Grocery Outlet Holding Corp.

Greetings and welcome to the Corsi Outlet's first quarter 2025 earnings results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero and resolve on keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Christine Chen, Vice President of Investor Relations. Thank you. You may begin.

Good afternoon and welcome to Grocery Outlet's call to discuss financial results for the first quarter ended March 28, 2025. Speaking from management on today's call will be Jason Potter, President and Chief Executive Officer, and Chris Miller, Chief Financial Officer. Following prepared remarks from Jason and Chris, we will open the call for questions. Please note that this conference call is being webcast live and a recording will be available via telephone playback on the investor relations section of the company's website. Participants on this call may make forward-looking statements within the meaning of the federal securities laws. All statements that address future operating, financial, or business performance or the company's strategies or expectations are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from these statements. Description of these factors can be found in this afternoon's press release as well as in the company's periodic reports filed with the SEC, all of which may be found on the investor relations section of the company's website or on SEC.gov. The company undertakes no obligation to revise or update any forward-looking statements or information. These statements are estimates only and not a guarantee of future performance. Additionally, during today's call, the company will reference certain non-GAAP financial information, including adjusted items. Reconciliation 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 the company's SEC filings. And now I would like to turn it over to Jason.

Thank you, Christine, and welcome, everyone. It's great to be with you on the call today. I'll begin with a brief update on the quarter and then spend much of my time on what I focused on in my first couple of months and how I'm thinking about our priorities. First, we delivered on our first quarter outlook. ComStore sales increased 30 basis points from last year, slightly ahead of our guidance for the quarter that we provided. We opened 10 net new stores, positioning us to achieve our annual target for 33 to 35 stores this year. These stores were off to a solid start, performing ahead of expectations. We also exceeded our gross margin outlook by improving our shrink run rate through improved inventory visibility, reporting, and execution. Together, these wins enabled us to deliver net sales of $1.13 billion, up 8.5% over last year, and report adjusted EBITDA and adjusted EPS above their respective outlook ranges for the first quarter. We also reached an important milestone with our systems integration, including the initial phase one rollout of our real-time ordering guide that we plan on having fully rolled out by the end of the second quarter. Chris is going to walk you through the numbers in greater detail, but just having completed my first three months as CEO, I wanted to share some early observations and give everyone on the call the sense for the work we plan to undertake to unlock the tremendous opportunity that I see here in the business. Now, over the first three months, I visited and met with more than 50 of our independent operators, had the opportunity to meet and speak with dozens of suppliers, talked with many of the customers in our stores. I've listened, gained valuable and candid feedback, and learned more about what matters to all of them. First, our operators care very much about the communities they serve, and are motivated to grow a profitable business together and seek more support from us to improve execution and participate in the building of the necessary capabilities to make this business stronger that supports our brand. Our suppliers continue to be a source of strength as we continue to work and grow our opportunistic supply and range of assortment together. We continue to deepen those existing relationships and are actively building new ones to expand our reach and our relevance. The customers I spoke with and the guests in our store are asking for more value with a more consistent experience that helps them complete their weekly shop. They continue to visit our network and we need to execute better to make filling their basket for their key shopping missions easier. In the short time I've been here, it's clear to me that with the right focus and execution, this business can continue its history of leading growth and profitability. We have a highly differentiated offering, one driven by a value-based treasure hunt in a convenient box operated by motivated and engaged independent operators. By sharpening our focus on store experience and strengthening our support to our operators, suppliers, and guests, we can create value for many years to come. I'm bullish on the long-term addressable market and our ability to improve costs and margins as we continue to grow. As I've said, I believe with the right focus and execution, this business can be much larger and much more profitable in the future. Achieving our potential, however, requires that focused execution. And with that as a context, we're pursuing four important strategic imperatives. The first is tackling our new store performance to drive long-term growth and strengthen returns on invested capital. Second, securing top talent to activate our strategy Third, addressing execution gaps by continuing to make progress on our systems to improve our performance. And finally, fourth, improve our ability to execute at scale by continuing to strengthen our leadership and opportunistic buying, and by becoming a leading selling organization that delivers a winning customer experience by providing our network with world-class training and development, customer-centric data and insight, all supported by new capabilities and merchandising that will drive our performance. First, on tackling our new store performance. We're carefully calibrating our approach to grow to ensure we have the winning conditions in place before expanding more aggressively. We are in the process of piloting a new commercial execution playbook to drive year one sales at a higher starting point. We're also clustering stores in new markets and calibrating our mix of new stores to incorporate approximately 50% infill in markets where our brand awareness is high. This is going to continue into 2026, during which we plan to open between 30 and 35 net new stores. We also plan to execute a series of lower capex store pilots to address inflation in labor, materials, and equipment that's occurred over the last couple of years. These store pilots are going to incorporate modifying our electricity demand footprint, optimizing store size, and implementing sourcing strategies to improve ROIC. We're also taking a systematic and data-driven approach to real estate selection in new markets to help improve returns. By standardizing and scaling the best aspects of our stores, we should be positioned to deliver stronger and more consistent returns for this company, our IOs, and our shareholders. I'm very excited about the tremendous amount of white space available for us to grow, and I believe that by first slowing the pace and calibrating the business now to optimize our ROIC, we can earn the opportunity to accelerate the pace later. Second, another critical component of our future success is securing top talent. Our talented new CIO, Kumar Mishra, has gotten right to work in just a few months into the role. He's already made significant progress getting our systems integration on the right track. We've started a search for merchandising talent to help us become a stronger selling organization. and we're in the process of identifying a leader of store development as well as a