What changed in this filing

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Item 1. Financial Statements

2024-05-08 compared with 2023-11-08 · 139 added, 216 removed, 386 unchanged (48% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

September 30,

2024 December 30,

2 unchanged sentences

Independent operator receivables and current portion of independent operator notes, net of allowance $ 4,744 and $ 5,092

13,347 14,943

Other accounts receivable, net of allowance $ 32 and $ 2

36 unchanged sentences

GROCERY OUTLET HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

13 Weeks Ended 39 Weeks Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

13 Weeks Ended

2024 April 1,

Net sales $ 1,036,944 $ 965,467

7 unchanged sentences

Total other expenses 3,176 11,259

Income before income taxes 33,331 19,889 86,605 57,397

Income tax expense 6,191 2,394 21,274 8,234

Net income and comprehensive income $ 27,140 $ 17,495 $ 65,331 $ 49,163

Basic earnings per share $ 0.27 $ 0.18 $ 0.66 $ 0.51

Diluted earnings per share $ 0.27 $ 0.17 $ 0.65 $ 0.49

Income (loss) before income taxes ( 2,613 ) 21,559

Income tax expense (benefit) ( 1,588 ) 7,839

Net income (loss) and comprehensive income (loss) $ ( 1,025 ) $ 13,720

Basic earnings (net loss) per share $ ( 0.01 ) $ 0.14

Diluted earnings (net loss) per share $ ( 0.01 ) $ 0.14

Weighted average shares outstanding:

12 unchanged sentences

Repurchase of common stock ( 200,803 ) — ( 5,325 ) — ( 5,325 )

Net income and comprehensive income — — — 13,720 13,720

Balance as of April 1, 2023 98,285,804 $ 98 $ 851,194 $ 276,247 $ 1,127,539

Exercise and vesting of share-based awards, net of shares withheld for employee taxes 487,445 1 1,507 — 1,508

Share-based compensation expense — — 11,305 — 11,305

Dividends paid — — ( 9 ) — ( 9 )

Net income and comprehensive income — — — 24,471 24,471

Balance as of July 1, 2023 98,773,249 $ 99 $ 863,997 $ 300,718 $ 1,164,814

Exercise and vesting of share-based awards, net of shares withheld for employee taxes 565,541 — 3,602 — 3,602

Share-based compensation expense — — 7,535 — 7,535

Net income and comprehensive income — — — 27,140 27,140

Balance as of September 30, 2023 99,338,790 $ 99 $ 875,134 $ 327,858 $ 1,203,091

Net loss and comprehensive loss — — — ( 1,025 ) ( 1,025 )

Balance as of March 30, 2024 100,147,065 $ 100 $ 883,534 $ 340,939 $ 1,224,573

See Notes to Condensed Consolidated Financial Statements

5 unchanged sentences

Shares Amount

Balance as of January 1, 2022 96,144,433 $ 96 $ 811,701 $ 197,475 $ 1,009,272

Balance as of December 31, 2022 97,674,356 $ 98 $ 847,589 $ 262,527 $ 1,110,214

Exercise and vesting of share-based awards 734,310 — 204 — 204

1 unchanged sentence

Repurchase of common stock ( 122,862 ) — ( 3,275 ) — ( 3,275 )

Dividends paid — — ( 7 ) — ( 7 )

Net income and comprehensive income — — — 13,720 13,720

Balance as of April 1, 2023 98,285,804 $ 98 $ 851,194 $ 276,247 $ 1,127,539

Exercise and vesting of share-based awards 565,792 1 3,068 — 3,069

Share-based compensation expense — — 9,484 — 9,484

Dividends paid — — ( 26 ) — ( 26 )

Net income and comprehensive income — — — 20,094 20,094

Balance as of July 2, 2022 96,846,980 $ 97 $ 827,451 $ 229,143 $ 1,056,691

Exercise and vesting of share-based awards 381,858 — 2,042 — 2,042

Share-based compensation expense — — 9,084 — 9,084

Net income and comprehensive income — — — 17,495 17,495

Balance as of October 1, 2022 97,228,838 $ 97 $ 838,577 $ 246,638 $ 1,085,312

See Notes to Condensed Consolidated Financial Statements

3 unchanged sentences

13 Weeks Ended

September 30,

2023 October 1,

2024 April 1,

Cash flows from operating activities:

Net income $ 65,331 $ 49,163

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss) $ ( 1,025 ) $ 13,720

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation of property and equipment 20,955 18,309

4 unchanged sentences

Share-based compensation 8,142 6,676

Provision for accounts receivable reserves 2,777 2,773

Provision for independent operator and other accounts receivable reserves 583 1,369

Deferred income taxes ( 1,692 ) 6,130

14 unchanged sentences

Investments in intangible assets and licenses ( 2,992 ) ( 7,936 )

Proceeds from insurance recoveries - property and equipment 533 —

Net cash used in investing activities ( 50,887 ) ( 40,347 )

1 unchanged sentence

Proceeds from exercise of stock options 3,442 204

Tax withholding related to net settlement of employee share-based awards ( 537 ) —

Proceeds from senior term loan due 2028 — 300,000

Proceeds from revolving credit facility — 25,000

Principal payments on revolving credit facility ( 25,000 ) —

Principal payments on senior term loan due 2025 — ( 385,000 )

2 unchanged sentences

Repurchase of common stock ( 6,241 ) ( 3,275 )

Dividends paid ( 9 ) ( 33 )

Debt issuance costs paid — ( 4,507 )

Net cash used in financing activities ( 5,056 ) ( 67,898 )

Net increase (decrease) in cash and cash equivalents 52,935 ( 32,808 )

Net decrease in cash and cash equivalents ( 48,102 ) ( 20,613 )

Cash and cash equivalents at beginning of period 114,987 102,728

5 unchanged sentences

Description of Business — Based in Emeryville, California, and incorporated in Delaware in 2014, Grocery Outlet Holding Corp.

