Grocery Outlet’s swings to Q1 loss amid system transition issues

Grocery Outlet Holding Corp.’s sales momentum strong during the first quarter but its profit took a hit as it worked to fix glitches related to tech system changes. 

In August 2023, Grocery Outlet upgraded its product, inventory, financial and reporting platforms, a transition that has resulted in ongoing business business disruptions, operationally and financially.

“We are all frustrated by the size and duration of this disruption,” Grocery Outlet president and CEO RJ Sheedy told investors on the company’s earnings call. ”But this disruption is also temporary and we are on the right path forward.”  

The company reported a net loss of $1 million, or $0.01 per share for the quarter ended March 30, compared to profit of $13.7 million, or $0.14 per share, in the year-ago quarter. Adjusted earnings per share came in at $0.09, missing analysts estimates of $0.18 per share.

Net sales rose 7.4% to $1.04 billion, ahead of estimates of $1.02 billion. Same-store sales rose 3.9%, driven by a 7.0% increase in the number of transactions that was partly offset by a 2.9% decrease in average transaction size.

Selling, general and administrative expenses increased 13.3% to $303.4 million, or 29.3% of net sales. This included $12.4 million of commission support the company provided its operators in connection with system upgrades.

"Despite progress with our systems transition and ending the operator commission support program, as planned, we are disappointed that additional systems conversion issues resulted in a higher than expected adverse profit impact,” stated Sheedy in the earnings 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."    

The grocer opened six stores during the quarter, for a total of 474 stores in nine states, at the end March. On April 1, the company completed the acquisition of extreme-value grocer United Grocery Outlet, which operates 40 stores in the Southeast.