What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-26 compared with 2024-02-28 · 328 added, 210 removed, 780 unchanged (41% of the section changed)

12 unchanged sentences

We have audited the accompanying consolidated balance sheets of Grocery Outlet Holding Corp.

and subsidiary (the "Company") as of December 30, 2023 and December 31, 2022, the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows, for each of the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries (the "Company") as of December 28, 2024 and December 30, 2023, the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows, for each of the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022 and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 2024 and December 30, 2023, and the results of its operations and its cash flows for each of the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 28, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2025, expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness.

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The Company's long-lived assets, primarily property and equipment and lease right-of-use assets, are grouped at the store level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

On at least a quarterly basis, management reviews the Company's asset groups for indicators of impairment through an analysis which detects events or changes in circumstances that indicate that the carrying value of asset groups may not be recoverable.

On at least a quarterly basis, management reviews the Company's asset groups for indicators of impairment through an analysis that detects events or changes in circumstances that indicate that the carrying value of asset groups may not be recoverable.

Management's impairment analysis determines whether projected undiscounted future cash flows from

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Management's impairment analysis consists of (1) identifying stores with indicators of impairment, (2) testing the identified store assets for recoverability and (3) measuring the impairment loss, if any.

During the year ended December 30, 2023, management did not record impairment of long-lived assets.

The principal considerations for our determination that performing procedures relating to the impairment of store-level long-lived assets is a critical audit matter relates to the significant judgment by management in developing the estimated future cash flows expected to be generated by the asset.

During the year ended December 28, 2024, Management recorded adjustments to the carrying value of long-lived assets due to impairment charges in the amount of $15.9 million.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the cash flows, including the significant assumptions for sales growth rate, gross margin, and operating expenses.

6 unchanged sentences

– Internal communications to management and the Board of Directors

• We tested the completeness, accuracy, and relevance of underlying data used in determining undiscounted cash flows.

• We tested the completeness, accuracy, and relevance of underlying data used in determining undiscounted and discounted cash flows.

/s/ DELOITTE & TOUCHE LLP

52 unchanged sentences

2024 December 30,

2022 January 1,

2023 December 31,

Net sales $ 4,371,501 $ 3,969,453 $ 3,578,101

3 unchanged sentences

Operating income 78,327 125,782 94,990

Other expenses (income):

Other expenses:

Interest expense, net 22,156 16,361 17,967

Gain on insurance recoveries — — ( 3,970 )

Loss on debt extinguishment and modification — 5,340 1,274

Total other expenses (income) 21,701 19,241 11,594

Total other expenses

22,156 21,701 19,241

Income before income taxes 56,171 104,081 75,749

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Common Stock Additional

Paid-In Capital Retained Earnings Stockholders' Equity

Paid-In Capital Retained Earnings Total Stockholders' Equity

Shares Amount

2 unchanged sentences

Share-based compensation expense — — 32,556 — 32,556

Repurchase of common stock

( 139,718 ) — ( 3,451 ) — ( 3,451 )

Dividends paid — — ( 105 ) — ( 105 )

Net income and comprehensive income — — — 65,052 65,052

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

Exercise and vesting of share-based awards 1,669,641 2 6,888 — 6,890

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

Exercise and vesting of share-based awards, net of shares withheld for employee taxes 1,804,023 1 5,420 — 5,421

Share-based compensation expense — — 31,091 — 31,091

3 unchanged sentences

Balance at December 30, 2023 99,223,863 $ 99 $ 877,276 $ 341,964 $ 1,219,339

Exercise and vesting of share-based awards, net of shares withheld for employee taxes 1,804,023 1 5,420 — 5,421

Exercise and vesting of share-based awards

2,015,857 2 8,843 — 8,845

Share-based compensation expense — — 10,516 — 10,516

Repurchase of common stock ( 3,977,163 ) ( 4 ) ( 80,777 ) — ( 80,781 )

Dividends paid — — ( 15 ) — ( 15 )

Net income and comprehensive income — — — 39,465 39,465

Balance at December 28, 2024

97,262,557 $ 97 $ 815,858 $ 381,429 $ 1,197,384

See Notes to Consolidated Financial Statements

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2024 December 30,

2022 January 1,

2023 December 31,

Cash flows from operating activities:

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Non-cash rent 4,780 5,226 6,932

Gain on insurance recoveries — — ( 3,970 )

Loss on debt extinguishment and modification — 5,340 1,274

Impairment of long-lived assets

Share-based compensation 10,516 31,091 32,556

Provision for independent operator and other accounts receivable reserves 4,853 3,674 4,318

Proceeds from insurance recoveries - business interruption and inventory — — 2,103

Deferred income taxes 12,123 18,819 10,367

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Income and other taxes payable ( 3,766 ) 5,918 705

Trade accounts payable, accrued compensation and other liabilities 91,049 35,094 3,179

Trade accounts payable

( 36,936 ) 73,771 16,099

Accrued and other liabilities

( 25,240 ) 19,723 251

Accrued compensation

( 7,755 ) ( 2,445 ) 18,744

Operating lease liabilities 17,725 10,761 12,728

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Repayments of advances from independent operators 4,778 5,734 6,917

Business acquisition, net of cash and cash equivalents acquired

( 60,526 ) — —

Purchases of property and equipment ( 186,611 ) ( 168,990 ) ( 130,482 )

6 unchanged sentences

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

Proceeds from term loan due 2028 300,000 — —

Proceeds from senior term loan due 2028

Proceeds from revolving credit facility 190,000 25,000 —

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Net cash provided by (used in) financing activities 109,906 ( 97,023 ) ( 72,937 )

Net increase (decrease) in cash and cash equivalents 12,259 ( 37,357 ) 34,759

Net (decrease) increase in cash and cash equivalents

( 52,159 ) 12,259 ( 37,357 )

Cash and cash equivalents at beginning of period 114,987 102,728 140,085

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Intangible assets accrued at end of period $ 1,286 $ 5,507 $ 3,736

Acquisition of equipment in exchange for reduction of independent operator notes and independent operator receivables $ — $ — $ 7,609

See Notes to Consolidated Financial Statements

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

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

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

and GOBP Midco, Inc.

were merged with and into Grocery Outlet Holding Corp.

As of December 30, 2023, we had 468 stores throughout California, Washington, Oregon, Pennsylvania, Idaho, Nevada, Maryland, New Jersey and Ohio.

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

As of December 28, 2024, we had 533 stores throughout California, Washington, Oregon, Pennsylvania, Tennessee, Idaho, Maryland, Nevada, North Carolina, New Jersey, Georgia, Ohio, Alabama, Delaware, Kentucky and Virginia.

Grocery Outlet Holding Corp.

(the "Parent Company") owns 100 % of Grocery Outlet Inc.

owns 100 % of Grocery Outlet Inc.

Fiscal Year — We operate on a fiscal year that ends on the Saturday closest to December 31st each year.

The fiscal years ended December 30, 2023 ("fiscal 2023'), December 31, 2022 ("fiscal 2022") and January 1, 2022 ("fiscal 2021") all consisted of 52 weeks.

The fiscal years ended December 28, 2024 ("fiscal 2024"), December 30, 2023 ("fiscal 2023") and December 31, 2022 ("fiscal 2022") all consisted of 52 weeks.

