Grocery Outlet(GO) - 2025 Q2 - Quarterly Results

Company Overview About Grocery Outlet Grocery Outlet Holding Corp. is an extreme value retailer based in Emeryville, California, operating over 550 independently operated stores across 16 states, offering quality, name-brand consumables and fresh products - Grocery Outlet is a high-growth, extreme value retailer of quality, name-brand consumables and fresh products[28] - The company operates over 550 stores across 16 states, primarily through a network of independently operated stores[28] CEO Commentary CEO Jason Potter highlighted that the company's focus on execution is yielding results, outperforming Q2 outlook, with growth driven by value proposition and store initiatives, and profitability gains from margin drivers and spending discipline - Company outperformed Q2 outlook due to focus on execution[6] - Growth driven by resonant value proposition and store initiatives, increasing traffic[6] - Sustainable gains in profitability achieved through margin drivers and spending discipline[6] - Key strategic objectives include strengthening new-store performance, securing top talent, addressing execution gaps, and improving execution at scale[6] Second Quarter Fiscal 2025 Financial Results Q2 2025 Financial Highlights For the second quarter of fiscal 2025, Grocery Outlet reported a 4.5% increase in net sales to $1.18 billion and a 1.1% rise in comparable store sales, though gross margin slightly decreased and both GAAP and adjusted net income saw declines Q2 Fiscal 2025 Financial Highlights (YoY Comparison) | Metric | Q2 FY25 | Q2 FY24 | Change (%) | | :-------------------------------- | :---------- | :---------- | :--------- | | Net sales | $1.18 billion | - | +4.5% | | Comparable store sales | +1.1% | - | - | | Gross margin | 30.6% | 30.9% | -0.3 pp | | SG&A | $336.8 million | - | +4.2% | | Operating income | $12.8 million | $26.1 million | -51.0% | | Net income | $5.0 million | $14.0 million | -64.3% | | Diluted EPS | $0.05 | $0.14 | -64.3% | | Adjusted net income | $22.8 million | $25.1 million | -9.3% | | Diluted adjusted EPS | $0.23 | $0.25 | -8.0% | | Adjusted EBITDA | $67.7 million | $67.9 million | -0.3% | | Adjusted EBITDA (% of net sales) | 5.7% | 6.0% | -0.3 pp | - Operating income included $11.2 million in restructuring charges[5] Detailed Q2 2025 Financial Performance In Q2 2025, net sales growth was driven by new store openings and a 1.1% increase in comparable store sales, while gross margin compression was due to strategic pricing adjustments, and operating income was significantly impacted by restructuring charges Sales and Store Growth - Net sales increased 4.5% to $1.18 billion, driven by new store sales and a 1.1% increase in comparable store sales[7] - Comparable store sales increase was due to a 1.5% rise in transactions, partially offset by a 0.4% decrease in average transaction size[7] - 11 new stores were opened and 2 closed, ending the quarter with 552 stores in 16 states[7] - Comparable store sales now include stores from the United Grocery Outlet acquisition as of April 1, 2024[7] Gross Profit and Margin - Gross profit increased 3.3% to $360.7 million[8] - Gross margin declined 30 basis points to 30.6%, primarily due to pricing adjustments on everyday staples[8] - Improvements in inventory management partially offset the decline and contributed to a 20 basis points increase compared to Q1 FY25[8] Selling, General and Administrative Expenses - SG&A increased 4.2% to $336.8 million but declined 10 basis points to 28.5% of net sales[9] - The decline as a percentage of net sales was driven by decreased elective commission support, lower incentive compensation, and prior year acquisition-related costs, partially offset by increased other store and corporate expenses[9] Operating and Net Income - Operating income was $12.8 million, including $11.2 million in restructuring charges[10] - Net income decreased to $5.0 million ($0.05 per diluted share) from $14.0 million ($0.14 per diluted share) last year[11] - Adjusted net income decreased 9.3% to $22.8 million ($0.23 diluted adjusted EPS)[11] - Adjusted EBITDA was $67.7 million (5.7% of net sales), compared to $67.9 million (6.0% of net sales) in the prior year[11] First Half Fiscal 2025 Financial Results First Half 2025 Financial Highlights For the first half of fiscal 2025, Grocery Outlet reported a 6.5% increase