Grocery Outlet Holding Corp. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA GROCERY OUTLET HOLDING CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 64 Consolidated Balance Sheets 67 Consolidated Statements of Operations and Comprehensive Income (Loss) 68 Consolidated Statements of Stockholders' Equity 69 Consolidated Statements of Cash Flows 70 Notes to Consolidated Financial Statements 71 63 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Grocery Outlet Holding Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Grocery Outlet Holding Corp. and subsidiaries (the "Company") as of January 3, 2026 and December 28, 2024, the related consolidated statements of operations and comprehensive income (loss), stockholders' equity, and cash flows, for each of the fiscal years ended January 3, 2026, December 28, 2024, and December 30, 2023 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 3, 2026 and December 28, 2024, and the results of its operations and its cash flows for each of the fiscal years ended January 3, 2026, December 28, 2024, and December 30, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 3, 2026, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4, 2026, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Operating Lease Right-of-use Assets and Property and Equipment, net — Impairment of Long-lived Assets — Refer to Notes 1, 3, 4 and 16 to the financial statements Critical Audit Matter Description The Company's long-lived assets, primarily property and equipment and lease right-of-use assets, are grouped at the store level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. On at least a quarterly basis, management reviews the Company's asset groups for indicators of impairment through an analysis that detects events or changes in circumstances that indicate that the carrying value of asset groups may not be recoverable. Management's impairment analysis determines whether projected undiscounted future cash flows from 64 Table of Contents operations are sufficient to recover the carrying value of these store assets. Impairment may result when the carrying value of these store assets exceeds the estimated undiscounted future cash flows over the remaining useful life. Management's impairment analysis consists of (1) identifying stores with indicators of impairment, (2) testing the identified store assets for recoverability and (3) measuring the impairment loss, if any. If the carrying value of the long-lived asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, as well as other methods and approaches, as necessary. During the year ended January 3, 2026, Management recorded adjustments to the carrying value of long-lived assets due to impairment charges in the amount of $121.7 million. We identified impairment of long-lived assets as a critical audit matter because the estimated future cash flows to determine the recoverability of long-lived assets require significant management estimates and assumptions, specifically forecasting future sales, gross margin, operating expenses, fair market rent, the ability to sublease properties, and the likelihood of obtaining a subtenant. Additionally, the measurement of an impairment loss involves the determination of the fair value of an asset group, which includes forecasting future sales, gross margin, and operating expenses, and estimates of market rental rates for certain stores level asset groups. Performing audit procedures to evaluate the reasonableness of the Company’s estimates and assumptions used in determining the recoverability and measuring the impairment of long-lived assets involved a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists and to involve more experienced audit professionals. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management's judgments regarding the forecasts of future cash flows and the fair value of certain store level asset groups included the following, among others: • We tested the effectiveness of internal controls over management’s long-lived store asset impairment evaluation, including those over future sales, gross margin, and operating expenses projections, and those over market rental rates. • We evaluated management's ability to accurately forecast future sales, gross margin, and operating expenses by comparing actual results to management's historical forecasts • We evaluated the reasonableness of management's sales, gross margin, and operating expense forecasts by comparing the forecasts to: – Current and past sales, gross margins, and operating expenses of the overall Company and individual store level asset groups – Consistency with external market and industry data – Internal communications to management and the Board of Directors • With the assistance of our fair value specialists, we evaluated the appropriateness of the methodology utilized by management to estimate the fair value of certain store level asset groups. Additionally, we evaluated the mathematical accuracy and consistency of the application of the Company's valuation model with the assistance of our fair value specialists, including the market rental rates utilized by management to estimate the fair value of certain store level asset groups. • We tested the completeness, accuracy, and relevance of underlying data used in determining undiscounted and discounted cash flows. Goodwill Impairment — Refer to Notes 1 and 5 to the financial statements Critical Audit Matter Description The Company’s goodwill is tested annually for impairment during the fourth quarter of each year, and more frequently if events and circumstances indicate that the assets might be impaired. The Company's evaluation of goodwill for impairment involves the comparison of the estimated fair value of the Company’s reporting unit to its carrying value. The Company estimates the reporting unit’s fair value using a combination of the income approach, which uses projected discounted cash flows, and the market approach, which uses sales revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples of comparable publicly traded companies. The determination of fair value using the 65 Table of Contents income approach requires management to make estimates and assumptions related to cash flow projections and the selection of an appropriate discount rate. The determination of the fair value using the market approach also requires management to make estimates and assumptions related to cash flow projections used to determine EBITDA as well as the market multiples of comparable publicly traded companies. During the year ended January 3, 2026, the Company recognized a goodwill impairment of $149 million. We identified the valuation of the Company’s reporting unit as a critical audit matter because it requires significant management estimates and assumptions, specifically in forecasting discounted cash flows and selecting sales revenue and EBITDA multiples of comparable publicly traded companies, and the discount rate. The audit of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our internal fair value specialists when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to cash flow projections, the selection of EBITDA multiples, and the discount rate. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to cash flow projections, and the selection of sales revenue and EBITDA multiples and discount rate for the valuation of the Company’s reporting unit included the following, among others: • We tested the effectiveness of internal controls over the goodwill impairment analysis, including those over cash flow projections, the selection of sales revenue and EBITDA multiples and the discount rate. • We evaluated the reasonableness of management’s cash flow projections by comparing the cash flow projections to: ◦ Historical cash flows. ◦ Internal communications between management and the Board of Directors. ◦ Projected information included in industry reports and certain of its peer companies. • With the assistance of our internal fair value specialists, we evaluated the reasonableness of the valuation methodologies, the selection of sales revenue and EBITDA multiples and the discount rate by: ◦ Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculations. ◦ Developing a range of independent estimates and comparing those estimates to the discount rate selected by management. ◦ Evaluating sales revenue and EBITDA multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its comparable publicly traded companies. /s/ DELOITTE & TOUCHE LLP San Francisco, California March 4, 2026 We have served as the Company's auditor since 2007. 66 Table of Contents GROCERY OUTLET HOLDING CORP. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) January 3, 2026 December 28, 2024 Assets Current assets: Cash and cash equivalents $ 69,602 $ 62,828 Independent operator receivables and current portion of independent operator notes, net of allowance $ 12,253 and $ 5,770 16,983 16,051 Other accounts receivable, net of allowance $ 8 and $ 9 3,685 4,166 Merchandise inventories 381,961 394,152 Prepaid expenses and other current assets 25,409 26,701 Total current assets 497,640 503,898 Independent operator notes and receivables, net of allowance $ 15,291 and $ 12,709 43,748 36,441 Property and equipment, net 742,961 750,423 Operating lease right-of-use assets 1,089,838 1,014,678 Intangible assets, net 78,375 78,778 Goodwill, net 633,835 782,734 Other assets 4,702 6,869 Total assets $ 3,091,099 $ 3,173,821 Liabilities and Stockholders' Equity Current liabilities: Trade accounts payable $ 177,457 $ 175,871 Accrued and other current liabilities 54,277 55,240 Accrued compensation 17,841 19,687 Current portion of long-term debt 15,000 15,000 Current lease liabilities 87,324 72,905 Income and other taxes payable 12,097 10,921 Total current liabilities 363,996 349,624 Long-term debt, net 477,905 462,502 Deferred income tax liabilities, net 33,183 56,178 Long-term lease liabilities 1,229,473 1,106,219 Other long-term liabilities 2,879 1,914 Total liabilities 2,107,436 1,976,437 Commitments and contingencies (Note 12) Stockholders' equity: Common stock, par value $ 0.001 per share, 500,000,000 shares authorized; 98,153,086 and 97,262,557 shares issued and outstanding, respectively 98 97 Series A preferred stock, par value $ 0.001 per share, 50,000,000 shares authorized; no shares issued and outstanding — — Additional paid-in capital 827,048 815,858 Retained earnings 156,517 381,429 Total stockholders' equity 983,663 1,197,384 Total liabilities and stockholders' equity $ 3,091,099 $ 3,173,821 See Notes to Consolidated Financial Statements 67 Table of Contents GROCERY OUTLET HOLDING CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Net sales $ 4,688,759 $ 4,371,501 $ 3,969,453 Cost of sales 3,269,466 3,049,564 2,727,774 Gross profit 1,419,293 1,321,937 1,241,679 Selling, general and administrative expenses 1,332,288 1,227,722 1,115,897 Impairment of long-lived assets 113,807 — — Restructuring charges 45,903 15,888 — Goodwill impairment 149,000 — — Operating income (loss) ( 221,705 ) 78,327 125,782 Other expenses: Interest expense, net 27,480 22,156 16,361 Loss on debt extinguishment and modification — — 5,340 Total other expenses 27,480 22,156 21,701 Income (loss) before income taxes ( 249,185 ) 56,171 104,081 Income tax expense (benefit) ( 24,273 ) 16,706 24,644 Net income (loss) and comprehensive income (loss) $ ( 224,912 ) $ 39,465 $ 79,437 Basic earnings (net loss) per share $ ( 2.30 ) $ 0.40 $ 0.80 Diluted earnings (net loss) per share $ ( 2.30 ) $ 0.40 $ 0.79 Weighted-average shares outstanding: Basic 97,985 98,707 98,709 Diluted 97,985 99,615 100,831 See Notes to Consolidated Financial Statements 68 Table of Contents GROCERY OUTLET HOLDING CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share amounts) Common Stock Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Shares Amount Balance at December 31, 2022 97,674,356 $ 98 $ 847,589 $ 262,527 $ 1,110,214 Exercise and vesting of share-based awards, net of shares withheld for employee taxes 1,804,023 1 5,420 — 5,421 Share-based compensation expense — — 31,091 — 31,091 Repurchase of common stock ( 254,516 ) — ( 6,809 ) — ( 6,809 ) Dividends paid — — ( 15 ) — ( 15 ) Net income and comprehensive income — — — 79,437 79,437 Balance at December 30, 2023 99,223,863 $ 99 $ 877,276 $ 341,964 $ 1,219,339 Exercise and vesting of share-based awards 2,015,857 2 8,843 — 8,845 Share-based compensation expense — — 10,516 — 10,516 Repurchase of common stock ( 3,977,163 ) ( 4 ) ( 80,777 ) — ( 80,781 ) Net income and comprehensive income — — — 39,465 39,465 Balance at December 28, 2024 97,262,557 $ 97 $ 815,858 $ 381,429 $ 1,197,384 Exercise and vesting of share-based awards 890,529 1 699 — 700 Share-based compensation expense — — 10,491 — 10,491 Net loss and comprehensive loss — — — ( 224,912 ) ( 224,912 ) Balance at January 3, 2026 98,153,086 $ 98 $ 827,048 $ 156,517 $ 983,663 See Notes to Consolidated Financial Statements 69 Table of Contents GROCERY OUTLET HOLDING CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Cash flows from operating activities: Net income (loss) $ ( 224,912 ) $ 39,465 $ 79,437 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation of property and equipment 107,610 90,747 76,600 Amortization of intangible and other assets 22,778 17,459 11,382 Amortization of debt issuance costs and debt discounts 928 910 1,084 Non-cash rent 7,230 4,780 5,226 Loss on debt extinguishment and modification — — 5,340 Impairment of long-lived assets 121,492 15,888 — Goodwill impairment 149,000 — — Share-based compensation 10,491 10,516 31,091 Provision for independent operator and other accounts receivable reserves 12,791 4,853 3,674 Deferred income taxes ( 22,995 ) 12,123 18,819 Other 2,739 1,015 487 Changes in operating assets and liabilities: Independent operator and other accounts receivable ( 11,157 ) ( 7,515 ) ( 11,031 ) Merchandise inventories 12,191 ( 29,951 ) ( 15,674 ) Prepaid expenses and other assets 1,863 7,645 ( 10,716 ) Income and other taxes payable 1,176 ( 3,766 ) 5,918 Trade accounts payable 2,096 ( 36,936 ) 73,771 Accrued and other liabilities 5,478 ( 25,240 ) 19,723 Accrued compensation ( 1,947 ) ( 7,755 ) ( 2,445 ) Operating lease liabilities 25,281 