Grocery Outlet Holding Corp.

Greetings and welcome to the Grocery Outlet's third quarter 2025 earning results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ian Ferry, Vice President of Treasury and Investor Relations. Thank you. You may begin.

Good afternoon and welcome to Grocery Outlet's call to discuss financial results for the third quarter ended September 27, 2025. Speaking for 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 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 gap to non-gap 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 on the investor section of the company's website under news and releases and in the company's SEC filings. And now I would like to turn it over to Jason.

Thanks, Ian, and thank you all for joining today's call. In the third quarter, we continued to advance our strategy while executing to deliver strong bottom line results. We grew net sales 5.4% to 1.17 billion, with sales in comparable stores up 1.2%, which I'll discuss in greater detail in a moment. In the quarter, we also added 11 net new stores. Importantly, in Q3, we began to roll out our store refresh concept to an initial wave of independently operated stores. We are seeing encouraging results with the pilot stores that are participating in this program, and we're planning to accelerate the expansion of the program throughout the rest of the year and into 26. On the execution front, we continue to operate with discipline to achieve healthy profitability. We reported a gross margin of 30.4%, consistent with our outlook, while carefully managing spending allowed us to deliver an adjusted EBITDA of $67 million at the top of our outlook range. and adjusted EPS of 21 cents, which exceeded guidance due to favorable taxes. While Q3 results were broadly consistent with our expectations, comp store sales of 1.2% came in below our outlook range. Leading into the final weeks of the quarter, we were pacing to our 1.5 to 2% outlook, with traffic up roughly 2% over that timeframe. However, during those final weeks, we experimented with promotional activity as well as marketing mix that was, we believe, net negative. Testing is a key part of the work we're doing to drive sustainable growth, and we'll continue to eliminate things that don't contribute and double down on what does. In this case, we've course corrected, and over the last couple of weeks, we've seen a return to weekly comp growth. While recent comps have been positive, given the slow start to Q4, we now expect same-store sales growth to come in between flat and up 1% for the quarter. Chris will detail the impact to our annual guidance in just a few minutes. Since joining the company nine months ago, I've spoken about four key strategic imperatives. Tackling new store performance, securing top talent, addressing execution gaps, and improving execution at scale. These remain our key focus areas and will be going forward. On the new storefront, our strategy continues to progress in the manner I outlined on our previous call, and the performance of our 25 cohort remains ahead of plan. In addition, we continue to secure talent at the company with two recent hires that I'll comment on later. However, given the current situation with softer comps than we'd all like, I'm going to focus on most of my comments on this call on the latter two pillars that address execution at the company. First, on execution gaps. We've made significant progress on restoring systems functionality to enhance our IOs ability to deliver a higher level of in-stock performance with better inventory visibility. And the second is now scaling execution through our model store refresh program, which will deliver a much stronger in-store experience for our customers. I'll now share how the systems and support work we're doing on behalf of IOs, which we expect to yield a meaningful impact in 26, will enable our operators to drive comps and build momentum. We began this year with the goal of delivering meaningful improvements in inventory visibility and availability for our IOs. We started by building upon the strength and technology foundation of our systems integration, rolling out our real-time order guide. And in October, we began introducing our new arrival order guide. Both initiatives have given our IOs greater visibility to inventory and the capability to sharpen merchandising in their stores. I recently spent time with IOs around the country and heard resoundingly that the greater upstream inventory visibility has enhanced their ability to execute. This is exactly what we mean by making Grocery Outlet a great selling organization. By year end, we expect IOs to have regained all order guide systems functionality that existed prior to the SAP implementation, which will allow us to shift our focus from fixing integrated related issues to driving growth. To build on the strength of our order guide implementation, we're now enhancing these tools with forecasting capabilities for fresh meat and produce. We're supporting these updates with training to help our IOs manage inventory even more efficiently. Creating proficiency in matching forecasting and demand is foundational for improving the execution needed to drive a sustained sales performance. With that in mind, these new enhancements combine three essential components that IOs can implement to deliver on