Grocery Outlet’s IPO: Extreme Value Retailer Raises $378 Million

The announcement

California-based extreme value retailer Grocery Outlet Holding (GO) announced on June 19 that it had priced its IPO at $22 per share, well above its target price range of $18–$19. Initially, the company had planned to sell its shares in the range of $15–$17. The company is offering 17.2 million shares, which will raise $378 million. At a stock price of $22, Grocery Outlet’s initial market cap is close to $1.9 billion. The company will begin trading on the Nasdaq starting on June 20 under “GO.”

Hellman & Friedman, a San Francisco–based private equity company, owns the majority of Grocery Outlet’s outstanding common shares. Hellman & Friedman acquired an 80% stake in the company from Berkshire Partners in 2014. After the completion of the IPO, the company’s stake in Hellman & Friedman is likely to fall between 61.9% and 63.8%.

Grocery Outlet’s IPO: Extreme Value Retailer Raises $378 Million

Growth in revenue

In the first quarter of 2019, Grocery Outlet posted revenue of $606.3 million, a rise of 10.1% from $550.6 million in the first quarter of 2018. This revenue growth was driven by the net addition of new stores and positive SSSG (same-store sales growth). By the end of the first quarter, the company operated 323 stores compared to 296 stores at the end of the first quarter of 2018. The company’s SSSG for the quarter stood at 4.2%.

In the first quarter, Grocery Outlet’s adjusted EBITDA increased to $34.5 million from $32.1 million in the first quarter of 2018. However, its adjusted EBITDA margin contracted marginally from 6.6% to 6.5%. The company’s net income also fell from $5.5 million to $3.8 million due to higher interest expenses partially offset by higher operating income and lower income tax expenses. The company’s management plans to utilize the funds raised from the IPO to repay some of its term loans.

Since Hellman & Friedman’s acquisition in 2014, Grocery Outlet’s revenue has increased from $1.62 billion in 2015 to $2.29 billion in 2018 at a CAGR (compound annual growth rate) of 12%. The company’s average SSSG stood at 4.2% during the period. Its store count increased from 237 in 2015 to 316 at the end of 2018. During the same period, its net income grew at a CAGR of 49.3% to $15.9 million, while its adjusted EBITDA increased to $153.6 million at a CAGR of 12.4%.