Item 2. Management’s Discussion and Analysis
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q ("Form 10-Q" or “report"), and the audited consolidated financial statements and related notes thereto and management's discussion and analysis of financial condition and results of operations included in our 2024 Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in other sections of this report. See "Special Note Regarding Forward-Looking Statements" in this report.
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.
As used in this report, references to "Grocery Outlet," "the Company," "the registrant," "we," "us" and "our," refer to Grocery Outlet Holding Corp. and its consolidated subsidiaries unless otherwise indicated or the context requires otherwise.
Overview
We are a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold primarily through a network of independently operated stores. Our flexible buying model allows us to offer quality, name-brand opportunistic products at prices generally 40% to 70% below those of conventional retailers. Our Grocery Outlet stores are primarily run by entrepreneurial independent operators ("IOs") who create a neighborhood feel through personalized customer service and a localized product offering. As of March 29, 2025, we had 543 stores in California, Washington, Oregon, Pennsylvania, Tennessee, Idaho, Maryland, Nevada, North Carolina, New Jersey, Ohio, Georgia, Alabama, Delaware, Kentucky and Virginia .
Recent Trends and Developments
The extent of the continuing impact of the factors set forth below on our operational and financial performance will depend on many factors, including certain factors outside of our control.
Macroeconomic Conditions. Over the past several years, our business has been and continues to be impacted by macroeconomic conditions including supply chain and labor challenges, inflation and subsequent disinflation, tariffs, and changes in consumer behavior, and our IOs have been impacted by staffing challenges and increased labor costs and utility costs within their businesses. Tariffs, such as those recently implemented or proposed by the U.S. government on goods imported from China and certain other countries, may result in cost increases on some of the products we sell, such as fresh meat and general merchandise that we import from impacted countries, as well as the materials and supplies we use for store construction. Tariffs may also negatively affect consumer sentiment. While we are still evaluating the potential impact of these tariffs, the short-term impact of price increases due to tariffs is largely dependent on our ability to negotiate with suppliers, opportunities to change sources of supply, our assortment decisions and whether or not we pass the effects through to our customers, which will largely depend upon competitive market conditions. It is reasonably possible that new or additional tariffs will be periodically announced given the current global trade environment. Sustained uncertainty about, or worsening of, current global economic conditions and further tariffs and escalations of tensions between the U.S. and its trading partners has and could continue to adversely impact the stability of global financial markets and result in a global economic slowdown and long-term changes to global trade, which could in turn have a material adverse impact on our business and financial condition.
Pricing Competition. During the last few years we have observed an increase in promotional and pricing activities from key competitors, putting further pressure on our relative value proposition, which in turn, has resulted in our increased efforts to actively negotiate costs and adjust prices to sharpen our value proposition.
Restructuring Plan. While we continue to believe in our long-term growth potential, we reviewed our strategic initiatives and priorities in late fiscal 2024 and determined to simplify our near-term growth strategy in order to build a stronger foundation from which to scale in the future and to drive sustainable and disciplined growth. As a result, 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").
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The Restructuring Plan includes the activities set forth below:
• We are optimizing new store growth in the next several years to increase efficiencies for distribution and optimize brand awareness and marketing. Specifically, we have narrowed our focus on our future new store openings to target existing markets and a smaller set of high-priority adjacent new markets to improve new store sales productivity and return on invested capital. As such we have 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, as expanded in scope by five additional stores from the 23 stores determined as of fiscal 2024. We plan to open 33 to 35 net new stores in fiscal 2025 in existing markets and a smaller set of high-priority adjacent new markets.
• 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 are building a more scalable cost structure. We reduced headcount by approximately 40 full-time employees in the first quarter of fiscal 2025.
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 cumulative costs incurred of $49.8 million since the initiation of the Restructuring Plan, of which $33.9 million was incurred in the first quarter of fiscal 2025. All costs incurred in the first quarter of fiscal 2025 are included in Restructuring charges on the condensed consolidated statements of operations and comprehensive income (loss). The actions under the Restructuring Plan are expected to be substantially completed by the first half of fiscal 2025.
See Note 12 to the condensed consolidated financial statements for additional information regarding the Restructuring Plan, including the costs incurred and restructuring liability activity.
