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Grocery Outlet Holding Corp. (GO)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 net sales rose 10.9% to $1.10B, with comparable store sales +2.9% and transactions +3.0%; GAAP diluted EPS was $0.02 and adjusted diluted EPS $0.15 as gross margin compressed to 29.5% on egg pricing and persistent shrink impacts .
  • Adjusted EBITDA increased 12.5% year over year to $57.2M (5.2% of sales), but GAAP EPS declined versus Q4 2023 on higher SG&A and interest expense; restructuring charges of $15.9M in Q4 and a broader plan (total estimated costs $52–$61M) were initiated to optimize store growth, cancel capital‑intensive warehouse projects, and reduce workforce .
  • FY 2025 guidance: net sales $4.7–$4.8B (53rd week), comps +2–3%, gross margin 30.0–30.5%, adjusted EBITDA $260–$270M, adjusted EPS $0.70–$0.75, net new stores 33–35, capex $210M; Q1 2025 comps expected flat with ~100 bps Easter shift impact and adjusted EBITDA $45–$50M .
  • Leadership transition: 30‑year industry veteran Jason Potter named President & CEO; company opened a 680k sq ft ambient DC in Vancouver, WA to consolidate PNW logistics, targeting efficiency and margin benefits over time .
  • Near‑term stock narrative catalysts: execution on systems/tool fixes (real‑time order guide phasing in Q2), restore “treasure hunt” value, reduce shrink, and deliver disciplined new‑store growth; management emphasized “consistent and disciplined growth” and ROIC focus .

What Went Well and What Went Wrong

What Went Well

  • Comps above expectations, driven by stronger value assortments and WOW opportunistic buys; “we delivered solid fourth quarter results, generating comps above expectations as customers responded to our improved value assortments” — Eric Lindberg .
  • Adjusted EBITDA up 12.5% YoY to $57.2M and adjusted EBITDA margin 5.2%; management reaffirmed robust closeout availability and buyer execution .
  • Strategic logistics: new 680k sq ft ambient DC in Vancouver, WA to consolidate five facilities, improve service and reduce DC cost over time .
  • New CEO Jason Potter: “we are aligned on the core objective of delivering consistent and disciplined growth” and “drive sales, profitability and returns… by improving collaboration, execution and the customer experience” .

What Went Wrong

  • Gross margin fell 70 bps YoY to 29.5%; CFO cited ~50 bps impact from eggs (supply/pricing) plus continued inventory shrink from systems issues .
  • SG&A rose 11.6% (to 28.5% of sales) on $15.9M restructuring charges and higher store costs; GAAP EPS fell to $0.02 vs $0.14 prior year .
  • Interest expense increased to $7.0M in Q4 (+$5.5M YoY) on higher average principal debt post‑UGO acquisition and share repurchases; net leverage ended ~1.75x adjusted EBITDA .
  • Systems conversion: while functional, still inefficient; tools for IOs (real‑time order guide) and inventory planners are being enhanced, with shrink still above pre‑conversion levels .

Financial Results

Core financials vs prior year and prior quarter

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$989.8 $1,108.2 $1,097.9
Gross Margin (%)30.2% 31.1% 29.5%
GAAP Diluted EPS ($)$0.14 $0.24 $0.02
Adjusted Diluted EPS ($)$0.18 $0.28 $0.15
Adjusted EBITDA ($USD Millions)$50.9 $72.3 $57.2

Notes: Non‑GAAP adjustments include share‑based comp, acquisition/integration costs, amortization of purchase accounting step‑ups, restructuring, and other items as reconciled in the release .

Operating KPIs across recent quarters

KPIQ2 2024Q3 2024Q4 2024
Comparable Store Sales (%)+2.9% +1.2% +2.9%
Transactions (%)+5.1% +2.0% +3.0%
Average Basket (%)−2.1% −0.7% ~0.0% (flat)
Period‑End Store Count524 529 533

Balance sheet and cash flow snapshots (FY 2024)

  • Cash and equivalents: $62.8M; total debt: $477.5M (net of unamortized costs); operating cash flow: $112.0M; FY 2024 net capex: $185.7M (gross $206.9M) .
  • Year‑end inventories $394.2M; net leverage ~1.75x adjusted EBITDA (as discussed) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($B)FY 2024$4.30–$4.35 Slightly above $4.35 Raised modestly
Comparable Store Sales (%)FY 2024~3.5 ~2.4 Lowered
Gross Margin (%)FY 2024~30.5 ~30.4 Slightly lowered
Adjusted EBITDA ($M)FY 2024$252–$260 $237–$242 Lowered
Adjusted Diluted EPS ($)FY 2024$0.89–$0.95 $0.77–$0.80 Lowered
Net New Store OpeningsFY 202462–64 66 Raised
Capex (net) ($M)FY 2024~200 ~200 Maintained
Net Sales ($B)FY 2025N/A (algorithm framing only) $4.7–$4.8 (incl. 53rd week) New
Comparable Store Sales (%)FY 20251–3 (algorithm) 2–3 Narrowed/higher end
Gross Margin (%)FY 2025~30.5 (algorithm) 30.0–30.5 Range added
Adjusted EBITDA ($M)FY 2025~6% margin (algorithm) $260–$270 New
Adjusted Diluted EPS ($)FY 2025N/A $0.70–$0.75 New
Net New Store OpeningsFY 2025~10% growth historically 33–35 Tempered pace
Capex (net) ($M)FY 2025N/A$210 New
Net Interest Expense ($M)FY 2025N/A~38 New
Share‑based Comp ($M)FY 2025N/A~24 New
Normalized Tax Rate (%)FY 2025~32 ~32 Maintained
Avg Diluted Shares (M)FY 2025~100.3 (FY24) ~99 Lower on buybacks
Comparable Store Sales (%)Q1 2025N/A~0% (flat); Easter shift ~100 bps New
Gross Margin (%)Q1 2025N/A29.5–30.0 New
Adjusted EBITDA ($M)Q1 2025N/A$45–$50 New

