Grocery Outlet (GO) Q2 2024 earnings summary

Executive summary

• Net sales rose 11.7% year-over-year to $1.13 billion in Q2 2024, with comparable store sales up 2.9% driven by a 5.1% increase in transactions, though average transaction size declined 2.1%.

• Gross margin was 30.9%, 90 bps above expectations but down 140 bps year-over-year due to technology disruptions and increased promotions.

• Net income fell 42.8% to $14.0 million ($0.14 per share); adjusted net income dropped 21.4% to $25.1 million ($0.25 per share).

• United Grocery Outlet acquisition added 40 stores, with integration progressing as planned; 11 new stores opened, ending Q2 with 524 stores in 16 states.

• Personalization app adoption reached 700,000 downloads and 8% sales penetration, and private label program is ramping up with ~100 SKUs expected by year-end.

Financial highlights

• Gross profit increased 6.9% to $349.2 million; SG&A expenses rose 11.4% to $323.1 million, including $3.8 million in operator support.

• Adjusted EBITDA was $67.9 million (6.0% margin), 60 bps ahead of expectations but down 3.7% year-over-year.

• Interest expense, net, was $5.6 million, up 16.6% due to higher average debt post-acquisition.

• Inventory ended at $367.3 million; total debt was $379.2 million with net leverage of 1.4x.

• Cash and cash equivalents at quarter-end: $67.1 million.

Outlook and guidance

• Fiscal 2024 guidance: net store openings 62–64 (including 40 UGO stores), net sales $4.30–$4.35 billion, comparable store sales ~3.5%, gross margin ~30.5%.

• Adjusted EBITDA expected at $252–$260 million; adjusted diluted EPS $0.89–$0.95.

• Q3 comp growth forecast at ~1.5%.

• CapEx net of tenant allowances raised to ~$200 million, reflecting higher store growth.

• No further material disruptions expected from technology upgrades in the second half of 2024.