Grocery Outlet Holding Corp.

Greetings and welcome to the Grocery Outlet Fourth Quarter 2021 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during a 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, Arvind Bhatia, VP 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 Outlet's fourth 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 2022 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 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. 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 filing and the investor tab for our website. With that, it is my pleasure to turn the call over to Eric.

Thanks, Arvind. Good afternoon, everyone, and thank you for joining us for a discussion of our fourth quarter results. We are very pleased with our fourth quarter performance, which exceeded our sales and gross margin expectations and reflected sequential improvement in trends from the third quarter. Comparable store sales declined 1.2 percent and on a two-year stock basis increased 6.7 percent, an acceleration of almost 200 basis points from the third quarter. This performance reflects strong execution across our business. I'm incredibly grateful to our corporate teams for their hard work, as well as for our operators whose commitment to serving their communities is unwavering. Looking back at fiscal 2021, we successfully navigated macro challenges, including the pandemic and global supply chain issues. Despite these headwinds, we leveraged our flexible business model to deliver customers unbeatable deals and exciting treasure hunt experience that they love. We expanded our store base with the opening of 36 new stores in 2021, representing over a 9% growth on a net basis. We remain pleased with our new store productivity across markets. In addition, we embarked on several new initiatives to expand our reach and increase share of wallet, including an e-commerce pilot and strategically expanding our product assortment. As you look at quarter-to-date trends, sales continue to improve, reflecting increases in both ticket and traffic versus the prior year. Looking ahead, we remain confident that the strength of our model, combined with our strategic initiatives, will drive incremental top-line growth. Furthermore, we anticipate a more favorable operating environment for our extreme value model as consumers contend with continued inflationary pressures and reduced stimulus support. To that end, we remain committed to our unique value proposition, namely providing the best value in grocery retail to our customers. In an inflationary environment, the incredible savings we offer customers become even more important, providing an opportunity to both increase our share of wallet as well as reach new customers. Despite ongoing supply chain disruption, our purchasing team continues to find exciting deals, and we are pleased with our assortment across departments. Our independent operators have done an amazing job delivering these exceptional values and the wow shopping experience to their local communities. While the past year presented our IOs with unprecedented challenges, they rose to the occasion in order to serve their customers, and we continued to invest in systems and process improvements to support them. With that same goal in mind, we recently realigned our organizational structure to streamline and strengthen corporate resources available to IOs while continuing to support their local decision-making and independence. To lead this effort, we promoted Pam Burke to the newly created position of Chief Stores Officer. Pam has a deep understanding of our culture and business model and has forged strong relationships with IOs over her six years at Grocery Outlet, making her a uniquely qualified person for this role. She's been met with a warm welcome during her store visits over the last few months. Under Pam's leadership, we are confident that we can more effectively support IOs in growing their businesses by leveraging resources and best practices. Turning to marketing, in 2021, we enhanced our messaging to emphasize not only our industry-leading prices, but also the broad selection of top brands and the full shop that we provide. As we look to further evolve our marketing approach, we remain on track to expand our personalization efforts and plan to pilot a mobile app by the middle of this year. This will enable us to communicate new products and in-store values directly to customers based on their individual preferences, which we ultimately expect will drive higher trip frequency and share of wallet. Another initiative that will allow us to extend our reach is e-commerce. We are excited to have our e-commerce pilot operating in 68 stores in California on the Instacart platform. More importantly, the pilot has gone smoothly, and while early, we are optimistic about the future potential, and we plan to roll it out to all stores over the next few months. We believe these strategic initiatives are complementary to our measured and disciplined new store expansion. Our 2021 stores are off to a good start, which along with recent vintages are ramping consistent with their underwriting expectations. Our value proposition is resonating across geographies, and we continue to build and strengthen brand awareness in both mature and newer markets. For these reasons, we remain confident in the long-term unit potential of our differentiated new store model and are committed to our goal of 10% annual unit growth. That said, As we mentioned in our last call, we are experiencing near-term challenges, including labor and material shortages, extending the time and the cost to open stores. In addition, we are seeing longer lead times in lease execution, as well as site permitting and development. As a result of these challenges, we expect to open approximately 28 net new stores in the current year, with two-thirds of planned openings weighted in the back half. We believe these challenges are largely temporary, and we remain committed to resuming our 10 percent unit growth in 2023. We will provide further updates on our progress and timings as we move through the year. Lastly, we want to provide an update on our ESG efforts. For years, Grocery Outlet, together with IOs, has been positively impacting communities in a number of ways, from providing great value to customers, fighting food insecurity, to reducing food waste and supporting small business owners. This year, we'll be taking our next step in our ESG journey as we complete materiality assessment with a third party to determine the metrics we use to assess our social and environmental impact and track our future progress. We look forward to sharing these learnings from that assessment once it's complete. Before turning it over to RJ, I want to reiterate my confidence in the strength of our model and our long-term growth potential. I am pleased that we've begun to see customer traffic turn positive, which I believe signals that value is becoming increasingly important. harbinger for a more favorable macro environment for Grocery Outlet. As we move through the year, we are confident that our strategic initiatives will further drive customer reach and engagement. With that, I'll turn it over to RJ.