Grocery Outlet Holding Corp. Q4 FY2024 earnings call

• Leadership: Appointed Jason Potter as CEO, Chris Miller as CFO, and Kumar Mishra as CIO. Jason brings over 30 years of grocery experience, Chris has 40+ years in finance, and Kumar has 25 years in IT leadership.
• Value Proposition: Comparable store sales increased 2.9% in Q4, driven by 3% growth in comp count and customers responding to WOW! items with deep discounts. Marketing team working on targeted messaging for Q1.
• Systems: Made progress on upgrading real-time order guide, improving operational data visibility, and enhancing inventory management tools. New CIO focused on delivering efficient functionality.
• New Store Strategy: Narrowing new store openings to existing markets and adjacent new markets to improve sales productivity and ROIC. Originally planned to open 55-60 stores, now targeting 33-35 in 2025.
• Supply Chain: Reassessed warehousing and distribution, opened a new 680,000 sq ft DC in Washington. Decided not to pursue multi-temperature distribution.
• Workforce: Implemented workforce reduction to build a scalable cost structure.

Net sales for the fourth quarter increased 10.9% to $1.1 billion, driven by new store sales and a 2.9% increase in comparable store sales. Gross profit for the fourth quarter was $323.9 million, with a gross margin of 29.5%, a decline of 70 basis points year-over-year. SG&A expenses increased $32.6 million or 11.6% to $312.5 million. Net income for the fourth quarter was $2.3 million or $0.02 per fully diluted share. Adjusted net income was $14.5 million for the quarter or $0.15 per fully diluted share. Adjusted EBITDA increased 12.5% to $57.2 million for the quarter and adjusted EBITDA margin was 5.2% of net sales.

• Fiscal 2025 Comp Store Sales: 2%-3% growth.
• Net Sales: $4.7-$4.8 billion (includes 53rd week).
• Gross Margins: 30%-30.5% for full year, 29.5%-30% for Q1.
• Restructuring Charges: $36M-$45M in 2025, including $30M-$37M from exiting store leases.
• Adjusted EBITDA: $260M-$270M for full year, $45M-$50M for Q1.
• Adjusted EPS: $0.70-$0.75 for full year, $0.05-$0.10 for Q1.

• Systems issues continuing to impact inventory shrinkage and margin.
• Economic variability affecting comp store sales performance.
• Execution challenges in new store openings and market penetration due to past overextension.

Q: Krisztina Katai from Deutsche Bank asked about leadership appointments, guidance bridge, and new store focus.

A: Jason Potter mentioned attraction to Grocery Outlet's model, Chris Miller explained adjusted EPS outlook, and Eric Lindberg discussed narrowing new store focus to address execution challenges.

Q: Anthony Bonadio from Wells Fargo inquired about gross margin and systems issues.

A: Chris Miller stated Q4 margin was impacted by eggs, pricing, supply, and inventory shrinkage due to systems issues.

Q: Robbie Ohmes from Bank of America asked Eric Lindberg about systems phase-in and IO retention.

A: Eric Lindberg said systems are improving, no IOs lost due to systems, and progress on getting systems to be better than before.

Q: Tom Nass from TD Cowen asked about comp pace and balance between price and margin.

A: Eric Lindberg said Q4 comps were good, Q1 started softer due to economic trends, and they're working on addressing basket composition.

Q: Mark Carden from UBS asked Jason Potter about parallels with Fresh Market.

A: Jason Potter mentioned parallels in focusing on execution and guest experience, but current focus is on near-term priorities.

Q: John Heinbockel from Guggenheim asked about macro impact on UPT and UGO integration.

A: Eric Lindberg and Dorian Bertsch discussed macro impact on UPT and progress on UGO integration, including store refreshes and product introductions.

Q: Corey Tarlowe from Jefferies asked Eric Lindberg about restructuring impact on store openings and margin.

A: Eric Lindberg said restructuring helps address execution challenges and narrow new store focus to improve execution.

Q: Anthony Chukumba from Loop Capital Markets asked about value perception.

A: Dorian Bertsch discussed progress on value metrics, including basket savings, extreme value items, and price parity with discounters.

Q: Joe Feldman from Telsey Advisory Group asked about CapEx allocation.

A: Chris Miller said CapEx increase is due to more stores, UGO integration, and new DC in Pacific Northwest.

Q: Mike Baker from D.A. Davidson asked about long-term margin profile.

A: Chris Miller stated they believe in long-term opportunity but wouldn't specify past current guidance.

Q: Leah Jordan from Goldman Sachs asked about comp guide and competitive environment.

A: Dorian Bertsch said competitive environment remains rational, and nothing makes them feel differently about comps.

Q: Simeon Gutman from Morgan Stanley asked about systems timeline and Jason's questions.

A: Eric Lindberg said 2025 is completion year for systems, and Jason is focusing on store trip improvement and data management.

Q: Unidentified Analyst from Craig-Hallam Group asked about private-label penetration.

A: Dorian Bertsch discussed private-label progress, launched 180 items, plans to launch more, and benefits to customers and margins.

Q: Jacob Aiken-Phillips from Melius Research asked about unit growth pipeline.

A: Eric Lindberg said pipeline is healthy for new stores and IOs, focusing on execution to improve ROIC.