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

Our consolidated financial statements include the accounts of Grocery Outlet Holding Corp.

and its wholly owned subsidiary.

and its wholly owned subsidiaries.

All intercompany balances and transactions were eliminated.

In the opinion of management, these consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented.

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

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

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

Prior period amounts have been reclassified to conform to current period presentation.

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

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Changes in these estimates are recorded when known.

We consider our accounting policy relating to long-lived asset impairment to be a significant accounting policy that involves management's estimate and judgment.

Segment Reporting — We manage our business as one operating segment.

In addition, all of our sales were made to customers located in the U.S.

and all property and equipment is located in the U.S.

We consider our accounting policy relating to long-lived asset impairment to be a significant accounting policy that involves management's estimates and judgments.

Cash and Cash Equivalents — We consider all highly liquid investments, purchased with original maturities of three months or less, to be cash equivalents.

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To date, we have not experienced any losses on our cash deposits.

No single customer or store represented more than 10% of net sales for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022.

No single customer or store represented more than 10% of net sales for the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022.

No single customer or IO represented more than 10% of accounts receivable or notes receivable as of December 28, 2024 and December 30, 2023.

Merchandise Inventories — Merchandise inventories are valued at the lower of cost or net realizable value.

Cost is determined by the weighted-average cost method for warehouse inventories and the retail inventory method for store inventories.

Cost is primarily determined by the weighted-average cost method for warehouse inventories and the retail inventory method for store inventories.

We provide for estimated inventory losses between physical inventory counts based on historical averages.

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We evaluate events and changes in circumstances that could indicate carrying amounts of long-lived assets, including property and equipment, may not be recoverable.

When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether or not the carrying value of such assets will be recovered through undiscounted future cash flows derived from their use and eventual disposition.

When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether or not the carrying value of such assets will be recovered

through undiscounted future cash flows derived from their use and eventual disposition.

For purposes of this assessment, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, primarily at an individual store level.

If the sum of the undiscounted future cash flows is less than the carrying amount of an asset, we record an impairment loss for the amount by which the carrying amount of the asset exceeds its fair value.

The total amount of property and equipment, including store assets, and operating lease right-of-use assets as of December 30, 2023 were $ 642.5 million and $ 945.7 million, respectively, and as of December 31, 2022 were $ 560.7 million and $ 902.2 million, respectively.

The total amount of property and equipment, including store assets, and operating lease right-of-use assets as of December 28, 2024 were $ 750.4 million and $ 1.0 billion, respectively, and as of December 30, 2023 were $ 642.5 million and $ 945.7 million, respectively.

The estimated fair value of the asset or asset group is based on the estimated discounted future cash flows of the asset or asset group using a discount rate commensurate with the related risk.

There were no adjustments to the carrying value of long-lived assets due to impairment charges during fiscal 2023, 2022 and 2021 .

See NOTE 3—Property and Equipment and NOTE 4—Leases for additional information.

In fiscal 2024, we recognized $ 15.9 million of impairment of long-lived assets resulting from the Restructuring Plan, as defined in Note 16—Restructuring Plan, which is included in selling, general and administrative expenses ("SG&A") on the consolidated statements of operations and comprehensive income.

There were no adjustments to the carrying value of long-lived assets due to impairment charges during fiscal 2023 and fiscal 2022.

Leases — We determine if an arrangement is a lease at inception.

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Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease over the same term.

Right-of-use assets and liabilities are recognized at commencement date based on the present value of the lease payments over the lease term, reduced by landlord incentives.

Right-of-use assets and liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term, reduced by landlord incentives.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, which is estimated to approximate the interest rate on a collateralized basis with similar terms and payments based on the information available at the commencement date, to determine the present value of our lease payments.

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We generally lease retail facilities for store locations, distribution centers, office space and equipment and account for these leases as operating leases.

We account for one retail store lease and certain equipment leases as finance leases.

We account for certain equipment leases as finance leases.

Lease and non-lease components are accounted for separately.

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Measurement of such an impairment loss would be based on the excess of the carrying amount over fair value.

There were no goodwill impairment charges recorded during the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022.

There were no changes in the carrying amount of goodwill for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022.

There were no goodwill impairment charges recorded during fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022.

Intangible assets include trademarks, computer software, and liquor licenses.

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Computer software includes both acquired software and eligible costs to develop internal-use software that are incurred during the application development stage.

These assets are amortized over their estimated useful

lives of three to 10 years.

These assets are amortized over their estimated useful lives of three to 10 years.

Liquor license assets have been classified as indefinite-lived intangible assets and accordingly, are not subject to amortization.

1 unchanged sentence

If the carrying amount of the intangible assets are not recoverable, the impairment is measured as the amount by which the carrying value of the intangible asset exceeds its fair value.

There were no impairments of intangible assets recognized during the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022.

There were no impairments of intangible assets recognized during the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022.

Fair Value Measurements — Fair value is defined as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

The fair value of financial instruments is categorized based upon the level of judgment associated with the inputs used to measure their fair values.

The fair value of financial instruments is categorized based on the level of judgment associated with the inputs used to measure their fair values.

Fair value is measured using inputs from the three levels of the fair value hierarchy, which are described as follows:

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

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

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

See NOTE 3—Property and Equipment and NOTE 5—Goodwill and Intangible Assets, for additional information.

There were no assets or liabilities measured at fair value on a recurring basis as of December 28, 2024 or December 30, 2023.

Generally, long-lived assets are recorded at fair value on a non-recurring basis after the asset has been impaired.

See "Property and Equipment" and "Goodwill and Other Intangible Assets" within NOTE 1—Organization and Summary of Significant Accounting Policies, for additional information.

There were no transfers of assets or liabilities between levels within the fair value hierarchy during the fiscal years ended December 28, 2024 or December 30, 2023.

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

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

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

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

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

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

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Senior term loans (Level 2) $ 287,502 $ 288,750 $ 292,732 $ 294,375

Revolving credit facility (Level 2) $ 190,000 $ 190,000 $ — $ —

_______________________

(1) The carrying amounts of our senior term loans as of December 30, 2023 and December 31, 2022 are net of unamortized debt discounts of zero and $ 0.6 million, respectively, and debt issuance costs of $ 1.6 million and $ 4.7 million, respectively.

(2) The estimated fair value of our current senior term loan borrowings under our 2023 Credit Agreement, as defined in Note 6—Long-term Debt, was deemed to approximate the carrying value, excluding unamortized debt issuance costs, because the interest rate is variable with short reset periods and is reflective of the current market rate.

(3) The estimated fair value of our prior senior term loan, as defined in Note 6—Long-term Debt, was determined based on the average quoted bid-ask prices for the prior senior term loan in an over-the-counter market on the last trading day of the period presented.

(1) The carrying amounts of the senior term loans as of December 28, 2024 and December 30, 2023 are net of debt issuance costs of $ 1.2 million and $ 1.6 million, respectively.

(2) The estimated fair value of our current senior term loan and revolving credit facility borrowings under the 2023 Credit Agreement, as defined in Note 6—Long-term Debt, were deemed to approximate the carrying value, excluding unamortized debt issuance costs, because the interest rate is variable with short reset periods and is reflective of the current market rate.

