Grocery Outlet's Q4 Sales Grow 6%

Notable growth initiatives going forward involve new personalization app, private label launch and United Grocery Outlet acquisition

Marian Zboraj

2/28/2024

Grocery Outlet's comparable-store sales increased by 2.7% in its fourth quarter, driven by a 7.5% increase in the number of transactions.

Results for Grocery Outlet Holding Corp.’s fourth quarter ended Dec. 30 were slightly ahead of company expectations. Sales rose 6.3% to $989.8 million, driven by a 2.7% increase in comparable-store sales. Comp-transaction growth of 7.5% was partly offset by a 4.5% decline in average basket.

“Our compelling savings and ever-changing assortment of high-quality wow items continue to drive healthy traffic increases and market share gains,” said President RJ Sheedy during the company's quarterly earnings call. “Fourth-quarter gross margin was also ahead of our expectations, at 30.2%. The closeout market remains strong, and our growing size and scale provide increasing access to products with strong customer value and healthy margin.”

Grocery Outlet opened 13 new stores in Q4, including its first store in Ohio.

Its Q4 selling, general and administrative expenses (SG&A) increased 8.8% to $279.9 million. As a percentage of sales, SG&A increased 65 basis points.

Adjusted EBITDA was $50.9 million, or 5.1% of sales, also better than expected.

In addition, Grocery Outlet delivered strong results for fiscal 2023, growing sales by 11% to a record $4 billion. This was driven by comp-store sales growth of 7.5% and a customer count increase of 8.3%. The extreme-value retailer also drove healthy bottom-line growth with adjusted EBITDA of 17.7% and an adjusted net income increase of 15.2%.

Grocery Outlet is currently making good progress on a number of strategic initiatives aimed to strengthen future growth. Its personalization app is on track to be active in all stores by the end of the first quarter. “This app will allow us to communicate our weekly deals to customers and customize their treasure-hunt experience,” said Sheedy. “This will increase customer engagement with Grocery Outlet and help drive trip frequency and share of wallet. “

The retailer also plans to launch its first private label program in the second half of this year, with a goal of 100 SKUs by year end. “Our assortment will initially focus on everyday-value commodity categories that deliver better value and margin and complete the full shop,” said Sheedy. “These items will help us capture larger baskets and create a stickier customer relationship. Our private label strategy will also include NOSH [natural, organic, specialty and healthy] categories and unique items that will serve as another differentiator, enhancing the customer shopping experience.”

Water will be one of the first items to be introduced. Other examples include items within the baking and pasta categories, and cheese.

Grocery Outlet is also excited about growth opportunities as a result of its recent United Grocery Outlet acquisition. This deal gives Grocery Outlet an entry point into the southeast region, with 40 stores across the six states of Tennessee, North Carolina, Georgia, Alabama, Kentucky and Virginia. United Grocery Outlet also operates a distribution center that can support additional new store growth in the broader southeast region.

“This is an exciting addition as we pursue our white-space opportunity of over 4,000 stores across the U.S.,” explained Sheedy. “Distribution center infrastructure in this region also provides us with better access to opportunistic product that can benefit all Grocery Outlet stores. We have many levers to accelerate sales growth in partnership with the United Grocery Outlet team. Some of these opportunities include assortment expansion, additional store fixtures and improvements, and technology and marketing investments.”

Looking ahead, Grocery Outlet is projecting comp-sales growth in the range of 3% to 4% for its full year. In addition to the United Grocery Outlet stores, it plans to open 15 to 20 stores for a total of 55 to 60 net new stores in 2024. In total, the retailer projects fiscal 2024 net sales of $4.3 billion to $4.35 billion.

For the full fiscal year, Grocery Outlet expects adjusted EBITDA to be in the range of $275 million to $283 million.

Emeryville, Calif.-based Grocery Outlet offers products sold through a network of independently operated stores at 460-plus locations in California, Washington, Oregon, Pennsylvania, Idaho, Nevada, Maryland, New Jersey and Ohio. The company is No. 66 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America.