Please ensure Javascript is enabled for purposes of website accessibility

Why Grocery Outlet Stock Plunged Today

By Joe Tenebruso - May 12, 2021 at 8:33PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors are growing increasingly concerned about the company's growth prospects.

What happened

Shares of Grocery Outlet (GO -2.64%) fell 18.5% Wednesday following the release of the discount supermarket chain's first-quarter results.  

So what

Grocery Outlet's net sales decreased by 1% to $752.5 million, driven by an 8.2% decline in comparable-store sales. The company faced tough comparisons with the year-ago quarter when same-store sales jumped 17.4% as people stocked up on food and other supplies during the early stages of the coronavirus crisis.

A downwardly sloping stock chart.

Grocery Outlet's stock price crashed Wednesday. Image source: Getty Images.

Grocery Outlet furthered its expansion strategy, with 10 new store openings during the quarter. "We remain committed to our long-term algorithm of expanding our store base 10% each year while continually reinvesting in our business," CEO Eric Lindberg said in a press release.

These growth initiatives, however, continued to weigh on the company's profitability. Its adjusted net income dropped 19.6% to $23.1 million, or $0.23 per share.

Now what 

Management believes Grocery Outlet has a long runway for expansion still ahead. The company says it has the potential to grow from its current base of roughly 390 stores to as many as 4,800 locations in the U.S. alone. 

However, skeptics such as Quo Vadis Capital caution that Grocery Outlet's reliance on its in-store operations could make it difficult for it to compete with rivals that have invested heavily in their e-commerce capabilities as more grocery sales shift online. "This is a permanent competitive disadvantage, in our opinion," the firm's analysts said. 

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Grocery Outlet Holding Corp. Stock Quote
Grocery Outlet Holding Corp.
GO
$40.51 (-2.64%) $-1.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
389%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.