(together with its wholly owned subsidiary, "Grocery Outlet," "we," or the "Company") is a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores.

Effective July 12, 2023, subsidiaries Globe Intermediate Corp., GOBP Holdings, Inc.

and GOBP Midco, Inc.

were merged with and into Grocery Outlet Holding Corp.

As of September 30, 2023, we had 455 stores throughout California, Washington, Oregon, Pennsylvania, Idaho, Nevada, Maryland and New Jersey.

(together with its wholly owned subsidiary, collectively, "Grocery Outlet," "we," or the "Company") is a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores.

As of March 30, 2024, we had 474 stores throughout California, Washington, Oregon, Pennsylvania, Idaho, Nevada, Maryland, New Jersey and Ohio.

Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the United States ("U.S.") Securities and Exchange Commission (the "SEC") for interim reporting.

7 unchanged sentences

The interim results of operations and cash flows are not necessarily indicative of those results and cash flows expected for any future interim or annual period.

Beginning with the first quarter of fiscal 2023, certain prior period amounts in the condensed consolidated statements of operations and comprehensive income have been reclassified to conform to the current period presentation.

Specifically, in order to enhance the comparability of our results with our peers, depreciation and amortization expenses and share-based compensation expenses are now included in selling, general and administrative expenses.

The reclassification of these items had no impact on net income, earnings per share, or retained earnings in the current or prior periods.

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

31 unchanged sentences

The fair value framework requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

There were no assets or liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2023 or December 31, 2022.

There were no assets or liabilities measured at fair value on a recurring or non-recurring basis as of March 30, 2024 or December 30, 2023.

Generally, assets are recorded at fair value on a non-recurring basis as a result of impairment charges.

There were no transfers of assets or liabilities between levels within the fair value hierarchy during the 39 weeks ended September 30, 2023.

There were no transfers of assets or liabilities between levels within the fair value hierarchy during the 13 weeks ended March 30, 2024.

Our financial assets and liabilities are carried at cost, which generally approximates their fair value, as described below:

Cash and cash equivalents, independent operator ("IO") receivables, other accounts receivable and accounts payable — The carrying value of such financial instruments approximates their fair value due to factors such as their short-term nature, their variable interest rates or the effect of the related allowance for expected credit losses.

Independent operator notes receivable (net) — The carrying value of such financial instruments approximates their fair value due to the effect of the related allowance for expected credit losses.

Independent operator notes (net) — The carrying value of such financial instruments approximates their fair value due to the effect of the related allowance for expected credit losses.

The following table sets forth by level within the fair value hierarchy the carrying amounts and estimated fair values of our significant financial liabilities that are not recorded at fair value on the condensed consolidated balance sheets (amounts in thousands):

September 30,

2024 December 30,

6 unchanged sentences

_______________________

(1) The carrying amounts of our senior term loans as of September 30, 2023 and December 31, 2022 were net of unamortized debt discounts of zero and $ 0.6 million, respectively, and debt issuance costs of $ 1.7 million and $ 4.7 million, respectively.

(2) The estimated fair value of our current senior term loan borrowings under our 2023 Credit Agreement, as defined in Note 3, was deemed to approximate the carrying value, excluding unamortized debt issuance costs, because the interest rate is variable with short reset periods and is reflective of the current market rate.

(3) The estimated fair value of our prior senior term loan, as defined in Note 3, was determined based on the average quoted bid-ask prices for the prior senior term loan in an over-the-counter market on the last trading day of the period presented.

(1) The carrying amounts of the senior term loans as of March 30, 2024 and December 30, 2023 were net of debt issuance costs of $ 1.5 million and $ 1.6 million, respectively.

(2) The estimated fair value of our current senior term loan borrowings under the 2023 Credit Agreement, as defined in Note 3, was deemed to approximate the carrying value, excluding unamortized debt issuance costs, because the interest rate is variable with short reset periods and is reflective of the current market rate.

Revenue Recognition

5 unchanged sentences

We do not accept manufacturer coupons.

We do not have any material contract assets or receivables from contracts with customers, any revenue recognized in the current year from performance obligations satisfied in previous periods, any material performance obligations other than our gift card deferred revenue liability, or any material costs to obtain or fulfill a contract as of September 30, 2023 and December 31, 2022.

Gift Cards — We record a deferred revenue liability when a Grocery Outlet gift card is sold.

2 unchanged sentences

We reduce the liability and recognize revenue for the unused portion of the gift cards ("breakage") under the proportional method, where recognition of breakage income is based upon the historical run-off rate of unredeemed gift cards.

Our gift card deferred revenue liability was $ 2.8 million and $ 3.6 million as of September 30, 2023 and December 31, 2022, respectively.

Breakage amounts were immaterial for the 13 and 39 weeks ended September 30, 2023 and October 1, 2022.

Our gift card deferred revenue liability was $ 2.3 million and $ 3.2 million as of March 30, 2024 and December 30, 2023, respectively.

Breakage amounts were immaterial for the 13 weeks ended March 30, 2024 and April 1, 2023.

Disaggregated Revenues — The following table presents net sales revenue by type of product for the periods indicated (amounts in thousands):

13 Weeks Ended 39 Weeks Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

13 Weeks Ended

2024 April 1,

Perishable (1)

15 unchanged sentences

A reporting entity is determined to be a VIE's primary beneficiary if it has the power to direct the activities that most significantly impact a VIE's economic performance and the obligation to absorb losses or rights to receive benefits that could potentially be significant to a VIE.

We had 453 , 438 and 427 stores operated by IOs as of September 30, 2023, December 31, 2022 and October 1, 2022, respectively.

We had 472 , 466 and 441 stores operated by IOs as of March 30, 2024, December 30, 2023 and April 1, 2023, respectively.