17,725 10,761 Net cash provided by operating activities 222,133 111,963 303,447 Cash flows from investing activities: Advances to independent operators ( 13,622 ) ( 11,364 ) ( 8,565 ) Repayments of advances from independent operators 4,230 4,778 5,734 Business acquisition, net of cash and cash equivalents acquired — ( 60,526 ) — Purchases of property and equipment ( 198,333 ) ( 186,611 ) ( 168,990 ) Proceeds from sales of assets 39 — 24 Investments in intangible assets and licenses ( 21,989 ) ( 20,305 ) ( 23,000 ) Proceeds from insurance recoveries - property and equipment — — 632 Net cash used in investing activities ( 229,675 ) ( 274,028 ) ( 194,165 ) Cash flows from financing activities: Proceeds from exercise of stock options 700 8,845 5,958 Tax withholding related to net settlement of employee share-based awards — — ( 537 ) Proceeds from senior term loan due 2028 — — 300,000 Proceeds from revolving credit facility 70,000 190,000 25,000 Principal payments on revolving credit facility ( 40,000 ) — ( 25,000 ) Principal payments on senior term loan due 2025 — — ( 385,000 ) Principal payments on senior term loan due 2028 ( 15,000 ) ( 5,625 ) ( 5,625 ) Principal payments on finance leases ( 1,384 ) ( 1,959 ) ( 1,398 ) Repurchase of common stock — ( 81,355 ) ( 5,893 ) Dividends paid — — ( 15 ) Debt issuance costs paid — — ( 4,513 ) Net cash provided by (used in) financing activities 14,316 109,906 ( 97,023 ) Net increase (decrease) in cash and cash equivalents 6,774 ( 52,159 ) 12,259 Cash and cash equivalents at beginning of period 62,828 114,987 102,728 Cash and cash equivalents at end of period $ 69,602 $ 62,828 $ 114,987 Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized $ 32,771 $ 26,196 $ 22,722 Income taxes paid in cash $ 2,283 $ 3,376 $ 7,557 Purchases of property and equipment accrued at end of period $ 16,288 $ 12,791 $ 7,310 Investments in intangible assets accrued at end of period $ 1,306 $ 1,286 $ 5,507 See Notes to Consolidated Financial Statements 70 Table of Contents GROCERY OUTLET HOLDING CORP. Notes to Consolidated Financial Statements Note 1. Organization and Summary of Significant Accounting Policies Description of Business — Based in Emeryville, California, and incorporated in Delaware in 2014, Grocery Outlet Holding Corp. (together with its wholly owned subsidiaries, collectively, "Grocery Outlet," "we," or the "Company") is a growth-oriented extreme value retailer of quality, name-brand consumables and fresh products sold primarily through a network of independently operated stores. As of January 3, 2026, we had 570 stores throughout California, Washington, Oregon, Pennsylvania, Tennessee, Idaho, Nevada, Maryland, Ohio, New Jersey, North Carolina, Georgia, Alabama, Delaware, Kentucky and Virginia. Grocery Outlet Holding Corp. owns 100 % of Grocery Outlet Inc. Fiscal Year — We operate on a fiscal year that ends on the Saturday closest to December 31st each year. The fiscal year ended January 3, 2026 ("fiscal 2025") consisted of 53 weeks while the fiscal years ended December 28, 2024 ("fiscal 2024") and December 30, 2023 ("fiscal 2023") consisted of 52 weeks. Basis of Presentation — The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the United States ("U.S.") Securities and Exchange Commission (the "SEC"). Our consolidated financial statements include the accounts of Grocery Outlet Holding Corp. and its wholly owned subsidiaries. All intercompany balances and transactions were eliminated. In the opinion of management, these consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented. Prior period amounts have been reclassified to conform to current period presentation. Use of Estimates — The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results can differ from these estimates depending upon certain risks and uncertainties. Changes in these estimates are recorded when known. We consider our accounting policies relating to long-lived asset impairment and goodwill impairment to be significant accounting policies that involves management's estimates and judgments. Cash and Cash Equivalents — We consider all highly liquid investments, purchased with original maturities of three months or less, to be cash equivalents. All cash equivalents are unrestricted and available for immediate use. Cash and cash equivalents consisted primarily of cash held in checking and money market accounts as of January 3, 2026 and December 28, 2024. Allowance for Independent Operator ("IO") Receivables and IO Notes and Other Accounts Receivable — We maintain allowances and accruals for estimated losses of amounts advanced to IOs and other third parties determined to be uncollectible. See Note 2 for additional information. Concentrations of Credit Risk — Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts and notes receivable. Although we deposit our cash with creditworthy financial institutions, our deposits typically exceed federally insured limits. To date, we have not experienced any losses on our cash deposits. No single customer or store represented more than 10% of net sales for the fiscal years ended January 3, 2026, December 28, 2024 and December 30, 2023. No single customer or IO represented more than 10% of accounts receivable or notes receivable as of January 3, 2026 and December 28, 2024. Merchandise Inventories — Merchandise inventories are valued at the lower of cost or net realizable value. Cost is primarily determined by the weighted-average cost method for warehouse inventories and the retail inventory method for store inventories. We provide for estimated inventory losses between physical inventory counts based on historical averages. This provision is adjusted periodically to reflect the actual shrink results of the physical inventory counts. Property and Equipment — Property and equipment is stated at cost less accumulated depreciation and includes expenditures for significant improvements to leased premises. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, generally ranging from three to 15 years. Amortization of leasehold improvements is calculated based on the shorter of their estimated useful life or the remaining terms of the lease. Remaining lease terms currently range from one to 19 years. 71 Table of Contents We evaluate events and changes in circumstances that could indicate carrying amounts of long-lived assets, including property and equipment, may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether or not the carrying value of such assets will be recovered through undiscounted future cash flows derived from their use and eventual disposition. For purposes of this assessment, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, primarily at an individual store level. If the sum of the undiscounted future cash flows is less than the carrying amount of an asset, we record an impairment loss for the amount by which the carrying amount of the asset exceeds its fair value. The 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 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, both as defined in Note 16. 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 3 and Note 4 for additional information. 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. Leases — We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets, current lease liabilities, and long-term lease liabilities in our consolidated balance sheets. Finance leases are included in other assets, current lease liabilities, and long-term lease liabilities in our consolidated balance sheets. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease over the same term. Right-of-use assets and liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term, reduced by landlord incentives. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, which is estimated to approximate the interest rate on a collateralized basis with similar terms and payments based on the information available at the commencement date, to determine the present value of our lease payments. Lease term is defined as the non-cancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that we will exercise the option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term while finance lease payments are charged to interest expense and depreciation and amortization expense over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense for these short-term leases is recognized on a straight-line basis over the lease term. We generally lease retail facilities for store locations, distribution centers, office space and equipment and account for these leases as operating leases. We account for certain equipment leases as finance leases. Lease and non-lease components are accounted for separately. We sublease certain real estate to unrelated third parties under non-cancelable leases and the sublease portfolio consists of operating leases for retail stores. Goodwill and Other Intangible Assets — We have both goodwill and intangible assets recorded on our consolidated balance sheets. Goodwill represents the difference between the purchase price and the fair value of assets and liabilities acquired in a business combination. Goodwill is not amortized, but rather is subject to an annual impairment evaluation which is performed during our fourth quarter or when events or changes in circumstances indicate that the value of goodwill may be impaired. Our impairment evaluation of goodwill generally consists of an initial qualitative assessment of our reporting unit to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than its carrying value. If it is concluded that this is the case, a quantitative evaluation, based on a combination of discounted cash flows and a market approach based on revenue and earnings multiples, is performed which requires us to estimate future cash flows, growth rates and economic and market conditions. 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. The Company has one reporting unit for purposes of testing goodwill for impairment. During the fiscal year ended January 3, 2026, we recorded a goodwill impairment charge of $ 149.0 million, which is included in Goodwill impairment on the consolidated statements of operations and comprehensive income (loss). There were no goodwill impairment charges recorded during the fiscal years ended December 28, 2024 and December 30, 2023. See Note 5 for additional information. 72 Table of Contents Intangible assets include trademarks, computer software, and liquor licenses. Trademarks represent the value of all our trademarks and trade names in the marketplace. We are amortizing the value assigned to the trade names on a straight-line basis over 15 years. Computer software includes both acquired software and eligible costs to develop internal-use software that are incurred during the application development stage. These assets are amortized over their estimated useful lives of three to 10 years. Liquor license assets have been classified as indefinite-lived intangible assets and accordingly, are not subject to amortization. We review our intangible assets for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying amount of the intangible assets are not recoverable, the impairment is measured as the amount by which the carrying value of the intangible asset exceeds its fair value. There were no impairments of intangible assets recognized during the fiscal years ended January 3, 2026, December 28, 2024 and December 30, 2023. Fair Value Measurements — Fair value is defined as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value of financial instruments is categorized based on the level of judgment associated with the inputs used to measure their fair values. Fair value is measured using inputs from the three levels of the fair value hierarchy, which are described as follows: Level 1 — Quoted prices in active markets for identical assets or liabilities Level 2 — Quoted prices for similar assets and liabilities in active markets or inputs that are observable Level 3 — Unobservable inputs in which there is little or no market data, which requires us to develop our own assumptions when pricing the financial instruments, such as cash flow modeling assumptions. The assets' or liabilities' fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair value framework requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There were no assets or liabilities measured at fair value on a recurring basis as of January 3, 2026 or December 28, 2024. Generally, long-lived assets are recorded at fair value on a non-recurring basis after the asset has been impaired. As of January 3, 2026 and December 28, 2024, certain long-lived assets were determined to be impaired and as such were measured at fair value at the time of the impairment determination. For the fiscal year ended January 3, 2026, 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, both as defined in Note 16. For the fiscal year ended December 28, 2024, we recognized $ 15.9 million of impairment of long-lived assets related to the Restructuring Plan. See "Property and Equipment" within Note 1, Note 3, and Note 4 for additional information. There were no transfers of assets or liabilities between levels within the fair value hierarchy during the fiscal years ended January 3, 2026 or December 28, 2024. Fair value was determined using Level 3 inputs at the time of impairment. We performed a quantitative goodwill impairment test during the fourth quarter of fiscal 2025 which concluded that the estimated fair value of our reporting unit was lower than carrying value. Goodwill impairment charges of $ 149.0 million were recorded in Goodwill impairment on the consolidated statements of operations and comprehensive income (loss). There were no goodwill impairment charges recorded during the fiscal years ended December 28, 2024 and December 30, 2023. See Note 5 for additional information. The calculation of the fair value of our reporting unit was determined using Level 3 fair value measurements. Our financial assets and liabilities are carried at cost, which generally approximates their fair value, as described below: Cash and cash equivalents, IO receivables, other accounts receivable and trade accounts payable — The carrying value of such financial instruments approximates their fair value due to factors such as their short-term nature, their variable interest rates or the effect of the related allowance for expected credit losses. Independent operator notes — The carrying value of such financial instruments approximates their fair value due to the effect of the related allowance for expected credit losses. 