Grocery Outlet's technical issues are piling up for its stock

By Bill Peters

'Additional systems-conversion issues resulted in a higher-than-expected adverse profit impact,' CEO says

Shares of Grocery Outlet Holding Corp. tumbled after hours on Tuesday after the bargain grocery chain cut its full-year profit outlook - saying glitches related to a technological upgrade hit its bottom line harder than expected.

While the company nudged its 2024 same-store sales outlook higher, it lowered its adjusted earnings-per-share forecast to between 89 cents and 95 cents, from an earlier forecast for $1.14 to $1.20 a share.

Shares slid 15% after hours. Grocery Outlet's (GO) stock has fallen 14% over the past 12 months, based on Tuesday's closing price.

"We are disappointed that additional systems-conversion issues resulted in a higher-than-expected adverse profit impact," Chief Executive RJ Sheedy said in a release.

"Our long-term growth potential remains intact and we look forward to returning to more normalized business results as we near the end of our systems transition," he continued.

Grocery Outlet has been trying to update its digital systems since last year, in an effort to better track financials and products in stock and help store operators make more precise purchasing and marketing decisions. But the changeover to that new technology has led to hiccups in ordering and other disruptions to operations.

During the company's last earnings call in February, executives said data-integration efforts were taking longer than expected. The "largest remaining issues" were related to data on product expirations in warehouses and other store-level reporting matters.

"We expect these to be resolved soon, after which the [profit-and-loss] impact will be behind us," Sheedy said then.

Over the past two years, inflation-hit customers have sought cheaper grocery options amid higher prices. Grocery Outlet on Tuesday raised its full-year same-store sales forecast to a gain of between 3.5% to 4.5%, compared with a prior outlook of a 3% to 4% increase. The company maintained its full-year revenue outlook of $4.3 billion to $4.35 billion.

However, for the first quarter, the company reported a net loss of $1 million, or 1 cent a share. That contrasted with a profit of $13.7 million, or 14 cents a share, in the same quarter last year.

Adjusted earnings per share were 9 cents. Sales rose 7.4% year over year, to $1.04 billion. Same-store sales were up 3.9%, helped by an increase in the number of times people bought goods at its stores.

Analysts polled by FactSet expected adjusted earnings per share of 18 cents, on revenue of $1.02 billion and a same-store sales increase of 2.3%.

-Bill Peters

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05-07-24 2010ET

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