What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2025-02-26 compared with 2024-02-28 · 213 added, 176 removed, 456 unchanged (46% of the section changed)

The following risk factors are important to understanding various statements in this Annual Report on Form 10-K or elsewhere.

The following risk factors are important to understanding various statements in this Form 10-K or elsewhere.

The factors described below, individually or in the aggregate, could materially adversely affect our business, business prospects, financial condition, operating results, cash flows and stock price, and may cause actual results, performance or achievements in future periods to differ materially from those assumed, projected or contemplated.

Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time.

As discussed under "Acquisition of United Grocery Outlet" in "Item 1.

Business" on February 14, 2024, Grocery Outlet Inc., our wholly owned subsidiary, entered into a stock purchase agreement to acquire United Grocery Outlet.

The transaction is expected to close early in the second quarter of fiscal 2024 and is subject to customary closing conditions.

Unless otherwise stated, none of the disclosures in this Report reflect our pending acquisition of United Grocery Outlet.

The following is a summary of the principal risks that could adversely affect our business, operations and financial results:

1 unchanged sentence

• failure of suppliers to consistently supply us with opportunistic products at attractive pricing, which is generally not in our control;

• inability to successfully identify trends and maintain an appropriate level of opportunistic products;

• inability to successfully identify trends and maintain an appropriate level of opportunistic products or general inventory;

• failure to maintain or increase comparable store sales;

• any significant disruption to our distribution network, the operations of our distributions centers and our timely receipt of inventory;

• inflation and other changes affecting the market prices of the products we sell;

• any significant disruption to our distribution network, the operations, technology and capacity of our distributions centers and our timely receipt of inventory;

• risks associated with newly opened stores;

• failure to open, relocate or remodel stores on schedule and on budget;

• costs and successful implementation of marketing, advertising and promotions;

• risks associated with our growth strategy, including opening, relocating or remodeling stores on schedule and on budget, as well as the revised near-term new store growth strategy as reflected in the Restructuring Plan;

• financial and operating impacts associated with our Restructuring Plan;

• inflation and other changes affecting the market prices of the products we sell;

• failure to maintain our reputation and the value of our brand, including protecting our intellectual property;

• inability to maintain sufficient levels of cash flow from our operations;

• failure to remediate our material weakness in our internal control over financial reporting;

• inability to maintain sufficient levels of cash flow from our operations to fund our growth strategy;

• risks associated with leasing substantial amounts of space;

• failure to properly integrate any acquired businesses;

• inability to attract, train and retain highly qualified employees or the loss of executive officers or other key personnel;

• costs and successful implementation of marketing, advertising and promotions;

• natural or man-made disasters, climate change, power outages, major health epidemics, pandemic outbreaks, terrorist acts, global political events or other serious catastrophic events and the concentration of our business operations;

• failure to participate effectively in the growing online retail marketplace;

• unexpected costs and negative effects if we incur losses not covered by our insurance program;

• difficulties associated with labor relations and shortages;

• inability to attract, train and retain highly qualified employees or the loss of key personnel;

• failure to remediate our material weakness in our internal control over financial reporting;

• failure to participate effectively in the growing online retail marketplace;

• failure to properly integrate or achieve the expected benefits of any acquired businesses;

Risks Related to Our Business Environment

1 unchanged sentence

• competition in the retail food industry;

• movement of consumer trends toward private labels and away from name-brand products;

risks associated with deploying our own private label brands;

• movement of consumer trends toward private labels and away from name-brand products, and risks associated with the continued deployment of our own private label brands;

Risks Related to Our IO Model

• inability to attract and retain qualified independent operators ("IOs");

• inability to attract and retain qualified IOs;

• failure of our IOs to successfully manage their business;

7 unchanged sentences

Risks Related to our Information Technology Systems, Data Protection and Cybersecurity

• material disruption to our information technology systems;

• material disruption to our information technology systems from our technology initiatives or third-party security breaches or other disruptions;

• failure to maintain the security of information we hold relating to personal information or payment card data of our customers, employees and suppliers;

13 unchanged sentences

• provisions in our organizational documents could delay or prevent a change of control;

• provisions in our organizational documents that limit the forum for certain stockholder litigation matters.

For a more complete discussion of the material risks facing our business, see below.

4 unchanged sentences

We do not have significant control over the supply, cost or availability of many of the opportunistic products offered for sale in our stores.

Shortages or disruptions in the availability of quality products that excite our customers and drive customer traffic could have a material adverse effect on our business, financial condition and results of operations.

Shortages or disruptions in the availability of quality products that excite our customers and drive customer traffic could have a material adverse effect on our

business, financial condition and results of operations, including our gross margin.

As our store base continues to grow, our ability to secure opportunistic products in sufficient quantities may become more difficult.

6 unchanged sentences

If one or more of our existing significant suppliers were to be unable or unwilling to continue providing products to us on attractive terms, or at all, we may have difficulty finding replacement suppliers on commercially reasonable terms or at all.

The loss of one or more of our existing significant suppliers or our inability to develop relationships with new suppliers could reduce our competitiveness, slow our plans for further expansion and cause our net sales and operating results to be materially adversely affected.

Our supply chain is subject to risks, including distribution and transportation, labor disputes or constraints, union organizing activities, financial liquidity, inclement weather, natural disasters, significant public health and safety events, supply constraints and general economic and political conditions that could limit our suppliers' ability to provide us with quality products.

As discussed elsewhere in these risk factors, these risks have in the past delayed or precluded, and may in the future delay or preclude, delivery of product to us on a timely basis or at all.

We may not be able to successfully identify trends to meet consumer demand and maintain an appropriate level of opportunistic products.

As discussed elsewhere in these risk factors, the occurrence of these risks have in the past delayed or precluded, and may in the future delay or preclude, delivery of product to us on a timely basis or at all.

We may not be able to successfully identify trends to meet consumer demand and maintain an appropriate level of opportunistic products or general inventory.

We depend on repeat visits by our customer base to drive sales, and we rely on desirable opportunistic products at discounts to excite our customers to make such repeat visits.

6 unchanged sentences

We base our purchases of inventory, in part, on our sales forecasts.

If our sales forecasts overestimate customer demand, we may experience higher inventory levels and need to take markdowns on excess or slow-moving inventory, leading to decreased profit margins.

Conversely, if our sales forecasts underestimate customer demand, we may have insufficient inventory to meet demand, leading to lost sales, either of which could materially adversely affect our financial performance.

Since the implementation of system upgrades in August 2023, we and our IOs have experienced significant issues with ordering, inventory planning and management and payment processing, including our ability to accurately forecast sales, which resulted in reduced net sales and gross margin during fiscal 2023 and fiscal 2024.

If our sales forecasts overestimate customer demand or we do not have accurate real-time product and inventory levels, we may experience higher inventory levels and need to take markdowns on excess or slow-moving inventory, leading to decreased profit margins.

Conversely, if our sales forecasts underestimate customer demand or we do not have accurate real-time product and inventory levels, we may have insufficient inventory to meet demand, leading to lost sales.

Either of the foregoing challenges could materially adversely affect our financial performance.

In addition, a majority of the assortment in each Grocery Outlet store is selected by IOs based on local preference and shopping history, and the inability of the IOs to successfully identify trends in the local market could materially adversely affect our financial performance.

2 unchanged sentences

Our success depends on, among other things, increasing comparable store sales through our opportunistic purchasing strategy and the ability of the IOs to increase sales and profits.

To increase net sales, and therefore comparable store sales growth and profits, we and the IOs focus on delivering value and generating customer excitement by strengthening opportunistic purchasing, providing an increasing number of everyday products, optimizing inventory management, maintaining strong store conditions and effectively marketing current products and new product offerings.

net sales, and therefore comparable store sales growth and profits, we and the IOs focus on delivering value and generating customer excitement by strengthening opportunistic purchasing, providing an increasing number of everyday products, optimizing inventory management, maintaining strong store conditions and effectively marketing current products and new product offerings.

Competition and pricing pressures from competitors and suppliers may also materially adversely impact our comparable sales if we lose customers as a result.

After many years of consecutive growth in comparable store net sales, we had year-over-year declines in fiscal 2021, primarily due to outsized financial performance in fiscal 2020 and continued impacts of the COVID-19 pandemic, including changes in consumer behavior, supplier issues and other related challenges.

While fiscal 2022 and 2023 were years of comparable positive sales growth, our comparable store sales growth in future years could be lower than our historical average or our future target for many reasons, many of which we do not significantly control, including general economic conditions that may not favor our model, operational performance (including by the IOs), price inflation or deflation, or changes in response to competitive factors, changes in our existing supplier relationships or our inability to develop new supplier relationships, industry competition (e-commerce), new competitive entrants near our stores, price changes in response to competitive factors, any comparison year or quarter having above-average net sales results, possible supply shortages or other operational disruptions, the number and dollar amount of customer transactions in our stores, our ability to provide product or service offerings that generate new and repeat visits to our stores and the level of customer engagement that we and the IOs provide in our stores.

While we have had positive comparative sales growth for the vast majority of our history, we may not be able to maintain or improve our comparable store sales growth in future years for many reasons, many of which we do not significantly control, including general economic conditions that may not favor our model, operational performance (including by the IOs), price inflation or deflation, or changes in response to competitive factors, changes in our existing supplier relationships or our inability to develop new supplier relationships, industry competition (e-commerce), new competitive entrants near our stores, price changes in response to competitive factors, any comparison year or quarter having above-average net sales results, possible supply shortages or other operational disruptions, the number and dollar amount of customer transactions in our stores, our ability to provide product or service offerings that generate new and repeat visits to our stores and the level of customer engagement that we and the IOs provide in our stores.

In addition, we may not accurately model cannibalization by our new stores when we open new stores in established markets, which could reduce comparable store sales.

Significant disruption in our distribution network and our timely receipt of inventory has had in recent years, and could continue to have, an adverse impact on our operating performance.

Significant disruption in our distribution network, our timely receipt of inventory, and adequate distribution center capacity and technology has had in recent years, and could continue to have, an adverse impact on our operating performance.

We rely on our distribution, transportation and technology network and systems to provide goods to our distribution centers and stores in a timely and cost-effective manner.

1 unchanged sentence

Deliveries to our stores occur from our distribution centers or directly from our suppliers.

We use three primary leased distribution centers that we operate and five primary distribution centers operated by third-parties.

We use four primary leased distribution centers that we operate and five primary distribution centers operated by third-parties.

Any disruption, unanticipated or unusual expense or operational failure related to these processes and systems could affect store operations negatively.

For example, during fiscal 2023 we replaced components of our enterprise resource planning system, including our financial ledger, inventory management platform and product data warehouse system.

The implementation of these system upgrades resulted in ordering and inventory disruptions beginning in late August 2023, which resulted in reduced net sales and gross margin.

Our system upgrades during fiscal 2023 resulted in significant ordering and inventory disruptions during fiscal 2023 and fiscal 2024, which resulted in reduced net sales and gross margin.

Please also see the risk factor below entitled:

5 unchanged sentences

Furthermore, there can be no guarantee that we will be able to renew the leases or third-party distribution and transportation contracts, as applicable, on our distribution centers on attractive terms or at all, which may increase our expenses and cause temporary disruptions in our distribution network.

As we continue to implement our store growth strategy, our distribution centers may not have sufficient capacity to optimally support all of our stores and effectively managing our distribution network and distribution centers will become more complex.

As we continue to implement our store growth strategy, our distribution centers have in the past and may continue to have insufficient capacity or technology to optimally support all of our stores and effectively managing our distribution network and distribution centers will become more complex.

Our new store locations receiving shipments may be further away from our distribution centers, which may increase transportation costs and may create transportation scheduling strains, or may require us to add additional facilities to the network.

Because we are an extreme value retailer and compete to a substantial degree on price, changes affecting the market prices of the products we sell, many of which we cannot control, including due to inflation or deflation, competition, supplier increases in freight, supply or other operating costs, including energy prices, or worsening economic conditions, could materially adversely affect our financial condition and operating results.

A critical differentiator of our business is our ability to offer value to our customers, including offering prices that are substantially below those offered by some of our competitors.

We carefully monitor the market prices of our products in order to maintain our price advantage and reputation.

Over the past couple years, we have experienced varying levels of inflation, resulting in part from various supply disruptions, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain and other disruptions caused by the recent economic environment, which we have not been able to fully offset through price increases.

Our IOs have experienced increased costs related to labor and utilities, among others.

If costs of goods continue to increase and our suppliers seek price increases from us, we may not be able to mitigate such increases and have sometimes, and may continue to, increase our prices, which could deter customer traffic and reduce the number and average basket size of customer transactions.

Some of our larger competitors are in a better position to absorb cost increases while maintaining price competitiveness.

If our competitors are more competitive on pricing relative to our pricing, we may lose customers and/or need to mark down prices.

Our gross margins and profitability also may be adversely impacted by higher supply costs that we cannot fully pass along or if we need to lower product prices due to competition.

As a result of our low-price model, the foregoing competitive pressures may reduce our profitability and materially adversely affect our business, financial condition and results of operations.

We are simplifying our planned investments in our distribution infrastructure strategy in fiscal 2025 and fiscal 2026, which could hinder our ability to compete with companies that have invested in multi-temperature facilities or have a more efficient distribution model.

See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Developments – Restructuring Plan” for additional information.

Our newly opened stores may negatively impact our financial results in the short-term and/or may not achieve sales and operating levels consistent with our more mature stores on a timely basis or at all.

We have actively pursued new store growth, including in new markets, and plan to continue doing so in the future.

Our new store openings may not be successful or reach the sales and profitability levels of our existing stores, and may impact our ability to attract and develop potential IOs.

We have actively pursued new store growth, including in new markets, and plan to continue doing so strategically in the future.

Our new store openings may not be successful or reach the sales and profitability levels of our existing stores,

particularly in new markets.

These factors have in the past and may continue to impact our ability to attract and develop potential IOs.

Some new stores may be located in areas with different competitive and market conditions as well as different customer discretionary spending patterns than our existing markets.

1 unchanged sentence

We may experience a higher cost of entry in those markets as we build brand awareness and drive customers to incorporate us into their shopping habits.

New store openings may negatively impact our financial results in the short-term due to the effect of store opening costs and lower sales and contribution to overall profitability during the initial period following opening.

New stores, particularly those in new markets, build their sales volume, brand recognition and customer base over time and, as a result, for approximately 4-5 years, generally have lower margins and higher operating expenses as a percentage of sales than our more mature stores.

New store openings may negatively impact our financial results due to the effect of store opening costs and lower sales and contribution to overall profitability during the initial period following opening.

In recent years, our costs to build a new store have increased in the past two years and our planned efforts to engineer reduced costs to build will take time and resources, and we may not be successful in part or whole in reducing such costs.

New stores, particularly those in new markets, build their sales volume, brand recognition and customer base over time and, as a result, for approximately four to five years, generally have lower margins and higher operating expenses as a percentage of sales than our more mature stores.

New stores may not achieve sustained sales and operating levels consistent with our more mature store base on a timely basis or at all.

2 unchanged sentences

We may not manage our expansion effectively, and our failure to achieve or properly execute our expansion plans could limit our growth or have a material adverse effect on our business, financial condition and results of operations.

Our growth strategy is highly dependent on our ability to identify and open future store locations and relocate or remodel existing store locations in new and existing markets.

We believe that new store growth remains our biggest driver of long-term stockholder value.

We opened 28 new stores in fiscal 2023 .

Our growth strategy is highly dependent on our ability to identify and open future store locations and relocate or remodel existing store locations in new and existing markets, and we are revising our near-term new store growth strategy as reflected in our Restructuring Plan.

We continue to believe that strategic new store growth remains a significant and critical driver of long-term stockholder value.

However, while our long-term goal is to continue to expand our store base, we may not be able to, or determine it is prudent to, consistently achieve a high rate of new store growth on a year-over-year basis.

As part of our Restructuring Plan, we are optimizing new store growth in fiscal 2025 and fiscal 2026 to increase efficiencies for distribution and optimize brand awareness and marketing.

There can be no assurance that our revised new store growth strategy will be successful.

See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Developments – Restructuring Plan” for additional information.

In fiscal 2024 , we opened 27 new stores and also acquired 40 stores in connection with our acquisition of United Grocery Outlet .

Our ability to open stores in a timely and successful manner depends in part on the following factors:

9 unchanged sentences

Any or all of these factors and conditions could materially adversely affect our growth and profitability.

Our long-term goal is to expand our store base by approximately 10% annually on average over the next several years.

However, we cannot assure you that we will be able to consistently (on a year-over-year basis) achieve a high level of new store growth.

While our long-term goal is to continue to expand our store base, we cannot assure you that we will be able to consistently (on a year-over-year basis) achieve a high level of new store growth and attractive return on capital, and we are focusing our near-term new store growth strategy in an effort to ensure strong new store execution.

Over the last few years, planned construction and opening of new stores have been, and may continue to be, negatively impacted due to labor and materials shortages as well as longer lead times in lease execution, site permitting and construction.

These challenges impacted our organic new store growth in fiscal 2022 and 2023 and are

expected to impact organic growth in fiscal 2024 as well.

Additionally, we may expand into neighboring states and regions in the United States and/or engage in acquisitions (such as our pending acquisition of United Grocery Outlet) to meet our growth goals, and such expansion heightens the risks, challenges and uncertainties of development.

These challenges impacted our organic new store growth in recent years.

Additionally, we may expand into neighboring states and regions in the United States and/or engage in further acquisitions to meet our growth goals, and such expansion heightens the risks, challenges and uncertainties of development.

We may not have the level of cash flow or financing necessary to support our growth strategy.

2 unchanged sentences

These increased demands could cause us to operate our existing business less efficiently, which in turn could cause deterioration in the financial performance of our existing stores.

If we experience a decline in performance, we may slow or discontinue store openings, or we may decide to close stores that are unable to operate in a profitable manner.

If we fail to successfully implement our growth strategy, including by opening new stores on a timely basis and on budget, our operations, financial condition and operating results would be materially and adversely affected.

Our success depends upon the successful implementation of our marketing, advertising and promotional efforts.

We promote brand awareness and drive customers to shop through centralized marketing initiatives along with local IO marketing efforts.

We and the IOs use marketing and promotional programs to attract customers into our stores and to encourage purchases.

If we or the IOs are unable to develop and implement effective marketing, advertising and promotional strategies, we may be unable to achieve and maintain brand awareness and repeat store visits.

We may not be able to advertise cost effectively in new or smaller markets in which we have fewer stores, which could slow growth at such stores.

Changes in the amount and degree of promotional intensity or merchandising strategies by our competitors could cause us to have difficulties in retaining existing customers and attracting new customers.

If the efficacy of our marketing or promotional activities declines or if such activities of our competitors are more effective than ours, it could have a material adverse effect on our business, financial condition and results of operations.

While we have launched a mobile personalization app in some states and are increasing the rollout to additional states in fiscal 2024, which informs customers of new and top selling items, provides curated product recommendations and tracks savings, we do not maintain a traditional loyalty program for customers, and our competitors may be able to offer their customers promotions or loyalty program incentives that could result in fewer shopping trips to or purchases from our stores.

If we are unable to retain the loyalty of our customers, our sales could decrease and we may not be able to grow our store base as planned, which could have a material adverse effect on our business, financial condition and results of operations.

Certain of our competitors have established, long-standing, mobile apps and personalized marketing.

There can be no assurance that our investment in this area will be repaid.

If we experience a decline in performance, we may further slow or discontinue store openings, or we may decide to close stores that are unable to operate in a profitable manner.

If we fail to successfully implement our growth strategy, including our strategy in connection with the Restructuring Plan, by opening new stores on a timely basis and on budget, our operations, financial condition and operating results would be materially and adversely affected.

Our Restructuring Plan may have a material adverse impact on our results of operations and our estimated costs may differ substantially from actual costs incurred.

During the fourth quarter of fiscal 2024, we began to initiate the Restructuring Plan that is intended to improve our profitability and cash flow generation, optimize the footprint of new store growth and lower our cost base.

See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Developments – Restructuring Plan” for additional information.

The costs associated with the Restructuring Plan adversely impacted our results of operations in the fourth quarter of fiscal 2024, and may have a material adverse impact on our results of operations for one or more quarters in fiscal 2025 and for fiscal 2025.

In addition, we may fail to manage any disruptions to our operations or growth strategy from the Restructuring Plan.

Further, the Restructuring Plan may harm our reputation with landlords, prospective employees and other stakeholders, may harm our retention of remaining employees, and may not generate the intended benefits to the extent or as quickly as anticipated, any of which could have an adverse effect on our business, financial condition and results of operations.

The estimated costs of the Restructuring Plan are subject to a number of assumptions and risks and will be refined over time as more information becomes available, and therefore actual results may differ substantially from our estimates.

In particular, the majority of expenses associated with the Restructuring Plan relate to lease terminations, and our estimated costs associated with certain planned lease terminations remain subject to various uncertainties.

While we have reached agreement in the first quarter of fiscal 2025 regarding a number of planned lease terminations, our estimates of the costs of the Restructuring Plan assume that we will reach agreement with respect to each planned lease termination, which is uncertain.

If we are unable to agree with a landlord on acceptable terms on which to terminate a lease or are otherwise unable to sublease or assign our interest in the lease to a third party, we may be required to continue to perform obligations under the lease, including paying rent and incurring other operating expenses during the lease term.

If we assign or sublease a lease to a third party, we may still have to pay a portion of the rent and other expenses and we can remain liable for the lease obligations if the assignee or sublessee does not perform.

In addition, if our efforts to terminate, sublease or assign a lease are unsuccessful and we do not perform our obligations under the lease, the landlord may contend that we are in default under the lease and initiate legal proceedings against us, which could increase the costs relating to the Restructuring Plan beyond what we currently anticipate.

We may also incur other material costs not currently contemplated due to events that may occur as a result of, or in connection with, our restructuring activities.

If we incur unanticipated expenses, charges or liabilities or fail to manage any growth or any scaling back of our operations, then we may not be able to effectively realize the anticipated benefits and the Restructuring Plan could have an adverse effect on our business, financial condition and results of operations.

Because we are an extreme value retailer and compete for customers to a substantial degree based on price, changes affecting the market prices of the products we sell, many of which we cannot control, including due to inflation or deflation, competition, supplier increases in freight, supply or other operating costs, including energy prices, or worsening economic conditions, could materially adversely affect our financial condition and operating results.

A critical differentiator of our business is our ability to offer value to our customers, including offering prices that are substantially below those offered by some of our competitors.

We carefully monitor the market prices of our products in order to maintain our price advantage and reputation.

In recent years, we have experienced varying levels of inflation, resulting in part from various supply disruptions, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain and other disruptions caused by the recent economic environment, which we have not been able to fully offset through price increases.

Our IOs have experienced increased costs related to labor and utilities, among others.

Some of our larger competitors are in a better position to absorb cost increases while maintaining price competitiveness.

If our competitors are more competitive on pricing relative to our pricing, we may lose customers and/or need to mark down prices.

Our gross margins and profitability also may be adversely impacted by higher supply costs that we cannot fully pass along or if we need to lower product prices due to competition.

As a result of our low-price model, the foregoing competitive pressures may reduce our profitability and materially adversely affect our business, financial condition and results of operations.

