Grocery Outlet Holding Corp. Q1 FY2025 earnings call

Key Points

• Jason Potter noted the company delivered on first quarter outlook: comp store sales up 30 basis points, 10 net new stores opened, exceeded gross margin outlook.
• Strategic imperatives: tackling new store performance, securing top talent, addressing execution gaps via systems integration, and improving execution at scale.
• Systems integration: Phase 1 of real-time ordering guide rolled out, with plan to fully roll out by end of Q2.
• Talent: Searching for key leadership roles; retirement of COO and Chief Store Officer announced.
• Cost initiatives: Indirect procurement program to enhance profitability and reinvest in growth.
• Supply chain: Consolidating DCs in Pacific Northwest to one DC by end of the month, planning new East region DC later in the year.

Net sales for the first quarter were $1.13 billion, up 8.5% from the prior year. Comp store sales increased 30 basis points. Gross profit was $342.4 million, with gross margin rising 110 basis points to 30.4%, exceeding the outlook. SG&A was $333.1 million, 29.4% of net sales. Adjusted EBITDA increased to $51.9 million.

Guidance

• Adjusted comp store sales outlook for the year to 1%-2% from prior expectations.
• Restructuring charges expected to be in the range of $59 million to $61 million, with ~$9M-$11M in Q2.
• Net interest expense expected to be approximately $32 million, down from $38 million previously.
• Second quarter guidance: comps ~1%, gross margin 30%-30.5%, adjusted EBITDA $62M-$65M, diluted EPS $0.16-$0.18.

Risks

• Macroeconomic uncertainties impacting consumer trends and comp store sales growth.
• Execution challenges in maintaining and improving margins.
• Uncertainty related to interest rate changes affecting net interest expense.

Q: Anthony Bonadio from Wells Fargo asked about strategy and growth level.

A: Jason Potter talked about focusing on execution, building capabilities for a loved brand, and the four strategic imperatives.

Q: Corey Tarlowe from Jefferies inquired about the second quarter guide and comp trajectory.

A: Jason and Chris discussed commercial activities, execution-related work, and macro trends influencing the comp outlook.

Q: Robbie Ohmes from Bank of America asked about real-time order guide impact on comps.

A: Jason Potter mentioned improved fill rates from the real-time order guide and its potential to drive sales.

Q: Matthew Rothway from UBS asked about gross margin outperformance.

A: Chris Miller explained shrinkage improvement and sustainable margin trends.

Q: Tom Nass from TD Cowen asked about opportunistic sourcing and independent operator profitability.

A: Jason Potter discussed strong supplier relationships and scan data to help IOs.

Q: John Heinbockel from Guggenheim Securities asked about KPIs and field organization.

A: Jason Potter talked about KPI monitoring and potential investment in field organization.

Q: Joe Feldman from Telsey Advisory Group asked about basket size.

A: Jason Potter discussed traffic strength and execution efforts to build baskets.

Q: Michael Baker from D.A. Davidson asked about Easter shift and consumer reaction.

A: Jason Potter noted softness in April and consumer uncertainty.

Q: Anthony Chukumba from Loop Capital Markets asked about indirect cost reduction.

A: Chris Miller discussed indirect procurement and supply chain efficiencies.

Q: Simeon Gutman from Morgan Stanley asked about April trends and restructuring impact.

A: Jason Potter and Chris Miller addressed traffic, basket, and restructuring guidance impact.

Q: Leah Jordan from Goldman Sachs asked about margin trade-offs and reinvestment.

A: Jason Potter talked about balancing growth and margins with one foot on gas and one foot on brake.

Q: Jeremy Hamblin from Craig-Hallum Capital Group asked about United Grocery Outlet integration.

A: Jason Potter mentioned integration plans for late 2026.