Grocery Outlet Holding Corp. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA GROCERY OUTLET HOLDING CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 61 Consolidated Balance Sheets 63 Consolidated Statements of Operations and Comprehensive Income 64 Consolidated Statements of Stockholders' Equity 65 Consolidated Statements of Cash Flows 66 Notes to Consolidated Financial Statements 67 60 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Grocery Outlet Holding Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Grocery Outlet Holding Corp. 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. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Long-Lived Asset Impairment — Recoverability of stores identified with impairment indicators — Refer to Notes 1, 3, and 4 to the financial statements Critical Audit Matter Description 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 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 61 Table of Contents operations are sufficient to recover the carrying value of these store assets. Impairment may result when the carrying value of these store assets exceeds the estimated undiscounted future cash flows over the remaining useful life. 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 28, 2024, Management recorded adjustments to the carrying value of long-lived assets due to impairment charges in the amount of $15.9 million. 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 group. 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. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management's judgments regarding the forecasts of future cash flows included the following, among others: • We evaluated management's ability to accurately forecast future sales growth, gross margin, and operating expenses by comparing actual results to management's historical forecasts • We evaluated the reasonableness of management's sales growth, gross margin, and operating expense forecasts by comparing the forecasts to: – Current and past sales, gross margins, and operating expenses of the overall Company and individual store level asset groups – Consistency with external market and industry data – Internal communications to management and the Board of Directors • We tested the completeness, accuracy, and relevance of underlying data used in determining undiscounted and discounted cash flows. /s/ DELOITTE & TOUCHE LLP San Francisco, California February 26, 2025 We have served as the Company's auditor since 2007. 62 Table of Contents GROCERY OUTLET HOLDING CORP. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) December 28, 2024 December 30, 2023 Assets Current assets: Cash and cash equivalents $ 62,828 $ 114,987 Independent operator receivables and current portion of independent operator notes, net of allowance $ 5,770 and $ 5,092 16,051 14,943 Other accounts receivable, net of allowance $ 9 and $ 2 4,166 4,185 Merchandise inventories 394,152 349,993 Prepaid expenses and other current assets 26,701 32,443 Total current assets 503,898 516,551 Independent operator notes and receivables, net of allowance $ 12,709 and $ 11,059 36,441 28,134 Property and equipment, net 750,423 642,462 Operating lease right-of-use assets 1,014,678 945,710 Intangible assets, net 78,778 78,556 Goodwill 782,734 747,943 Other assets 6,869 10,230 Total assets $ 3,173,821 $ 2,969,586 Liabilities and Stockholders' Equity Current liabilities: Trade accounts payable $ 175,871 $ 209,354 Accrued and other current liabilities 55,240 66,655 Accrued compensation 19,687 24,749 Current portion of long-term debt 15,000 5,625 Current lease liabilities 72,905 63,774 Income and other taxes payable 10,921 13,808 Total current liabilities 349,624 383,965 Long-term debt, net 462,502 287,107 Deferred income tax liabilities, net 56,178 38,601 Long-term lease liabilities 1,106,219 1,038,307 Other long-term liabilities 1,914 2,267 Total liabilities 1,976,437 1,750,247 Commitments and contingencies (NOTE 12) Stockholders' equity: Common stock, par value $ 0.001 per share, 500,000,000 shares authorized; 97,262,557 and 99,223,863 shares issued and outstanding, respectively 97 99 Series A preferred stock, par value $ 0.001 per share, 50,000,000 shares authorized; no shares issued and outstanding — — Additional paid-in capital 815,858 877,276 Retained earnings 381,429 341,964 Total stockholders' equity 1,197,384 1,219,339 Total liabilities and stockholders' equity $ 3,173,821 $ 2,969,586 See Notes to Consolidated Financial Statements 63 Table of Contents GROCERY OUTLET HOLDING CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands, except per share data) Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Net sales $ 4,371,501 $ 3,969,453 $ 3,578,101 Cost of sales 3,049,564 2,727,774 2,486,002 Gross profit 1,321,937 1,241,679 1,092,099 Selling, general and administrative expenses 1,243,610 1,115,897 997,109 Operating income 78,327 125,782 94,990 Other expenses: Interest expense, net 22,156 16,361 17,967 Loss on debt extinguishment and modification — 5,340 1,274 Total other expenses 22,156 21,701 19,241 Income before income taxes 56,171 104,081 75,749 Income tax expense 16,706 24,644 10,697 Net income and comprehensive income $ 39,465 $ 79,437 $ 65,052 Basic earnings per share $ 0.40 $ 0.80 $ 0.67 Diluted earnings per share $ 0.40 $ 0.79 $ 0.65 Weighted average shares outstanding: Basic 98,707 98,709 96,812 Diluted 99,615 100,831 100,162 See Notes to Consolidated Financial Statements 64 Table of Contents GROCERY OUTLET HOLDING CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share amounts) Common Stock Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Shares Amount 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 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 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 Repurchase of common stock ( 254,516 ) — ( 6,809 ) — ( 6,809 ) Dividends paid — — ( 15 ) — ( 15 ) Net income and comprehensive income — — — 79,437 79,437 Balance at December 30, 2023 99,223,863 $ 99 $ 877,276 $ 341,964 $ 1,219,339 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 ) 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 65 Table of Contents GROCERY OUTLET HOLDING CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Cash flows from operating activities: Net income $ 39,465 $ 79,437 $ 65,052 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property and equipment 90,747 76,600 70,451 Amortization of intangible and other assets 17,459 11,382 7,800 Amortization of debt issuance costs and debt discounts 910 1,084 2,264 Non-cash rent 4,780 5,226 6,932 Loss on debt extinguishment and modification — 5,340 1,274 Impairment of long-lived assets 15,888 — — Share-based compensation 10,516 31,091 32,556 Provision for independent operator and other accounts receivable reserves 4,853 3,674 4,318 Deferred income taxes 12,123 18,819 10,367 Other 1,015 487 1,176 Changes in operating assets and liabilities: Independent operator and other accounts receivable ( 7,515 ) ( 11,031 ) ( 7,230 ) Merchandise inventories ( 29,951 ) ( 15,674 ) ( 58,817 ) Prepaid expenses and other assets 7,645 ( 10,716 ) 841 Income and other taxes payable ( 3,766 ) 5,918 705 