New Store Growth. Planned construction and opening of new stores has been, and may continue to be, negatively impacted due to both increased lead times to acquire materials, obtain permits and licenses, hook up utilities as well as higher construction and development related costs. Recently implemented and proposed tariffs could further impact our constructions costs.
Our new store growth efforts are focused on organic growth combined with complementary real estate opportunities that align with our long-term geographic expansion and store growth strategies. Complementary growth opportunities may include expanding strategic relationships with large property owners, evaluating acquisitions of opportunistic real estate that become available through consolidation in the retail sector, and exploring strategic regional acquisitions of operating businesses. On April 1, 2024, we acquired The Bargain Barn, Inc., a Tennessee corporation doing business as United Grocery Outlet ("United Grocery Outlet"), which included 40 stores in six adjacent states we did not operate in as of such date (Tennessee, North Carolina, Georgia, Alabama, Kentucky and Virginia) and a company-operated distribution center. The acquisition provides us with the opportunity to scale in a new region and is a platform for potential future expansion in the Southeast. Our near-term integration focus is expanding the assortment, investing in store refreshes and new fixtures and introducing some of our marketing programs to the Southeast region. We opened 11 stores and closed 1 store in the first quarter of fiscal 2025 and plan to open 33 to 35 net new stores in fiscal 2025.
Enterprise Resource Planning System Upgrades and Challenges. In late August 2023, we replaced components of our enterprise resource planning system, including our financial ledger, inventory management platform and product data warehouse system. The implementation of these system upgrades resulted in significant disruption to our business operations, including ordering and inventory disruptions, as well as payment processing, which adversely impacted our results of operations during the remainder of fiscal 2023 through and including the first quarter of fiscal 2025, as more fully described below in "Comparison of the 13 weeks ended March 29, 2025 and March 30, 2024." We have since improved the data visibility to help us manage and forecast the business and we continue to work to further improve visibility into additional operating data, and to increase the speed and efficiency of the tools that we and our IOs use to manage the business.
Private Label Products. We introduced our private label products in stores beginning in the third quarter of fiscal 2024, with over 215 new private-label SKUs across various grocery and deli categories introduced through the first quarter of fiscal 2025. In addition to providing better value and inventory consistency for our customers, our private label products are expected to deliver better margins for us and our IOs.
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Key Factors and Measures We Use to Evaluate Our Business
We consider a variety of financial and operating measures in assessing the performance of our business. The key financial measures we use in accordance with accounting principles generally accepted in the United States of America ("GAAP") are net sales, gross profit and gross margin, selling, general and administrative expenses ("SG&A"), operating income (loss), net income (loss) and comprehensive income (loss) and earnings (net loss) per share. The key operational metrics and non-GAAP financial measures we use are number of new stores, comparable store sales, EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share.
First Quarter of Fiscal 2025 Overview
Key financial and operating performance results for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 were as follows:
• Net s ales increased 8.5% to $1.13 billion from $1.04 billion in the first quarter of fiscal 2024.
• Comparable store sales increased by 0.3%, driven by a 2.3% increase in the number of transactions, partially offset by a 2.0% decrease in average transaction size.
• Gross margin increased by 110 basis points to 30.4%, comp are d to gross margin of 29.3% in the first quarter of fiscal 2024.
• We opened 11 new stores and closed 1 store, ending the first quarter of fiscal 2025 with 543 stores in 16 states.
• SG&A increased by 9.1% to $331.1 million, or 29.4% of net sales.
• Operating loss was $22.5 million, which included $33.9 million in charges during the quarter related to the Restructuring Plan (see Note 12 to the condensed consolidated financial statements for additional information).
• Net loss was $23.3 million, or $(0.24) per diluted share, compared to net loss of $1.0 million, or $(0.01) per diluted share, in the first quarter of fiscal 2024.
• Adjusted net income (1) increased 47.7% to $13.0 million, or $0.13 diluted adjusted earnings per share (1) , compared to $8.8 million, or $0.09 diluted adjusted earnings per share, in the first quarter of fiscal 2024.
• Adjusted EBITDA (1) increased 31.7% to $51.9 million compared to $39.4 million in the first quarter of fiscal 2024.
