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• failure to maintain or increase comparable store sales;
−Removed: • any significant disruption to our distribution network, the operations, technology and capacity of our distributions centers and our timely receipt of inventory;
+Added: • any significant disruption to our distribution and transportation network, the operations, technology and capacity of our distribution centers and our timely receipt of inventory;
• risks associated with newly opened stores;
−Removed: • risks associated with our growth strategy, including opening, relocating or remodeling stores on schedule and on budget, as well as the revised near-term new store growth strategy as reflected in the Restructuring Plan;
−Removed: • financial and operating impacts associated with our Restructuring Plan;
+Added: • risks associated with our long-term growth strategy, including opening, relocating or remodeling stores on schedule and on budget;
+Added: • risks with implementing our revised near-term growth strategy, including financial and operating impacts associated with our Restructuring Plan and Optimization Plan;
+Added: • risks related to our plan to operate certain of our newly opened stores in fiscal 2026 as Company-operated stores;
• inflation and other changes affecting the market prices of the products we sell;
• failure to maintain our reputation and the value of our brand, including protecting our intellectual property;
−Removed: • failure to remediate our material weakness in our internal control over financial reporting;
• inability to maintain sufficient levels of cash flow from our operations to fund our growth strategy;
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• risks associated with economic conditions;
+Added: • risks associated with uncertainty and changes in U.S.
+Added: trade policies, including tariffs;
• competition in the retail food industry;
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We do not have significant control over the supply, cost or availability of many of the opportunistic products offered for sale in our stores.
−Removed: Shortages or disruptions in the availability of quality products that excite our customers and drive customer traffic could have a material adverse effect on our
−Removed: business, financial condition and results of operations, including our gross margin.
+Added: Shortages or disruptions in the availability of quality products that excite our customers and drive customer traffic could have a material adverse effect on our business, financial condition and results of operations, including our gross margin.
As our store base continues to grow, our ability to secure opportunistic products in sufficient quantities may become more difficult.
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Further consolidation of manufacturers or distributors could reduce our supply options and detrimentally impact the terms under which we purchase products.
−Removed: If one or more of our existing significant suppliers were to be unable or unwilling to continue providing products to us on attractive terms, or at all, we may have difficulty finding replacement suppliers on commercially reasonable terms or at all.
+Added: If one or more of our existing significant suppliers became unable or unwilling to continue providing products to us on attractive terms, or at all, we may have difficulty finding replacement suppliers on commercially reasonable terms or at all.
The loss of one or more of our existing significant suppliers or our inability to develop relationships with new suppliers could reduce our competitiveness, slow our plans for further expansion and cause our net sales and operating results, including our gross margin, to be materially adversely affected.
−Removed: Our supply chain is subject to risks, including distribution and transportation, labor disputes or constraints, union organizing activities, financial liquidity, inclement weather, natural disasters, significant public health and safety events, supply constraints and general economic and political conditions that could limit our suppliers' ability to provide us with quality products.
−Removed: As discussed elsewhere in these risk factors, the occurrence of these risks have in the past delayed or precluded, and may in the future delay or preclude, delivery of product to us on a timely basis or at all.
We may not be able to successfully identify trends to meet consumer demand and maintain an appropriate level of opportunistic products or general inventory.
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We may not successfully address consumer trends or be able to acquire desirable opportunistic products, and we expect competition for customers to increase as online shopping by customers continues to expand.
+Added: In addition, a majority of the assortment in each Grocery Outlet store is selected by IOs based on local preference and shopping history, and the inability of the IOs to successfully identify trends in the local market could materially adversely affect our financial performance.
We generally make individual purchase decisions for products that become available, and these purchases may be for large quantities that we may not be able to sell on a timely or cost-effective basis.
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We base our purchases of inventory, in part, on our sales forecasts.
−Removed: Since the implementation of system upgrades in August 2023, we and our IOs have experienced significant issues with ordering, inventory planning and management and payment processing, including our ability to accurately forecast sales, which resulted in reduced net sales and gross margin during fiscal 2023 and fiscal 2024.
−Removed: If our sales forecasts overestimate customer demand or we do not have accurate real-time product and inventory levels, we may experience higher inventory levels and need to take markdowns on excess or slow-moving inventory, leading to decreased profit margins.
−Removed: Conversely, if our sales forecasts underestimate customer demand or we do not have accurate real-time product and inventory levels, we may have insufficient inventory to meet demand, leading to lost sales.
−Removed: Either of the foregoing challenges could materially adversely affect our financial performance.
+Added: If our sales forecasts overestimate customer demand or we do not have accurate data or visibility into real-time product and inventory levels, we may experience higher inventory levels and need to take markdowns on excess or slow-moving inventory, leading to decreased profit margins.
+Added: Conversely, if our sales forecasts underestimate customer demand or we do not have accurate data or visibility into real-time product and inventory levels, we may have insufficient inventory to meet demand, leading to lost sales.
+Added: Either of these foregoing challenges could materially adversely affect our financial performance.
In addition, a majority of the assortment in each Grocery Outlet store is selected by IOs based on local preference and shopping history, and the inability of the IOs to successfully identify trends in the local market could materially adversely affect our financial performance.
−Removed: Our long-term success depends in part on our ability and the ability of the IOs to maintain or increase comparable store sales, and if we are unable to continue to achieve comparable store growth over the long-term, our profitability and performance could be materially adversely impacted.
−Removed: The IOs are responsible for store operations.
+Added: If we are not able to continue to achieve comparable store growth over the long term, our profitability and performance could be materially adversely impacted.
+Added: The IOs are responsible for store operations at their store locations.
Our success depends on, among other things, increasing comparable store sales through our opportunistic purchasing strategy and the ability of the IOs to increase sales and profits.
−Removed: net sales, and therefore comparable store sales growth and profits, we and the IOs focus on delivering value and generating customer excitement by strengthening opportunistic purchasing, providing an increasing number of everyday products, optimizing inventory management, maintaining strong store conditions and effectively marketing current products and new product offerings.
+Added: To increase net sales, and therefore comparable store sales growth and profits, we and the IOs focus on delivering value and generating customer excitement by strengthening opportunistic purchasing, providing an increasing number of everyday products, optimizing inventory management, maintaining strong store conditions and effectively marketing current products and new product offerings.
Competition and pricing pressures from competitors and suppliers may also materially adversely impact our comparable sales if we lose customers as a result.
−Removed: While we have had positive comparative sales growth for the vast majority of our history, we may not be able to maintain or improve our comparable store sales growth in future years for many reasons, many of which we do not significantly control, including general economic conditions that may not favor our model, operational performance (including by the IOs), price inflation or deflation, or changes in response to competitive factors, changes in our existing supplier relationships or our inability to develop new supplier relationships, industry competition (e-commerce), new competitive entrants near our stores, price changes in response to competitive factors, any comparison year or quarter having above-average net sales results, possible supply shortages or other operational disruptions, the number and dollar amount of customer transactions in our stores, our ability to provide product or service offerings that generate new and repeat visits to our stores and the level of customer engagement that we and the IOs provide in our stores.
+Added: Our comparable store sales growth slowed in fiscal 2025 and fiscal 2024 and we may not be able to improve our comparable store sales growth to historical levels and our comparable store sales may decline in future years for many reasons, many of which we do not significantly control, including general economic conditions that may not favor our model, operational performance (including by the IOs), price inflation or deflation, or changes in response to competitive factors, changes in our existing supplier relationships or our inability to develop new supplier relationships, industry competition including through e-commerce, new competitive entrants, price changes in response to competitive factors, possible supply shortages or other operational disruptions, the number and dollar amount of customer transactions in our stores, our ability to provide product or service offerings that generate new and repeat visits to our stores and the level of customer engagement that we and the IOs provide in our stores.
In addition, we may not accurately model cannibalization by our new stores when we open new stores in established markets, which could reduce comparable store sales.
−Removed: Significant disruption in our distribution network, our timely receipt of inventory, and adequate distribution center capacity and technology has had in recent years, and could continue to have, an adverse impact on our operating performance.