We have agreements in place with each IO.

7 unchanged sentences

As consignor of all merchandise to each IO, the aggregate net sales proceeds from merchandise sales belongs to us.

Net sales related to IO stores were $ 991.4 million and $ 903.1 million for the 13 weeks ended September 30, 2023 and October 1, 2022, respectively, and $ 2.94 billion and $ 2.60 billion for the 39 weeks ended September 30, 2023 and October 1, 2022, respectively.

Net sales related to IO stores were $ 1.0 billion and $ 951.6 million for the 13 weeks ended March 30, 2024 and April 1, 2023, respectively.

We, in turn, pay each IO a commission based on a share of the gross profit of the store.

Inventories and related net sales proceeds are our property, and we are responsible for store rent and related occupancy costs.

IO commissions are expensed and included in SG&A.

IO commissions were $ 161.7 million and $ 136.5 million for the 13 weeks ended September 30, 2023 and October 1, 2022, respectively, and $ 465.1 million and $ 395.7 million for the 39 weeks ended September 30, 2023 and October 1, 2022, respectively.

IO commissions of $ 22.6 million and $ 6.2 million were included in accrued and other current liabilities as of September 30, 2023 and December 31, 2022, respectively.

IO commissions are expensed and included in selling, general and administrative expenses.

IO commissions were $ 160.8 million and $ 145.2 million for the 13 weeks ended March 30, 2024 and April 1, 2023, respectively.

IO commissions of $ 13.9 million and $ 21.7 million were included in accrued and other current liabilities as of March 30, 2024 and December 30, 2023, respectively.

An IO may fund its initial store investment from existing capital, a third-party loan or most commonly through a loan from us, as further discussed in Note 2.

10 unchanged sentences

Therefore, we are not the primary beneficiary of these VIEs.

Our maximum exposure, in accordance with ASC Topic 810, to the IOs is generally limited to the IO notes and IO receivables due from these entities, which was $ 51.6 million and $ 48.1 million as of September 30, 2023 and December 31, 2022, respectively.

Our maximum exposure, in accordance with ASC Topic 810, to the IOs is generally limited to the IO notes and IO receivables due from these entities, which was $ 57.6 million and $ 59.2 million as of March 30, 2024 and December 30, 2023, respectively.

See Note 2 for additional information.

Recently Adopted Accounting Standards

Accounting Standards Update ("ASU") No.

2022-02 — In March 2022, the Financial Accounting Standards Board issued ASU No.

2022-02, Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02").

ASU 2022-02 eliminates the accounting guidance on troubled debt restructurings for creditors in ASC Topic 310 and amends the guidance on "vintage disclosures" to require disclosure of current-period gross write-offs by year of origination.

ASU 2022-02 also updates the requirements related to accounting for credit losses under ASC Topic 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty.

We adopted ASU 2022-02 beginning in the first quarter of fiscal 2023.

The adoption of ASU 2022-02 had no material impact on our condensed consolidated financial statements.

No recently adopted accounting pronouncements had a material effect in our condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

No recently issued accounting pronouncements are expected to have a material effect in our condensed consolidated financial statements.

Accounting Standards Update ("ASU") No.

2023-07 — In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU No.

2023-07, Segment Reporting (Topic 280) ("ASU 2023-07").

ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets.

All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

We will adopt ASU 2023-07 upon the effective date and are currently evaluating the impact on our consolidated financial statements and disclosures.

2023-09 — In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740) ("ASU 2023-09").

ASU 2023-09 requires public entities’ to disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate (the rate reconciliation) for federal, state, and foreign income taxes.

It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold.

In addition to new disclosures associated with the rate reconciliation, the ASU requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024.

We will adopt ASU 2023-09 upon the effective date and are currently evaluating the impact on our consolidated financial statements and disclosures.

Independent Operator Notes and Independent Operator Receivables

1 unchanged sentence

IO notes, which are payable on demand and have no maturity date, typically bear interest at rates between 5.50 % and 9.95 %.

Accrued interest receivable on IO notes is included within the "independent operator receivables and current portion of independent operator notes, net of allowance" line item on the condensed consolidated balance sheets and was $ 1.4 million and $ 0.9 million as of September 30, 2023 and December 31, 2022, respectively.

There were no IO notes that were past due or on a non-accrual status due to delinquency as of September 30, 2023 or

December 31, 2022.

Notes and receivables from our IOs participating in our TCAP, as defined below, are not considered to be past due or on a non-accrual status due to delinquency and are excluded from such measures.

Accrued interest receivable on IO notes is included within the "independent operator

receivables and current portion of independent operator notes, net of allowance" line item on the condensed consolidated balance sheets and was $ 2.0 million and $ 1.8 million as of March 30, 2024 and December 30, 2023, respectively.

There were no IO notes that were past due or on a non-accrual status due to delinquency as of March 30, 2024 or December 30, 2023.

Notes and receivables from our IOs participating in our Temporary Commission Adjustment Program ("TCAP"), as defined below, are not considered to be past due or on a non-accrual status due to delinquency and are excluded from such measures.

IO notes and IO receivables are financial assets which are measured and carried at amortized cost.

3 unchanged sentences

The primary shared risk characteristic and credit quality indicator pools that we use as a basis for collective evaluation include:

• TCAP — Includes the notes and receivables from IOs with stores that have been open for more than 18 months that are participating in our Temporary Commission Adjustment Program ("TCAP") as of the end of each reporting period.

• TCAP — Includes the notes and receivables from IOs with stores that have been open for more than 18 months that are participating in our TCAP as of the end of each reporting period.

TCAP allows us to provide a greater commission to participating IOs who require assistance in meeting their working capital needs for various reasons, such as new or increased competition or differences in IO skills and experience.

