Grocery Outlet Holding Corp. 10-Q

Item 1. Financial Statements. GROCERY OUTLET HOLDING CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (unaudited) March 29, 2025 December 28, 2024 Assets Current assets: Cash and cash equivalents $ 50,910 $ 62,828 Independent operator receivables and current portion of independent operator notes, net of allowance $ 8,705 and $ 5,770 15,834 16,051 Other accounts receivable, net of allowance $ 5 and $ 9 5,472 4,166 Merchandise inventories 386,170 394,152 Prepaid expenses and other current assets 26,524 26,701 Total current assets 484,910 503,898 Independent operator notes and receivables, net of allowance $ 12,906 and $ 12,709 38,094 36,441 Property and equipment, net 786,174 750,423 Operating lease right-of-use assets 1,093,355 1,014,678 Intangible assets, net 79,951 78,778 Goodwill 782,835 782,734 Other assets 6,118 6,869 Total assets $ 3,271,437 $ 3,173,821 Liabilities and Stockholders' Equity Current liabilities: Trade accounts payable $ 193,826 $ 175,871 Accrued and other current liabilities 70,696 55,240 Accrued compensation 22,408 19,687 Current portion of long-term debt 16,875 15,000 Current lease liabilities 73,979 72,905 Income and other taxes payable 10,909 10,921 Total current liabilities 388,693 349,624 Long-term debt, net 458,851 462,502 Deferred income tax liabilities, net 50,350 56,178 Long-term lease liabilities 1,191,620 1,106,219 Other long-term liabilities 2,344 1,914 Total liabilities 2,091,858 1,976,437 Commitments and contingencies (Note 8) Stockholders' equity: Common stock, par value $ 0.001 per share, 500,000,000 shares authorized; 98,005,068 and 97,262,557 shares issued and outstanding, respectively 98 97 Series A preferred stock, par value $ 0.001 per share, 50,000,000 shares authorized; no shares issued and outstanding — — Additional paid-in capital 821,369 815,858 Retained earnings 358,112 381,429 Total stockholders' equity 1,179,579 1,197,384 Total liabilities and stockholders' equity $ 3,271,437 $ 3,173,821 See Notes to Condensed Consolidated Financial Statements 3 Table of Contents GROCERY OUTLET HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except per share data) (unaudited) 13 Weeks Ended March 29, 2025 March 30, 2024 Net sales $ 1,125,567 $ 1,036,944 Cost of sales 783,122 732,999 Gross profit 342,445 303,945 Selling, general and administrative expenses 331,078 303,382 Restructuring charges 33,875 — Operating (loss) income ( 22,508 ) 563 Interest expense, net 6,520 3,176 Loss before income taxes ( 29,028 ) ( 2,613 ) Income tax benefit ( 5,711 ) ( 1,588 ) Net loss and comprehensive loss $ ( 23,317 ) $ ( 1,025 ) Basic net loss per share $ ( 0.24 ) $ ( 0.01 ) Diluted net loss per share $ ( 0.24 ) $ ( 0.01 ) Weighted average shares outstanding: Basic 97,521 99,520 Diluted 97,521 99,520 See Notes to Condensed Consolidated Financial Statements 4 Table of Contents GROCERY OUTLET HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share amounts) (unaudited) Common Stock Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Shares Amount Balance at December 28, 2024 97,262,557 $ 97 $ 815,858 $ 381,429 $ 1,197,384 Exercise and vesting of share-based awards 742,511 1 53 — 54 Share-based compensation expense — — 5,458 — 5,458 Net loss and comprehensive loss — — — ( 23,317 ) ( 23,317 ) Balance at March 29, 2025 98,005,068 $ 98 $ 821,369 $ 358,112 $ 1,179,579 See Notes to Condensed Consolidated Financial Statements 5 Table of Contents GROCERY OUTLET HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued (in thousands, except share amounts) (unaudited) Common Stock Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Shares Amount Balance at December 30, 2023 99,223,863 $ 99 $ 877,276 $ 341,964 $ 1,219,339 Exercise and vesting of share-based awards 1,124,005 1 3,441 — 3,442 Share-based compensation expense — — 8,142 — 8,142 Repurchase of common stock ( 200,803 ) — ( 5,325 ) — ( 5,325 ) Net loss and comprehensive loss — — — ( 1,025 ) ( 1,025 ) Balance at March 30, 2024 100,147,065 $ 100 $ 883,534 $ 340,939 $ 1,224,573 See Notes to Condensed Consolidated Financial Statements 6 Table of Contents GROCERY OUTLET HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) 13 Weeks Ended March 29, 2025 March 30, 2024 Cash flows from operating activities: Net loss $ ( 23,317 ) $ ( 1,025 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation of property and equipment 24,977 20,955 Amortization of intangible and other assets 4,920 3,934 Amortization of debt issuance costs and debt discounts 228 228 Non-cash rent 2,163 922 Impairment of long-lived assets 1,728 — Share-based compensation 5,458 8,142 Provision for independent operator and other accounts receivable reserves 3,283 583 Deferred income taxes ( 5,828 ) ( 1,692 ) Other 143 364 Changes in operating assets and liabilities: Independent operator and other accounts receivable ( 2,627 ) 1,241 Merchandise inventories 7,982 ( 12,737 ) Prepaid expenses and other assets 448 2,305 Income and other taxes payable ( 12 ) 532 Trade accounts payable 16,916 13,753 Accrued and other liabilities 14,748 ( 17,825 ) Accrued compensation 2,620 ( 13,360 ) Operating lease liabilities 5,108 1,521 Net cash provided by operating activities 58,938 7,841 Cash flows from investing activities: Advances to independent operators ( 4,329 ) ( 3,132 ) Repayments of advances from independent operators 931 1,503 Purchases of property and equipment ( 60,452 ) ( 46,266 ) Investments in intangible assets and licenses ( 4,834 ) ( 2,992 ) Net cash used in investing activities ( 68,684 ) ( 50,887 ) Cash flows from financing activities: Proceeds from exercise of stock options 53 3,442 Proceeds from revolving credit facility 20,000 — Principal payments on revolving credit facility ( 20,000 ) — Principal payments on senior term loan due 2028 ( 1,875 ) ( 1,875 ) Principal payments on finance leases ( 350 ) ( 382 ) Repurchase of common stock — ( 6,241 ) Net cash used in financing activities ( 2,172 ) ( 5,056 ) Net decrease in cash and cash equivalents ( 11,918 ) ( 48,102 ) Cash and cash equivalents at beginning of period 62,828 114,987 Cash and cash equivalents at end of period $ 50,910 $ 66,885 See Notes to Condensed Consolidated Financial Statements 7 Table of Contents GROCERY OUTLET HOLDING CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) 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 March 29, 2025, we h ad 543 stores throughout California, Washington, Oregon, Pennsylvania, Tennessee, Idaho, Maryland, Nevada, North Carolina, New Jersey, Ohio, Georgia, Alabama, Delaware, Kentucky and Virginia. Fiscal Year and Quarters — We operate on a fiscal year that ends on the Saturday closest to December 31st each year. The fiscal years ended January 3, 2026 (“fiscal 2025”) and December 28, 2024 ("fiscal 2024") consist of 53 weeks and 52 weeks, respectively. References to the first quarter of fiscal 2025 and the first quarter of fiscal 2024 refer to the 13 weeks ended March 29, 2025 and March 30, 2024, respectively. Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the United States ("U.S.") Securities and Exchange Commission ("SEC") for interim reporting. Certain information and note disclosures included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for fiscal 2024 (the "2024 Form 10-K"). The condensed consolidated balance sheet as of December 28, 2024 included herein has been derived from those audited consolidated financial statements. Our unaudited condensed 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 condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented. The interim results of operations and cash flows are not necessarily indicative of those results and cash flows expected for any future interim or annual period. Prior period amounts have been reclassified to conform to current period presentation. Use of Estimates — The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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. 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. 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 condensed consolidated balance sheets. Finance leases are included in other assets, current lease liabilities, and long-term lease liabilities in our condensed 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. 8 Table of Contents 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. Fair Value Measurements — Fair value is defined as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value of financial instruments is categorized based 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 March 29, 2025 or December 28, 2024. Generally, long-lived assets are recorded at fair value on a non-recurring basis after the asset has been impaired. As of March 29, 2025 and December 28, 2024, certain long-lived assets were determined to be impaired and as such were measured at fair value at the time of the impairment determination. For the 13 weeks ended March 29, 2025, we recognized $ 1.7 million of impairment of long-lived assets resulting from the Restructuring Plan, as defined in Note 12. See "Property and Equipment" and "Goodwill and Other Intangible Assets" within NOTE 1—Organization and Summary of Significant Accounting Policies in our 2024 Form 10-K for additional information. There wer e no transfers of assets or liabilities between levels within the fair value hierarchy during the 13 weeks ended March 29, 2025. Our financial assets and liabilities are carried at cost, which generally approximates their fair value, as described below: Cash and cash equivalents, independent operator ("IO") receivables, other accounts receivable and 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 condensed consolidated balance sheets (amounts in thousands): March 