What Happened?
Shares of discount grocery store chain Grocery Outlet (NASDAQ: GO) jumped 4.2% in the afternoon session after comments from a key Federal Reserve official boosted investor optimism for a potential interest rate cut.
New York Federal Reserve President John Williams, a voting member of the rate-setting committee, suggested he sees room for "further policy easing," which sent a strong signal to the markets. Following his remarks, the probability of a December rate cut, as measured by the CME FedWatch Tool, surged from 39% to 71%. Lower interest rates can stimulate the economy by making borrowing cheaper for both consumers and businesses, which often translates to increased consumer spending. This prospect is outweighing recent reports of lower consumer confidence, as investors bet that a more accommodative Fed policy will support retailers through the holiday season.
The shares closed the day at $10.57, up 3.1% from previous close.
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What Is The Market Telling Us
Grocery Outlet’s shares are very volatile and have had 20 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 16 days ago when the stock dropped 12.5% on the news that the company reported disappointing third-quarter results and lowered its full-year outlook, raising concerns about its profitability and growth. While revenue grew 5.4% year-over-year to $1.17 billion, the figure fell short of analyst expectations. Profitability was a key concern, as the company's operating margin fell to 2% from 3.6% in the same quarter last year, indicating that costs were rising faster than sales. Additionally, management cut its full-year guidance for both revenue and adjusted EBITDA. The company now expects revenue of $4.71 billion at the midpoint, down from a previous forecast of $4.75 billion, while the new EBITDA target of $260 million also missed Wall Street's estimates.
Grocery Outlet is down 35.2% since the beginning of the year, and at $10.57 per share, it is trading 50.3% below its 52-week high of $21.25 from November 2024. Investors who bought $1,000 worth of Grocery Outlet’s shares 5 years ago would now be looking at an investment worth $274.70.
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