Grocery Outlet Holding Corp. Q3 FY2025 earnings call

• Continued to advance strategy, growing net sales and adding 11 net new stores. Rolled out store refresh concept to pilot stores with encouraging results.
• Managed profitability with gross margin 30.4% consistent with outlook. Adjusted comp store sales outlook for Q4 to between flat and up 1%.
• Worked on executing systems functionality to enhance in-stock performance and inventory visibility for independent operators (IOs).
• Store refresh focused on improving store layout, expanding/standardizing core assortment, and elevating in-store messaging, with pilot stores showing mid-single-digit comp lift.
• Hired new Chief Store Operations Officer and Chief Supply Chain Officer to support strategic initiatives.

Net sales grew 5.4% to $1.17 billion in the third quarter, with comparable stores sales up 1.2%. Gross profit increased 3% to $355.1 million or 30.4% of net sales. Comparable store sales comp was 1.2% but came in below the outlook range, with recent course correction seeing return to positive weekly comps.

• Q3 comp store sales expected to be between flat and plus 1%.
• Full year 2025 guidance adjusted: Net sales $4.7 billion to $4.72 billion, adjusted EBITDA $258 million to $262 million, adjusted EPS $0.78 to $0.80 per fully diluted share.
• Q4 2025: Comp store sales between flat and plus 1%, add 7 net new stores, gross margin 30% to 30.3%, adjusted EBITDA $72 million to $76 million, diluted adjusted earnings per share $0.21 to $0.23.
• Note 2025 had a 53rd week contributing incremental adjusted EBITDA and margin expansion not repeating in 2026, and expected normalized comp growth rate next year.

• Impact of federal government shutdown on SNAP benefits not factored into guidance as its effect is uncertain.
• Marketing and promotional adjustments in late Q3 had a negative impact on comps, though course correction has led to return to positive weekly comps.

Q: Jeremy Hamblin asked about the split of transaction and ticket in same-store sales and the decel in comps.

A: Jason Potter said transactions were running just under 2% and baskets down slightly, with a slowdown in transaction count during September leading to negative comps late in the quarter but course correction led to positive comps.

Q: Corey Tarlowe asked about learnings from promotional activity and marketing mix and SG&A comp leverage.

A: Jason Potter said they made adjustments to promotions and marketing mix, and Chris Miller said they expect modest SG&A leverage next year with cost savings initiatives and investment in capabilities.

Q: John Heinbockel asked about the refresh program clustering, timing, and core items.

A: Jason Potter said they plan to cluster, refresh takes about 5 weeks with sales pressure during but pop afterward, and core items have signage and are on customers' shopping lists.

Q: Edward Kelly asked about SNAP impact and historical trends.

A: Jason Potter said SNAP accounts for about 9% of sales, and in past, tender types changed but no sales impact, and guidance is clean of SNAP impact uncertainty.

Q: Joseph Feldman asked about localization effort.

A: Jason Potter said they're providing support to local IOs in SoCal with relevant assortment for local community, seeing initial positive results.

Q: Mark Carden asked about promotional activity impact and IO response.

A: Jason Potter said marketing was major contributor to comp decel, and IOs are excited about improvements from systems and refresh program.

Q: Zach (Simeon Gutman) asked about refresh program uplift and timing.

A: Jason Potter said pilot stores had mid-single-digit lift, and refresh is a comp accelerator for next year.

Q: Leah Jordan asked about comp acceleration leverage and refresh program confidence.

A: Christopher Miller said around 2.5% comp growth needed for leverage, and Jason Potter said refresh program has enough testing and feedback to be confident in rollout.

Q: Kendall Toscano asked about refresh in markets and price gaps.

A: Jason Potter said refresh shows positive results across markets, and they have price advantages with work on value messaging to improve customer understanding.

Q: Michael Baker asked about comps in immigration markets and SNAP impact estimates.

A: Jason Potter said no specific impact to report on immigration markets, and no estimates on SNAP impact yet as data is insufficient.

Q: Oliver Chen asked about path to consistent comps and IO support.

A: Jason Potter said systems stabilization and store refresh are key, with focus on providing tools for IOs, localization, and relevant product for local communities.

Q: Oliver Chen asked about buying team and customer perception lags.

A: Jason Potter said buying team relationships are key, and customers respond quickly to changes, with feedback guiding adjustments.