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 Net cash provided by operating activities 111,963 303,447 185,511 Cash flows from investing activities: Advances to independent operators ( 11,364 ) ( 8,565 ) ( 9,819 ) 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 ) Proceeds from sales of assets — 24 39 Investments in intangible assets and licenses ( 20,305 ) ( 23,000 ) ( 16,586 ) Proceeds from insurance recoveries - property and equipment — 632 — Net cash used in investing activities ( 274,028 ) ( 194,165 ) ( 149,931 ) Cash flows from financing activities: Proceeds from exercise of stock options 8,845 5,958 6,890 Tax withholding related to net settlement of employee share-based awards — ( 537 ) — Proceeds from senior term loan due 2028 — 300,000 — Proceeds from revolving credit facility 190,000 25,000 — Principal payments on revolving credit facility — ( 25,000 ) — Principal payments on senior term loan due 2025 — ( 385,000 ) ( 75,000 ) Principal payments on senior term loan due 2028 ( 5,625 ) ( 5,625 ) — Principal payments on finance leases ( 1,959 ) ( 1,398 ) ( 1,271 ) Repurchase of common stock ( 81,355 ) ( 5,893 ) ( 3,451 ) Dividends paid — ( 15 ) ( 105 ) Debt issuance costs paid — ( 4,513 ) — Net cash provided by (used in) financing activities 109,906 ( 97,023 ) ( 72,937 ) 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 Cash and cash equivalents at end of period $ 62,828 $ 114,987 $ 102,728 Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized $ 26,196 $ 22,722 $ 19,142 Income taxes paid (refunded) in cash $ 3,376 $ 7,557 $ ( 1,721 ) Property and equipment accrued at end of period $ 12,791 $ 7,310 $ 18,536 Intangible assets accrued at end of period $ 1,286 $ 5,507 $ 3,736 See Notes to Consolidated Financial Statements 66 Table of Contents GROCERY OUTLET HOLDING CORP. Notes to Consolidated Financial Statements NOTE 1— Organization and Summary of Significant Accounting Policies Description of Business — Based in Emeryville, California, and incorporated in Delaware in 2014, Grocery Outlet Holding Corp. (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. 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 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 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. 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. Actual results can differ from these estimates depending upon certain risks and uncertainties. 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 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. All cash equivalents are unrestricted and available for immediate use. Cash and cash equivalents consisted primarily of cash held in checking and money market accounts as of December 28, 2024 and December 30, 2023. Allowance for Independent Operator ("IO") Receivables and IO Notes and Other Accounts Receivable — We maintain allowances and accruals for estimated losses of amounts advanced to IOs and other third parties determined to be uncollectible. See NOTE 2 — Independent Operator Notes and Independent Operator Receivables, for additional information. Concentrations of Credit Risk — Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts and notes receivable. Although we deposit our cash with creditworthy financial institutions, our deposits typically exceed federally insured limits. 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 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 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. This provision is adjusted periodically to reflect the actual shrink results of the physical inventory counts. Property and Equipment — Property and equipment is stated at cost less accumulated depreciation and includes expenditures for significant improvements to leased premises. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, generally ranging from three to 15 years. Amortization of leasehold improvements is calculated based on the shorter of their estimated useful life or the remaining terms of the lease. Remaining lease terms currently range from one to 19 years. 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 67 Table of Contents 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 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. 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. Operating leases are included in operating lease right-of-use assets, current lease liabilities, and long-term lease liabilities in our consolidated balance sheets. Finance leases are included in other assets, current lease liabilities, and long-term lease liabilities in our consolidated balance sheets. 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 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. Lease term is defined as the non-cancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that we will exercise the option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term while finance lease payments are charged to interest expense and depreciation and amortization expense over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense for these short-term leases is recognized on a straight-line basis over the lease term. 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 certain equipment leases as finance leases. Lease and non-lease components are accounted for separately. We sublease certain real estate to unrelated third parties under non-cancelable leases and the sublease portfolio consists of operating leases for retail stores. Goodwill and Other Intangible Assets — We have both goodwill and intangible assets recorded on our consolidated balance sheets. Goodwill represents the difference between the purchase price and the fair value of assets and liabilities acquired in a business combination. Goodwill is not amortized, but rather is subject to an annual impairment evaluation which is performed during our fourth quarter or when events or changes in circumstances indicate that the value of goodwill may be impaired. Our impairment evaluation of goodwill consists of an initial qualitative assessment of our reporting unit to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than its carrying value. If it is concluded that this is the case, a quantitative evaluation, based on discounted cash flows, is performed which requires us to estimate future cash flows, growth rates and economic and market conditions. If the quantitative evaluation indicates that goodwill is not recoverable, an impairment loss is calculated and recognized during that period. 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 fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022. Intangible assets include trademarks, computer software, and liquor licenses. Trademarks represent the value of all our trademarks and trade names in the marketplace. We are amortizing the value assigned to the trade names on a straight-line basis over 15 years. 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. Liquor license assets have been classified as indefinite-lived intangible assets and accordingly, are not subject to amortization. We review our intangible assets for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. 