+Added: Significant disruption in our distribution and transportation network, our timely receipt of inventory, and adequate distribution center capacity and technology have had in recent years, and could continue to have, an adverse impact on our operating performance.
We rely on our distribution, transportation and technology network and systems to provide goods to our distribution centers and stores in a timely and cost-effective manner.
−Removed: Our stores are highly dependent on the successful operations of our distribution, transportation and technology networks, as IOs use these systems to order multiple deliveries per week and many of our products have a limited shelf life from the time of purchase, particularly opportunistic buys and fresh foods.
+Added: Our stores are highly dependent on the successful operation of our distribution, transportation and technology networks, as IOs use these systems to order multiple deliveries per week and many of our products have a limited shelf life from the time of purchase, particularly opportunistic buys and fresh foods.
Deliveries to our stores occur from our distribution centers or directly from our suppliers.
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Any disruption, unanticipated or unusual expense or operational failure related to these processes and systems could affect store operations negatively.
−Removed: Our system upgrades during fiscal 2023 resulted in significant ordering and inventory disruptions during fiscal 2023 and fiscal 2024, which resulted in reduced net sales and gross margin.
−Removed: Please also see the risk factor below entitled:
−Removed: "Any material challenges or difficulties in maintaining or updating our existing technology, including developing or implementing new technology could have a material adverse effect on our business or results of operations."
We have also experienced ordering and inventory disruptions in recent years related to system issues at our third-party distribution centers.
If similar circumstances were to occur and persist, they could have a material adverse impact on our operations and our ability to generate sales and earn profits.
−Removed: In addition, events beyond our control, such as disruptions in operations due to fire, adverse weather conditions or other catastrophic events or labor disagreements, may result in delays in the delivery of merchandise to our stores.
−Removed: While we maintain business interruption and cybersecurity insurance, in the event our distribution centers are shut down for any reason, such insurance may not be sufficient and any related insurance proceeds may not be timely paid to us, and our reputation and customer relationships could still be adversely impacted.
+Added: In addition, events beyond our control, such as disruptions in operations due to natural disasters, adverse weather conditions, labor disputes or constraints, significant public health and safety events, or general economic and political conditions, may result in delays in the delivery of merchandise to our stores.
+Added: While we maintain business interruption and cybersecurity insurance, in the event our distribution centers or the third-party distribution centers that we utilize are shut down for any reason, such insurance may not be sufficient and any related insurance proceeds may not be timely paid to us, and our reputation and customer relationships could still be adversely impacted.
Furthermore, there can be no guarantee that we will be able to renew the leases or third-party distribution and transportation contracts, as applicable, on our distribution centers on attractive terms or at all, which may increase our expenses and cause temporary disruptions in our distribution network.
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Our new store locations receiving shipments may be further away from our distribution centers, which may increase transportation costs and may create transportation scheduling strains, or may require us to add additional facilities to the network.
−Removed: We are simplifying our planned investments in our distribution infrastructure strategy in fiscal 2025 and fiscal 2026, which could hinder our ability to compete with companies that have invested in multi-temperature facilities or have a more efficient distribution model.
−Removed: See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Developments – Restructuring Plan” for additional information.
+Added: For fiscal 2025 and fiscal 2026, we shifted our planned investments in our distribution infrastructure strategy from highly capital-intensive projects to lower cost distribution centers, which could hinder our ability to compete with companies that have invested in multi-temperature or automated facilities or have a more efficient distribution model.
Our newly opened stores may negatively impact our financial results in the short-term and/or may not achieve sales and operating levels consistent with our more mature stores on a timely basis or at all.
We have actively pursued new store growth, including in new markets, and plan to continue doing so strategically in the future.
−Removed: Our new store openings may not be successful or reach the sales and profitability levels of our existing stores,
−Removed: particularly in new markets.
+Added: Our new store openings may not be successful or reach the sales and profitability levels of our existing stores, particularly in new markets.
These factors have in the past and may continue to impact our ability to attract and develop potential IOs.
−Removed: Some new stores may be located in areas with different competitive and market conditions as well as different customer discretionary spending patterns than our existing markets.
+Added: Some new stores may be located in areas with different competitive market conditions as well as different customer discretionary spending patterns than our existing markets.
Some new stores and future new store opportunities may be located in new geographic areas where we have limited or no meaningful experience or brand recognition.
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New store openings may negatively impact our financial results due to the effect of store opening costs and lower sales and contribution to overall profitability during the initial period following opening.
−Removed: In recent years, our costs to build a new store have increased in the past two years and our planned efforts to engineer reduced costs to build will take time and resources, and we may not be successful in part or whole in reducing such costs.
−Removed: New stores, particularly those in new markets, build their sales volume, brand recognition and customer base over time and, as a result, for approximately four to five years, generally have lower margins and higher operating expenses as a percentage of sales than our more mature stores.
−Removed: New stores may not achieve sustained sales and operating levels consistent with our more mature store base on a timely basis or at all.
+Added: In recent years, our costs to build a new store have increased and our planned efforts to engineer reduced costs to build will take time and resources, and outcomes are influenced by various factors beyond our control.
+Added: New stores, particularly those in new markets, build their sales volume, brand recognition and customer base over time and, as a result, for generally four to five years, have lower margins and higher operating expenses as a percentage of sales than our more mature stores.
+Added: New stores may not achieve sustained sales and operating levels consistent with our more mature store base on a timely basis or at all, and we may decide to close stores that we are unable to operate in a profitable manner.
This lack of performance may have a material adverse effect on our financial condition and operating results.
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We may not manage our expansion effectively, and our failure to achieve or properly execute our expansion plans could limit our growth or have a material adverse effect on our business, financial condition and results of operations.
−Removed: Our growth strategy is highly dependent on our ability to identify and open future store locations and relocate or remodel existing store locations in new and existing markets, and we are revising our near-term new store growth strategy as reflected in our Restructuring Plan.
−Removed: We continue to believe that strategic new store growth remains a significant and critical driver of long-term stockholder value.
−Removed: However, while our long-term goal is to continue to expand our store base, we may not be able to, or determine it is prudent to, consistently achieve a high rate of new store growth on a year-over-year basis.
−Removed: As part of our Restructuring Plan, we are optimizing new store growth in fiscal 2025 and fiscal 2026 to increase efficiencies for distribution and optimize brand awareness and marketing.
−Removed: There can be no assurance that our revised new store growth strategy will be successful.
−Removed: See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Developments – Restructuring Plan” for additional information.
−Removed: In fiscal 2024 , we opened 27 new stores and also acquired 40 stores in connection with our acquisition of United Grocery Outlet .
−Removed: Our ability to open stores in a timely and successful manner depends in part on the following factors:
+Added: Our long-term growth strategy is highly dependent on our ability to identify and open future store locations and relocate or remodel existing store locations in new and existing markets.
+Added: We continue to believe that strategic new store growth remains a critical driver of long-term stockholder value.
+Added: However, we may not be able to, or may determine it is not prudent to, consistently implement a high rate of new store growth on a year-over-year basis.
+Added: We have recently revised our near-term growth strategy, including through our Restructuring Plan and Optimization Plan, although there can be no assurance that such strategy will be successful.
+Added: In the ordinary course, our ability to open stores in a timely and successful manner depends in part on the following factors:
the availability of attractive store locations (including stores that will not compete significantly with existing stores and that can be reasonably serviced by our distribution network) and rent prices;
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the ability to secure and manage the inventory necessary for the launch and operation of new stores;
−Removed: the availability of capital funding for expansion;
+Added: the availability of cash flows and capital funding for expansion;
and general economic conditions.
Any or all of these factors and conditions could materially adversely affect our growth and profitability.
−Removed: While our long-term goal is to continue to expand our store base, we cannot assure you that we will be able to consistently (on a year-over-year basis) achieve a high level of new store growth and attractive return on capital, and we are focusing our near-term new store growth strategy in an effort to ensure strong new store execution.
Over the last few years, planned construction and opening of new stores have been, and may continue to be, negatively impacted due to labor and materials shortages as well as longer lead times in lease execution, site permitting and construction.
