• Grocery Outlet Holding Corp. Announces Second Quarter Fiscal 2024 Financial Results

    المصدر: Nasdaq GlobeNewswire / 06 أغسطس 2024 15:01:00   America/Chicago

    Q2 fiscal 2024 net sales increased 11.7%
    Q2 fiscal 2024 comparable store sales grew 2.9%, driven by a 5.1% increase in transactions
    Company updates key guidance for fiscal 2024

    EMERYVILLE, Calif., Aug. 06, 2024 (GLOBE NEWSWIRE) -- Grocery Outlet Holding Corp. (NASDAQ: GO) ("Grocery Outlet" or the "Company") today announced financial results for the second quarter of fiscal 2024 ended June 29, 2024.

    Highlights for Second Quarter Fiscal 2024 as compared to Second Quarter Fiscal 2023:

    • Net sales increased by 11.7% to $1.13 billion.
    • Comparable store sales increased by 2.9%, driven by a 5.1% increase in the number of transactions, partially offset by a 2.1% decrease in average transaction size.
    • In addition to the previously announced 40 stores acquired as part of the United Grocery Outlet acquisition on April 1, 2024, the Company opened 11 new stores and closed one store, ending the quarter with 524 stores in 16 states.
    • Gross margin decreased by 140 basis points to 30.9%. As previously disclosed, the Company experienced disruptions as a result of the implementation of new technology platforms in late August 2023. Such disruptions are estimated to have negatively impacted gross margin by 100 basis points in the second quarter. The Company does not expect any further disruptions that would result in material negative impacts on its results of operations in the second half of fiscal 2024.
    • Selling, general and administrative expenses increased by 11.4% to $323.1 million, or 28.6% of net sales. This included $3.8 million of commission support the Company elected to provide operators in connection with the Company's system upgrades.
    • Net income decreased 42.8% to $14.0 million, or $0.14 per share.
    • Adjusted EBITDA(1) decreased by 3.7% to $67.9 million, or 6.0% of net sales.
    • Adjusted net income(1) decreased by 21.4% to $25.1 million, or $0.25 per adjusted diluted share(1).

    "We are pleased with our second quarter performance with gross margins and earnings coming in better than our expectations," said RJ Sheedy, President and CEO of Grocery Outlet. "We also continue to make good progress with our systems transition work and are happy to now have the material negative P&L impact behind us."   

    __________________________________

    (1)Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures, which exclude the impact of certain special items. Please note that the Company's non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the "Non-GAAP Financial Information" section of this release as well as the respective reconciliations of the Company's non-GAAP financial measures below for additional information about these items.
      

    Highlights for the 26 Weeks Ended June 29, 2024 as compared to the 26 Weeks Ended July 1, 2023:

    • Net sales increased by 9.6% to $2.17 billion.
    • Comparable store sales increased by 3.4%, driven by a 6.0% increase in the number of transactions, partially offset by a 2.5% decrease in average transaction size.
    • Gross margin decreased by 150 basis points to 30.2%. Disruptions as a result of the implementation of the new technology platforms in late August 2023 are estimated to have negatively impacted gross margin by 150 basis points in the 26 weeks ended June 29, 2024.
    • Selling, general and administrative expenses increased by 12.3% to $626.5 million, or 28.9% of net sales. This included $16.2 million of commission support the Company elected to provide operators in connection with the Company's system upgrades.
    • Net income decreased 66.0% to $13.0 million, or $0.13 per share.
    • Adjusted EBITDA(1) decreased by 19.7% to $107.3 million, or 5.0% of net sales.
    • Adjusted net income(1) decreased by 42.5% to $33.9 million, or $0.34 per adjusted diluted share(1).