in net sales to $2.31 billion and a 0.7% rise in comparable store sales, with gross margin and adjusted EBITDA improving, despite an operating and net loss due to significant restructuring charges First Half Fiscal 2025 Financial Highlights (YoY Comparison) | Metric | First Half FY25 | First Half FY24 | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :--------- | | Net sales | $2.31 billion | - | +6.5% | | Comparable store sales | +0.7% | - | - | | Gross margin | 30.5% | 30.2% | +0.3 pp | | SG&A | $667.8 million | - | +6.6% | | Operating loss | $(9.7) million | $26.7 million | -136.4% | | Net loss | $(18.4) million | $13.0 million | -241.5% | | Diluted EPS | $(0.19) | $0.13 | -246.2% | | Adjusted net income | $35.8 million | $33.9 million | +5.5% | | Diluted adjusted EPS | $0.36 | $0.34 | +5.9% | | Adjusted EBITDA | $119.6 million | $107.3 million | +11.5% | | Adjusted EBITDA (% of net sales) | 5.2% | - | - | - Operating loss included $45.0 million in restructuring charges[5] Detailed First Half 2025 Financial Performance In the first half of fiscal 2025, net sales growth was driven by new store sales and a modest increase in comparable store sales, with gross margin improving due to better inventory management, while the company reported an operating and net loss largely due to significant restructuring charges Sales and Store Growth - Net sales increased 6.5% to $2.31 billion, driven by new store sales (including United Grocery Outlet stores) and a 0.7% increase in comparable store sales[11] - Comparable store sales increase was due to a 1.9% rise in transactions, partially offset by a 1.2% decrease in average transaction size[11] - 22 new stores were opened and 3 closed during the first half[11] Gross Profit and Margin - Gross profit increased 7.6% to $703.1 million[12] - Gross margin increased 30 basis points to 30.5%, primarily driven by improvements in inventory management capabilities[12] Selling, General and Administrative Expenses - SG&A increased 6.6% to $667.8 million and increased 10 basis points to 29.0% of net sales[13] - The increase as a percentage of net sales was driven by higher store and corporate expenses and additional personnel costs from acquired stores, partially offset by decreased elective commission support and lower incentive compensation[13] Operating and Net Income - Operating loss was $9.7 million, including $45.0 million in restructuring charges[14] - Net loss was $18.4 million ($0.19 per diluted share), compared to net income of $13.0 million ($0.13 per diluted share) last year[14] - Adjusted net income increased 5.5% to $35.8 million ($0.36 diluted adjusted EPS)[14] - Adjusted EBITDA increased 11.5% to $119.6 million (5.2% of net sales)[14] Restructuring Plan Restructuring Plan Details The company initiated a restructuring plan in Q4 FY24, substantially completed in Q2 FY25, to enhance long-term profitability, optimize new store growth, and reduce costs through actions like terminating leases, discontinuing store developments, canceling warehouse projects, and reducing headcount, with estimated total costs of $63 million - Restructuring Plan initiated in Q4 FY24, continuing into FY25, to improve long-term profitability, cash flow, return on invested capital, optimize new store growth, and lower cost base[16] - Actions include terminating 28 leases for unopened stores, discontinuing certain future store developments, canceling capital-intensive warehouse projects, and reducing headcount[16] - Estimated total costs are approximately $63 million, with $39 million expected cash expenditures[16] - The actions under the Restructuring Plan were substantially completed in the second quarter of fiscal 2025[16] Cash Flow and Capital Spending Cash Flow and Capital Spending Overview Net cash provided by operating activities significantly increased in Q2 FY25 to $73.6 million due to payment timing, while capital expenditures, net of tenant improvement allowances, also rose to $58.3 million, driven by new store openings and increased supply chain investments Cash Flow and Capital Spending (Q2 FY25 vs Q2 FY24) | Metric | Q2 FY25 | Q2 FY24 | Change | | :------------------------------------------ | :---------- | :---------- | :------- | | Net cash provided by operating activities | $73.6 million | $41.6 million | +$32.0 million | | Capital expenditures (before TI allowances) | $65.2 million | $42.4 million | +$22.8 million | | Capital expenditures (net of TI allowances) | $58.3 million | $40.2 million | +$18.1 million | - Increase in operating cash flow driven primarily by timing of payments[17] - Increase in capital expenditures due to additional new store openings and increased supply chain investments[17] Fiscal 2025 Outlook Fiscal 2025 Guidance Grocery Outlet is maintaining most of its key guidance figures for fiscal 2025, including net new store openings, net sales, comparable store sales increase, gross margin, and Adjusted EBITDA, while raising its diluted adjusted earnings per share guidance Fiscal 2025 Guidance Update | Metric | Previous Guidance | Current Guidance | | :------------------------------------------ | :------------------------ | :------------------------ | | New store openings, net | 33 to 35 | 33 to 35 | | Net sales | $4.7 billion to $4.8 billion | $4.7 billion to $4.8 billion | | Comparable store sales increase | 1.0% to 2.0% | 1.0% to 2.0% | | Gross margin | 30.0%-30.5% | 30.0%-30.5% | | Adjusted EBITDA | $260 million to $270 million | $260 million to $270 million | | Diluted adjusted earnings per share | $0.70 to $0.75 | $0.75 to $0.80 | | Capital expenditures (net of TI allowances) | $210 million | $210 million | - The company is maintaining most key guidance figures for fiscal 2025, except for diluted adjusted earnings per share, which has been updated[18][21] Non-GAAP Financial Information Non-GAAP Measures Definitions and Rationale Management uses non-GAAP financial measures like EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, and Cash-on-Cash Return to assess financial performance and liquidity, supplementing GAAP results by excluding special or non-operational items for clearer core operating insights, while acknowledging their limitations and not reconciling forward-looking guidance to GAAP due to unpredictability - Management uses non-GAAP measures (EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Cash-on-Cash Return, Net Leverage) as supplemental metrics to assess financial performance and liquidity[20] - These measures exclude items not indicative of core operating results or that vary in frequency/magnitude to enhance comparability and provide additional trend analysis[20] - Adjusted EBITDA excludes share-based compensation, asset impairment, acquisition costs, amortization of inventory purchase accounting asset step-ups, restructuring charges, and other non-core expenses[22] - Adjusted Net Income further adjusts for amortization of property and equipment purchase accounting asset step-ups, deferred financing costs, tax adjustment to normalize effective tax rate, and tax effect of total adjustments[22] - The company does not reconcile forward-looking non-GAAP guidance to GAAP due to the variability and low visibility of taxes and non-recurring items[23] Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA This section provides a reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA for both the 13-week and 26-week periods ended June 28, 2025, and June 29, 2024, detailing key adjustments including interest expense, income tax expense, depreciation and amortization, share-based compensation, asset impairment, acquisition costs, and restructuring charges Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA (in thousands) | Metric | 13 Weeks Ended June 28, 2025 | 13 Weeks Ended June 29, 2024 | 26 Weeks Ended June 28, 2025 | 26 Weeks Ended June 29, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (loss) | $4,961 | $14,001 | $(18,356) | $12,976 | | Interest expense, net | 6,544 | 5,559 | 13,064 | 8,735 | | Income tax expense (benefit) | 1,267 | 6,545 | (4,444) | 4,957 | | Depreciation and amortization expenses | 31,334 | 26,545 | 61,231 | 51,434 | | EBITDA | 44,106 | 52,650 | 51,495 | 78,102 | | Share-based compensation expenses | 1,960 | 7,001 | 7,418 | 15,143 | | Asset impairment and gain or loss on disposition | 3,834 | 381 | 3,969 | 745 | | Acquisition and integration costs | 148 | 4,937 | 487 | 7,586 | | Amortization of purchase accounting assets | — | 839 | — | 839 | | Restructuring charges | 11,157 | — | 45,032 | — | | Other | 6,542 | 2,070 | 11,231 | 4,858 | | Adjusted EBITDA | $67,747 | $67,878 | $119,632 | $107,273 | Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income This section details the reconciliation from GAAP Net Income (Loss) to Adjusted Net Income for the 