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(1) Adjusted net income, diluted adjusted earnings per share and adjusted EBITDA are non-GAAP financial measures, which exclude the impact of certain special items. Please note that our non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the "Operating Metrics and Non-GAAP Financial Measures" section below for additional information about these items, including their definitions, how the non-GAAP financial measures provide useful information to investors and how management utilizes them, and reconciliations of the non-GAAP financial measures and the most directly comparable GAAP financial measures.
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Key Components of Results of Operations
Net Sales
We recognize revenues from the sale of products at the point of sale, net of any taxes or deposits collected and remitted to governmental authorities. 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 that are funded solely by IOs are not recognized as a reduction in net sales as the IO bears the incidental costs arising from the discount. We do not accept manufacturer coupons. Net sales consist of net sales from comparable stores, described below under "Operating Metrics and Non-GAAP Financial Measures - Comparable Store Sales," and non-comparable stores. Growth of our net sales is generally driven by expansion of our store base in existing and new markets as well as comparable store sales growth. Net sales are impacted by the spending habits of our customers, customer perception of value in our offerings, product mix and supply, as well as promotional and competitive activities. Our ever-changing selection of offerings across diverse product categories supports growth in net sales by attracting new customers and encouraging repeat visits from our existing customers. The spending habits of our customers are affected by changes in macroeconomic conditions, governmental benefit programs such as the Supplemental Nutrition Assistance Program and discretionary income. Our customers' discretionary income is impacted by wages, fuel and other cost-of-living increases including food-at-home inflation, as well as consumer trends and preferences, which fluctuate depending on the environment. Because we offer a broad selection of merchandise at extreme values, our business has in the past benefited from certain periods of economic uncertainty.
Cost of Sales, Gross Profit and Gross Margin
Cost of sales includes, among other things, merchandise costs, inventory markdowns, inventory losses, transportation costs and distribution and warehousing costs, including depreciation. Gross profit is equal to our net sales less our cost of sales. Gross margin is gross profit as a percentage of our net sales. Gross margin is a measure used by management to indicate whether we are selling merchandise at an appropriate gross profit. Gross margin is impacted by product mix and availability, as some products generally provide higher gross margins, and by our merchandise costs, which can vary. Gross margin is also impacted by the costs of distributing and transporting product to our stores, which can vary. Our gross profit is variable in nature and generally follows changes in net sales. While our disciplined buying approach has produced consistent gross margins throughout economic cycles, which we believe has helped to mitigate adverse impacts on gross profit and results of operations, changes in consumer demand as a result of macroeconomic conditions, including inflationary cost increases for goods, labor and transportation, supply chain constraints and changes in discretionary income, have resulted and could continue to result in higher variability to our gross margins. The components of our cost of sales, as well as our gross profit and gross margin, may not be comparable to the same or similar measures of our competitors and other retailers.
Selling, General and Administrative Expenses
SG&A are comprised of both store-related expenses and corporate expenses. Our store-related expenses include commissions paid to IOs, occupancy and our portion of maintenance costs, depreciation and amortization of store-related assets and the cost of opening new IO stores. Company-operated store-related expenses also include payroll, benefits, supplies and utilities. Corporate expenses include payroll and benefits for corporate and field support, share-based compensation, marketing and advertising, insurance and professional services, depreciation and amortization of corporate assets and operator recruiting and training costs. We continue to closely manage our expenses and monitor SG&A as a percentage of net sales. SG&A generally increases as we grow our store base and invest in our corporate infrastructure. SG&A related to commissions paid to IOs are variable in nature and generally increase as gross profits rise and decrease as gross profits decline. We expect that our SG&A will continue to increase in future periods as we continue to grow our net sales and gross profits. The components of our SG&A may not be comparable to the components of similar measures of our competitors and other retailers.
Restructuring Charges
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. See Note 12 to the condensed consolidated financial statements for additional information on the Restructuring Plan.
Operating Income (Loss)
Operating income (loss) is gross profit less SG&A. Operating income (loss) excludes interest expense, net and income tax benefit (expense). We use operating income (loss) as an indicator of the productivity of our business and our ability to manage expenses.