2 unchanged sentences

Assets without such shared risk characteristics or credit quality indicators, such as assets with unique circumstances or with delinquencies and historical losses in excess of their TCAP, non-TCAP or new store peers are evaluated on an individual basis.

Amounts due from IOs and the related allowances as of September 30, 2023 and December 31, 2022 consisted of the following (amounts in thousands) :

Amounts due from IOs and the related allowances as of March 30, 2024 and December 30, 2023 consisted of the following (amounts in thousands) :

Allowance Current Portion Long-term Portion

Gross Current Portion Long-term Portion Net

September 30, 2023

March 30, 2024

Independent operator notes $ 41,276 $ ( 713 ) $ ( 10,665 ) $ 29,898 $ 1,662 $ 28,236

8 unchanged sentences

A summary of activity in the IO notes and IO receivables allowance was as follows (amounts in thousands):

13 Weeks Ended 39 Weeks Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

13 Weeks Ended

2024 April 1,

Beginning balance $ 16,151 $ 14,747

Provision for IO notes and IO receivables reserves 553 1,348

Write-off of provision for IO notes and IO receivables ( 618 ) ( 347 ) ( 1,080 ) ( 1,177 )

Write-off of uncollectible for IO notes and IO receivables ( 697 ) ( 138 )

Ending Balance $ 16,007 $ 15,957

The following table presents the outstanding gross balance of IO notes by fiscal year of origination and credit quality indicator as of September 30, 2023 (amounts in thousands):

The following table presents the outstanding gross balance of IO notes by fiscal year of origination and credit quality indicator as of March 30, 2024 (amounts in thousands):

Fiscal Year of Origination

5 unchanged sentences

TCAP IO Notes

Notes of IOs participating in our TCAP represented 52.5 % and 49.7 % of total IO notes balances as of September 30, 2023 and December 31, 2022, respectively.

A total of $ 1.0 million of IO notes were added into our TCAP during the 13 weeks ended September 30, 2023.

The weighted average contractual interest rate of such IO notes was reduced from 9.95 % and, as of September 30, 2023, was 5.50 %.

In addition, $ 0.4 million of IO notes were transferred from TCAP to Non-TCAP during the 13 weeks ended September 30, 2023.

A total of $ 4.7 million of IO notes were added into our TCAP during the 39 weeks ended September 30, 2023.

The weighted average contractual interest rate of such IO notes was reduced from 9.95 % and, as of September 30, 2023, was 5.50 %.

In addition, $ 2.5 million of IO notes were transferred from TCAP to Non-TCAP during the 39 weeks ended September 30, 2023.

Notes of IOs participating in our TCAP represented 53.3 % and 51.6 % of total IO note balances as of March 30, 2024 and December 30, 2023, respectively.

A total of $ 1.2 million of IO notes were added into our TCAP during the 13 weeks ended March 30, 2024.

The weighted average contractual interest rate of such IO notes during that period was reduced from 9.95 % and, as of March 30, 2024, was 5.50 %.

In addition, $ 0.2 million of IO notes were transferred from TCAP to Non-TCAP during the 13 weeks ended March 30, 2024.

Long-term Debt

Long-term debt consisted of the following (amounts in thousands):

September 30,

2024 December 30,

Senior term loan due 2025 $ — $ 385,000

2023 Credit Agreement:

Senior term loan due 2028 $ 292,500 $ 294,375

Long-term debt, gross 292,500 294,375

Unamortized debt issuance costs and debt discounts

Unamortized debt issuance costs

( 1,544 ) ( 1,643 )

Long-term debt, less unamortized debt discounts and debt issuance costs 294,509 379,650

Long-term debt, less unamortized debt issuance costs 290,956 292,732

Current portion ( 5,625 ) ( 5,625 )

1 unchanged sentence

2023 Credit Agreement

On February 21, 2023, we entered into a credit agreement with Bank of America, N.A., as administrative agent and collateral agent, and the other parties party thereto (the "2023 Credit Agreement").

The 2023 Credit Agreement provides for senior secured credit facilities consisting of (i) a senior secured term loan facility (the "senior term loan") in an original aggregate principal amount of $ 300.0 million and (ii) a senior secured revolving credit facility (the "revolving credit facility" and, together with the senior term loan, the "new credit facilities") in an aggregate principal amount of $ 400.0 million.

We are party to a credit agreement, dated February 21, 2023 (the "2023 Credit Agreement"), with Bank of America, N.A., as administrative agent and collateral agent, and a syndicate of lenders that consists of (i) a senior secured term loan facility (the "senior term loan") and (ii) a senior secured revolving credit facility (the "revolving credit facility" and, together with the senior term loan, the "credit facilities") in an aggregate principal amount of $ 400.0 million.

The revolving credit facility includes sub-commitments for $ 50.0 million letters of credit and $ 25.0 million of swingline loans.

The senior term loan was borrowed in full at closing, and $ 25.0 million of the revolving credit facility was borrowed at closing.

Also on February 21, 2023, we repaid all of the outstanding indebtedness under our Prior First Lien Credit Agreement, defined below, as well as fees and expenses in connection therewith.

All obligations of the Company’s subsidiaries under the Prior First Lien Credit Agreement were discharged as of such date.

In connection with the closing of the 2023 Credit Agreement and repayment of the Prior First Lien Credit Agreement and in accordance with ASC Topic 470-50, Debt-Modifications and Extinguishments, we wrote off $ 5.1 million of previously unamortized debt issuance costs and debt discounts and incurred $ 0.2 million in debt modification costs, which were recorded within loss on debt extinguishment and modification for the 39 weeks ended September 30, 2023.

Furthermore, a total of $ 4.6 million of creditor and third-party debt issuance costs were capitalized or carried over from the prior credit facilities, as defined below, and will be amortized over the term of the new credit facilities.