73 Table of Contents Long-term debt — The following table sets forth by level within the fair value hierarchy the carrying amounts and estimated fair values of our significant financial liabilities that are not recorded at fair value on the consolidated balance sheets (amounts in thousands): January 3, 2026 December 28, 2024 Carrying Amount (1) Estimated Fair Value (2) Carrying Amount (1) Estimated Fair Value (2) Financial Liabilities: Senior term loan (Level 2) $ 272,905 $ 273,750 $ 287,502 $ 288,750 Revolving credit facility (Level 2) $ 220,000 $ 220,000 $ 190,000 $ 190,000 _______________________ (1) The carrying amounts of the senior term loan as of January 3, 2026 and December 28, 2024 were net of debt issuance costs of $ 0.8 million and $ 1.2 million, respectively. (2) The estimated fair value of the senior term loan and revolving credit facility borrowings under the 2023 Credit Agreement, as defined in Note 6, was deemed to approximate the carrying value, excluding unamortized debt issuance costs, because the interest rate is variable with short reset periods and is reflective of the current market rate. Revenue Recognition Net Sales — We recognize revenue from the sale of products at the point of sale, net of any taxes or deposits collected and remitted to governmental authorities. For e-commerce related sales in which a third-party provides home delivery service, revenue is recognized upon delivery to the customer. Our performance obligations are satisfied upon the transfer of goods to the customer, at the point of sale, and payment from customers is also due at the time of sale. Discounts provided to customers by us are recognized at the time of sale as a reduction in net sales as the products are sold. Discounts provided by IOs are not recognized as a reduction in net sales as these are provided solely by the IO who bears the incremental costs arising from the discount. We do not accept manufacturer coupons. We did not have any material contract assets or receivables from contracts with customers, any revenue recognized in the current year from performance obligations satisfied in previous periods, any material performance obligations other than our gift card deferred revenue liability, or any material costs to obtain or fulfill a contract as of January 3, 2026 and December 28, 2024. Gift Cards — We record a deferred revenue liability when a Grocery Outlet gift card is sold. Revenue related to gift cards is recognized as the gift cards are redeemed, which is when we have satisfied our performance obligation. While gift cards are generally redeemed within 12 months, some are never fully redeemed. We reduce the liability and recognize revenue for the unused portion of the gift cards ("breakage") under the proportional method, where recognition of breakage income is based upon the historical run-off rate of unredeemed gift cards. Our gift card deferred revenue liability was $ 4.5 million and $ 4.1 million as of January 3, 2026 and December 28, 2024, respectively. Breakage amounts were $ 0.7 million, $ 0.5 million and $ 0.2 million for the fiscal years ended January 3, 2026, December 28, 2024 and December 30, 2023, respectively. Disaggregated Revenues — The following table presents net sales revenue by type of product (amounts in thousands): January 3, 2026 December 28, 2024 December 30, 2023 Perishable (1) $ 1,765,372 $ 1,615,634 $ 1,404,461 Non-perishable (2) 2,923,387 2,755,867 2,564,992 Total net sales (3) $ 4,688,759 $ 4,371,501 $ 3,969,453 _______________________ (1) Perishable departments include dairy and deli; produce and floral; and fresh meat and seafood. (2) Non-perishable departments include non-perishable grocery; frozen foods; beer and wine; general merchandise; and health and beauty care. (3) Fiscal 2025 consisted of 53 weeks while fiscal 2024 and fiscal 2023 consisted of 52 weeks. Cost of Sales — Cost of sales includes, among other things, merchandise costs, inventory markdowns, shrink, transportation, third-party delivery fees and distribution and warehousing costs, including depreciation. 74 Table of Contents Marketing and Advertising Expenses — Costs for store promotions, newspaper, television, radio and other media advertising are expensed at the time the promotion or advertising takes place. Marketing and advertising costs are included in selling, general and administrative expenses ("SG&A") in the accompanying consolidated statements of operations and comprehensive income (loss) and amounted to $ 46.8 million, $ 43.0 million and $ 36.4 million, respectively, in the fiscal years ended January 3, 2026, December 28, 2024 and December 30, 2023. Share-based Awards — We estimate the fair value of time-based restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") based upon the closing price of our common stock as reported on the Nasdaq Global Select Market on the date of grant. The PSUs vest in one installment after a three-year performance period based on a service condition and the achievement of cumulative operating goals. The RSUs vest evenly over periods ranging from one year to three years . See Note 8 for information on the fair value of stock options. We recognize compensation expense for share-based payment awards with only a service condition on a straight-line basis over the requisite service period, which is generally the award's vesting period. Vesting of these awards would be accelerated for certain employees in the event of a change in control as well as certain termination events. Compensation expense for share-based payment awards subject to vesting based upon the achievement of a performance condition is recognized on a graded-vesting basis at the time the achievement of the performance condition becomes probable. We recognize share-based award forfeitures as they occur rather than estimating by applying a forfeiture rate. While we recognize share-based compensation expense over the performance period and/or requisite service period based on the fair market value of the award as of the grant date, we will not know the actual amount of tax benefit an award will generate until such award is exercised (for stock options) or vested (for RSUs or PSUs). Until such award is exercised or vested we assume that the amount ultimately recognized for tax purposes is the same amount we are currently recognizing in our operating results, that is for "book" purposes. Consequently, our deferred tax asset related to share-based compensation expense, which totaled $ 5.0 million on a tax-effected basis as of January 3, 2026, is based on each qualifying award's grant date fair value rather than the award's to-be-determined exercise date intrinsic value (or vesting date fair value). For awards exercised or vested during our fiscal year ended January 3, 2026, the exercise or vest date intrinsic value was below the grant date fair value by a total of $ 3.5 million on a tax-effected basis. If the share price for our common stock were to depreciate for a sustained period of time, we could be required to recognize a tax shortfall. Such shortfalls could have a material effect on our cash flows and financial results. See Note 8 and Note 10 for additional information. Income Taxes — Income taxes are accounted for using an asset and liability approach that requires recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. In estimating future tax consequences, all expected future events are considered, other than changes in the tax law. A valuation allowance is established, when necessary, to reduce net deferred income tax assets to the amount expected to be realized. We have not recorded any valuation allowances against our deferred income tax balances for the fiscal years ended January 3, 2026 and December 28, 2024. Significant items comprising our future tax benefits and liabilities (deferred tax assets and liabilities) include lease liability obligations, right-of-use assets, depreciation and amortization, net operating losses and other carryforwards, impairments and accounts receivable reserves. We recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense (benefit). We record uncertain tax positions in accordance with Accounting Standards Codification ("ASC") Topic 740, Income Taxes, on the basis of a two-step process in which (i) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Variable Interest Entities — In accordance with the variable interest entities sub-section of ASC Topic 810, Consolidation, we assess at each reporting period whether we, or any consolidated entity, are considered the primary beneficiary of a variable interest entity ("VIE") and therefore required to consolidate the financial results of the VIE in our consolidated financial statements. Determining whether to consolidate a VIE may require judgment in assessing (i) whether an entity is a VIE, and (ii) if a reporting entity is a VIE's primary beneficiary. A reporting entity is determined to be a VIE's primary beneficiary if it has the power to direct the activities that most significantly impact a VIE's economic performance and the obligation to absorb losses or rights to receive benefits that could potentially be significant to a VIE. 75 Table of Contents We had 529 , 491 and 466 stores operated by IOs as of January 3, 2026, December 28, 2024 and December 30, 2023, respectively. We have agreements in place with each IO. The IO orders merchandise exclusively from us which is provided to the IO on consignment. Under the independent operator agreement (the "Operator Agreement"), the IO selects a majority of merchandise that we consign to the IO, which the IO chooses from our merchandise order guide according to the IO's knowledge and experience with local customer purchasing trends, preferences, historical sales and similar factors. The Operator Agreement gives the IO discretion to adjust our initial prices if the overall effect of all price changes at any time comports with the reputation of our Grocery Outlet retail stores for selling quality, name-brand consumables and fresh products and other merchandise at extreme discounts. The IO is required to furnish initial working capital and to acquire certain store and safety ass ets. The IO is also required to hire, train and employ a properly trained workforce sufficient in number to enable the IO to fulfill its obligations under the Operator Agreement. Additionally, the IO is responsible for expenses required for business operations, including all labor costs, utilities, credit card processing fees, supplies, taxes, fines, levies and other expenses. Either party may terminate the Operator Agreement without cause upon no less than 75 days' notice. As consignor of all merchandise to each IO, the aggregate net sales proceeds from merchandise sales belongs to us. Net sales related to IO store s were $ 4.5 billion, $ 4.2 billion, and $ 3.9 billion for the fiscal years ended January 3, 2026, December 28, 2024, and December 30, 2023, respectively. We, in turn, pay each IO a commission based on a share of the gross profit of the store. Inventories and related net sales proceeds are our property, and we are responsible for store rent and related occupancy costs. IO commissions are expensed and included in SG&A. IO commissions were $ 667.3 million, $ 637.2 million, and $ 621.7 million for the fiscal years ended January 3, 2026, December 28, 2024 and December 30, 2023, respectively. IO commissions of $ 6.1 million and $ 5.6 million were included in accrued and other current liabilities as of January 3, 2026 and December 28, 2024, respectively. An IO may fund its initial store investment from existing capital, a third-party loan or most commonly through a loan from us, as further discussed in Note 2. As collateral for IO obligations and performance, the Operator Agreement grants us the security interests in the assets owned by each IO related to the respective store. Since the total investment at risk associated with each IO is not sufficient to permit each IO to finance its activities without additional subordinated financial support, each IO is a VIE that we have a variable interest in. To determine if we are the primary beneficiary of a VIE, we evaluate whether we have (i) the power to direct the activities that most significantly impact the IO's economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the IO that could potentially be significant to the IO. Our evaluation includes identification of significant activities and an assessment of the IO's ability to direct those activities. Activities that most significantly impact the IO's economic performance relate to sales and labor. Sales activities that significantly impact the IO's economic performance include determining what merchandise the IO will order and sell and the price of such merchandise, both of which the IO controls. The IO is also responsible for all of its own labor. Labor activities that significantly impact the IO's economic performance include hiring, training, supervising, directing, compensating (including wages, salaries and employee benefits) and terminating all of the employees of the IO, activities which the IO controls. Accordingly, the IO has the power to direct the activities that most significantly impact the IO's economic performance. Furthermore, the mutual termination rights associated with the Operator Agreement illustrate the lack of ultimate control over the IO. Therefore, we are not the primary beneficiary of these VIEs. Our maximum exposure, in accordance with ASC Topic 810, to the IOs is generally limited to the IO notes and IO receivables due from these entities, which was $ 88.3 million and $ 71.0 million, gross, as of January 3, 2026 and December 28, 2024, respectively. See Note 2 for additional information. Net Income (Loss) Per Share — Basic net income (loss) per share is calculated using net income (loss) available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share reflects the dilutive effects of stock options and RSUs outstanding during the period, to the extent such securities would not be anti-dilutive, as well as dilutive PSUs, and is determined using the treasury stock method. 