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Results of Operations
The following table summarizes key components of our results of operations both in dollars and as a percentage of net sales (amounts in thousands, except for percentages):
13 Weeks Ended
March 29,
2025 % of Net Sales (1)
March 30,
2024 % of Net Sales (1)
$ Change % Change (2)
Net sales $ 1,125,567 100.0 % $ 1,036,944 100.0 % $ 88,623 8.5 %
Cost of sales 783,122 69.6 % 732,999 70.7 % 50,123 6.8 %
Gross profit 342,445 30.4 % 303,945 29.3 % 38,500 12.7 %
Selling, general and administrative expenses 331,078 29.4 % 303,382 29.3 % 27,696 9.1 %
Restructuring charges
33,875 3.0 % — — % 33,875 100.0 %
Operating (loss) income (22,508) (2.0) % 563 0.1 % (23,071) *
Interest expense, net 6,520 0.6 % 3,176 0.3 % 3,344 105.3 %
Loss before income taxes (29,028) (2.6) % (2,613) (0.3) % (26,415) *
Income tax benefit (5,711) (0.5) % (1,588) (0.2) % (4,123) 259.6 %
Net loss and comprehensive loss $ (23,317) (2.1) % $ (1,025) (0.1) % $ (22,292) *
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(1) Components may not sum to totals due to rounding.
* Represents a change that is not meaningful.
Operating Metrics and Non-GAAP Financial Measures
Number of New Stores
The number of new stores reflects the number of stores opened or acquired during a particular reporting period. Newly opened stores require an initial capital investment from us for store build-outs, fixtures and equipment that we amortize over time as well as cash required for inventory and pre-opening expenses and typically the issuance of IO notes to support IO startup costs. Certain newly acquired stores may require refreshes and new fixtures.
We expect new store growth to be a significant and critical driver of our net sales growth over the long term. We lease substantially all of our store locations. Our initial lease terms on stores are typically ten years with options to renew for two or three successive five-year periods.
Comparable Store Sales
We use comparable store sales as an operating metric to measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year. Comparable store sales are impacted by the same factors that impact net sales.
Comparable store sales consist of net sales from our stores beginning on the first day of the fourteenth full fiscal month following a store's opening, which is when we believe comparability is achieved, or the thirteenth full fiscal month following a store's acquisition. Included in our comparable store definition are those stores that have been remodeled, expanded, or relocated in their existing location or respective trade areas. Excluded from our comparable store definition are those stores that have been temporarily closed for an extended period, those that have had their business materially disrupted for both planned projects as well as due to unforeseen circumstances, permanent store closures and dispositions. When applicable, as is the case with fiscal 2025, we exclude the net sales in the non-comparable week of a 53-week year from the same store sales calculation after comparing the current and prior year weekly periods that are most closely aligned.
Opening or, on a limited strategic basis, acquiring new stores is a primary component of our growth strategy and, as we continue to execute on our growth strategy, we expect that a significant portion of our net sales growth will be attributable to non-comparable store net sales. Accordingly, comparable store sales is only one of many measur es we use to assess the success of our growth strategy.
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EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share
EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share are non-GAAP financial measures that are supplemental key metrics used by management and our Board of Directors to assess our financial performance. EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share are also frequently used by analysts, investors and other interested parties to evaluate us and other companies in our industry. Management believes it is useful to investors and analysts to evaluate these non-GAAP financial measures on the same basis as management uses to evaluate our operating results. We use these non-GAAP financial measures to supplement GAAP financial measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. In addition, we use adjusted EBITDA to supplement GAAP financial measures of performance to evaluate our performance in connection with compensation decisions. We believe that excluding items from operating income (loss), net income (loss) and earnings (net loss) per diluted share that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides additional information for analyzing trends in our business.