head of supply chain to take our business to the next stage of development. As we look toward adding these critical leadership capabilities, today we also announced the retirement of our Chief Operations Officer, Ramesh Chakala, this June, and our Chief Store Officer, Pam Burke, later this year. We appreciate the many important contributions to the business both have made. Ramesh has helped stabilize and build leadership teams to drive systems improvements with an effective handoff to Kumar as our CIO, while also strengthening our supply chain and the team. Pam has led a number of functions and forged strong relationships with our IOs during her decade with the company. Pam is going to continue to help us ensure a seamless transition within store operations over the coming months. I want to thank them both for their dedication, their commitment, and hard work. and, of course, congratulate them. We wish them all the best in their retirements. Next, on addressing execution gaps, progress on our systems integration is key. For operations, successfully completing our systems integration is critical to ensure that we have the tools and the systems in place to be fully functional, getting the operational data we need to deliver high levels of execution in this business. In April, we began the first phase of our proprietary real-time order guide rollout, which is now up and running in all SKUs in both our East Coast and California DCs. Our IOs in the East and in California, about 75% of our stores now, have real-time inventory visibility for what's available at the DC, what capacity is available to fully fill out what's on their truck, and improving our ability to plan and manage inventory collectively. Our planners also have full real-time inventory visibility into the DC, which enables them to drive the flow of opportunistic product through the system. All this makes it far easier to match supply and demand. We're also on track to roll out the real-time order guide to the rest of our regions by the end of the second quarter. The next phase will include the new arrivals guide later this year, which is a further feature to help planning and merchandising. We've made progress here and have line of sight in improving our ability to execute. Finally, we need to improve our ability to execute at scale. And we've been focused on improving our merchandising efforts to get the right mix in our stores to promote the health of our basket to drive our comp store sales. Commercially, we've made some initial efforts across three key elements of the guest experience, price, quality, and service. First, we continue to strengthen our value. We've continued to tighten our gapping of KVIs across several MSAs while also promoting a stronger mix high-margin value-driving opportunistic products and private label. We've also begun to experiment with some new in-store communication tools to make our value messaging work harder. It's important that we're consistently building trust with our guests and creating a sense of awe in their treasure hunt. Second, we've also made some changes to our standards in the quality profile of key produce items, ensuring they're ripe and ready to eat. starting with everyday items like bananas and avocados, builds the basket on profitable everyday items that matter most to our guests, making their shopping experience easier. On service, we believe that our real-time order guide rollout will assist our teams in better planning, driving in-stock improvements throughout the network. This is very helpful, especially to newer IOs and their team members. And the company is in the early stages of sharing impactful data and insights to better support RIOs in delivering a more consistent guest experience. While we make progress to improve our commercial execution with one foot on the gas, it's important at this stage of this turnaround, we have one foot on the brake. We're being intentional about making meaningful progress on addressing the cost side of this business. Chris Miller, our new and very experienced CFO, is leading a program on indirect procurement to create fuel to enhance the profitability of and provide the space for the team to drive performance improvement through reinvestment. And finally, to improve our ability to execute at scale, we continue to advance our supply chain. We'll complete our consolidation from five DCs in the Pacific Northwest to one DC at the end of this month, which will drive greater efficiency and better levels of service to our stores. Later this year, we plan to activate our new DC in the east region at relatively low capex which we expect to improve execution and expand our capacity for opportunistic supply. We're also honing our approach to implementing scalable practices. I'm a firm believer in test and learn, and we will pilot, test, engage our network to develop repeatable, cost-effective standards. We're developing a new model store to support our goals of implementing more uniform merchandising and help provide effective and efficient operational SOPs to help our IOs drive more consistent customer experiences at lower cost. Creating impeccable partnerships with RIOs continues to be an essential element of the differentiation of this business, and we intend to continue to strengthen our support. With our system's progress, we're working toward providing more data, analytics, training, and best-in-class operational tools that will enable RIOs to deliver better service to their guests and drive performance. Building our brand's reputation for a winning customer experience is the key to our shared success. Now on guidance. Before I turn it over to Chris, I want to touch on our outlook for the balance of the year. While we achieved our financial objectives for the first quarter and are making progress ramping our initiatives to deliver sustainable growth, we're moderating our outlook for annual comp store sales growth, reflecting current trends in the business as well as uncertainty given the macroeconomic environment. The progress the team has made in yielding strong gross margin while containing expenses gives us confidence in the outlook for gross margin and and adjusted EBITDA and adjusted EPS that we all shared previously. We believe that continued execution of the initiatives we outlined today should build momentum as we move through the year, positioning us for profitable long-term growth. We believe the initiatives underway should strengthen our competitive moat by emphasizing and executing what has made the grocery outlet a unique and special destination. The focus we're making on in-store experience should improve the treasure hunt, and we intend to amp up our focus on opportunistic products that delight our guests and keep them coming back. We have a powerful brand and a tremendous value proposition to work from. We know this work is vital for our shareholders as well. We've said it before, but it's worth emphasizing. With the foundational work we're undertaking, we're making decisions with a determined focus on optimizing returns on invested capital with the goal of returning Grocery Outlet to the performance levels our model supports and driving shareholder value creation that our shareholders deserve. I'm very excited to lead this business into a bright future. Our vision is to become one of the country's most loved brands. And as we move forward, we will build trust, consistency, excitement amongst our key stakeholders, including our guests, our IOs, our suppliers, our teams, and our shareholders. I look forward to getting to know many of you better and sharing more about the progress we're achieving against the plans I've laid out today. Thank you to our IOs, to our suppliers, and team members across this organization. Your support is invaluable, and we look forward to rewarding that support. Now I'll turn it over to Chris to take you through the results and our outlook. Thank you.