29, 2025 December 28, 2024 Carrying Amount (1) Estimated Fair Value (2) Carrying Amount (1) Estimated Fair Value (2) Financial Liabilities: Senior term loan (Level 2) $ 285,726 $ 286,875 $ 287,502 $ 288,750 Revolving credit facility (Level 2) $ 190,000 $ 190,000 $ 190,000 $ 190,000 _______________________ (1) The carrying amounts of the senior term loan as of March 29, 2025 and December 28, 2024 were net of debt issuance costs of $ 1.1 million and $ 1.2 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 3, was deemed to approximate the carrying value, excluding unamortized debt issuance costs, because the interest rate is variable with short reset periods and is reflective of the current market rate. 9 Table of Contents 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 did 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 March 29, 2025 and December 28, 2024. 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 $ 3.0 million and $ 4.1 million as of March 29, 2025 and December 28, 2024, respectively. Breakage amounts were immaterial for the 13 weeks ended March 29, 2025 and March 30, 2024, respectively. Disaggregated Revenues — The following table presents net sales revenue by type of product for the periods indicated (amounts in thousands): 13 Weeks Ended March 29, 2025 March 30, 2024 Perishable (1) $ 430,745 $ 380,265 Non-perishable (2) 694,822 656,679 Total net sales $ 1,125,567 $ 1,036,944 _______________________ (1) Perishable departments include dairy and deli; produce and floral; and fresh meat and seafood. (2) Non-perishable departments include non-perishable grocery; frozen foods; beer and wine; health and beauty care; and general merchandise. Variable Interest Entities — In accordance with the variable interest entities sub-section of Accounting Standards Codification ("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 condensed 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. W e had 502 , 491 a nd 472 stores operated by IOs as of March 29, 2025, December 28, 2024 and March 30, 2024, 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 assets. 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. 10 Table of Contents As consignor of all merchandise to each IO, the aggregate net sales proceeds from merchandise sales belongs to us. Net sales related to IO stores were $ 1.1 billion and $ 1.0 billion for the 13 weeks ended March 29, 2025 and March 30, 2024, 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 selling, general and administrative expenses. IO commissions were $ 161.7 million and $ 160.8 million for the 13 weeks ended March 29, 2025 and March 30, 2024, respectively. IO commissions of $ 9.5 million and $ 5.6 million were included in accrued and other current liabilities as of March 29, 2025 and December 28, 2024, 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. 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, 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 $ 75.5 million and $ 71.0 million, gross, as of March 29, 2025 and December 28, 2024, respectively. See Note 2 for additional information. Recently Adopted Accounting Standards No recently adopted accounting pronouncements had a material effect on our condensed consolidated financial statements. 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 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, with early adoption permitted. Further, the amendments in ASU 2024-03 should be applied either prospectively or retrospectively. We are currently evaluating the impact on our consolidated financial statements and disclosures. 11 Table of Contents 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 condensed consolidated balance sheets and was $ 3.3 million and $ 3.0 million as of March 29, 2025 and December 28, 2024, respectively. There were no IO notes that were past due or on a non-accrual status due to delinquency as of March 29, 2025 or December 28, 2024. Notes and receivables from our IOs participating in our Temporary Commission Adjustment Program ("TCAP"), as detailed below, are not considered to be past due or on a non-accrual status due to delinquency and are excluded from such measures. IO notes and IO receivables are financial assets which are measured and carried at amortized cost. 