that objective. Number one, resetting the retail display areas for fresh products to prioritize top-selling items. Second, implementing operational SOPs that support accurate inventory counts, higher turns, while improving the quality of our fresh offering. And three, implementing training to execute these new systems, methods, and procedures on this forecasting system so stores can deliver a consistent in-stock position just in time. Each part of this system supports the others. and we believe this holistic approach will improve our operators' ability to execute consistently. We believe this will be one of the most important and impactful initiatives implemented across the company. We expect in the coming months, we'll have this capability embedded into our proprietary order guide, making it easier for IOs to operate their businesses. Through enhancements we're making to our order guide, operators will not only have better visibility of supply, but they will be better equipped to forecast and meet demand, which will improve the customer experience. Delivering a stronger in-store experience has been our top priority, and the results of our store refresh give us confidence in our ability to meaningfully accelerate our comp growth going forward. Let me start with some background. We've spent much of this year engaging with customers and our IOs to discern where we could drive a better in-store experience. Feedback from the survey work indicated that our customers felt a lack of consistency in their store visit experience. While customers appreciate the value we offer and enjoy the treasure hunt aspect of shopping in our stores, they indicated that the experience was challenging to shop and that a lack of consistent availability of various key items hurt their trust in us. We want our customers to see us as the place where they can shop every day confidently, creating an experience that delivers value. To address this feedback and strengthen our performance, we focused on three critical areas within the pilot stores. First, improving the store layout, Second, expanding and standardizing our core assortment. And third, elevating our in-store value messaging. Customer receptivity has been outstanding. These three initiatives have driven mid-single-digit comp lift in our two pilot stores with a full quarter reporting, and we have several more stores in various stages of completion. While we learn more about the sales lift potential as we touch additional stores, based on the promising early results we've seen so far, we plan on meaningfully scaling the store refresh. We believe that this initiative and the retail fundamentals it's based on can be rolled out to the vast majority of our store base. We expect to end the year with approximately 20 stores completed. We also expect to complete at least another 150 stores by the end of 26 and complete the balance of addressable stores in 27. We believe this work combined with the system stabilization, improved IO tools should position us to drive future sustainable comp growth. I'll share some details around those changes to give you a sense of their impact. Starting with improving the store layout and the merchandising changes we made. In our pilot stores, we've improved the layout to create a more inviting and more intuitive shopping experience. When shoppers now enter our store, they enter with a clear sightline to understand the layout. We've removed the forced flow and have logically grouped categories throughout the store and ensured that the fresh departments are merchandised together. We improved the store flow by relocating produce to the front of the store, co-locating meat and fish, and moving general merchandise and health and beauty towards the back of the store. Now, these may sound like modest changes, but they're delivering big results. Bringing produce up front and center and expanding our offerings of high-quality fruit and vegetables has driven double-digit comp lift in meat and produce within our test group. And to illustrate the impact for customers, our independent operator at Roanoke Park, California shared the following feedback. I'm really excited about the freshness, openness, and clarity the changes bring to the store, and that is exactly what customers are telling us. We've implemented these changes informed by our customer feedback and getting input from our IOs. We look forward to working with our IOs across the business this year to demonstrate the meaningful impact our refresh will have for their customers and their stores. Getting fresh right is a big part of helping us earn the opportunity to grow basket with our customers. Now, turning to core assortment. Within our improved store flow, we're ensuring that our stores are in stock on core basket building items. This allows customers to do more of their shopping during their trips to Grocery Outlet and ultimately make Grocery Outlet their primary shopping destination. To address this opportunity, we defined 400 core items that all stores will carry going forward and be consistently in stock on. These items include well-known name brands like Heinz Ketchup, Daisy Sour Cream, and Eggo Waffles, along with many of our private label staples that are on our customers' regular shopping list. Our refresh store ensures that our stores are easy to shop by merchandising categories