If we fail to maintain our reputation and the value of our brand, including protection of our intellectual property rights, our sales and operating results may decline and the carrying value of our goodwill and other intangible assets may be impaired.

1 unchanged sentence

Brand value is based in large part on perceptions of subjective qualities.

The reputation of our company and our brand may be damaged in all, one or some of the markets in which we do business, by adverse events at the corporate level or by an IO acting outside of Grocery Outlet's brand standards, or by action (or inaction), by us or our IOs on issues like social policies, merchandising, compliance related to social, product, labor and environmental standards or other sensitive topics.

The reputation of our company and our brand may be damaged in all, one or some of the markets in which we do business, by adverse events at the corporate level or by an IO acting

outside of Grocery Outlet's brand standards, or by action (or inaction), by us or our IOs on issues like social policies, merchandising, compliance related to social, product, labor and environmental standards or other sensitive topics.

Further, any perceived lack of transparency about such matters, could harm our reputation.

The increasing use of social media platforms and online forums may increase the chance that an adverse event could negatively affect the reputation of our brand.

The online dissemination of negative information about our brand, including inaccurate information, could harm our reputation and our brand.

The online dissemination of negative information about our brand through social media or other channels, including inaccurate information, could harm our reputation and our brand.

We regard our intellectual property, including trademarks and service marks, as having significant value, and our brand is an important factor in the marketing of our stores.

13 unchanged sentences

The testing goodwill and intangible assets for impairment requires us to make estimates that are subject to significant assumptions.

Changes in our estimates, or changes in actual performance compared with these estimates, may affect the fair value of goodwill or intangible assets, which also may result in an non-cash impairment charge.

Changes in our estimates, or changes in actual performance compared with these estimates, may affect the fair value of goodwill or intangible assets, which also may result in a non-cash impairment charge.

If a significant amount of our goodwill and other intangible assets were deemed to be impaired, our financial condition and results of operations could be materially adversely affected.

Difficulties associated with the replacement of components of our enterprise resource planning system caused a material weakness in our internal control over financial reporting and remediation is currently ongoing.

If we are unable to remediate the existing material weakness in our internal control over financial reporting or if we experience other material weaknesses, it may negatively impact our ability to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which in turn could cause the trading price of our common stock to decline.

In connection with the preparation of financial statements for fiscal 2023, management determined that we had a material weakness in our internal control over financial reporting related to certain information technology general computer controls that were insufficient during the replacement of components of our enterprise resource planning system in late August 2023, which led to a significant increase in the volume of transactions across user access, program change management, and information technology operations for which our existing controls were not designed to address.

Our remediation efforts have been ongoing since the fiscal quarter ended December 30, 2023, and we did not achieve our prior expectation to be able to remediate such material weakness by the end of fiscal 2024.

The corrective controls were implemented during the fiscal year ending December 28, 2024, but need to continue operating effectively for a sufficient period of time to conclude the material weakness has been remediated.

However, we cannot assure that the measures we have taken to date and may take in the future, will be sufficient to remediate the previously identified control deficiencies that led to our material weakness.

We also cannot assure that we will be able to prevent or avoid material weaknesses in the future.

See “Item 9A.

Controls and Procedures” for additional information.

Any weaknesses or deficiencies or any

failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, our obligations under our debt instruments or result in material omissions or misstatements in our financial statements.

Any material weakness (including the material weakness referenced above) and our failure to remediate such material weakness could have a material adverse effect on our business and financial statements, as well as our reputation and reduce our stock price.

Additionally, material weaknesses could result in litigation or regulatory actions by the SEC or other regulatory authorities or other disputes involving federal and state securities laws, loss of investor confidence, and diversion of financial and management resources from the operation of our business.

If we are unable to remediate any material weakness, including the current material weakness, within a reasonable time period or not at all, the foregoing risks may be heightened.

We will require significant capital to fund our expanding business.

6 unchanged sentences

Additional financing may not be available to us on attractive terms to us, if at all.

Inability to obtain necessary or desired liquidity could impede our competitive position, business, financial condition and results of operations and we may need to delay, limit or eliminate planned store openings or operations or other elements of our growth strategy.

The inability to obtain necessary or desired liquidity could impede our competitive position, business, financial condition and results of operations and we may need to delay, limit or eliminate planned store openings or operations or other elements of our growth strategy.

We are subject to risks associated with leasing substantial amounts of space, including future increases in occupancy costs.

9 unchanged sentences

Any of these factors could cause us to close stores in desirable locations, which could have a material adverse impact on our results of operations.

Over time, current store locations may not continue to be desirable because of changes in demographics within the surrounding area or a decline in shopping traffic.

While we have the right to terminate some of our leases under specified conditions, we may not be able to terminate a particular lease if or when we would like to do so.

If we decide to close stores, we are generally required to continue to perform obligations under the applicable leases, which generally include paying rent and operating expenses for the balance of the lease term.

Over time, current store locations may not continue to be desirable because of changes in our business strategy, demographics within the surrounding area or a decline in shopping traffic.

While we have the right to terminate some of our leases under specified conditions, we may not be able to terminate a particular lease if or when we would like to do so or on commercially reasonable terms.

We recently have determined to terminate an aggregate of 23 leases for unopened stores in fiscal 2025 and fiscal 2026.

See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Developments – Restructuring Plan” for additional information about our Restructuring Plan.

If we decide to close stores, we are generally required to continue to perform obligations under the applicable leases,

which generally include paying rent and operating expenses for the balance of the lease term.

When we assign leases or sublease space to third parties, we may have to pay a portion of the rent and other expenses and we can remain liable on the lease obligations if the assignee or sublessee does not perform.

Although historically we have not consummated material acquisitions, we recently entered into an agreement to purchase United Grocery Outlet and we periodically consider acquisitions and other transactions as part of our long-term business and real estate strategy.

If we consummate any such transaction, a failure to integrate such assets and business successfully, could have a material adverse effect on our business and financial statements.

Historically, we have rarely pursued or consummated material acquisitions, investments or joint ventures, although we periodically consider such opportunities as part of our growth strategy to complement our current business by enhancing our customer base, geographic penetration and scale.

On February 14, 2024 we entered into a stock purchase agreement to acquire United Grocery Outlet, which includes 40 stores in six adjacent states we do not operate in currently (Tennessee, North Carolina, Georgia, Alabama, Kentucky and Virginia) and a company-operated distribution center.

We expect this transaction to close early in the second quarter of fiscal 2024.

Finding and assessing a potential growth opportunity and completing a transaction involves extensive due diligence, management time and expense, all of which diverts management's attention and liquidity that could be applied to our existing core business.

Furthermore, the success of any acquisition, including our pending acquisition of United Grocery Outlet, is dependent, in part, on our ability to realize the expected benefits from the integration of the acquired businesses or assets.

We may incur unexpected liabilities or make incorrect estimates regarding the planned accounting for acquisitions, such as the need to record non-recurring charges or write-off of significant amounts of goodwill or other assets that could adversely affect our results of operations, and we could have unexpected challenges due to the limitations of our due diligence process or contractual provisions.

Further, the integration of acquired businesses is a complex, costly and time-consuming process that requires significant management attention and resources.

It is possible that the integration process could result in the loss of key employees, the disruption of our operations, inconsistencies in and incompatibility of information technology and accounting systems, as well as other compliance standards, controls, procedures and policies, difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition, additional litigation, compliance or regulatory risk (including post-closing disputes with the transaction parties), the diversion of management’s attention to integration matters and difficulties in the assimilation of employees and corporate cultures.

We also may be unable to maintain relationships with customers and partners of the acquired entities, or such transaction could harm our existing business relationships.

Further, the historical business model and strategy of the acquired business and the Company may be materially different, and therefore there may be heightened risks to operating the acquired business prior to integration, or to the extent certain operations and strategy are not integrated.

Given our limited history in consummating such transactions, the foregoing risks may be heightened due to our lack of experience in integrating similar businesses.

