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Grocery Outlet Up 10% in a Month: Is the Stock Still a Good Buy?
GOGrocery Outlet(GO) ZACKS·2025-04-15 15:45

Core Insights - Grocery Outlet Holding Corp. (GO) shares have increased by 10% over the past month, outperforming the industry and S&P 500 index, which declined by 0.9% and 5.5% respectively, indicating growing investor confidence in the company's strategic initiatives and operational resilience [1][3]. Company Performance - GO stock last traded at 14.24,whichis48.514.24, which is 48.5% below its 52-week high of 27.64 reached on April 25, 2024, presenting a potential opportunity for value-focused investors [3]. - The company expects comparable store sales to grow between 2% and 3% in fiscal 2025, with total net sales projected to reach 4.7billionto4.7 billion to 4.8 billion, up from 4.4billioninfiscal2024[11].BusinessModelandStrategy−GroceryOutlet′sbusinessmodelfeaturesopportunisticsourcingandanIndependentOperatorstructure,allowingittoofferqualityname−brandproductsatexceptionalvalue[5].−Thecompanyisenhancingitsmarketpresencethroughdiverseproductassortments,targetedmarketing,in−storeinitiatives,ande−commercestrategies,includingpartnershipswithInstacart,DoorDash,andUberTechnologiesforsame−daydelivery[6].−GOplanstoopen33−35netnewstoresin2025,focusingonhigh−returnmarketsandclusteringlocationsforoperationalsynergy,ratherthanrapidexpansion[7].OperationalDevelopments−Anew680,000square−footdistributioncenterinVancouver,WA,aimstoconsolidateregionaloperationsandimprovelogisticalefficiency,reducingcostsassociatedwithmultiplefacilities[10].−ThecompanyisfacingoperationalchallengesduetoitsmigrationtoanSAPenterprisesystem,whichhasaffectedcorefunctionsandincreasedoperatingcosts,leadingtoagrossmargindeclineof70basispointsto29.54.4 billion in fiscal 2024 [11]. Business Model and Strategy - Grocery Outlet's business model features opportunistic sourcing and an Independent Operator structure, allowing it to offer quality name-brand products at exceptional value [5]. - The company is enhancing its market presence through diverse product assortments, targeted marketing, in-store initiatives, and e-commerce strategies, including partnerships with Instacart, DoorDash, and Uber Technologies for same-day delivery [6]. - GO plans to open 33-35 net new stores in 2025, focusing on high-return markets and clustering locations for operational synergy, rather than rapid expansion [7]. Operational Developments - A new 680,000 square-foot distribution center in Vancouver, WA, aims to consolidate regional operations and improve logistical efficiency, reducing costs associated with multiple facilities [10]. - The company is facing operational challenges due to its migration to an SAP enterprise system, which has affected core functions and increased operating costs, leading to a gross margin decline of 70 basis points to 29.5% in the fourth quarter of fiscal 2024 [14]. Financial Metrics - Grocery Outlet's forward 12-month price-to-earnings (P/E) multiple is 18.36X, down from its median level of 22.16X in the past year, suggesting that the stock may be undervalued relative to its earnings potential [12]. - Selling, general and administrative (SG&A) expenses rose 11.6% to 312.5 million in the fiscal fourth quarter, primarily due to restructuring charges and higher store-related expenses [15]. Market Sentiment - The Zacks Consensus Estimate for earnings per share has seen downward revisions, reflecting cautious sentiment around the company, with estimates declining by 24 cents to 73 cents for the current fiscal and 25 cents to 88 cents for the next fiscal [16].