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 March 29, 2025 and December 28, 2024 consisted of the following (amounts in thousands) : Allowance Net Gross Current Portion Long-term Portion Total Current Portion Long-term Portion March 29, 2025 Independent operator notes $ 49,711 $ ( 330 ) $ ( 11,629 ) $ 37,752 $ 1,775 $ 35,977 Independent operator receivables 25,828 ( 8,375 ) ( 1,277 ) 16,176 14,059 2,117 Total $ 75,539 $ ( 8,705 ) $ ( 12,906 ) $ 53,928 $ 15,834 $ 38,094 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 12 Table of Contents A summary of activity in the IO notes and IO receivables allowance was as follows (amounts in thousands): 13 Weeks Ended March 29, 2025 March 30, 2024 Beginning balance $ 18,479 $ 16,151 Provision for IO notes and IO receivables reserves 3,283 553 Write-off of uncollectible IO notes and IO receivables ( 151 ) ( 697 ) Ending balance $ 21,611 $ 16,007 The following table presents the outstanding gross balance of IO notes by fiscal year of origination and credit quality indicator as of March 29, 2025 (amounts in thousands): Fiscal Year of Origination Credit Quality Indicator 2025 (YTD) 2024 2023 2022 2021 Prior Total TCAP $ 955 $ 3,458 $ 4,110 $ 5,112 $ 1,603 $ 2,538 $ 17,776 Non-TCAP 1,826 4,574 4,129 4,175 3,838 3,922 22,464 New store 2,835 6,024 612 — — — 9,471 Total $ 5,616 $ 14,056 $ 8,851 $ 9,287 $ 5,441 $ 6,460 $ 49,711 TCAP IO Notes Notes of IOs participating in our TCAP represented 47.4 % and 49.1 % of total IO note balances as of March 29, 2025 and December 28, 2024, respectively. A total of $ 1.1 million of IO notes were added into our TCAP during the 13 weeks ended March 29, 2025. The weighted average contractual interest rate of these IO notes was 4.50 % as of March 29, 2025, a reduction from the standard rate of 9.95 %. In addition, $ 0.7 million of IO notes were transferred from TCAP to Non-TCAP during the 13 weeks ended March 29, 2025. Note 3. Long-term Debt Long-term debt consisted of the following (amounts in thousands): March 29, 2025 December 28, 2024 2023 Credit Agreement: Senior term loan due 2028 $ 286,875 $ 288,750 Revolving credit facility 190,000 190,000 Long-term debt, gross 476,875 478,750 Less: Unamortized debt issuance costs ( 1,149 ) ( 1,248 ) Long-term debt, less unamortized debt issuance costs 475,726 477,502 Less: Current portion ( 16,875 ) ( 15,000 ) Long-term debt, net $ 458,851 $ 462,502 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. 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 13 Table of Contents an applicable margin ranging from 1.75 % to 2.75 % based on our Total Net Leverage Ratio. As of March 29, 2025, interest on borrowings under the credit facilities was based on Term SOFR with interest periods ranging from one month to six months. The applicable margin was 2.25 % on all borrowings. The 2023 Credit Agreement permits us to add incremental term loan facilities, increase any existing term loan facility, increase revolving commitments, and/or add incremental replacement revolving credit facility tranches. The aggregate principal amount of such incremental facilities are limited to (a) an amount not in excess of the sum of the greater of $ 200.0 million and 100 % of Consolidated EBITDA (as defined in the 2023 Credit Agreement), subject to certain limitations, plus (b) voluntary prepayments of any term loan facility, voluntary permanent reductions of the commitments for the revolving credit facility and voluntary prepayments of indebtedness secured by liens on the collateral securing the credit facilities, subject to certain exceptions, plus (c) an amount such that (assuming that the full amount of any such incremental revolving increase and/or incremental replacement revolving credit facility was drawn, and after giving effect to any appropriate pro forma adjustment events) we would be in compliance, on a pro forma basis (but excluding the cash proceeds of such incurrence), with a Total Net Leverage Ratio of 3.00 to 1.00. Our obligations under the 2023 Credit Agreement are unconditionally guaranteed by 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 6.65 % as of March 29, 2025. Revolving Credit Facility The aggregate outstanding principal balance under the revolving credit facility, which matures on February 21, 2028, was $ 190.0 million as of March 29, 2025 and December 28, 2024. As of March 29, 2025, 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 6.59 % to 6.65 % as of March 29, 2025. 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. 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 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 March 29, 2025, we were in compliance with all applicable financial covenant requirements for the 2023 Credit Agreement. 14 Table of Contents Schedule of Principal Maturities Principal maturities of debt as of March 29, 2025 are as follows (amounts in thousands): Remainder of fiscal 2025 $ 13,125 Fiscal 2026 15,000 Fiscal 2027 15,000 Fiscal 2028 433,750 Fiscal 2029 and thereafter — Total $ 476,875 Interest Expense, Net Interest expense, net, consisted of the following (amounts in thousands): 13 Weeks Ended March 29, 2025 March 30, 2024 Interest on loans $ 7,997 $ 5,678 Amortization of debt issuance costs and debt discounts 228 228 Interest on finance leases 59 95 Interest income ( 1,290 ) ( 2,492 ) Capitalized interest ( 474 ) ( 333 ) Interest expense, net $ 6,520 $ 3,176 Note 4. Stockholders' Equity Share Repurchase Program In November 2021, our Board of Directors (the "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. 