−Removed: These challenges impacted our organic new store growth in recent years.
−Removed: Additionally, we may expand into neighboring states and regions in the United States and/or engage in further acquisitions to meet our growth goals, and such expansion heightens the risks, challenges and uncertainties of development.
−Removed: We may not have the level of cash flow or financing necessary to support our growth strategy.
−Removed: Further, much of our new store growth is in new markets where we do not have the same brand recognition at this time.
−Removed: Our proposed expansion will place increased demands on our operational, managerial and administrative resources.
−Removed: These increased demands could cause us to operate our existing business less efficiently, which in turn could cause deterioration in the financial performance of our existing stores.
−Removed: If we experience a decline in performance, we may further slow or discontinue store openings, or we may decide to close stores that are unable to operate in a profitable manner.
−Removed: If we fail to successfully implement our growth strategy, including our strategy in connection with the Restructuring Plan, by opening new stores on a timely basis and on budget, our operations, financial condition and operating results would be materially and adversely affected.
−Removed: Our Restructuring Plan may have a material adverse impact on our results of operations and our estimated costs may differ substantially from actual costs incurred.
−Removed: During the fourth quarter of fiscal 2024, we began to initiate the Restructuring Plan that is intended to improve our profitability and cash flow generation, optimize the footprint of new store growth and lower our cost base.
−Removed: See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Developments – Restructuring Plan” for additional information.
−Removed: The costs associated with the Restructuring Plan adversely impacted our results of operations in the fourth quarter of fiscal 2024, and may have a material adverse impact on our results of operations for one or more quarters in fiscal 2025 and for fiscal 2025.
−Removed: In addition, we may fail to manage any disruptions to our operations or growth strategy from the Restructuring Plan.
−Removed: Further, the Restructuring Plan may harm our reputation with landlords, prospective employees and other stakeholders, may harm our retention of remaining employees, and may not generate the intended benefits to the extent or as quickly as anticipated, any of which could have an adverse effect on our business, financial condition and results of operations.
−Removed: The estimated costs of the Restructuring Plan are subject to a number of assumptions and risks and will be refined over time as more information becomes available, and therefore actual results may differ substantially from our estimates.
−Removed: In particular, the majority of expenses associated with the Restructuring Plan relate to lease terminations, and our estimated costs associated with certain planned lease terminations remain subject to various uncertainties.
−Removed: While we have reached agreement in the first quarter of fiscal 2025 regarding a number of planned lease terminations, our estimates of the costs of the Restructuring Plan assume that we will reach agreement with respect to each planned lease termination, which is uncertain.
+Added: Additionally, we may expand into neighboring states and regions in the United States where we do not have the same brand recognition and/or engage in further acquisitions to meet our growth goals, and such expansion heightens the risks, challenges and uncertainties of development.
+Added: Such expansion could place increased demands on our operational, managerial and administrative resources and cause us to operate our existing business less efficiently.
+Added: If we experience a decline in performance, we may further slow or discontinue store openings, or we may decide to close additional stores that are unable to operate in a profitable manner.
+Added: If we fail to successfully implement our long-term growth strategy, our operations, financial condition and operating results would be materially and adversely affected.
+Added: We are implementing a revised near-term growth strategy, including through the Restructuring Plan and Optimization Plan, and we may not achieve expected benefits on a timely basis or at all, we may incur unexpected costs and liabilities, and our operations and financial performance may be materially and adversely impacted.
+Added: As part of our revised near-term growth strategy, we completed the implementation of the Restructuring Plan in fiscal 2025 and we recently initiated the Optimization Plan.
+Added: See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Developments – Optimization Plan and Restructuring Plan” for additional information.
+Added: The implementation of the Restructuring Plan and Optimization Plan may significantly harm our
+Added: reputation with landlords, employees, IOs, and other stakeholders, and we may not realize the intended benefits from these actions to the extent or as quickly as anticipated.
+Added: With respect to the Optimization Plan:
+Added: we may not be able to implement the lease terminations and subleases as anticipated on a timely basis, at an acceptable cost (in the case of terminations) or at market prices for the remaining terms (in the case of subleases), or at all;
+Added: the actual amount of expenses and cash expenditures may exceed our estimates;
+Added: we may incur additional expenses not currently contemplated due to unanticipated events associated with such plan;
+Added: the plan may harm our reputation with and lead to disputes with landlords, employees and IOs, and other stakeholders;
+Added: the plan may not generate the intended benefits to the extent or as quickly as anticipated;
+Added: and we may fail to manage any disruptions to our operations or growth strategy during such implementation.
If we are unable to agree with a landlord on acceptable terms on which to terminate a lease or are otherwise unable to sublease or assign our interest in the lease to a third party, we may be required to continue to perform obligations under the lease, including paying rent and incurring other operating expenses during the lease term.
If we assign or sublease a lease to a third party, we may still have to pay a portion of the rent and other expenses and we can remain liable for the lease obligations if the assignee or sublessee does not perform.
−Removed: In addition, if our efforts to terminate, sublease or assign a lease are unsuccessful and we do not perform our obligations under the lease, the landlord may contend that we are in default under the lease and initiate legal proceedings against us, which could increase the costs relating to the Restructuring Plan beyond what we currently anticipate.
−Removed: We may also incur other material costs not currently contemplated due to events that may occur as a result of, or in connection with, our restructuring activities.
−Removed: If we incur unanticipated expenses, charges or liabilities or fail to manage any growth or any scaling back of our operations, then we may not be able to effectively realize the anticipated benefits and the Restructuring Plan could have an adverse effect on our business, financial condition and results of operations.
+Added: In addition, if our efforts to terminate, sublease or assign a lease are unsuccessful and we do not perform our obligations under the lease, the landlord may contend that we are in default under the lease and initiate legal proceedings against us, which could increase the costs relating to the Optimization Plan beyond what we currently anticipate.
+Added: Any of the foregoing matters could have an adverse effect on our business, financial condition and results of operations.
+Added: We plan to operate certain of our newly opened stores in fiscal 2026 as Company-operated stores and may utilize this approach thereafter, which differs from our historical practice and subjects us to additional risks and uncertainties.
+Added: We plan to operate certain of the stores that we open in fiscal 2026 as Company-operated stores for an uncertain time period and intend to eventually transition the operations for each store to an IO.
+Added: If we believe this approach is successful, it could be applied in more markets as we continue to grow.
+Added: Traditionally, our stores have been operated by IOs for their life cycle, and the IOs are responsible for operational decision-making for their store, including hiring, training and employing their own workers as well as ordering and merchandising products.
+Added: Operating certain of our newly opened stores as Company-operated stores, in addition to the Company-operated stores acquired from United Grocery Outlet, requires considerable resources, including a significant increase of employees, will result in additional expense, and may require us to divert resources from other areas of the business.
+Added: Additionally, operating these stores as Company-operated stores will expose us to store-level risks that are typically absorbed by IOs, such as employment claims, labor issues and general liability claims, which may result in additional expense.
+Added: Failure to successfully operate and manage the risks of the Company-operated stores or the failure to identify qualified IOs to transition such stores on a timely basis or at all could adversely impact our growth strategy and have a material adverse effect on our business, financial condition and results of operations.
Because we are an extreme value retailer and compete for customers to a substantial degree based on price, changes affecting the market prices of the products we sell, many of which we cannot control, including due to inflation or deflation, competition, supplier increases in freight, supply or other operating costs, including energy prices, or worsening economic conditions, could materially adversely affect our financial condition and operating results.
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We carefully monitor the market prices of our products in order to maintain our price advantage and reputation.
−Removed: In recent years, we have experienced varying levels of inflation, resulting in part from various supply disruptions, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain and other disruptions caused by the recent economic environment, which we have not been able to fully offset through price increases.
+Added: In recent years, we have experienced varying levels of inflation, resulting in part from various supply disruptions, increased shipping and transportation costs, tariffs, increased commodity costs, increased labor costs in the supply chain and other disruptions caused by the recent economic environment, which we have not been able to fully offset through price increases.
Our IOs have experienced increased costs related to labor and utilities, among others.
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As a result of our low-price model, the foregoing competitive pressures may reduce our profitability and materially adversely affect our business, financial condition and results of operations.
−Removed: If we fail to maintain our reputation and the value of our brand, including protection of our intellectual property rights, our sales and operating results may decline and the carrying value of our goodwill and other intangible assets may be impaired.
+Added: If we fail to maintain our reputation and the value of our brand, including protection of our intellectual property rights, our sales and operating results may decline.
We believe our continued success depends on our ability to maintain and grow the value of our brand.
Brand value is based in large part on perceptions of subjective qualities.
−Removed: The reputation of our company and our brand may be damaged in all, one or some of the markets in which we do business, by adverse events at the corporate level or by an IO acting
−Removed: outside of Grocery Outlet's brand standards, or by action (or inaction), by us or our IOs on issues like social policies, merchandising, compliance related to social, product, labor and environmental standards or other sensitive topics.
+Added: The reputation of our company and our brand may be damaged in all, one or some of the markets in which we do business, by adverse events at the corporate level or by an IO acting outside of Grocery Outlet's brand standards, or by action (or inaction), by us or our IOs on issues like social policies, merchandising, compliance related to social, product, labor and environmental standards or other sensitive topics.
Further, any perceived lack of transparency about such matters could harm our reputation.
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Bringing or defending any such claim, regardless of merit, and whether successful or unsuccessful, could be expensive and time-consuming and have a negative effect on our business, reputation, results of operations and financial condition.
−Removed: Our brand value and intellectual property represents a significant portion of our goodwill and intangible assets.
+Added: If we fail to maintain our reputation and the value of our brand, the carrying value of our goodwill and other intangible assets may be impaired.
+Added: Our brand value and intellectual property represent a significant portion of our goodwill and intangible assets.
Accounting rules require us to review the carrying value of our goodwill and other intangible assets for impairment annually or whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable.
−Removed: If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge.
−Removed: The testing goodwill and intangible assets for impairment requires us to make estimates that are subject to significant assumptions.
+Added: If the testing indicates that an impairment has occurred, we are required to record a non-cash impairment charge.
+Added: During the fourth quarter of fiscal 2025, we performed our annual impairment evaluation of goodwill, which indicated that the fair value of the Company was lower than its carrying value, resulting in the recognition of a non-cash impairment charge of $149.0 million during fiscal 2025.
+Added: Testing goodwill and intangible assets for impairment requires us to make estimates that are subject to significant assumptions.
Changes in our estimates, or changes in actual performance compared with these estimates, may affect the fair value of goodwill or intangible assets, which also may result in a non-cash impairment charge.
If a significant amount of our goodwill and other intangible assets were deemed to be impaired, our financial condition and results of operations could be materially adversely affected.
−Removed: Difficulties associated with the replacement of components of our enterprise resource planning system caused a material weakness in our internal control over financial reporting and remediation is currently ongoing.
−Removed: If we are unable to remediate the existing material weakness in our internal control over financial reporting or if we experience other material weaknesses, it may negatively impact our ability to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which in turn could cause the trading price of our common stock to decline.
−Removed: In connection with the preparation of financial statements for fiscal 2023, management determined that we had a material weakness in our internal control over financial reporting related to certain information technology general computer controls that were insufficient during the replacement of components of our enterprise resource planning system in late August 2023, which led to a significant increase in the volume of transactions across user access, program change management, and information technology operations for which our existing controls were not designed to address.
−Removed: Our remediation efforts have been ongoing since the fiscal quarter ended December 30, 2023, and we did not achieve our prior expectation to be able to remediate such material weakness by the end of fiscal 2024.
−Removed: The corrective controls were implemented during the fiscal year ending December 28, 2024, but need to continue operating effectively for a sufficient period of time to conclude the material weakness has been remediated.
−Removed: However, we cannot assure that the measures we have taken to date and may take in the future, will be sufficient to remediate the previously identified control deficiencies that led to our material weakness.
−Removed: We also cannot assure that we will be able to prevent or avoid material weaknesses in the future.
−Removed: See “Item 9A.
−Removed: Controls and Procedures” for additional information.
−Removed: Any weaknesses or deficiencies or any
−Removed: failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, our obligations under our debt instruments or result in material omissions or misstatements in our financial statements.
−Removed: Any material weakness (including the material weakness referenced above) and our failure to remediate such material weakness could have a material adverse effect on our business and financial statements, as well as our reputation and reduce our stock price.
−Removed: Additionally, material weaknesses could result in litigation or regulatory actions by the SEC or other regulatory authorities or other disputes involving federal and state securities laws, loss of investor confidence, and diversion of financial and management resources from the operation of our business.
−Removed: If we are unable to remediate any material weakness, including the current material weakness, within a reasonable time period or not at all, the foregoing risks may be heightened.
We will require significant capital to fund our expanding business.
If we are unable to maintain sufficient levels of cash flow from our operations, we may not be able to execute or sustain our growth strategy or we may require additional financing, which may not be available to us on satisfactory terms or at all.
−Removed: Our cash flow from operations may not provide sufficient capital to support our expanding business and execute our growth strategy, including to pay our lease obligations, build out new stores and distribution centers, remodel our stores, purchase opportunistic inventory, pay employees competitive wages and provide benefits, continue the ongoing modernization, enhancement and maintenance of our information systems, make loans to IOs and further invest in the business.
+Added: Our cash flow from operations may not provide sufficient capital to support our expanding business and execute our growth strategy, including to pay our lease obligations, build out new stores and distribution centers, remodel our stores, purchase opportunistic inventory, pay employees competitive wages and provide benefits, continue the ongoing modernization, enhancement and maintenance of our information systems, make loans to IOs, operate Company-operated
+Added: stores and further invest in the business.
Further, our plans to grow our store base may create cash flow pressure if new locations do not perform as projected.
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We currently lease substantially all of our store locations, primary distribution centers and administrative offices (including our headquarters in Emeryville, California), and a number of these leases expire or are up for renewal each year.
−Removed: Our operating leases typically have initial lease terms of ten years with renewal options for two or three successive five-year periods at our discretion .
+Added: Our operating leases typically have initial lease terms of ten to fifteen years with renewal options for three or four successive five-year periods at our discretion .
Typically, the largest portion of a store's operating expense that we bear is the cost associated with leasing the location.
−Removed: Our total lease payment obligations for all operating leases in existence as of December 28, 2024 was $146.3 million for fiscal 2025 and $1.5 billion in aggregate for fiscal years 2026 through 2043, and these obligations will increase as we open new stores that are leased.
+Added: Our total lease payment obligations (excluding any unexercised option periods) for all operating leases in existence as of January 3, 2026 was $169.8 million for fiscal 2026 and $1.17 billion in aggregate for fiscal years 2027 through 2045, and these obligations will increase as we open new stores that are leased.
We are also generally responsible for property taxes, insurance and common area maintenance for our leased properties.
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The operating leases for our store locations, distribution centers and administrative offices expire at various dates through 2045.
−Removed: When the lease term for our stores expire, we may be unable to negotiate renewals, either on commercially reasonable terms or at all, which could cause us to close stores or to relocate stores within a market on less favorable terms.
+Added: When the lease terms for our stores expire, we may be unable to negotiate renewals, either on commercially reasonable terms or at all, which could cause us to close stores or to relocate stores within a market on less favorable terms.
Any of these factors could cause us to close stores in desirable locations, which could have a material adverse impact on our results of operations.
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While we have the right to terminate some of our leases under specified conditions, we may not be able to terminate a particular lease if or when we would like to do so or on commercially reasonable terms.
−Removed: We recently have determined to terminate an aggregate of 23 leases for unopened stores in fiscal 2025 and fiscal 2026.
−Removed: See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Developments – Restructuring Plan” for additional information about our Restructuring Plan.
−Removed: If we decide to close stores, we are generally required to continue to perform obligations under the applicable leases,
−Removed: which generally include paying rent and operating expenses for the balance of the lease term.
+Added: In connection with the Optimization Plan, we determined to terminate or sublease a total of 36 leases in connection with the closure of underperforming stores in fiscal 2026 along with the termination or sublease of a distribution center facility that we are no longer utilizing.
+Added: If we decide to close stores, we are generally required to continue to perform obligations under the applicable leases, which generally include paying rent and operating expenses for the balance of the lease term.
When we assign leases or sublease space to third parties, we may have to pay a portion of the rent and other expenses, and we can remain liable on the lease obligations if the assignee or sublessee does not perform.
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There is no assurance that we and the IOs will be able to attract or retain highly qualified employees to operate our business.
−Removed: In connection with the Restructuring Plan, we reduced headcount by approximately 40 full-time employees in the first quarter of fiscal 2025.
−Removed: This part of the Restructuring Plan could negatively impact our or our IOs' reputation as an employer of choice and our or our IOs' ability to attract, train, and retain qualified employees in the future.
+Added: This risk may be enhanced as we open certain of our store locations as Company-operated stores.
Additionally, we believe that our success depends to a significant extent on the skills, experience and efforts of our executive officers and other key personnel, and we do not maintain key person insurance on any of our key personnel.
−Removed: Due to the uniqueness of our model, the unexpected loss of services of any of our executive officers or other key personnel could have a material adverse effect on our business and operations.
−Removed: In fiscal 2024 and fiscal 2025, we completed thorough and external searches for a new Chief Financial Officer and a new President and Chief Executive Officer, respectively, following the departure of their predecessors.
+Added: Due to the uniqueness of our model, the unexpected loss of services of any of our executive officers or other key personnel
+Added: could have a material adverse effect on our business and operations.
+Added: In fiscal 2024 and fiscal 2025, we completed thorough and external searches for several new executive officers, including a new Chief Financial Officer and a new President and Chief Executive Officer.
We utilized interim officers to serve in such capacities for a period of time as well.
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If the efficacy of our marketing or promotional activities declines or if such activities of our competitors are more effective than ours, it could have a material adverse effect on our business, financial condition and results of operations.
−Removed: While we have recently launched a mobile personalization app, which informs customers of new and top selling items, provides curated product recommendations and tracks savings, we do not maintain a traditional loyalty program for customers, and our competitors may be able to offer their customers promotions or loyalty program incentives that could result in fewer shopping trips to or purchases from our stores.
+Added: While we have a mobile personalization app which informs customers of new and top selling items, provides curated product recommendations and tracks savings, we do not maintain a traditional loyalty program for customers, and our competitors may be able to offer their customers promotions or loyalty program incentives that could result in fewer shopping trips to or purchases from our stores.
If we are unable to retain the loyalty of our customers, our sales could decrease and we may not be able to grow our store base as planned, which could have a material adverse effect on our business, financial condition and results of operations.
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In the event of a natural or man-made disaster, governments have and, in the future, may declare a state of emergency and impose regulations on business operations.
−Removed: These occurrences could adversely impact our business by causing direct asset or inventory losses or physical damage to our distribution centers or our stores, store closures, reduced customer traffic or
−Removed: changed shopping behaviors, disruptions to production, supply and delivery of products to our stores, staffing shortages, increased costs or disruptions to our information systems and other systems.
−Removed: As of December 28, 2024, we operated 274 stores and distributed product from four distribution centers in California in addition to having our administrative offices in California, making California our largest market, representing 51% of our total stores.
+Added: These occurrences could adversely impact our business by causing direct asset or inventory losses or physical damage to our distribution centers or our stores, store closures, reduced customer traffic or changed shopping behaviors, disruptions to production, supply and delivery of products to our stores, staffing shortages, increased costs or disruptions to our information systems and other systems.
+Added: As of January 3, 2026, we operated 284 stores and distributed product from four distribution centers in California in addition to having our administrative offices in California, making California our largest market, representing 50% of our total stores.
As a result, our business is currently more susceptible to any unforeseen events or circumstances of the types described above that negatively affect these areas as well as regional conditions, economic downturns or disruptions, such as changes in demographics, population and employee bases, wage increases, property tax increases, and changes in economic conditions, than the operations of more geographically diversified competitors.
For example, there have been significant fires across the west coast of the United States over the last several years, causing a number of stores to be closed as well as suffer inventory losses related to power outages and evacuations.
−Removed: In 2018, our store in Paradise, California, burned down entirely.
−Removed: In early 2025, certain stores in Southern California were also impacted by fires.
+Added: For example, in 2025, certain stores in Southern California were impacted by fires.
The frequency and severity of wildfires may increase in the future due to climate change and man-made catastrophes may increase in the future as well.
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Additionally, to the extent that a pathogen is, or is perceived to be, food-borne, the price and availability of certain food products may be impacted and could cause our customers to consume less of such product.
−Removed: In recent months, our gross margins have been adversely impacted by the unexpected rise in egg costs due to the Avian flu, and certain egg producers have experienced shortages, all of which we anticipate to continue in fiscal 2025.
+Added: For example, in 2024 our industry was impacted by the unexpected shortage in supply and rise in egg costs due to the Avian flu.
Furthermore, the long-term impacts of climate change are expected to be widespread and unpredictable.
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These factors could, among other negative consequences, increase our energy costs, damage our stores or distribution centers, disrupt our supply chain, negatively impact our workforce or reputation, and increase compliance and technology costs.
−Removed: Any of these occurrences may disrupt our business and materially adversely affect our financial condition and results of operations and the occurrence of any of these events in a region where our stores or other operations are concentrated may increase the impact of such disruption and adverse effect.
+Added: Any of these occurrences may disrupt our business and materially adversely affect our financial condition and results of operations and the occurrence of any of these events in a region where our stores or other operations are concentrated may increase the impact of such disruption and adverse effects.
We may incur losses not covered by our insurance or claims may differ from our estimates.
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Further, injured parties with claims against our IOs may bring actions against us if our IOs failed to secure and retain adequate insurance.
−Removed: Certain types of events, such as earthquakes, wildfires or hurricanes, may result in sizable losses for the insurance industry and adversely impact the availability of adequate insurance coverage or result in excessive premium increases.
−Removed: Our retail stores located in California, and the inventory in those stores, are generally not currently insured against losses due to earthquakes.
−Removed: We have experienced significant challenges in renewing the insurance policies for our stores and insurers have incurred substantial losses related to property claims from fires, floods and other catastrophic events and are significantly increasing policy premiums, increasing their requirements around building engineering standards or cutting back capacity for coverage offerings to layered/quota share.
−Removed: For example, there have been significant fires across the west coast of the United States over the last several years.
−Removed: In 2018, our store in Paradise, California, burned down entirely and we have also suffered inventory losses related to power outages and evacuations due to fires.
−Removed: In early 2025, certain stores in Southern California were also impacted by fires.
−Removed: These risks may be exacerbated in the future due to climate change.
−Removed: To offset negative insurance market trends, we may elect to increase our self-insurance coverage, accept higher deductibles or reduce the amount of coverage.
We currently self-insure, or insure through captive insurance companies, a significant portion of expected losses under our workers' compensation, automobile liability and general liability insurance programs.
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As we continue to grow, enter different regions and operate distribution centers, unions may attempt to organize the employees of our different IOs or our distribution centers within certain regions.
−Removed: If we determine to open more Company-operated stores, we may have additional employees represented by unions.
+Added: We may from time to time open or operate stores as Company-operated stores, and we are planning to open certain new stores in fiscal 2026 in this manner.
+Added: As we do so, this may subject our stores to greater union organizing efforts than we have experienced in the past.
We cannot predict the adverse effects that any future organizational activities will have on our business, financial condition and operating results.
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Our failure to participate effectively in the growing online retail marketplace may adversely affect our business.
−Removed: During fiscal 2021 and fiscal 2022, we entered into partnerships with three third party grocery delivery companies to provide online shopping at our stores.
−Removed: Certain of our competitors and a number of pure online retailers have established robust online operations and significantly increased their online sales and presence in recent years.
