What Happened?

Shares of discount grocery store chain Grocery Outlet (NASDAQ: GO) fell 12.5% in the morning session after the company reported disappointing third-quarter results and lowered its full-year outlook, raising concerns about its profitability and growth. While revenue grew 5.4% year-over-year to $1.17 billion, the figure fell short of analyst expectations. Profitability was a key concern, as the company's operating margin fell to 2% from 3.6% in the same quarter last year, indicating that costs were rising faster than sales. Additionally, management cut its full-year guidance for both revenue and adjusted EBITDA. The company now expects revenue of $4.71 billion at the midpoint, down from a previous forecast of $4.75 billion, while the new EBITDA target of $260 million also missed Wall Street's estimates.

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What Is The Market Telling Us

Grocery Outlet’s shares are very volatile and have had 22 moves greater than 5% over the last year. But moves this big are rare even for Grocery Outlet and indicate this news significantly impacted the market’s perception of the business.

The biggest move we wrote about over the last year was 3 months ago when the stock gained 38.9% on the news that the company reported second-quarter earnings that surpassed analyst expectations and raised its full-year profit forecast. The discount grocer posted an adjusted profit of $0.23 per share, which outpaced projections. In response to the strong quarter, management lifted its full-year adjusted earnings guidance to a range of $0.75 to $0.80 per share, above its prior outlook and Wall Street's estimates. The company attributed the better-than-expected performance to improved operational efficiency and increased comparable store sales. Following the results, Morgan Stanley upgraded the stock to Equalweight from Underweight and increased its price target, noting that the company's fundamentals appeared to be turning around.

Grocery Outlet is down 17.3% since the beginning of the year, and at $13.49 per share, it is trading 36.5% below its 52-week high of $21.25 from November 2024. Investors who bought $1,000 worth of Grocery Outlet’s shares 5 years ago would now be looking at an investment worth $296.63.

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