Grocery Outlet Holding Corp. (GO): A Bull Case Theory
We came across a bullish thesis on Grocery Outlet Holding Corp. on Pound the Rock Investing’s Substack. In this article, we will summarize the bulls’ thesis on GO. Grocery Outlet Holding Corp.'s share was trading at $16.71 as of September 17th. GO’s trailing and forward P/E were 222.12 and 18.15 respectively according to Yahoo Finance.
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Grocery Outlet (GO) is an extreme-value grocery retailer with 533 stores across 17 states, primarily on the West Coast, operating under a unique “treasure hunt” model akin to TJ Maxx. Customers find branded consumables and fresh items at steep discounts, with inventory sourced from manufacturer overruns and closeouts, creating urgency and repeat visits. Stores are run by independent operators (IOs), aligning incentives while keeping corporate overhead low and ensuring strong unit economics.
Despite a moat in supplier relationships, logistics, and scale, GO has faced operational setbacks, including a botched ERP rollout, elevated shrink, and underperforming new markets. These missteps prompted leadership changes and a shift toward disciplined expansion, clustered openings, and systems stabilization. Early signs under new CEO Jason Potter suggest progress, with guidance raised and restructuring costs largely behind them.
The company now targets 30–35 net new stores annually, with store-level returns exceeding 20% by year four and potential to reach 30% as execution improves. With normalized free cash flow of $140–170 million and potential incremental $100 million FCF from 150 additional stores, long-term returns appear attractive. At a 20x forward P/E and 12–13x FY25 adjusted EBITDA, the valuation is reasonable given the growth runway and margin recovery potential.
Risks remain around execution, competition from Aldi, Lidl, and larger formats, and IO recruitment, but stabilization of systems and improved inventory visibility could unlock meaningful upside. Coupled with a history of resilience in downturns and potential capital allocation through buybacks and M&A, GO presents a “prove-it” rebound story with a favorable risk/reward skew.
Previously we covered a bullish thesis on Grocery Outlet Holding Corp. (GO) by Will Powers in October 2024, which highlighted the company’s independent operator model, UGO acquisition, and long-term expansion plans. The company’s stock price has appreciated approximately by 3.4% since our coverage. The thesis still stands as growth and margin recovery remain intact. Pound the Rock Investing shares a similar view but emphasizes leadership changes and ERP stabilization.
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