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 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. 68 Table of Contents 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: Level 1 — Quoted prices in active markets for identical assets or liabilities Level 2 — Quoted prices for similar assets and liabilities in active markets or inputs that are observable Level 3 — Unobservable inputs in which there is little or no market data, which requires us to develop our own assumptions when pricing the financial instruments, such as cash flow modeling assumptions. The assets' or liabilities' fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. 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 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 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): December 28, 2024 December 30, 2023 Carrying Amount (1) Estimated Fair Value (2) Carrying Amount (1) Estimated Fair Value (2) Financial Liabilities: 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 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 Net Sales — We recognize revenue from the sale of products at the point of sale, net of any taxes or deposits collected and remitted to governmental authorities. For e-commerce related sales in which a third-party provides home delivery service, revenue is recognized upon delivery to the customer. Our performance obligations are satisfied upon the transfer of goods to the customer, at the point of sale, and payment from customers is also due at the time of sale. Discounts provided to customers by us are recognized at the time of sale as a reduction in net sales as the products are sold. Discounts provided by IOs are not recognized as a reduction in net sales as these are provided solely by the IO who bears the incremental costs arising from the discount. We do not accept manufacturer coupons. We do not have any material contract assets or receivables from contracts with customers, any revenue recognized in the current year from performance obligations satisfied in previous periods, any material performance obligations other than our gift card deferred revenue liability, or any material costs to obtain or fulfill a contract as of December 28, 2024 and December 30, 2023. 69 Table of Contents Gift Cards — We record a deferred revenue liability when a Grocery Outlet gift card is sold. Revenue related to gift cards is recognized as the gift cards are redeemed, which is when we have satisfied our performance obligation. While gift cards are generally redeemed within 12 months, some are never fully redeemed. We reduce the liability and recognize revenue for the unused portion of the gift cards ("breakage") under the proportional method, where recognition of breakage income is based upon the historical run-off rate of unredeemed gift cards. Our gift card deferred revenue liability was $ 4.1 million and $ 3.2 million as of December 28, 2024 and December 30, 2023, respectively. 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): December 28, 2024 December 30, 2023 December 31, 2022 Perishable (1) $ 1,615,634 $ 1,404,461 $ 1,272,200 Non-perishable (2) 2,755,867 2,564,992 2,305,901 Total net sales $ 4,371,501 $ 3,969,453 $ 3,578,101 _______________________ (1) Perishable departments include dairy and deli; produce and floral; and fresh meat and seafood. (2) Non-perishable departments include non-perishable grocery; general merchandise; health and beauty care; frozen foods; and beer and wine. Cost of Sales — Cost of sales includes, among other things, merchandise costs, inventory markdowns, shrink, transportation, third-party delivery fees and distribution and warehousing costs, including depreciation. 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. 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. Vesting of these awards would be accelerated for certain employees in the event of a change in control as well as certain termination events. Compensation expense for share-based payment awards subject to vesting based upon the achievement of a performance condition is recognized on a graded-vesting basis at the time the achievement of the performance condition becomes probable. We recognize share-based award forfeitures as they occur rather than estimating by applying a forfeiture rate. While we recognize share-based compensation expense over the performance period and/or requisite service period based on the fair market value of the award as of the grant date, we will not know the actual amount of tax benefit an award will generate until such award is exercised (for stock options) or vested (for RSUs or PSUs). Until such award is exercised or vested we assume that the amount ultimately recognized for tax purposes is the same amount we are currently recognizing in our operating results, that is for "book" purposes. 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 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. Such shortfalls could have a material effect on our cash flows and financial results. See NOTE 8—Share-based Awards and NOTE 10—Income Taxes, for additional information. 70 Table of Contents Income Taxes — Income taxes are accounted for using an asset and liability approach that requires recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. In estimating future tax consequences, all expected future events are considered, other than changes in the tax law. A valuation allowance is established, when necessary, to reduce net deferred income tax assets to the amount expected to be realized. We have not recorded any valuation allowances against our deferred income tax balances for the fiscal years ended December 28, 2024 and December 30, 2023. Significant items comprising our future tax benefits and liabilities (deferred tax assets and liabilities) include lease liability obligations, right-of-use assets, depreciation and amortization, net operating losses and other carryforwards, goodwill and share-based compensation expense. We recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We record uncertain tax positions in accordance with Accounting Standards Codification ("ASC") Topic 740, Income Taxes, on the basis of a two-step process in which (i) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Variable Interest Entities — In accordance with the variable interest entities sub-section of ASC Topic 810, Consolidation, we assess at each reporting period whether we, or any consolidated entity, are considered the primary beneficiary of a variable interest entity ("VIE") and therefore required to consolidate the financial results of the VIE in our consolidated financial statements. Determining whether to consolidate a VIE may require judgment in assessing (i) whether an entity is a VIE, and (ii) if a reporting entity is a VIE's primary beneficiary. 