    Balance Sheet and Cash Flow:

    • Cash and cash equivalents totaled $67.1 million at the end of the second quarter of fiscal 2024.
    • Total debt was $379.2 million at the end of the second quarter of fiscal 2024, net of unamortized debt issuance costs. During the second quarter of fiscal 2024, $90.0 million was borrowed under the Company's revolving credit facility to support share repurchases and other cash outlays, after the acquisition of United Grocery Outlet.
    • Net cash provided by operating activities during the second quarter of fiscal 2024 was $41.6 million.
    • Capital expenditures for the second quarter of fiscal 2024, before the impact of tenant improvement allowances, were $42.4 million, and, net of tenant improvement allowances, were $40.2 million.

    As previously announced, on April 1, 2024, the Company completed the acquisition of United Grocery Outlet for the total purchase consideration of $62.8 million, including $2.0 million of cash and cash equivalents on hand, subject to post-closing adjustments, and was funded with cash on hand.

    Outlook:

    The Company is updating key guidance figures for fiscal 2024 as follows:

     PreviousCurrent
    New store openings, net(2)58 to 6262 to 64
    Net sales$4.30 billion to $4.35 billion$4.30 billion to $4.35 billion
    Comparable store sales increase3.5% to 4.5%~3.5%
    Gross margin~30.5%~30.5%
    Adjusted EBITDA(1)$252 million to $260 million$252 million to $260 million
    Adjusted earnings per share — diluted(1)$0.89 to $0.95$0.89 to $0.95
    Capital expenditures (net of tenant improvement allowances)~$175 million~$200 million

    __________________________________

    (2)Includes addition of 40 stores from acquisition of United Grocery Outlet.
      

    Conference Call Information:

    A conference call to discuss the second quarter fiscal 2024 financial results is scheduled for today, August 6, 2024 at 4:30 p.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-9208 approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at https://investors.groceryoutlet.com.

    A taped replay of the conference call will be available within two hours of the conclusion of the call and can be accessed both online and by dialing (844) 512-2921 and entering access code 13744382. The replay will be available for approximately two weeks after the call.

    Non-GAAP Financial Information:

    In addition to reporting financial results in accordance with accounting principles generally accepted in the United States ("GAAP"), management and the Board of Directors use EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share as supplemental key metrics to assess the Company's financial performance. These non-GAAP financial measures are also frequently used by analysts, investors and other interested parties to evaluate the Company and other companies in the Company's industry. Management believes it is useful to investors and analysts to evaluate these non-GAAP measures on the same basis as management uses to evaluate the Company's operating results. Management uses these non-GAAP measures to supplement GAAP measures of performance to evaluate the effectiveness of the Company's business strategies, to make budgeting decisions and to compare the Company's performance against that of other peer companies using similar measures. In addition, the Company uses adjusted EBITDA to supplement GAAP measures of performance to evaluate performance in connection with compensation decisions. Management believes that excluding items from operating income, net income and net income per diluted share that may not be indicative of, or are unrelated to, the Company's core operating results, and that may vary in frequency or magnitude, enhances the comparability of the Company's results and provides additional information for analyzing trends in the Company's business.

    Management defines EBITDA as net income before net interest expense, income taxes and depreciation and amortization expenses. Adjusted EBITDA represents EBITDA adjusted to exclude share-based compensation expense, loss on debt extinguishment and modification, asset impairment and gain or loss on disposition, acquisition and integration costs, costs related to the amortization of inventory purchase accounting asset step-ups and certain other expenses that may not be indicative of, or are unrelated to, the Company's core operating results, and that may vary in frequency or magnitude. Adjusted net income represents net income adjusted for the previously mentioned adjusted EBITDA adjustments, further adjusted for the amortization of property and equipment purchase accounting asset step-ups and deferred financing costs, tax adjustment to normalize the effective tax rate, and tax effect of total adjustments. Basic adjusted earnings per share is calculated using adjusted net income, as defined above, and basic weighted average shares outstanding. Diluted adjusted earnings per share is calculated using adjusted net income, as defined above, and diluted weighted average shares outstanding.

