Why Grocery Outlet Stock Withered on Wednesday
Key Points
This came almost a week after the food retailer posted its latest results.
The company didn't exactly have a spectacular fourth quarter.
March isn't turning out to be a very good month for Grocery Outlet Holding (NASDAQ: GO). After recovering slightly from last week's swoon, the discount food retailer again dipped into the red on Wednesday. Its shares lost nearly 2% of their value that trading session, following an analyst's price target cut.
Cutting time
The person with the scissors was Robert Ohmes of Bank of America Securities. He reduced his fair value assessment for Grocery Outlet to $10.50 per share from his preceding $13. In doing so, he maintained his neutral recommendation on the stock.
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Ohmes' comes almost a week after Grocery Outlet published its final earnings report for 2025. This wasn't very pleasing for Mr. Market, as the company missed the average analyst net income forecast for the fourth quarter. Worse, management provided full-year guidance of declines in both metrics. And both the top- and bottom-line projections missed the consensus prognosticator estimates.
According to reports, the analyst expressed skepticism that the retailer could return to comparable sales growth (it posted a nearly 1% dip in comparable sales during the quarter). He also doesn't feel as if shoppers at its outlets will buy substantially more groceries.
A company on a diet
In its earnings release, Grocery Outlet said it was launching a "business optimization plan." Among other moves, the rationalization effort will include the shuttering of 36 stores. So basically, Grocery Outlet is on a corporate diet, trying to get into better shape. That doesn't bode well for the immediate future of the stock, and after that, the company's prospects look murky. I'd avoid its equity for now.
Bank of America is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.