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 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. The IO orders merchandise exclusively from us which is provided to the IO on consignment. Under the independent operator agreement (the "Operator Agreement"), the IO selects a majority of merchandise that we consign to the IO, which the IO chooses from our merchandise order guide according to the IO's knowledge and experience with local customer purchasing trends, preferences, historical sales and similar factors. The Operator Agreement gives the IO discretion to adjust our initial prices if the overall effect of all price changes at any time comports with the reputation of our Grocery Outlet retail stores for selling quality, name-brand consumables and fresh products and other merchandise at extreme discounts. The IO is required to furnish initial working capital and to acquire certain store and safety ass ets. The IO is also required to hire, train and employ a properly trained workforce sufficient in number to enable the IO to fulfill its obligations under the Operator Agreement. Additionally, the IO is responsible for expenses required for business operations, including all labor costs, utilities, credit card processing fees, supplies, taxes, fines, levies and other expenses. Either party may terminate the Operator Agreement without cause upon 75 days' notice. 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 $ 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. Inventories and related net sales proceeds are our property, and we are responsible for store rent and related occupancy costs. IO commissions are expensed and included in SG&A. IO commissions were $ 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. An IO may fund its initial store investment from existing capital, a third-party loan or most commonly through a loan from us, as further discussed in NOTE 2—Independent Operator Notes and Independent Operator Receivables. As collateral for IO obligations and performance, the Operator Agreement grants us the security interests in the assets owned by each IO related to the respective store. Since the total investment at risk associated with each IO is not sufficient to permit each IO to finance its activities without additional subordinated financial support, each IO is a VIE that we have a variable interest in. To determine if we are the primary beneficiary of a VIE, we evaluate whether we have (i) the power to direct the activities that most significantly impact the IO's economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the IO that could potentially be significant to the IO. Our evaluation includes identification of significant activities and an assessment of the IO's ability to direct those activities. Activities that most significantly impact the IO's economic performance relate to sales and labor. Sales activities that significantly impact the IO's economic performance include determining what merchandise the IO will order and sell and the price of such merchandise, both of which the IO controls. 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, 71 Table of Contents 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. Furthermore, the mutual termination rights associated with the Operator Agreement illustrate the lack of ultimate control over the IO. 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 $ 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. Net Income Per Share — Basic net income per share is calculated using net income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted net income per share reflects the dilutive effects of stock options and RSUs outstanding during the period, to the extent such securities would not be anti-dilutive, as well as dilutive PSUs, and is determined using the treasury stock method. Recently Adopted Accounting Standards Accounting Standards Update ("ASU") No. 2023-07 — In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) ("ASU 2023-07"). ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. We 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 ASU No. 2023-09 — In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) ("ASU 2023-09"). ASU 2023-09 requires public entities to disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate (the rate reconciliation) for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. In addition to new disclosures associated with the rate reconciliation, the ASU requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. We will adopt ASU 2023-09 upon the effective date and are currently evaluating the impact on our consolidated financial statements and disclosures. ASU No. 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 The amounts included in IO notes and IO receivables consist primarily of funds we loaned to IOs, net of estimated uncollectible amounts. IO notes, which are payable on demand and have no maturity date, typically bear interest at rates between 4.50 % and 9.95 %. Accrued interest receivable on IO notes is included within the "independent operator receivables and current portion of independent operator notes, net of allowance" line item on the consolidated balance sheets and was $ 3.0 million and $ 1.8 million as of December 28, 2024 and December 30, 2023, respectively. There were no IO notes that were past due or on a non-accrual status due to delinquency as of December 28, 2024 or December 30, 2023. Notes and receivables from our IOs participating in our Temporary Commission Adjustment Program ("TCAP"), as 72 Table of Contents 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. An allowance for expected credit losses is deducted from (for expected losses) or added to (for expected recoveries) the amortized cost basis of these assets to arrive at the net carrying amount expected to be collected for such assets. The allowance is estimated using an expected loss framework, which includes information about past events, current conditions, and reasonable and supportable forecasts that impact the collectibility of the reported amounts of the assets over their lifetime. The allowance is evaluated on a collective basis for assets with shared risk characteristics and credit quality indicators. 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 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. • Non-TCAP — Includes the notes and receivables from IOs with stores that have been open for more than 18 months that are not participating in TCAP as of the end of each reporting period. • New store — Includes the notes and receivables from IOs with stores that have been open for less than 18 months as of the end of each reporting period, and may or may not be participating in TCAP. Assets without such shared risk characteristics or credit quality indicators, such as assets with unique circumstances or with delinquencies and historical losses in excess of their TCAP, non-TCAP or new store peers are evaluated on an individual basis. Amounts due from IOs and the related allowances as of December 28, 2024 and December 30, 2023 consisted of the following (amounts in thousands) : Allowance Net Gross Current Portion Long-term Portion Total Current Portion Long-term Portion December 28, 2024 Independent operator notes $ 46,917 $ ( 368 ) $ ( 11,454 ) $ 35,095 $ 471 $ 34,624 Independent operator receivables 24,054 ( 5,402 ) ( 1,255 ) 17,397 15,580 1,817 Total $ 70,971 $ ( 5,770 ) $ ( 12,709 ) $ 52,492 $ 16,051 $ 36,441 Allowance Net Gross Current Portion Long-term Portion Total Current Portion Long-term Portion December 30, 2023 Independent operator