basis increased 6.7%, an acceleration of almost 200 basis points from the third quarter. This performance reflects strong execution across our business. I’m incredibly grateful to our corporate teams for their hard work, as well as for our operators whose commitment to serving their communities is unwavering.”

Net sales for the 52-week 2021 fiscal year dipped 1.8% to $3.08 billion from $3.13 billion in 2020, when Grocery Outlet tallied a 22.5% increase. Backing out the 53rd week, net sales came in virtually flat for 2021. Comp-store sales declined 6% on a 52-week basis versus a 12.7% uptick a year ago.

“Looking back at fiscal 2021, we successfully navigated macro challenges, including the pandemic and global supply chain issues,” Lindberg said. “Despite these headwinds, we leveraged our flexible business model to deliver customers the unbeatable deals and exciting treasure hunt experience that they love.”

Grocery OutletGrocery_Outlet_WOW_deals_sign.png

A changing assortment of products with “WOW!” prices are highlighted in Grocery Outlet's independently owned and operated stores.

Grocery Outlet opened 36 new stores in fiscal 2021, including eight in the fourth quarter, and ended the year with 415 stores in California, Washington, Oregon, Pennsylvania, Idaho, Nevada and New Jersey, the latter marking a new state for the retailer. The company had 380 stores in six states at the close of fiscal 2020.

"We expanded our store base with the opening of 36 new stores in 2021, representing over a 9% growth on a net basis. We remain pleased with our new store productivity across markets,” Lindberg said. “In addition, we embarked on several new initiatives to expand our reach and increase share of wallet, including an e-commerce pilot and strategically expanding our product assortment.”

Last year, Grocery Outlet added 275 new product SKUs to provide “a more complete shop for our customers,” according to President R.J. Sheedy.

“Item selection was informed by industry data, supplier conversations, and operator and customer feedback. We are pleased with the added convenience that this provides to our customers, which we believe drives greater loyalty,” Sheedy said in the call. “Looking forward, we plan to add 300 more SKUs this year. We remain focused on growth categories such as NOSH [natural, organic, specialty, healthy], fresh, ethnic and local, and we expect this next phase of expansion to also contribute to higher end in transaction count.”

Grocery OutletGrocery Outlet store-Windsor CA-2021.jpg

Grocery Outlet opened 36 stores in fiscal 2021 and plans to add a net total of 28 in 2022.

In late October, Grocery Outlet unveiled an 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. Lindberg noted that the digital service will enable its stores to extend their reach.

“We’re excited to have our e-commerce pilot operating in 68 stores in California on the Instacart platform. More importantly, the pilot has gone smoothly and, while early, we’re optimistic about the future potential,” he said in the analyst call. “We plan to roll it out to all stores over the next few months. We believe these strategic initiatives are complementary to our measured and disciplined new store expansion.”

Grocery Outlet reported it’s aiming for 28 net new stores in fiscal 2022, with about two-thirds of the new locations opening in the second half of the year.

“Our 2021 stores are off to a good start which, along with recent vintages, are ramping consistent with their underwriting expectations. Our value proposition is resonating across geographies, and we continue to build and strengthen brand awareness in both mature and newer markets. For these reasons, we remain confident in the long-term unit potential of our differentiated new store model and are committed to our goal of 10% annual unit growth,” Lindberg explained.

“That said, as we mentioned in our last call, we are experiencing near-term challenges, including labor and material shortages, extending the time and the cost to open stores. In addition, we are seeing longer lead times in lease execution as well as site permitting and development,” he noted. “We believe these challenges are largely temporary and we remain committed to resuming our 10% unit growth in 2023.”

At the bottom line, fiscal 2021 fourth-quarter net earnings were $6.6 million, or 7 cents per diluted share, compared with $24.3 million, or 24 cents per diluted share, in the year-ago quarter. Adjusted net income came in at $20 million, or 20 cents per diluted share, versus $24.2 million, or 24 cents per diluted share, in the 2020 quarter. Analysts, on average, had forecast adjusted earnings per share of 20 cents, with estimates ranging from 17 cents to 22 cents, according to Refinitiv.

Fiscal 2020 net income totaled $62.3 million, or 63 cents per diluted share, compared with $106.7 million, or $1.08 per diluted share, in 2020. On an adjusted basis, net earnings were at $89.9 million, or 90 cents per diluted share, versus $112.7 million, or $1.14 per diluted share, in the 2020 quarter. For the full year, Wall Street’s consensus adjusted EPS forecast was 90 cents, with projections running from 84 cents to 92 cents.

“As we look at quarter-to-date trends, sales continued to improve, reflecting increases in both ticket and traffic versus the prior year. Looking ahead, we remain confident that the strength of our model, combined with our strategic initiatives, will drive incremental top-line growth,” said Lindberg. “Furthermore, we anticipate a more favorable operating environment for our extreme value model, as consumers contend with continued inflationary pressures and reduced stimulus support. To that end, we remain committed to our unique value proposition, namely providing the best value in grocery retail to our customers. In an inflationary environment, the incredible savings we offer customers become even more important, providing an opportunity to both increase our share of wallet as well as reach new customers.”

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