Grocery Outlet Holding Corp (GO) delivered a pleasant surprise to investors on Tuesday, reporting upbeat earnings for its third quarter. The discount grocery chain exceeded both sales and earnings estimates, demonstrating its resilience in a challenging economic environment.
The company posted quarterly earnings of 28 cents per share, surpassing the analyst consensus estimate of 27 cents. Revenue also came in stronger than anticipated, reaching $1.11 billion compared to the projected $1.10 billion.
Eric Lindberg, Chairman and Interim President and CEO of Grocery Outlet, attributed the strong performance to the company’s value-driven offerings. “Our double-digit third quarter net sales growth reflects the strong positioning of our consumer offering – value continues to win in the market and we continue to grow our share of consumer non-discretionary spending,” Lindberg stated.
While the earnings report was positive, the company did adjust its financial outlook for the fiscal year 2024. Grocery Outlet lowered its earnings per share (EPS) guidance from 89 cents-95 cents to 77 cents-80 cents. The revenue forecast was also updated, moving from $4.30 billion-$4.35 billion to slightly above $4.35 billion.
Following the earnings release, Grocery Outlet shares rallied, gaining 10.4% to trade at $16.08 on Wednesday. However, the market reaction was not entirely positive. Despite the strong earnings, analysts remain divided on the company’s future prospects.
TD Cowen analyst Oliver Chen downgraded Grocery Outlet from Buy to Hold and lowered the price target from $25 to $16. Similarly, Craig-Hallum analyst Jeremy Hamblin maintained a Hold rating but also reduced the price target from $20 to $17.
On the other hand, Wells Fargo analyst Anthony Bonadio maintained an Overweight rating, though he slashed the price target from $26 to $23. Deutsche Bank analyst Paul Trussell kept a Buy rating but lowered the price target from $29 to $26.
Telsey Advisory Group analyst Joseph Feldman maintained a Market Perform rating and lowered the price target from $19 to $18. Roth MKM analyst Bill Kirk kept a Neutral rating and cut the price target from $20 to $16.
UBS analyst Michael Lasser also maintained a Neutral rating and lowered the price target from $21 to $16.
The mixed analyst sentiment reflects the challenges facing the grocery industry as consumers grapple with inflation and economic uncertainty. While Grocery Outlet’s value proposition is likely to continue attracting customers, its ability to navigate these macroeconomic headwinds remains to be seen.
Investors considering buying GO stock should carefully weigh the positive earnings report against the cautious outlook from some analysts.