76 Table of Contents Recently Adopted Accounting Standards Accounting Standards Update ("ASU") No. 2023-09 — In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) ("ASU 2023-09"). ASU 2023-09 requires public entities to disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate (the rate reconciliation) for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. In addition to new disclosures associated with the rate reconciliation, the ASU requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. We adopted ASU 2023-09 beginning in fiscal 2025 on a prospective basis. The adoption of ASU 2023-09 required additional disclosures in our consolidated financial statements. See Note 10 for additional information. Recently Issued Accounting Pronouncements ASU No. 2024-03 — In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) ("ASU 2024-03"). ASU 2024-03 requires public entities to disclose, in the notes to financial statements, specified information about certain costs and expenses, including the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included in each expense caption presented on the face of the income statement, a qualitative description of the amounts remaining in these expense captions that are not separately disaggregated quantitatively, and the total amount of selling expenses and an entity's definition of selling expenses. ASU 2024-03, as clarified by ASU No. 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. Further, the amendments in ASU 2024-03 should be applied either prospectively or retrospectively. We are currently evaluating the impact on our consolidated financial statements and disclosures. ASU No. 2025-06 — In September 2025, the FASB issued ASU No. 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) ("ASU 2025-06"). ASU 2025-06 removes all references to prescriptive and sequential software development stages throughout Subtopic 350-40, and therefore requires an entity to start capitalizing software costs when management has authorized and committed to funding the software project, and it is probable that the project will be completed and the software will be used to perform the function intended. The amendments in ASU 2025-06 further specify and clarify disclosure requirements for property, plant and equipment and intangibles, as well as supersede the website development costs guidance and incorporate the recognition requirements for website-specific development costs. ASU 2025-06 is effective for annual reporting periods beginning after December 15, 2027 and interim reporting periods within those annual reporting periods, with early adoption permitted. Further, the amendments in ASU 2025-06 should be applied using a transition approach that is prospective, modified based on the project status and whether software costs were capitalized before the adoption date, or retrospective. We are currently evaluating the impact on our consolidated financial statements and disclosures. 77 Table of Contents Note 2. Independent Operator Notes and Independent Operator Receivables The amounts included in IO notes and IO receivables consist primarily of funds we loaned to IOs, net of estimated uncollectible amounts. IO notes, which are payable on demand and have no maturity date, typically bear interest at rates between 4.00 % and 9.95 %. Accrued interest receivable on IO notes is included within the "independent operator receivables and current portion of independent operator notes, net of allowance" line item on the consolidated balance sheets and was $ 3.9 million and $ 3.0 million as of January 3, 2026 and December 28, 2024, respectively. There were no IO notes that were past due or on a non-accrual status due to delinquency as of January 3, 2026 or December 28, 2024. Notes and receivables from our IOs participating in our Temporary Commission Adjustment Program ("TCAP"), as detailed below, are not considered to be past due or on a non-accrual status due to delinquency and are excluded from such measures. IO notes and IO receivables are financial assets which are measured and carried at amortized cost. An allowance for expected credit losses is deducted from (for expected losses) or added to (for expected recoveries) the amortized cost basis of these assets to arrive at the net carrying amount expected to be collected for such assets. The allowance is estimated using an expected loss framework, which includes information about past events, current conditions, and reasonable and supportable forecasts that impact the collectibility of the reported amounts of the assets over their lifetime. The allowance is evaluated on a collective basis for assets with shared risk characteristics and credit quality indicators. The primary shared risk characteristic and credit quality indicator pools that we use as a basis for collective evaluation include: • TCAP — Includes the notes and receivables from IOs with stores that have been open for more than 18 months that are participating in our TCAP as of the end of each reporting period. TCAP allows us to provide a greater commission to participating IOs who require assistance in meeting their working capital needs for various reasons, such as new or increased competition or differences in IO skills and experience. • Non-TCAP — Includes the notes and receivables from IOs with stores that have been open for more than 18 months that are not participating in TCAP as of the end of each reporting period. • New store — Includes the notes and receivables from IOs with stores that have been open for less than 18 months as of the end of each reporting period, and may or may not be participating in TCAP. Assets without such shared risk characteristics or credit quality indicators, such as assets with unique circumstances or with delinquencies and historical losses in excess of their TCAP, non-TCAP or new store peers are evaluated on an individual basis. Amounts due from IOs and the related allowances consisted of the following (amounts in thousands) : Allowance Net Gross Current Portion Long-term Portion Total Current Portion Long-term Portion January 3, 2026 Independent operator notes $ 57,532 $ ( 454 ) $ ( 13,864 ) $ 43,214 $ 2,301 $ 40,913 Independent operator receivables 30,743 ( 11,799 ) ( 1,427 ) 17,517 14,682 2,835 Total $ 88,275 $ ( 12,253 ) $ ( 15,291 ) $ 60,731 $ 16,983 $ 43,748 Allowance Net Gross Current Portion Long-term Portion Total Current Portion Long-term Portion December 28, 2024 Independent operator notes $ 46,917 $ ( 368 ) $ ( 11,454 ) $ 35,095 $ 471 $ 34,624 Independent operator receivables 24,054 ( 5,402 ) ( 1,255 ) 17,397 15,580 1,817 Total $ 70,971 $ ( 5,770 ) $ ( 12,709 ) $ 52,492 $ 16,051 $ 36,441 78 Table of Contents A summary of activity in the IO notes and IO receivables allowance was as follows (amounts in thousands): Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Beginning balance $ 18,479 $ 16,151 $ 14,747 Provision for IO notes and IO receivables reserves 12,783 4,625 3,588 Write-off of uncollectible IO notes and IO receivables ( 3,718 ) ( 2,297 ) ( 2,184 ) Ending balance $ 27,544 $ 18,479 $ 16,151 The following table presents the gross write-off of IO notes and IO receivables by year of origination for the fiscal year ended January 3, 2026 (amounts in thousands): Fiscal 2025 $ — Fiscal 2024 1 Fiscal 2023 892 Fiscal 2022 1,407 Fiscal 2021 644 Prior 774 Total $ 3,718 The following tables present the outstanding gross balance of IO notes by fiscal year of origination and credit quality indicator (amounts in thousands): Fiscal Year of Origination 2025 2024 2023 2022 2021 Prior Total January 3, 2026 TCAP $ 4,826 $ 5,982 $ 3,972 $ 3,907 $ 1,589 $ 2,489 $ 22,765 Non-TCAP 7,253 4,745 2,762 3,680 2,285 2,689 23,414 New store 9,808 1,545 — — — — 11,353 Total $ 21,887 $ 12,272 $ 6,734 $ 7,587 $ 3,874 $ 5,178 $ 57,532 Fiscal Year of Origination 2024 2023 2022 2021 2020 Prior Total December 28, 2024 TCAP $ 3,522 $ 3,662 $ 5,542 $ 2,250 $ 1,592 $ 1,384 $ 17,952 Non-TCAP 4,474 4,024 4,213 3,798 1,969 2,029 20,507 New store 6,733 1,725 — — — — 8,458 Total $ 14,729 $ 9,411 $ 9,755 $ 6,048 $ 3,561 $ 3,413 $ 46,917 TCAP IO Notes Notes of IOs participating in our TCAP represented 50.6 % and 49.1 % of total IO note balances as of January 3, 2026 and December 28, 2024, respectively. A total of $ 9.7 million of IO notes were added into our TCAP during the fiscal year ended January 3, 2026. The weighted-average contractual interest rate of these IO notes was 4.00 % as of January 3, 2026, a reduction from the standard rate of 9.95 %. In addition, $ 2.5 million of IO notes were transferred from TCAP to Non-TCAP during the fiscal year ended January 3, 2026. 79 Table of Contents Note 3. Property and Equipment Property and equipment consisted of the following (amounts in thousands): Property and Equipment, At Cost Accumulated Depreciation and Amortization Property and Equipment, Net January 3, 2026 Leasehold improvements $ 572,641 $ ( 212,035 ) $ 360,606 Fixtures and equipment 657,091 ( 343,033 ) 314,058 Other 376 ( 348 ) 28 Construction in progress 90,625 ( 22,356 ) 68,269 Totals $ 1,320,733 $ ( 577,772 ) $ 742,961 December 28, 2024 Leasehold improvements $ 538,682 $ ( 184,759 ) $ 353,923 Fixtures and equipment 621,017 ( 301,499 ) 319,518 Other 376 ( 335 ) 41 Construction in progress 76,941 — 76,941 Totals $ 1,237,016 $ ( 486,593 ) $ 750,423 Construction in progress is primarily composed of leasehold improvements and fixtures and equipment related to new or remodeled stores where construction had not been completed at year-end. We recognized impairment of property and equipment of $ 90.6 million in fiscal 2025, including $ 82.1 million related to certain underperforming stores which we subsequently determined to close as part of the Optimization Plan, as well as $ 7.0 million related to the Restructuring Plan, and $ 12.1 million in fiscal 2024 related to the Restructuring Plan. No impairment of property and equipment was recognized in fiscal 2023. See Note 1 and Note 16 for additional information. Depreciation expense on property and equipment were as follows (amounts in thousands): Fiscal Year Ended Consolidated Statements of Operations and Comprehensive Income (loss) Location January 3, 2026 December 28, 2024 December 30, 2023 Cost of sales $ 4,655 $ 2,857 $ 1,963 Selling, general and administrative expenses 102,955 87,890 74,637 Total depreciation expense on property and equipment $ 107,610 $ 90,747 $ 76,600 Note 4. Leases As of January 3, 2026 and December 28, 2024, we leased 14 of our store locations and one warehouse location from related parties. See Note 11 for additional information. As of January 3, 2026, 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. As of January 3, 2026, we had executed leases for 36 underperforming store locations and a distribution center facility where we are pursuing termination or sublease of these leases as part of the Optimization Plan, with total undiscounted future lease payments of $ 101.8 million and lease terms through 2040, following the recognition of impairment of right-of-use assets of $ 27.7 million in fiscal 2025 related to these leases. See below and Note 16 for further discussion. Based upon our initial investment in store leasehold improvements, we utilize an initial, reasonably-certain lease life of 15 years for most of our leases. Most leases include one or more options to renew, with renewal terms that can extend the lease term from five to 15 years or more. Our leases do not include any material residual value guarantees or material restrictive covenants. We also have non-cancelable subleases with unrelated third parties with future minimum rental receipts as of January 3, 2026 totaling $ 4.8 million ending in various years through 2036, which have not been deducted from the future minimum lease payments. 80 Table of Contents The balance sheet classification of our right-of-use lease assets and lease liabilities was as follows (amounts in thousands): Leases Classification January 3, 2026 December 28, 2024 Assets: Operating lease assets Operating right-of-use assets $ 1,089,838 $ 1,014,678 Finance lease assets Other assets 2,643 3,711 Total lease assets $ 1,092,481 $ 1,018,389 Liabilities: Current Operating Current lease liabilities $ 86,263 $ 71,527 Finance Current lease liabilities 1,061 1,378 Noncurrent Operating Long-term lease liabilities 1,227,689 1,103,647 Finance Long-term lease liabilities 1,784 2,572 Total lease liabilities $ 1,316,797 $ 1,179,124 The components of lease expense were as follows (amounts in thousands): Fiscal Year Ended Lease Cost Classification (1) January 3, 2026 December 28, 2024 December 30, 2023 Operating lease cost Selling, general and administrative expenses $ 178,037 $ 157,300 $ 141,501 Finance lease cost: Amortization of right-of-use assets Selling, general and administrative expenses 1,346 1,479 1,423 Interest on leased liabilities Interest expense, net 211 347 340 Variable lease cost Selling, general and administrative expenses 1,350 1,688 1,093 Sublease income Selling, general and administrative expenses ( 1,153 ) ( 1,281 ) ( 1,237 ) Net lease cost $ 179,791 $ 159,533 $ 143,120 _______________________ (1) Certain supply chain related lease costs herein are included in cost of sales. 81 Table of Contents Maturities of lease liabilities as of January 3, 2026 were as follows (amounts in thousands): Operating Leases Finance Leases Total Fiscal 2026 $ 170,147 $ 1,591 $ 171,738 Fiscal 2027 185,553 947 186,500 Fiscal 2028 183,518 596 184,114 Fiscal 2029 183,305 477 183,782 Fiscal 2030 178,533 214 178,747 Thereafter 941,093 23 941,116 Total lease payments 1,842,149 3,848 $ 1,845,997 Less: Imputed interest ( 528,197 ) ( 1,003 ) Present value of lease liabilities $ 1,313,952 $ 2,845 The weighted-average lease terms and discount rates of operating and finance leases were as follows: January 3, 2026 December 28, 2024 Weighted-average remaining lease term: Operating leases 10.3 years 10.5 years Finance leases 3.4 years 3.6 years Weighted-average discount rate: Operating leases 6.49 % 6.53 % Finance leases 6.47 % 6.35 % Supplemental cash flow information related to leases was as follows (amounts in thousands): Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 170,857 $ 152,576 $ 135,871 Operating cash flows from finance leases $ 209 $ 344 $ 344 Financing cash flows from finance leases $ 1,386 $ 1,597 $ 1,409 Leased assets obtained in exchange for new operating lease liabilities $ 245,908 $ 161,688 $ 131,758 Leased assets obtained in exchange for new finance lease liabilities $ 285 $ 917 $ 1,782 Decrease in operating lease liabilities and right-of-use assets due to lease remeasurement $ 19,660 $ 975 $ — Impairment of right-of-use assets (1) $ 31,106 $ 3,825 $ — _______________________ (1) Impairment amounts recognized in fiscal 2025 were primarily related to certain underperforming stores, substantially all of which we subsequently determined to close as part of the Optimization Plan, as well as the Restructuring Plan, and impairment amounts recognized in fiscal 2024 were related to the Restructuring Plan. See Note 1 and Note 16 for additional information. 82 Table of Contents Note 5. Goodwill and Intangible Assets The following table summarizes the changes in the net goodwill balance for the periods presented (amounts in thousands): Gross Carrying Amount Accumulated Impairment Net Carrying Amount Balance at December 30, 2023 $ 747,943 $ — $ 747,943 Acquisition of United Grocery Outlet, net of purchase price adjustments (see Note 15) 34,791 — 34,791 Balance at December 28, 2024 $ 782,734 $ — $ 782,734 Purchase price adjustment 101 — 101 Impairment loss — ( 149,000 ) ( 149,000 ) Balance at January 3, 2026 $ 782,835 $ ( 149,000 ) $ 633,835 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 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. See Note 1 for additional information. 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, we 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. 83 Table of Contents Information regarding our intangible assets was as follows (amounts in thousands): Gross Carrying Amount Accumulated Amortization Net Carrying Amount January 3, 2026 Trademarks $ 58,400 $ ( 43,684 ) $ 14,716 Computer software 101,770 ( 47,395 ) 54,375 Total finite-lived intangible assets 160,170 ( 91,079 ) 69,091 Liquor licenses 9,284 — 9,284 Total intangible assets $ 169,454 $ ( 91,079 ) $ 78,375 December 28, 2024 Trademarks $ 58,400 $ ( 39,791 ) $ 18,609 Computer software 85,109 ( 34,505 ) 50,604 Total finite-lived intangible assets 143,509 ( 74,296 ) 69,213 Liquor licenses 9,565 — 9,565 Total intangible assets $ 153,074 $ ( 74,296 ) $ 78,778 Amortization expense for finite-lived intangible assets was $ 21.3 million, $ 15.7 million, and $ 10.1 million for t he fiscal years ended January 3, 2026, December 28, 2024, and December 30, 2023, respectively. The estimated future amortization expense related to finite-lived intangible assets as of January 3, 2026 is as follows (amounts in thousands): Fiscal 2026 $ 21,511 Fiscal 2027 17,309 Fiscal 2028 12,411 Fiscal 2029 7,019 Fiscal 2030 2,722 Thereafter 8,119 Total $ 69,091 84 Table of Contents Note 6. Long-term Debt Long-term debt consisted of the following (amounts in thousands): January 3, 2026 December 28, 2024 2023 Credit Agreement: Senior term loan due 2028 $ 273,750 $ 288,750 Revolving credit facility 220,000 190,000 Long-term debt, gross 493,750 478,750 Less: Unamortized debt issuance costs ( 845 ) ( 1,248 ) Long-term debt, less unamortized debt issuance costs 492,905 477,502 Less: Current portion ( 15,000 ) ( 15,000 ) Long-term debt, net $ 477,905 $ 462,502 2023 Credit Agreement We are party to a credit agreement, dated February 21, 2023 (the "2023 Credit Agreement"), with Bank of America, N.A., as administrative agent and collateral agent, and a syndicate of lenders that consists of (i) a senior secured term loan facility (the "senior term loan") and (ii) a senior secured revolving credit facility (the "revolving credit facility" and, together with the senior term loan, the "credit facilities") in an aggregate principal amount of $ 400.0 million. The revolving credit facility includes sub-commitments for $ 50.0 million letters of credit and $ 25.0 million of swingline loans. On February 21, 2023, we repaid all of the outstanding indebtedness under a prior first lien credit agreement, as well as fees and expenses in connection therewith. All obligations of the Company’s subsidiaries under the prior first lien credit agreement were discharged and the agreement was terminated as of such date. In connection with the closing of the 2023 Credit Agreement and repayment of the prior first lien credit agreement and in accordance with ASC Topic 470-50, Debt-Modifications and Extinguishments, we wrote off $ 5.1 million of previously unamortized debt issuance costs and debt discounts and incurred $ 0.2 million in debt modification costs, which were recorded within loss on debt extinguishment and modification for the fiscal year ended January 3, 2026. Furthermore, a total of $ 4.6 million of creditor and third-party debt issuance costs were capitalized or carried over from the prior credit facilities (as defined below), and will be amortized over the term of the new credit facilities. Borrowings under the 2023 Credit Agreement bear interest at a rate equal to, at our option, either (a) the base rate, which is defined as a fluctuating rate per annum equal to the greatest of (i) the federal funds rate then in effect, plus 0.50 %, (ii) the prime rate then in effect and (iii) a specified Term SOFR (as defined in the 2023 Credit Agreement) rate plus 1.00 %, subject to the interest rate floors set forth therein, plus an applicable margin ranging from 0.75 % to 1.75 % based on our Total Net Leverage Ratio (as defined in the 2023 Credit Agreement); and (b) an adjusted Term SOFR rate determined on the basis of a one, three or six month interest period, plus 0.10 %, subject to the interest rate floors set forth therein, plus an applicable margin ranging from 1.75 % to 2.75 % based on our Total Net Leverage Ratio. As of January 3, 2026, interest on borrowings under the credit facilities was based on one-month Term SOFR with an applicable margin of 2.25 %. The 2023 Credit Agreement permits us to add incremental term loan facilities, increase any existing term loan facility, increase revolving commitments, and/or add incremental replacement revolving credit facility tranches. The aggregate principal amount of such incremental facilities are limited to (a) an amount not in excess of the sum of the greater of $ 200.0 million and 100 % of Consolidated EBITDA (as defined in the 2023 Credit Agreement), subject to certain limitations, plus (b) voluntary prepayments of any term loan facility, voluntary permanent reductions of the commitments for the revolving credit facility and voluntary prepayments of indebtedness secured by liens on the collateral securing the credit facilities, subject to certain exceptions, plus (c) an amount such that (assuming that the full amount of any such incremental revolving increase and/or incremental replacement revolving credit facility was drawn, and after giving effect to any appropriate pro forma adjustment events) we would be in compliance, on a pro forma basis (but excluding the cash proceeds of such incurrence), with a Total Net Leverage Ratio of 3.00 to 1.00. Our obligations under the 2023 Credit Agreement are unconditionally guaranteed by Grocery Outlet Holding Corp.'s direct and indirect wholly owned restricted subsidiaries, subject to certain exceptions. All obligations under the 2023 Credit Agreement, and the guarantee of such obligations, are secured, subject to permitted liens and other exceptions, by substantially all of the Company’s assets and those of each subsidiary guarantor. 85 Table of Contents The 2023 Credit Agreement requires us to make scheduled quarterly amortization payments on the senior term loan, which were $ 1.875 million from June 2023 through March 2025, and are $ 3.75 million from June 2025 through December 2027, with the remaining balance due on February 21, 2028. We may voluntarily prepay the credit facilities, in whole or in part, at any time without premium or penalty, subject to reimbursement of the lenders’ breakage and redeployment costs in applicable cases. The senior term loan and the revolving credit facility under the 2023 Credit Agreement mature on February 21, 2028. Senior Term Loan due 2028 The senior term loan under the 2023 Credit Agreement had an interest rate of 6.27 % as of January 3, 2026. Revolving Credit Facility The aggregate outstanding principal balance under the revolving credit facility was $ 220.0 million and $ 190.0 million as of January 3, 2026 and December 28, 2024, respectively. As of January 3, 2026 we had $ 5.1 million of outstanding letters of credit and $ 174.9 million of remaining borrowing capacity available under the revolving credit facility. Borrowings under the revolving credit facility had an interest rate of 6.31 % as of January 3, 2026. We are required to pay a quarterly commitment fee ranging from 0.15 % to 0.30 % on the daily unused amount of the commitment under the revolving credit facility based upon our Total Net Leverage Ratio. The unused commitment fee rate was 0.20 % as of January 3, 2026. We are also required to pay fronting fees and other customary fees for letters of credit issued under the revolving credit facility. Debt Covenants The 2023 Credit Agreement contains certain customary representations and warranties, subject to limitations and exceptions, and affirmative and customary covenants. The 2023 Credit Agreement contains certain covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: pay dividends or distributions, repurchase equity, prepay junior debt and make certain investments; incur additional debt or issue certain disqualified stock and preferred stock; incur liens on assets; merge or consolidate with another company or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets; enter into transactions with affiliates; and allow to exist certain restrictions on the ability of our subsidiaries to pay dividends or make other payments to the borrower. The 2023 Credit Agreement also contains financial performance covenants requiring us to satisfy a maximum total net leverage ratio test and a minimum interest coverage ratio test as of the last day of each fiscal quarter. The maximum total net leverage ratio test requires us to be in compliance with a Total Net Leverage Ratio no greater than 3.50 to 1.00 as of the last day of each test period ending prior to the test period ending on or about December 31, 2025, and no greater than 3.25 to 1.00 as of the last day of each test period ending thereafter, subject to certain adjustments set forth in the 2023 Credit Agreement. The minimum interest coverage ratio test requires us to be in compliance with a Consolidated Interest Coverage Ratio (as defined in the 2023 Credit Agreement) of no less than 1.75 to 1.00 as of the last day of each test period. As of January 3, 2026, we were in compliance with all applicable financial covenant requirements for the 2023 Credit Agreement. Schedule of Principal Maturities Principal maturities of debt as of January 3, 2026 were as follows (amounts in thousands): Fiscal 2026 15,000 Fiscal 2027 15,000 Fiscal 2028 463,750 Fiscal 2029 and thereafter — Total $ 493,750 86 Table of Contents Interest Expense, Net Interest expense, net, consisted of the following (amounts in thousands): Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Interest on loans $ 33,245 $ 29,028 $ 24,666 Amortization of debt issuance costs and debt discounts 928 910 1,084 Interest on finance leases 211 347 340 Other — 27 17 Interest income ( 4,921 ) ( 6,723 ) ( 7,631 ) Capitalized interest ( 1,983 ) ( 1,433 ) ( 2,115 ) Interest expense, net $ 27,480 $ 22,156 $ 16,361 Loss on Debt Extinguishment and Modification Loss on debt extinguishment and modification consisted of the following (amounts in thousands): Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Write-off of debt issuance costs $ — $ — $ 4,518 Write-off of debt discounts — — 578 Debt modification costs — — 244 Loss on debt extinguishment and modification $ — $ — $ 5,340 Note 7. Stockholders' Equity As of January 3, 2026, the total amount of the Company’s authorized capital stock consisted of 500,000,000 shares of common stock, par value $ 0.001 per share, and 50,000,000 shares of undesignated preferred stock, par value of $ 0.001 per share. Common Stock Holders of our common stock are entitled to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including the election or removal of directors. The holders of our common stock do not have cumulative voting rights in the election of directors. Preferred Stock We did not have any shares of preferred stock issued or outstanding as of January 3, 2026. Our Board of Directors (the "Board") has the authority to issue shares of preferred stock from time to time on terms it may determine, with respect to any series of preferred stock, the powers (including voting powers), preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof as the Board may from time to time determine, which could affect the relative voting power or other rights of the holders of our common stock. The issuance of preferred stock could have the effect of decreasing the trading price of our common stock, restricting dividends on the common stock, diluting the voting power of our common stock, or subordinating the liquidation rights of the common stock. Dividend Rights Holders of our common stock are entitled to receive dividends when, as and if declared by our Board out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to the rights of the holders or one or more outstanding series of our preferred stock. 