Revenue Recognition

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Our gift card deferred revenue liability was $ 4.1 million and $ 3.2 million as of December 28, 2024 and December 30, 2023, respectively.

Breakage amounts were $ 0.2 million, $ 0.3 million and $ 0.3 million for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

Disaggregated Revenues — The following table presents net sales revenue by type of product for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022 (amounts in thousands):

Breakage amounts were $ 0.5 million, $ 0.2 million and $ 0.3 million for the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022, respectively.

Disaggregated Revenues — The following table presents net sales revenue by type of product for the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022 (amounts in thousands):

2024 December 30,

2022 January 1,

2023 December 31,

Perishable (1)

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Marketing and Advertising Expenses — Costs for store promotions, newspaper, television, radio and other media advertising are expensed at the time the promotion or advertising takes place.

Advertising costs are included in SG&A in the accompanying consolidated statements of operations and comprehensive income and amounted to $ 36.4 million, $ 34.6 million and $ 32.6 million, respectively, in the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022.

Share-based Awards — We estimate the fair value of restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") based upon the closing price of our common stock as reported on the Nasdaq Global Select Market on the date of grant.

The PSUs vest in one installment after a three year performance period based on the achievement of cumulative operating goals.

Marketing and advertising costs are included in SG&A in the accompanying consolidated statements of operations and comprehensive income and amounted to $ 43.0 million, $ 36.4 million and $ 34.6 million, respectively, in the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022.

Share-based Awards — We estimate the fair value of time-based restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") based upon the closing price of our common stock as reported on the Nasdaq Global Select Market on the date of grant.

The PSUs vest in one installment after a three-year performance period based on a service condition and the achievement of cumulative operating goals.

We recognize compensation expense for share-based payment awards with only a service condition on a straight-line basis over the requisite service period, which is generally the award's vesting period.

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Consequently, our deferred tax asset related to share-based compensation expense, which totaled $ 5.8 million as of December 28, 2024, is based on each qualifying award's grant date fair value rather than the award's to-be-determined exercise date intrinsic value (or vesting date fair value).

For awards exercised or vested during our fiscal year ended December 30, 2023, the difference between the grant date fair value and the exercise or vest date intrinsic value totaled $ 16.2 million.

For awards exercised or vested during our fiscal year ended December 28, 2024, the exercise or vest date intrinsic value exceeded the grant date fair value by a total of $ 7.0 million.

If the share price for our common stock were to depreciate for a sustained period of time, we could be required to recognize a tax shortfall.

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

We had 466 , 438 and 411 stores operated by IOs as of December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

We had 491 , 466 and 438 stores operated by IOs as of December 28, 2024, December 30, 2023 and December 31, 2022, respectively.

We have agreements in place with each IO.

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

Net sales related to IO store s were $ 3.9 billion, $ 3.5 billion, and $ 3.0 billion for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.

Net sales related to IO store s were $ 4.2 billion, $ 3.9 billion, and $ 3.5 billion for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively.

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

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IO commissions are expensed and included in SG&A.

IO commissions were $ 621.7 million, $ 533.1 million, and $ 463.8 million for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

IO commissions were $ 637.2 million, $ 621.7 million, and $ 533.1 million for the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022, respectively.

IO commissions of $ 5.6 million and $ 21.7 million were included in accrued and other current liabilities as of December 28, 2024 and December 30, 2023, respectively.

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The IO is also responsible for all of its own labor.

Labor activities that significantly impact the IO's economic performance include hiring, training, supervising, directing, compensating (including wages, salaries and employee benefits) and terminating all of the employees of the IO, activities which the IO controls.

Labor activities that significantly impact the IO's economic performance include hiring, training, supervising, directing,

compensating (including wages, salaries and employee benefits) and terminating all of the employees of the IO, activities which the IO controls.

Accordingly, the IO has the power to direct the activities that most significantly impact the IO's economic performance.

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

Our maximum exposure, in accordance with ASC Topic 810, to the IOs is generally limited to the IO notes and IO receivables due from these entities, which was $ 59.2 million and $ 48.1 million as of December 30, 2023 and December 31, 2022, respectively.

Our maximum exposure, in accordance with ASC Topic 810, to the IOs is generally limited to the IO notes and IO receivables due from these entities, which was $ 71.0 million and $ 59.2 million, gross, as of December 28, 2024 and December 30, 2023, respectively.

See NOTE 2—Independent Operator Notes and Independent Operator Receivables, for additional information.

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Accounting Standards Update ("ASU") No.

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

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

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

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

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

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

Recently Issued Accounting Pronouncements

2023-07 — In November 2023, the FASB issued ASU No.

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

We will adopt ASU 2023-07 upon the effective date and expect it to only impact our disclosures with no impact on our consolidated financial statements.

We adopted ASU 2023-07 beginning in the fourth quarter of fiscal 2024 on a retrospective basis for all periods presented.

The adoption of ASU 2023-07 required additional disclosures in our consolidated financial statements.

See NOTE 14—Segment Information, for additional information.

Recently Issued Accounting Pronouncements

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

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

We will adopt ASU 2023-09 upon the effective date and expect it to only impact our disclosures with no impact on our consolidated financial statements.

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

2024-03 — In November 2024, the FASB issued ASU No.

2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) ("ASU 2024-03").

ASU 2024-03 requires public entities to disclose, in the notes to financial statements, specified information about certain costs and expenses, including the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included in each expense caption presented on the face of the income statement, a qualitative description of the amounts remaining in these expense captions that are not separately disaggregated quantitatively, and the total amount of selling expenses and an entity's definition of selling expenses.

ASU 2024-03, as clarified by ASU No.

2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027.

We will adopt ASU 2024-03 upon the effective date and are currently evaluating the impact on our consolidated financial statements and disclosures.

NOTE 2— Independent Operator Notes and Independent Operator Receivables

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There were no IO notes that were past due or on a non-accrual status due to delinquency as of December 28, 2024 or December 30, 2023.

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

Notes and receivables from our IOs participating in our Temporary Commission Adjustment Program ("TCAP"), as

detailed below, are not considered to be past due or on a non-accrual status due to delinquency and are excluded from such measures.

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

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

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

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

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

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Amounts due from IOs and the related allowances as of December 28, 2024 and December 30, 2023 consisted of the following (amounts in thousands) :

Allowance Current Portion Long-term Portion

Gross Current Portion Long-term Portion Net

Allowance Net

Gross Current Portion Long-term Portion Total Current Portion Long-term Portion

December 28, 2024

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Total $ 70,971 $ ( 5,770 ) $ ( 12,709 ) $ 52,492 $ 16,051 $ 36,441

Allowance Current Portion Long-term Portion

Gross Current Portion Long-term Portion Net

Allowance Net

Gross Current Portion Long-term Portion Total Current Portion Long-term Portion

December 30, 2023

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2024 December 30,

2022 January 1,

2023 December 31,

Beginning balance $ 16,151 $ 14,747 $ 11,912

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The following table presents the gross write-off of IO notes and IO receivables by year of origination for the fiscal year ended December 28, 2024 (amounts in thousands):

Fiscal 2023 $ 212

Fiscal 2022 —

Fiscal 2021 654

Fiscal 2020 184

Fiscal 2019 125

Total $ 2,297

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A total of $ 4.2 million of IO notes were added into our TCAP during the fiscal year ended December 28, 2024.