+Added: While we have entered into partnerships with three third party grocery delivery companies to provide online shopping at our stores, certain of our competitors and a number of pure online retailers have established robust online operations and significantly increased their online sales and presence in recent years.
Increased competition from online grocery retailers and our lack of a robust online retail presence may reduce our customers' desire to purchase products from us.
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From time to time, we may pursue or consummate acquisitions and other transactions, including material acquisitions, investments or joint venture transactions, as part of our business and real estate growth strategy to complement our current business by enhancing our customer base, geographic penetration and scale.
−Removed: For example, on April 1, 2024, we acquired United Grocery Outlet, which included 40 stores in six adjacent states where we did not then-operate and a distribution center.
−Removed: Identifying, assessing, consummating and integrating a strategic acquisition or other transaction is a complex, costly and time-consuming process that is subject to significant uncertainties and risks, which may divert the attention of the management team and key personnel from our core business and adversely impact our business, financial condition and results of operations.
+Added: For example, in 2024, we acquired United Grocery Outlet, which included 40 stores in six adjacent states where we did not then operate and a distribution center.
+Added: Identifying, assessing, consummating and integrating a strategic acquisition or other transaction is a complex, costly and time-consuming process that is subject to significant uncertainties and risks, which may divert the attention of the
+Added: management team and key personnel from our core business and adversely impact our business, financial condition and results of operations.
Additionally, acquisitions and similar transactions may utilize significant liquidity and require additional equity or debt financing, and we may not have sufficient capital for our core business.
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and difficulties in the assimilation of employees and corporate cultures.
+Added: These risks and uncertainties may impede our ability to successfully complete integrations following strategic acquisitions that we make, and we may choose to later divest businesses that we acquire.
+Added: Any such sale of acquired assets could result in impairment of goodwill or assets, we may not be able to achieve a favorable return on our investment in the assets, and we may incur significant additional expenses in connection with any sales process.
Even if a target company is successfully integrated, an acquisition may fail to further our business strategy as anticipated, adversely impact our reputation, lead to impairment of our purchased goodwill and intangible assets, and expose us to additional liabilities and risks (particularly if entering into new markets or businesses where we have no or limited experience).
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General conditions in the United States and global economy that are beyond our control may materially adversely affect our business and financial performance.
−Removed: While we have not previously been materially adversely affected by periods of decreased consumer spending, any factor that could materially adversely affect the disposable income of our customers could decrease our customers' spending and number of trips to our stores, which could result in lower sales, increased markdowns on products, a reduction in profitability due to lower margins and may require increased selling and promotional expenses.
−Removed: These factors include but are not limited to unemployment, minimum wages, significant public
−Removed: health and safety events, inflation and deflation, tariffs (including those currently announced or threatened, or that may be in the future), the threat, outbreak or escalation of terrorism, military conflicts, or other hostilities and related international sanctions (such as the ongoing Russia-Ukraine or Middle East conflicts), trade wars and interest and tax rates.
+Added: While we have not historically been materially adversely affected by periods of decreased consumer spending, any factor that could materially adversely affect the disposable income of our customers could decrease our customers' spending and number of trips to our stores, which could result in lower sales, increased markdowns on products, a reduction in profitability due to lower margins and may require increased selling and promotional expenses.
+Added: These factors include but are not limited to unemployment, minimum wages, significant public health and safety events, government shutdowns, inflation and deflation, tariffs (including those currently announced or threatened, or that may be in the future), the threat, outbreak or escalation of terrorism, military conflicts, or other hostilities and related international sanctions, trade wars and interest and tax rates.
+Added: For example, the U.S.
+Added: Government shutdown during the fourth quarter of fiscal 2025 adversely impacted the disbursement of benefits from federally-funded assistance programs that many of our customers depend on, including SNAP.
Many of the factors identified above also affect commodity rates, costs of transportation, leasing, labor, insurance and healthcare, the strength of the U.S.
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We have limited or no ability to control many of these factors.
+Added: Our business and results of operations may be adversely affected by uncertainty and changes in U.S.
+Added: trade policies, including tariffs, trade agreements or other trade restrictions imposed by the U.S.
+Added: or other governments.
+Added: Our business and results of operations may be adversely affected by uncertainty and changes in U.S.
+Added: trade policies, including tariffs, trade agreements or other trade restrictions imposed by the U.S.
+Added: or other governments.
+Added: For example, during 2025 the U.S.
+Added: government imposed new tariffs on imports from various countries.
+Added: Several tariff announcements have been followed by announcements of limited exemptions and temporary pauses.
+Added: On February 20, 2026, the U.S.
+Added: Supreme Court struck down the majority of the previously announced tariffs, and shortly thereafter the U.S.
+Added: presidential administration issued an executive order invoking new global import tariffs.
+Added: These actions have caused substantial uncertainty and volatility in financial markets and may result in retaliatory measures on U.S.
Food retailers provide alternative options for consumers and compete aggressively to win those consumers;
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To the extent that other food retailers lower prices or run promotions, our ability to maintain profit margins and sales levels may be negatively impacted.
−Removed: We and the IOs may have to increase marketing expense to attract customers, and may have to mark down prices to be competitive and not lose market share.
+Added: We and the IOs may have to increase marketing expenses to attract customers and may have to mark down prices to be competitive and not lose market share.
This limitation may materially adversely affect our margins and financial performance.
−Removed: During fiscal 2024, we observed an increase in promotional and pricing activities from key competitors, which led to our increased efforts to actively negotiate costs and adjust prices to sharpen our value proposition.
Competition for customers has intensified as other discount food retailers, such as Aldi, Lidl and WinCo have moved into, or increased their presence in, our geographic and product markets.
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As competition in certain regions intensifies, or we move into new regions or other food retailers open stores in close proximity to our stores, we may experience a loss of sales, decrease in market share, reduction in margin from competitive price changes or greater operating costs.
−Removed: If consumer trends move toward private label and away from name-brand products, our competitive position in the market may weaken.
−Removed: Additionally, our private label brands may not be successful and may increase certain risks that we face.
−Removed: Our business model has traditionally relied on the sale of name-brand products at meaningful discounts to drive frequent store visits and net sales.
−Removed: Consumer acceptance of, and even preference for, private label products has been increasing, however, and a trend away from name-brand products could weaken our competitive position in the market.
−Removed: Private label products tend to be lower priced than name-brand products and, as a result, we may have more difficulty competing against private label products on the basis of price.
+Added: Our private label brands may not be successful and may increase certain risks that we face.
We began to introduce private label products in our stores during the third quarter of fiscal 2024.
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If we are unable to attract and retain qualified IOs, our financial performance may be negatively affected.
−Removed: Our future growth and performance depend on our ability to attract, develop and retain qualified IOs who can effectively and efficiently run stores, understand and appreciate our culture and are able to represent our brand effectively,
−Removed: in particular because the vast majority of our IOs operate a single store.
+Added: Our future growth and performance depend on our ability to attract, develop and retain qualified IOs who can effectively and efficiently run stores, understand and appreciate our culture and are able to represent our brand effectively, in particular because the vast majority of our IOs operate a single store.
A material decrease in profitability of the IOs may make it more difficult for us to attract and retain qualified IOs.
Our relationship with the IOs is an important part of our business.
−Removed: To alleviate the significant disruption caused by our system upgrades, we elected to provide commission support to IOs beginning in the third quarter of fiscal 2023 and extending through fiscal 2024.
−Removed: We continue to provide minimal commission support to IOs for inventory shrink.
+Added: As discussed elsewhere in these risk factors, the store closures and termination of operator agreements associated with the Optimization Plan may harm our reputation with existing IOs as well as our ability to recruit and retain qualified AOTs.
While we use a variety of methods to attract and develop the IOs, including through our AOT program, there can be no assurance that we will continue to be able to recruit and retain a sufficient number of qualified AOTs and other candidates to open successful new locations in order to meet our growth targets.
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IOs are responsible for operating their store consistent with our brand standards, hiring and supervising store-level employees, merchandising and selling products, conducting local marketing, connecting with their community and complying with applicable laws, and managing and paying the expenses associated with their business.