Restructuring plan expected cash costs $36–$45M and total costs $52–$61M, primarily in H1 2025; lease terminations (cash $30–$37M), workforce reduction (~$1.6M), legal/pro fees $4.5–$6.5M .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Systems conversion & toolsMaterial P&L impact “now behind us,” but ongoing enhancements; improved visibility; still challenging for employees/IOs Still inefficient; guidance reset; long‑term algo reiterated Functional but inefficient; real‑time order guide phased in Q2; shrink above pre‑conversion Improving, still a drag
Value proposition & pricingOver‑indexed to price in spots; competitors more aggressive; sharpening value; app engagement Emphasis on reinvesting to value; Q4 guide conservative; treasure hunt metrics focus Value metrics “moving in right direction”; need more 60%+ savings items; targeted marketing Recovering
Supply chain & DCOngoing system/platform improvements; robust inventory; closeout healthy No multi‑temp expansion; focus on efficiency New Vancouver ambient DC consolidates 5 facilities; phase in by end 2025 Structural efficiency actions
Private labelLaunch ~100 SKUs by year‑end; margin benefit Continued rollout ~180 items launched in 2024; +~150 in 2025; margin accretive Expanding penetration
UGO integrationAcquisition closed; assortment expansion, refreshes planned Deliberate timeline; conversions later; test/learn via company‑op model Refreshes (~5 completed) lifting sales; broader integration ongoing Steady integration
ShrinkResidual systems impact; warehouse shrink normalized by May Still some margin drag; conservative guide Shrink improving YoY but above pre‑conversion; continued margin pressure Improving, not normalized
Macro/competitionPromotions rational near 2019 levels; value still wins Conservative posture; still dynamic Competitive environment unchanged materially; focus on execution Stable
Capital allocationShare repurchases ($25M Q2); Capex up for stores New $100M buyback; more stores in 2025 Repurchased $80.4M FY; do not expect debt reduction in 2025; net interest ~$38M More cautious leverage profile

Management Commentary

  • “Due primarily to our systems conversion, 2024 was a year in which many critical operational elements were out of sync… We have made great progress on many fronts, but there's still more work to be done.” — Eric Lindberg .
  • “We are reassessing our new store opening strategy… narrowing the focus… target existing markets and a smaller set of high‑priority adjacent new markets… expect to open 33 to 35 net new stores in 2025.” — Eric Lindberg .
  • “In February, we opened a new 680,000 square foot ambient distribution center in Vancouver, Washington… expected to increase efficiencies and lower DC costs in the region over the long term.” — Eric Lindberg .
  • “I’m thrilled to join… we are aligned on the core objective of delivering consistent and disciplined growth… I’ve spearheaded multiple turnarounds… driving sales, profitability and returns.” — Jason Potter .
  • “Adjusted EPS does not include the restructuring charges… higher depreciation and amortization and interest expense… [mean] EPS is growing at a lower rate [than adjusted EBITDA].” — Christopher Miller .

Q&A Highlights

  • Margin drivers: Eggs and shrink pressured Q4 margin; “egg prices and supply had about a 50 basis point impact… inventory shrinkage… related primarily to continued systems issues” — CFO .
  • Q1 2025 comps and Easter: “comparable store sales to be flat… Easter shift… ~100 basis points” — CFO .
  • Systems/tools timeline: Real‑time order guide for IOs targeted phasing in during Q2; aim to put systems “in the rearview” in 2025 — Eric .
  • Store growth cadence/reset: From 55–60 to 33–35 net in 2025 to improve ROIC and execution; exit suboptimal leases — Eric .
  • Private label traction: ~180 items launched; +~150 in 2025; becoming category top sellers; margin incremental — management .

Estimates Context

  • Attempted to retrieve Wall Street consensus (EPS and revenue) for Q4 2024 via S&P Global; data unavailable due to SPGI daily request limit exceeded. As a result, explicit “vs consensus” comparisons could not be provided at this time [GetEstimates error].
  • Management indicated comps above internal expectations, but without S&P consensus we cannot assess external beats/misses. Values retrieved from S&P Global were unavailable due to rate limits.

Key Takeaways for Investors

  • Value restoration and margin recovery are central: Expect continued focus on treasure‑hunt WOW items and targeted pricing/marketing; margin headwinds (eggs, shrink) should ease as systems/tools improve .
  • Execution over expansion: 2025 net store openings reduced to 33–35 with exits of suboptimal leases; disciplined capital deployment to improve ROIC — a positive for quality of growth .
  • Logistics efficiency: New Vancouver DC should support PNW growth and reduce DC costs; phased ramp through 2025 — medium‑term margin tailwind potential .
  • Earnings power mix: Adjusted EBITDA growth outpacing GAAP EPS given higher D&A and interest; expect continued EPS drag from leverage and capex intensity in 2025 before normalization .
  • Watch shrink and systems milestones: Q2 rollout of real‑time order guide, inventory planning tool improvements, and shrink normalization are meaningful stock catalysts if delivered .
  • UGO integration optionality: Near‑term sales lifts from refreshes and assortment expansion; later conversion to IO model offers further levers — measured approach reduces operational risk .
  • Buyback support with leverage trade‑off: ~$80M repurchased in FY 2024 and new $100M authorization; management does not expect debt reduction in 2025, implying continued interest expense headwinds and sensitivity to execution .