Negative Outlook for Grocery Outlet Holding Due to Underperforming Sales and Overvaluation

Analyst Simeon Gutman of Morgan Stanley maintained a Sell rating on Grocery Outlet Holding (GO – Research Report), boosting the price target to $13.00.

Simeon Gutman has given his Sell rating due to a combination of factors that suggest a negative risk/reward profile for Grocery Outlet Holding. Despite a recent improvement in gross margins, which increased by approximately 110 basis points year-over-year in Q1’25, the company’s comparable store sales are not performing as expected. The guidance for Q2’25 indicates a modest 1% growth in comps, which is below the anticipated levels given the company’s value positioning in the food retail market.
Additionally, the Q1’25 comp growth of 0.3% was under pressure from a 2% decline in ticket size, marking a significant deceleration over two and three-year periods. Although Grocery Outlet is positioned as a growth company with medium to high single-digit annual unit growth, its current performance does not justify its valuation at approximately 21 times the next twelve months’ price-to-earnings ratio. The potential for gross margin expansion exists, but it requires the resolution of existing system issues and improved execution, which remain uncertain at this time.