    These non-GAAP measures may not be comparable to similar measures reported by other companies and have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP. The Company addresses the limitations of the non-GAAP measures through the use of various GAAP measures. In the future the Company will incur expenses or charges such as those added back to calculate adjusted EBITDA or adjusted net income. The presentation of these non-GAAP measures should not be construed as an inference that future results will be unaffected by the adjustments used to derive such non-GAAP measures.

    The Company has not reconciled the non-GAAP adjusted EBITDA and adjusted diluted earnings per share forward-looking guidance included in this release to the most directly comparable GAAP measures because this cannot be done without unreasonable effort due to the variability and low visibility with respect to taxes and non-recurring items, which are potential adjustments to future earnings. The Company expects the variability of these items to have a potentially unpredictable, and a potentially significant, impact on the Company's future GAAP financial results.

    Forward-Looking Statements:

    This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this release other than statements of historical fact, including statements regarding the Company's future operating results and financial position, the Company's business strategy and plans, the integration of the Company's recent acquisition of United Grocery Outlet, the Company's enterprise resource planning system upgrades and related impacts, business and market trends, macroeconomic and geopolitical conditions, and the sufficiency of the Company's cash balances, working capital and cash generated from operating, investing, and financing activities for the Company's future liquidity and capital resource needs may constitute forward-looking statements. Words such as "anticipate," "believe," "estimate," "expect," "intend," "may," "outlook," "plan," "project," "seek," "will," and similar expressions, are intended to identify such forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied by any forward-looking statements, including the following: failure of suppliers to consistently supply the Company with opportunistic products at attractive pricing; inability to successfully identify trends and maintain a consistent level of opportunistic products; failure to maintain or increase comparable store sales; any significant disruption to the Company's distribution network, the operations of its distributions centers and timely receipt of inventory; inflation and other changes affecting the market prices of the products the Company sells; risks associated with newly opened or acquired stores; failure to open, relocate or remodel stores on schedule and on budget; costs and successful implementation of marketing, advertising and promotions; failure to maintain the Company's reputation and the value of its brand, including protecting intellectual property; inability to maintain sufficient levels of cash flow from operations; risks associated with leasing substantial amounts of space; failure to properly integrate any acquired businesses; natural or man-made disasters, climate change, power outages, major health epidemics, pandemic outbreaks, terrorist acts, global political events or other serious catastrophic events and the concentration of the Company's business operations; failure to participate effectively in the growing online retail marketplace; unexpected costs and negative effects if the Company incurs losses not covered by insurance; difficulties associated with labor relations and shortages; loss of key personnel or inability to attract, train and retain highly qualified personnel; failure to remediate material weakness in the Company's internal control over financial reporting; risks associated with economic conditions; competition in the retail food industry; movement of consumer trends toward private labels and away from name-brand products; risks associated with deploying the Company's own private label brands; inability to attract and retain qualified independent operators of the Company ("IOs"); failure of the IOs to successfully manage their business; failure of the IOs to repay notes outstanding to the Company; inability of the IOs to avoid excess inventory shrink; any loss or changeover of an IO; legal proceedings initiated against the IOs; legal challenges to the IO/independent contractor business model; failure to maintain positive relationships with the IOs; risks associated with actions the IOs could take that could harm the Company's business; material disruption to information technology systems, including risks associated with any continued impact from the Company's systems transition; failure to maintain the security of information relating to personal information or payment card data of customers, employees and suppliers; risks associated with products the Company and its IOs sell; risks associated with laws and regulations generally applicable to retailers; legal or regulatory proceedings; the Company's substantial indebtedness could affect its ability to operate its business, react to changes in the economy or industry or pay debts and meet obligations; restrictive covenants in the Company's debt agreements may restrict its ability to pursue its business strategies, and failure to comply with any of these restrictions could result in acceleration of the Company's debt; risks associated with tax matters; changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters; and the other factors discussed under "Risk Factors" in the Company's most recent annual report on Form 10-K and in other subsequent reports the Company files with the United States Securities and Exchange Commission (the "SEC"). The Company's periodic filings are accessible on the SEC's website at www.sec.gov.