Borrowings under the 2023 Credit Agreement bear interest at a rate equal to, at our option, either (a) the base rate, which is defined as a fluctuating rate per annum equal to the greatest of (i) the federal funds rate then in effect, plus 0.50 %, (ii) the prime rate then in effect and (iii) a specified Term SOFR (as defined in the 2023 Credit Agreement) rate plus 1.00 %, subject to the interest rate floors set forth therein, plus an applicable margin ranging from 0.75 % to 1.75 % based on our Total Net Leverage Ratio (as defined in the 2023 Credit Agreement);

and (b) an adjusted Term SOFR rate determined on the basis of a one, three or six month interest period, plus 0.10 %, subject to the interest rate floors set forth therein, plus an applicable margin ranging from 1.75 % to 2.75 % based on our Total Net Leverage Ratio.

As of September 30, 2023, interest on borrowings under the new credit facilities was based on one-month Term SOFR with an applicable margin of 2.00 %.

The new credit facilities of the 2023 Credit Agreement permit us to add incremental term loan facilities, increase any existing term loan facility, increase revolving commitments, and/or add incremental replacement revolving credit facility tranches.

The aggregate principal amount of such incremental facilities are limited to (a) an amount not in excess of the sum of the greater of $ 200.0 million and 100 % of Consolidated EBITDA (as defined in the 2023 Credit Agreement), subject to certain limitations, plus (b) voluntary prepayments of the term loan facility, voluntary permanent reductions of the commitments for the revolving credit facility and voluntary prepayments of indebtedness secured by liens on the collateral securing the new credit facilities, subject to certain exceptions, plus (c) an amount such that (assuming that the full amount of any such incremental revolving increase and/or incremental replacement revolving credit facility was drawn, and after giving effect to any appropriate pro forma adjustment events) we would be in compliance, on a pro forma basis (but excluding the cash proceeds of such incurrence), with a Total Net Leverage Ratio of 3.00 to 1.00.

Our obligations under the 2023 Credit Agreement are unconditionally guaranteed by the Company’s wholly owned restricted subsidiary, subject to certain exceptions.

All obligations under the 2023 Credit Agreement, and the guarantees of such obligations, are secured, subject to permitted liens and other exceptions, by substantially all of the Company’s assets and those of the subsidiary guarantor.

and (b) an adjusted Term SOFR rate determined

on the basis of a one, three or six month interest period, plus 0.10 %, subject to the interest rate floors set forth therein, plus an applicable margin ranging from 1.75 % to 2.75 % based on our Total Net Leverage Ratio.

As of March 30, 2024, interest on borrowings under the credit facilities was based on one-month Term SOFR with an applicable margin of 2.00 %.

The 2023 Credit Agreement permits us to add incremental term loan facilities, increase any existing term loan facility, increase revolving commitments, and/or add incremental replacement revolving credit facility tranches.

The aggregate principal amount of such incremental facilities are limited to (a) an amount not in excess of the sum of the greater of $ 200.0 million and 100 % of Consolidated EBITDA (as defined in the 2023 Credit Agreement), subject to certain limitations, plus (b) voluntary prepayments of any term loan facility, voluntary permanent reductions of the commitments for the revolving credit facility and voluntary prepayments of indebtedness secured by liens on the collateral securing the credit facilities, subject to certain exceptions, plus (c) an amount such that (assuming that the full amount of any such incremental revolving increase and/or incremental replacement revolving credit facility was drawn, and after giving effect to any appropriate pro forma adjustment events) we would be in compliance, on a pro forma basis (but excluding the cash proceeds of such incurrence), with a Total Net Leverage Ratio of 3.00 to 1.00.

Our obligations under the 2023 Credit Agreement are unconditionally guaranteed by the Company’s wholly owned restricted subsidiaries, subject to certain exceptions.

All obligations under the 2023 Credit Agreement, and the guarantee of such obligations, are secured, subject to permitted liens and other exceptions, by substantially all of the Company’s assets and those of each subsidiary guarantor.

The 2023 Credit Agreement requires us to make scheduled amortization payments of the senior term loan.

We may voluntarily prepay the new credit facilities, in whole or in part, at any time without premium or penalty, subject to reimbursement of the lenders’ breakage and redeployment costs in applicable cases.

We may voluntarily prepay the credit facilities, in whole or in part, at any time without premium or penalty, subject to reimbursement of the lenders’ breakage and redeployment costs in applicable cases.

Senior Term Loan due 2028

Our senior term loan under our 2023 Credit Agreement matures on February 21, 2028 and had an interest rate of 7.42 % as of September 30, 2023.

The senior term loan under the 2023 Credit Agreement matures on February 21, 2028 and had an interest rate of 7.43 % as of March 30, 2024.

Revolving Credit Facility

As of September 30, 2023 we had $ 4.2 million of outstanding letters of credit and $ 395.8 million of remaining borrowing capacity available under the revolving credit facility, which matures on February 21, 2028.

The interest rate on the revolving credit facility was 7.42 % as of September 30, 2023.

As discussed above, $ 25.0 million of the revolving credit facility was borrowed at closing.

On April 21, 2023, we repaid the $ 25.0 million of principal on our revolving credit facility.

No amounts were outstanding under the revolving credit facility as of September 30, 2023.

Since the April 21, 2023 repayment, no amounts were borrowed under this revolving credit facility.

As of March 30, 2024 we had $ 4.2 million of outstanding letters of credit and $ 395.8 million of remaining borrowing capacity available under the revolving credit facility, which matures on February 21, 2028.

The interest rate on the revolving credit facility was 7.43 % as of March 30, 2024.

No amounts were outstanding under the revolving credit facility as of March 30, 2024 and December 30, 2023.

$ 25.0 million of principal on the revolving credit facility was borrowed at closing on February 21, 2023 and was subsequently repaid on April 21, 2023.

Subsequent to March 30, 2024, in April 2024, $ 80.0 million of principal was borrowed from the revolving credit facility.

