Discount grocery store chain Grocery Outlet (NASDAQ:GO) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 8.5% year on year to $1.13 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $4.75 billion at the midpoint. Its non-GAAP profit of $0.13 per share was 87.6% above analysts’ consensus estimates.
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Grocery Outlet (GO) Q1 CY2025 Highlights:
- Revenue: $1.13 billion vs analyst estimates of $1.12 billion (8.5% year-on-year growth, in line)
- Adjusted EPS: $0.13 vs analyst estimates of $0.07 (87.6% beat)
- Adjusted EBITDA: $51.89 million vs analyst estimates of $48.8 million (4.6% margin, 6.3% beat)
- The company reconfirmed its revenue guidance for the full year of $4.75 billion at the midpoint
- Management reiterated its full-year Adjusted EPS guidance of $0.73 at the midpoint
- EBITDA guidance for the full year is $265 million at the midpoint, below analyst estimates of $268.2 million
- Operating Margin: -2%, down from 0.1% in the same quarter last year
- Free Cash Flow was -$1.51 million compared to -$38.43 million in the same quarter last year
- Locations: 543 at quarter end, up from 474 in the same quarter last year
- Same-Store Sales were flat year on year (3.9% in the same quarter last year)
- Market Capitalization: $1.39 billion
StockStory’s Take
Grocery Outlet’s first quarter was shaped by steady store expansion and improvements in inventory management, which management identified as key drivers of performance. CEO Jason Potter highlighted that the company’s focus on new store openings, enhanced supply chain systems, and improvements in shrink (inventory loss) supported an 8.5% rise in sales. Potter also noted that the rollout of a real-time order guide and stronger supplier relationships have started to improve inventory visibility and product assortment, although same-store sales remained flat year over year due to softer average basket sizes.
Looking ahead, management’s forward guidance rests on executing several initiatives aimed at driving basket size and operational efficiency. CFO Chris Miller pointed to cost containment efforts and ongoing investments in store experience as central to delivering on full-year profitability targets. Management acknowledged macroeconomic uncertainty, with Potter stating, “We are moderating our outlook for annual comp store sales growth, reflecting current trends in the business as well as uncertainty given the macroeconomic environment.” The company plans to continue prioritizing gross margin improvement and disciplined capital allocation while adapting to changing consumer behavior.
Key Insights from Management’s Remarks
Management focused on operational improvements and strategic initiatives to address both short-term challenges and long-term growth potential.
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Inventory management progress: The rollout of a real-time order guide system in key regions improved inventory visibility for independent operators, leading to higher fill rates and more efficient product replenishment. This initiative is expected to help match supply with demand more effectively.
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Store expansion and clustering: Grocery Outlet opened 10 net new stores during the quarter and is piloting a more data-driven approach to real estate selection. The company is clustering new stores in markets with high brand awareness to enhance returns and is testing lower capital expenditure formats to address inflationary pressures.
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Leadership transitions: The company announced the upcoming retirements of its Chief Operations Officer and Chief Store Officer, with a new Chief Information Officer already playing a key role in systems integration. Management is also searching for additional merchandising and supply chain leadership talent to strengthen execution.
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Cost efficiency initiatives: A company-wide program targeting indirect procurement—such as freight, supplies, and IT expenses—was launched to improve profitability. Supply chain consolidation, including the reduction from five to one distribution center in the Pacific Northwest, aims to drive efficiency gains.
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Product mix and private label focus: Management emphasized a stronger mix of opportunistic products (items acquired at a discount for resale) and private label offerings to improve margins. Efforts to improve the quality of fresh produce and everyday essentials are designed to encourage larger customer baskets and repeat visits.
Drivers of Future Performance
Management’s outlook for the coming quarters centers on driving same-store sales growth and margin expansion through operational execution and commercial initiatives.
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Store performance optimization: Management is piloting new commercial execution strategies and clustering store openings in established markets, aiming to improve returns on invested capital and support sustainable expansion.
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Basket size improvement: Initiatives targeting in-stock levels, assortment enhancements, and fresh product quality are expected to help increase the average number of items per customer transaction, a key factor for comparable sales growth.
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Cost and supply chain discipline: Ongoing programs in indirect procurement and supply chain consolidation are intended to offset inflationary pressures and contribute to margin improvement. However, management cautioned that macroeconomic uncertainty and consumer behavior shifts could affect top-line momentum.
Top Analyst Questions
- Anthony Bonadio (Wells Fargo): Asked about the company’s strategic direction under new leadership. CEO Jason Potter reiterated a focus on execution, brand strength, and building operational capabilities to drive long-term performance.
- Corey Tarlowe (Jefferies): Inquired about the drivers behind the updated comp store sales outlook. Management cited softer average basket sizes and macro uncertainty, but expects sequential improvement as commercial initiatives ramp up.
- Robbie Ohmes (Bank of America): Sought details on the impact of the real-time order guide. Management reported improved fill rates and positive operator feedback but noted that sales impact would materialize over time as execution improves.
- Michael Baker (D.A. Davidson): Queried about the April sales trend and price competitiveness. Management acknowledged a softer start to April and emphasized the importance of maintaining tight pricing relative to competitors.
- Anthony Chukumba (Loop Capital Markets): Asked about the scope of cost reduction efforts. CFO Chris Miller highlighted indirect procurement and supply chain consolidation as key areas, noting a disciplined and methodical approach to cost savings.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be monitoring (1) the rollout and effectiveness of the real-time order guide system across all regions, (2) the progress of new store clustering and lower CapEx pilots in enhancing returns and customer experience, and (3) execution of cost efficiency initiatives, particularly supply chain consolidation. We will also watch for any inflection in same-store sales as assortment and merchandising efforts gain traction.
Grocery Outlet currently trades at a forward P/E ratio of 18×. Should you double down or take your chips? The answer lies in our free research report.
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