    Moreover, the Company operates in a very competitive and rapidly changing environment, and new risks emerge from time to time. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, and the Company's expectations based on third-party information and projections are from sources that management believes to be reputable, the Company cannot guarantee that future results, levels of activity, performance or achievements. These forward-looking statements are made as of the date of this release or as of the date specified herein and the Company has based these forward-looking statements on current expectations and projections about future events and trends. Except as required by law, the Company does not undertake any duty to update any of these forward-looking statements after the date of this release or to conform these statements to actual results or revised expectations.

    About Grocery Outlet:

    Based in Emeryville, California, Grocery Outlet is a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold primarily through a network of independently operated stores. Grocery Outlet and its subsidiaries have more than 520 stores in California, Washington, Oregon, Pennsylvania, Tennessee, Idaho, Nevada, Maryland, North Carolina, New Jersey, Georgia, Ohio, Alabama, Delaware, Kentucky and Virginia.


    GROCERY OUTLET HOLDING CORP.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

    (in thousands, except per share data)
    (unaudited)
     
     13 Weeks Ended 26 Weeks Ended
     June 29,
    2024
     July 1,
    2023
     June 29,
    2024
     July 1,
    2023
    Net sales$1,128,520 $1,010,255 $2,165,464 $1,975,722
    Cost of sales 779,280  683,685  1,512,279  1,348,609
    Gross profit 349,240  326,570  653,185  627,113
    Selling, general and administrative expenses 323,135  290,089  626,517  557,814
    Operating income 26,105  36,481  26,668  69,299
    Other expenses:       
    Interest expense, net 5,559  4,766  8,735  10,685
    Loss on debt extinguishment and modification       5,340
    Total other expenses 5,559  4,766  8,735  16,025
    Income before income taxes 20,546  31,715  17,933  53,274
    Income tax expense 6,545  7,244  4,957  15,083
    Net income and comprehensive income$14,001 $24,471 $12,976 $38,191
    Basic earnings per share$0.14 $0.25 $0.13 $0.39
    Diluted earnings per share$0.14 $0.24 $0.13 $0.38
    Weighted average shares outstanding:       
    Basic 99,542  98,515  99,531  98,218
    Diluted 100,369  100,639  100,753  100,604
                


    GROCERY OUTLET HOLDING CORP.
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (in thousands)
    (unaudited)
     
     June 29,
    2024
     December 30,
    2023
    Assets   
    Current assets:   
    Cash and cash equivalents$67,065 $114,987
    Independent operator receivables and current portion of independent operator notes, net of allowance 12,243  14,943
    Other accounts receivable, net of allowance 4,388  4,185
    Merchandise inventories 367,313  349,993
    Prepaid expenses and other current assets 24,259  32,443
    Total current assets 475,268  516,551
    Independent operator notes and receivables, net of allowance 30,675  28,134
    Property and equipment, net 712,764  642,462
    Operating lease right-of-use assets 998,366  945,710
    Intangible assets, net 76,887  78,556
    Goodwill 776,832  747,943
    Other assets 9,884  10,230
    Total assets$3,080,676 $2,969,586
    Liabilities and Stockholders' Equity   
    Current liabilities:   
    Trade accounts payable$210,231 $209,354
    Accrued and other current liabilities 54,304  66,655
    Accrued compensation 18,655  24,749
    Current portion of long-term debt 5,625  5,625
    Current lease liabilities 71,940  63,774
    Income and other taxes payable 7,924  13,808
    Total current liabilities 368,679  383,965
    Long-term debt, net 373,555  287,107
    Deferred income tax liabilities, net 41,154  38,601
    Long-term lease liabilities 1,075,019  1,038,307
    Other long-term liabilities 1,425  2,267
    Total liabilities 1,859,832  1,750,247
    Stockholders' equity:   
    Common stock 99  99
    Series A preferred stock   
    Additional paid-in capital 865,805  877,276
    Retained earnings 354,940  341,964
    Total stockholders' equity 1,220,844  1,219,339
    Total liabilities and stockholders' equity$3,080,676 $2,969,586
     