We are required to pay a quarterly commitment fee ranging from 0.15 % to 0.30 % on the daily unused amount of the commitment under the revolving credit facility based upon our Total Net Leverage Ratio.

We are also required to pay fronting fees and other customary fees for letters of credit issued under the revolving credit facility.

Prior First Lien Credit Agreement

One of our former wholly owned subsidiaries, which has since been merged with and into Grocery Outlet Holding Corp., was the borrower under a first lien credit agreement (the "Prior First Lien Credit Agreement") with a syndicate of lenders that consisted of a $ 385.0 million senior term loan (the "prior senior term loan") and a revolving credit facility (the "prior revolving credit facility" and, together with the prior senior term loan, the "prior credit facilities") for an amount up to $ 100.0 million.

Prior Senior Term Loan due 2025

Our prior senior term loan under our Prior First Lien Credit Agreement had a maturity of October 22, 2025 and had an applicable margin of 2.75 % for Eurodollar loans and 1.75 % for base rate loans.

On April 29, 2022, we prepaid $ 75.0 million of principal on the prior senior term loan outstanding under our Prior First Lien Credit Agreement.

In connection with the payment, we wrote off $ 1.3 million of previously unamortized debt issuance costs and debt discounts.

As discussed above, on February 21, 2023, in connection with the closing of the 2023 Credit Agreement, we repaid the remaining $ 385.0 million of principal on the prior senior term loan outstanding under our Prior First Lien Credit Agreement.

Prior Revolving Credit Facility

Our prior revolving credit facility under our Prior First Lien Credit Agreement had a maturity of October 23, 2023.

No amounts were outstanding under the prior revolving credit facility as of December 31, 2022 and no amounts were outstanding as of final repayment of the Prior First Lien Credit Agreement.

We were required to pay a quarterly commitment fee ranging from 0.25 % to 0.50 % on the daily unused amount of the commitment under the prior revolving credit facility based upon the leverage ratio defined in the agreement and certain criteria specified in the agreement.

We were also required to pay fronting fees and other customary fees for letters of credit issued under the prior revolving credit facility.

Debt Covenants

The 2023 Credit Agreement contains certain customary representations and warranties, subject to limitations and exceptions, and affirmative and customary covenants.

The 2023 Credit Agreement contains certain covenants that, among other things, limit our ability and the ability of our restricted subsidiary to:

The 2023 Credit Agreement contains certain covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to:

pay dividends or distributions, repurchase equity, prepay junior debt and make certain investments;

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enter into transactions with affiliates;

and allow to exist certain restrictions on the ability of our subsidiary to pay dividends or make other payments to the borrower.

and allow to exist certain restrictions on the ability of our subsidiaries to pay dividends or make other payments to the borrower.

The 2023 Credit Agreement also contains financial performance covenants requiring us to satisfy a maximum total net leverage ratio test and a minimum interest coverage ratio test as of the last day of each fiscal quarter.

The maximum total net leverage ratio test requires us to be in compliance with a Total Net Leverage Ratio no greater than 3.50 to 1.00 as of the last day of each test period ending prior to the test period ending on or about December 31, 2025, and no greater than 3.25 to 1.00 as of the last day of each test period ending thereafter, subject to certain adjustments set forth in the 2023 Credit Agreement.

The minimum interest coverage ratio test requires us to be in compliance with a Consolidated Interest Coverage Ratio (as defined in the 2023 Credit Agreement) no less than 1.75 to 1.00 as of the last day of each test period.

As of September 30, 2023, we were in compliance with all applicable financial covenant requirements for our 2023 Credit Agreement.

The minimum interest coverage ratio test requires us to be in compliance with a Consolidated Interest Coverage Ratio (as defined in the 2023 Credit Agreement) of no less than 1.75 to 1.00 as of the last day of each test period.

As of March 30, 2024, we were in compliance with all applicable financial covenant requirements for the 2023 Credit Agreement.

Schedule of Principal Maturities

Principal maturities of debt as of September 30, 2023 are as follows (amounts in thousands):

Principal maturities of debt as of March 30, 2024 are as follows (amounts in thousands):

Remainder of fiscal 2024 $ 3,750

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Fiscal 2028 243,750

Thereafter 243,750

Total $ 292,500

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Interest expense, net, consisted of the following (amounts in thousands):

13 Weeks Ended 39 Weeks Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

13 Weeks Ended

2024 April 1,

Interest on loans $ 5,678 $ 7,107

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Interest on finance leases 95 72

Other 13 5 13 5

Interest income ( 2,492 ) ( 1,661 )

Capitalized interest ( 333 ) —

Interest expense, net $ 3,176 $ 5,919

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Loss on debt extinguishment and modification consisted of the following (amounts in thousands):

13 Weeks Ended 39 Weeks Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

13 Weeks Ended

2024 April 1,

Write off of debt issuance costs $ — $ 4,518

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In November 2021, our Board of Directors approved a share repurchase program.

This program, effective November 5, 2021 and without an expiration date, authorized us to repurchase up to $ 100.0 million of our outstanding common stock utilizing a variety of methods including open-market purchases, accelerated share repurchase programs, privately negotiated transactions, structured repurchase transactions and repurchases under a Rule 10b5-1 plan (which would permit shares to be repurchased when we might otherwise be precluded from doing so under securities laws).

This program, effective November 5, 2021 and without an expiration date, authorizes us to repurchase up to $ 100.0 million of our outstanding common stock utilizing a variety of methods including open-market purchases, accelerated share repurchase programs, privately negotiated transactions, structured repurchase transactions and under a Rule 10b5-1 plan (which would permit shares to be repurchased when we might otherwise be precluded from doing so under securities laws).

Any repurchased shares are constructively retired and returned to an unissued status.