notes $ 41,123 $ ( 754 ) $ ( 10,435 ) $ 29,934 $ 1,800 $ 28,134 Independent operator receivables 18,105 ( 4,338 ) ( 624 ) 13,143 13,143 — Total $ 59,228 $ ( 5,092 ) $ ( 11,059 ) $ 43,077 $ 14,943 $ 28,134 73 Table of Contents A summary of activity in the IO notes and IO receivables allowance was as follows (amounts in thousands): Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Beginning balance $ 16,151 $ 14,747 $ 11,912 Provision for IO notes and IO receivables reserves 4,625 3,588 4,160 Write-off of uncollectible IO notes and IO receivables ( 2,297 ) ( 2,184 ) ( 1,325 ) Ending balance $ 18,479 $ 16,151 $ 14,747 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 2024 $ 184 Fiscal 2023 — Fiscal 2022 769 Fiscal 2021 176 Fiscal 2020 — Prior 1,168 Total $ 2,297 The following table presents the outstanding gross balance of IO notes by fiscal year of origination and credit quality indicator as of December 28, 2024 (amounts in thousands): Fiscal Year of Origination Credit Quality Indicator 2024 2023 2022 2021 2020 Prior Total TCAP $ 3,522 $ 3,662 $ 5,542 $ 2,250 $ 1,592 $ 1,384 $ 17,952 Non-TCAP 4,474 4,024 4,213 3,798 1,969 2,029 20,507 New store 6,733 1,725 — — — — 8,458 Total $ 14,729 $ 9,411 $ 9,755 $ 6,048 $ 3,561 $ 3,413 $ 46,917 TCAP IO Notes Notes of IOs participating in our TCAP represented 49.1 % and 51.6 % of total IO note balances as of December 28, 2024 and December 30, 2023, respectively. 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 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. 74 Table of Contents NOTE 3— Property and Equipment Property and equipment as of December 28, 2024 and December 30, 2023 consisted of the following (amounts in thousands): Property and Equipment, At Cost Accumulated Depreciation and Amortization Property and Equipment, Net December 28, 2024 Leasehold improvements $ 538,682 $ ( 184,759 ) $ 353,923 Fixtures and equipment 621,017 ( 301,499 ) 319,518 Other 376 ( 335 ) 41 Construction in progress 76,941 — 76,941 Totals $ 1,237,016 $ ( 486,593 ) $ 750,423 December 30, 2023 Leasehold improvements $ 453,496 $ ( 148,633 ) $ 304,863 Fixtures and equipment 527,769 ( 249,838 ) 277,931 Other 376 ( 322 ) 54 Construction in progress 59,614 — 59,614 Totals $ 1,041,255 $ ( 398,793 ) $ 642,462 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 2024, fiscal 2023 and fiscal 2022 was as follows (amounts in thousands): Fiscal Year Ended Consolidated Statements of Operations and Comprehensive Income Location December 28, 2024 December 30, 2023 December 31, 2022 Cost of sales $ 2,857 $ 1,963 $ 1,711 Selling, general and administrative expenses 87,890 74,637 68,740 Total depreciation expense on property and equipment $ 90,747 $ 76,600 $ 70,451 75 Table of Contents NOTE 4— Leases 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. 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. Our leases do not include any material residual value guarantees or material restrictive covenants. We also have non-cancelable subleases with unrelated third parties with future minimum rental receipts as of December 28, 2024 totaling $ 2.7 million ending in various years through 2036, which have not been deducted from the future minimum lease payments. The balance sheet classification of our right-of-use lease assets and lease liabilities was as follows (amounts in thousands): Leases Classification December 28, 2024 December 30, 2023 Assets: Operating lease assets Operating right-of-use assets $ 1,014,678 $ 945,710 Finance lease assets Other assets 3,711 6,433 Total lease assets $ 1,018,389 $ 952,143 Liabilities: Current Operating Current lease liabilities $ 71,527 $ 62,273 Finance Current lease liabilities 1,378 1,501 Noncurrent Operating Long-term lease liabilities 1,103,647 1,033,590 Finance Long-term lease liabilities 2,572 4,717 Total lease liabilities $ 1,179,124 $ 1,102,081 76 Table of Contents The components of lease expense were as follows (amounts in thousands): Fiscal Year Ended Lease Cost Classification (1) December 28, 2024 December 30, 2023 December 31, 2022 Operating lease cost Selling, general and administrative expenses $ 157,300 $ 141,501 $ 132,065 Finance lease cost: Amortization of right-of-use assets Selling, general and administrative expenses 1,479 1,423 1,316 Interest on leased liabilities Interest expense, net 347 340 341 Variable lease cost Selling, general and administrative expenses 1,688 1,093 740 Sublease income Selling, general and administrative expenses ( 1,281 ) ( 1,237 ) ( 868 ) Net lease cost $ 159,533 $ 143,120 $ 133,594 _______________________ (1) Certain supply chain related lease costs herein are included in cost of sales. Maturities of lease liabilities as of December 28, 2024 were as follows (amounts in thousands): Operating Leases Finance Leases Total Fiscal 2025 $ 146,250 $ 1,584 $ 147,834 Fiscal 2026 165,542 1,145 166,687 Fiscal 2027 160,450 735 161,185 Fiscal 2028 158,115 455 158,570 Fiscal 2029 158,740 370 159,110 Thereafter 867,841 153 867,994 Total lease payments 1,656,938 4,442 $ 1,661,380 Less: Imputed interest ( 481,764 ) ( 492 ) Present value of lease liabilities $ 1,175,174 $ 3,950 The weighted-average lease terms and discount rates of operating and finance leases were as follows: December 28, 2024 December 30, 2023 Weighted-average remaining lease term: Operating leases 10.5 years 10.8 years Finance leases 3.6 years 5.0 years Weighted-average discount rate: Operating leases 6.53 % 6.55 % Finance leases 6.35 % 5.89 % 77 Table of Contents Supplemental cash flow information related to leases was as follows (amounts in thousands): Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 152,576 $ 135,871 $ 125,221 Operating cash flows from finance leases $ 344 $ 344 $ 332 Finance cash flows from finance leases $ 1,597 $ 1,409 $ 1,279 Leased assets obtained in exchange for new operating lease liabilities $ 161,688 $ 131,758 $ 88,681 Leased assets obtained in exchange for new finance lease liabilities $ 917 $ 1,782 $ 39 NOTE 5— Goodwill and Intangible Assets Information regarding our goodwill and intangible assets as of December 28, 2024 was as follows (amounts in thousands): Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trademarks $ 58,400 $ ( 39,791 ) $ 18,609 Computer software 85,109 ( 34,505 ) 50,604 Total finite-lived intangible assets 143,509 ( 74,296 ) 69,213 Liquor licenses 9,565 — 9,565 Total intangible assets 153,074 ( 74,296 ) 78,778 Goodwill 782,734 — 782,734 Total goodwill and intangible assets $ 935,808 $ ( 74,296 ) $ 861,512 Information regarding our goodwill and intangible assets as of December 30, 2023 was as follows (amounts in thousands): Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trademarks $ 58,400 $ ( 35,897 ) $ 22,503 Computer software 69,643 ( 22,600 ) 47,043 Total finite-lived intangible assets 128,043 ( 58,497 ) 69,546 Liquor licenses 9,010 — 9,010 Total intangible assets 137,053 ( 58,497 ) 78,556 Goodwill 747,943 — 747,943 Total goodwill and intangible assets $ 884,996 $ ( 58,497 ) $ 826,499 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. 78 Table of Contents The estimated future amortization expense related to finite-lived intangible assets as of December 28, 2024 is as follows (amounts in thousands): Fiscal 2025 $ 18,101 Fiscal 2026 15,136 Fiscal 2027 10,896 Fiscal 2028 8,991 Fiscal 2029 6,446 Thereafter 9,643 Total $ 69,213 NOTE 6— Long-term Debt Long-term debt consisted of the following (amounts in thousands): December 28, 2024 December 30, 2023 Senior term loan due 2028 $ 288,750 $ 294,375 Revolving credit facility 190,000 — Long-term debt, gross 478,750 294,375 Less: Unamortized debt issuance costs and debt discounts ( 1,248 ) ( 1,643 ) Long-term debt, less unamortized debt discounts and debt issuance costs 477,502 292,732 Less: Current portion ( 15,000 ) ( 5,625 ) Long-term debt, net $ 462,502 $ 287,107 2023 Credit Agreement 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. 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. In connection with the closing of the 2023 Credit Agreement and repayment of the Prior First Lien Credit Agreement and in accordance with ASC Topic 470-50, Debt-Modifications and Extinguishments, we wrote off $ 5.1 million of previously unamortized debt issuance costs and debt discounts and incurred $ 0.2 million in debt modification costs, which were recorded within loss on debt extinguishment and modification for the fiscal year ended December 28, 2024. Furthermore, a total of $ 4.6 million of creditor and third-party debt issuance costs were capitalized or carried over from the prior credit facilities (as defined below), and will be amortized over the term of the new credit facilities. Borrowings under the 2023 Credit Agreement bear interest at a rate equal to, at our option, either (a) the base rate, which is defined as a fluctuating rate per annum equal to the greatest of (i) the federal funds rate then in effect, plus 0.50 %, (ii) the prime rate then in effect and (iii) a specified Term SOFR (as defined in the 2023 Credit Agreement) rate plus 1.00 %, subject to the interest rate floors set forth therein, plus an applicable margin ranging from 0.75 % to 1.75 % based on our Total Net Leverage Ratio (as defined in the 2023 Credit Agreement); and (b) an adjusted Term SOFR rate determined on the basis of a one, three or six month interest period, plus 0.10 %, subject to the interest rate floors set forth therein, plus an applicable margin ranging from 1.75 % to 2.75 % based on our Total Net Leverage Ratio. As of 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. 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 79 Table of Contents 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. All obligations under the 2023 Credit Agreement, and the guarantee of such obligations, are secured, subject to permitted liens and other exceptions, by substantially all of the Company’s assets and those of each subsidiary guarantor. The 2023 Credit Agreement requires us to make scheduled 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 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. 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. We are also required to pay fronting fees and other customary fees for letters of credit issued under the revolving credit facility. Prior First Lien Credit Agreement One of our former wholly owned subsidiaries, which has since been merged with and into Grocery Outlet Holding Corp., was the borrower under a first lien credit agreement (the "Prior First Lien Credit Agreement") with a syndicate of lenders that consisted of a $ 385.0 million senior term loan (the "prior senior term loan") and a revolving credit facility (the "prior revolving credit facility" and, together with the prior senior term loan, the "prior credit facilities") for an amount up to $ 100.0 million. On April 29, 2022, we prepaid $ 75.0 million of principal on the prior senior term loan outstanding under our Prior First Lien Credit Agreement. In connection with the payment, we wrote off $ 1.3 million of previously unamortized debt issuance costs and debt discounts. As discussed above, on February 21, 2023, in connection with the closing of the 2023 Credit Agreement, we repaid the remaining $ 385.0 million of principal on the prior senior term loan outstanding under our Prior First Lien Credit Agreement. 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 subsidiaries to: pay dividends or distributions, repurchase equity, prepay junior debt and make certain investments; incur additional debt or issue certain disqualified stock and preferred stock; incur liens on assets; merge or consolidate with another company or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets; enter into transactions with affiliates; 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 80 Table of Contents 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 Principal maturities of debt as of December 28, 2024 were as follows (amounts in thousands): Fiscal 2025 $ 15,000 Fiscal 2026 15,000 Fiscal 2027 15,000 Fiscal 2028 433,750 Fiscal 2029 and thereafter — Total $ 478,750 Interest Expense, Net Interest expense, net, consisted of the following (amounts in thousands): Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Interest on loans $ 29,028 $ 24,666 $ 18,743 Amortization of debt issuance costs and debt discounts 910 1,084 2,264 Interest on finance leases 347 340 341 Other 27 17 8 Interest income ( 6,723 ) ( 7,631 ) ( 3,389 ) Capitalized interest ( 1,433 ) ( 2,115 ) — Interest expense, net $ 22,156 $ 16,361 $ 17,967 Loss on Debt Extinguishment and Modification Loss on debt extinguishment and modification consisted of the following (amounts in thousands): Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Write-off of debt issuance costs $ — $ 4,518 $ 1,127 Write-off of debt discounts — 578 147 Debt modification costs — 244 — Loss on debt extinguishment and modification $ — $ 5,340 $ 1,274 NOTE 7— Stockholders' Equity As of December 28, 2024, the total amount of the Company’s authorized capital stock consisted of 500,000,000 shares of common stock, par value $ 0.001 per share, and 50,000,000 shares of undesignated preferred stock, par value of $ 0.001 per share. Common Stock Holders of our common stock are entitled to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including the election or removal of directors. The holders of our common stock do not have cumulative voting rights in the election of directors. 81 Table of Contents Preferred Stock We did not have any shares of preferred stock issued or outstanding as of December 28, 2024. 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 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 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. 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 December 28, 2024 December 30, 2023 December 31, 2022 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 _______________________ (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. NOTE 8— Share-based Awards Share-based Incentive Plans The Globe Holding Corp. 2014 Stock Incentive Plan (the "2014 Plan") became effective on October 21, 2014. Under the 2014 Plan, we granted stock options and RSUs to purchase shares of our common stock. Effective as of June 19, 2019, we terminated the 2014 Plan and as a result no further equity awards may be issued under the 2014 Plan. 