Dive Brief:

• In its first earnings announcement since going public, Grocery Outlet reported a net sales increase of 12.2% to $645.3 million for the second quarter ending June 29, 2019. That’s up from $575.1 million for Q2 last year.
• Comparable-store sales increased by 5.8% during the quarter, while adjusted net income increased to $14.5 million, compared to $12.9 million in the second quarter of 2018. Adjusted EBITDA increased 15% to $45 million, up from $39.1 million last year. For the full-year, Grocery Outlet expects to see between $2.5 billion and $2.53 billion in net sales, comps growth between 3% and 4% and adjusted EBITDA between $162 million and $165.5 million.
• Grocery Outlet opened 8 new stores and closed one, and now operates 330 stores in six states, the company said.

Dive Insight:

After a well-received IPO that exceeded Wall Street expectations and a strong stock performance in its first weeks on the market, Grocery Outlet executives and investors notched Q2 as a promising step towards the company's plans to become a national grocer. 

On the earnings call, Grocery Outlet CEO Eric Lindberg noted the company has achieved 15 straight years of positive comps. Among the highlights for Q2 was the natural, organic, specialty and healthy category, which the company calls NOSH. President RJ Sheedy said the grocer has been expanding its supplier relationships to offer a wider NOSH assortment. He also said the company made its entry into grass-fed meat and fresh seafood during Q2 and added more refrigerated merchandising space in stores to support the expansion. 

"If we're able to deliver value and meet customer demand and follow these trends, that ends up being a great opportunity for us. And NOSH is a great example of that," Sheedy said on the earnings call. 

Sheedy also highlighted the role of marketing to support comps growth over the quarter. Grocery Outlet launched a new marketing campaign called "Bargain Bliss," which has seen positive response from shoppers, he said. The discount retailer is focused on marketing to new customers through digital channels including social media, emails, streaming radio and connected TV. According to Sheedy, Grocery Outlet’s email database for its daily WOW! email alerts surpassed 1.1 million subscribers during the quarter, an increase of more than 20% since last year. 

In the future, Grocery Outlet executives expect to deliver consistent, long-term comparable store sales growth of 1% to 3% annually. The company plans to grow its store base 10% every year, with the potential to open 400 stores in existing markets and 1,600 in new markets. Its unique business, which includes an opportunistic buying model and independently operated stores, will remain the foundation for Grocery Outlet. 

"I think the challenge for this management team and for this model is to stay in your lane … and not get pulled in a million different directions so that your impact gets diluted," said CFO Charles Bracher during the earnings call. 

Investors remain bullish on Grocery Outlet following the earnings report. Equity analysts with Jefferies wrote in a note to clients late Tuesday that Grocery Outlet is a unicorn that has created a "defendable moat," and that there was "nothing" they didn’t like about Q2 earnings. They continue to recommend Grocery Outlet stock as a buy.