During the 13 weeks ended September 30, 2023, we did not repurchase any shares of common stock under the share repurchase program.

During the 39 weeks ended September 30, 2023, we repurchased 122,862 shares of common stock under the share repurchase program totaling $ 3.3 million at an average price of $ 26.66 per share in open-market transactions pursuant to a Rule 10b5-1 plan.

During the 13 weeks ended October 1, 2022, we did not repurchase any shares of common stock under the share repurchase program.

During the 39 weeks ended October 1, 2022, we repurchased 139,718 shares of common stock under the share repurchase program totaling $ 3.5 million at an average price of $ 24.70 per share in open-market transactions pursuant to a Rule 10b5-1 plan.

As of September 30, 2023, we had $ 93.3 million of repurchase authority remaining under the share repurchase program.

During the 13 weeks ended March 30, 2024, we repurchased 200,803 shares of common stock totaling $ 5.3 million at an average price of $ 26.52 per share in open-market transactions pursuant to a Rule 10b5-1 plan.

During the 13 weeks ended April 1, 2023, we repurchased 122,862 shares of common stock totaling $ 3.3 million at an average price of $ 26.66 per share in open-market transactions pursuant to a Rule 10b5-1 plan.

As of March 30, 2024, we had $ 84.4 million of repurchase authority remaining under the share repurchase program.

Share-based Awards

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Share-based Award Activity

The following table summarizes stock option activity under all equity incentive plans during the 39 weeks ended September 30, 2023:

The following table summarizes stock option activity under all equity incentive plans during the 13 weeks ended March 30, 2024:

Time-Based Stock Options Performance-Based Stock Options

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Exercised ( 453,640 ) 7.34 ( 29,775 ) 3.81

Forfeitures ( 8,279 ) 21.93 — —

Options outstanding as of September 30, 2023

Options outstanding as of March 30, 2024

1,637,883 $ 14.53 197,830 $ 7.05

Options vested and exercisable as of September 30, 2023

Options vested and exercisable as of March 30, 2024

1,627,850 $ 14.53 197,830 $ 7.05

The following table summarizes restricted stock unit ("RSU") activity under all equity incentive plans during the 39 weeks ended September 30, 2023:

The following table summarizes restricted stock unit ("RSU") activity under all equity incentive plans during the 13 weeks ended March 30, 2024:

Number of Shares Weighted-Average

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Forfeitures ( 4,957 ) 28.08

Unvested balance as of September 30, 2023

Unvested balance as of March 30, 2024

1,089,054 $ 26.94

The following table summarizes performance-based restricted stock unit ("PSU") activity under the Grocery Outlet Holding Corp.

2019 Incentive Plan during the 39 weeks ended September 30, 2023:

2019 Incentive Plan during the 13 weeks ended March 30, 2024:

Number of Shares Weighted-Average

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Adjustment for expected performance achievement (2)

383,279 30.80

Vested ( 301,392 ) 35.45

Forfeitures ( 2,364 ) 27.77

Unvested balance as of September 30, 2023 (3)

Unvested balance as of March 30, 2024 (3)

2,098,911 $ 27.57

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(1) Represents initial grant of PSUs based on performance target level achievement of 100 %.

(2) Represents the year-to-date adjustment to previously granted PSUs based on performance expectations as of September 30, 2023.

(3) An additional 475,869 PSUs could potentially be included if the maximum performance level of 200 % is reached for all PSUs outstanding as of September 30, 2023.

(2) Represents the year-to-date adjustment to previously granted PSUs based on performance expectations as of March 30, 2024.

(3) An additional 648,189 PSUs could potentially be included if the maximum performance level of 200 % is reached for all PSUs outstanding as of March 30, 2024.

Share-based Compensation Expense

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Share-based compensation expense consisted of the following (amounts in thousands):

13 Weeks Ended 39 Weeks Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

13 Weeks Ended

2024 April 1,

Time-based stock options $ 9 $ 408

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PSUs 4,897 3,773

Dividends (1)

Share-based compensation expense $ 8,142 $ 6,676

_______________________

(1) Represents cash dividends paid upon vesting of share-based awards as a result of dividends declared in connection with a recapitalization that occurred in fiscal 2018.

Our income tax expense and effective income tax rate were as follows (amounts in thousands, except percentages):

13 Weeks Ended 39 Weeks Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

Income tax expense $ 6,191 $ 2,394 $ 21,274 $ 8,234

Our income tax expense (benefit) and effective income tax rate were as follows (amounts in thousands, except percentages):

13 Weeks Ended

2024 April 1,

Income tax expense (benefit) $ ( 1,588 ) $ 7,839

Effective income tax rate ( 60.8 ) % 36.4 %

Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete events arising in each respective quarter.

Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete events arising in each respective fiscal quarter.

During each interim period, we update the estimated annual effective tax rate.

Our effective income tax rate for the 13 and 39 weeks ended September 30, 2023 was lower than the combined U.S.

federal and state statutory income tax rate primarily due to excess tax benefits related to the exercise of stock options, partially offset by non-deductible executive compensation under Internal Revenue Code Section 162(m).

The increase in our effective income tax rate for the 13 weeks ended September 30, 2023 compared to the 13 weeks ended October 1, 2022 was primarily driven by increased pretax income without a proportional increase in tax benefits related to the exercise of stock options as well as non-deductible executive compensation under Internal Revenue Code Section 162(m) during the 13 weeks ended September 30, 2023, which was not applicable during the 13 weeks ended October 1, 2022.

The increase in our effective income tax rate for the 39 weeks ended September 30, 2023 compared to the 39 weeks ended October 1, 2022 was primarily driven by lower excess tax benefits related to the exercise of stock options as well as non-deductible executive compensation under Internal Revenue Code Section 162(m) during the 39 weeks ended September 30, 2023, which was not applicable during the 39 weeks ended October 1, 2022.

