Value Investors See Opportunity in Beaten-Down Grocery Outlet Despite Significant Stock Decline

The Strategic Accumulation

Rivermont Capital Management, a New York City-based investment fund, made a significant move in the third quarter by acquiring nearly 1.1 million additional shares of Grocery Outlet Holdings (NASDAQ:GO). This purchase, valued at approximately $18.51 million, signals continued conviction in the discount grocer despite a punishing market environment. As of September 30, the fund’s total position in GO reached 1.35 million shares worth $21.67 million.

The timing of this acquisition is noteworthy. Grocery Outlet shares have declined nearly 40% over the past year, substantially underperforming the S&P 500’s 15% gain. Yet rather than flee the position, Rivermont chose to increase its stake, suggesting management sees value embedded in the current valuation.

Understanding the Business Model

Grocery Outlet operates a distinctive franchise-like structure with 563 independently operated stores across 16 states. The company’s competitive advantage lies in its ability to offer name-brand products at significant discounts through centralized sourcing and purchasing power. This model appeals directly to price-conscious consumers seeking value without sacrificing product quality or variety.

The retailer carries an extensive product mix spanning dairy, deli, produce, meat, seafood, general merchandise, health and beauty items, frozen foods, and beverages. This diversification helps drive consistent foot traffic and basket sizes across its store network.

Recent Financial Performance and Headwinds

Q3 results reflected a business navigating near-term pressures while maintaining underlying growth. Net sales rose 5.4% to $1.17 billion, supported by new store openings and positive customer traffic. However, the quarter also showed margin compression, with Adjusted EBITDA declining to $66.7 million from $72.3 million in the prior year period.

The decline in profitability stems partly from elevated promotional activity—a common strategy in competitive discount retail—and costs associated with restructuring efforts aimed at eliminating underperforming initiatives. Average transaction sizes contracted, reflecting the broader consumer environment.

As of the most recent trading session, GO shares were priced at $10.27, translating to a market capitalization of approximately $1.01 billion. The company reported trailing twelve-month revenue of $4.57 billion against a net loss of $4.44 million, underscoring the current profitability challenges.

Why Conviction Matters in Contrarian Positioning

Rivermont’s decision to increase exposure by 40 million dollars in portfolio value adjustments reflects a view that current valuations don’t fully capture the company’s long-term runway. The fund’s broader portfolio composition—dominated by established, cash-generating businesses rather than high-growth ventures—suggests a disciplined approach to capital allocation favoring profitable scale over speculative narratives.

The discount grocery sector remains structurally attractive given persistent consumer price sensitivity and the durability of Grocery Outlet’s independent-operator model. Management signaled confidence by highlighting store refresh initiatives expected to drive same-store sales recovery in 2026, indicating management believes current challenges are cyclical rather than structural.

Portfolio Context

Grocery Outlet represents just one component of Rivermont’s 13F holdings. The fund’s top positions include substantial allocations to Seagate Technology (NASDAQ:STX at $35.46 million), Ferguson Enterprises (NYSE:FERG at $32.29 million), WTW (NASDAQ:WTW at $29.40 million), Clearfield Inc. (NYSE:CLH at $28.48 million), and Western Digital (NASDAQ:WDC at $27.08 million), collectively representing approximately 41% of assets under management.

This portfolio composition reveals a fund thesis centered on tangible, revenue-generating businesses with established market positions—a framework that positions Grocery Outlet as a natural fit despite near-term headwinds.

Looking Ahead

The expanded position in Grocery Outlet reflects a calculated bet on operational execution and market normalization. With 563 stores providing foundation for selective expansion and management initiatives aimed at improving comp sales performance, the business retains fundamental levers for value creation. For contrarian investors, the 40% annual decline has created precisely the kind of dislocations where conviction-based accumulation historically generates returns.