In addition, for significant transactions, we may expect to incur additional debt, assume contingent liabilities, issue equity and/or increase capital expenditures, which may increase leverage risks, result in dilution or reduce capital available for other investments in ongoing operations.

Further, we believe that our success depends, in substantial part, on our ability to continue to maintain and enhance our brand.

If any acquisition or investment dilutes or otherwise adversely affects our existing brand, causes brand confusion or impairs our ability to enhance our brand, our business, financial condition, and results of operations could be adversely impacted.

Natural or man-made disasters, climate change, power outages, major health epidemics, pandemics, terrorist acts, political events and other serious catastrophic events could disrupt our business, may expose us to unexpected costs and negatively affect our financial performance.

If we or our IOs are unable to attract, train and retain qualified employees, our financial performance may be negatively affected.

Additionally, our success depends in part on our executive officers and other key personnel.

Our future growth, performance and positive customer experience depend on our and the IOs' ability to attract, train, retain and motivate qualified employees who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and customers.

We and the IOs face intense competition for management personnel and hourly employees.

If we and the IOs are unable to attract and retain adequate numbers of qualified employees, our operations, customer service levels and support functions could suffer.

There is no assurance that we and the IOs will be able to attract or retain highly qualified employees to operate our business.

In connection with the Restructuring Plan, we reduced headcount by approximately 40 full-time employees in the first quarter of fiscal 2025.

This part of the Restructuring Plan could negatively impact our or our IOs' reputation as an employer of choice and our or our IOs' ability to attract, train, and retain qualified employees in the future.

Additionally, we believe that our success depends to a significant extent on the skills, experience and efforts of our executive officers and other key personnel, and we do not maintain key person insurance on any of our key personnel.

Due to the uniqueness of our model, the unexpected loss of services of any of our executive officers or other key personnel could have a material adverse effect on our business and operations.

In fiscal 2024 and fiscal 2025, we completed thorough and external searches for a new Chief Financial Officer and a new President and Chief Executive Officer, respectively, following the departure of their predecessors.

We utilized interim officers to serve in such capacities for a period of time as well.

Competition for skilled and experienced management in our industry is intense, and we may not be successful in the future in attracting and retaining qualified personnel on a timely basis or at all.

If we lose the services of our executive officers or other key personnel, or if we are unable to attract, train, assimilate, and retain the highly skilled and other personnel that we need on a timely basis or at all, our business, financial condition and results of operations could be adversely affected.

Our success depends upon the successful implementation of our marketing, advertising and promotional efforts.

We promote brand awareness and drive customers to shop through centralized marketing initiatives along with local IO marketing efforts.

We and the IOs use marketing and promotional programs to attract customers into our stores and to encourage purchases.

If we or the IOs are unable to develop and implement effective marketing, advertising and promotional strategies, we may be unable to achieve and maintain brand awareness and repeat store visits.

We may not be able to advertise cost effectively in new or smaller markets in which we have fewer stores, which could slow growth at such stores.

While we have recently launched a mobile personalization app, which informs customers of new and top selling items, provides curated product recommendations and tracks savings, we do not maintain a traditional loyalty program for customers, and our competitors may be able to offer their customers promotions or loyalty program incentives that could result in fewer shopping trips to or purchases from our stores.

Certain of our competitors have established, long-standing mobile apps and personalized marketing.

There can be no assurance that our investment in this area will be successful.

Natural or man-made disasters, climate change, power outages, major health epidemics, pandemics, terrorist acts, global political events and other serious catastrophic events could disrupt our business, may expose us to unexpected costs and negatively affect our financial performance.

The current concentration of our stores creates an exposure to local or regional impacts of such events and local economic downturns.

Our business has been and could in the future be severely impacted by natural or man-made disasters and unusual weather conditions (which may become more frequent due to climate change), power outages, pandemic outbreaks, terrorist acts, global political events and other serious catastrophic events beyond our control.

In the event of a natural or man-made disaster, governments have and, in the future, may declare a state of emergency and impose regulations on

business operations.

These occurrences could adversely impact our business by causing direct asset or inventory losses or physical damage to our distribution centers or our stores, store closures, reduced customer traffic or changed shopping behaviors, disruptions to production, supply and delivery of products to our stores, staffing shortages, increased costs or disruptions to our information systems and other systems.

With respect to future outbreaks, to the extent that a pathogen is, or is perceived to be, food-borne, the price and availability of certain food products may be impacted and could cause our customers to consume less of such product.

Our business has been and could in the future be severely impacted by natural or man-made disasters and unusual weather conditions (which may become more frequent due to climate change), power outages, major health epidemics, pandemics, terrorist acts, global political events and other serious catastrophic events beyond our control.

In the event of a natural or man-made disaster, governments have and, in the future, may declare a state of emergency and impose regulations on business operations.

changed shopping behaviors, disruptions to production, supply and delivery of products to our stores, staffing shortages, increased costs or disruptions to our information systems and other systems.

As of December 28, 2024, we operated 274 stores and distributed product from four distribution centers in California in addition to having our administrative offices in California, making California our largest market, representing 51% of our total stores.

2 unchanged sentences

In 2018, our store in Paradise, California, burned down entirely.

The frequency and severity of wildfires may increase in the future due to climate change.

The United States and other countries have experienced, and may experience in the future, major health epidemics related to viruses or other pathogens.

Epidemics, or the perception that such epidemics may occur, may cause people to avoid gathering in public places, which may adversely affect our customer traffic, our ability and that of our IOs to adequately staff our stores and operations, and our ability to transport product on a timely basis.

In early 2025, certain stores in Southern California were also impacted by fires.

The frequency and severity of wildfires may increase in the future due to climate change and man-made catastrophes may increase in the future as well.

The United States and other countries have experienced, and may experience in the future, major health epidemics and pandemics related to viruses or other pathogens.

Epidemics or pandemics, or the perception that such epidemics or pandemics may occur, may cause people to avoid gathering in public places, which may adversely affect our customer traffic, our ability and that of our IOs to adequately staff our stores and operations, and our ability to transport product on a timely basis.

Additionally, to the extent that a pathogen is, or is perceived to be, food-borne, the price and availability of certain food products may be impacted and could cause our customers to consume less of such product.

In recent months, our gross margins have been adversely impacted by the unexpected rise in egg costs due to the Avian flu, and certain egg producers have experienced shortages, all of which we anticipate to continue in fiscal 2025.

Furthermore, the long-term impacts of climate change are expected to be widespread and unpredictable.

2 unchanged sentences

Any of these occurrences may disrupt our business and materially adversely affect our financial condition and results of operations and the occurrence of any of these events in a region where our stores or other operations are concentrated may increase the impact of such disruption and adverse effect.

We have very limited experience competing in the growing online retail marketplace.

During fiscal 2021 and 2022, we entered into partnerships with three third party grocery delivery companies to provide online shopping at our stores.

Certain of our competitors and a number of pure online retailers have established robust online operations and significantly increased their online sales and presence in recent years.

Increased competition from online grocery retailers and our lack of a robust online retail presence may reduce our customers' desire to purchase products from us.

If we decide to expand our online shopping business, we will be exposed to new risks and challenges.

Furthermore, there can be no assurance that any investments that we make to expand our online shopping capabilities will result in a positive return on investment.

These factors could have a material adverse effect on our business, financial condition and results of operations.

We may incur losses not covered by our insurance or claims may differ from our estimates.

4 unchanged sentences

Further, injured parties with claims against our IOs may bring actions against us if our IOs failed to secure and retain adequate insurance.

Certain types of events, such as earthquakes or wildfires, may result in sizable losses for the insurance industry and adversely impact the availability of adequate insurance coverage or result in excessive premium increases.

Our retail stores located in California, and the inventory in those stores, are not currently insured against losses due to earthquakes.

Certain types of events, such as earthquakes, wildfires or hurricanes, may result in sizable losses for the insurance industry and adversely impact the availability of adequate insurance coverage or result in excessive premium increases.