We define EBITDA as net income (loss) before net interest expense, income taxes and depreciation and amortization expenses. Adjusted EBITDA represents EBITDA adjusted to exclude share-based compensation expenses, asset impairment and gain or loss on disposition, acquisition and integration costs, restructuring charges, and certain other expenses that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude. Adjusted net income represents net income (loss) adjusted for the previously mentioned adjusted EBITDA adjustments, further adjusted for the amortization of property and equipment purchase accounting asset step-ups and deferred financing costs, tax adjustment to normalize the effective tax rate, and tax effect of total adjustments. Basic adjusted earnings per share is calculated using adjusted net income, as defined above, and basic weighted average shares outstanding. Diluted adjusted earnings per share is calculated using adjusted net income, as defined above, and diluted weighted average shares outstanding. These non-GAAP financial measures may not be comparable to similar measures reported by other companies and have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. We address the limitations of the non-GAAP financial measures through the use of various GAAP measures. In the future, we will incur expenses or charges such as those added back to calculate adjusted EBITDA or adjusted net income. Our presentation of these non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by the adjustments we have used to derive such non-GAAP measures.
The following table summarizes key operating metrics and non-GAAP financial measures for the periods presented (amounts in thousands, except for percentages and store counts):
13 Weeks Ended
March 29,
2025 March 30,
2024
Other Financial and Operations Data
Number of new stores
11 6
Number of stores open at end of period 543 474
Comparable store sales increase (1)
0.3 % 3.9 %
EBITDA (2)
$ 7,389 $ 25,452
Adjusted EBITDA (2)
$ 51,885 $ 39,395
Adjusted net income (2)
$ 13,007 $ 8,809
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(1) Comparable store sales consist of net sales from our stores beginning on the first day of the fourteenth full fiscal month following the store's opening, which is when we believe comparability is achieved, or the thirteenth full fiscal month following the store's acquisition.
(2) See "GAAP to Non-GAAP Reconciliations" section below for the applicable reconciliations.
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GAAP to Non-GAAP Reconciliations
The following tables provide a reconciliation from our GAAP net loss to EBITDA and adjusted EBITDA, GAAP net loss to adjusted net income, and our GAAP net loss per share to adjusted earnings per share for the periods presented (amounts in thousands, except per share data):
13 Weeks Ended
March 29,
2025 March 30,
2024
Net loss
$ (23,317) $ (1,025)
Interest expense, net 6,520 3,176
Income tax benefit
(5,711) (1,588)
Depreciation and amortization expenses 29,897 24,889
EBITDA 7,389 25,452
Share-based compensation expenses (1)
5,458 8,142
Asset impairment and gain or loss on disposition (2)
135 364
Acquisition and integration costs (3)
339 2,649
Restructuring charges (4)
33,875 —
Other (5)
4,689 2,788
Adjusted EBITDA $ 51,885 $ 39,395
13 Weeks Ended
March 29,
2025 March 30,
2024
Net loss
$ (23,317) $ (1,025)
Share-based compensation expenses (1)
5,458 8,142
Asset impairment and gain or loss on disposition (2)
135 364
Acquisition and integration costs (3)
339 2,649
Amortization of purchase accounting assets and deferred financing costs (6)
1,268 1,322
Restructuring charges (4)
33,875 —
Other (5)
4,689 2,788
Tax adjustment to normalize effective tax rate (7)
3,163 (794)
Tax effect of total adjustments (8)
(12,603) (4,637)
Adjusted net income $ 13,007 $ 8,809
GAAP net loss per share:
Basic $ (0.24) $ (0.01)
Diluted $ (0.24) $ (0.01)
Adjusted earnings per share:
Basic $ 0.13 $ 0.09
Diluted $ 0.13 $ 0.09
Weighted average shares outstanding:
Basic 97,521 99,520
Diluted 97,521 99,520
Non-GAAP weighted average shares outstanding
Basic 97,521 99,520
Diluted (9)
98,227 101,136
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(1) Includes non-cash share-based compensation expense.
(2) Represents non-restructuring asset impairment charges and gains or losses on dispositions of assets.
(3) Represents costs related to the acquisition and integration of United Grocery Outlet, including due diligence, legal, other consulting and retention bonus expenses.
(4) Represents charges related to the Restructuring Plan as described in Note 12 to the condensed consolidated financial statements.
(5) Represents other non-recurring, non-cash or non-operational items, such as certain personnel-related hiring and termination costs, system implementation costs, costs related to employer payroll taxes associated with equity awards, legal settlements and other legal expenses, store closing costs, strategic project costs and miscellaneous costs.