Our policy is to recognize interest and penalties associated with uncertain tax positions as part of the income tax provision in our condensed consolidated statements of operations and comprehensive income and include accrued interest and penalties with the related income tax liability on our condensed consolidated balance sheets.

Our effective income tax rate for the 13 weeks ended March 30, 2024 was lower than the combined U.S.

federal and state statutory income tax rate primarily due to a pretax book loss combined with excess tax benefits related to the exercise of stock options, partially offset by non-deductible executive compensation under Internal Revenue Code Section 162(m).

The decrease in our effective income tax rate for the 13 weeks ended March 30, 2024 compared to the 13 weeks ended April 1, 2023 was primarily driven by a pretax book loss combined with excess tax benefits from the exercise of stock options during the 13 weeks ended March 30, 2024 and excess tax expense related to the vesting of RSUs and PSUs during the 13 weeks ended April 1, 2023.

Our policy is to recognize interest and penalties associated with uncertain tax positions as part of the income tax provision in our condensed consolidated statements of operations and comprehensive income (loss) and include accrued interest and penalties with the related income tax liability on our condensed consolidated balance sheets.

To date, we have not recognized any interest and penalties, nor have we accrued for or made payments for interest and penalties.

We had no uncertain tax positions as of September 30, 2023 and December 31, 2022, respectively, and do not anticipate having any material uncertain tax positions within the next 12 months.

We had no uncertain tax positions as of March 30, 2024 and December 30, 2023, respectively, and do not anticipate having any material uncertain tax positions within the next 12 months.

Related Party Transactions

Related Party Leases

As of September 30, 2023 and October 1, 2022, we leased 14 and 15 store locations, respectively, and one warehouse location from entities in which Eric Lindberg, Jr., Chairman of our Board of Directors (and formerly our Chief Executive Officer until December 31, 2022), and MacGregor Read, Jr., who served as Vice Chairman of our Board of Directors until September 1, 2022, or their respective families, had a direct or indirect financial interest.

As of September 30, 2023, the right-of-use assets and lease liabilities related to these properties was $ 35.5 million and $ 40.4 million, respectively.

As of March 30, 2024 and April 1, 2023, we leased 14 store locations and one warehouse location from entities in which Eric Lindberg, Jr., Chairman of our Board of Directors, or his family, had a direct or indirect financial interest.

As of March 30, 2024, the right-of-use assets and lease liabilities related to these properties was $ 41.7 million and $ 46.7 million, respectively.

As of December 30, 2023, the right-of-use assets and lease liabilities related to these properties was $ 42.6 million and $ 47.6 million, respectively.

These related parties received aggregate lease payments from us of $ 1.7 million for each of the 13 weeks ended September 30, 2023 and October 1, 2022, respectively, and $ 5.1 million for each of the 39 weeks ended September 30, 2023 and October 1, 2022.

These related parties received aggregate lease payments from us of $ 1.8 million and $ 1.7 million for the 13 weeks ended March 30, 2024 and April 1, 2023, respectively.

Independent Operator Notes and Independent Operator Receivables

We offer interest-bearing notes to IOs and the gross amount of IO operating notes and IO receivables due was $ 51.6 million and $ 48.1 million as of September 30, 2023 and December 31, 2022, respectively.

We offer interest-bearing notes to IOs and the gross amount of IO operating notes and IO receivables due was $ 57.6 million and $ 59.2 million as of March 30, 2024 and December 30, 2023, respectively.

See Note 2 for additional information.

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Management believes that we do not have any pending litigation that, separately or in the aggregate, would have a material adverse effect on our results of operations, financial condition or cash flows.

Earnings Per Share

The following table sets forth the calculation of basic and diluted earnings per share (amounts in thousands, except per share data):

13 Weeks Ended 39 Weeks Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

Net income and comprehensive income $ 27,140 $ 17,495 $ 65,331 $ 49,163

Earnings (Net Loss) Per Share

The following table sets forth the calculation of basic and diluted earnings (net loss) per share (amounts in thousands, except per share data):

13 Weeks Ended

2024 April 1,

Net income (loss) and comprehensive income (loss) $ ( 1,025 ) $ 13,720

Weighted-average shares outstanding – basic

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Effect of dilutive RSUs and PSUs (1)

241 581 300 433

Weighted-average shares outstanding – diluted

99,520 100,569

Earnings per share:

Earnings (net loss) per share:

Basic $ ( 0.01 ) $ 0.14

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(1) We are required to include in diluted weighted-average shares outstanding contingently issuable shares that would be issued assuming the end of our reporting period was the end of the relevant PSU award contingency period.

The following weighted-average common share equivalents were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive (amounts in thousands):

13 Weeks Ended 39 Weeks Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

RSUs 10 10 42 7

The following weighted-average common share equivalents were excluded from the calculation of diluted earnings (net loss) per share because their effect would have been anti-dilutive (amounts in thousands):

13 Weeks Ended

2024 April 1,

Time-based stock options 1,136 —

RSUs and PSUs 895 95

Total 2,031 95

Subsequent Event

On February 14, 2024, Grocery Outlet Inc., our wholly owned subsidiary, entered into a Stock Purchase Agreement with BBGO Acquisition, Inc., a Delaware corporation ("Holdings"), specified parties therein that beneficially owned Holdings, and Southvest Fund VII, L.P., a Delaware limited partnership, to acquire all of the issued and outstanding capital stock of Holdings (the "Transaction").

On April 1, 2024, the Transaction was completed for the net purchase consideration of approximately $ 62 million, including cash on hand, and subject to post-closing adjustments.

Holdings is the owner of all of the issued and outstanding capital stock of The Bargain Barn, Inc., a Tennessee corporation doing business as United Grocery Outlet ("United Grocery Outlet").

United Grocery Outlet operated 40 discount grocery stores across six states in the southeastern United States as of March 30, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements