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Item 7. Management’s Discussion and Analysis

2026-03-04 compared with 2025-02-26 · 269 added, 183 removed, 255 unchanged (64% of the section changed)

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Risk Factors" or set forth in other sections of this report.

See "Special Note Regarding Forward-Looking Statements" in this report.

For discussion related to the results of operations and changes in financial condition for fiscal 2024 compared to fiscal 2023 refer to "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of this Form 10-K for the fiscal year ended December 30, 2023.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of the Annual Report on Form 10-K for the fiscal year ended December 28, 2024 ("2024 Form 10-K").

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

References to fiscal 2026, fiscal 2025, fiscal 2024, fiscal 2023, and fiscal 2022 refer to the fiscal years ended January 2, 2027, January 3, 2026, December 28, 2024, December 30, 2023, and December 31, 2022, respectively.

Our 2024, 2023 and 2022 fiscal years all consisted of 52 weeks.

References to fiscal 2026, fiscal 2025, fiscal 2024, and fiscal 2023 refer to the fiscal years ended January 2, 2027, January 3, 2026, December 28, 2024, and December 30, 2023, respectively.

Our 2025 fiscal year consisted of 53 weeks while our 2024 and 2023 fiscal years consisted of 52 weeks.

As used in this report, references to "Grocery Outlet," "the Company," "the registrant," "we," "us" and "our," refer to Grocery Outlet Holding Corp.

and its consolidated subsidiaries unless otherwise indicated or the context requires otherwise.

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

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

Our flexible buying model allows us to offer quality, name-brand opportunistic products at prices generally 40% to 70% below those of conventional retailers.

Our Grocery Outlet stores are primarily run by entrepreneurial IOs who create a neighborhood feel through personalized customer service and a localized product offering.

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

As of January 3, 2026, we had 570 stores in California, Washington, Oregon, Pennsylvania, Tennessee, Idaho, Nevada, Maryland, Ohio, New Jersey, North Carolina, Georgia, Alabama, Delaware, Kentucky and Virginia.

Recent Trends and Developments

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Macroeconomic Conditions.

Over the past several years, and to a lesser extent recently, our business has been and continues to be impacted by macroeconomic conditions including supply chain and labor challenges, inflation and subsequent disinflation, and changes in consumer behavior, and our IOs have been impacted by staffing challenges and increased labor costs and utility costs within their businesses.

Over the past several years, our business has been and continues to be impacted by macroeconomic conditions including supply chain and labor challenges, varying rates of inflation, tariffs, and changes in consumer behavior, and our IOs have been impacted by staffing challenges and increased labor costs and utility costs within their businesses.

In recent periods, comparable store sales have been negatively impacted by decreased average transaction size.

We are actively pursuing initiatives to increase average transaction size through our deployment of enhanced in-store merchandising and execution to further improve the shopping experience.

Tariffs, such as those recently implemented or proposed by the U.S.

government on goods imported from other countries, may result in cost increases on some of the products we sell, such as fresh meat and general merchandise that we import from impacted countries, as well as the materials and supplies we use for store construction.

Tariffs may also negatively affect consumer sentiment.

The tariff environment remains highly dynamic and specific tariffs applicable to our business continue to evolve.

While we are regularly re-evaluating the potential impact of implemented and proposed tariffs, the short-term impact of price increases due to tariffs is largely dependent on our ability to negotiate with suppliers, opportunities to change sources of supply, our assortment decisions and whether or not we pass the effects through to our customers, which will largely depend upon competitive market conditions.

It is reasonably possible that new or additional tariffs will be periodically implemented or proposed given the current global trade environment.

Sustained uncertainty about, or worsening of, current global economic conditions and further tariffs and escalations of tensions between the U.S.

and its trading partners has and could continue to adversely impact the stability of global financial markets and result in a global economic slowdown and long-term changes to global trade, which could in turn have a material adverse impact on our business and financial condition.

In February 2026, the Supreme Court of the U.S.

issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA").

The ultimate availability, timing, and amount of any potential refunds of such tariffs remain highly uncertain and are subject to further legal, regulatory, and administrative developments.

presidential administration subsequently invoked additional tariffs under other laws resulting in a rapidly changing tariff environment.

At this time we cannot reasonably estimate the total financial impact of this ruling, however it, and any additional tariffs, may materially affect our future results of operations and cash flows.

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law.

The OBBBA includes several changes to U.S.

federal tax law, including reinstatement of 100% bonus depreciation on qualified property and immediate expensing of domestic research and development expenses.

Certain provisions of the OBBBA will impact the timing of cash tax payments in future periods.

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.

Approximately 9% of our net 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 SNAP.

Any future government shutdowns or other disruptions to these benefits could affect the spending habits of our customers and adversely impact our business performance and results of operations.

Pricing Competition.

During fiscal 2024 we have observed an increase in promotional and pricing activities from key competitors, putting further pressure on our relative value proposition, which in turn, has resulted in our increased efforts to actively negotiate costs and adjust prices to sharpen our value proposition.

Restructuring Plan.

While we continue to believe in our long-term growth potential, we recently reviewed our strategic initiatives and priorities and have determined to simplify our near-term growth strategy in order to build a stronger foundation from which to scale in the future, and to drive sustainable and disciplined growth, profitability and return on invested capital.

In particular, we reassessed our new store opening strategy for fiscal 2025 and fiscal 2026, the efficiency of certain supply chain investments and our general and administrative cost structure.

As a result, during the fourth quarter of fiscal 2024, we began to initiate the Restructuring Plan that is intended to improve our long-term profitability and cash flow generation, optimize the footprint of new store growth and lower our cost base.

As further discussed below, the Restructuring Plan provides for (i) the termination of leases for unopened stores in suboptimal locations, 15 of which we had planned to open in fiscal 2025 and eight of which we had planned to open in fiscal 2026 (the “Lease Terminations”), (ii) the cancellation of certain capital intensive warehouse projects and (iii) the implementation of a workforce reduction, pursuant to which we notified affected employees on February 18, 2025 (the “Workforce Reduction”).

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

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

The Restructuring Plan includes the activities set forth below:

• We are optimizing new store growth in fiscal 2025 and fiscal 2026 to increase efficiencies for distribution and optimize brand awareness and marketing.

Specifically, we are narrowing our focus in our future new store openings to target existing markets and a smaller set of high-priority adjacent new markets to improve new store sales productivity and return on invested capital.

We plan to open 33 to 35 net new stores in fiscal 2025 in existing markets and a smaller set of high-priority adjacent new markets.

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

We estimate that we will incur between $30 million to $37 million of additional cash expense related to the Lease Terminations in the first half of fiscal 2025.

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

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

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

• We are building a more scalable cost structure through the implementation of the Workforce Reduction, which reduced headcount by approximately 40 full-time employees in the first quarter of fiscal 2025 with total cash cost incurred of $1.6 million, including employee severance, employee benefit and related costs.

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

During the last few years we have observed an increase in promotional and pricing activities from key competitors, putting further pressure on our relative value proposition, which in turn, has resulted in our increased efforts to actively negotiate costs and adjust prices to sharpen our value proposition.

Optimization Plan and Restructuring Plan.

To strengthen long-term profitability and cash flow generation, improve operational execution, optimize our existing store footprint and align with our disciplined new store growth strategy, in the first quarter of fiscal 2026 we conducted a strategic, financial and operational analysis of our store fleet.

Following that review, on March 2, 2026, our Board adopted a business optimization plan (the "Optimization Plan") that provides for the closure of 36 financially underperforming stores ("Closure Stores"), including the termination or sublease of the applicable store leases;

the termination or sublease of a lease for a distribution center facility that we are no longer utilizing (together with the store lease terminations and subleases, the "Lease Exits");

and the termination of operator agreements with IOs for the Closure Stores as well as certain other store locations (the "Operator Agreement Terminations").

These actions under the Optimization Plan are expected to be substantially completed during fiscal 2026.

In addition, preceding the adoption of the Optimization Plan, during the reporting process for the audited consolidated financial statements for fiscal 2025, we determined that the long-lived assets of the Closure Stores were impaired, and recognized $110 million of non-cash charges in Impairment of long-lived assets on the consolidated statements of operations and comprehensive income (loss).

We estimate that we will incur between $14 million and $25 million in net total restructuring charges in fiscal 2026 related to the Optimization Plan approved in the first quarter of fiscal 2026.

Estimated restructuring charges expected to be incurred in connection with the Operator Agreement Terminations include bad debt expense of between $11 million and $14 million and cash expenses of between $2 million and $3 million.

The Company intends to negotiate lease terminations with the landlords of the Closure Stores and one distribution center facility during fiscal 2026.

If we are successful in negotiating these lease terminations, the Company expects to incur net restructuring charges for the Lease Exits of between $1 million and $8 million, which primarily includes cash costs of between $49 million and $60 million for lease termination fees, costs to prepare the premises for surrender to the landlords and idle property costs, partially offset by the net non-cash write-off of the right-of-use assets and lease liabilities associated with these leases of between $(48) million and $(52) million.

In addition to the above costs, we estimate that our fiscal 2026 gross profit may be negatively impacted by between $4 million and $6 million as a result of sales discounts or product markdowns to liquidate on-hand inventory during the wind-down of operations of the Closure Stores.

Previously, we initiated a restructuring plan during the fourth quarter of fiscal 2024, which was substantially completed in the second quarter of fiscal 2025, to improve long-term profitability, cash flow generation and return on invested capital, optimize the footprint of new store growth and lower our cost base (the "Restructuring Plan").

The Restructuring Plan included (i) the termination of a total of 28 leases for unopened stores in suboptimal locations and the discontinued development of certain future store sites where we had incurred initial costs, but leases had not yet been signed, (ii) the cancellation of certain capital intensive warehouse projects and (iii) a reduction in headcount in building a more scalable cost structure.

As of January 3, 2026, we incurred total costs under the Restructuring Plan of $61.8 million, of which $38.2 million were cash expenditures.

All costs incurred from the Optimization Plan and the Restructuring Plan during fiscal 2025 and fiscal 2024 are included in Restructuring charges on the consolidated statements of operations and comprehensive income (loss) .

See Note 16 to the consolidated financial statements for additional information regarding the Optimization Plan and the Restructuring Plan, including the costs incurred and restructuring liability activity.

New Store Growth.

Planned construction and opening of new stores has been, and may continue to be, negatively impacted due to both increased lead times to acquire materials, obtain permits and licenses, hook up utilities as well as higher construction and development related costs.

Our new store growth efforts are focused on organic growth combined with complementary real estate opportunities that align with our long-term geographic expansion and store growth strategies.

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On April 1, 2024, we acquired United Grocery Outlet, which included 40 stores in six adjacent states we did not operate in as of such date (Tennessee, North Carolina, Georgia, Alabama, Kentucky and Virginia) and a company-operated distribution center.

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

Excluding the United Grocery Outlet transaction, we opened 27 new stores and closed two stores during fiscal 2024.

Our near-term integration focus is expanding the assortment, investing in store refreshes and new fixtures and introducing some of our marketing programs to the Southeast region.

We plan to open 33 to 35 net new stores in fiscal 2025.

As of January 3, 2026, 39 United Grocery Outlet stores were Company-operated stores.

We plan to open 30 to 33 net new stores in fiscal 2026, excluding the Closure Stores related to the Optimization Plan.

We plan to expand with a more clustered model in new markets to improve supply chain efficiency and marketing leverage that reflects our more disciplined approach.

We are also making adjustments to how we go to market, including piloting new approaches to store openings and underwriting to stricter standards.

For example, we plan to operate certain of these stores as Company-operated stores for an uncertain time period, which differs from our historical practice, and intend to eventually transition the operations for each store to an IO.

Recently implemented and proposed tariffs could further impact our constructions costs.

Enterprise Resource Planning System Upgrades and Challenges .

In late August 2023, we replaced components of our enterprise resource planning system, including our financial ledger, inventory management platform and product data warehouse system.

The implementation of these system upgrades resulted in significant disruption to our business operations, including o rdering and inventory disruptions, as well as payment processing, which adversely impacted our results of operations during the remainder of fiscal 2023, as well as during fiscal 2024, as more fully described below in “Comparison of fiscal 2024 to fiscal 2023." We have since improved the data visibility to help us manage and forecast the business and we continue to work to further improve visibility into additional operating data, and to increase the speed and efficiency of the tools that we and our IOs use to manage the business.

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.

We have since implemented multiple capabilities in fiscal 2025 improving data visibility and increasing the speed and efficiency of tools that we and our IOs use to manage the business effectively, and we continue to work to further improve visibility into additional operating data.

Private Label Products.

In the third quarter of fiscal 2024, we began to introduce our private label products in stores.

In addition to providing better value and inventory consistency for our customers, our private label products are expected to deliver better margins for us and our IOs.

During fiscal 2024, we introduced over 180 new private-label SKUs across various grocery and deli categories.

We offer our private label products in our stores, with approximately 485 private-label SKUs across various grocery, deli, frozen, general merchandise and wine categories as of January 3, 2026.

Our private label products are intended to foster customer loyalty through both everyday commodity staples and unique items exclusive to us.

In addition to providing better value and inventory consistency for our customers, our private label products generally deliver higher margins for us and our IOs.

Opportunistic Product.

Our recent focus on improving in-stocks and ensuring the availability of everyday commodity staples adversely impacted our ability to deliver high-quality opportunistic product and the perception of our value leadership.

As we work to increase opportunistic product levels to what we believe is necessary to improve sales, we intend to invest in additional promotional activity in the near term, which we expect will adversely impact gross margin in the first half of fiscal 2026.

Key Factors and Measures We Use to Evaluate Our Business

We consider a variety of financial and operating measures in assessing the performance of our business.

The key financial measures we use in accordance with accounting principles generally accepted in the United States of America ("GAAP") are net sales, gross profit and gross margin, selling, general and administrative expenses ("SG&A"), operating income, net income and comprehensive income and earnings per share.

The key financial measures we use in accordance with accounting principles generally accepted in the United States of America ("GAAP") are net sales, gross profit and gross margin, selling, general and administrative expenses ("SG&A"), operating income (loss), net income (loss) and comprehensive income (loss) and earnings (net loss) per share.

The key operational metrics and non-GAAP financial measures we use are number of new stores, comparable store sales, EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share.

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Key financial and operating performance results for our fiscal 2025 compared to our fiscal 2024 were as follows:

• Net sales increased 10.1% to $4.37 billion for fiscal 2024 from $3.97 billion for fiscal 2023.

• Comparable store sales increased by 2.7% in fiscal 2024, driven by a 4.2% increase in the number of transactions partially offset by a 1.4% decrease in average transaction size.

• Gross margin decreased by 110 basis points to 30.2%, compared to gross margin of 31.3% for fiscal 2023.

• We added 67 new stores, including 40 stores from the acquisition of United Grocery Outlet, and closed two, ending fiscal 2024 with 533 stores in 16 states.

• SG&A increased 11.4% to $1.24 billion, or 28.4% of net sales.

• Net income was $39.5 million, or $0.40 per diluted share for fiscal 2024, compared to net income of $79.4 million, or $0.79 per diluted share, for fiscal 2023.

• Adjusted EBITDA (1) decreased 6.3% to $236.8 million for fiscal 2024 compared to $252.6 million for fiscal 2023.

• Adjusted net income (1) was $76.3 million, or $0.77 per adjusted diluted share (1) for fiscal 2024 compared to $108.1 million, or $1.07 per adjusted diluted share (1) , for fiscal 2023.

• Net sales increased by 7.3% to $4.69 billion for fiscal 2025 from $4.37 billion for fiscal 2024.

Fiscal 2025 contained one additional week ("53rd week") as compared to fiscal 2024.

The 53rd week included $82.4 million in net sales.

• Comparable store sales increased by 0.5% in fiscal 2025 on a 52-week basis, driven by a 1.6% increase in the number of transactions partially offset by a 1.1% decrease in average transaction size.

• Gross margin increased by 10 basis points to 30.3%, compared to gross margin of 30.2% for fiscal 2024.

• We opened 42 new stores and closed five, ending fiscal 2025 with 570 stores in 16 states.

• SG&A increased by 8.5% to $1.33 billion, or 28.4% of net sales.

• Operating loss was $221.7 million, which included $113.8 million in impairment of long-lived assets, $45.9 million in charges related to the Restructuring Plan and $149.0 million in non-cash charges related to the impairment of goodwill.

Impairment of long-lived assets related to certain underperforming stores, substantially all of which we subsequently determined to close as part of the Optimization Plan.

See Note 5 and Note 16 to the consolidated financial statements for additional information.

• Net loss was $224.9 million, or $(2.30) per diluted share for fiscal 2025, compared to net income of $39.5 million, or $0.40 per diluted share, for fiscal 2024.

• Adjusted net income (1) decreased by 1.5% to $75.2 million, or $0.76 diluted adjusted earnings per share (1) , compared to $76.3 million, or $0.77 diluted adjusted earnings per share (1) , for fiscal 2024.

• Adjusted EBITDA (1) was $254.3 million in fiscal 2025 compared to $236.8 million in fiscal 2024.

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(1) Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures, which exclude the impact of certain special items.

(1) Adjusted net income, diluted adjusted earnings per share and adjusted EBITDA are non-GAAP financial measures, which exclude the impact of certain special items.

Please note that our non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

See "Operating Metrics and Non-GAAP Financial Measures" section below for additional information about these items, including their definitions, how the non-GAAP financial measures provide useful information to investors and how management utilizes them, and reconciliations of the non-GAAP financial measures and the most directly comparable GAAP financial measures.

See the "Operating Metrics and Non-GAAP Financial Measures" section below for additional information about these items, including their definitions, how the non-GAAP financial measures provide useful information to investors and how management utilizes them, and reconciliations of the non-GAAP financial measures and the most directly comparable GAAP financial measures.

Key Components of Results of Operations

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Our customers' discretionary income is impacted by wages, fuel and other cost-of-living increases including food-at-home inflation, as well as consumer trends and preferences, which fluctuate depending on the environment.

Because we offer a broad selection of merchandise at extreme values, historically our business has benefited from periods of economic uncertainty.

Cost of Sales, Gross Profit and Gross Margin

Cost of sales includes, among other things, merchandise costs, inventory markdowns, inventory losses, transportation costs and distribution and warehousing costs, including depreciation.

Gross profit is equal to our net sales less our cost of sales.

Because we offer a broad selection of merchandise at extreme values, our business has in the past benefited from certain periods of economic uncertainty.

Gross Profit and Gross Margin

Gross profit is equal to our net sales less our cost of sales, which includes, among other things, merchandise costs, inventory markdowns, inventory losses, transportation costs and distribution and warehousing costs, including depreciation.

Gross margin is gross profit as a percentage of our net sales.

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SG&A are comprised of both store-related expenses and corporate expenses.

Our store-related expenses include commissions paid to IOs, occupancy and our portion of maintenance costs, depreciation and amortization of store-related assets and the cost of opening new IO stores.

Our store-related expenses include commissions paid to IOs, occupancy and our portion of maintenance costs, depreciation and amortization of store-related assets, the cost of opening new IO stores and impairment of long-lived assets.

Company-operated store-related expenses also include payroll, benefits, supplies and utilities.

Corporate expenses include payroll and benefits for corporate and field support, share-based compensation, marketing and advertising, insurance and professional services, depreciation and amortization of corporate assets, operator recruiting and training costs and impairment of long-lived assets related to the Restructuring Plan.

We continue to closely manage our expenses and monitor SG&A as a percentage of net sales.

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SG&A related to commissions paid to IOs are variable in nature and generally increase as gross profits rise and decrease as gross profits decline.

We expect that our SG&A will continue to increase in future periods as we continue to grow our net sales and gross profits.

We expect that our SG&A will continue to increase in future periods as we continue to grow our net sales and gross profit.

The components of our SG&A may not be comparable to the components of similar measures of our competitors and other retailers.

Operating Income

Operating income is gross profit less SG&A.

Operating income excludes interest expense, net, loss on debt extinguishment and modification and income tax expense.

We use operating income as an indicator of the productivity of our business and our ability to manage expenses.

Impairment of Long-lived Assets

Impairment of long-lived assets includes non-cash asset impairment charges related to certain underperforming stores, substantially all of which we subsequently determined to close as part of the Optimization Plan, and excludes asset impairment charges related to the Restructuring Plan.

See Note 16 to the consolidated financial statements for additional information on the Optimization Plan and the Restructuring Plan.

Restructuring Charges

Restructuring charges include lease termination costs, non-cash impairment and disposal of long-lived assets, employee severance and benefit costs and legal, professional and other costs related to the Restructuring Plan.

See Note 16 to the consolidated financial statements for additional information on the Restructuring Plan.

Goodwill Impairment

Goodwill impairment represents a non-cash impairment charge to the Company's goodwill as a result of our annual impairment evaluation of goodwill we performed during the fourth quarter of fiscal 2025.

Our annual impairment evaluation concluded that the carrying value of goodwill exceeded its fair value and as such an impairment charge was recognized to reduce its carrying value to fair value.

See Note 5 to the consolidated financial statements for additional information.

Operating Income (Loss)

Operating income (loss) is gross profit less SG&A, restructuring charges and goodwill impairment.

Operating income (loss) excludes interest expense, net and income tax expense (benefit).

We use operating income (loss) as an indicator of the productivity of our business and our ability to manage expenses.

Results of Operations

The following tables summarize key components of our results of operations both in dollars and as a percentage of net sales (amounts in thousands, except for percentages):

For discussion related to the results of operations for fiscal 2024 compared to fiscal 2023 refer to "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2024 Form 10-K.

The following table summarizes key components of our results of operations both in dollars and as a percentage of net sales (amounts in thousands, except for percentages) for fiscal 2025 (53 weeks) and fiscal 2024 (52 weeks):

Fiscal Year Ended

2024 December 30,

2023 December 31,

January 3, 2026 December 28, 2024

% of Net Sales (1)

Net sales $ 4,688,759 100.0 % $ 4,371,501 100.0 % $ 317,258 7.3 %

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Selling, general and administrative expenses 1,332,288 28.4 % 1,227,722 28.1 % 104,566 8.5 %

Operating income 78,327 125,782 94,990

Other expenses:

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

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

Total other expenses

Impairment of long-lived assets

113,807 2.4 % — — % 113,807 100.0 %

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

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

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

Fiscal Year Ended

2024 December 30,

2023 December 31,

Percentage of net sales (1)

Net sales 100.0 % 100.0 % 100.0 %

Cost of sales 69.8 % 68.7 % 69.5 %

Gross profit 30.2 % 31.3 % 30.5 %

Selling, general and administrative expenses 28.4 % 28.1 % 27.9 %

Operating income 1.8 % 3.2 % 2.7 %

Other expenses:

Restructuring charges

45,903 1.0 % 15,888 0.4 % 30,015 188.9 %

Goodwill impairment

149,000 3.2 % — — % 149,000 100.0 %

Operating income (loss)

(221,705) (4.7) % 78,327 1.8 % (300,032) *

Interest expense, net 27,480 0.6 % 22,156 0.5 % 5,324 24.0 %

Loss on debt extinguishment and modification — % 0.1 % — %

Total other expenses

Income (loss) before income taxes

(249,185) (5.3) % 56,171 1.3 % (305,356) *

Income before income taxes 1.3 % 2.6 % 2.1 %

Income tax expense 0.4 % 0.6 % 0.3 %

Net income and comprehensive income 0.9 % 2.0 % 1.8 %

Income tax expense (benefit)

(24,273) (0.5) % 16,706 0.4 % (40,979) (245.3) %

Net income (loss) and comprehensive income (loss)

$ (224,912) (4.8) % $ 39,465 0.9 % $ (264,377) *

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(1) Components may not sum to totals due to rounding.

* Represents a change that is not meaningful

Operating Metrics and Non-GAAP Financial Measures

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Certain newly acquired stores may require refreshes and new fixtures.

We expect new store growth to be a significant and critical driver of our net sales growth over the long term.

We expect new store growth to be a significant driver of our net sales growth over the long term.

We lease substantially all of our store locations.

Our initial lease terms on stores are typically ten years with options to renew for two or three successive five-year periods .

Our initial lease terms on stores are typically ten to fifteen years with options to renew for three or four successive five-year periods .

Comparable Store Sales

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Excluded from our comparable store definition are those stores that have been temporarily closed for an extended period, those that have had their business materially disrupted for both planned projects as well as due to unforeseen circumstances, permanent store closures and dispositions.

When applicable, as was the case with fiscal 2020 and will be the case with fiscal 2025, we exclude the net sales in the non-comparable week of a 53-week year from the same store sales calculation after comparing the current and prior year weekly periods that are most closely aligned.

Opening or, on a limited strategic basis, acquiring new stores is a primary component of our growth strategy and, as we continue to execute on our growth strategy, we expect that a significant portion of our net sales growth will be attributable to non-comparable store net sales.

When applicable, as is the case with fiscal 2025, we exclude the net sales in the non-comparable week of a 53-week year from the same store sales calculation after comparing the current and prior year weekly periods that are most closely aligned.

Starting in the second quarter of fiscal 2025, comparable store sales include the addition of stores from the acquisition of United Grocery Outlet on April 1, 2024.

Opening or, on a limited strategic basis, acquiring new stores is a significant component of our growth strategy and, as we continue to execute on our growth strategy, we expect that a significant portion of our net sales growth will be attributable to non-comparable store net sales.

Accordingly, comparable store sales is only one of many measures we use to assess the success of our growth strategy.

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In addition, we use adjusted EBITDA to supplement GAAP financial measures of performance to evaluate our performance in connection with compensation decisions.

We believe that excluding items from operating income, net income and earnings per diluted share that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides additional information for analyzing trends in our business.

We define EBITDA as net income before net interest expense, income tax expenses and depreciation and amortization expenses.

Adjusted EBITDA represents EBITDA adjusted to exclude share-based compensation expenses, loss on debt extinguishment and modification, asset impairment and gain or loss on disposition, acquisition and integration costs, costs related to the amortization of inventory purchase accounting asset step-ups, restructuring charges, and certain other expenses that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude.

Adjusted net income represents net income adjusted for the previously mentioned adjusted EBITDA adjustments, further adjusted for the amortization of property and equipment purchase accounting asset step-ups and deferred financing costs, tax adjustment to normalize the effective tax rate, and tax effect of total adjustments.

We believe that excluding items from operating income (loss), net income (loss) and earnings (net loss) per diluted share that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides additional information for analyzing trends in our business.

We define EBITDA as net income (loss) before net interest expense, income taxes and depreciation and amortization expenses.

Adjusted EBITDA represents EBITDA adjusted to exclude share-based compensation expense, loss on debt extinguishment and modification, asset impairment and gain or loss on disposition, acquisition and integration costs, costs related to the amortization of inventory purchase accounting asset step-ups, restructuring charges, goodwill impairment, and certain other expenses that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude.

Adjusted net income represents net income (loss) adjusted for the previously mentioned adjusted EBITDA adjustments, further adjusted for the amortization of property and equipment purchase accounting asset step-ups and deferred financing costs, tax adjustment to normalize the effective tax rate, and tax effect of total adjustments.

Basic adjusted earnings per share is calculated using adjusted net income, as defined above, and basic weighted-average shares outstanding.

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(1) Fiscal year 2024 includes the addition of 40 stores from the acquisition of United Grocery Outlet on April 1, 2024.

(1) Fiscal 2024 includes the addition of 40 stores from the acquisition of United Grocery Outlet on April 1, 2024.

(2) Comparable store sales consist of net sales from our stores beginning on the first day of the fourteenth full fiscal month following the store's opening, which is when we believe comparability is achieved, or the thirteenth full fiscal month following the store's acquisition.

For fiscal 2025, which is a 53-week year, we excluded the sales in the non-comparable week from the comparable store sales calculation.

(3) See "GAAP to Non-GAAP Reconciliations" section below for the applicable reconciliations.

GAAP to Non-GAAP Reconciliations

The following tables provide a reconciliation from our GAAP net income to EBITDA and adjusted EBITDA, GAAP net income to adjusted net income, and our GAAP earnings per share to adjusted earnings per share for the periods presented (amounts in thousands, except per share data):

The following tables provide reconciliations from our GAAP net income (loss) to EBITDA and adjusted EBITDA, GAAP net income (loss) to adjusted net income, and our GAAP earnings (net loss) per share to adjusted earnings per share for the periods presented (amounts in thousands, except per share data):

Fiscal Year Ended

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2024 December 30,

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

Net income (loss)

$ (224,912) $ 39,465 $ 79,437

Interest expense, net 27,480 22,156 16,361

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

Income tax expense (benefit)

(24,273) 16,706 24,644

Depreciation and amortization expenses 130,388 108,206 87,982

EBITDA (91,317) 186,533 208,424

Share-based compensation expenses (1)

Share-based compensation expense

10,491 10,516 31,091

Loss on debt extinguishment and modification

— 5,340 1,274

Asset impairment and gain or loss on disposition (1)

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Acquisition and integration costs (2)

1,069 8,631 459

Amortization of purchase accounting assets (3)

Restructuring (6)

Restructuring charges (4)

45,903 15,888 —

Goodwill impairment

23,574 13,325 6,822

Adjusted EBITDA $ 254,290 $ 236,779 $ 252,621

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2024 December 30,

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

Share-based compensation expenses (1)

Net income (loss)

$ (224,912) $ 39,465 $ 79,437

Loss on debt extinguishment and modification (2)

Share-based compensation expense

10,491 10,516 31,091

Loss on debt extinguishment and modification

Asset impairment and gain or loss on disposition (1)

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Acquisition and integration costs (2)

1,069 8,631 459

Amortization of purchase accounting assets and deferred financing costs (3)

5,091 6,328 5,838

Restructuring (6)

Restructuring charges (4)

45,903 15,888 —

Goodwill impairment

23,574 13,325 6,822

Tax adjustment to normalize effective tax rate (6)

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Adjusted net income $ 75,163 $ 76,275 $ 108,113

GAAP earnings per share:

GAAP earnings (net loss) per share:

Basic $ (2.30) $ 0.40 $ 0.80

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Basic 97,985 98,707 98,709

Diluted 99,615 100,831 100,162

97,985 99,615 100,831

(1) Includes non-cash share-based compensation expense and zero, less than $0.1 million, and $0.1 million of cash dividends paid in fiscal 2024, fiscal 2023, and fiscal 2022 respectively, on vested share-based awards as a result of dividends declared in connection with a recapitalization that occurred in fiscal 2018.

(2) Represents the write-off of debt issuance costs and debt discounts as well as debt modification costs related to refinancing and/or repayment of our credit facilities.

See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information.

(3) Represents non-restructuring asset impairment charges and gains or losses on dispositions of assets.

Non-GAAP weighted-average shares outstanding:

Basic 97,985 98,707 98,709

98,550 99,615 100,831

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(1) Represents asset impairment charges and gains or losses on dispositions of assets, and includes asset impairment charges of $109.8 million related to certain underperforming stores which we subsequently determined to close as part of the Optimization Plan.

See Note 16 to the consolidated financial statements for additional information on the Optimization Plan.

Excludes long-lived asset impairment of $7.7 million, which were related to the Restructuring Plan.

(2) Represents costs related to the acquisition and integration of United Grocery Outlet, including due diligence, legal, other consulting and retention bonus expenses.

(5) For purposes of determining adjusted EBITDA, this line represents the incremental amortization of inventory step-ups resulting from purchase price accounting related to the acquisition.

For purposes of determining adjusted net income, in addition to the previously noted item, this line also represents the incremental amortization of an asset step-up resulting from purchase price accounting related to our acquisition in 2014 by an investment fund affiliated with Hellman & Friedman LLC, as well as the amortization of debt issuance costs, as these items are already included in the adjusted EBITDA reconciliation within the depreciation and amortization expenses and interest income, net, respectively.

(6) Represents the impairment of long-lived assets related to the Restructuring Plan.

(7) Represents other non-recurring, non-cash or non-operational items, such as certain personnel-related hiring and termination costs, which were $7.8 million in fiscal 2024, system implementation costs, which were $3.7 million in fiscal 2024, legal settlements and other legal expenses, costs related to employer payroll taxes associated with equity awards, store closing costs, strategic project costs and miscellaneous costs.

(8) Represents adjustments to normalize the effective tax rate for the impact of unusual or infrequent tax items that we do not consider in our evaluation of ongoing performance, including excess tax expenses or benefits related to stock option exercises and vesting of time-based restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") that are recorded in earnings as discrete items in the reporting period in which they occur.

(3) For purposes of determining adjusted EBITDA, this line represents the incremental amortization of inventory step-ups resulting from purchase price accounting related to the acquisition of United Grocery Outlet.

(4) Represents charges related to the Restructuring Plan, including lease termination costs of $35.4 million, impairment and disposal of long-lived assets of $7.7 million, employee severance and benefit costs and legal, professional and other costs in fiscal 2025, and impairment and disposal of long-lived assets of $15.9 million in fiscal 2024.

See Note 16 to the consolidated financial statements for additional information on the Restructuring Plan.

(5) Represents other non-recurring, non-cash or non-operational items.

In fiscal 2025, amounts included certain personnel-related hiring and termination costs of $9.2 million, system implementation costs of $5.4 million, strategic project costs of $4.9 million and store closing costs of $1.8 million.

In fiscal 2024, amounts included certain personnel-related hiring and termination costs of $7.2 million and system implementation costs of $3.5 million.

In fiscal 2023, amounts included system implementation costs of $3.3 million and costs related to employer payroll taxes associated with equity awards of $1.1 million.

(6) Represents adjustments to normalize the effective tax rate for the impact of unusual or infrequent tax items that we do not consider in our evaluation of ongoing performance, including excess tax benefits or shortfalls related to stock option exercises and vesting of time-based restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") that are recorded in earnings as discrete items in the reporting period in which they occur.

(7) Represents the tax effect of the total adjustments.

We calculate the tax effect of the total adjustments on a discrete basis excluding any non-recurring and unusual tax items.

Comparison of fiscal 2024 to fiscal 2023 (amounts in thousands, except percentages)

(8) As discussed in Note 13 to the consolidated financial statements, for fiscal 2025, there is no difference in the weighted-average shares outstanding used to calculate the basic and diluted GAAP net loss per share due to the Company's net loss.

(9) To calculate diluted adjusted earnings per share, we adjusted the weighted-average shares outstanding for the dilutive effect of all potential shares of common stock.

Comparison of fiscal 2025 (53 weeks) to fiscal 2024 (52 weeks) (amounts in thousands, except percentages)

Net Sales, Gross Profit and Gross Margin

Fiscal Year Ended

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Net sales $ 4,688,759 $ 4,371,501 $ 317,258 7.3 %

The increase in net sales was primarily attributable to an increase in comparable store sales as well as non-comparable store net sales growth primarily from the 65 net new stores acquired or opened during fiscal 2024.

Comparable store sales increased 2.7%, driven by a 4.2% increase in the number of transactions, partially offset by a 1.4% decrease in average transaction size.

Cost of Sales, Gross Profit and Gross Margin

Fiscal Year Ended

2024 December 30,

2023 $ Change % Change

Cost of sales $ 3,049,564 $ 2,727,774 $ 321,790 11.8 %

% of net sales 69.8 % 68.7 %

Gross profit $ 1,419,293 $ 1,321,937 $ 97,356 7.4 %

Gross margin 30.3 % 30.2 %

The increase in cost of sales and gross profit was primarily the result of an increase in comparable store sales combined with non-comparable net sales from 65 net new stores acquired or opened during fiscal 2024, as well as impacts related to our system upgrades.

Cost as a percentage of net sales increased and gross margin decreased primarily due to inventory management impacts related to our system upgrades, as certain tools we used to manage the business on our legacy system has been taking longer to rebuild, which impacted data visibility.

The increase in net sales and gross profit was primarily attributable to the addition of 37 net new stores opened during fiscal 2025, an increase in comparable store sales, and $82.4 million of net sales from the 53rd week of fiscal 2025.

Comparable store sales increased by 0.5% on a 52-week basis, driven by a 1.6% increase in the number of transactions, partially offset by a 1.1% decrease in average transaction size.

Gross margin increased by 10 basis points, driven primarily by improved inventory management, partially offset by price investments, mix shift to lower margin categories and supply chain investments.

Selling, General and Administrative Expenses

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% of net sales 28.4 % 28.1 %

The increase in SG&A was driven by $93.3 million in higher store-related expenses and $34.4 million in higher corporate-related expenses.

Store-related expenses increased primarily as a result of higher commission payments largely due to 25 net new stores operated by IOs.

Also contributing to the increase in SG&A were higher store costs due to 65 net new stores, 40 of which are Company-operated, and the recognition of e-commerce vendor receivables during fiscal 2023.

Corporate-related expenses increased largely to support net new store growth combined with $15.9 million in impairment of long-lived assets related to the Restructuring Plan and incremental costs to support our system upgrades, partially offset by lower incentive compensation expenses.

SG&A as a percentage of net sales increased primarily due to $15.9 million in impairment of long-lived assets related to the Restructuring Plan and increases in other store costs, partially offset by lower elective commission support we provided to operators through early 2024 related to our system upgrades.

Interest Expense, Net

The increase in SG&A includes $89.6 million in higher store-related expenses driven primarily by higher commissions, store occupancy costs, depreciation, personnel costs from Company-operated stores acquired in the United Grocery Outlet transaction in April 2024, and bad debt reserves.

Also contributing to the increase in SG&A was an increase of $19.1 million in higher corporate-related expenses due primarily to higher incentive compensation, software amortization and other costs to support the long-term growth strategy of the business, partially offset by acquisition costs in the prior year.

As a percentage of net sales, SG&A increased compared to the prior year due primarily to the aforementioned factors, partially offset by a decrease from elective commission support we provided to operators in the prior year related to the systems conversion.

Impairment of Long-lived Assets

Fiscal Year Ended

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2024 $ Change % Change

Interest expense, net $ 22,156 $ 16,361 $ 5,795 35.4 %

Impairment of long-lived assets

$ 113,807 $ — $ 113,807 100.0 %

% of net sales 2.4 % — %

The increase in net interest expense was primarily driven by higher average principal debt outstanding during fiscal 2024, due largely to fund share repurchases and other cash outlays to support the continued growth of the business, after the acquisition of United Grocery Outlet.

See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information.

Loss on Debt Extinguishment and Modification

Impairment of long-lived assets in fiscal 2025 includes asset impairment charges of $109.8 million related to certain underperforming stores which we subsequently determined to close as part of the Optimization Plan.

See Note 16 to the consolidated financial statements for additional information.

Restructuring Charges

Fiscal Year Ended

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2024 $ Change % Change

Loss on debt extinguishment and modification $ — $ 5,340 $ (5,340) (100.0) %

Restructuring charges

$ 45,903 $ 15,888 $ 30,015 188.9 %

% of net sales 1.0 % 0.4 %

During fiscal 2023, we recorded a $5.3 million loss on debt extinguishment related to the payoff of $385.0 million of principal on the senior term loan outstanding under our prior credit facilities.

See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information.

Income Tax Expense

The increase in restructuring charges was driven by the continued execution in fiscal 2025 of the actions under the Restructuring Plan.

Fiscal 2025 included lease termination costs of $35.4 million and impairment and disposal of long-lived assets of $7.7 million, and fiscal 2024 represented impairment and disposal of long-lived assets.

See Note 16 to the consolidated financial statements for additional information.

Goodwill Impairment

Fiscal Year Ended

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2024 $ Change % Change

Income tax expense $ 16,706 $ 24,644 $ (7,938) (32.2) %

Goodwill impairment $ 149,000 $ — $ 149,000 100.0 %

% of net sales 3.2 % — %

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 during fiscal 2025.

See Note 5 to the consolidated financial statements for additional information.

Interest Expense, Net

Fiscal Year Ended

2026 December 28,

2024 $ Change % Change

Interest expense, net $ 27,480 $ 22,156 $ 5,324 24.0 %

The increase in net interest expense was primarily driven by higher average principal debt outstanding during fiscal 2025, partially offset by lower average interest rates on these borrowings during fiscal 2025.

See Note 6 to the consolidated financial statements for additional information.

Income Tax Expense (Benefit)

Fiscal Year Ended

2026 December 28,

2024 $ Change % Change

Income tax expense (benefit)

$ (24,273) $ 16,706 $ (40,979) (245.3) %

Effective income tax rate 9.7 % 29.7 %

The decrease in income tax expense was primarily due to lower pretax book income.

The increase in our effective income tax rate primarily related to non-deductible acquisition and integration costs related to the acquisition of United Grocery Outlet in fiscal 2024 and lower excess tax benefits related to the exercise of stock options.

See NOTE 10—Income Taxes to our Consolidated Financial Statements for additional information.

The decrease in income tax expense (benefit) was due primarily to the change in earnings in the current period, partially offset by the tax impact of non-deductible goodwill impairment and reduction in the tax benefit from share-based compensation during fiscal 2025.

The decrease in our effective income tax rate was driven primarily by the tax impact of non-deductible goodwill impairment, a reduction in the tax benefit from share-based compensation and non-deductible executive compensation.

On July 4, 2025, the OBBBA was signed into law and includes several changes to U.S.

federal tax law, including reinstatement of 100% bonus depreciation on qualified property and immediate expensing of domestic research and development expenses.

The tax impacts of the OBBBA are reflected in the tax provision for fiscal 2025 and there was no material impact to income tax expense.

Certain provisions of the OBBBA will impact the timing of cash tax payments in future periods.

See Note 10 to the consolidated financial statements for additional information.

Net Income (loss)

Fiscal Year Ended

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2024 $ Change % Change

Net income $ 39,465 $ 79,437 $ (39,972) (50.3) %

Net income (loss)

$ (224,912) $ 39,465 $ (264,377) *

% of net sales (4.8) % 0.9 %

Net income decreased as a result of the foregoing factors.

_______________________

* Represents a change that is not meaningful

Net loss was $224.9 million for fiscal 2025 compared to net income of $39.5 million for fiscal 2024 as a result of the foregoing factors.

Adjusted EBITDA

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Adjusted EBITDA $ 254,290 $ 236,779 $ 17,511 7.4 %

The decrease in adjusted EBITDA was primarily attributable to decreased gross margin and higher SG&A, partially offset by an increase in comparable store sales of 2.7% for fiscal 2024 as well as non-comparable store sales, as discussed above.

The increase in adjusted EBITDA was primarily attributable to an increase in net sales for fiscal 2025, partially offset by higher SG&A, as discussed above.

Adjusted Net Income

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Adjusted net income $ 75,163 $ 76,275 $ (1,112) (1.5) %

The decrease in adjusted net income was primarily attributable to decreased gross margin, higher SG&A (including higher depreciation expense), and higher net interest expense, partially offset by an increase in comparable store sales of 2.7% for fiscal 2024 as well as non-comparable store sales, as discussed above.

The decrease in adjusted net income was primarily attributable to higher SG&A (including higher depreciation expense) and higher interest expense, net, partially offset by an increase in net sales for fiscal 2025, as discussed above.

Liquidity and Capital Resources

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Additionally, we may seek to take advantage of market opportunities to refinance our existing debt instruments with new debt instruments at interest rates, maturities and terms we deem attractive.

As of December 28, 2024, we had cash and cash equivalents of $62.8 million, which consisted primarily of cash held in checking and money market accounts with financial institutions.

As of January 3, 2026, we had cash and cash equivalents of $69.6 million, which consisted primarily of cash held in checking and money market accounts with financial institutions.

In addition, we have a revolving credit facility with $400.0 million in borrowing capacity under the 2023 Credit Agreement.

As of December 28, 2024, we had $190.0 million of borrowings outstanding under the revolving credit facility and $4.5 million of outstanding standby letters of credit, resulting in $205.5 million of remaining borrowing capacity available under this revolving credit facility.

During fiscal 2024, $190.0 million was borrowed under this revolving credit facility.

On February 21, 2023, we entered into the 2023 Credit Agreement, which provides for senior secured credit facilities consisting of (i) a senior secured term loan facility (the "senior term loan") in an original aggregate principal amount of $300.0 million and (ii) a senior secured revolving credit facility (the "revolving credit facility" and, together with the senior term loan, the "new credit facilities") in an aggregate principal amount of $400.0 million.

The senior term loan was borrowed in full on such date, and $25.0 million of the revolving credit facility was borrowed on such date.

Also on February 21, 2023, we repaid all of the outstanding indebtedness under our prior first lien credit agreement, as well as fees and expenses in connection therewith.

See NOTE 6—Long-term Debt to our Consolidated Financial Statements for further detail regarding the 2023 Credit Agreement and our prior first lien credit agreement.

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

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

As of January 3, 2026, we had $220.0 million of borrowings outstanding under the revolving credit facility and $5.1 million of outstanding standby letters of credit, resulting in $174.9 million of remaining borrowing capacity available under the revolving credit facility.

During fiscal 2025, $70.0 million was borrowed and $40.0 million was repaid under the revolving credit facility.

See Note 6 to the consolidated financial statements for further detail regarding the 2023 Credit Agreement.

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

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

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We have opera ting and finance lease arrangements for substantially all store locations, distribution centers, and certain office space and equipment.

As of December 28, 2024, total lease assets and lease liabilities were $1.0 billion and $1.2 billion, respectively, and we had executed leases for 69 store locations that we had not yet taken possession of with total undiscounted future lease payments of $451.5 million and lease terms through 2043.

We have identified 17 of these store locations to pursue negotiations to exit leases with total undiscounted future lease payments of $66.7 million and lease terms through 2038 related to the Restructuring Plan.

See NO TE 4—Leases to our Consolidated Financial Statements for further detail of our lease obligations and the timing of lease liability maturities.

See N OTE 16—Restructuring Plan to our Consolidated Financial Statements for additional information on the Restructuring Plan.

As of January 3, 2026, total lease assets and lease liabilities were $1.09 billion and $1.32 billion, respectively, and we had executed leases for 31 store locations that we had not yet taken possession of with total undiscounted future lease payments of $206.5 million and lease terms through 2045.

We have identified 36 store locations and one distribution center facility to pursue negotiations to exit leases or enter into subleases with total undiscounted future lease payments of $101.8 million and lease terms through 2040 related to the Optimization Plan.

See Note 4 to the consolidated financial statements for further detail of our lease obligations and the timing of lease liabil ity maturities.

See Note 16 to our consolidated financial statements for additional information on the Optimization Plan.

Debt Obligations and Interest Payments

See NOTE 6—Long-term Debt to our Consolidated Financial Statements for further detail of our 2023 Credit Agreement, which as of December 28, 2024 consists of a senior term loan with $288.8 million of principal outstanding and a revolving credit facility with an aggregate outstanding principal balance of $190.0 million, as well as outstanding letters of credit of $4.5 million and a remaining borrowing capacity available of $205.5 million.

As of December 28, 2024, based

on the then-current interest rate of 6.92%, expected future interest payments associated with our debt totaled $99.6 million, with $33.1 million payable during fiscal 2025.

See Note 6 to the consolidated financial statements for further detail of the 2023 Credit Agreement, which as of January 3, 2026 consists of a senior term loan with $273.8 million of principal outstanding and a revolving credit facility with an aggregate outstanding principal balance of $220.0 million, as well as outstanding letters of credit of $5.1 million and a remaining borrowing capacity available of $174.9 million.

As of January 3, 2026, based on the then-current interest rate of 6.27%, expected future interest payments associated with our debt totaled $62.8 million, with $29.9 million payable during fiscal 2026.

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

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We expect to fund capital expenditures primarily through cash generated from our operations.

As compared to capital expenditures of $185.7 million, net of tenant improvement allowances, in fiscal 2024, we expect to incur capital expenditures of approximately $210.0 million, net of tenant improvement allowances, in fiscal 2025, primarily related to new store openings, supply chain investments, ongoing store maintenance and improvements and systems and infrastructure investments.

As compared to capital expenditures of $191.9 million, net of tenant improvement allowances, in fiscal 2025, we expect to incur capital expenditures of approximately $170.0 million, net of tenant improvement allowances, in fiscal 2026, primarily related to new store openings, ongoing store maintenance and improvements, supply chain investments and systems and infrastructure investments.

Working Capital and Purchase Commitments

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Our working capital requirements fluctuate during the year, driven primarily by the timing of inventory fluctuations, new store openings and capital spending.

Our purchase commitments consist of non-cancelable obligations under service and supply contracts.

As of December 28, 2024, we had total purchase obligations of $8.3 million, which is fully payable during fiscal 2025.

Our purchase commitments consist of non-cancelable obligations under service and supply contracts, which includes a contract related to storage and handling services at certain third-party distribution centers and a contract related to cloud computing technology services.

As of January 3, 2026, we had total purchase obligations of 31.0 million through 2031, of which $6.9 million is payable during fiscal 2026.

Share Repurchases and Dividends

We may repurchase our common stock pursuant to programs approved by our Board.

As of December 28, 2024, we had $100.0 million of repurchase authority remaining under the current share repurchase program.

As of January 3, 2026, we had $100.0 million of repurchase authority remaining under the current share repurchase program.

Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Issuer Purchases of Equity Securities" for discussion about our Board-authorized share repurchase program.

As of December 28, 2024, we currently do not expect to declare any dividends on our common stock in the foreseeable future.

Acquisition of United Grocery Outlet

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

As of January 3, 2026, we currently do not expect to declare any dividends on our common stock in the foreseeable future.

Debt Covenants

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

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

The following table summarizes our cash flows for the periods presented (amounts in thousands):

As of January 3, 2026, we were in compliance with all applicable financial covenant requirements for the 2023 Credit Agreement.

The following table summarizes our cash flows (amounts in thousands):

Fiscal Year Ended

7 unchanged sentences

Cash Provided by Operating Activities

Net cash provided by operating activities was $112.0 million for fiscal 2024 compared to $303.4 million for fiscal 2023.