87 Table of Contents Share Repurchase Program In November 2021, our Board approved a share repurchase program (the "2021 Share Repurchase Program"). This program, which was effective November 5, 2021 and without an expiration date, authorized us to repurchase up to $ 100.0 million of our outstanding common stock. In the fourth quarter of fiscal 2024, the Board approved a new share repurchase program (the "2024 Share Repurchase Program"), which replaced the Company’s 2021 Share Repurchase Program, under which $ 9.4 million previously remained available for repurchase. The 2024 Share Repurchase Program does not have an expiration date and authorizes us to repurchase up to $ 100.0 million of our outstanding common stock (inclusive of fees and commissions) utilizing a variety of methods including open-market purchases, accelerated equity repurchase programs, privately negotiated transactions, block trades and under a Rule 10b5-1 plan. Any repurchased shares are constructively retired and returned to an unissued status. The following table presents activity related to the share repurchase programs (amounts in thousands except share and per share amounts). We repurchased these shares in open-market transactions pursuant to a Rule 10b5-1 plan. Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Shares repurchased — 3,977,163 254,516 Amount repurchased (1) $ — $ 80,439 $ 6,809 Average repurchase price per share $ — $ 20.23 $ 26.75 _______________________ (1) Includes commissions for the shares repurchased for the fiscal years ended December 28, 2024 and December 30, 2023 and excludes excise tax due of $ 0.3 million under the Inflation Reduction Act for the fiscal year ended December 28, 2024. As of January 3, 2026, we had $ 100.0 million of repurchase authority remaining under the 2024 Share Repurchase Program. Note 8. Share-based Awards Share-based Incentive Plans The Globe Holding Corp. 2014 Stock Incentive Plan (the "2014 Plan") became effective on October 21, 2014. Under the 2014 Plan, we granted stock options and RSUs to purchase shares of our common stock. Effective as of June 19, 2019, we terminated the 2014 Plan and as a result no further equity awards may be issued under the 2014 Plan. Any outstanding awards granted under the 2014 Plan will remain subject to the terms of the 2014 Plan and the applicable equity award agreements. On June 4, 2019, our Board and stockholders approved the Grocery Outlet Holding Corp. 2019 Incentive Plan (the "2019 Plan"). A total of 4,597,862 shares of common stock were reserved for issuance under the 2019 Plan at that time. In addition, on the first day of each fiscal year beginning in fiscal 2020 and ending in fiscal 2029, the 2019 Plan provides for an annual automatic increase of the shares reserved for issuance in an amount equal to the positive difference between (i) 4 % of the "outstanding common stock" (as defined in the 2019 Plan) on the last day of the immediately preceding fiscal year and (ii) the plan share reserve on the last day of the immediately preceding fiscal year, or a lesser number as determined by our Board. As of January 3, 2026, there were a total of 9,269,282 shares of common stock reserved for issuance under the 2019 Plan, which included 836,142 shares added effective December 29, 2024 per the above noted annual automatic increase. As of January 3, 2026, there were 1,438,637 remaining shares available for issuance of new equity awards under the 2019 Plan. Long-term incentive programs ("LTIPs") under the 2019 Plan include time-based RSUs, PSUs and stock options. In fiscal 2025, fiscal 2024 and fiscal 2023, we granted RSUs and PSUs to our employees. RSUs granted under the LTIPs generally vest over one to three years . PSUs granted under the LTIPs will vest upon the achievement of certain performance targets as determined by the Compensation Committee following the last day of a three-year performance period. The number of PSUs ultimately earned will equal the number of PSUs granted multiplied by the applicable percentage of performance target levels achieved, and can range from 0 % to 200 % of the number of PSUs granted. PSUs granted during fiscal 2025 and fiscal 2024 will vest upon the achievement of certain revenue-based and adjusted EPS-based performance targets, and PSUs granted during fiscal 2023 will vest upon the achievement of certain revenue-based and certain adjusted EBITDA-based performance targets. 88 Table of Contents During fiscal 2025, we granted time-based stock options, which have a ten-year term and vest in annual installments over a three-year period, subject to continued employment. In addition, during fiscal 2025, we granted a one-time, special new hire stock option award with a ten-year term to our President and Chief Executive Officer. Under this award, one-third of such stock options vest and become exercisable three years after the grant date, subject to continued employment. The remaining two-thirds of those stock options become exercisable three years after the grant date, subject to the achievement of certain price targets of the Company's common stock during the three-year period following the grant date and the recipient's continued employment. Fair Value Determination The fair value of stock option, RSU and PSU awards is determined as of the grant date. For time-based stock options, a Black-Scholes valuation model is used to estimate the fair value of the awards. For market-based stock options, a Monte Carlo simulation model is used to estimate the fair value of the awards. For performance-based stock options, a Monte Carlo simulation approach implemented in a risk-neutral framework was utilized to estimate the fair value of the awards. For RSUs and PSUs, the closing price of our common stock as reported on the grant date is utilized to estimate the fair value of the awards. We determine the input assumptions for the Black-Scholes stock option valuation model as follows: • Expected term — The expected term represents the period that a stock option award is expected to be outstanding. We have limited historical exercise data from which to derive expected term input assumptions. Consequently, we calculate the expected term using the SEC simplified method whereby the expected term of a stock option award is equal to the average of the award's contractual term and vesting term. • Expected volatility — For stock option awards where we have sufficient historical data available from which to derive stock price volatility input assumptions, we calculate the expected stock price volatility for our common stock based on our historical volatility data over a time frame consistent with the expected life of the awards. Certain stock option awards were granted prior to having sufficient historical data available from which to derive stock price volatility input assumptions. Consequently, the stock price volatility for these awards was estimated by using a time-weighted average methodology, placing proportional weight on our volatility over our available trading history and the average volatility of industry peers over the expected term. Industry peers consisted of several public companies in our industry which were of similar size, complexity and stage of development. • Risk-free interest rate — The risk-free interest rate is based on the U.S. Treasury yield curve on a stock option award's grant date. Maturities that approximate the expected term of the stock option award were used to interpolate the risk-free rate. • Dividend yield — Dividend yield is assumed to be zero as we have not historically paid and do not expect to pay cash dividends on our common shares issued. 89 Table of Contents The grant date fair value of time-based stock options awarded during fiscal 2025 was estimated using the Black-Scholes valuation model with the following weighted-average assumptions: Fiscal Year Ended January 3, 2026 Expected volatility 43.4 % Risk-free interest rate 4.0 % Dividend yield — % Expected term (in years) 6.03 For market-based stock options, share-based compensation expense was immaterial during fiscal 2025. We did not award any performance-based stock options during fiscal 2025, and we did not award any time-based, market-based or performance-based stock options during fiscal 2024 and fiscal 2023. Share-based Award Activity The following table summarizes stock option activity under all equity incentive plans during fiscal 2025 (amounts in thousands, except option, per option and term data): Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Time-Based Stock Options Options outstanding as of December 28, 2024 879,357 $ 19.98 Granted 1,336,588 12.11 Exercised ( 51,572 ) 10.74 Forfeited ( 447,614 ) 17.45 Options outstanding as of January 3, 2026 1,716,759 $ 14.79 7.1 years $ 67 Options vested and expected to vest as of January 3, 2026 1,716,759 $ 14.79 7.1 years $ 67 Options exercisable as of January 3, 2026 579,759 $ 19.96 3.1 years $ 67 Market-Based and Performance-Based Stock Options Options outstanding as of December 28, 2024 99,384 $ 10.25 Granted 166,667 11.87 Exercised ( 25,655 ) 5.67 Forfeited — — Options outstanding as of January 3, 2026 240,396 $ 11.86 7.2 years $ 44 Options vested and expected to vest as of January 3, 2026 240,396 $ 11.86 7.2 years $ 44 Options exercisable as of January 3, 2026 73,729 $ 11.85 2.7 years $ 44 The weighted-average grant date fair value per share unit of time-based stock options and market-based stock options granted during fis cal 2025 was $ 5.80 and $ 4.65 , respec tively. No stock options were granted during fiscal 2024 and fiscal 2023 . The total intrinsic value of time-based stock options exercised w as $ 0.2 million, $ 16.3 million and $ 11.7 million for fiscal 2025, fiscal 2024 and fiscal 2023, respectively . The total intrinsic value of performance-based stock options exercised w as $ 0.2 million, $ 2.2 million and $ 15.9 million for fiscal 2025, fiscal 2024 and fiscal 2023, respectively. No market-based stock options were exercised during fiscal 2025, fiscal 2024 or fiscal 2023. As of January 3, 2026, unamortized compensation expense for time-based stock options and market-based stock options was $ 4.8 million and $ 0.6 million, respectively, which is expected to be amortized over a weighted-average period of approximately 2.2 years and 2.2 years, respectively. We had no unamortized compensation cost related to performance-based stock options, as all awards were fully vested as of January 3, 2026. 90 Table of Contents The following table summarizes RSU activity under all equity incentive plans during fiscal 2025: Number of Shares Weighted-Average Grant Date Fair Value Weighted-Average Remaining Contractual Term Unvested balance as of December 28, 2024 1,179,071 $ 22.93 Granted 1,286,380 12.21 Vested ( 494,183 ) 24.30 Forfeited ( 450,013 ) 16.91 Unvested balance as of January 3, 2026 1,521,255 $ 15.20 1.5 years The weighted-average grant date fair value per share unit of RSUs granted during fiscal 2025, fiscal 2024 and fiscal 2023 was $ 12.21 , $ 21.59 and $ 27.50 , respectively. RSUs vested during fiscal 2025, fiscal 2024 and fiscal 2023 had grant date fair values totaling $ 12.0 million, $ 13.0 million, and $ 11.2 million, respectively. Unamortized compensation expense for RSUs was $ 13.1 million as of January 3, 2026, which is expected to be amortized over a weighted-average period of approximately 1.8 years. The following table summarizes PSU activity under the 2019 Plan during fiscal 2025: Number of Shares Weighted-Average Grant Date Fair Value Weighted-Average Remaining Contractual Term Unvested balance as of December 28, 2024 791,884 $ 27.83 Granted (1) 937,533 12.04 Adjustment for expected performance achievement (2) ( 1,063,899 ) 15.61 Vested ( 320,430 ) 29.18 Forfeited ( 193,688 ) 16.74 Unvested balance as of January 3, 2026 (3) 151,400 $ 27.29 — years _______________________ (1) Represents initial grant of PSUs based on performance target level achievement of 100 %. (2) Represents the adjustment to previously granted PSUs based on performance expectations as of the end of each respective reporting period. (3) Up to an additional 2,659,421 PSUs could potentially be included if the actual performance level achievement exceeds the current expected target performance level of achievement (with 200 % being the maximum performance level achievement). The weighted-average grant date fair value per share unit of PSUs granted during fiscal 2025, fiscal 2024 and fiscal 2023 was $ 12.04 , $ 25.65 and $ 27.34 , respectively. PSUs vested during fiscal 2025, fiscal 2024 and fiscal 2023 had grant date fair values totaling $ 9.4 million, $ 10.7 million, and $ 16.3 million, respectively. We had no unamortized compensation cost related to the expected level of achievement of unvested PSUs as of January 3, 2026. 91 Table of Contents Share-based Compensation Expense We recognize compensation expense for time-based and market-based stock options, RSUs, and PSUs by amortizing the grant date fair value on a straight-line basis over the expected vesting period to the extent we determine the achievement of the grant's service or performance vesting requirements is probable. Share-based compensation expense and the related tax benefit consisted of the following (amounts in thousands): Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Time-based stock options $ 1,784 $ 11 $ 770 Market-based stock options 219 — — RSUs 12,428 12,805 11,327 PSUs ( 3,940 ) ( 2,300 ) 18,979 Dividends (1) — — 15 Share-based compensation expense (2) $ 10,491 $ 10,516 $ 31,091 _______________________ (1) Represents cash dividends paid upon vesting of share-based awards as a result of dividends declared in connection with a recapitalization that occurred in fiscal 2018. (2) Total recognized income tax benefit related to share-based compensation expense was $ 2.8 million, $ 2.9 million and $ 8.3 million for fiscal 2025, fiscal 2024 and fiscal 2023, respectively. Share-based compensation expense qualifying for capitalization was insignificant for each of the fiscal years ended January 3, 2026, December 28, 2024 and December 30, 2023. Accordingly, no share-based compensation expense was capitalized during these years. Dividends For time-based stock options and RSU share-based awards that were outstanding on the dividend date of October 22, 2018 and that vested in fiscal 2023, fiscal 2022, and fiscal 2021, we made dividend payments as these awards vested. We paid less than $ 0.1 million of dividends during the fiscal year ended December 30, 2023. There was no unamortized compensation cost related to future dividend payments on unvested time-based stock options, market-based stock options and RSU share-based awards as of January 3, 2026. 