Grocery Outlet Enters the Market With a Bang

Grocery Outlet Holding Corp. (NASDAQ: GO) shares entered the market with a bang. The firm priced its shares at $22 apiece, which was above the expected price range of $17 to $19. The shares have actually entered the market at $31. Grocery Outlet was offering 17.19 million shares, with an overallotment option for an additional 2.58 million shares. At the $22 price point, the entire offering was valued up to about $434 million.

The underwriters for the offering are Merrill Lynch, Morgan Stanley, Deutsche Bank Securities, Jefferies, Barclays, Goldman Sachs, Guggenheim, UBS Investment Bank, Cowen, Telsey Advisory Group, Drexel Hamilton, and Penserra Securities.

This is a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores. Its flexible buying model allows the store to offer quality, name-brand opportunistic products at prices generally 40% to 70% below those of conventional retailers.

These stores have performed well across all economic cycles, as demonstrated by Grocery Outlet’s 15 consecutive years of positive comparable store sales growth and consistent gross margins of between 30.1% and 30.8% since 2010.

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Grocery Outlet listed some of its business highlights as:

• Expanded our store count from 237 to 316 (as of December 29, 2018), a CAGR of 10.1%
• Grown comparable store sales at an average annual rate of 4.2%
• Increased sales from $1.6 billion to $2.3 billion, a CAGR of 12.0%
• Maintained consistent gross margins of between 30.2% and 30.6% on an annual basis
• Increased net income from $4.8 million to $15.9 million, a CAGR of 49.3%
• Increased adjusted EBITDA from $108.2 million to $153.6 million, a CAGR of 12.4%

The company intends to use the net proceeds from the offering to repay the term loan outstanding under its second lien credit agreement and any remainder to repay a portion of the term loan outstanding under its first lien credit agreement

Shares of Grocery Outlet were last seen at $30.23, with a range of $30.02 to $31.50 on the day thus far. Also about 5 million shares have moved as of 11:45 a.m. Eastern.

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