    GROCERY OUTLET HOLDING CORP.
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (in thousands)
    (unaudited)
     
     26 Weeks Ended
     June 29,
    2024
     July 1,
    2023
    Cash flows from operating activities:   
    Net income$12,976  $38,191 
    Adjustments to reconcile net income to net cash provided by operating activities:   
    Depreciation of property and equipment 43,462   36,969 
    Amortization of intangible and other assets 7,972   4,826 
    Amortization of debt issuance costs and debt discounts 455   628 
    Non-cash rent 1,788   2,705 
    Loss on debt extinguishment and modification    5,340 
    Share-based compensation 15,143   17,981 
    Provision for independent operator and other accounts receivable reserves 1,947   2,154 
    Deferred income taxes 2,077   9,938 
    Other 745   342 
    Changes in operating assets and liabilities:   
    Independent operator and other accounts receivable 1,006   (3,395)
    Merchandise inventories (3,112)  13,975 
    Prepaid expenses and other assets 10,973   (2,657)
    Income and other taxes payable (6,626)  3,486 
    Trade accounts payable, accrued compensation and other liabilities (45,210)  20,985 
    Operating lease liabilities 5,842   5,652 
    Net cash provided by operating activities 49,438   157,120 
    Cash flows from investing activities:   
    Advances to independent operators (5,541)  (3,540)
    Repayments of advances from independent operators 2,692   3,551 
    Business acquisition, net of cash and cash equivalents acquired (60,774)   
    Purchases of property and equipment (85,131)  (66,025)
    Proceeds from sales of assets    24 
    Investments in intangible assets and licenses (6,532)  (12,309)
    Proceeds from insurance recoveries - property and equipment    215 
    Net cash used in investing activities (155,286)  (78,084)
    Cash flows from financing activities:   
    Proceeds from exercise of stock options 3,744   1,578 
    Tax withholding related to net settlement of employee share-based awards    (449)
    Proceeds from senior term loan due 2028    300,000 
    Proceeds from revolving credit facility 90,000   25,000 
    Principal payments on revolving credit facility    (25,000)
    Principal payments on senior term loan due 2025    (385,000)
    Principal payments on senior term loan due 2028 (3,750)  (1,875)
    Principal payments on finance leases (794)  (651)
    Repurchase of common stock (31,274)  (3,275)
    Dividends paid    (9)
    Debt issuance costs paid    (4,513)
    Net cash provided by (used in) financing activities 57,926   (94,194)
    Net decrease in cash and cash equivalents (47,922)  (15,158)
    Cash and cash equivalents at beginning of period 114,987   102,728 
    Cash and cash equivalents at end of period$67,065  $87,570 
     


    GROCERY OUTLET HOLDING CORP.
    RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA
    (in thousands)
    (unaudited)
     
     13 Weeks Ended 26 Weeks Ended
     June 29,
    2024
     July 1,
    2023
     June 29,
    2024
     July 1,
    2023
    Net income$14,001 $24,471 $12,976 $38,191
    Interest expense, net 5,559  4,766  8,735  10,685
    Income tax expense 6,545  7,244  4,957  15,083
    Depreciation and amortization expenses 26,545  21,120  51,434  41,795
    EBITDA 52,650  57,601  78,102  105,754
    Share-based compensation expenses (1) 7,001  11,305  15,143  17,981
    Loss on debt extinguishment and modification (2)       5,340
    Asset impairment and gain or loss on disposition (3) 381  236  745  343
    Acquisition and integration costs (4) 4,937    7,586  
    Amortization of purchase accounting assets (5) 839    839  
    Other (6) 2,070  1,377  4,858  4,179
    Adjusted EBITDA$67,878 $70,519 $107,273 $133,597
     


