Grocery Outlet Holding Corp.

GO Details

Grocery Outlet Holding Corp. (NASDAQ: GO) is engaged in selling name-brand consumables and fresh products through a combination of independently owned and operated stores.

Result Performance – For the Second Quarter Ended 3 July 2021

• Net sales of the company fell by 3.5% YoY to $775.5 million in Q2FY21, while it fell by 2.3% YoY to $1.53 billion in H1FY21. The comparable-store sales fell by 10.0% YoY in Q2FY21 versus a 16.7% rise in Q2FY20. The company opened 11 new stores, ending the quarter with 400 stores in six states.
• Net income fell 33.0% YoY to $19.6 million, or $0.20 per diluted share in Q2FY21, while it fell by 8.2% YoY to $38.5 million, or $0.39 per diluted share in H1FY21.
• Adjusted EBITDA decreased 15.7% YoY to $50.8 million in Q2FY21, while it fell 14.8% YoY to $99.7 million in H1FY21.

Key Data (Source: Company Reports)

Recent Updates

• On 4 August 2021, the company announced its eleventh annual Independence from Hunger Food Drive campaign that raised over $2.8 million for families in need.

Risks

The company relies on suppliers to supply opportunistic products at attractive pricing, and any failure to procure such products may impact the business, product inventories, sales, and profit margins. Also, the business competes on attractive prices, hence, any change affecting the market prices of the products could materially impact the financial condition and operating results of the company.

Outlook:

As per the Q2FY21 result, released on 10 August 2021, the company continues to assume that it will be able to open between 36-38 stores in fiscal 2021 with one closure. Based on the existing trends, the company anticipates comparable store sales for the full third quarter of fiscal 2021 to be in the negative mid-single digits. Further, the capital expenditures, net of tenant improvement allowances, are forecasted to be ~$130.0 million for fiscal 2021.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

The stock declined by ~20.16% in 1 month. It has made a 52-week low and high of $24.65 and $48.87, respectively.

The stock has been valued using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price which reflects a rise of low double-digit (in percentage terms). The company might trade at a slight premium to its peers’ average, considering a higher gross margin at 30.7% in Q2FY21 versus an industry median of 22.1% and a better net margin at 2.5% in Q2FY21 versus an industry median of 2.0%.

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of $26.01 per share, down by 0.23% on 3^rd September 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.