Grocery Outlet guides to pandemic compare (GO)
Grocery Outlet reported Q4 EPS of $.24, slightly above consensus expectations. Overall sales growth was 23.1%, 620bps more than Q3 boosted by an extra week. SSS were up 7.9% vs. consensus of 6.7%, exceeding our estimate as well. Gross margins contracted 70bps due to a higher holiday product mix and were 30bps lower than consensus estimates. SG&A expenses grew 17.7% due to higher variable commissions. EBITDA margins were 20bps higher than consensus estimates but were flat YOY.
Management expects Q1 SSS to be down HSD% lapping the pantry loading last year. January comp trends were up in the MSD%, driven by a higher basket and lower traffic. February SSS decelerated to the LSD% range. The company laps a +37% comparison in March. Management guidance projects the two-year stacked comp to return to a historical norm of 8-9%. Looking out to the long term: the company is targeting another year of 10% store growth in 2021, and “the pipeline of opportunistic supply remains healthy.”
Grocery Outlet is on our Best Idea Long list. We expect positive sales growth in 2021, the exception to the industry.
Instacart doubles (KR)
Instacart raised $265M in its latest fundraising round valuing the company at $39B. (That exceeds the market capitalizations of Kroger, Albertsons, Grocery Outlet, and Sprouts Farmers Market combined.) The funding round was led by current investors. The company’s previous fundraising round was in October when it raised $200M that valued the company at $17.7B. The company said it would use the new funds to expand its workforce, including a 50% increase in the corporate headcount. The company is looking to expand Instacart Marketplace, Instacart Advertising, and Instacart Enterprise. Instacart has been on a hiring spree of late. In January, Instacart hired Nick Giovanni from Goldman Sachs, a specialist in IPOs and M & M&A, to be the next CFO. In February, the company hired Asha Sharma from Facebook to be COO. On Monday, Instacart hired Ryan Mayward from Amazon to be VP of Ad sales. The company has been rumored to seek an IPO later this year. The grocery delivery sector's competitive intensity will only pick up as grocery spending ebbs with the easing restrictions on away from home dining.
12th place finish in food technology ranking (APPH)
Plenty, a “flavor first vertical farming company,” was ranked by Forward Fooding 2020 FoodTech 500 at #1. The co-founder of Plenty said, “At Plenty, we’re focused on using our proprietary, scalable vertical farming technology to deliver the freshest, most favorable produce year-round, while preserving our most precious resources.” Many investors are probably not aware of the number of companies in the emerging food technology sector. AppHarvest, as one of the first to go public, has received a disproportionate amount of attention in the sector. AppHarvest was ranked at #12. AppHarvest most likely cares more about its $3B+ market capitalization than its 12th place in the FoodTech awards. There are several vertical grow and greenhouse companies that share AppHarvest’s sustainability and environmental goals, but most have different strategies. We went through a peer comparison in our SPAC research roundup yesterday. CLICK HERE for the event replay.
