Grocery Outlet Beats on Q3 Earnings, Trims Comparable Sales Outlook

Core Insights - Grocery Outlet Holding Corp. reported mixed results for Q3 2025, with net sales missing estimates but showing a year-over-year increase, while earnings exceeded estimates but declined from the previous year [1][3][9] Financial Performance - Adjusted earnings were 21 cents per share, beating the Zacks Consensus Estimate of 19 cents but down from 28 cents in the same quarter last year [3][9] - Net sales reached $1,168.2 million, falling short of the Zacks Consensus Estimate of $1,182 million, but reflecting a 5.4% year-over-year growth [3][9] - Comparable-store sales increased by 1.2%, supported by a 1.8% rise in transactions, but fell short of the anticipated 2% growth [4][9] Margin and Cost Analysis - Gross profit grew by 3% year over year to $355.1 million, with a gross margin contraction of 70 basis points to 30.4% [5][9] - SG&A expenses rose by 8.7% to $331 million, representing 28.3% of net sales, primarily due to new store costs and higher incentive compensation [6][9] - Adjusted EBITDA was $66.7 million, down 7.7% year over year, with the margin decreasing by 80 basis points to 5.7% [6][9] Store Expansion and Initiatives - The company added 13 new stores and closed two, bringing the total to 563 stores across 16 states, with plans to open 37 net new stores in 2025 [7][9] - A store refresh program was launched in select pilot stores, with plans to expand to 20 stores by year-end 2025 and at least 150 stores by the end of 2026 [8][9] Financial Health - At the end of the quarter, Grocery Outlet had cash and cash equivalents of $52.1 million, long-term debt of $481.5 million, and stockholders' equity of $1,198.6 million [9][10] - The company maintained a net leverage ratio of 1.8x adjusted EBITDA and had $175 million remaining borrowing capacity under its revolving credit facility [10][9] 2025 Outlook - The company revised its fiscal 2025 guidance, expecting net sales between $4.70 billion and $4.72 billion, and comparable-store sales growth of 0.6-0.9% [11][9] - Adjusted EBITDA is projected in the range of $258 million to $262 million, with adjusted earnings expected between 78 cents and 80 cents per share [12][9] - For Q4 2025, comparable-store sales growth is anticipated to be flat to 1%, with adjusted earnings projected between 21 cents and 23 cents per share [13][9] Market Performance - Grocery Outlet's shares fell 10% in after-hours trading following the earnings report, and the stock has declined 30.4% over the past three months compared to a 7.4% decline in the industry [2][14]