−Removed: Recently, the costs incurred for many IOs to run their businesses have increased, including insurance, utilities and labor costs.
+Added: In recent years, the costs incurred for many IOs to run their businesses have increased, including insurance, utilities and labor costs.
Although we select IOs through a rigorous vetting and training process and continue to help IOs develop their business skills after they enter into an Operator Agreement with us, it is difficult to predict in advance whether a particular IO will be successful.
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This balance may continue to increase as we open new stores.
−Removed: There were $46.9 million and $41.1 million of IO Notes outstanding as of December 28, 2024 and December 30, 2023, respectively, with allowances of $11.8 million and $11.2 million as of December 28, 2024 and December 30, 2023, respectively.
+Added: There were $57.5 million and $46.9 million of IO Notes outstanding as of January 3, 2026 and December 28, 2024, respectively, with allowances of $14.3 million and $11.8 million as of January 3, 2026 and December 28, 2024, respectively.
If the IOs are unable to avoid excess inventory shrink, our business and results of operations may be adversely affected.
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Excessive shrink generally indicates poor inventory management and the IO's failure to use due care to secure their store against theft.
−Removed: If IOs were to not effectively control or manage inventory in their stores, they could experience higher rates of inventory shrink which could have a material adverse effect on their financial health, which in turn, may materially and adversely affect our business and results of operations.
+Added: If IOs do not effectively control or manage inventory in their stores, they could experience higher rates of inventory shrink which could have a material adverse effect on their financial health, which in turn, may materially and adversely affect our business and results of operations.
Our Operator Agreements may be terminated by either party and upon short notice, and any loss or changeover of an IO may cause material business disruptions.
−Removed: Each Operator Agreement is subject to termination by either party without cause upon 75 days' notice.
+Added: Each Operator Agreement is subject to termination by either party without cause upon no less than 75 days' notice.
We may also terminate immediately "for cause." The "for cause" termination triggers include, among other things, a failure to meet our brand standards, misuse of our trademarks and actions that in our reasonable business judgment threaten to harm our business reputation.
−Removed: If we or an IO terminates the Operator Agreement then we must approve a new IO for that store.
+Added: If we or an IO terminates the Operator Agreement for a store that remains open, then we must approve a new IO for that store.
Any IO changeover consumes substantial time and resources.
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We maintain that under current applicable laws and regulations we are not joint employers with the IOs and should not be held liable for their actions.
−Removed: However, these types of claims may increase costs and affect the scope and terms of insurance or indemnifications we and the IOs may have.
+Added: However, these types of claims may increase costs for us and our IOs and affect the scope and terms of insurance or indemnifications we and the IOs may have.
Our Operator Agreements require each IO to maintain certain insurance types and levels.
−Removed: Losses arising from certain extraordinary hazards, employment matters or other matters, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks, or IOs may fail to procure the required insurance.
+Added: Losses arising from certain extraordinary claims, hazards, employment matters or other matters, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks, or IOs may fail to procure the required insurance.
Moreover, any loss incurred could exceed policy limits and policy payments made to IOs may not be made on a timely basis.
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Nevertheless, the nature of the brand license creates a symbiotic relationship between our outcome and each IO.
−Removed: Indeed, because we and each of the IOs associate our separate businesses with the Grocery Outlet name and brand reputation, the failure of any IO to comply with our brand standards could potentially have repercussions that extend beyond that IO's own market area and materially adversely affect not only our business, but the business of other IOs and the general brand image and reputation of the Grocery Outlet name.
+Added: Because we and each of the IOs associate our separate businesses with the Grocery Outlet name and brand reputation, the failure of any IO to comply with our brand standards could potentially have repercussions that extend beyond that IO's own market area and materially adversely affect not only our business, but the business of other IOs and the general brand image and reputation of the Grocery Outlet name.
This, in turn, could materially and adversely affect our business and operating results.
−Removed: If any particular IO operates a store in a manner inconsistent with our brand standards, we cannot assure you that we will be able to terminate the Operator Agreement of that IO without disruptions to the operations and sales of that IO's store or other stores.
+Added: If any particular IO operates a store in a manner inconsistent with our brand standards, there can be no assurances that we will be able to terminate the Operator Agreement of that IO without disruptions to the operations and sales of that IO's store or other stores.
Risks Related to Our Information Technology Systems, Data Protection and Cybersecurity
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and adding enhanced or new functionality, such as cloud computing technologies.
−Removed: 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.
−Removed: The implementation of these system upgrades resulted in significant ordering and inventory disruptions during fiscal 2023 and fiscal 2024.
−Removed: These disruptions negatively impacted net sales and gross margin in fiscal 2023 and fiscal 2024.
−Removed: These implementation issues also contributed to our material
−Removed: weakness in our internal control over financial reporting, as discussed in "Item 9A.
−Removed: Controls and Procedures" of this Form 10-K.
−Removed: If we experience ongoing disruptions with these updates and/or are unable to remediate our material weakness in the future, such events could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
+Added: In late August 2023, we replaced our internally-developed legacy applications with a customized enterprise resource planning system, including our financial ledger, purchasing, inventory management and reporting platforms as well as integrations with our warehouse and store systems.
+Added: 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 fiscal 2024 and into fiscal 2025.
+Added: If we experience future disruptions from these or similar activities, such events could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
Further, the time, staffing and other resources required to implement or optimize the benefits of new technology initiatives, or potential issues that arise in implementing such initiatives, could reduce the efficiency of our operations in the short term.
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It could require significant expenditures to remediate any such failure or breach, severely damage our reputation and our relationships with customers and suppliers, result in unwanted media attention and lost sales and expose us to risks of litigation and liability.
−Removed: In addition, as a result of recent security breaches and ransomware attacks at a number of prominent retailers, the media and public scrutiny of information security and privacy has become more intense and the regulatory environment has become increasingly uncertain, rigorous and complex.
−Removed: As with most companies, we have experienced cyber-attacks, attempts to breach our systems and other similar incidents, none of which were material in fiscal 2024.
+Added: In addition, as a result of recent security breaches and ransomware attacks at a number of prominent retailers, the media and public scrutiny of information security and privacy has become more intense and the regulatory environment has
+Added: become increasingly uncertain, rigorous and complex.
+Added: As with most companies, we have experienced cyber-attacks, attempts to breach our systems and other similar incidents, none of which were material in fiscal 2024 or fiscal 2025.
As a result, we have incurred significant costs and will continue to incur such costs to monitor and safeguard our systems.
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Because we and the IOs accept payments using a variety of methods, including cash and checks, credit and debit cards, EBT cards and gift cards, we may be subject to additional rules, regulations, compliance requirements and higher fraud losses.
−Removed: For certain payment methods, we or the IOs pay interchange and other related card acceptance fees, along
−Removed: with additional transaction processing fees.
+Added: For certain payment methods, we or the IOs pay interchange and other related card acceptance fees, along with additional transaction processing fees.
We and the IOs rely on third parties to provide payment transaction processing services, including the processing of credit cards, debit cards, EBT cards and gift cards, and it could disrupt our business if these companies become unwilling or unable to provide these services to us, experience a data security incident or fail to comply with applicable laws, rules and industry standards.
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With more employees working remotely at times, there may be increased opportunities for unauthorized access and cyber-attacks.
−Removed: Further, the United States government has warned of the potential risk of Russian cyberattacks stemming from the ongoing Russian-Ukraine conflict.
It is possible that cyber attackers might compromise our security measures and obtain the personal and/or confidential information of the customers, IOs, employees and suppliers that we hold or our business information.
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Unexpected side effects, illness, injury or death caused by products we and the IOs sell or involving suppliers that supply us with products could result in the discontinuance of sales of these products or our relationship with such suppliers or prevent us from achieving market acceptance of the affected products.
+Added: As we introduce more private label products into our stores, we may become subject to various new risks and regulations including claims related to food safety, product liability, product labeling and other risks associated with entities that source, sell and market exclusive private label offerings for retailers.
We cannot be sure that consumption or use of our products will not cause side effects, illness, injury or death in the future, as product deficiencies might not be identified before we sell such products to our customers.
