Grocery Outlet Holding Corp.

Greetings and welcome to the Grocery Outlet's first quarter 2026 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ian Ferry, Senior Vice President of Strategic Finance and 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 April 4th, 2026. 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 with 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. 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.

Good afternoon, everyone, and thank you for joining us on today's call. In the first quarter, we delivered results in line with our guidance as our work to strengthen the business gained traction. We reported Q1 revenue of $1.17 billion, up 3.6% with comparable store sales down 1%, slightly ahead of our outlook for a decline of minus 2.5% to negative 1.5%. Traffic remained positive up approximately 2% with consistent improvement throughout the quarter. This was offset by continued basket pressure from lower units per transaction. Gross margin of 29.6 was also within our outlook range and included a 50 basis point impact related to our previously announced store closures. Adjusted EBITDA of 43.1 million came in at the top end of our range, while adjusted EPS of 5 cents was a penny above the guidance range we shared in March. As I mentioned, performance improved as the quarter progressed, with traffic strengthening each month and exiting March at a meaningful higher rate than at the start of the quarter. In the month of March, weekly traffic grew in the range of 2% to 5% year to year, reaffirming that our value-oriented product offering continues to resonate with consumers. While we're encouraged by the progress we're beginning to see, we're not satisfied with our current level of performance and are focused on the work we have in front of us. As we said in March, we entered 2026 with a clear agenda. Restore what makes this brand special. site and execution where we've fallen short and improved returns. That work is well underway, and while it's still early, the traction we see reinforces our conviction that we are taking the right action. Grocery Outlet has meaningful strengths, a differentiated model, a highly relevant value proposition, strong independent operators, and a format that resonates when we execute well. Our focus is on translating those strengths into a more consistent performance. Our work to achieve this centers on improving comp store performance while continuing to advance important strategic initiatives that deliver stronger long-term growth and profitability. Restoring customer value perception. Let me start with customer value perception because that's where our work begins. Our job right now is to make Grocery Outlet a more compelling choice for the customer. In this environment, value matters more than ever. We must make that value visible consistent, exciting, and easy to shop. We executed on that in several ways during this last quarter. First and most importantly, we've made meaningful strides to increase the mix of branded opportunistic products in our stores. Our best opportunistic deals offer savings up to 70% versus conventional retailers. These savings, when paired with the excitement of a treasure hunt experience, provide a compelling experience that our customers love. Since the start of the year, we've increased our opportunistic mix by nearly two percentage points with meaningful improvement across inventory, shipments, variety, and sales. We've made meaningful progress by improving our sourcing, increasing product visibility, and helping operators further differentiate their stores. That works includes upgrading systems and reporting, expanding supplier outreach, shortening delivery times, testing short-dated offerings, and engaging suppliers more directly at the leadership level. These efforts enabled us to move quickly in Q1 on excess inventory from several top-selling brands, delivering significant savings for customers while creating high margin, high volume opportunities for us and our operators. Second, we invested in reshaping value perception. As we work to improve the impact of our opportunistic supply, the near-term synthetic promotional support we're providing is driving customers into our stores. It's been especially effective around high traffic occasions, like this year's Super Bowl and Easter, where event-driven promotions help drive meaningful traffic gains. This is an important first step in restoring comp performance, as the momentum from our improving opportunistic product mix begins to translate into stronger transaction trends. Through the first quarter, we received positive feedback from both customers and our IOs, and as we invest, we're managing the impact on gross margins through disciplined promotional targeting and our ongoing focus on improving our mix. We continue to expect these investments to be in the range of $20 million for this year. Third, we're sharpening our value messaging through our Extreme Value Campaign. This work is focused on making our value proposition unmistakable, highlighting the significant savings customers can find on branded products, often at meaningful discounts to conventional retailers, and reinforcing the excitement of the treasure hunt experience that defines Grocery Outlet. To support this, we're driving awareness through targeted at-home and digital campaigns that bring our deals and product discovery to life. In market, we're focused on awareness-based media. In store, we're simplifying signage and elevating key value items to make savings more visible, easier to navigate, and more compelling at the shelf. Together, these three initiatives, with the singular focus of improving value, are beginning to drive a meaningful, positive customer response, reflected in improving sales, improving traffic trends, net promoter score, and survey data, while reinforcing one another. Though there's much to do to restore comp performance, the trends we're seeing in traffic are consistent with the initial stages of stabilization that we would expect at this point. Improving the in-store experience. We also continue to improve the in-store experience to support stronger store level performance across our fleet. One of the most important of these initiatives is our store refresh program, and in the first quarter, we completed 34. As of today, we've completed 58 stores in total. These refresh stores are benefiting from improvements in layout, signage, and merchandising that make the shopping trip easier and reinforce value more clearly. We continue to receive positive feedback from both customers and operators, and we are confident that improving the customer in-store experience is the right step for Grocery Outlet and that it will become an important lever over time. The impact of our value restoration initiatives in Q1 reinforces our conviction that an all hands on deck focus on executing our opportunistic engine is the fastest and most effective path to improving results across the business. With a clear path to deliver on that objective, the results that support that focus, we're prioritizing our initial resources on that work. That requires deliberate choices about how we execute our other priorities this year, including taking a more measured pace on our store refresh program. We will continue to invest in these longer-term improvements to our stores while maintaining a near-term focus on driving comp sales through opportunistic initiatives that I've discussed. As we balance our resources around these efforts, we now expect to complete approximately 100 store refreshes by year end. This sharper focus will reduce distractions and help us return comp growth as quickly as possible.