Our retail stores located in California, and the inventory in those stores, are generally not currently insured against losses due to earthquakes.

We have experienced significant challenges in renewing the insurance policies for our stores and insurers have incurred substantial losses related to property claims from fires, floods and other catastrophic events and are significantly increasing policy premiums, increasing their requirements around building engineering standards or cutting back capacity for coverage offerings to layered/quota share.

1 unchanged sentence

In 2018, our store in Paradise, California, burned down entirely and we have also suffered inventory losses related to power outages and evacuations due to fires.

These risks may be exacerbated in the future due to

climate change.

In early 2025, certain stores in Southern California were also impacted by fires.

These risks may be exacerbated in the future due to climate change.

To offset negative insurance market trends, we may elect to increase our self-insurance coverage, accept higher deductibles or reduce the amount of coverage.

8 unchanged sentences

If we or the IOs were to become subject to work stoppages, we could experience disruption in our operations and increases in our labor costs, either of which could materially adversely affect our business, financial condition and operating results.

If we or our IOs are unable to attract, train and retain qualified employees, our financial performance may be negatively affected.

Additionally, our success depends in part on our executive officers and other key personnel.

Our future growth, performance and positive customer experience depends on our and the IOs' ability to attract, train, retain and motivate qualified employees who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and customers.

We and the IOs face intense competition for management personnel and hourly employees.

If we and the IOs are unable to attract and retain adequate numbers of qualified employees, our operations, customer service levels and support functions could suffer.

There is no assurance that we and the IOs will be able to attract or retain highly qualified employees to operate our business.

Additionally, we believe that our success depends to a significant extent on the skills, experience and efforts of our executive officers and other key personnel.

Due to the uniqueness of our model, the unexpected loss of services of any of our executive officers or other key personnel could have a material adverse effect on our business and operations.

In December 2022, our then Chief Executive Officer transitioned to the role of Chairman of the Board, and effective March 1, 2024, our Chief Financial Officer will be departing to pursue another opportunity.

There can be no assurance that our executive succession planning, retention or hiring efforts will be successful.

Competition for skilled and experienced management in our industry is intense, and we may not be successful in attracting and retaining qualified personnel.

We do not maintain key person insurance on any of our key personnel.

Difficulties associated with the replacement of components of our enterprise resource planning system caused a material weakness our internal control over financial reporting.

If we are unable to remediate the material weakness in our internal control over financial reporting or if we experience other material weaknesses, it may negatively impact our ability to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which in turn could cause the trading price of our common stock to decline.

As disclosed in "Item 9A.

Controls and Procedures" of this Annual Report on Form 10-K, in connection with the preparation of financial statements for fiscal 2023, management determined that we had a material weakness in our internal control over financial reporting pertaining to certain information technology general computer controls that were insufficient during the replacement of components of our enterprise resource planning system in late August 2023, which led to a significant increase in the volume of transactions across user access, program change management, and IT operations for which our existing controls were not designed to address.

Our remediation efforts began during the fiscal quarter ended December 30, 2023 and are expected to be completed during the current fiscal year ending December 28, 2024.

We cannot assure that the measures we have taken to date and may take in the future will be sufficient to remediate the control deficiencies that led to our material weakness or that we will prevent or avoid potential future material weaknesses.

Any weaknesses or deficiencies or any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, our obligations under our debt instruments or result in material omissions or misstatements in our financial statements.

Additionally, material weaknesses could result in litigation

or regulatory actions by the SEC or other regulatory authorities or other disputes involving federal and state securities laws, loss of investor confidence, and diversion of financial and management resources from the operation of our business.

Our failure to participate effectively in the growing online retail marketplace may adversely affect our business.

During fiscal 2021 and fiscal 2022, we entered into partnerships with three third party grocery delivery companies to provide online shopping at our stores.

Certain of our competitors and a number of pure online retailers have established robust online operations and significantly increased their online sales and presence in recent years.

Increased competition from online grocery retailers and our lack of a robust online retail presence may reduce our customers' desire to purchase products from us.

If we decide to expand our online shopping business, we will be exposed to new risks and challenges.

Furthermore, there can be no assurance that any investments that we make to expand our online shopping capabilities will result in a positive return on investment.

These factors could have a material adverse effect on our business, financial condition and results of operations.

We may, from time to time, pursue or consummate acquisitions and other transactions as part of our long-term business and real estate strategy.

Any strategic acquisitions and other transactions may involve transaction and integration risks that could have a material adverse effect on our business, financial condition and results of operations, and we may not realize the anticipated benefits of any consummated transaction.

From time to time, we may pursue or consummate acquisitions and other transactions, including material acquisitions, investments or joint venture transactions, as part of our business and real estate growth strategy to complement our current business by enhancing our customer base, geographic penetration and scale.

For example, on April 1, 2024, we acquired United Grocery Outlet, which included 40 stores in six adjacent states where we did not then-operate and a distribution center.

Identifying, assessing, consummating and integrating a strategic acquisition or other transaction is a complex, costly and time-consuming process that is subject to significant uncertainties and risks, which may divert the attention of the management team and key personnel from our core business and adversely impact our business, financial condition and results of operations.

Additionally, acquisitions and similar transactions may utilize significant liquidity and require additional equity or debt financing, and we may not have sufficient capital for our core business.

The integration process also could result in:

the loss of key employees;

the disruption of our operations;

complications in information technology and accounting systems, compliance standards, controls, and other procedures;

difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition;

additional litigation, compliance or regulatory risks;

and difficulties in the assimilation of employees and corporate cultures.

Even if a target company is successfully integrated, an acquisition may fail to further our business strategy as anticipated, adversely impact our reputation, lead to impairment of our purchased goodwill and intangible assets, and expose us to additional liabilities and risks (particularly if entering into new markets or businesses where we have no or limited experience).

The foregoing risks may be heightened due to our limited history in consummating strategic acquisitions and other transactions, which could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Business Environment

2 unchanged sentences

While we have not previously been materially adversely affected by periods of decreased consumer spending, any factor that could materially adversely affect the disposable income of our customers could decrease our customers' spending and number of trips to our stores, which could result in lower sales, increased markdowns on products, a reduction in profitability due to lower margins and may require increased selling and promotional expenses.

These factors include but are not limited to unemployment, minimum wages, significant public health and safety events, inflation and deflation, the threat, outbreak or escalation of terrorism, military conflicts, or other hostilities and related international sanctions (such as the ongoing Russia-Ukraine or Middle East conflicts), trade wars and interest and tax rates.

These factors include but are not limited to unemployment, minimum wages, significant public

health and safety events, inflation and deflation, tariffs (including those currently announced or threatened, or that may be in the future), the threat, outbreak or escalation of terrorism, military conflicts, or other hostilities and related international sanctions (such as the ongoing Russia-Ukraine or Middle East conflicts), trade wars and interest and tax rates.

Many of the factors identified above also affect commodity rates, costs of transportation, leasing, labor, insurance and healthcare, the strength of the U.S.

11 unchanged sentences

This limitation may materially adversely affect our margins and financial performance.

During fiscal 2024, we observed an increase in promotional and pricing activities from key competitors, which led to our increased efforts to actively negotiate costs and adjust prices to sharpen our value proposition.

Competition for customers has intensified as other discount food retailers, such as Aldi, Lidl and WinCo have moved into, or increased their presence in, our geographic and product markets.

9 unchanged sentences

Private label products tend to be lower priced than name-brand products and, as a result, we may have more difficulty competing against private label products on the basis of price.

While we have started to invest in developing and selling our own private labels, there can be no assurance that the performance of any such private label products would be sufficient to offset the potential decreased sales of name-brand products.

In addition, as we invest in and deploy our private label products, we are subjected to various new risks and regulations including product liability claims, claims related to product

labeling, claims related to rights of third parties and other risks associated with entities that source, sell and market exclusive private label offerings for retailers.