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

The weighted average contractual interest rate of these IO notes was 4.50 % as of December 28, 2024, a reduction from the standard rate of 9.95 %.

In addition, $ 4.1 million of IO notes were transferred from TCAP to Non-TCAP during the fiscal year ended December 28, 2024.

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Construction in progress is primarily composed of leasehold improvements and fixtures and equipment related to new or remodeled stores where construction had not been completed at year-end.

Depreciation expense on property and equipment for fiscal 2023, 2022 and 2021 was as follows (amounts in thousands):

Depreciation expense on property and equipment for fiscal 2024, fiscal 2023 and fiscal 2022 was as follows (amounts in thousands):

Fiscal Year Ended

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2024 December 30,

2022 January 1,

2023 December 31,

Cost of sales $ 2,857 $ 1,963 $ 1,711

Operating expenses 74,637 68,740 61,956

Selling, general and administrative expenses

87,890 74,637 68,740

Total depreciation expense on property and equipment $ 90,747 $ 76,600 $ 70,451

NOTE 4— Leases

As of December 30, 2023 and December 31, 2022, we leased 14 and 15 of our store locations, respectively, and one warehouse location from related parties.

As of December 28, 2024 and December 30, 2023, we leased 14 of our store locations and one warehouse location from related parties.

See NOTE 11—Related Party Transactions, for additional information.

As of December 28, 2024, we had executed leases for 69 store locations that we had not yet taken possession of with total undiscounted future lease payments of $ 451.5 million and lease terms through 2043.

Based upon our initial investment in store leasehold improvements, we utilize an initial, reasonably-certain lease life of 15 years.

For 17 of these store locations, we are pursuing termination of these leases as part of the Restructuring Plan, with total undiscounted future lease payments of $ 66.7 million and lease terms through 2038.

See NOTE 16—Restructuring Plan for further discussion.

Based upon our initial investment in store leasehold improvements, we utilize an initial, reasonably-certain lease life of 15 years for most of our leases.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from five to 15 years or more.

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2024 December 30,

2022 January 1,

2023 December 31,

Operating lease cost Selling, general and administrative expenses $ 157,300 $ 141,501 $ 132,065

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2024 December 30,

2022 January 1,

2023 December 31,

Cash paid for amounts included in the measurement of lease liabilities:

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Total goodwill and intangible assets $ 884,996 $ ( 58,497 ) $ 826,499

Amortization expense for finite-lived intangible assets was $ 10.1 million, $ 6.6 million, and $ 6.6 million for t he fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.

The carrying amount of goodwill increased by $ 34.8 million for the fiscal year ended December 28, 2024 as a result of the acquisition of United Grocery Outlet.

See NOTE 15—Business Combination for additional information.

There were no changes in the carrying amount of goodwill for the fiscal years ended December 30, 2023 and December 31, 2022.

Amortization expense for finite-lived intangible assets was $ 15.7 million, $ 10.1 million, and $ 6.6 million for t he fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively.

The estimated future amortization expense related to finite-lived intangible assets as of December 28, 2024 is as follows (amounts in thousands):

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Senior term loan due 2028 $ 288,750 $ 294,375

Senior term loan due 2028 294,375 —

Revolving credit facility 190,000 —

Long-term debt, gross 478,750 294,375

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2023 Credit Agreement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As of December 28, 2024, interest on borrowings under the credit facilities was based on one-month Term SOFR with an applicable margin of 2.25 %.

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

limitations, plus (b) voluntary prepayments of any term loan facility, voluntary permanent reductions of the commitments for the revolving credit facility and voluntary prepayments of indebtedness secured by liens on the collateral securing the credit facilities, subject to certain exceptions, plus (c) an amount such that (assuming that the full amount of any such incremental revolving increase and/or incremental replacement revolving credit facility was drawn, and after giving effect to any appropriate pro forma adjustment events) we would be in compliance, on a pro forma basis (but excluding the cash proceeds of such incurrence), with a Total Net Leverage Ratio of 3.00 to 1.00.

Our obligations under the 2023 Credit Agreement are unconditionally guaranteed by Grocery Outlet Holding Corp.'s direct and indirect wholly owned restricted subsidiaries, subject to certain exceptions.

The 2023 Credit Agreement requires us to make scheduled quarterly amortization payments on the senior term loan of $ 1.875 million beginning June 2023 through March 2025, followed by $ 3.75 million beginning June 2025 through December 2027, with the remaining balance due on February 21, 2028.

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

Senior Term Loan due 2028

Our senior term loan under our 2023 Credit Agreement matures on February 21, 2028 and had an interest rate of 7.46 % as of December 30, 2023.

The senior term loan under the 2023 Credit Agreement matures on February 21, 2028 and had an interest rate of 6.92 % as of December 28, 2024.

Revolving Credit Facility

The aggregate outstanding principal balance under the revolving credit facility was $ 190.0 million and zero as of December 28, 2024 and December 30, 2023, respectively.

As of December 28, 2024 we had $ 4.5 million of outstanding letters of credit and $ 205.5 million of remaining borrowing capacity available under the revolving credit facility, which matures on February 21, 2028.

The interest rate on the revolving credit facility was 7.46 % as of December 30, 2023.

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

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

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

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

Borrowings under the revolving credit facility had interest rates ranging from 6.92 % to 6.95 % as of December 28, 2024.

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

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

Prior Senior Term Loan due 2025

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

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

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

Prior Revolving Credit Facility

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

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

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

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

No amounts were outstanding under the prior revolving credit facility as of final repayment of the Prior First Lien Credit Agreement.

Debt Covenants

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

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

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

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

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enter into transactions with affiliates;

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

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

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

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

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

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

last day of each test period ending thereafter, subject to certain adjustments set forth in the 2023 Credit Agreement.

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

As of December 28, 2024, we were in compliance with all applicable financial covenant requirements for the 2023 Credit Agreement.

Schedule of Principal Maturities

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Fiscal 2028 433,750

Fiscal 2028 243,750

Fiscal 2029 and thereafter

Total $ 478,750

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2024 December 30,

2022 January 1,

2023 December 31,

Interest on loans $ 29,028 $ 24,666 $ 18,743

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2024 December 30,

2022 January 1,

2023 December 31,

Write-off of debt issuance costs $ — $ 4,518 $ 1,127

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We did not have any shares of preferred stock issued or outstanding as of December 28, 2024.

Our Board of Directors has the authority to issue shares of preferred stock from time to time on terms it may determine, with respect to any series of preferred stock, the powers (including voting powers), preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof as the board of directors may from time to time determine, which could affect the relative voting power or other rights of the holders of our common stock.

Our Board of Directors (the "Board") has the authority to issue shares of preferred stock from time to time on terms it may determine, with respect to any series of preferred stock, the powers (including voting powers), preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof as the Board may from time to time determine, which could affect the relative voting power or other rights of the holders of our common stock.

The issuance of preferred stock could have the effect of decreasing the trading price of our common stock, restricting dividends on the common stock, diluting the voting power of our common stock, or subordinating the liquidation rights of the common stock.

Dividend Rights

Holders of our common stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to the rights of the holders or one or more outstanding series of our preferred stock.

Holders of our common stock are entitled to receive dividends when, as and if declared by our Board out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to the rights of the holders or one or more outstanding series of our preferred stock.

Share Repurchase Program

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

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

In November 2021, our Board approved a share repurchase program (the "2021 Share Repurchase Program").

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

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

In the fourth quarter of fiscal 2024, the Board approved a new share repurchase program (the "2024 Share Repurchase Program"), which replaced the Company’s 2021 Share Repurchase Program, under which $ 9.4 million previously remained available for repurchase.

The 2024 Share Repurchase Program does not have an expiration date and authorizes us to repurchase up to $ 100.0 million of our outstanding common stock (inclusive of fees and commissions) utilizing a variety of methods including open-market purchases, accelerated equity repurchase programs, privately negotiated transactions, block trades and under a Rule 10b5-1 plan.

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

During the fiscal year ended December 30, 2023, we repurchased 254,516 shares of common stock totaling $ 6.8 million at an average price of $ 26.75 per share in open-market transactions pursuant to a Rule 10b5-1 plan.

During the fiscal year ended December 31, 2022, we repurchased 139,718 shares of common stock totaling $ 3.5 million at an average price of $ 24.70 per share in open-market transactions pursuant to a Rule 10b5-1 plan.

The following table presents activity related to the share repurchase programs (amounts in thousands except share and per share amounts).

We repurchased these shares in open-market transactions pursuant to a Rule 10b5-1 plan.

Fiscal Year Ended

2024 December 30,

2023 December 31,

Shares repurchased

3,977,163 254,516 139,718

Amount repurchased (1)

$ 80,439 $ 6,809 $ 3,451

Average repurchase price per share

$ 20.23 $ 26.75 $ 24.70

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(1) Includes commissions for the shares repurchased for the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022 and excludes excise tax due of $ 0.3 million under the Inflation Reduction Act for the fiscal year ended December 28, 2024.

As of December 28, 2024, we had $ 100.0 million of repurchase authority remaining under the 2024 Share Repurchase Program.

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Any outstanding awards granted under the 2014 Plan will remain subject to the terms of the 2014 Plan and the applicable equity award agreements.

On June 4, 2019, our Board of Directors and stockholders approved the Grocery Outlet Holding Corp.

On June 4, 2019, our Board and stockholders approved the Grocery Outlet Holding Corp.

2019 Incentive Plan (the "2019 Plan").

A total of 4,597,862 shares of common stock were reserved for issuance under the 2019 Plan at that time.

In addition, on the first day of each fiscal year beginning in fiscal 2020 and ending in fiscal 2029, the 2019 Plan provides for an annual automatic increase of the shares reserved for issuance in an amount equal to the positive difference between (i) 4 % of the "outstanding common stock" (as defined in the 2019 Plan) on the last day of the immediately preceding fiscal year and (ii) the plan share reserve on the last day of the immediately preceding fiscal year, or a lesser number as determined by our Board of Directors.

As of December 30, 2023, there were a total of 7,242,549 shares of common stock reserved for issuance under the 2019 Plan, which includes 429,826 shares added effective January 1, 2023 per the above noted annual automatic increase.

addition, on the first day of each fiscal year beginning in fiscal 2020 and ending in fiscal 2029, the 2019 Plan provides for an annual automatic increase of the shares reserved for issuance in an amount equal to the positive difference between (i) 4 % of the "outstanding common stock" (as defined in the 2019 Plan) on the last day of the immediately preceding fiscal year and (ii) the plan share reserve on the last day of the immediately preceding fiscal year, or a lesser number as determined by our Board.

As of December 28, 2024, there were a total of 8,443,140 shares of common stock reserved for issuance under the 2019 Plan, which included 1,190,591 shares added effective December 31, 2023 per the above noted annual automatic increase.

As of December 28, 2024, there were 3,183,688 remaining shares available for issuance of new equity awards under the 2019 Plan.

Long-term incentive programs ("LTIPs") under the 2019 Plan consist of time-based RSUs and PSUs.

Long-term incentive programs ("LTIPs") under the 2019 Plan include time-based RSUs, PSUs and stock options.

In fiscal 2024, we granted RSUs and PSUs to our employees.

RSUs granted under the LTIPs generally vest over one to three years .

Half of the total PSUs granted under the LTIPs will vest upon the achievement of certain revenue-based performance targets ("Tranche I PSUs") and half will vest upon the achievement of certain adjusted EBITDA-based performance targets ("Tranche II PSUs") as determined by the Compensation Committee following the last day of a three-year performance period.

The number of PSUs ultimately earned will equal the number of Tranche I and Tranche II PSUs granted multiplied by the applicable percentage of actual revenue and adjusted-EBITDA performance target levels achieved, and can range from 0 % to 200 % of the number of PSUs granted.

PSUs granted under the LTIPs will vest upon the achievement of certain performance targets as determined by the Compensation Committee following the last day of a three-year performance period.

The number of PSUs ultimately earned will equal the number of PSUs granted multiplied by the applicable percentage of performance target levels achieved, and can range from 0 % to 200 % of the number of PSUs granted.

PSUs granted during fiscal 2024 will vest upon the achievement of certain revenue-based and adjusted EPS-based performance targets, and PSUs granted during fiscal 2023 and fiscal 2022 will vest upon the achievement of certain revenue-based and certain adjusted EBITDA-based performance targets.

Fair Value Determination

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For RSUs and PSUs, the closing price of our common stock as reported on the grant date is utilized to estimate the fair value of the awards.

The respective valuation methods resulted in weighted-average grant date fair values for RSUs and PSUs granted during fiscal 2023, 2022 and 2021 as follows:

The respective valuation methods resulted in weighted-average grant date fair values for RSUs and PSUs granted during fiscal 2024, fiscal 2023 and fiscal 2022 as follows:

Fiscal Year Ended

2024 December 30,

2022 January 1,

2023 December 31,

RSUs $ 21.59 $ 27.50 $ 29.70

PSUs $ 25.65 $ 27.34 $ 29.16

We did not award any time-based or performance-based stock options during fiscal 2023, 2022 and 2021.

We did not award any time-based or performance-based stock options during fiscal 2024, fiscal 2023 and fiscal 2022.

Share-based Award Activity

The following table summarizes stock option activity under all equity incentive plans during fiscal 2023, 2022 and 2021:

The following table summarizes stock option activity under all equity incentive plans during fiscal 2024, fiscal 2023 and fiscal 2022:

Time-Based Stock Options Performance-Based Stock Options

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Forfeitures ( 296,345 ) 21.25 — —

Options outstanding as of January 1, 2022 3,135,141 $ 12.77 1,696,194 $ 4.58

Options outstanding as of December 31, 2022 2,562,774 $ 12.13 801,635 $ 4.68

Granted — — — —

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Options outstanding as of December 28, 2024

879,357 $ 19.98 99,384 $ 10.25

Options vested and exercisable as of December 28, 2024

The total intrinsic value of time-based stock options exercised w as $ 11.7 million, $ 7.1 million and $ 15.5 million for fiscal 2023, 2022 and 2021, respectively .

