Grocery Outlet Declines 37% YTD: Should You Hold or Sell the Stock?

Core Viewpoint - Grocery Outlet Holding Corp. has faced significant challenges in 2024, with a year-to-date stock price decline of 37.1%, contrasting with the broader industry and S&P 500 gains of 4.3% and 14.5% respectively [1][10]. Financial Performance - The company's gross margin was negatively impacted by new technology platforms, decreasing by 100 basis points to 30.9% in Q2 2024 [2][6]. - Selling, General and Administrative (SG&A) expenses surged by 11.4% to $323.1 million, primarily due to increased costs related to independent operator commissions, store occupancy, and incentives [7]. - The Zacks Consensus Estimate for earnings has decreased to 92 cents per share for the current fiscal year and $1.13 for the next fiscal year, reflecting a decline of 3.4% [4]. Stock Valuation - Grocery Outlet is currently trading at a forward 12-month Price to Earnings (P/E) ratio of 15.87X, which is lower than the industry average of 18.53X and the median of 28.19X, suggesting potential undervaluation [8]. Business Strategy - The company is enhancing its market presence through diverse product assortments, targeted marketing, and e-commerce strategies, including partnerships with Instacart, DoorDash, and Uber Technologies for same-day delivery [9]. - Grocery Outlet's unique business model focuses on opportunistic sourcing and an Independent Operator structure, providing quality products at significant discounts [8]. Management Outlook - Despite ongoing operational challenges, management remains optimistic about stabilizing performance in the latter half of the year, indicating a potential recovery [10][11].