GO Details

Grocery Outlet Holding Corp (Nasdaq: GO) is engaged in the retailing business with a high-growth, extreme value retailer in terms of quality. The company is engaged in selling name-brand consumables and fresh products through a combination of independently owned and operated stores.

Q1FY21 Results Performance (For the Period Ended April 3, 2021)

• Net Sales Reduced by 1% YoY: GO has registered a 1% YoY decline in net sales to $752.5 million with comparable-store sales reduced by 8.2% as against a growth of 17.4% in the PCP. The decline in sales was primarily driven by lower comparable-store sales that were offset by the growth in the new stores.

• Net Income Increased Significantly by 49.4% YoY: GO posted significant growth in its net income by 49.4% to $18.9 million with its diluted earnings per share increased to $0.19 from $0.13 in the PCP.

Financial Highlights (Source: Company Reports)

Outlook

Driven by its deep value orientation along with its strong customer and supplier relationships and substantial prevailing whitespace opportunity, the company is better placed for long-term growth. The company has guided opening around 36 to 38 stores in 2021 with one closure of the store in FY21 with capital expenditures, net of tenant improvement allowances is estimated to be around $130.0 million.

Besides, it remains focused on the sustained expansion of its footprint through augmenting its store base by 10% each year while constantly reinvesting in its business. In a move to augment its domestic presence, the company recently opened its 400^th store at the newest location in Hailey, Idaho.

Key Risks

Volatility in interest rate will impact its credit facilities, which bear variable interest rates. The pandemic outbreaks could disrupt and adversely affect its business as well as its operations and financial condition. Further, intense competition in the retail food industry along with the shift in consumer trends toward private labels from name-brand products pose greater concerns.

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

Stock Recommendation

GO has delivered 9-months and one-year returns of ~-23.42% and ~-21.59%, respectively. The stock is trading lower than the average of the 52-week high price of $48.87 and the 52-week low price of $32.23, which indicates a good opportunity for accumulation.

We have applied an EV/Sales multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium as compared to peer median EV/Sales multiple (NTM basis), considering its sustained focus on store expansion as well as substantial prevailing whitespace opportunity, strong consumer engagement, and solid business performance in FY20.

Source: REFINITIV; Daily Technical Chart; Note: The purple color line reflects RSI (14-period)

For this purpose of relative valuation, we have taken peers like Sprouts Farmers Market Inc (SFM.OQ), BJ's Wholesale Club Holdings Inc (BJ.N), to name a few. Considering the aforementioned factors along with its healthy liquidity position, and expansion growth strategies, we give a “Buy” recommendation on the stock at the current market price of $32.76 per share, up by 0.878% on 23^rd July 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.