The total intrinsic value of performance-based stock options exercised w as $ 15.9 million, $ 29.9 million and $ 20.0 million for fiscal 2023, 2022 and 2021, respectively .

879,357 $ 19.98 99,384 $ 10.25

The total intrinsic value of time-based stock options exercised w as $ 16.3 million, $ 11.7 million and $ 7.1 million for fiscal 2024, fiscal 2023 and fiscal 2022, respectively .

The total intrinsic value of performance-based stock options exercised w as $ 2.2 million, $ 15.9 million and $ 29.9 million for fiscal 2024, fiscal 2023 and fiscal 2022, respectively .

Intrin sic value represents the difference between the current fair value of the underlying stock and the exercise price of the stock option.

The following table summarizes RSU activity under all equity incentive plans during fiscal 2023, 2022 and 2021:

The following table summarizes RSU activity under all equity incentive plans during fiscal 2024, fiscal 2023 and fiscal 2022:

Number of Shares Weighted-Average

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Forfeitures ( 95,884 ) 30.61

Unvested balance as of January 1, 2022 836,496 $ 30.14

Unvested balance as of December 31, 2022 690,354 $ 31.79

Granted 552,372 27.50

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Unvested balance as of December 28, 2024

The following table summarizes PSU activity under the 2019 Plan during fiscal 2023, 2022 and 2021:

1,179,071 $ 22.93

The following table summarizes PSU activity under the 2019 Plan during fiscal 2024, fiscal 2023 and fiscal 2022:

Number of Shares Weighted-Average

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Forfeitures ( 72,651 ) 33.79

Unvested balance as of January 1, 2022 576,725 $ 36.36

Unvested balance as of December 31, 2022 1,331,803 $ 32.89

451,077 27.34

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432,774 28.84

Vested ( 441,346 ) 36.84

Forfeitures ( 20,319 ) 29.83

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1,753,989 $ 29.50

572,987 25.65

Adjustment for expected performance achievement (2)

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2024 December 30,

2022 January 1,

2023 December 31,

Time-based stock options $ 11 $ 770 $ 471

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_______________________

(1) Represents cash dividends paid upon vesting of share-based awards as a result of dividends declared in connection with recapitalizations that occurred in fiscal 2018 and 2016.

(2) Total recognized income tax benefit related to share-based compensation expense was $ 8.3 million, $ 8.7 million and $ 4.7 million for fiscal 2023, 2022 and 2021, respectively.

Share-based compensation expense qualifying for capitalization was insignificant for each of the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022.

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

(2) Total recognized income tax benefit related to share-based compensation expense was $ 2.9 million, $ 8.3 million and $ 8.7 million for fiscal 2024, fiscal 2023 and fiscal 2022, respectively.

Share-based compensation expense qualifying for capitalization was insignificant for each of the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022.

Accordingly, no share-based compensation expense was capitalized during these years.

Time-Based Stock Options

Unamortized compensation cost related to unvested time-based stock options was immaterial as of December 30, 2023.

Performance-Based Stock Options

We had no unamortized compensation cost related to performance-based stock options as of December 30, 2023.

Stock Options

We had no unamortized compensation cost related to time-based stock options and performance-based stock options, as all awards were fully vested as of December 28, 2024.

Time-Based RSUs

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For time-based stock options and RSU share-based awards that were outstanding on the dividend date of October 22, 2018 and that vested in fiscal 2023, fiscal 2022, and fiscal 2021, we made dividend payments as these awards vested.

We paid $ 0.1 million and $ 0.2 million of d ividends during the fiscal years ended December 31, 2022 and January 1, 2022, respectively, which were included in share-based compensation expense.

We paid $ 0.1 million of d ividends during the fiscal year ended December 31, 2022, which was included in share-based compensation expense.

We paid less than $ 0.1 million of dividends during the fiscal year ended December 30, 2023.

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Minimum contributions outside of the agreed upon contractual rates are not required for the Pension Fund.

Payments into the Pens ion Fun d were $ 0.6 million, $ 0.5 million, and $ 0.6 million for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.

Payments into the Pens ion Fun d were $ 0.8 million, $ 0.6 million, and $ 0.5 million for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively.

We paid no surcharges to the Pension Fund.

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Our contributions represented less than 5 % of the total contributions to the Pension Fund.

Under the provisions of the Pension Protection Act (PPA) zone status, the Pension Fund was in critical status during the plan year.

Under the provisions of the Pension Protection Act (PPA) zone status, the Pension Fund was in critical and declining status during the plan year.

Among other factors, generally, plans in critical status are less than 65 percent funded.

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However, we are unable to separate contribution amounts to the postretirement benefit part of the Benefits Fund from contribution amounts paid to the active employee part of the Benefits Fund.

Payments into the Benefits Fund were $ 1.4 million, $ 1.2 million, and $ 1.4 million for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.

For our nonunion employees, we offered the following plans during fiscal 2023, 2022 or 2021:

For fiscal 2022 and 2021, a defined contribution retirement plan for warehouse employees, which required an annual contribution of 15 % of eligible salaries.

Payments into the Benefits Fund were $ 1.4 million, $ 1.4 million, and $ 1.2 million for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively.

For our nonunion employees, we offered the following plans during fiscal 2024, fiscal 2023 or fiscal 2022:

For fiscal 2022, a defined contribution retirement plan for warehouse employees, which required an annual contribution of 15 % of eligible salaries.

This defined contribution retirement plan was available to nonunion employees who met certain service criteria.

For fiscal 2022 and 2021, a noncontributory profit-sharing plan for administrative personnel and, for fiscal 2023, for administrative and warehouse personnel, in each case under which the Board of Directors may authorize an annual contribution of up to 15 % of eligible salaries.

For fiscal 2022, a noncontributory profit-sharing plan for administrative personnel and, for fiscal 2023 and fiscal 2024, for administrative and warehouse personnel, in each case under which the Board may authorize an annual contribution of up to 15 % of eligible salaries.

This profit-sharing plan is available to nonunion employees who meet certain service criteria.

We expensed $ 6.8 million, $ 6.9 million and $ 1.5 million for contributions to the two plans described above in (a) and (b) for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.

We expensed zero , $ 6.8 million and $ 6.9 million for contributions to the two plans described above in (a) and (b) for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively.

A 401(k) retirement plan for warehouse employees, which is available to those employees who meet certain service criteria.

1 unchanged sentence

We are not obligated to match any employee contributions for the 401(k) retirement plans.

However, for certain employees who meet certain service criteria, we have a 401(k) retirement plan under which we

will match employee contributions at a rate of 35 % of each participating employee's contributions, not to exceed 6 % of wages.

We expensed an insignificant amount for contributions to this plan for each of the fiscal years ending December 30, 2023, December 31, 2022, and January 1, 2022, respectively.

NOTE 10— Income Taxes

Components of income tax expense

Income before income taxes consisted entirely of income from domestic operations of $ 104.1 million, $ 75.7 million, and $ 77.5 million for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.

Income before income taxes consisted entirely of income from domestic operations of $ 56.2 million, $ 104.1 million, and $ 75.7 million for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively.

