Grocery Outlet Holding Corp.

Greetings and welcome to Grocery Outlet Fiscal Second Quarter 2021 Earnings Results Conference Call. At this time, all participants are on a 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. I would now like to turn the conference over to Arid Aharia, and thank you. You may begin.

Thank you. Good afternoon, and thank you for joining us in today's call to discuss Grocery Outlet's second quarter 2021 financial results. Joining me on today's call are Grocery Outlet's Chief Executive Officer, Eric Lindberg, President R.J. Sheedy, and Chief Financial Officer, Charles Brocker. Following our prepared remarks, we will open the call for questions. This conference call is being webcast live, and a recording will be available via telephone playback for approximately two weeks. It will also be archived in the Investor Relations section of our website. Participants on this call will make forward-looking statements, including our outlook for fiscal 2021 and future performance. These forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. A description of these factors can be found in this afternoon's press release, as well as in our periodic reports we filed at 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. These statements are estimates only and not a guarantee of future performance. During our call, we will also 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 and our SEC filings in the investor tab of our website. With that, I will turn it over to Eric.

Thanks, Arvin. Good afternoon, and thank you for joining us for a discussion on our second quarter performance. Let me begin by welcoming Arvin to the Grocery Outlet family. We look forward to benefiting from Arvin's investor relations leadership and experience as we continue to engage in the investment community. We are pleased to have exceeded our expectations for the second quarter as we lapped the elevated sales experience during the early months of the pandemic. Our comparable store sales were slightly better than expected at negative 10% and on a two-year stack basis increased 6.7%. Gross margin and adjusted EBITDA results also exceeded our expectations as we successfully managed the cost pressures facing our business. With respect to comp trends, we believe there are certain transitory dynamics such as additional stimulus funds and ongoing trip consolidation that continue to impact short-term shopping behavior. We expect consumers' prioritization of value to increase as those dynamics subside. As such, our long-term strategy remains unchanged. To leverage our deep supplier relationships and passionate network of independent operators to provide the most compelling value in grocery retail, bar none. As we continue to execute against this strategy and reinvest in support of our long-term objectives, we remain confident in our ability to achieve sustainable, consistent, and profitable growth. From a purchasing standpoint, we are uniquely positioned to capitalize on current supply chain dynamics and are extremely pleased with the opportunities we are seeing across categories. We are already capturing great buys in areas such as NOSH, stemming from the renewed focus on product innovation, the rampant production, and the challenges of forecasting in this environment. Our team continues to do a fantastic job of sourcing opportunistic deals and strengthening relationships with existing and new suppliers alike. To that end, we are looking forward to our annual supplier meeting this September, which will mark our 23rd year for this special event. We are hopeful that we will be able to meet in person, but regardless of format, we value the opportunity to connect and discuss long-term strategy with our supplier partners. They are a critical part of our success, and we are excited to exchange insights and ideas that allow us to expand our relationships with them. While our purchasing capabilities are second to none, Our network of passionate, independent operators is really what sets our business apart. As the progression of COVID, including the Delta variant, continues to be front and center, our IOs and their associates are navigating extraordinary labor and inflationary pressures. To help offset those headwinds, we continue to make the investments which allow our IOs to operate more efficiently and reduce end-to-end costs. That includes the ongoing improvement of ordering and inventory management tools, as well as the upstream supply chain distribution efficiencies. For example, we recently brought temperature-controlled outbound transportation in-house, which improves store service levels and helps reduce system-wide freight costs. We continue to pursue other opportunities to drive efficiency throughout the chain that benefit both our operators and Grocery Outlet. Despite the current headwinds, our IOs and their dedicated local store teams continue to do an excellent job of serving their customers and delivering the wow shopping experience. I tour stores every week, and I'm always very, very impressed with the passion, commitment, and resilience displayed by our operators. Similar to our supplier meeting, we are looking forward to our regional operator meeting in October, which we hope will also be in person. It's a valuable opportunity for us to discuss the business, including our near-term strategies, execution, as well as our longer-term growth plans. In addition to ongoing investments we make to advance our purchasing and supply chain capabilities, We continue to invest steadily in store growth to bring market-leading values to more customers and communities. This remains a huge opportunity given the broad appeal and success of our value proposition across markets, geographies, and demographics. I am proud to share that we reached an exciting milestone this year, the opening of our 400th grocery outlet store located in Haley, Idaho, on June 24th. Haley is just south of the Sun Valley Ski Resort and east of Boise. It is being run by grocery outlet veteran Shane Anderson. has been warmly received by the local community. In total, we opened 11 new stores in the quarter, including one in Pennsylvania. Our real estate and construction team continue to do a fantastic job getting new sites open despite all the challenges of sourcing equipment and securing trade labor. We remain pleased that the new store productivity is in line with our expectations with the trends that are new mid-Atlantic stores similar to those of the initial entry in Southern California. We are building the foundation for store growth in the East, including investments in purchasing and infrastructure. We look forward to growing our presence and brand awareness in the region. Of the 36 to 38 stores we plan to open this year, we expect that three to five of those openings will be in the East, including our first store in New Jersey. We know that we have tremendous runway to expand our footprint based on the power of our value proposition and the portability of our model. As we look forward, we remain committed to our stated target of 10% annual unit growth. remain equally committed to making the critically important investments across the business, particularly in real estate, purchasing, recruiting and training, and technology that all support that expansion. We firmly believe our stores represent the most important growth driver, but we're also exploring complementary ways to reach new customers and deliver value. A higher demand for grocery e-commerce now provides an interesting opportunity for us to extend our industry-leading value and treasure hunt experience. We are excited to begin testing various e-commerce approaches to determine what works best with our unique model. RJ will discuss more of this in a few moments. Before turning the call over to him, I'm pleased to share that we completed our 11th annual Independence from Hunger campaign in July. This program has raised more than $14 million to date for local food banks, helping to reduce food insecurity in our communities. Our IOs surpassed last year's store-level donations, raising nearly $3 million for local food agencies. There were numerous examples of IOs engaging their customers in creative ways to support the cause. For example, Tom Chris, the operator at a Myrtle Creek, Oregon store, committed to camping on top of a semi-trailer in the Grocery Outlet parking lot until it was filled with food and supplies for his community. In just under two weeks, they tallied nearly $25,000 in cash donations and over seven pallets of food, at which point Tom was finally able to come down from his campsite. This effort is a powerful example of Grocery Outlet's unique culture the strength of our operator community, and our shared mission of touching lives for the better. I'm so proud of the results and want to thank everyone who participated. With that, I will turn the call over to RJ.