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 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 82 Table of Contents 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 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 . 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 The fair value of stock option, RSU and PSU awards is determined as of the grant date. For time-based stock options, a Black-Scholes valuation model was utilized to estimate the fair value of the awards. For performance-based stock options, a Monte Carlo simulation approach implemented in a risk-neutral framework was utilized to estimate the fair value of the awards. 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 2024, fiscal 2023 and fiscal 2022 as follows: Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 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 2024, fiscal 2023 and fiscal 2022. 83 Table of Contents Share-based Award Activity 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 Number of Options Weighted-Average Exercise Price Number of Options Weighted-Average Exercise Price Options outstanding as of January 1, 2022 3,135,141 $ 12.77 1,696,194 $ 4.58 Granted — — — — Exercised ( 276,022 ) 9.63 ( 894,559 ) 4.50 Forfeitures ( 296,345 ) 21.25 — — Options outstanding as of December 31, 2022 2,562,774 $ 12.13 801,635 $ 4.68 Granted — — — — Exercised ( 462,972 ) 8.17 ( 574,030 ) 3.91 Forfeitures ( 8,279 ) 21.93 — — Options outstanding as of December 30, 2023 2,091,523 $ 12.97 227,605 $ 6.62 Granted — — — — Exercised ( 1,157,529 ) 7.22 ( 128,221 ) 3.81 Forfeitures ( 54,637 ) 22.00 — — Options outstanding as of December 28, 2024 879,357 $ 19.98 99,384 $ 10.25 Options vested and exercisable as of December 28, 2024 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 2024, fiscal 2023 and fiscal 2022: Number of Shares Weighted-Average Grant Date Fair Value Unvested balance as of January 1, 2022 836,496 $ 30.14 Granted 449,438 29.70 Vested ( 499,696 ) 27.38 Forfeitures ( 95,884 ) 30.61 Unvested balance as of December 31, 2022 690,354 $ 31.79 Granted 552,372 27.50 Vested ( 345,887 ) 32.50 Forfeitures ( 39,019 ) 29.87 Unvested balance as of December 30, 2023 857,820 $ 28.82 Granted 1,015,470 21.59 Vested ( 440,389 ) 29.49 Forfeitures ( 253,830 ) 26.14 Unvested balance as of December 28, 2024 1,179,071 $ 22.93 84 Table of Contents The following table summarizes PSU activity under the 2019 Plan during fiscal 2024, fiscal 2023 and fiscal 2022: Number of Shares Weighted-Average Grant Date Fair Value Unvested balance as of January 1, 2022 576,725 $ 36.36 Granted (1) 404,382 29.16 Adjustment for expected performance achievement (2) 423,347 31.86 Forfeitures ( 72,651 ) 33.79 Unvested balance as of December 31, 2022 1,331,803 $ 32.89 Granted (1) 451,077 27.34 Adjustment for expected performance achievement (2) 432,774 28.84 Vested ( 441,346 ) 36.84 Forfeitures ( 20,319 ) 29.83 Unvested balance as of December 30, 2023 1,753,989 $ 29.50 Granted (1) 572,987 25.65 Adjustment for expected performance achievement (2) ( 758,632 ) 27.54 Vested ( 301,392 ) 35.45 Forfeitures ( 475,068 ) 27.00 Unvested balance as of December 28, 2024 (3) 791,884 $ 27.83 _______________________ (1) Represents initial grant of PSUs based on performance target level achievement of 100 %. (2) Represents the adjustment to previously granted PSUs based on performance expectations as of the end of each respective reporting period. (3) An additional 1,283,626 PSUs could potentially be included if the maximum performance level of 200 % is reached for all PSUs outstanding as of December 28, 2024. Share-based Compensation Expense We recognize compensation expense for stock options, RSUs, and PSUs by amortizing the grant date fair value on a straight-line basis over the expected vesting period to the extent we determine the vesting of the grant is probable. Share-based compensation expense and the related tax benefit consisted of the following (amounts in thousands): Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Time-based stock options $ 11 $ 770 $ 471 RSUs 12,805 11,327 14,855 PSUs ( 2,300 ) 18,979 17,125 Dividends (1) — 15 105 Share-based compensation expense (2) $ 10,516 $ 31,091 $ 32,556 _______________________ (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. 85 Table of Contents 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 Unamortized compensation expense for RSUs was $ 17.7 million as of December 28, 2024, which is expected to be amortized over a weighted average period of approximately 1.7 years. Performance-Based RSUs Unamortized compensation cost related to the expected level of achievement of unvested PSUs was $ 4.3 million as of December 28, 2024, which is expected to be amortized over a weighted average period of approximately 1.4 years. Dividends 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 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. There was no unamortized compensation cost related to future dividend payments on unvested time-based stock options and RSU share-based awards as of December 28, 2024. 86 Table of Contents NOTE 9— Retirement Plans We make contributions to the UFCW—Northern California Employers Joint Pension Trust Fund (the "Pension Fund") and the UFCW—Benefits Trust Fund ("Benefits Fund"), each a multiemployer plan, established for the benefit of union employees at two company operated stores under the terms of a collective bargaining agreement. We currently operate under a collective bargaining agreement that expires on February 28, 2026. Minimum contributions outside of the agreed upon contractual rates are not required for the Pension Fund. Payments into the Pens ion Fun d were $ 0.8 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. The risks of participating in a multiemployer pension plan such as the Pension Fund are different from single-employer pension plans in the following aspects: a. Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. b. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. c. If we stop participating in its multiemployer pension plan, we may be required to pay those plans an amount based on our proportionate share of the underfunded status of such plan, referred to as a withdrawal liability. The following information represents our participation in the Pension Fund for the annual period ended December 30, 2023, the latest available information from the Pension Fund. All such information is based on information we received from the Pension Fund. The Pension Fund's Employer Identification Number is 946313554 and the Plan Number is -001. 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 and declining status during the plan year. Among other factors, generally, plans in critical status are less than 65 percent funded. In an effort to improve the Pension Fund's funding situation, the trustees adopted a rehabilitation plan on July 8, 2010 and most recently updated it on May 3, 2022. The rehabilitation plan changes the benefits for participants who retire and commence a pension on or after January 1, 2012, and changes future benefit accruals earned on or after January 1, 2012. Except in limited circumstances, the pensions of participants and beneficiaries whose pension effective date is before January 1, 2012, are not affected. The Benefits Fund provides medical, dental, pharmacy, vision, and other ancillary benefits to active employees and retirees. The majority of our contributions cover active employees and as such, may not constitute contributions to a postretirement benefit plan. 