(6) Represents the incremental amortization of an asset step-up resulting from purchase price accounting related to our acquisition in 2014 by an investment fund affiliated with Hellman & Friedman LLC, as well as the amortization of debt issuance costs.
(7) Represents adjustments to normalize the effective tax rate for the impact of unusual or infrequent tax items that we do not consider in our evaluation of ongoing performance, including excess tax expenses or benefits related to stock option exercises and vesting of time-based restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") that are recorded in earnings as discrete items in the reporting period in which they occur.
(8) Represents the tax effect of the total adjustments. We calculate the tax effect of the total adjustments on a discrete basis excluding any non-recurring and unusual tax items.
(9) To calculate diluted adjusted earnings per share, we adjusted the weighted-average shares outstanding for the dilutive effect of all potential shares of common stock. As discussed in Note 9 to the condensed consolidated financial statements, there is no difference in the weighted-average shares outstanding used to calculate the basic and diluted GAAP net loss per share due to the Company's net loss for the periods presented.
Comparison of the 13 weeks ended March 29, 2025 and March 30, 2024 (amounts in thousands, except percentages)
Net Sales
13 Weeks Ended
March 29,
2025 March 30,
2024 $ Change % Change
Net sales $ 1,125,567 $ 1,036,944 $ 88,623 8.5 %
The increase in net sales was primarily attributable to an increase in non-comparable store net sales growth primarily from the 69 net new stores acquired or opened over the last 12 months as well as comparable store sales.
Comparable store sales increased 0.3%, driven by a 2.3% increase in the number of transactions, partially offset by a 2.0% decrease in average transaction size. Comparable store sales were impacted by the timing shift of the Easter holiday, which occurred during the first quarter of fiscal 2024 while comparatively occurring during the second quarter of fiscal 2025.
Cost of Sales, Gross Profit and Gross Margin
13 Weeks Ended
March 29,
2025 March 30,
2024 $ Change % Change
Cost of sales $ 783,122 $ 732,999 $ 50,123 6.8 %
% of net sales 69.6 % 70.7 %
Gross profit
$ 342,445 $ 303,945 $ 38,500 12.7 %
Gross margin
30.4 % 29.3 %
T he increases in cost of sales and gross profit were primarily the result of an increase in non-comparable net sales from the 69 net new stores acquired or opened over the last 12 month s combined with comparable store sales .
Cost of sales as a percenta ge of net sales decreased, and correspondingly gross margin increased, due primarily to improvements in inventory management capabilities, which was adversely impacted by our system upgrades in the prior year as certain tools we used to manage the business on our legacy system took longer to rebuild.
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Selling, General and Administrative Expenses
13 Weeks Ended
March 29,
2025 March 30,
2024 $ Change % Change
SG&A $ 331,078 $ 303,382 $ 27,696 9.1 %
% of net sales 29.4 % 29.3 %
The increase in SG&A was driven by $22.7 million in higher store-related expenses and $5.0 million in higher corporate-related expenses. Store-related expenses increased primarily as a result of higher store occupancy costs and depreciation due to the 69 net new stores acquired or opened over the last 12 months, additional personnel costs from the Company-operated stores acquired in the United Grocery Outlet transaction in the prior year and increases in other store costs. Corporate-related expenses increased primarily due to increases in costs to support the continued growth of the business.
SG&A as a percentage of net sales increased primarily due to additional personnel costs from the Company-operated stores acquired in the United Grocery Outlet transaction in the prior year and increases in other store costs, partially offset by a decrease from elective commission support we provided to IOs in the prior year related to the systems conversion.
Restructuring Charges
13 Weeks Ended
March 29,
2025 March 30,
2024 $ Change % Change
Restructuring charges
$ 33,875 $ — $ 33,875 100.0 %
% of net sales 3.0 % — %
Restructuring charges for the 13 weeks ended March 29, 2025 included 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 (see Note 12 to the condensed consolidated financial statements for additional information).
