– Value grocery retailer at a premium valuation of 15x 2022 EBITDA and 30x EPS.
– Incorrectly perceived as an attractive franchisor-type business with a long growth runway.
– Unrealistic target of +10% unit CAGRs (4,800 total unit potential – i.e. 10x today’s number).
– Warning signs around unit economics with a significant portion of stores being marginally profitable and supported by the lowered commission split burden.
– GO will run into supply constraints with further store base expansion as the company already accounts for 30% of close-out CPG inventory.
– Not a real asset-light franchisor, as GO is responsible for funding the build-out of its store footprint.
– Strong 2022 SSS were mostly driven by food inflation – this will not be sustainable going forward and investors are likely to be negatively surprised in 2023.
– Expensive stock trading at significant premium to most grocery & retail peers.
– 26x 2023 consensus EPS, 13x consensus EBITDA.
– Could easily re-rate to <15x EPS.
Exp. gain: 50% to $14/share.
Full write-up (free guest account required):
Grocery Outlet (GO) short, mcap=$2.6bn, price $26.70 vs $30.00