    GROCERY OUTLET HOLDING CORP.
    RECONCILIATION OF GAAP NET INCOME TO ADJUSTED NET INCOME
    (in thousands, except per share data)
    (unaudited)
     
     13 Weeks Ended 26 Weeks Ended
     June 29,
    2024
     July 1,
    2023
     June 29,
    2024
     July 1,
    2023
    Net income$14,001  $24,471  $12,976  $38,191 
    Share-based compensation expenses (1) 7,001   11,305   15,143   17,981 
    Loss on debt extinguishment and modification (2)          5,340 
    Asset impairment and gain or loss on disposition (3) 381   236   745   343 
    Acquisition and integration costs (4) 4,937      7,586    
    Amortization of purchase accounting assets and deferred financing costs (5) 2,228   1,424   3,550   2,991 
    Other (6) 2,070   1,377   4,858   4,179 
    Tax adjustment to normalize effective tax rate (7) 86   (2,448)  (708)  (856)
    Tax effect of total adjustments (8) (5,609)  (4,446)  (10,246)  (9,226)
    Adjusted net income$25,095  $31,919  $33,904  $58,943 
            
    GAAP earnings per share       
    Basic$0.14  $0.25  $0.13  $0.39 
    Diluted$0.14  $0.24  $0.13  $0.38 
    Adjusted earnings per share       
    Basic$0.25  $0.32  $0.34  $0.60 
    Diluted$0.25  $0.32  $0.34  $0.59 
    Weighted average shares outstanding       
    Basic 99,542   98,515   99,531   98,218 
    Diluted 100,369   100,639   100,753   100,604 
                    

    __________________________

    (1)Includes non-cash share-based compensation expense and cash dividends paid on vested share-based awards as a result of dividends declared in connection with a recapitalization that occurred in fiscal 2018.
    (2) Represents the write-off of debt issuance costs and debt discounts as well as debt modification costs related to refinancing and/or repayment of the Company's credit facilities.
    (3)Represents asset impairment charges and gains or losses on dispositions of assets.
    (4)Represents costs related to the acquisition and integration of United Grocery Outlet, including due diligence, legal, other consulting and retention bonus expenses.
    (5)For purposes of determining adjusted EBITDA, this line represents the incremental amortization of inventory step-ups resulting from purchase price accounting related to acquisitions. For purposes of determining adjusted net income, in addition to the previously noted items, this line also represents the incremental amortization of property and equipment step-ups from acquisitions, as well as the amortization of debt issuance costs, as these items are already included in the adjusted EBITDA reconciliation within the depreciation and amortization expenses and interest income, net, respectively.
    (6)Represents other non-recurring, non-cash or non-operational items, such as technology upgrade implementation costs, certain personnel-related costs, costs related to employer payroll taxes associated with equity awards, store closing costs, legal settlements and other legal expenses, strategic project costs and miscellaneous costs.
    (7)Represents adjustments to normalize the effective tax rate for the impact of unusual or infrequent tax items that the Company does not consider in its evaluation of ongoing performance, including excess tax expenses or benefits related to stock option exercises and vesting of restricted stock units and performance-based restricted stock units that are recorded in earnings as discrete items in the reporting period in which they occur.
    (8)Represents the tax effect of the total adjustments. The Company calculates the tax effect of the total adjustments on a discrete basis excluding any non-recurring and unusual tax items.
      

    INVESTOR RELATIONS CONTACTS:
    
    Christine Chen
    (510) 877-3192
    cchen@cfgo.com
    
    John Rouleau
    (203) 682-4810
    John.Rouleau@icrinc.com
    
    MEDIA CONTACT:
    
    Alejandro Alvarez Correa
    (510) 346-5532
    aalvarezcorrea@cfgo.com

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