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, $ 1.4 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: a. 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. b. 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 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. c. A 401(k) retirement plan for warehouse employees, which is available to those employees who meet certain service criteria. d. A 401(k) retirement plan for administrative personnel, which is available to those employees who meet certain service criteria. e. We are not obligated to match any employee contributions for the 401(k) retirement plans. 87 Table of Contents NOTE 10— Income Taxes Components of income tax expense 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): Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Current: Federal $ 1,195 $ 1,051 $ — State 3,388 4,774 330 Total current 4,583 5,825 330 Deferred: Federal 10,781 16,127 7,308 State 1,342 2,692 3,059 Total deferred 12,123 18,819 10,367 Income tax expense $ 16,706 $ 24,644 $ 10,697 Statutory rate reconciliation A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows: Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Taxes at federal statutory rates 21.0 % 21.0 % 21.0 % State income taxes net of federal benefit 5.1 % 5.4 % 2.7 % Section 162(m) compensation limitation on covered employees 3.2 % 2.2 % — % Excess federal tax benefits from exercise and vest of share-based awards ( 2.6 ) % ( 3.3 ) % ( 9.2 ) % 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. 88 Table of Contents Deferred income taxes Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities were as follows (amounts in thousands): December 28, 2024 December 30, 2023 Deferred tax assets: Accrued compensation $ 2,406 $ 5,902 Share-based compensation expense 5,757 11,543 Merchandise inventories 7,385 6,534 Transaction costs 492 596 Lease liability obligations 331,705 308,776 Net operating loss and other carryforwards 26,269 32,299 Debt transaction costs — 369 Accruals and reserves 10,233 5,702 Other 3,375 — Total deferred tax assets 387,622 371,721 Deferred tax liabilities: Prepaid expenses ( 1,644 ) ( 1,264 ) Depreciation and amortization expenses ( 88,499 ) ( 85,261 ) Intangible assets ( 5,231 ) ( 5,876 ) Lease right-of-use assets ( 288,347 ) ( 267,696 ) Goodwill ( 53,379 ) ( 48,865 ) Software development costs ( 6,700 ) — Other — ( 1,360 ) Total deferred tax liabilities ( 443,800 ) ( 410,322 ) 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. 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. A significant piece of objective positive evidence was the cumulative income incurred over the three-year period ended December 28, 2024. Based on our current assessment, we anticipate it is more likely than not that we will generate sufficient taxable income to realize all of our material deferred tax assets. As such we did not record a valuation allowance against these material deferred tax assets as of December 28, 2024. Our policy is to recognize interest and penalties associated with uncertain tax positions as part of the income tax provision in our consolidated statements of operations and comprehensive income and include accrued interest and penalties with the related income tax liability on our consolidated balance sheets. To date, we have not recognized any interest and penalties, nor have we accrued for or made payments for interest and penalties. We had no uncertain tax positions as of December 28, 2024 and December 30, 2023, respectively, and do not anticipate having any material uncertain tax positions within the next 12 months. We are subject to taxation in the United States and various state jurisdictions. As of December 28, 2024, our tax returns remain open to examination by the tax authorities for tax years 2012 to 2023 for U.S. federal and for various state jurisdictions. 89 Table of Contents NOTE 11— Related Party Transactions Related Party Lease s 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 We offer interest-bearing notes to IOs and the gross amount of IO operating notes and IO receivables due was $ 71.0 million and $ 59.2 million as of December 28, 2024 and December 30, 2023, respectively. See NOTE 2—Independent Operator Notes and Independent Operator Receivables, for additional information. NOTE 12— Commitments and Contingencies We are involved from time to time in claims, proceedings and litigation arising in the normal course of business. We establish an accrual for legal proceedings if and when those matters reach a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. We monitor those matters for developments that would affect the likelihood of a loss and the accrued amount, if any, thereof, and adjust the amount as appropriate. 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 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 The following table sets forth the calculation of basic and diluted earnings per share (amounts in thousands, except per share data): Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Numerator Net income and comprehensive income $ 39,465 $ 79,437 $ 65,052 Denominator Weighted-average shares outstanding - basic 98,707 98,709 96,812 Effect of dilutive options 624 1,760 2,813 Effect of dilutive RSUs and PSUs 284 362 537 Weighted-average shares outstanding - diluted (1) 99,615 100,831 100,162 Earnings per share: Basic $ 0.40 $ 0.80 $ 0.67 Diluted $ 0.40 $ 0.79 $ 0.65 _______________________ (1) We are required to include in diluted weighted-average shares outstanding contingently issuable shares that would be issued assuming the end of our reporting period was the end of the relevant PSU award contingency period. 90 Table of Contents The following weighted-average common share equivalents were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive (amounts in thousands): Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Stock options 370 — — RSUs 691 34 98 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 December 28, 2024 December 30, 2023 December 31, 2022 Net sales $ 4,371,501 $ 3,969,453 $ 3,578,101 Less: 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. 91 Table of Contents Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 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 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): Assets Cash and cash equivalents $ 2,003 Other accounts receivable 148 Merchandise inventories 14,208 Prepaid expenses and other current assets 1,794 Property and equipment, net 6,950 Operating lease right-of-use assets 35,266 Goodwill 34,790 Other assets 422 Total assets acquired 95,581 Liabilities 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 92 Table of Contents 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. 93 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 94 Table of Contents