Grocery Outlet Holding Corp. (GO) stock intrinsic value fair value estimate & owner earnings analysis

Grocery Outlet runs about 570 discount grocery stores (as of January 3, 2026) across California, the Pacific Northwest, the East Coast and the Southeast. Stores are run by independent operators, while the company buys opportunistic, name-brand closeout and excess inventory and supplies the stores. Sales were $4.69 billion in fiscal 2025 (a 53-week year), up about 7%, but comparable-store sales grew only 0.5% on a 52-week basis, and the company lost $225 million after non-cash charges of $149 million for goodwill and $121 million for store and other asset impairments. How we measured earnings. We start from operating cash flow, remove the swings in working capital, subtract stock compensation as a real cost, and subtract the part of capital spending that merely keeps the store base going. Only a small slice of spending is treated as growth (spending scaled to sales growth), so most of the roughly $186-198 million a year of capex in 2024 and 2025 is charged in full. Goodwill and asset impairments are non-cash and are not deducted again. On this basis earnings per share were about $0.49, $0.41, $0.59 and $0.48 in fiscal 2020 through 2023, then fell to $0.17 in 2024 and to a loss of $0.09 in 2025. Sales kept growing while cash earnings did not; capex rose from $123 million in 2021 to $198 million in 2025. Level used. We use $0.32 per share, the median of fiscal 2022 through 2025. That window drops the pandemic-era 2020 and 2021 results and keeps the two recent weak years that point to a lower run rate than the six-year median of $0.45. The first half of fiscal 2026 supports caution: operating cash flow was $96 million against $133 million a year earlier, and capex was $95 million against $120 million, leaving almost no cash after capital spending. Growth reconciliation. Cash earnings per share fell from $0.17 to a loss of $0.09 in fiscal 2025, so the trailing rate is negative. Our base case assumes $0.32 in year one (before the one-time closure cost below), above the trailing actual. The dated reason is that capital spending is already falling: warehouse projects were cancelled in the first quarter of fiscal 2025 and first-half fiscal 2026 capex is down about 21%. After year one the base case grows 3% a year through year ten. That growth rests on the company's record of adding stores every year (37 net new stores in 2025, 30 to 33 planned for 2026, on a base of 570), taken at a rate below the roughly 5% to 6% unit growth. We do not credit comparable-store sales gains, margin recovery, or the new Company-operated store model. Cases. Base case, $4.34 per share: a one-time cash cost of about $0.55 per share in 2026 for the Optimization Plan adopted March 2, 2026 (36 underperforming stores and a distribution center lease; the filing estimates cash lease-exit costs of $49 to $60 million plus $2 to $3 million of operator-termination costs), then $0.32 growing 3% a year for ten years, held flat for ten more years while the store base and leases persist, and fading to zero over the following ten years. Bear case, -$0.05 per share: the same 2026 cash cost, then cash earnings stay near $0.05 per share (close to the $0.04 average of 2024 and 2025) with no growth for ten years and a fade to zero after that. Comparable sales already slowed in 2024 and 2025, and the company has about $493 million of debt, including $220 million drawn on its revolver, and both the revolver and the term loan come due on February 21, 2028. On these assumptions the shares are worth roughly nothing, a slightly negative figure. Bull case, $8.08 per share: the same 2026 cost, then cash earnings recover to $0.50 per share, near the historical median, as capital spending moderates (warehouse projects were cancelled in the first quarter of fiscal 2025 and first-half fiscal 2026 capex is down about 21%), growing 5% a year with new stores for ten years, then flat for ten years and fading to zero over ten more. What could make this wrong. If comparable sales recover and the closure of 36 weak stores lifts average store profitability, earnings could return above our base level. If instead comparable sales turn negative, or the 2028 debt maturity has to be refinanced on worse terms, or lease exits cost more than the estimated $49 to $60 million, value falls toward the bear case. Margin-of-safety price. The margin-of-safety price is $2.40 per share, roughly 45% below the base case, because the bear case is near zero, cash earnings have fallen for two years and the store-closure costs and debt maturity are still ahead.