Grocery Outlet Holding Corp.

Greetings and welcome to Grocery Outlet's Fiscal Second Quarter 2020 Earnings Results Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Pellant, Vice President of Investor Relations. Thank you. You may begin.

Thank you. Good afternoon, everyone, and thank you for joining us on today's call to discuss grocery outlets second quarter financial results. Participants on this call will make forward-looking statements which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such items, including our outlook for fiscal 2020 and future performance, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A description of these factors can be found in this afternoon's press release, as well as in our latest prospectus and periodic reports we file with the SEC, all of which may be found on our website at investors.groceryoutlet.com or on sec.gov. We undertake no obligation to revise or update any forward-looking statements or information. During our call, we may reference certain non-GAAP financial information, including adjusted items. Reconciliations of GAAP to non-GAAP measures, as well as the description, limitations, and rationale for using each measure, may be found in the supplemental financial tables included in this afternoon's press release, in our SEC filings, and in the Investors tab of our website. We reference non-GAAP measures in some of our financial discussions, as we believe they more accurately represent the true operational performance and underlying results of our business. Presenting on today's call will be Grocery Outlet's Chief Executive Officer, Eric Lindberg, President, RJ Sheedy, and Chief Financial Officer, Charles Bracker. Following our prepared remarks, we will open the call for questions. With that, I'll turn it over to Eric.

Thanks, Joe. Good afternoon, everyone. I hope you and your families remain safe and well. Approximately one year ago today, we conducted our first earnings call as a public company. We are very pleased to have delivered strong and consistent financial performance since our IPO. We're equally proud of our ability to navigate the unprecedented challenges and opportunities presented by COVID-19 in recent months. I'm also extremely proud of our hard work, dedication, community support that has been demonstrated across our organization. This includes our IOs and their store associates who have worked tirelessly on the front lines to serve our customers and our communities. Our distribution center teams who went above and beyond to help us keep product flowing. Our purchasing teams who leveraged our strong relationships to source both opportunistic and everyday products, enabling us to deliver great values to our customers. I'm so, so grateful for all their commitment. Looking at our second quarter results, our performance reflects this strong execution across our organization. Revenue growth of 24.5% was driven by a 16.7% increase in comparable store sales and sales from 32 new store openings since June of last year. Adjusted EBITDA grew 34.7%, reflecting gross margin expansion slightly offset by modest SG&AD leverage due to higher costs related to protecting our employees and our customers during COVID-19. As we move forward, we will continue to reinvest productivity savings and leverage our flexible business model to drive long-term growth. Consistent with that philosophy, we are accelerating our investments in people and capabilities across three areas. First, advancing how we buy as we further develop our infrastructure to drive a wider gap in our leadership position in secondary market. Second, advancing how we sell by improving our ability to attract the very best operator candidates and prepare them for success. and by making our extraordinary network of IOs even better. And third, continuing to scale our business to support 10% annual unit growth. RJ will speak in a moment about the first area of reinvestment, how we buy. My discussion today will begin with the second area, how we sell, which is centered all around our IOs. We continue to expand our network of fuel-based educators to more effectively support our existing IOs as well as train and develop our newer operators. In terms of recruiting our new operators to the system, we are utilizing our digital marketing capabilities to more effectively target and recruit new operator candidates. While early, we are pleased to see the quality and the strength of incoming inquiries we receive from both those with traditional retail experience as well as other relevant backgrounds such as hospitality and food service. As we look for new operators, we know that candidates must have both the right mindset and the right skill set to succeed as IOs. We aggressively search and screen for entrepreneurs who are smart, independent, hungry, and humble. While we love to find candidates with existing grocery management experience, equally important to us are vital skills such as customer service, labor management, marketing, and leadership. Once identified, these candidates go through an intensive training program, Part of which is an in-store immersion experience with a seasoned operator. In order to make our training program more consistent, scalable, and efficient, we are evolving our training approach to leverage the best of our operator, field, and corporate teams to create a virtual learning environment. We believe the consistency and rigor provided by virtual training workshops and simulations will be an effective supplement to the in-store training environment. We expect this hybrid approach will help improve the readiness and effectiveness of new operators when they begin managing their new store. We also believe that it will provide a more consistent and scalable training experience as we continue to grow our store base. Training doesn't stop once the IO first opens their store. Our operators are aggressive and hungry entrepreneurs who are always looking to develop their skills and grow their businesses. To support that, we provide operational and analytical resources through our field management teams, corporate staff, As well as various data and business intelligence tools. To build upon this support, we're developing new educational content designed to help them further grow and develop their skills. For example, sharing of best practices has always played a very important role in our culture. And the emphasis on virtual learning will make it easier for subject matter experts to work with operators across all geographies and easily share video content. As our business grows, we will continue to leverage scalable technologies to enhance our ability to support operators. Turning now to new store growth, our retail expansion strategy remains a significant investment priority. We opened seven new stores in the second quarter and now expect to open 30 to 32 new stores for the year. We remain pleased with the performance of our new stores, which, like our broader store base, are benefiting from the elevated customer demand. Looking forward, we remain excited about the availability of attractive real estate sites as we continue to build our store pipeline to support 10% annual growth. In summary, the strong financial results we delivered in the first half of 2020 set us up to accelerate investments in our business to support our long-term growth objectives. We look forward to updating you on that progress. Now, before I turn over the call to RJ, I want to discuss a topic of great importance to us. As we've shared with you in the past, our mission of touching lives for the better is deeply rooted in the foundation of grocery outlet. And as part of this, each July for the last 10 years, we have run our Independence from Hunger campaign to address critical food insecurity needs across our communities. We are excited to share that this was a record-breaking year for us, with $3 million raised across our network. Grocery Outlet also donated an additional $1 million, bringing the total raise to $4 million. This brings our total money raised and donated to local communities since the campaign's inception 10 years ago to over $11 million. As proud as we are of this accomplishment, recent events have pushed us, as well as many other organizations, to ask ourselves whether there's more that we can be doing to address inequality across our society. Specifically, how can we be more effectively supporting diversity, equity, and inclusion? While we've always served diverse communities and fostered an inclusive workplace, we know that there's more we can do and there's more we will do. We've spent considerable time internally discussing steps we can take to improve going forward, and our efforts will span across our employee base, network of IOs, and other partners. That includes an assessment of our diversity performance and establishing scorecards and measurable goals We're also gathering information through surveys and rolling out listening sessions to gain a deeper understanding of our team's perspectives. Lastly, we're providing education modules and resource guidelines to increase awareness and sensitivity across our corporate teams as well as our IOs. With that, I'll turn it over to RJ.