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For example, we or the IOs have had to comply with recent new laws in many of the states or counties in which we operate regarding recycling, waste, minimum wages, sick time, vacation, plastic bag and straw bans and sugar taxes.
−Removed: In addition, we and the IOs are subject to environmental laws, including but not limited to hazardous waste laws, and regulations related to refrigeration and stormwater, pursuant to which we and/or the IOs could be strictly and jointly and severally liable, regardless of our knowledge of or responsibility.
+Added: In addition, we and the IOs are subject to environmental laws, including but not limited to hazardous waste laws, and
+Added: regulations related to refrigeration and stormwater, pursuant to which we and/or the IOs could be strictly and jointly and severally liable, regardless of our knowledge of or responsibility.
Approximately 9% of sales in fiscal 2025 were in the form of EBT payments and a substantial portion of these payments may be related to benefits associated with the SNAP.
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Department of Agriculture or in SNAP benefits by Congress could adversely affect our financial performance.
+Added: Further, the U.S.
+Added: Government shutdown during the fourth quarter of fiscal 2025 adversely impacted the disbursement of benefits from federally-funded assistance programs that many of our customers depend on, including the SNAP.
The registration and ongoing compliance requirements for SNAP participation are fairly complex and each of the IOs holds their registration under the name of their business entity and is responsible for ensuring their employees consistently comply with all SNAP rules.
Failure to comply can result in de-registration by USDA which, for stores located in areas with high percentages of SNAP customers, can have a significant negative financial impact.
−Removed: We cannot assure you that we or the IOs will comply promptly and fully with all laws, regulations, policies and the related interpretations that apply to our stores.
+Added: In addition, any future prolonged government shutdown could delay our ability to register and participate in SNAP for future new stores that we open.
+Added: There can be no assurances that we or the IOs will comply promptly and fully with all laws, regulations, policies and the related interpretations that apply to our stores.
Untimely compliance or noncompliance with applicable regulations or untimely or incomplete execution of a required product recall, can result in the imposition of penalties (including loss of licenses, eligibility to accept certain government benefits such as SNAP or significant fines or monetary penalties), civil or criminal liability, damages, class action litigation or other litigation, in addition to reputational damage.
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Such allegations, claims and proceedings may be brought by third parties, including our customers, suppliers, employees, governmental or regulatory bodies or competitors, and may include class actions.
−Removed: In recent years, companies have experienced an increase in the number of significant discrimination and harassment and wage
−Removed: and hour claims generally.
+Added: In recent years, companies have experienced an increase in the number of significant discrimination and harassment and wage and hour claims generally.
The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify.
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While our IOs and suppliers may indemnify us for certain adverse outcomes, we may still bear significant expenses related to such proceedings.
+Added: Further, while we and the IOs maintain insurance for a variety of potential claims and losses, our and our IOs' insurance coverage may not be sufficient and any related insurance proceeds may not be timely paid to us or to the IOs.
Risks Associated with Our Indebtedness
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(the "2023 Credit Agreement") under which we have a significant amount of indebtedness.
−Removed: The 2023 Credit Agreement provides for senior secured credit facilities consisting of (i) a senior secured term loan facility of $300.0 million, of which $288.8 million was outstanding as of December 28, 2024, and (ii) a senior secured revolving credit facility of $400.0 million, of which $190.0 million was outstanding in aggregate as of December 28, 2024 and $205.5 million was available after giving effect to outstanding letters of credit.
+Added: The 2023 Credit Agreement provides for senior secured credit facilities consisting of (i) a senior secured term loan facility of $300.0 million, of which $273.8 million was outstanding as of January 3, 2026, and (ii) a senior secured revolving credit facility of $400.0 million, of which $220.0 million was outstanding in aggregate as of January 3, 2026 and $174.9 million was available after giving effect to outstanding letters of credit.
+Added: The 2023 Credit Agreement matures on February 21, 2028.
+Added: There can be no assurance that we will be able to pay or refinance the amounts outstanding upon maturity or that other equity or debt financing will be available to us or, if available, the terms will be satisfactory to us and not dilutive to our then-current stockholders.
In addition, subject to limited restrictions in our 2023 Credit Agreement, we may be able to incur substantial additional debt in the future.
−Removed: Our substantial debt could have important consequences to you, including the following:
+Added: Our substantial debt could have important consequences, including the following:
• it may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt, resulting in possible defaults on and acceleration of such indebtedness;
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Furthermore, the terms of any future indebtedness we may incur could have further additional restrictive covenants.
−Removed: We may not be able to maintain compliance with these covenants in the future, and in the event that we are not able to maintain compliance, we cannot assure you that we will be able to obtain waivers from the lenders or amend the covenants.
+Added: We may not be able to maintain compliance with these covenants in the future, and in the event that we are not able to maintain compliance, there can be no assurances that we will be able to obtain waivers from the lenders or amend the covenants.
Risks Related to Accounting, Tax and Financial Statement Matters
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Further, the ultimate amount of tax payable in a given financial statement period may be impacted by sudden or unforeseen changes in tax laws, changes in the mix and level of earnings by taxing jurisdiction, or changes to existing accounting rules or regulations.
−Removed: Accordingly, the determination of our overall provision for income tax and other taxes is inherently uncertain as it requires significant judgement around complex transactions and calculations.
+Added: Accordingly, the determination of our overall provision for income tax and other taxes is inherently uncertain as it requires significant judgment around complex transactions and calculations.
As a result, fluctuations in our ultimate obligations may differ materially from amounts recorded in our financial statements and could adversely affect our business, financial condition and results of operations in the periods where such determination is made.
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Should similar tax measures succeed in other jurisdictions in which we operate, we expect that our operating expenses will increase.
−Removed: As of December 28, 2024, we had tax-effected Federal and State net operating loss deferred tax assets of $25.1 million and $1.0 million, respectively.
+Added: As of January 3, 2026, we had tax-effected Federal and State net operating loss deferred tax assets of $33.5 million and $1.5 million, respectively.
Our ability to use our deferred tax assets is dependent on our ability to generate future earnings within the operating loss carry-forward periods.
−Removed: The $25.1 million tax effected Federal deferred tax asset does not expire and will carryforward indefinitely.
−Removed: The tax effected State deferred tax assets of $1.0 million will expire beginning in 2034.
+Added: The Federal net operating loss deferred tax asset does not expire and will carry forward indefinitely.
+Added: The State net operating loss deferred tax assets will expire beginning in 2035.
Some or all of our deferred tax assets could expire unused if we are unable to generate taxable income in the future sufficient to utilize the deferred tax asset, or we enter into transactions that limit our right to use it.
−Removed: If a material portion of our deferred tax asset expires unused, it could have a material adverse effect on our future business,
−Removed: results of operations, financial condition and the value of our common stock.
+Added: If a material portion of our deferred tax asset expires unused, it could have a material adverse effect on our future business, results of operations, financial condition and the value of our common stock.
Furthermore, we are required by accounting rules to periodically assess our deferred tax assets for a valuation allowance, if necessary.
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• investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives;
+Added: • actions instituted by activist shareholders or others;
• the development and sustainability of an active trading market for our stock.
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In addition, because we are a holding company, our ability to pay dividends on our common stock may be limited by restrictions on our ability to obtain sufficient funds through dividends from our subsidiaries, including restrictions under our Credit Agreement, and may be further restricted by the terms of any future debt or preferred securities.
−Removed: Your only opportunity to achieve a return on your investment currently is if the price of our common stock appreciates.
+Added: Accordingly, the only opportunity to achieve a return on an investment in our common stock currently is if the price of our common stock appreciates.
Future sales, or the perception of future sales, by us or our existing significant stockholders in the public market could cause the market price for our common stock to decline.
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These provisions provide for, among other things:
−Removed: • the division of our Board into three classes (which provision sunsets in 2026);
• the ability of our Board to issue one or more series of preferred stock with powers, preferences and rights that may be senior or on parity with our common stock, which may reduce its value and could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change of control;
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.