13 Weeks Ended March 29, 2025 March 30, 2024 Shares repurchased — 200,803 Amount repurchased (1) $ — $ 5,326 Average repurchase price per share $ — $ 26.52 _______________________ (1) Includes commissions for the shares repurchased during the 13 weeks ended March 30, 2024. As of March 29, 2025, we had $ 100.0 million of repurchase authority remaining under the 2024 Share Repurchase Program. 15 Table of Contents Note 5. Share-based Awards For a discussion of our share-based incentive plans, refer to Note 8 of our 2024 Form 10-K. Share-based Award Activity During the 13 weeks ended March 29, 2025, we granted time-based stock options, which have a ten-year term and vest in annual installments over a three-year period, subject to continued employment. In addition, during the 13 weeks ended March 29, 2025, we granted a one-time, special new hire stock option award with a ten-year term to our President and Chief Executive Officer. Under this award, one-third of such stock options vest and become exercisable three years after the grant date, subject to continued employment. The remaining two-thirds of those stock options vest based upon the achievement of certain price targets of the Company's common stock during the three-year period following the grant date. Any options that vest based on achievement of stock price targets, regardless of when such options vest, will not be exercisable until the third anniversary of the grant date, subject to the recipient's continued employment at that time. The fair value of stock option grants is determined on the grant date. For time-based stock options, a Black-Scholes valuation model is used to estimate the fair value of the awards. For market-based stock options, a Monte Carlo simulation model is used to estimate the fair value of the awards. Time-based stock options and market-based stock options granted during the 13 weeks ended March 29, 2025 had grant date fair values per share of $ 5.67 and $ 4.65 , respectively. We determine the input assumptions for the Black-Scholes stock option valuation model as follows: • Expected term — The expected term represents the period that a stock option award is expected to be outstanding. We have limited historical exercise data from which to derive expected term input assumptions. Consequently, we calculate the expected term using the SEC simplified method whereby the expected term of a stock option award is equal to the average of the award's contractual term and vesting term. • Volatility — We have limited historical data from which to derive stock price volatility input assumptions. Consequently, we estimate stock price volatility for our common stock by using a time-weighted average methodology, placing proportional weight on our volatility over our full trading history and the average volatility of industry peers over the expected term. Industry peers consist of several public companies in our industry which are of similar size, complexity and stage of development. • Risk-free interest rate — The risk-free interest rate is based on the U.S. Treasury yield curve on a stock option award's grant date. Maturities that approximate the expected term of the stock option award were used to interpolate the risk-free rate. • Dividend yield — Dividend yield is assumed to be zero as we have not historically paid and do not expect to pay cash dividends on our common shares issued. The grant date fair value of time-based stock options awarded during the 13 weeks ended March 29, 2025 was estimated using the Black-Scholes valuation model with the following weighted-average assumptions: 13 Weeks Ended March 29, 2025 Exercise price $ 11.87 Volatility 42.9 % to 43.3 % Risk-free interest rate 4.0 % to 4.1 % Dividend yield — % Expected term (in years) 6.00 to 6.50 16 Table of Contents The following table summarizes stock option activity under all equity incentive plans during the 13 weeks ended March 29, 2025: Time-Based Stock Options Market-Based and Performance-Based Stock Options Number of Options Weighted-Average Exercise Price Number of Options Weighted-Average Exercise Price Options outstanding as of December 28, 2024 879,357 $ 19.98 99,384 $ 10.25 Granted 1,272,170 11.87 166,667 11.87 Exercised ( 3,850 ) 7.13 ( 5,050 ) 4.98 Forfeitures ( 183,490 ) 21.91 — — Options outstanding as of March 29, 2025 1,964,187 $ 14.57 261,001 $ 11.39 Options vested and exercisable as of March 29, 2025 692,017 $ 19.54 94,334 $ 10.54 The following table summarizes time-based restricted stock unit ("RSU") activity under all equity incentive plans during the 13 weeks ended March 29, 2025: Number of Shares Weighted-Average Grant Date Fair Value Unvested balance as of December 28, 2024 1,179,071 $ 22.93 Granted 1,089,248 11.87 Vested ( 401,191 ) 24.49 Forfeitures ( 277,806 ) 16.38 Unvested balance as of March 29, 2025 1,589,322 $ 16.10 The following table summarizes performance-based restricted stock unit ("PSU") activity under the Grocery Outlet Holding Corp. 2019 Incentive Plan during the 13 weeks ended March 29, 2025: Number of Shares Weighted-Average Grant Date Fair Value Unvested balance as of December 28, 2024 791,884 $ 27.83 Granted (1) 904,419 11.87 Adjustment for expected performance achievement (2) 62,626 27.29 Vested ( 320,407 ) 29.18 Forfeitures ( 14,749 ) 26.69 Unvested balance as of March 29, 2025 (3) 1,423,773 $ 17.38 _______________________ (1) Represents initial grant of PSUs based on performance target level achievement of 100 %. (2) Represents the year-to-date adjustment to previously granted PSUs based on performance expectations as of March 29, 2025. (3) Up to an additional 1,760,434 PSUs could potentially be included if the performance level achievement exceeds 100 % (with 200 % being the maximum performance level achievement). 17 Table of Contents 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 achievement of the grant's service or performance vesting requirements is probable. We recognize share-based award forfeitures in the period such forfeitures occur. Share-based compensation expense consisted of the following (amounts in thousands): 13 Weeks Ended March 29, 2025 March 30, 2024 Time-based stock options $ 191 $ 9 Market-based and performance-based stock options 20 — RSUs 2,923 3,236 PSUs 2,324 4,897 Share-based compensation expense $ 5,458 $ 8,142 Note 6. Income Taxes Our income tax benefit and effective income tax rate were as follows (amounts in thousands, except percentages): 13 Weeks Ended March 29, 2025 March 30, 2024 Income tax benefit $ ( 5,711 ) $ ( 1,588 ) Effective income tax rate 19.7 % 60.8 % Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete events arising in each respective fiscal quarter. During each interim period, we update the estimated annual effective tax rate. The change in our effective income tax rate for the 13 weeks ended March 29, 2025 compared to the 13 weeks ended March 30, 2024 was primarily driven by excess tax expense from the exercise and vesting of certain stock compensation awards during the 13 weeks ended March 29, 2025 and excess tax benefits related to the exercise and vesting of certain stock compensation awards during the 13 weeks ended March 30, 2024. Our effective income tax rate for the 13 weeks ended March 29, 2025 was lower than the combined U.S. federal and state statutory income tax rates primarily due to a pretax book loss, partially offset by excess tax expense related to the exercise and vesting of certain stock compensation awards and non-deductible executive compensation under Internal Revenue Code Section 162(m). Our policy is to recognize interest and penalties associated with uncertain tax positions as part of the income tax provision in our condensed consolidated statements of operations and comprehensive income (loss) and include accrued interest and penalties with the related income tax liability on our condensed consolidated balance sheets. To date, we have not recognized any interest and penalties, nor have we accrued for or made payments for interest and penalties. We had no uncertain tax positions as of March 29, 2025 and December 28, 2024, respectively. 18 Table of Contents Note 7. Related Party Transactions Related Party Leases As of March 29, 2025 and March 30, 2024, we le a sed 14 store locations and one war ehou se 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 the 13 weeks ended March 29, 2025), or his family, had a direct or indirect financial interest. As of March 29, 2025, the right-of-use assets and lease liabilities related to these pro perties w ere $ 47.6 million and $ 52.7 million, respectively. 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. These related parties received aggregate lease payments from u s of $ 1.9 million and $ 1.8 million for the 13 weeks ended March 29, 2025 and March 30, 2024, 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 $ 75.5 million and $ 71.0 million as of March 29, 2025 and December 28, 2024, respectively. See Note 2 for additional information. Note 8. Commitments and Contingencies From time to time, we may be a party to legal proceedings that arise in the ordinary course of business, some of which may be covered by insurance. 