Release Date: May 07, 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 7.4% increase in net sales to $1.04 billion, driven by a 3.9% increase in comparable store sales.
- The company saw strong transaction count growth at 7%, indicating robust customer traffic.
- Grocery Outlet Holding Corp (GO) successfully opened 6 new stores in the quarter, with plans to add 58 to 62 new stores this year, reflecting a 13% growth over the previous year.
- The integration of the United Grocery Outlet acquisition is proceeding well, adding 40 stores across 6 new states, which is expected to further enhance the company's market presence.
- The rollout of Grocery Outlet Holding Corp (GO)'s personalization app was completed, achieving over 400,000 downloads, which is expected to boost customer engagement and loyalty.
Negative Points
- First quarter gross margin of 29.3% was 110 basis points below expectations due to unexpected costs from the systems transition.
- The systems transition has been disruptive, causing operational and financial challenges over the past 8 months, impacting margins and forecasting accuracy.
- Unexpected additional costs related to the systems transition were identified at the end of the quarter, contributing to a lower than expected gross margin.
- The company experienced a GAAP net loss for the first quarter of $1 million or $0.01 per share, reflecting the challenges faced during the period.
- Grocery Outlet Holding Corp (GO) is still working through system functionality and performance enhancements, which may continue to impact financial results in the short term.
Q & A Highlights
Q: Can you walk us through why this couldn't happen again in the second quarter? Why couldn't you have variances similar to what happened in the first quarter?
A: (Robert Joseph Sheedy, President, CEO & Director) We're disappointed with the ongoing issues from the system upgrade. However, we've made significant progress in resolving data integration issues and improving our organizational approach to these challenges. We've increased our in-house capabilities and reduced reliance on external consultants, which has improved our control over the situation. We're now better organized and have clearer timelines for the remaining work, which makes us confident about managing and forecasting more accurately moving forward.
: What is still negatively impacting you as we sit here in the second quarter, and when do you expect to return to more normalized operations?
A: (Robert Joseph Sheedy, President, CEO & Director) The residual costs in Q2 relate to margin and commission calculations that will be completed by June. These are not due to ongoing system issues but are tied to scheduled physical inventory counts. We expect to return to more normalized operations soon, with gross margins improving significantly in the second half of the year as system improvements continue.
Q: How do you see the impact of $0.99 only liquidating on Grocery Outlet?
A: (Robert Joseph Sheedy, President, CEO & Director) The liquidation of $0.99 only stores has already begun to benefit us, as we see more product opportunities previously directed to them. This not only helps in providing great value to our customers but also improves our gross margins. Additionally, we are exploring real estate opportunities from $0.99 only's closures to expand our store network.
Q: Can you discuss the impact of the new private label program on your business?
A: (Robert Joseph Sheedy, President, CEO & Director) We are excited about the launch of our private label program, which will start in the third quarter. This program will enhance our product assortment by providing unique, high-quality items at great value, improving both customer experience and our margins. The private label items will also add a new dimension to our treasure hunt shopping experience, making it even more engaging for customers.
Q: What are the expectations for the mobile app in terms of customer engagement and transactions?
A: (Robert Joseph Sheedy, President, CEO & Director) The rollout of our personalization app has been successful, with strong customer adoption and feedback. We've seen over 400,000 downloads, and it's contributing to 6% of our sales. We expect continued growth in app engagement, which will provide valuable customer data and help increase loyalty and shopping frequency.
Q: How is the SNAP benefit reduction impacting your business?
A: (Lindsay E. Gray, Interim CFO & Senior VP of Accounting) The reduction in SNAP benefits has led to a shift in tender types rather than a decrease in customer visits. Our value-focused model continues to attract customers looking to stretch their dollars, and we have seen a migration to other payment methods without a significant impact on our traffic or sales.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