Interest Expense, Net
13 Weeks Ended
March 29,
2025 March 30,
2024 $ Change % Change
Interest expense, net $ 6,520 $ 3,176 $ 3,344 105.3 %
% of net sales 0.6 % 0.3 %
The increase in net interest expense was primarily driven by higher average principal debt outstanding during the 13 weeks ended March 29, 2025, due largely to fund share repurchases in prior periods and the acquisition of United Grocery Outlet since the end of the first quarter of fiscal 2024, as well as cash expenditures related to the Company's Restructuring Plan as discussed in the "Recent Trends and Developments" section above.
See Note 11 and Note 12 to the condensed consolidated financial statements for additional information regarding the acquisition of United Grocery Outlet and the Restructuring Plan, respectively.
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Income Tax Benefit
13 Weeks Ended
March 29,
2025 March 30,
2024 $ Change % Change
Income tax benefit
$ (5,711) $ (1,588) $ (4,123) 259.6 %
% of net sales (0.5) % (0.2) %
Effective income tax rate
19.7 % 60.8 %
The increase in income tax benefit was primarily due to a corresponding increase in pretax book loss, partially offset by excess tax expense from the exercise and vesting of certain stock compensation awards during the 13 weeks ended March 29, 2025 compared to excess tax benefits related to the exercise and vesting of certain stock compensation awards during the same period in fiscal 2024.
The change in our effective income tax rate 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 compared to excess tax benefits related to the exercise and vesting of certain stock compensation awards during the same period in fiscal 2024.
Net Loss
13 Weeks Ended
March 29,
2025 March 30,
2024 $ Change % Change (1)
Net loss
$ (23,317) $ (1,025) $ (22,292) *
% of net sales (2.1) % (0.1) %
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* Represents a change that is not meaningful.
Net loss was $23.3 million for the 13 weeks ended March 29, 2025 compared to net loss of $1.0 million for the same period in fiscal 2024 as a result of the foregoing factors.
Adjusted EBITDA
13 Weeks Ended
March 29,
2025 March 30,
2024 $ Change % Change
Adjusted EBITDA $ 51,885 $ 39,395 $ 12,490 31.7 %
The increase in adjusted EBITDA was primarily attributable to increased gross margin and an increase in comparable store sales of 0.3% for the 13 weeks ended March 29, 2025 as well as non-comparable store sales, partially offset by higher SG&A, as discussed above.
Adjusted Net Income
13 Weeks Ended
March 29,
2025 March 30,
2024 $ Change % Change
Adjusted net income $ 13,007 $ 8,809 $ 4,198 47.7 %
The increase in adjusted net income was primarily attributable to increased gross margin and an increase in comparable store sales of 0.3% for the 13 weeks ended March 29, 2025 as well as non-comparable store sales, partially offset by higher SG&A (including higher depreciation expense) and higher net interest expense, as discussed above.
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Liquidity and Capital Resources
Sources of Liquidity
Based on our current operations and new store growth plans, we expect to satisfy our short-term and long-term cash requirements through a combination of our existing cash and cash equivalents position, funds generated from operating activities, and the borrowing capacity available in the revolving credit facility under our credit agreement, dated February 21, 2023, with Bank of America, N.A. (the "2023 Credit Agreement"). If cash generated from our operations and borrowings under the revolving credit facility are not sufficient or available to meet our liquidity requirements, then we will be required to obtain additional equity or debt financing in the future. There can be no assurance that equity or debt financing will be available to us when we need it or, if available, the terms will be satisfactory to us and not dilutive to our then-current stockholders. Additionally, we may seek to take advantage of market opportunities to refinance our existing debt instruments with new debt instruments at interest rates, maturities and terms we deem attractive.
As of March 29, 2025, we had cash and cash equivalents of $50.9 million, which consisted primarily of cash held in checking and money market accounts with financial institutions. In addition, we have a revolving credit facility with $400.0 million in borrowing capacity under the 2023 Credit Agreement. As of March 29, 2025, we had $190.0 million of borrowings outstanding under the revolving credit facility and $4.5 million of outstanding standby letters of credit, resulting in $205.5 million of remaining borrowing capacity available under this revolving credit facility.
