Grocery Outlet Holding Corp.

Greetings, and welcome to the Grocery Outlet Third Quarter 2022 Earnings Results Conference Call. At this time, all participants are in 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 start and zero. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host. Arvind Bhatia, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, and thank you for joining us on today's call to discuss Grocery Outlet's third quarter 2022 financial results. Joining me on today's call are Grocery Outlet's Chief Executive Officer, Eric Lindbergh, 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.groceryoutlook.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 and the Investors tab for our website. With that, it is my pleasure to turn the call over to Eric.

Thanks, Arvin. Good afternoon, everyone, and thank you for joining us. Before we jump into a discussion of our strong third quarter results, I'd like to comment on the leadership transition we announced this afternoon. As you may have seen, I plan to move to the role of Chairman of the Board, and RJ will become President and Chief Executive Officer, effective January 1st. This announcement is a culmination of careful and thoughtful succession planning with the board to ensure a seamless transition of the CEO role. RJ joined the company in early 2012 and has held key leadership positions in the area of strategy, purchasing and planning, marketing and operations, and has served as president since 2019. When RJ joined us, the business was roughly $1 billion in sales and over 170 stores. Over the past 10 years, RJ has played an integral role in both building and executing our strategic vision as we have tripled top line and grown to more than 430 locations. RJ and I have worked closely for many years, and he is more than ready to take this next step. His leadership style exemplifies our culture and values. He is passionate about the business, and his collaborative, long-term approach resonates with and inspires our team. I am confident that there is no one better to lead Grocery Outlet into the next chapter of growth than RJ. I look forward to working closely with him and with the executive team in my future role as chairman, and I am immensely grateful for the opportunity to have led such a remarkable group of people. While I will move away from day to day, I will continue to be invested both emotionally and financially in Grocery Outlet's success as chairman of the board. As part of this transition, I also want to thank Eric Rogatz, our current chairman, for his many years of leadership and valuable advice and friendship. The company will continue to benefit from Eric's guidance as he moves into the role of lead independent director. As you'll hear throughout the call, our business is performing well, and our value-oriented model is positioned to continue gaining share. Our growth runway is long with the potential for more than 10 times the store count we have today, and we have the right strategic initiatives to fuel sustained comp sales growth. I am extremely pleased with our third quarter results, and the continued momentum in our business. We are seeing an increase in new customers to our stores, and existing customers are spending more with us. Third quarter sales grew 19%, driven primarily by strong comparable store sales growth of 15%, as well as contribution from new stores opened over the last year. We were also encouraged to see an uptick in transaction count and balanced contribution between traffic and tickets. We delivered gross margin in line with our expectation as we continue to benefit from our dynamic and opportunistic model. Better than expected top line and gross profit dollar growth resulted in bottom line results that exceeded expectations. Based on our third quarter results and quarter to date trends, we are raising our full year guidance, which Charles will discuss shortly. Turning now to our store expansion strategy, we opened six stores in the third quarter, ending with 431 locations. We remain pleased with the new store trends, as well as recent vintages continuing to ramp in line with our blended underwriting model. Especially encouraging has been the progress of our mid-Atlantic market, where we continue to invest in and build the brand. As store count increases and the consumer awareness grows, we're seeing higher traffic, which is fueling top line trends, including comparable store sales growth that is above company average. In terms of future store growth, we remain pleased with the real estate opportunities we are seeing as we continue to identify new sites across our existing and new markets. Our real estate construction and new store teams remain extremely active, and we are encouraged by the quality of our sites and our pipeline over the next 24 months. That said, we continue to face various headwinds in opening new stores on a timely basis, including permitting and inspection delays, equipment and labor availability, and utility related lead times. As a result, two fourth quarter openings have been pushed back into 2023. While it's difficult to predict exactly when those store opening challenges might ease, we will continue to adapt and remain nimble as we work our way towards our normalized target of 10% annual unit growth. With respect to our pipeline of future operators, our entrepreneurial model and our positive momentum are contributing to a strong inbound interest from prospective IOs. We are seeing a healthy number of qualified candidates apply for our aspiring operator and training program, and the quality of recent graduates is strong. At the same time, Iowa's operating existing stores have been energized by our momentum, increasing customer traffic and improving operating conditions. This renewed enthusiasm was evident throughout our regional operator meeting we held in late September. Our leadership team visited 10 cities over six days to share recent business updates collaborate on holiday execution, and respond to the operators' questions and feedback. Throughout the meetings, IOs were enthusiastic about the expanded merchandise assortment and strategy heading into the holiday season, the health of the opportunistic inventory and treasure hunt experience, and the ongoing investments that we're making in technology and infrastructure. Before I turn the call over to RJ, I just wanted to take a moment to again thank our extended Grocery Outlet family, which includes our IOs, their employees, and all of our team members across the corporate office, field, and supply chain. This truly is a unique company with dedicated and passionate people who care deeply about each other and the communities we serve. I'm so proud of what we have accomplished and even more excited about the opportunities in front of us. As I transition my role, I look forward to contributing in new ways as we fulfill our mission of touching lives for the better in the years ahead. With that, I'll turn the call over to RJ.