in a logical, intuitive way with a consistent product location and assortment on shelf, whilst still leaving plenty of room for our opportunistic buys and treasure hunt experience. Improving the experience overall by being more consistent and easier to shop are key areas of friction that will support sustainable momentum in our comp sales. Now, on elevating in-store messaging, we feel it's important to make our messaging work harder. In these refreshed locations, we have created a kit that clearly communicates a feeling of value throughout the store. This signage helps shoppers see the tremendous value they're getting while ensuring they're benefiting from the improved core assortments and the unique opportunistic offerings we carry. Greeting shoppers with great merchandising supported by strong messaging is cementing our value prop with customers that come to our stores. Our business offers tremendous value, and improving our marketing, our branding, and communication will all contribute positively to telling our unique and differentiated story. As we roll out our store refresh, we'll continue to operate with discipline with the goal of driving improved returns on capital, another important priority for the company. These investments come at manageable, incremental investment, and their execution is relatively straightforward. We estimate that our payback period on these investments is roughly three and a half years, and accordingly, we expect these initiatives to yield attractive returns while improving our IO incomes. Our refreshed store is also focused on ensuring that our new stores achieve the 20% plus return target by creating sustainable comp growth. Going forward, our new stores will launch in our refreshed format. We've rolled this new approach already in one of our new locations late in Q3 with early and favorable results. A key focus for the upcoming year's rollout is delivering on these merchandising standards, and part of becoming a great selling organization is continuing to improve our ability to localize our stores. Supporting localization has the power to drive store productivity and we're approaching this theme of localization in new ways. For example, in Southern California, we're testing a model store with a more demographically relevant assortment with supporting marketing and promotion designed to serve the large and growing Hispanic population in the region. While our tests are early, we're seeing encouraging results from this test, and we see an opportunity to deploy this widely through the region. Finally, and critically, we've prioritized securing top talent for this business to propel our work in our stores. We recently welcomed two strong leaders to our team. Our new chief stores operations officer, Frank Kerr, brings a wealth of operations and consumer experience to Grocery Outlet. He joins us from Lidl, where he was instrumental in the company's U.S. expansion, leading store operations, supply chain, logistics, and merchandising as Senior VP Ops and its Chief Customer Officer, also responsible for marketing, consumer insight, digital commerce, and promotional planning and strategy. Early in Frank's career, he served as Vice President of Retail Operations at Save-A-Lot, where he led retail and wholesale of over 900 stores in 32 states. Frank's leadership across large grocery fleets and experienced scaling IO models is invaluable to us in our next chapter of development. Our new Chief Supply Chain Officer, Scott Fremont, brings deep insight to Grocery Outlet from a decorated 18-year career at Target, where he most recently served as Vice President of Global Transportation, Trade, and Logistics. Scott's deep knowledge of supply chain logistics and management strengthened this critical area of our business as we update and evaluate our centralized distribution network to deliver improved levels of execution for our I.O.s And we're very excited to welcome Scott to the team and work with him to unlock the tremendous potential in our business. In closing, while we're dissatisfied with our current comp performance, we're making significant sustainable progress against our strategy, setting the company up to deliver stronger comp performance in 26 and beyond. As we roll out our refreshed doors, we'll continue to focus on execution and improving returns on capital. And finally, we expect to enter the upcoming year with our systems implementation work substantially complete, allowing us to be laser-focused on delivering consistent growth and capturing the large opportunity in front of us. I'd like to thank the entire Grocielda team, including and especially our IOs, for their continued dedication as we work together to deliver for our customers and position the company for sustainable growth and stronger profitability in years to come. One final note, as we observe the current situation unfolding related to the federal government shutdown and potential disruption to SNAP benefits, IOs will be working as they always have to have a positive impact in the communities they serve. Many of them will be raising money to support local food banks and other related support efforts. While the current situation remains uncertain, Grocery Outlet and our IOs are here to make our local communities better. And with that, I'll turn it over to Chris to take you through the numbers.