The $191.5 million decrease was primarily driven by changes in trade accounts payable and accrued and other liabilities combined with lower net income and changes in merchandise inventory levels.

The change in trade accounts payable and accrued and other liabilities were partially attributable to disruptions related to the implementation of our system upgrades.

The $110.2 million increase in net cash provided by operating activities for fiscal 2025 compared to fiscal 2024 was primarily driven by changes in merchandise inventories due to improved inventory management, trade accounts payable and accrued and other liabilities, partially offset by the net loss for fiscal 2025.

The changes in accrued and other liabilities and trade accounts payable were primarily due to timing differences of accruals and payments for goods and services and the disruptions related to the implementation of our systems conversion.

Cash Used in Investing Activities

Net cash used in investing activities was $274.0 million for fiscal 2024 compared to $194.2 million for fiscal 2023.

The $79.9 million increase was due primarily to the acquisition of United Grocery Outlet in April 2024 combined with increased spending on property and equipment due to higher store count and higher construction costs related to future stores.

The $44.4 million decrease in net cash used in investing activities for fiscal 2025 compared to fiscal 2024 was due primarily to the acquisition of United Grocery Outlet in the prior year, partially offset by increased spending on property and equipment due to higher store count and construction related to future stores.

Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities of $14.3 million for fiscal 2025 was primarily due to the net borrowing of $30.0 million on our revolving credit facility under the 2023 Credit Agreement, partially offset by $15.0 million in scheduled principal payments on the senior term loan under the 2023 Credit Agreement.

Net cash provided by financing activities of $109.9 million for fiscal 2024 was primarily due to the borrowing of $190.0 million on our revolving credit facility under the 2023 Credit Agreement and $8.8 million in proceeds from the exercise of stock options, partially offset by the repurchase of $81.4 million of our common stock and $5.6 million in scheduled principal payments on the senior term loan under the 2023 Credit Agreement.

Net cash used in financing activities of $97.0 million for fiscal 2023 was primarily due to the payoff of $385.0 million of principal on the prior senior term loan outstanding under our prior credit facility, repayment of the $25.0 million of principal on our revolving credit facility, $4.5 million in debt issuance costs paid, the repurchase of $5.9 million worth of common stock, and $5.6 million in scheduled principal payments on the senior term loan under the 2023 Credit Agreement, partially offset by $325.0 million in proceeds from the 2023 Credit Agreement.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP.

A summary of our significant accounting policies can be found in NOTE 1—Organization and Summary of Significant Accounting Policies to our Consolidated Financial Statements.

A summary of our significant accounting policies can be found in Note 1 to the consolidated financial statements.

The preparation of our consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

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A long-lived asset or asset group may be impaired if its carrying value exceeds its estimated undiscounted future cash flows over its remaining useful life.

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

The total amount of property and equipment, including store assets, and operating lease right-of-use assets as of January 3, 2026 were $743.0 million and $1.09 billion, respectively.

Our impairment calculations contain uncertainties because they require us to make assumptions and to apply judgment to estimate future cash flows.

Key assumptions used in estimating future cash flows include projected sales growth, gross margin and operating expenses.

Key assumptions used in estimating future cash flows include projected sales growth, gross margin, operating expenses, fair market rent, assumptions related to our ability to sublease properties and the likelihood of obtaining a subtenant.

Estimates of sales growth, gross margin and operating expenses are based on internal projections and consider the store’s historical performance, length of time the store has been open, the local market economics and the business environment impacting the store’s performance.

These estimates are subjective and our ability to realize future cash flows is affected by factors such as ongoing maintenance and improvement of the assets, changes in economic conditions and changes in operating performance.

We have not made any material changes in the accounting methodology used to evaluate the impairment of long-lived assets during fiscal 2024.

If actual results are not consistent with our estimates and assumptions used to calculate estimated future cash flows, we may be exposed to impairment losses that could be material.

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

In fiscal 2024 we recognized $15.9 million of impairment of long-lived assets resulting from the Restructuring Plan, which is included in Selling, general and administrative expenses.

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

We categorized the fair value determination as Level 3 in the fair value hierarchy due to our use of internal projections and unobservable measurement inputs.

In fiscal 2025 we recognized $121.5 million of impairment of long-lived assets, of which $109.8 million related to certain underperforming stores which we subsequently determined to close as part of the Optimization Plan, and $7.7 million related to the Restructuring Plan.

In fiscal 2024 we recognized $15.9 million of impairment of long-lived assets related to the Restructuring Plan.

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

See Note 1, Note 3, Note 4 and Note 16 to the consolidated financial statements for further discussions.

On the consolidated statements of operations and comprehensive income (loss), impairment of long-lived assets related to the Restructuring Plan were included in Restructuring charges, and all other impairment of long-lived assets including impairment related to the Optimization Plan were included in Impairment of long-lived assets.

Goodwill is subject to an annual impairment evaluation which is performed during our fourth quarter or when events or changes in circumstances indicate that the value of goodwill may be impaired.

Our impairment evaluation of goodwill consists of an initial qualitative assessment of our reporting unit to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than its carrying value.

If it is concluded that this is the case, a quantitative evaluation is performed, and if the quantitative evaluation indicates that the carrying value of our reporting unit exceeds its fair value, an impairment loss is calculated and recognized during that period.

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

Our annual impairment evaluation concluded that the carrying value of goodwill exceeded its fair value and, therefore, we recorded a goodwill impairment charge of $149.0 million during fiscal 2025.

There were no goodwill impairment charges recorded during fiscal 2024 and fiscal 2023.

For our fiscal 2025 impairment evaluation, we determined to bypass the qualitative assessment and performed a quantitative assessment.

For the quantitative impairment assessment, we used a combination of an income approach and a market approach to determine the fair value of the reporting unit, and the income approach and market approach were equally weighted to estimate fair value.

For the income approach, a discounted cash flow model was used that required forecasts of cash flows, assumptions such as revenue growth rates and gross profit margins, among others, and an estimate of weighted-average cost of capital that we believe approximates the assumptions from a market participant’s perspective.

For the market approach, a guideline public company model was used, which required judgment in estimating key assumptions including the selection of guideline companies and multiples of sales revenue and EBITDA.

These estimates incorporated many uncertain factors which could be impacted by changes in market conditions, interest rates, growth rate, tax rates, costs, customer behavior, regulatory environment and other macroeconomic changes.

In addition, the Company considered the reasonableness of the fair value of the reporting unit by assessing the implied enterprise value control premium based on our market capitalization.

We determined that the implied control premium was reasonable which corroborates our fair value estimates.

We categorized the fair value determination as Level 3 in the fair value hierarchy due to our use of internal projections and unobservable measurement inputs.

Assumptions used in impairment testing are made at a point in time and require significant judgment;

therefore, they are subject to change based on the facts and circumstances present at each impairment test date.

Additionally, these assumptions are generally interdependent and do not change in isolation.

We will continue to closely monitor future performance and any potential impacts on the value of the reporting unit.

If the estimated future cash flows decrease below our current expectations, specifically as a result of lower revenue growth rates or operating income margins, or due to an increase in the weighted average cost of capital, the fair value may further decrease resulting in an incremental material goodwill impairment.

Recent Accounting Pronouncements

Refer to NOTE 1—Organization and Summary of Significant Accounting Policies to our Consolidated Financial Statements.

Refer to Note 1 to the consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis