Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Grocery Outlet Holding Corp (GO, Financial) reported a 12% increase in second-quarter sales, with comparable store sales rising by 2.9%.
- The company successfully completed the United Grocery Outlet acquisition and is progressing well with integration.
- Gross margin improved to 30.9%, which was 90 basis points ahead of expectations.
- The company opened 10 net new stores in the quarter, increasing the total store count to 524.
- The personalization app saw high customer engagement with over 700,000 downloads and an 8% sales penetration.
Negative Points
- Comparable store sales softened in late June, finishing slightly below expectations.
- Average basket size decreased by 2%, partially offsetting the increase in transaction count.
- SG&A expenses increased by 11.4% compared to the second quarter of 2023.
- Net interest expense rose by 16.6% due to higher interest rates and increased borrowings.
- The company noted increased promotional and pricing activities from key competitors, putting pressure on their relative value.
Q & A Highlights
Q: What was better in the second quarter that allowed gross margin to be 90 basis points ahead of plan?
A: Lindsay Gray, Interim CFO: Strong margins were a key factor, with some over-indexing on price and a generally strong environment. Healthy SG&A leverage also contributed to EPS upside. For the full year, we are holding gross margin guidance at 30.5% to reflect price investments in the second half to drive traffic and comp.
Q: Can you talk about July and early August trends relative to the implied 3.5% back comp?
A: Lindsay Gray, Interim CFO: We usually don't comment on interim trends, but we were pleased with April and May. Comp softened at the end of the quarter. July and August are comping against strong levels from last year, and September will start lapping the systems impact.
Q: How does the opportunistic comparisons look for 3Q and 4Q, and will the average basket trend continue to be negative?
A: Robert Sheedy, CEO: The comp softness is due to a combination of internal and external factors. Promotional activity from competitors has increased, but overall levels are rational. System challenges continue, but we don't expect them to have a material negative P&L impact. Adjustments to pricing and negotiating costs are underway to improve customer value.
Q: What is the rationale for raising the outlook on new store growth, and what are you seeing in terms of new store productivity levels?
A: Robert Sheedy, CEO: The team has been executing well, allowing us to increase guidance for new store openings. New stores are performing to plan, both in infill and developing markets. Stores opened over the past several years are ramping well and in line with expectations.
Q: How are you addressing the three factors impacting your basket and traffic trends?
A: Robert Sheedy, CEO: It's a mix of both traffic and basket. Traffic impact is from customers shopping less frequently, and units per transaction softened slightly. We are sharpening pricing and negotiating costs to deliver better value and excitement to customers.
Q: Can you provide more color on your private label program and how you plan to showcase these brands in stores?
A: Robert Sheedy, CEO: We have three brands: Simply GO for food, GO Home and Haven for household products, and GO Paw and Pamper for pet products. These items will be featured prominently in our marketing and in-store signage. They represent better value and healthier margins.
Q: What are you learning from customer interactions with the app, and which markets are performing better?
A: Robert Sheedy, CEO: The app is both a traffic driver and a basket builder. Customers use it to access real-time inventory and shop more categories. Basket size for app users is higher than average. Too early to discuss specific market performance.
Q: What are you seeing in terms of real estate availability and costs?
A: Robert Sheedy, CEO: There is a lot of available real estate, partly due to other retailers downsizing or closing. We are seeing opportunities from stores like $0.99 Only and Rite Aid. The team is executing well in getting stores opened on time.
Q: How are you addressing the competitive pricing environment and food inflation?
A: Robert Sheedy, CEO: We are not overly concerned about competitive pricing or inflation. Our model allows us to pivot quickly and continue offering great value. We are confident in our ability to grow the business regardless of economic conditions.
Q: How are you thinking about the closeout pipeline and its impact on your business?
A: Robert Sheedy, CEO: The closeout buying environment remains healthy with good product availability across categories. We continue to be the preferred partner for suppliers, and our stores are showing good variety. The team is doing a great job in partnering with suppliers to pass savings on to customers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