The senior secured credit facilities of the 2023 Credit Agreement permit us to add incremental term loan facilities, increase any existing term loan facility, increase revolving commitments, and/or add incremental replacement revolving credit facility tranches. The aggregate principal amount of such incremental facilities are limited to (a) an amount not in excess of the sum of the greater of $200.0 million and 100% of Consolidated EBITDA (as defined in the 2023 Credit Agreement), subject to certain limitations, plus (b) voluntary prepayments of 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 (as defined in the 2023 Credit Agreement) of 3.00 to 1.00.
We may also, from time to time, at our sole discretion, prepay or retire all or a portion of our outstanding debt.
Material Cash Requirements
There has been no material change in our material cash requirements since the end of fiscal 2024, other than those which occur in the ordinary course of business and the information noted below. See our 2024 Form 10-K for additional information.
Capital Expenditures
Capital expenditures include purchases of capital assets such as property and equipment as well as intangible assets and licenses. Capital expenditures for the 13 weeks ended March 29, 2025, before the impact of tenant improvement allowances, were $65.3 million, and, net of tenant improvement allowances, were $57.3 million. We currently expect total capital expenditures, net of tenant improvement allowances, to be approximately $210.0 million for fiscal 2025, which includes new store growth, upgrades to our existing fleet including United Grocery Outlet store capital improvement, ongoing investments in technology and supply chain and infrastructure.
Debt Obligations
The 2023 Credit Agreement requires us to make scheduled quarterly amortization payments of the senior term loan. Such payments total $43.1 million over the remaining term of the senior term loan, with $13.1 million payable over the remainder of fiscal 2025. The remaining senior term loan principal balance and any outstanding revolving credit facility balance will become due in February 2028 at maturity. See Note 3 to the condensed consolidated financial statements for additional information.
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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.
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Cash Flows
The following table summarizes our cash flows for the periods presented (amounts in thousands):
13 Weeks Ended
March 29,
2025 March 30,
2024 $ Change % Change
Net cash provided by operating activities $ 58,938 $ 7,841 $ 51,097 651.7 %
Net cash used in investing activities (68,684) (50,887) (17,797) 35.0 %
Net cash used in financing activities (2,172) (5,056) 2,884 (57.0) %
Net decrease in cash and cash equivalents $ (11,918) $ (48,102) $ 36,184 (75.2) %
Cash Provided by Operating Activities
The increase in net cash provided by operating activities of $51.1 million for the 13 weeks ended March 29, 2025 compared to the same period in fiscal 2024 was primarily driven by changes in accrued and other liabilities, accrued compensation and merchandise inventory levels, partially offset by the net loss for the 13 weeks ended March 29, 2025. The change in accrued and other liabilities and merchandise inventory levels was partially due to the disruptions related to the implementation of our systems conversion for the 13 weeks ended March 30, 2024, as well as restructuring charges accrued for the 13 weeks ended March 29, 2025 related to the Restructuring Plan (see Note 12 to the condensed consolidated financial statements for additional information).
Cash Used in Investing Activities
The increase in net cash used in investing activities of $17.8 million for the 13 weeks ended March 29, 2025 compared to the same period in fiscal 2024 was primarily due to increased spending on property and equipment due to higher store count and construction related to future stores, as well as increased supply chain investments.
Cash Used in Financing Activities
Net cash used in financing activities of $2.2 million for the 13 weeks ended March 29, 2025 was primarily due to $1.9 million in a scheduled principal payment on the senior term loan under the 2023 Credit Agreement. Net cash used in financing activities of $5.1 million for the 13 weeks ended March 30, 2024 was primarily due to the repurchase of $5.3 million of our common stock and $1.9 million in scheduled principal payments on the senior term loan under the 2023 Credit Agreement, partially offset by $3.4 million in proceeds from the exercise of stock options.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP and the applicable rules and regulations of the SEC for interim reporting. The preparation of our condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our judgments and estimates are based on historical experience and other factors believed to be reasonable under the circumstances. With respect to critical accounting policies, even a relatively minor variance between actual and expected results can potentially have a materially favorable or unfavorable impact on subsequent results of operations.
There have been no material changes to our critical accounting policies and estimates during the 13 weeks ended March 29, 2025 from those disclosed in our 2024 Form 10-K.
Recent Accounting Pronouncements
Refer to Note 1 to the condensed consolidated financial statements included elsewhere in this report.
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