Nonfood West

Grocery Outlet Holding Corp. Announces Q2 Fiscal 2020 Financial Results

Grocery Outlet Holding Corp.

Emeryville, California-based Grocery Outlet Holding Corp. has announced its financial results for the second quarter of fiscal 2020, ended June 27.

Net sales increased by 24.5 percent to $803.4 million from $645.3 million in the second quarter of fiscal 2019; comparable store sales increased by 16.7 percent compared to a 5.8 percent increase in the same period last year.

The company opened seven new stores ending the quarter with 362 stores in six states.

Net income increased $40.0 million to $29.3 million, or $0.30 per diluted share, compared to a net loss of $10.6 million, or $(0.15) per diluted share, in the second quarter of fiscal 2019.

As a result of the tax benefit associated with employee stock option exercises, the company recorded a $2.2 million tax benefit resulting in an effective tax rate of (8.3) percent. This stock option-related tax benefit increased net income in the quarter by $9.6 million, or $0.10 per diluted share.

Adjusted EBITDA (1) increased 34.7 percent to $60.6 million compared to $45.0 million in the second quarter of fiscal 2019.

Adjusted net income (1) increased 189.2 percent to $41.8 million, or $0.42 per non-GAAP diluted share, compared to $14.5 million, or $0.20 per non-GAAP diluted share, in the second quarter of fiscal 2019.

“We are very pleased with our strong operational execution in the second quarter. Our financial results reflect incredible teamwork across the organization including our independent operators, distribution center teams and our corporate staff,” said Eric Lindberg, CEO of Grocery Outlet.

“While the safety of our communities and the entire Grocery Outlet team is our No. 1 priority, we remain committed to delivering exceptional value to our customers while continuing to extend our reach. Consistent with our approach to reinvesting in the business, we are accelerating talent and operational initiatives which we believe will drive long-term growth and shareholder value.”

(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. See the Non-GAAP Financial Measures section of this release for additional information about these items.

For the 26 weeks ended June 27, 2020

Net sales increased by 24.9 percent to $1.56 billion from $1.25 billion in the first half of fiscal 2019; comparable store sales increased by 17.0 percent compared to a 5.0 percent increase in the same period last year.

The company opened 17 new stores and closed two stores, ending the period with 362 stores in six states.

Net income increased $48.8 million to $42.0 million, or $0.43 per diluted share, compared to net loss of $6.9 million, or $(0.10) per diluted share, in the same period in 2019.

As a result of the tax benefit associated with employee stock option exercises, the company recorded a $4.0 million tax benefit resulting in an effective tax rate of (10.7) percent. This stock option-related tax benefit has increased net income by $14.6 million, or $0.15 per diluted share.

Adjusted EBITDA (1) increased 39.9 percent to $117.7 million compared to $84.1 million in the same period in 2019.
Adjusted net income (1) increased 210.8 percent to $75.9 million, or $0.78 per non-GAAP diluted share, compared to $24.4 million, or $0.35 per non-GAAP diluted share, in the same period last year.

Balance sheet and cash flow

Cash and cash equivalents totaled $79.8 million at the end of the second quarter of fiscal 2020 compared to $18.7 million at the end of the same period in fiscal 2019.

Total debt was $460.1 million at the end of the second quarter, compared to $475.5 million at the end of the same period in fiscal 2019. During the second quarter of fiscal 2020, the company repaid in full the $90.0 million drawn on the revolving credit facility of its First Lien Credit Agreement.

Capital expenditures for the second quarter of fiscal 2020, excluding the impact of landlord allowances, were $21.8 million.

Fiscal 2020 outlook

“Our second quarter financial performance reflects the strength of our business model and the incredible dedication of our independent operators and employees,” said Charles Bracher, CFO.

“While we are not providing formal 2020 earnings guidance at this time due to the uncertainty related to COVID-19, our liquidity position is strong, and we are actively reinvesting in support of our long-term strategic objectives.”

Grocery Outlet currently expects to open between 30 and 32 stores this year with no additional closures planned. The company continues to build its real estate pipeline to support 10 percent annual unit growth.

Quarter-to-date comparable store sales growth is tracking at approximately 10 percent driven by an increase in average basket size partially offset by declines in store traffic. The company anticipates that comparable store sales growth will continue to moderate as the economy reopens.

Excluding the impact of discrete items, the company anticipates a normalized tax rate of 28 percent. Weighted average diluted share count is expected to be approximately 100 million shares for fiscal 2020.

Non-GAAP financial information

In addition to reporting financial results in accordance with accounting principles generally accepted in the United States (GAAP), the company uses EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share measures of performance to evaluate the effectiveness of its business strategies, to make budgeting decisions and to compare its performance against that of other peer companies using similar measures.

Management believes it is useful to investors and analysts to evaluate these non-GAAP measures on the same basis as management uses to evaluate our operating results. Adjusted EBITDA and adjusted net income are non-GAAP measures and may not be comparable to similar measures reported by other companies.

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