92 Table of Contents Note 9. Retirement Plans We make contributions to the UFCW—Northern California Employers Joint Pension Trust Fund (the "Pension Fund") and the UFCW—Benefits Trust Fund ("Benefits Fund"), each a multiemployer plan, established for the benefit of union employees at two company operated stores under the terms of a collective bargaining agreement. We currently operate under a collective bargaining agreement, which was extended on a day-to-day basis and is subject to a 72 hour notice of cancellation. Minimum contributions outside of the agreed upon contractual rates are not required for the Pension Fund. Payments into the Pens ion Fun d were $ 0.8 million, $ 0.8 million, and $ 0.6 million for the fiscal years ended January 3, 2026, December 28, 2024, and December 30, 2023, respectively. We paid no surcharges to the Pension Fund. The risks of participating in a multiemployer pension plan such as the Pension Fund are different from single-employer pension plans in the following aspects: a. Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. b. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. c. If we stop participating in its multiemployer pension plan, we may be required to pay those plans an amount based on our proportionate share of the underfunded status of such plan, referred to as a withdrawal liability. The following information represents our participation in the Pension Fund for the annual period ended December 28, 2024, the latest available information from the Pension Fund. All such information is based on information we received from the Pension Fund. The Pension Fund's Employer Identification Number is 94-6313554 and the Plan Number is 001. Our contributions represented less than 5 % of the total contributions to the Pension Fund. Under the provisions of the Pension Protection Act ("PPA") zone status, the Pension Fund was in critical and declining status during the plan year. Among other factors, generally, plans in critical status are less than 65 percent funded. In an effort to improve the Pension Fund's funding situation, the trustees adopted a rehabilitation plan on July 8, 2010 and most recently updated it on May 3, 2022. The rehabilitation plan changes the benefits for participants who retire and commence a pension on or after January 1, 2012, and changes future benefit accruals earned on or after January 1, 2012. Except in limited circumstances, the pensions of participants and beneficiaries whose pension effective date is before January 1, 2012, are not affected. The Benefits Fund provides medical, dental, pharmacy, vision, and other ancillary benefits to active employees and retirees. The majority of our contributions cover active employees and as such, may not constitute contributions to a postretirement benefit plan. However, we are unable to separate contribution amounts to the postretirement benefit part of the Benefits Fund from contribution amounts paid to the active employee part of the Benefits Fund. Payments into the Benefits Fund were $ 1.9 million, $ 1.4 million, and $ 1.4 million for the fiscal years ended January 3, 2026, December 28, 2024, and December 30, 2023, respectively. For our nonunion employees, we offered the following plans during fiscal 2025, fiscal 2024 or fiscal 2023: a. A noncontributory profit-sharing plan for administrative and warehouse personnel under which the Board may authorize an annual contribution. This profit-sharing plan is available to nonunion employees who meet certain service criteria. We expensed zero , zero and $ 6.8 million for contributions to this plan for the fiscal years ended January 3, 2026, December 28, 2024, and December 30, 2023, respectively. b. A 401(k) retirement plan for warehouse employees, which is available to those employees who meet certain service criteria. c. A 401(k) retirement plan for administrative personnel, which is available to those employees who meet certain service criteria. d. We are not obligated to match any employee contributions for the 401(k) retirement plans. 93 Table of Contents Note 10. Income Taxes Components of income tax expense Income (loss) before income taxes consisted entirely of income (loss) from domestic operations of $( 249.2 ) million, $ 56.2 million, and $ 104.1 million for the fiscal years ended January 3, 2026, December 28, 2024, and December 30, 2023, respectively. The components of income tax expense (benefit) consisted of the following (amounts in thousands): Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Current: Federal $ ( 2,369 ) $ 1,195 $ 1,051 State 1,091 3,388 4,774 Total current ( 1,278 ) 4,583 5,825 Deferred: Federal ( 16,221 ) 10,781 16,127 State ( 6,774 ) 1,342 2,692 Total deferred ( 22,995 ) 12,123 18,819 Income tax expense (benefit) $ ( 24,273 ) $ 16,706 $ 24,644 Statutory rate reconciliation A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate after the adoption of ASU 2023-09 is as follows (amounts in thousands): Fiscal Year Ended January 3, 2026 Amount Percent Income tax benefit at U.S. federal statutory rate $ ( 52,329 ) 21.0 % State and local income taxes, net of federal income tax effect (1) ( 4,509 ) 1.8 % Nontaxable or nondeductible items: Goodwill impairment 31,290 ( 12.6 ) % Share-based compensation, including shortfalls and excess tax benefits 3,042 ( 1.2 ) % Other ( 1,767 ) 0.7 % Income tax expense (benefit) and effective tax rate $ ( 24,273 ) 9.7 % _______________________ (1) State taxes in California made up the majority (greater than 50%) of the tax effect in this category. 94 Table of Contents A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate for fiscal years before the adoption of ASU 2023-09 is as follows (amounts in thousands): Fiscal Year Ended December 28, 2024 December 30, 2023 Taxes at federal statutory rates 21.0 % 21.0 % State income taxes net of federal benefit 5.1 % 5.4 % Section 162(m) compensation limitation on covered employees 3.2 % 2.2 % Excess federal tax benefits from exercise and vest of share-based awards ( 2.6 ) % ( 3.3 ) % Return to provision 1.9 % ( 2.0 ) % Acquisition and integration costs (1) 1.2 % — % Other ( 0.1 ) % 0.4 % Effective income tax rate 29.7 % 23.7 % _______________________ (1) Represents costs related to the acquisition and integration of United Grocery Outlet. See Note 15 for additional information. Deferred income taxes Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities were as follows (amounts in thousands): January 3, 2026 December 28, 2024 Deferred tax assets: Accrued compensation $ 1,937 $ 2,406 Share-based compensation expense 4,989 5,757 Merchandise inventories 7,407 7,385 Transaction costs 334 492 Lease liability obligations 368,258 331,705 Net operating loss and other carryforwards 34,988 26,269 Accruals and reserves 11,970 10,233 Other 647 3,375 Total deferred tax assets 430,530 387,622 Deferred tax liabilities: Prepaid expenses ( 1,522 ) ( 1,644 ) Depreciation and amortization expenses ( 98,233 ) ( 95,199 ) Intangible assets ( 4,076 ) ( 5,231 ) Lease right-of-use assets ( 306,700 ) ( 288,347 ) Goodwill ( 53,182 ) ( 53,379 ) Total deferred tax liabilities ( 463,713 ) ( 443,800 ) Net deferred tax liabilities $ ( 33,183 ) $ ( 56,178 ) We have net operating loss carryforwards of $ 159.3 million for federal income tax purposes, which carries forward indefinitely. There are also net operating loss carryforwards of $ 19.6 million for state income tax purposes, which begin to expire in 2035. Utilization of some of the federal net operating loss and state net operating loss carryforward are subject to annual limitations due to the "change in ownership" provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. The Company believes that no such limitation has occurred through January 3, 2026. 95 Table of Contents Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. Significant objective positive evidence exists such as the cumulative income incurred over the three-year period ended January 3, 2026 as well as future reversals of existing taxable temporary differences. Based on our current assessment, we anticipate it is more likely than not that we will generate sufficient taxable income to realize all of our material deferred tax assets. As such we did not record a valuation allowance against these material deferred tax assets as of January 3, 2026. Our policy is to recognize interest and penalties associated with uncertain tax positions as part of the income tax provision in our consolidated statements of operations and comprehensive income (loss) and include accrued interest and penalties with the related income tax liability on our consolidated balance sheets. To date, we have not recognized any interest and penalties, nor have we accrued for or made payments for interest and penalties. We had no uncertain tax positions as of January 3, 2026 and December 28, 2024, respectively, and do not anticipate having any material uncertain tax positions within the next 12 months. We are subject to taxation in the United States and various state jurisdictions. As of January 3, 2026, our tax returns remain open to examination by the tax authorities for tax years 2012 to 2025 for U.S. federal and for various state jurisdictions. 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. The tax impacts of the OBBBA are reflected in the tax provision for the fiscal year ended January 3, 2026, and there was no material impact to the effective tax rate for the fiscal year ended January 3, 2026. Cash paid for income taxes (net of refunds) consisted of the following (amounts in thousands): Fiscal Year Ended January 3, 2026 Cash paid (net of refunds) for federal income taxes $ 776 Cash paid for state and local income taxes: Oregon 1,034 Pennsylvania 188 Other 285 Total cash paid for state and local income taxes 1,507 Total cash paid for income taxes $ 2,283 Note 11. Related Party Transactions Related Party Lease s As of January 3, 2026 and December 28, 2024, we leased 14 store locations and one warehouse location from entities in which Eric Lindberg, Jr., Chairman of the Board and former Chief Executive Officer (who also served as Interim President and Chief Executive Officer for a portion of fiscal 2025 and fiscal 2024), or his family, had a direct or indirect financial interest . As of January 3, 2026, the right-of-use assets and lease liabilities related to these properties were $ 44.7 million and $ 49.8 million, respectively. As of December 28, 2024, the right-of-use assets and lease liabilities related to these properties were $ 38.7 million and $ 43.8 million, respectively. These related parties received aggregate lease payments from us of $ 7.6 million, $ 7.4 million, and $ 6.8 million for the fiscal years ended January 3, 2026, December 28, 2024, and December 30, 2023, respectively. Independent Operator Notes and Independent Operator Receivables We offer interest-bearing notes to IOs and the gross amount of IO operating notes and IO receivables due was $ 88.3 million and $ 71.0 million as of January 3, 2026 and December 28, 2024, respectively. See Note 2 for additional information. 96 Table of Contents Note 12. Commitments and Contingencies From time to time, we may be a party to legal proceedings that arise in the ordinary course of business, some of which may be covered by insurance. We establish an accrual for legal proceedings if and when those matters reach a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. We monitor those matters for developments that would affect the likelihood of a loss and the accrued amount, if any, thereof, and adjust the amount as appropriate. If the loss contingency at issue is not both probable and reasonably estimable, we do not establish an accrual, but will continue to monitor the matter for developments that could make the loss contingency both probable and reasonably estimable. If there is at least a reasonable possibility that a material loss will occur, we will provide disclosure regarding the contingency. Except as disclosed below, management believes that we do not have any pending legal proceedings that, separately or in the aggregate, would have a material adverse effect on our results of operations, financial condition or cash flows. On January 30, 2025, a federal securities class action lawsuit, captioned Liberato v. Grocery Outlet Holding Corp., et al., Case No. 25-cv-00957, was filed in the U.S. District Court in the Northern District of California against Grocery Outlet Holding Corp. and certain of its former officers purportedly on behalf of purchasers of our common stock between November 7, 2023 and May 7, 2024 (the "Liberato Lawsuit"). On March 28, 2025, a second and related federal securities class action lawsuit, captioned Cavanaugh v. Grocery Outlet Holding Corp., et al., Case No. 25-cv-2886, was filed in the U.S. District Court in the Northern District of California against the same defendants on behalf of purchasers of our common stock between August 8, 2023 and October 29, 2024 (the "Cavanaugh Lawsuit," and together with the Liberato Lawsuit, the "Class Action Lawsuits"). The Class Action Lawsuits allege that the defendants violated federal securities laws by making materially false and misleading statements and/or failing to disclose material adverse facts regarding our transition to new and upgraded internal systems. The Class Action Lawsuits seek remedies under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including an undisclosed amount of monetary damages, interest, fees and other costs. On March 31, 2025, the plaintiff who filed the Cavanaugh Lawsuit filed a motion to consolidate both actions and to be appointed as lead plaintiff. On June 3, 2025, the Class Action Lawsuits were consolidated in the U.S. District Court in the Northern District of California (the "Consolidated Class Action Lawsuit") and lead plaintiff was appointed. The lead plaintiff filed an amended complaint in the Consolidated Class Action Lawsuit on August 19, 2025, and the Company filed its motion to dismiss on October 21, 2025. A hearing on the Company’s motion to dismiss is scheduled for March 19, 2026. On April 28, 2025, a federal stockholder derivative lawsuit, captioned Conners v. Sheedy, et al., Case No. 25-cv-03697, was filed in the U.S. District Court in the Northern District of California against certain of the Company’s current and former directors and one of its former officers purportedly on behalf of the Company. On May 2, 2025, a second federal stockholder derivative lawsuit, captioned Jackson v. Lindberg, et. al., Case No. 25-cv-03843, was filed in the U.S. District Court in the Northern District of California against certain of the Company’s current and former directors and one of its former officers purportedly on behalf of the Company. These stockholder derivative lawsuits are collectively referred to as the “Derivative Lawsuits.” The Derivative Lawsuits allege claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets and for violations of Sections 10(b), 14(a), and 20(a) of the Exchange Act, based on similar allegations to those at issue in the Class Action Lawsuits. The Derivative Lawsuits seek, among other relief, undisclosed damages, restitution, fees and other costs, and the institution of corporate governance reforms. On July 14, 2025, the parties in the Derivative Lawsuits stipulated to consolidate the Derivative Lawsuits in the U.S. District Court in the Northern District of California and stay the consolidated Derivative Lawsuits pending resolution of the Company’s motion to dismiss in the Consolidated Class Action Lawsuit discussed above. On July 29, 2025, the court granted the parties' stipulation, consolidating the Derivatives Lawsuits and staying the consolidated derivative action pending resolution of the Company's motion to dismiss the Consolidated Class Action Lawsuit. We intend to defend the Consolidated Class Action Lawsuit and the Derivative Lawsuits vigorously. We are unable to determine the probability of the outcome of the Consolidated Class Action Lawsuit or the Derivative Lawsuits, and the possible range of losses is not reasonably estimable. 97 Table of Contents Note 13. Earnings (Net Loss) Per Share The following table sets forth the calculation of basic and diluted earnings (net loss) per share (amounts in thousands, except per share data): Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Numerator Net income (loss) and comprehensive income (loss) $ ( 224,912 ) $ 39,465 $ 79,437 Denominator Weighted-average shares outstanding - basic 97,985 98,707 98,709 Effect of dilutive options (1) — 624 1,760 Effect of dilutive RSUs and PSUs (1) — 284 362 Weighted-average shares outstanding - diluted (2) 97,985 99,615 100,831 Earnings (net loss) per share: Basic $ ( 2.30 ) $ 0.40 $ 0.80 Diluted $ ( 2.30 ) $ 0.40 $ 0.79 _______________________ (1) We are required to include in diluted weighted-average shares outstanding contingently issuable shares that would be exercisable or issued, assuming the end of our reporting period was the end of the relevant market-based option award or PSU award contingency period. (2) For the fiscal year ended January 3, 2026, there is no difference in the weighted-average shares outstanding used in the above calculations due to the Company's net loss. The following weighted-average common share equivalents were excluded from the calculation of diluted earnings (net loss) per share because their effect would have been anti-dilutive (amounts in thousands): Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Stock options 1,610 370 — PSUs and RSUs 850 691 34 Total 2,460 1,061 34 Note 14. Segment Information We are a retailer of quality, name-brand consumables and fresh products sold primarily through a network of independently operated stores. We manage our business on a consolidated basis and have one operating and one reportable segment. The accounting policies of the segment are the same as those described in the summary of significant accounting policies. In addition, all of our sales were made to customers located in the U.S. and all property and equipment is located in the U.S. The chief operating decision maker ("CODM"), who is our President and Chief Executive Officer, assesses performance for the segment and decides how to allocate resources based on net income (loss) and comprehensive income (loss), which is reported on the consolidated statements of operations and comprehensive income (loss). The CODM uses this measure in deciding where to reinvest profits and to monitor budget versus actual results. The measure of segment assets is reported on the consolidated balance sheets as total assets. 98 Table of Contents Information for the segment, including the significant expenses regularly provided to the CODM, is provided in the following tables for the periods indicated (amounts in thousands): Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Net sales $ 4,688,759 $ 4,371,501 $ 3,969,453 Less: Cost of sales (1) 3,263,351 3,045,097 2,724,449 Commission expenses (2) 667,319 637,246 621,657 Other selling expenses (3) 306,848 266,261 200,847 General and administrative expenses (4) 223,357 209,960 177,645 Impairment of long-lived assets (5) 113,807 — — Restructuring charges (6) 45,903 15,888 — Goodwill impairment (7) 149,000 — — Other segment items (8) 10,491 10,516 31,091 Depreciation and amortization expenses 130,388 108,206 87,982 Interest income (9) ( 4,921 ) ( 6,723 ) ( 7,631 ) Interest expense 32,401 28,879 23,992 Loss on debt extinguishment and modification — — 5,340 Income tax expense (benefit) ( 24,273 ) 16,706 24,644 Net income (loss) and comprehensive income (loss) $ ( 224,912 ) $ 39,465 $ 79,437 _______________________ (1) Cost of sales includes merchandise costs, inventory markdowns, inventory losses, transportation costs and distribution and warehousing costs and excludes depreciation and amortization expenses, which were $ 6.1 million, $ 4.5 million and $ 3.3 million in fiscal 2025, fiscal 2024 and fiscal 2023, respectively. (2) Commission expenses represent commissions earned by IOs. (3) Other selling expenses include occupancy for all stores, our portion of maintenance costs for IO stores, the cost of opening new IO stores and payroll, benefits, maintenance, supplies and utilities for company-operated stores. (4) General and administrative expenses include payroll and benefits for corporate and field support, marketing and advertising, insurance and professional services and operator recruiting and training costs. (5) Impairment of long-lived assets include 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. See Note 16 for further discussion. (6) 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 for further discussion. (7) See Note 1 and Note 5 for additional information. (8) Other segment items represents share-based compensation expense. (9) Interest expense primarily includes interest on loans, amortization of debt issuance costs and debt discounts, and interest on finance leases, less capitalized interest. See Note 6 for further discussion. Fiscal Year Ended January 3, 2026 December 28, 2024 December 30, 2023 Purchases of property and equipment $ 198,333 $ 186,611 $ 168,990 Investments in intangible assets and licenses 21,989 20,305 23,000 Total capital expenditures $ 220,322 $ 206,916 $ 191,990 99 Table of Contents Note 15. Business Combination Acquisition of United Grocery Outlet On February 14, 2024, Grocery Outlet Inc., our wholly owned subsidiary, entered into a Stock Purchase Agreement with BBGO Acquisition, Inc., a Delaware corporation ("Holdings"), specified parties therein that beneficially owned Holdings, and Southvest Fund VII, L.P., a Delaware limited partnership, to acquire all of the issued and outstanding capital stock of Holdings (the "Transaction"). On April 1, 2024, the Transaction was completed for the total purchase consideration of $ 62.5 million, including $ 2.0 million of cash and cash equivalents on hand, after post-closing adjustments, and was funded with cash on hand. Holdings is the owner of all of the issued and outstanding capital stock of The Bargain Barn, Inc., a Tennessee corporation doing business as United Grocery Outlet ("United Grocery Outlet"). We accounted for the acquisition as a business combination using the acquisition method of accounting, which requires, among other things, that we allocate the purchase consideration to the identifiable assets acquired and liabilities assumed based on their acquisition-date fair values. The fair values of the acquired assets and assumed liabilities recorded on our consolidated financial statements were subject to adjustment during the measurement period of up to one year from the acquisition date. The valuation of the acquired assets and assumed liabilities was completed as of March 29, 2025. The following table summarizes the purchase price allocation recorded for acquired assets and assumed liabilities at the acquisition date (amounts in thousands): Assets Cash and cash equivalents $ 2,003 Other accounts receivable 148 Merchandise inventories 14,208 Prepaid expenses and other current assets 1,794 Property and equipment, net 6,950 Operating lease right-of-use assets 35,266 Goodwill 34,891 Other assets 422 Total assets acquired 95,682 Liabilities Trade accounts payable 3,090 Accrued and other current liabilities 536 Accrued compensation 2,693 Current lease liabilities 2,581 Income and other taxes payable 879 Deferred income tax liabilities, net 5,454 Long-term lease liabilities 17,921 Total liabilities assumed 33,154 Total net assets acquired $ 62,528 The goodwill recognized reflects the expected future benefits from certain synergies and intangible assets that do not qualify for separate recognition. The goodwill will not be deductible for income tax purposes. During the fiscal year ended December 28, 2024, we recogniz ed $ 8.6 million i n acquisition and integration costs related to due diligence, legal, other consulting and retention bonus expenses. Such costs were included within selling, general and administrative expenses on the consolidated statements of operations and comprehensive income (loss). Pro forma results were not presented as the impact of this acquisition was not material to our consolidated financial results. United Grocery Outlet's financial statements constituted 3 % of net sales and less than 1 % of net income (loss) and comprehensive income (loss) of the consolidated financial statement amounts as of and for the fiscal year ended December 28, 2024. 100 Table of Contents Note 16. Restructuring Restructuring Plan We initiated a restructuring plan during the fourth quarter of fiscal 2024 intended to improve our long-term profitability, cash flow generation and return on invested capital, optimize the footprint of new store growth, and lower our cost base (the "Restructuring Plan"). Under the Restructuring Plan: • We are optimizing new store growth in the next several years to increase efficiencies for distribution and optimize brand awareness and marketing. Specifically, we have narrowed our focus on our future new store openings to target existing markets and a smaller set of high-priority adjacent new markets to improve new store sales productivity and return on invested capital. As such we determined to terminate a total of 28 leases for unopened stores in suboptimal locations which we had planned to open in the next several years and to discontinue development of certain future store sites where we had incurred initial costs, but leases had not yet been signed. • We have shifted our planned investments in our distribution infrastructure in fiscal 2025 and fiscal 2026 away from highly capital-intensive projects. We have instead, and plan to continue to, invest in lower cost distribution centers for dry goods to enhance capacity and improve inventory management and overall execution. During the first quarter of fiscal 2025, we cancelled certain warehouse projects in connection with such strategy. • We reduced headcount by approximately 40 full-time employees in the first quarter of fiscal 2025. The following table summarizes charges incurred related to the Restructuring Plan for the fiscal year ended January 3, 2026 and for the cumulative-to-date period ended January 3, 2026 since the initiation of the Restructuring Plan (in thousands). The actions under the Restructuring Plan were substantially completed in the second quarter of fiscal 2025. Fiscal Year Ended (1) Cumulative (2) January 3, 2026 January 3, 2026 Cash restructuring charges: Lease termination costs $ 35,398 $ 35,398 Employee severance and benefit costs 1,532 1,532 Legal, professional and other costs 1,288 1,288 Total cash restructuring costs 38,218 38,218 Non-cash impairment and disposal of long-lived assets (3) 7,685 23,573 Total restructuring charges $ 45,903 $ 61,791 _______________________ (1) All costs incurred related to the Restructuring Plan during fiscal 2025 are included in Restructuring charges on the consolidated statements of operations and comprehensive income (loss). (2) Cumulative-to-date since the initiation of the Restructuring Plan during the fourth quarter of fiscal 2024. (3) Substantially all non-cash impairment and disposal of long-lived assets relate to the termination of unopened stores and discontinued development of certain future store sites as discussed above. The following table summarizes the restructuring liability activity for the Restructuring Plan during the fiscal year ended January 3, 2026 (in thousands): Lease Termination Costs Employee Severance and Benefit Costs Legal, Professional and Other Costs Total Balance at December 28, 2024 $ — $ — $ — $ — Cash restructuring charges 35,398 1,532 1,288 38,218 Cash payments ( 35,398 ) ( 1,532 ) ( 1,288 ) ( 38,218 ) Balance at January 3, 2026 $ — $ — $ — $ — 101 Table of Contents Optimization 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 include bad debt expense and cash expenses for the Operator Agreement Terminations, as well as costs associated with the Lease Exits. We intend 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, we expect to incur restructuring charges which primarily include 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. Note 17. Subsequent Events Optimization Plan During the first quarter of fiscal 2026, our Board adopted the Optimization Plan, as more fully described in Note 16. 102 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 103 Table of Contents