What Happened?
Shares of discount grocery store chain Grocery Outlet (NASDAQ: GO) fell 3.5% in the morning session after investor concern over intensifying competition in the grocery sector, driven by Amazon's expansion into same-day delivery. The move follows an announcement from Amazon that it is aggressively expanding its same-day grocery delivery service to over 3,300 cities across the U.S. This expansion includes perishable items like produce, meat, and dairy, positioning Amazon as a direct and formidable competitor to established grocers. Amazon's plan to continue this expansion through 2026 has intensified investor concerns across the grocery sector, affecting not just Grocery Outlet but also peers like Kroger and Albertsons. Compounding the competitive pressure, Grocery Outlet recently reported a significant 64.6% year-over-year drop in its second-quarter net income.
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What Is The Market Telling Us
Grocery Outlet’s shares are very volatile and have had 25 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 7 days 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 up 13.1% since the beginning of the year, but at $18.44 per share, it is still trading 13.2% 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 $429.96.
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