The components of income tax expense consisted of the following (amounts in thousands):

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2024 December 30,

2022 January 1,

$ 1,051 $ — $ —

4,774 330 2,247

2023 December 31,

Federal $ 1,195 $ 1,051 $ —

State 3,388 4,774 330

Total current 4,583 5,825 330

5,825 330 2,247

16,127 7,308 10,838

2,692 3,059 2,106

Federal 10,781 16,127 7,308

State 1,342 2,692 3,059

Total deferred 12,123 18,819 10,367

18,819 10,367 12,944

Income tax expense $ 16,706 $ 24,644 $ 10,697

4 unchanged sentences

2024 December 30,

2022 January 1,

2023 December 31,

Taxes at federal statutory rates 21.0 % 21.0 % 21.0 %

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Return to provision 1.9 % ( 2.0 ) % ( 1.1 ) %

Acquisition and integration costs (1)

1.2 % — % — %

Other ( 0.1 ) % 0.4 % 0.7 %

Effective income tax rate 29.7 % 23.7 % 14.1 %

_______________________

(1) Represents costs related to the acquisition and integration of United Grocery Outlet.

See NOTE 15—Business Combination, for additional information.

Deferred income taxes

5 unchanged sentences

Share-based compensation expense 5,757 11,543

Inventory 6,534 6,482

Merchandise inventories

Transaction costs 492 596

Lease liability obligation 308,776 289,539

Lease liability obligations

331,705 308,776

Net operating loss and other carryforwards 26,269 32,299

Reserves and allowances 5,702 4,648

Debt transaction costs — 369

Accruals and reserves

Other 3,375 —

Total deferred tax assets 387,622 371,721

1 unchanged sentence

Prepaid expenses ( 1,644 ) ( 1,264 )

Depreciation and amortization ( 85,261 ) ( 81,167 )

Depreciation and amortization expenses

( 88,499 ) ( 85,261 )

Intangible assets ( 5,231 ) ( 5,876 )

Right-of-use assets ( 267,696 ) ( 255,256 )

Lease right-of-use assets

( 288,347 ) ( 267,696 )

Goodwill ( 53,379 ) ( 48,865 )

Debt transaction costs — ( 1,231 )

Software development costs

Other — ( 1,360 )

Total deferred tax liabilities ( 443,800 ) ( 410,322 )

Net deferred tax assets (liabilities) $ ( 38,601 ) $ ( 19,782 )

Net deferred tax liabilities $ ( 56,178 ) $ ( 38,601 )

We have net operating loss carryforwards of $ 119.6 million for federal income tax purposes, which carries forward indefinitely.

There are also net operating loss carryforwards of $ 12.6 million for state income tax purposes, which begin to expire in 2034.

Based on our analysis, our projected net operating losses to be utilized in future years will not be affected by this annual limitation.

Utilization of some of the federal net operating loss and state net operating loss and credit carryforward are subject to annual limitations due to the "change in ownership" provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions.

The Company believes that no such limitation has occurred through December 28, 2024.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets.

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Related Party Lease s

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

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

As of December 31, 2022, the right-of-use assets and lease liabilities related to these properties was $ 40.5 million and $ 45.5 million, respectively.

These related parties received aggregate lease payments from us of $ 6.8 million, $ 6.8 million, and $ 6.1 million for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.

As of December 28, 2024 and December 30, 2023, we leased 14 store locations and one warehouse location from entities in which Eric Lindberg, Jr., Chairman of the Board and former Chief Executive Officer (who also served as Interim President and Chief Executive Officer for a portion of fiscal 2024), and MacGregor Read, Jr., who served as Vice Chairman of our Board until September 1, 2022, or their respective families, had a direct or indirect financial interest .

As of December 28, 2024, the right-of-use assets and lease liabilities related to these properties were $ 38.7 million and $ 43.8 million, respectively.

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

These related parties received aggregate lease payments from us of $ 7.4 million, $ 6.8 million, and $ 6.8 million for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively.

Independent Operator Notes and Independent Operator Receivables

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If the loss contingency at issue is not both probable and reasonably estimable, we do not establish an accrual, but will continue to monitor the matter for developments that will make the loss contingency both probable and reasonably estimable.

If it is at least a reasonable possibility that a material loss will occur, we will provide disclosure regarding the contingency.

If there is at least a reasonable possibility that a material loss will occur, we will provide disclosure regarding the contingency.

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

See NOTE 17—Subsequent Events, for information on a federal securities class action lawsuit filed on January 30, 2025.

NOTE 13— Earnings Per Share

2 unchanged sentences

2024 December 30,

2022 January 1,

2023 December 31,

Net income and comprehensive income $ 39,465 $ 79,437 $ 65,052

12 unchanged sentences

2024 December 30,

2022 January 1,

2023 December 31,

Stock options

RSUs 691 34 98

NOTE 14— Subsequent Event

On February 14, 2024, Grocery Outlet Inc., our wholly owned subsidiary, entered into a Stock Purchase Agreement (the "Purchase Agreement") with BBGO Acquisition, Inc., a Delaware corporation ("Holdings"), specified parties therein that beneficially own Holdings (the "Sellers"), and Southvest Fund VII, L.P., a Delaware limited partnership (the "Sellers' Representative", and together with the Sellers, the "Seller Parties" and, together with Holdings and Grocery Outlet Inc., the "Parties") to acquire all of the issued and outstanding capital stock of Holdings for approximately $ 62.0 million in cash, subject to customary purchase price adjustments (the "Transaction").

We expect to finance the Transaction with available cash.

Total 1,061 34 98

NOTE 14— Segment Information

We are a retailer of quality, name-brand consumables and fresh products sold primarily through a network of independently operated stores.

We manage our business on a consolidated basis and have one reportable segment.

The accounting policies of the segment are the same as those described in the summary of significant accounting policies.

In addition, all of our sales were made to customers located in the U.S.

and all property and equipment is located in the U.S.

The chief operating decision maker ("CODM"), who is our President and Chief Executive Officer, assesses performance for the segment and decides how to allocate resources based on net income and comprehensive income, which is reported on the consolidated statements of operations and comprehensive income.

The CODM uses this measure in deciding where to reinvest profits and to monitor budget versus actual results.

The measure of segment assets is reported on the consolidated balance sheets as total assets.

Information for the segment, including the significant expenses regularly reviewed by the CODM, is provided in the following tables for the periods indicated (amounts in thousands):

Fiscal Year Ended

2024 December 30,

2023 December 31,

Net sales $ 4,371,501 $ 3,969,453 $ 3,578,101

Cost of sales (1)

3,045,097 2,724,449 2,482,958

Commission expenses (2)

637,246 621,657 533,068

Other selling expenses (3)

266,261 200,847 196,263

General and administrative expenses (4)

209,960 177,645 160,015

Other segment items (5)

26,404 31,091 32,556

Depreciation and amortization expenses 108,206 87,982 78,251

Interest income

( 8,156 ) ( 9,746 ) ( 3,389 )

Interest expense

30,312 26,107 21,356

Loss on debt extinguishment and modification — 5,340 1,274

Income tax expense 16,706 24,644 10,697

Net income and comprehensive income $ 39,465 $ 79,437 $ 65,052

_______________________

(1) Cost of sales includes merchandise costs, inventory markdowns, inventory losses, transportation costs and distribution and warehousing costs and excludes depreciation and amortization expenses of $ 4.5 million, $ 3.3 million and $ 3.0 million in fiscal 2024, fiscal 2023 and fiscal 2022, respectively.