We began to introduce private label products in our stores during the third quarter of fiscal 2024.

While we continue to invest in developing and selling our own private labels, there can be no assurance that the performance of our private label products will be sufficient to offset the potential decreased sales of name-brand products.

In addition, as we continue to invest in and deploy our private label products, we may become subject to various new risks and regulations including product liability claims, claims related to product labeling, claims related to rights of third parties and other risks associated with entities that source, sell and market exclusive private label offerings for retailers.

Any failure to appropriately address some or all of these risks could have a material adverse effect on our sales, business, results of operations and financial condition.

1 unchanged sentence

If we are unable to attract and retain qualified IOs, our financial performance may be negatively affected.

Our future growth and performance depend on our ability to attract, develop and retain qualified IOs who can effectively and efficiently run stores, understand and appreciate our culture and are able to represent our brand effectively, in particular because the vast majority of our IOs operate a single store.

in particular because the vast majority of our IOs operate a single store.

A material decrease in profitability of the IOs may make it more difficult for us to attract and retain qualified IOs.

Our relationship with the IOs is an important part of our business.

To alleviate the disruption caused by our system upgrades, we elected to provide incremental commission support to IOs beginning in the third quarter of fiscal 2023 and extending into the first quarter of fiscal 2024.

While we use a variety of methods to attract and develop the IOs, including through our Aspiring Operators in Training ("AOT") program, there can be no assurance that we will continue to be able to recruit and retain a sufficient number of qualified AOTs and other candidates to open successful new locations in order to meet our growth targets.

To alleviate the significant disruption caused by our system upgrades, we elected to provide commission support to IOs beginning in the third quarter of fiscal 2023 and extending through fiscal 2024.

We continue to provide minimal commission support to IOs for inventory shrink.

While we use a variety of methods to attract and develop the IOs, including through our AOT program, there can be no assurance that we will continue to be able to recruit and retain a sufficient number of qualified AOTs and other candidates to open successful new locations in order to meet our growth targets.

Our ability to maintain our current performance and achieve future growth additionally depends on the IOs' ability to meet their labor needs while controlling wage and labor-related costs.

Stores in some of our markets are located in geographic areas where we have limited or no meaningful brand recognition, which can make store performance and IO recruitment more difficult.

If the IOs are not successful in managing their business, our financial results and brand image could be negatively affected.

2 unchanged sentences

IOs are responsible for operating their store consistent with our brand standards, hiring and supervising store-level employees, merchandising and selling products, conducting local marketing, connecting with their community and complying with applicable laws, and managing and paying the expenses associated with their business.

Recently, the costs incurred for many IOs to run their businesses have increased, including insurance, utilities and labor costs.

Although we select IOs through a rigorous vetting and training process, and continue to help IOs develop their business skills after they enter into an Operator Agreement with us, it is difficult to predict in advance whether a particular IO will be successful.

1 unchanged sentence

In addition, any poor performance could negatively affect our financial results and our brand reputation.

Failure of the IOs to repay notes outstanding to us may materially adversely affect our financial performance.

We extend financing to IOs for their initial startup costs in the form of notes payable to us that bear interest at rates between 5.50% and 9.95%.

There can be no assurance that any IO, will achieve long-term store volumes or profitability that will allow them to repay any amounts due nor is there any assurance that any IO will be able to repay amounts due through other means.

The outstanding aggregate balance of notes receivable from IOs has increased over time as we have accelerated new store growth combined with increases to initial IO capital and working capital requirements.

Failure of the IOs to repay IO Notes outstanding to us may materially adversely affect our financial performance.

We extend financing to IOs for their initial startup costs in the form of IO Notes payable to us that bear interest at rates between 4.50% and 9.95%.

There can be no assurance that any IO, will achieve long-term store volumes or profitability that will allow them to repay any amounts due under outstanding IO Notes, nor is there any assurance that any IO will be able to repay such amounts due through other means.

The outstanding aggregate balance of notes receivable from IOs has increased over time as we have historically accelerated new store growth combined with increases to initial IO capital and working capital requirements.

This balance may continue to increase as we open new stores.

There were $41.1 million and $37.5 million of notes to IOs outstanding as of December 30, 2023 and December 31, 2022, respectively, with allowances of $11.2 million and $13.2 million as of December 30, 2023 and December 31, 2022, respectively.

There were $46.9 million and $41.1 million of IO Notes outstanding as of December 28, 2024 and December 30, 2023, respectively, with allowances of $11.8 million and $11.2 million as of December 28, 2024 and December 30, 2023, respectively.

If the IOs are unable to avoid excess inventory shrink, our business and results of operations may be adversely affected.

66 unchanged sentences

In late August 2023, we replaced components of our enterprise resource planning system, including our financial ledger, inventory management platform and product data warehouse system.

The implementation of these system upgrades resulted in more than anticipated ordering and inventory disruptions during the remainder of fiscal 2023.

These disruptions are estimated to have negatively impacted comparable store sales by approximately 90 basis points and gross margin by 50 basis points in fiscal 2023.

These implementation issues also contributed to our material weakness in our internal control over financial reporting, as discussed in "Item 9A.

Controls and Procedures" of this Annual Report on Form 10-K.

The implementation of these system upgrades resulted in significant ordering and inventory disruptions during fiscal 2023 and fiscal 2024.

These disruptions negatively impacted net sales and gross margin in fiscal 2023 and fiscal 2024.

These implementation issues also contributed to our material

weakness in our internal control over financial reporting, as discussed in "Item 9A.

Controls and Procedures" of this Form 10-K.

If we experience ongoing disruptions with these updates and/or are unable to remediate our material weakness in the future, such events could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.

Further, the time and resources required to implement or optimize the benefits of new technology initiatives, or potential issues that arise in implementing such initiatives, could reduce the efficiency of our operations in the short term.

The efficient operation and successful growth of our business depends upon our information systems, including our ability to operate, maintain and develop them effectively.

Further, the time, staffing and other resources required to implement or optimize the benefits of new technology initiatives, or potential issues that arise in implementing such initiatives, could reduce the efficiency of our operations in the short term.

The efficient operation and successful growth of our business depend upon our information systems, including our ability to operate, maintain and develop them effectively.

A failure of those systems could disrupt our business, subject us to liability, damage our reputation, or otherwise impact our financial results.

14 unchanged sentences

In November 2021, California voters passed Proposition 24, also known as the California Privacy Rights Act ("CPRA"), which amends and expands the CCPA.

behavioral advertising, and prohibiting covered businesses from discriminating against consumers (e.g., charging more for services) for exercising any of their CCPA/CPRA rights.

The CCPA and CPRA provide new and enhanced data privacy rights to California residents, such as giving California consumers and employees the right to access and/or delete their personal information, affording consumers and employees the right to opt out of certain sales of personal information, as well as sharing for cross context behavioral advertising, and prohibiting covered businesses from discriminating against consumers (e.g., charging more for services) for exercising any of their CCPA/CPRA rights.

The CPRA went into effect January 1, 2023 and added definitions for "sensitive information" as well as "contractors," and bolstered the requirements for agreements that cover the exchange of data.

1 unchanged sentence

Any failure to comply with the laws and regulations surrounding the protection of personal information, privacy and data security could subject us to legal and reputational risks and costs, including significant fines for non-compliance, any of which could have a negative impact on revenues and profits.

Because we and the IOs accept payments using a variety of methods, including cash and checks, credit and debit cards, Electronic Benefit Transfer ("EBT") cards and gift cards, we may be subject to additional rules, regulations, compliance requirements and higher fraud losses.

For certain payment methods, we or the IOs pay interchange and other related card acceptance fees, along with additional transaction processing fees.

Because we and the IOs accept payments using a variety of methods, including cash and checks, credit and debit cards, EBT cards and gift cards, we may be subject to additional rules, regulations, compliance requirements and higher fraud losses.

For certain payment methods, we or the IOs pay interchange and other related card acceptance fees, along

with additional transaction processing fees.

We and the IOs rely on third parties to provide payment transaction processing services, including the processing of credit cards, debit cards, EBT cards and gift cards, and it could disrupt our business if these companies become unwilling or unable to provide these services to us, experience a data security incident or fail to comply with applicable laws, rules and industry standards.

12 unchanged sentences

Such disruptions could result in delays or cancellations of customer orders or delays or interruptions in the shipment of orders.

In addition, cyber-attacks may cause us to incur significant remediation costs, result in delays and disruptions to key business operations, and divert attention of management and key information technology resources.

In addition, cyber-attacks may cause us to incur significant remediation costs, result in delays and disruptions to key business operations, and divert the attention of management and key information technology resources.

These cyber-incidents could also subject us to liability, expose us to significant expense, and cause significant harm to our reputation and our business.

Additionally, we are exposed to vulnerabilities with respect to our IO's information technology systems.

We rely on the integrity, security and consistent operation of a variety of information technology systems and back-up systems for the efficient functioning of our business, including point of sale, inventory management, purchasing, financials, logistics, accounts payable and human resources information systems.

2 unchanged sentences

Although we have taken steps designed to reduce the risk of these events occurring, there can be no guarantee that we or a third party on which we rely will not suffer one of these events.

While we maintain cyber risk insurance intended to provide coverage in the event of a breach or other data security incident, there can be no assurance that these policies will cover all incidents that might occur or that the coverage limits under such policies will be adequate for any incidents, claims or damages that

we might experience.

Additionally, we are exposed to vulnerabilities with respect to our IO's information technology systems.

Legal and Regulatory Risks

20 unchanged sentences

For example, we or the IOs have had to comply with recent new laws in many of the states or counties in which we operate regarding recycling, waste, minimum wages, sick time, vacation, plastic bag and straw bans and sugar taxes.

In addition, we and the IOs are subject to environmental laws, including but not limited to hazardous waste laws, regulations related to refrigeration and stormwater, pursuant to which we and/or the IOs could be liable or to which we could be strictly and jointly and severally liable, regardless of our knowledge of or responsibility.

Approximately 11% of sales in fiscal 2023 were in the form of EBT payments and a substantial portion of these payments may be related to benefits associated with the Supplemental Nutritional Assistance Program ("SNAP").

In addition, we and the IOs are subject to environmental laws, including but not limited to hazardous waste laws, and regulations related to refrigeration and stormwater, pursuant to which we and/or the IOs could be strictly and jointly and severally liable, regardless of our knowledge of or responsibility.

Approximately 9% of sales in fiscal 2024 were in the form of EBT payments and a substantial portion of these payments may be related to benefits associated with the SNAP.

Accordingly, changes in EBT regulations by the U.S.

4 unchanged sentences

Untimely compliance or noncompliance with applicable regulations or untimely or incomplete execution of a required product recall, can result in the imposition of penalties (including loss of licenses, eligibility to accept certain government benefits such as SNAP or significant fines or monetary penalties), civil or criminal liability, damages, class action litigation or other litigation, in addition to reputational damage.

Even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer

confidence in products we sell.

Even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer confidence in the products we sell.

In addition, the failure of such products to comply with applicable regulatory and legislative requirements could prevent us from marketing the products or require us to recall or remove such products from our stores.

2 unchanged sentences

Such allegations, claims and proceedings may be brought by third parties, including our customers, suppliers, employees, governmental or regulatory bodies or competitors, and may include class actions.

In recent years, companies have experienced an increase in the number of significant discrimination and harassment and wage and hour claims generally.

In recent years, companies have experienced an increase in the number of significant discrimination and harassment and wage

and hour claims generally.

The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify.

3 unchanged sentences

Our substantial indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations under our debt and could divert our cash flow from operations for debt payments.

We entered into a new Credit Agreement on February 21, 2023 (the "2023 Credit Agreement") under which we have a significant amount of indebtedness.

The 2023 Credit Agreement provides for senior secured credit facilities consisting of (i) a senior secured term loan facility of $300.0 million, of which $294.4 million was outstanding as of December 30, 2023, and (ii) a senior secured revolving credit facility of $400.0 million, under which we had $395.8 million of availability after giving effect to outstanding letters of credit.

We entered into a Credit Agreement on February 21, 2023 with Bank of America, N.A.

(the "2023 Credit Agreement") under which we have a significant amount of indebtedness.

The 2023 Credit Agreement provides for senior secured credit facilities consisting of (i) a senior secured term loan facility of $300.0 million, of which $288.8 million was outstanding as of December 28, 2024, and (ii) a senior secured revolving credit facility of $400.0 million, of which $190.0 million was outstanding in aggregate as of December 28, 2024 and $205.5 million was available after giving effect to outstanding letters of credit.

In addition, subject to limited restrictions in our 2023 Credit Agreement, we may be able to incur substantial additional debt in the future.

21 unchanged sentences

• enter into certain transactions with our affiliates;

• designate our subsidiary as an unrestricted subsidiary.

• designate one or more of our subsidiaries as an unrestricted subsidiary.

A breach of any of these covenants could result in a default under our 2023 Credit Agreement.

11 unchanged sentences

The governing tax laws and applicable tax rates vary by jurisdiction and are subject to interpretation and macroeconomic, political and other factors.

For example, the results of U.S.

Presidential and Congressional elections may lead to tax law changes.

For example, the recent changes in the U.S.

Presidential administration and Congress may lead to tax law changes.

Further, the ultimate amount of tax payable in a given financial statement period may be impacted by sudden or unforeseen changes in tax laws, changes in the mix and level of earnings by taxing jurisdiction, or changes to existing accounting rules or regulations.

7 unchanged sentences

The tax effected State deferred tax assets of $1.0 million will expire beginning in 2034.

Some or all of our deferred tax asset could expire unused if we are unable to generate taxable income in the future sufficient to utilize the deferred tax asset, or we enter into transactions that limit our right to use it.

If a material portion of our deferred tax asset expires unused, it could have a material adverse effect on our future business, results of operations, financial condition and the value of our common stock.

Some or all of our deferred tax assets could expire unused if we are unable to generate taxable income in the future sufficient to utilize the deferred tax asset, or we enter into transactions that limit our right to use it.

If a material portion of our deferred tax asset expires unused, it could have a material adverse effect on our future business,

results of operations, financial condition and the value of our common stock.

Furthermore, we are required by accounting rules to periodically assess our deferred tax assets for a valuation allowance, if necessary.

29 unchanged sentences

In the past, following periods of market volatility, stockholders have instituted securities class action litigation.

If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.

If we are involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.

Furthermore, we currently do not expect to declare any dividends on our common stock in the foreseeable future.

In addition, because we are a holding company, our ability to pay dividends on our common stock may be limited by restrictions on our ability to obtain sufficient funds through dividends from our subsidiary, including restrictions under our Credit Agreement, and may be further restricted by the terms of any future debt or preferred securities.

In addition, because we are a holding company, our ability to pay dividends on our common stock may be limited by restrictions on our ability to obtain sufficient funds through dividends from our subsidiaries, including restrictions under our Credit Agreement, and may be further restricted by the terms of any future debt or preferred securities.

Your only opportunity to achieve a return on your investment currently is if the price of our common stock appreciates.

7 unchanged sentences

These provisions provide for, among other things:

• the division of our Board of Directors into three classes (which provision sunsets in 2026);

• the ability of our Board of Directors to issue one or more series of preferred stock with powers, preferences and rights that may be senior or on parity with our common stock, which may reduce its value and could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change of control;

• the division of our Board into three classes (which provision sunsets in 2026);

• the ability of our Board to issue one or more series of preferred stock with powers, preferences and rights that may be senior or on parity with our common stock, which may reduce its value and could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change of control;

• advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at stockholder meetings;

10 unchanged sentences

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-K

Item 1A. Risk Factors