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 could 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. Except as disclosed below, management believes that we do not have any pending legal proceedings that, separately or in the aggregate, would have a material adverse effect on our results of operations, financial condition or cash flows. On January 30, 2025, a federal securities class action lawsuit, captioned Liberato v. Grocery Outlet Holding Corp., et al. , Case No. 25-cv-00957, 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 “Liberato Lawsuit”). On March 28, 2025, a second and related federal securities class action lawsuit, captioned Cavanaugh v. Grocery Outlet Holding Corp., et al. , Case No. 25-cv-2886, was filed in the United States District Court in the Northern District of California against the same defendants on behalf of purchasers of our common stock between August 8, 2023 and October 29, 2024 (the “Cavanaugh Lawsuit,” and together with the Liberato Lawsuit, the “Class Action Lawsuits”). The Class Action Lawsuits allege 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 Class Action Lawsuits seek remedies under the Securities Exchange Act of 1934, as amended, including an undisclosed amount of monetary damages, interest, fees and other costs. On March 31, 2025, the plaintiff who filed the Cavanaugh Lawsuit filed a motion to consolidate both actions and to be appointed as lead plaintiff. We intend to defend these matters vigorously. On April 28, 2025, a federal stockholder derivative lawsuit, captioned Conners v. Sheedy, et al. , Case No. 25-cv-03697, was filed in the United States District Court in the Northern District of California against certain of the Company’s directors and two of its former officers purportedly on behalf of the Company. On May 2, 2025, a second federal stockholder derivative lawsuit, captioned Jackson v. Lindberg, et. al. , Case No. 25-cv-03843, was filed in the United States District Court in the Northern District of California against certain of the Company’s directors and two of its former officers purportedly on behalf of the Company. These stockholder derivative lawsuits are collectively referred to as the “Derivative Lawsuits.” The Derivative Lawsuits allege claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets and for violations of Sections 10(b), 14(a), and 20(a) of the Exchange Act, based on similar allegations to those at issue in the Class Action Lawsuits. The Derivative Lawsuits seek, among other relief, undisclosed damages, restitution, fees and other costs, and the institution of corporate governance reforms. It is reasonably possible that a loss may be incurred in connection with either or both the Class Action Lawsuits or the Derivative Lawsuits; however, the possible range of losses is not reasonably estimable. 19 Table of Contents Note 9. Net Loss Per Share The following table sets forth the calculation of basic and diluted net loss per share (amounts in thousands, except per share data): 13 Weeks Ended March 29, 2025 March 30, 2024 Numerator Net loss and comprehensive loss $ ( 23,317 ) $ ( 1,025 ) Denominator Weighted-average shares outstanding – basic and diluted (1)(2) 97,521 99,520 Net loss per share: Basic $ ( 0.24 ) $ ( 0.01 ) Diluted $ ( 0.24 ) $ ( 0.01 ) _______________________ (1) We are required to include in diluted weighted-average shares outstanding contingently issuable shares that would be exercisable or issued, assuming the end of our reporting period was the end of the relevant market-based option award or PSU award contingency period. (2) There is no difference in the weighted-average shares outstanding used in the above calculations due to the Company's net loss for the periods presented. The following weighted-average common share equivalents were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive (amounts in thousands): 13 Weeks Ended March 29, 2025 March 30, 2024 Stock options 1,149 1,136 RSUs and PSUs 1,054 895 Total 2,203 2,031 20 Table of Contents Note 10. 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 (loss) and comprehensive income (loss), which is reported on the condensed consolidated statements of operations and comprehensive income (loss). 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 condensed 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): 13 Weeks Ended March 29, 2025 March 30, 2024 Net sales $ 1,125,567 $ 1,036,944 Less: Cost of sales (1) 781,769 732,141 Commission expenses (2) 161,720 160,790 Other selling expenses (3) 74,530 56,004 General and administrative expenses (4) 60,826 54,415 Restructuring charges (5) 33,875 — Other segment items (6) 5,458 8,142 Depreciation and amortization expenses 29,897 24,889 Interest income ( 1,764 ) ( 2,825 ) Interest expense 8,284 6,001 Income tax benefit ( 5,711 ) ( 1,588 ) Net loss and comprehensive loss $ ( 23,317 ) $ ( 1,025 ) _______________________ (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 $ 1.4 million and $ 0.9 million for the 13 weeks ended March 29, 2025 and March 30, 2024, 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) Restructuring charges include lease termination costs, non-cash impairment and disposal of long-lived assets, employee severance and benefit costs and legal, professional and other costs related to the Restructuring Plan, as defined in Note 12. (6) Other segment items represents share-based compensation expenses. 