13-week and 26-week periods, including adjustments for share-based compensation, asset impairment, acquisition costs, amortization, restructuring charges, other non-recurring items, and tax effects, also providing basic and diluted GAAP and Adjusted EPS Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income (in thousands, except per share data) | Metric | 13 Weeks Ended June 28, 2025 | 13 Weeks Ended June 29, 2024 | 26 Weeks Ended June 28, 2025 | 26 Weeks Ended June 29, 2024 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (loss) | $4,961 | $14,001 | $(18,356) | $12,976 | | Share-based compensation expenses | 1,960 | 7,001 | 7,418 | 15,143 | | Asset impairment and gain or loss on disposition | 3,834 | 381 | 3,969 | 745 | | Acquisition and integration costs | 148 | 4,937 | 487 | 7,586 | | Amortization of purchase accounting assets and deferred financing costs | 1,269 | 2,228 | 2,537 | 3,550 | | Restructuring charges | 11,157 | — | 45,032 | — | | Other | 6,542 | 2,070 | 11,231 | 4,858 | | Tax adjustment to normalize effective tax rate | 222 | 86 | 3,385 | (708) | | Tax effect of total adjustments | (7,327) | (5,609) | (19,930) | (10,246) | | Adjusted net income | $22,766 | $25,095 | $35,773 | $33,904 | | GAAP diluted earnings (net loss) per share | $0.05 | $0.14 | $(0.19) | $0.13 | | Adjusted diluted earnings per share | $0.23 | $0.25 | $0.36 | $0.34 | | Diluted weighted-average shares outstanding | 98,460 | 100,369 | 97,801 | 100,753 | | Non-GAAP diluted weighted-average shares outstanding | 98,460 | 100,369 | 98,344 | 100,753 | - For the 26 weeks ended June 28, 2025, there is no difference in basic and diluted GAAP net loss per share due to the Company's net loss[42] - Diluted adjusted earnings per share is calculated by adjusting weighted-average shares outstanding for the dilutive effect of all potential common stock shares[42] Forward-Looking Statements Forward-Looking Statements and Risk Factors This section contains forward-looking statements regarding future operating results, financial position, business strategy, the Restructuring Plan, and market trends, which are subject to various risks and uncertainties including supplier issues, inability to maintain opportunistic products, comparable store sales, distribution network disruptions, new store risks, impacts of the Restructuring Plan, inflation, brand reputation, internal control weaknesses, cash flow, leasing, talent retention, marketing costs, disasters, labor issues, online retail, acquisitions, economic conditions, competition, consumer trends, independent operator relations, IT systems, legal/regulatory proceedings, substantial indebtedness, and changes in accounting standards - The news release includes forward-looking statements about future operating results, financial position, business strategy, the Restructuring Plan, and market trends[24] - These statements are subject to numerous risks, uncertainties, and assumptions that may cause actual results to differ materially[24] - Identified risks include failure of suppliers, inability to maintain opportunistic products, failure to maintain or increase comparable store sales, disruptions to the distribution network, risks with new stores and growth strategy, financial impacts of the Restructuring Plan, inflation, brand reputation, internal control weaknesses, cash flow, leasing, talent, marketing, disasters, labor relations, online retail, acquisitions, economic conditions, competition, consumer trends, independent operator relations, IT systems, legal/regulatory proceedings, substantial indebtedness, and accounting changes[24][25] - The company operates in a competitive and rapidly changing environment, with new risks emerging over time, and does not undertake to update these statements except as required by law[26] Condensed Consolidated Financial Statements Statements of Operations and Comprehensive Income (Loss) This section presents the unaudited condensed consolidated statements of operations and comprehensive income (loss) for the 13-week and 26-week periods ended June 28, 2025, and June 29, 2024, detailing net sales, cost of sales, gross profit, SG&A, restructuring charges, operating income (loss), interest expense, income tax expense (benefit), and net income (loss), along with basic and diluted earnings per share Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands, except per share data) | Metric | 13 Weeks Ended June 28, 2025 | 13 Weeks Ended June 29, 2024 | 26 Weeks Ended June 28, 2025 | 26 Weeks Ended June 29, 2024 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net sales | $1,179,772 | $1,128,520 | $2,305,339 | $2,165,464 | | Cost of sales | 819,079 | 779,280 | 1,602,201 | 1,512,279 | | Gross profit | 360,693 | 349,240 | 703,138 | 653,185 | | Selling, general and administrative expenses | 336,764 | 323,135 | 667,842 | 626,517 | | Restructuring charges | 11,157 | — | 45,032 | — | | Operating income (loss) | 12,772 | 26,105 | (9,736) | 26,668 | | Interest expense, net | 6,544 | 5,559 | 13,064 | 8,735 | | Income (loss) before income taxes | 6,228 | 20,546 | (22,800) | 17,933 | | Income tax expense (benefit) | 1,267 | 6,545 | (4,444) | 4,957 | | Net income (loss) and comprehensive income (loss) | $4,961 | $14,001 | $(18,356) | $12,976 | | Basic earnings (net loss) per share | $0.05 | $0.14 | $(0.19) | $0.13 | | Diluted earnings (net loss) per share | $0.05 | $0.14 | $(0.19) | $0.13 | Balance Sheets This section provides the unaudited condensed consolidated balance sheets as of June 28, 2025, and December 28, 2024, detailing assets and liabilities, with key changes including an increase in total assets driven by property and equipment and operating lease right-of-use assets, and an increase in total liabilities, particularly trade accounts payable and long-term lease liabilities Condensed Consolidated Balance Sheets (in thousands) | Asset/Liability Category | June 28, 2025 | December 28, 2024 | | :------------------------------------------ | :-------------- | :---------------- | | Assets | | | | Cash and cash equivalents | $55,190 | $62,828 | | Total current assets | 501,535 | 503,898 | | Property and equipment, net | 806,740 | 750,423 | | Operating lease right-of-use assets | 1,105,419 | 1,014,678 | | Total assets | $3,322,376 | $3,173,821 | | Liabilities and Stockholders' Equity | | | | Trade accounts payable | $211,949 | $175,871 | | Total current liabilities | 414,988 | 349,624 | | Long-term debt, net | 455,200 | 462,502 | | Long-term lease liabilities | 1,211,517 | 1,106,219 | | Total liabilities | 2,135,534 | 1,976,437 | | Total stockholders' equity | 1,186,842 | 1,197,384 | | Total liabilities and stockholders' equity | $3,322,376 | $3,173,821 | Statements of Cash Flows This section presents the unaudited condensed consolidated statements of cash flows for the 26-week periods ended June 28, 2025, and June 29, 2024, detailing cash flows from operating, investing, and financing activities, noting a significant increase in operating cash flow and a shift in financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 26 Weeks Ended June 28, 2025 | 26 Weeks Ended June 29, 2024 | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $132,563 | $49,438 | | Net cash used in investing activities | $(136,156) | $(155,286) | | Net cash provided by (used in) financing activities | $(4,045) | $57,926 | | Net decrease in cash and cash equivalents | $(7,638) | $(47,922) | | Cash and cash equivalents at end of period | $55,190 | $67,065 | - Significant increase in net cash provided by operating activities, from $49.4 million to $132.6 million YoY[36] - Net cash used in investing activities decreased, primarily due to the absence of a business acquisition in the current period[36] - Financing activities shifted from a net inflow of $57.9 million to a net outflow of $4.0 million, influenced by revolving credit facility movements and absence of common stock repurchases[36] Additional Information Conference Call Information Grocery Outlet scheduled a conference call for August 5, 2025, at 4:30 p.m. Eastern Time to discuss the second quarter fiscal 2025 financial results, with details provided for live participation and a taped replay - Conference call for Q2 FY25 financial results scheduled for August 5, 2025, at 4:30 p.m. ET[18] - Live audio webcast available at https://investors.groceryoutlet.com[18](index=18&type=chunk) - Taped replay available for approximately two weeks after the call via dial-in and online[19] Investor and Media Contacts Contact information for investor relations (Ian Ferry, Ron Clark) and media inquiries (Layla Kasha) is provided for Grocery Outlet Holding Corp - Investor Relations Contacts: Ian Ferry (iferry@cfgo.com), Ron Clark (ron@ellipsista.com)[29] - Media Contact: Layla Kasha (lkasha@cfgo.com)[29]