(2) Commission expenses represent commissions paid to IOs.

(3) Other selling expenses include occupancy for all stores, our portion of maintenance costs for IO stores, the cost of opening new IO stores and payroll, benefits, maintenance, supplies and utilities for company-operated stores.

(4) General and administrative expenses include payroll and benefits for corporate and field support, marketing and advertising, insurance and professional services and operator recruiting and training costs.

(5) Other segment items represent share-based compensation expenses and impairment of long-lived assets related to the Restructuring Plan, as defined in NOTE 16—Restructuring Plan.

Fiscal Year Ended

2024 December 30,

2023 December 31,

Purchases of property and equipment

$ 186,611 $ 168,990 $ 130,482

Investments in intangible assets and licenses

20,305 23,000 16,586

Total capital expenditures

$ 206,916 $ 191,990 $ 147,068

NOTE 15— Business Combination

Acquisition of United Grocery Outlet

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

On April 1, 2024, the Transaction was completed for the total purchase consideration of $ 62.5 million, including $ 2.0 million of cash and cash equivalents on hand, after post-closing adjustments, and was funded with cash on hand.

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

United Grocery Outlet operates 40 discount grocery stores across six states in the southeastern United States.

The Purchase Agreement contains customary representations, warranties and covenants of each of the Seller Parties and Grocery Outlet.

The Parties have agreed to a representation and warranty insurance policy for the benefit of Grocery Outlet regarding specified breaches of representations and warranties, subject to specified exclusions and deductibles.

The obligations of the Parties to consummate the Transaction are subject to the satisfaction or waiver of customary closing conditions.

The Transaction is expected to close early in the second quarter of fiscal 2024.

The Purchase Agreement may be terminated at any time prior to closing by mutual written consent of the Parties, or by either Grocery Outlet or the Sellers (i) if the closing has not occurred on or prior to April 10, 2024, (ii) if the other party materially breaches or fails to perform under the Purchase Agreement and fails to timely cure, or (iii) if the Transaction is prohibited by a governmental entity or by applicable law.

Until the closing of the Transaction or the earlier termination of the Purchase Agreement, the Sellers are subject to restrictive covenants regarding an alternative transaction.

United Grocery Outlet operated 40 discount grocery stores across six states in the Southeastern United States as of April 1, 2024.

The acquisition provides us with the opportunity to scale in a new region and is a platform for potential future expansion in the Southeast.

We accounted for the acquisition as a business combination using the acquisition method of accounting, which requires, among other things, that we allocate the purchase consideration to the identifiable assets acquired and liabilities assumed based on their acquisition-date fair values.

The fair values of the acquired assets and assumed liabilities recorded on our consolidated financial statements may be subject to adjustment pending completion of final valuation.

These fair value estimates will be reevaluated and adjusted, if needed, during the measurement period of up to one year from the acquisition date, and recorded as adjustments to goodwill.

The following table summarizes the preliminary purchase price allocation as of December 28, 2024 recorded for acquired assets and assumed liabilities at the acquisition date (amounts in thousands):

Cash and cash equivalents $ 2,003

Other accounts receivable 148

Merchandise inventories

Prepaid expenses and other current assets 1,794

Property and equipment, net 6,950

Operating lease right-of-use assets 35,266

Other assets 422

Total assets acquired 95,581

Trade accounts payable 3,090

Accrued and other current liabilities 434

Accrued compensation 2,693

Current lease liabilities 2,581

Income and other taxes payable 879

Deferred income tax liabilities, net 5,454

Long-term lease liabilities 17,921

Total liabilities assumed 33,052

Total net assets acquired $ 62,529

The goodwill recognized reflects the expected future benefits from certain synergies and intangible assets that do not qualify for separate recognition.

The goodwill will not be deductible for income tax purposes.

During the fiscal year ended December 28, 2024, we recogniz ed $ 8.6 million i n acquisition and integration costs related to due diligence, legal, other consulting and retention bonus expenses.

Such costs were included within selling, general and administrative expenses on the consolidated statements of operations and comprehensive income.

Pro forma results are not presented as the impact of this acquisition is not material to our consolidated financial results.

United Grocery Outlet's financial statements constituted 3 % of net sales and less than 1 % of net income and comprehensive income of the consolidated financial statement amounts as of and for the year ended December 28, 2024.

NOTE 16— Restructuring Plan

During the fourth quarter of fiscal 2024, we began to initiate a 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 (the "Restructuring Plan").

We currently estimate that we will incur total costs of between $ 52 million and $ 61 million, of which between $ 36 million and $ 45 million are expected to be cash expenditures.

The actions under the Restructuring Plan are expected to be substantially completed by the first half of fiscal 2025.

Under the Restructuring Plan:

• We have determined to terminate leases for unopened stores in suboptimal locations, 15 of which we had planned to open in fiscal 2025 and eight of which we had planned to open in fiscal 2026.

We incurred $ 9.2 million of non-cash impairment of long-lived assets related to lease terminations in the fourth quarter of fiscal 2024, which is included in selling, general and administrative expenses.

We estimate we will incur an additional $ 30 million to $ 37 million of cash lease termination expense in the first half of fiscal 2025.

• We are shifting our planned investments in our distribution infrastructure in fiscal 2025 and fiscal 2026 away from highly capital-intensive projects.

We will instead invest in lower cost distribution centers for dry goods to enhance capacity and improve inventory management and overall execution.

In connection with such strategy, we cancelled certain warehouse projects, resulting in $ 6.7 million of non-cash impairment of long-lived assets in the fourth quarter of fiscal 2024, which is included in selling, general and administrative expenses.

• We reduced headcount by approximately 40 full-time employees in the first quarter of fiscal 2025 with total cash costs incurred of $ 1.6 million, including employee severance, employee benefit and related costs.

• In connection with the Restructuring Plan, we estimate that we will incur cash costs of between $ 4.5 million and $ 6.5 million in legal and other professional fees in the first half of fiscal 2025.

NOTE 17— Subsequent Events

Restructuring Plan

During the first quarter of 2025, we actioned certain initiatives under the Restructuring Plan, as more fully described in NOTE 16—Restructuring Plan.

Securities Class Action Litigation

On January 30, 2025, a federal securities class action lawsuit was filed in the United States District Court in the Northern District of California against Grocery Outlet Holding Corp.

and certain of its former officers on behalf of purchasers of our common stock between November 7, 2023 and May 7, 2024.

The lawsuit alleges that the defendants violated federal securities laws by making materially false and misleading statements and/or failing to disclose material adverse facts regarding our transition to new and upgraded internal systems.

The lawsuit seeks remedies under the Securities Exchange Act of 1934, as amended, including an undisclosed amount of monetary damages, interest, fees and other costs.

We intend to defend the lawsuit vigorously.

It is reasonably possible that a loss may be incurred;

however, the possible range of losses is not reasonably estimable given the pending status of the case.

See NOTE 12—Commitments and Contingencies, for additional information.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data