13 Weeks Ended March 29, 2025 March 30, 2024 Purchases of property and equipment $ 60,452 $ 46,266 Investments in intangible assets and licenses 4,834 2,992 Total capital expenditures $ 65,286 $ 49,258 21 Table of Contents Note 11. 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"). 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 condensed consolidated financial statements were subject to adjustment during the measurement period of up to one year from the acquisition date. As of March 29, 2025, the valuation of the acquired assets and assumed liabilities has been completed. The following table summarizes the purchase price allocation as of March 29, 2025 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 34,891 Other assets 422 Total assets acquired 95,682 Liabilities Trade accounts payable 3,090 Accrued and other current liabilities 536 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 33,154 Total net assets acquired $ 62,528 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 13 weeks ended March 29, 2025, we recogniz ed $ 0.3 million i n acquisition and integration costs related to legal, retention bonus and other consulting expenses. Such costs were included within selling, general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss). Pro forma results are not presented as the impact of this acquisition is not material to our condensed consolidated financial results. 22 Table of Contents Note 12. Restructuring Plan We initiated a restructuring plan during the fourth quarter of fiscal 2024, with continuing implementation in fiscal 2025, intended to improve our long-term profitability, cash flow generation and return on invested capital, optimize the footprint of new store growth, and lower our cost base (the "Restructuring Plan"). Under the Restructuring Plan: • We determined to terminate a total of 28 leases for unopened stores in suboptimal locations which we had planned to open in the next several years. The scope of store lease terminations has been expanded by five additional stores from the 23 stores determined as of fiscal 2024. • We have shifted our planned investments in our distribution infrastructure in fiscal 2025 and fiscal 2026 away from highly capital-intensive projects. We have instead, and plan to continue to, invest in lower cost distribution centers for dry goods to enhance capacity and improve inventory management and overall execution. During the first quarter of fiscal 2025, we cancelled certain warehouse projects in connection with such strategy. • We reduced headcount by approximately 40 full-time employees in the first quarter of fiscal 2025. The following table summarizes charges incurred related to the Restructuring Plan for the 13 weeks ended March 29, 2025 and for the cumulative-to-date period ended March 29, 2025 since the initiation of the Restructuring Plan (in thousands): 13 Weeks Ended (1) Cumulative (2) March 29, 2025 March 29, 2025 Cash restructuring charges: Lease termination costs $ 29,093 $ 29,093 Employee severance and benefit costs 1,532 1,532 Legal, professional and other costs 1,522 1,522 Total cash restructuring costs 32,147 32,147 Non-cash impairment and disposal of long-lived assets 1,728 17,616 Total restructuring charges $ 33,875 $ 49,763 _______________________ (1) All costs incurred related to the Restructuring Plan during the 13 weeks ended March 29, 2025, are included in Restructuring charges on the condensed consolidated statements of operations and comprehensive income (loss). (2) Cumulative-to-date since the initiation of the Restructuring Plan during the fourth quarter of fiscal 2024. As of March 29, 2025, we estimate that we will incur total costs under the Restructuring Plan of between $ 59 million and $ 61 million, of which between $ 40 million and $ 42 million are expected to be cash expenditures. The estimated total costs include charges incurred cumulative-to-date since the initiation of the Restructuring Plan, along with an additional $ 8 million to $ 10 million of cash lease termination costs and $ 1 million of non-cash charges for asset disposals estimated to be incurred in the second quarter of fiscal 2025. The actions under the Restructuring Plan are expected to be substantially completed by the first half of fiscal 2025. The following table summarizes the restructuring liability activity for the Restructuring Plan during the 13 weeks ended March 29, 2025 (in thousands): Lease Termination Costs Employee Severance and Benefit Costs Legal, Professional and Other Costs Total Balance at December 28, 2024 $ — $ — $ — $ — Cash restructuring charges 29,093 1,532 1,522 32,147 Cash payments ( 23,383 ) ( 1,462 ) ( 341 ) ( 25,186 ) Balance at March 29, 2025 $ 5,710 $ 70 $ 1,181 $ 6,961 23 Table of Contents