Grocery Outlet plunges 4% on weak FY26 guidance, store closures
Discount retailer to close 36 underperforming locations as comparable sales forecast shows ongoing pressure
Grocery Outlet Holding Corp. shares fell 4.1% to close at $8.87 on Wednesday after the discount grocery chain issued disappointing fiscal 2026 guidance, overshadowing a quarterly earnings beat that failed to convince investors of a near-term turnaround.
The Emeryville, California-based retailer reported fourth quarter net sales of $1.22 billion, representing a 10.7% increase from the prior year, while full-year fiscal 2025 sales reached $4.69 billion, up 7.3%. However, investors focused on the company's outlook for the coming year, which projects comparable store sales declining between 2% and remaining flat—a stark reversal from the growth trajectory investors had expected.
Chief Executive Officer RJ Sheedy acknowledged mounting challenges in the consumer environment, noting that "consumer pressure intensified" during the fourth quarter and that "competition grew more promotional" across the grocery sector. The company took a $149 million goodwill impairment charge in the quarter, signaling that management believes market conditions have fundamentally deteriorated for certain portions of its business.
Perhaps most concerning for investors was Grocery Outlet's announcement that it will close 36 underperforming stores as part of an "Optimization Plan." The retailer projected adjusted EBITDA of $220-235 million for fiscal 2026, down significantly from $254 million in fiscal 2025. Diluted adjusted earnings per share are forecast between $0.45 and $0.55, representing substantial pressure on profitability even as the company executes its store closure strategy.
The guidance cut reflects a broader struggle in the discount grocery space, where even value-oriented retailers are feeling the pinch as consumers trade down further or allocate spending toward essential categories. Grocery Outlet's model, which relies on opportunistic buying of excess inventory from name-brand manufacturers, may be facing structural challenges as consumer packaged goods companies tighten their own inventory management.
Analyst sentiment has soured on the stock, with shares now trading near their 52-week low of $8.96 and down more than 50% from their 52-week high of $19.41. Despite the weak performance, the average analyst price target of $13.23 suggests significant upside if the company can stabilize its comparable sales trends and demonstrate that the store closure program will meaningfully improve profitability.
The company's market capitalization has contracted to approximately $970 million, with the stock trading at 11.4 times forward earnings—a relatively low multiple for a retailer that had historically commanded premium valuations due to its rapid store growth and strong margins. However, with negative earnings per share of $0.04 over the trailing twelve months, investors are clearly skeptical about the company's ability to restore profitability in the current environment.
Institutional investors maintain heavy ownership of the stock at more than 130% of shares outstanding, reflecting significant short interest or multiple counting of shares. This high institutional concentration could amplify volatility as investors reassess their positions in light of the disappointing guidance.
Grocery Outlet's challenges come at a particularly difficult time for the grocery sector, where traditional supermarkets, discounters, and emerging players are all fighting for market share in an inflation-constrained environment. The company's decision to close stores—rather than continue to try to turn them around—suggests management is prioritizing operational efficiency over growth, a shift that may take time to bear fruit.