It has been about a month since the last earnings report for Grocery Outlet Holding Corp. (GO). Shares have added about 2.6% in that time frame, outperforming the S&P 500.
But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is Grocery Outlet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important catalysts.
Grocery Outlet Q2 Earnings Beat Estimates, 2026 View Raised
Grocery Outlet reported second-quarter 2026 results, with both top and bottom lines surpassing the Zacks Consensus Estimate. While net sales increased year over year, adjusted earnings per share declined from the year-ago period. Results reflected sequential improvement in comparable-store sales and customer basket trends, along with continued traction from efforts to strengthen the company’s opportunistic offering and value perception. Management also raised several key components of its fiscal 2026 outlook following second-quarter results that came in ahead of its expectations. The company improved its comparable-store sales forecast and increased the lower ends of its net sales, adjusted EBITDA and adjusted earnings-per-share guidance ranges.
GO’s Quarterly Performance: Key Insights
Grocery Outlet delivered adjusted earnings of 20 cents a share for the second quarter, beating the Zacks Consensus Estimate of 12 cents by 66.7%. The figure declined from adjusted earnings of 23 cents reported in the year-ago quarter.
Net sales increased 1.1% year over year to $1,192.8 million, surpassing the consensus mark of $1,167 million by 2.2%. The improvement was driven by sales from new stores, partially offset by lower sales stemming from store closures under the Optimization Plan and a decline in comparable-store sales.
Comparable-store sales declined 0.3% in the quarter, improving from the 1% drop registered in the first quarter. The second-quarter decrease reflected a 2.1% decline in average transaction size, partly offset by a 1.8% increase in the number of transactions. Management highlighted sequential improvement in the basket while traffic remained positive, signaling progress in its efforts to strengthen value perception and restore the core strengths of the business.
GO’s Margin Profile Remains Under Pressure
Gross profit was relatively unchanged year over year at $360.7 million. Gross margin contracted 40 basis points to 30.2% from 30.6% in the prior-year quarter. The contraction primarily reflected product promotions aimed at driving sales and inventory markdowns and write-offs associated with Optimization Plan store closures, partly offset by improvements in inventory management.
Selling, general and administrative expenses increased slightly to $339.5 million from $336.8 million in the year-ago period. As a percentage of net sales, SG&A expenses were relatively flat year over year at 28.5%.
Adjusted EBITDA declined 3.1% year over year to $65.7 million from $67.7 million. Adjusted EBITDA margin of 5.5% contracted 20 basis points year over year.
The company posted operating income of $15.8 million, up from $12.8 million in the year-ago quarter. The latest quarter included $5.4 million in net restructuring charges related to the Optimization Plan.
GO’s Store Update
Grocery Outlet opened 10 new stores and closed 12 stores during the quarter, including nine closures related to its Optimization Plan, ending the period with 547 stores across 16 states. The company completed the closure of all 36 financially underperforming stores identified under the Optimization Plan during the first half of fiscal 2026. For fiscal 2026, Grocery Outlet continues to expect 30-33 net new store openings, excluding closures related to the Optimization Plan.
Grocery Outlet’s Financial Health Snapshot
Grocery Outlet ended the quarter with cash and cash equivalents of $74.2 million compared with $69.6 million at fiscal 2025-end. Long-term debt, net, totaled $490.6 million, while stockholders’ equity stood at $816.6 million. The company generated $43.2 million in operating cash flow during the second quarter compared with $73.6 million in the prior-year period. The decline primarily reflected the timing of accrued and other liabilities, lower operating lease liabilities stemming from the Optimization Plan and lower net income after adjusting for non-cash charges.
Capital expenditures, net of tenant improvement allowances, were $38.7 million compared with $58.3 million in the year-ago quarter. Management continues to expect fiscal 2026 capital expenditures of about $170 million, net of tenant improvement allowances.
Grocery Outlet Raises Key Fiscal 2026 Targets
Management raised several components of its fiscal 2026 outlook, reflecting improved operating trends and second-quarter results that came in ahead of its expectations. Grocery Outlet now expects net sales of $4.70-$4.72 billion, raising the lower end from the previous guidance of $4.60-$4.72 billion. Comparable-store sales are projected to be between flat and down 0.5%, a substantial narrowing from the previous range of flat to down 2%. The company now anticipates a gross margin of 29.8%-30% compared with the prior forecast of 29.7%-30%. Adjusted EBITDA is expected in the range of $225-$235 million versus the previous $220-$235 million projection. Grocery Outlet also raised its fiscal 2026 adjusted earnings-per-share guidance to 51-55 cents from 45-55 cents previously.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -19.33% due to these changes.
VGM Scores
Currently, Grocery Outlet has a average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock has a score of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Grocery Outlet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Grocery Outlet Holding Corp. (GO): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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