Key insights
- The author is initiating a long position in Grocery Outlet (GO) citing its low valuation (0.18x sales) despite increased sales to $4.7 billion. The company reported a net loss due to significant impairments and restructuring charges. The author believes the company's community-oriented business model and customer loyalty make it an attractive investment despite the risks.
After getting good and grumpy about my last MCD experience, Grocery Outlet comes across the plate.
This is an interesting model, growing its geographical footprint and brand by creating a network of independent operators, with whom it splits gross profit, and offers inventory to those operators on consignment, availing the community of more opportunity to learn business by lowering the cost of admission.
Additionally, the shelf offerings are selected by local operators from inventory cultivated by head office which acquires overstock and bulk items, thereby tailoring product offerings to the local community.
Most importantly for you here, it is coming off a FY 2025 with increased sales to $4.7 billion on a market cap of ~800 million - so obviously a lot of hair on it. They kitchen sinked the annual report taking Goodwill impairments, Long lived asset impairments, and restructure charges and presented -225mm net loss, and -222mm operating loss.
I am taking a size controlled leg here at 0.18x sales for no other reason that that it is dirt cheap, loved by the people who shop there, and community oriented - that is my duty.
As always, I am prepared for community blowback.