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What changed in Grocery Outlet Holding Corp.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Grocery Outlet Holding Corp.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+354 added−378 removedSource: 10-K (2023-03-01) vs 10-K (2022-03-02)

Top changes in Grocery Outlet Holding Corp.'s 2023 10-K

354 paragraphs added · 378 removed · 274 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

77 edited+21 added−24 removed63 unchanged
Biggest changeSome of our offerings during 2021 (offered virtually and, in some cases, in person) included: • A customized leadership resilience program for all employees at or above the director level focusing on a variety of topics including leading and working in a remote environment, strengthening teamwork, learning agility, and managing anxiety • Certification program opportunities, including offerings in personal growth and professional development • Lunch and learn events, featuring a wide variety of personal development topics and industry speakers • Individual coaching for leadership development, and other leadership training on an ad hoc basis Employee Compensation and Benefits —We provide compensation and comprehensive benefits designed to recruit, reward and retain the talent necessary to advance our mission, meet our business goals and execute our long-term growth strategy.
Biggest changeSome of our offerings during 2022 (offered virtually and, in some cases, in person) included: • Certification program opportunities, including offerings in personal growth and professional development; • Lunch and learn events, featuring a wide variety of personal development topics and industry speakers; and • Individual coaching for leadership development, and other leadership training on an ad hoc basis We encourage internal promotions and hiring for open positions.
The Operator Agreement provides that either the IO or we may terminate the Operator Agreement for any reason on 75 days' written notice, or may terminate the Operator Agreement immediately for cause. IOs are responsible for operational decision-making for their store, including hiring, training and employing their own workers as well as ordering and merchandising products.
The Operator Agreement provides that either the IO or we may terminate the Operator Agreement for any reason on 75 days' written notice, and that we may terminate the Operator Agreement immediately for cause. IOs are responsible for operational decision-making for their store, including hiring, training and employing their own workers as well as ordering and merchandising products.
IOs are responsible for expenses required for business operations, including all labor costs, utilities, credit card processing fees, supplies, taxes (i.e., 6 Table of Contents withholding, contributions and payroll taxes and income taxes on commissions paid to them), fines, levies and other expenses attributable to their operations.
IOs are responsible for expenses required for business operations, including all labor costs, utilities, credit card processing 6 Table of Contents fees, supplies, taxes (i.e., withholding, contributions and payroll taxes and income taxes on commissions paid to them), fines, levies and other expenses attributable to their operations.
Procurement Our flexible sourcing and supply chain model differentiates us from traditional retailers and allows us to provide customers quality, name-brand consumables and fresh products at exceptional values. We take advantage of opportunities to acquire merchandise at substantial discounts that regularly arise from order cancellations, manufacturer overruns, packaging changes and approaching "sell-by" dates.
Procurement Our flexible sourcing and supply chain model differentiates us from traditional retailers and allows us to provide customers with quality, name-brand consumables and fresh products at exceptional values. We take advantage of opportunities to acquire merchandise at substantial discounts that regularly arise from order cancellations, manufacturer overruns, packaging changes and approaching "sell-by" dates.
On average, our stores achieve profitability during the first year of operations. We intend to continue to expand our reach to additional customers and geographies across the United States. We believe that consumers' search for value will continue to be an important factor in retail.
On average, we aim for our stores achieve profitability during the first year of operations. We intend to continue to expand our reach to additional customers and geographies across the United States. We believe that consumers' search for value will continue to be an important factor in retail.
We typically source these staple products (e.g., milk, eggs, sugar) from multiple suppliers to lower our costs and we avoid long-term supply commitments to maintain the flexibility to pursue opportunistic buys as they arise.
We typically source these staple products (e.g., milk, eggs, sugar) from multiple suppliers to lower our costs and we generally avoid long-term supply commitments to maintain the flexibility to pursue opportunistic buys as they arise.
In addition, we and the IOs must comply with provisions regulating health and sanitation standards, food labeling, and licensing for the sale of food and alcoholic beverages. We actively monitor changes in these laws.
In addition, we and the IOs must comply with provisions regulating health and sanitation standards, food labeling, non-food labeling and licensing for the sale of food and alcoholic beverages. We actively monitor changes in these laws.
Our seasoned management team has a proven track record of growing our business while maintaining a disciplined cost structure. Over the past six years, we have made significant investments that have laid a solid foundation for future growth. We have implemented and will continue to identify and implement productivity improvements through both operational initiatives and system enhancements.
Our seasoned management team has a proven track record of growing our business while maintaining a disciplined cost structure. Over the past several years, we have made significant investments that have laid a solid foundation for future growth. We have implemented and will continue to identify and implement productivity improvements through both operational initiatives and system enhancements.
We and the IOs are also subject to various federal, state and local laws and regulations, including those governing labor and employment, including minimum wage requirements, advertising, privacy, safety and environmental protection and consumer protection regulations, including those that regulate retailers and/or govern product standards, the promotion and sale of merchandise, packaging material safety and recycling and the operation of stores and warehouse facilities.
We and the IOs are also subject to various federal, state and local laws and regulations, including those governing labor and employment, including minimum wage requirements, advertising, privacy, safety and environmental protection and consumer protection regulations, including those that regulate retailers and/or govern product standards, the importation, transportation, promotion and sale of merchandise, packaging material safety and recycling and the operation of stores and warehouse facilities.
We generally share 50% of store-level gross profits with IOs, thereby incentivizing them to grow their business and realize substantial financial upside. The independent operator agreement (the "Operator Agreement") that we sign with each IO gives the IO broad responsibility over store-level decision-making, unlike a store manager of a traditional retailer.
We generally share 50% of store-level gross profits with IOs, thereby incentivizing them to grow their business profitably and realize financial upside. The independent operator agreement (the "Operator Agreement") that we sign with each IO gives the IO broad responsibility over store-level decision-making, unlike a store manager of a traditional retailer.
We plan to increase comparable sales by (i) delivering more opportunistic deals and expanding our offerings; (ii) supporting our IOs in enhancing the customer experience through inventory planning and other tools; and (iii) increasing customer awareness and engagement by executing on our marketing strategies. • Execute on Store Expansion Plans .
We strive to increase comparable sales by (i) delivering more opportunistic deals and expanding our offerings; (ii) supporting our IOs in enhancing the customer experience through inventory planning and other tools; and (iii) increasing customer awareness and engagement by executing on our marketing strategies. • Execute on Store Expansion Plans .
We, in turn, pay IOs a commission which is generally 50% of the store's gross profit in exchange for the IO's services in staffing and operating the store. Any spoiled, damaged or stolen merchandise, markdowns or price changes impact gross profit and therefore the IO's commission. We generally split these losses equally with IOs.
We, in turn, pay IOs a commission that is generally 50% of the store's gross profit in exchange for the IO's services in staffing and operating the store. Any spoiled, damaged or stolen merchandise, markdowns or price changes impact gross profit and therefore the IO's commission. We generally split these losses equally with IOs.
Marketing Our ability to consistently deliver "WOW!" deals that generate customer excitement is our strongest marketing tool. Our value proposition has broad appeal, with all bargain-minded consumers. We promote brand awareness and drive customers to shop through centralized marketing initiatives along with local IO marketing efforts.
Marketing Our ability to consistently deliver "WOW!" deals that generate customer excitement is our strongest marketing tool. We believe our value proposition has broad appeal with bargain-minded consumers. We promote brand awareness and drive customers to shop through centralized marketing initiatives along with local IO marketing efforts.
These factors both align our interests and incentivize IOs to aggressively grow their business to realize substantial financial upside. This combination of local decision-making supported by our purchasing scale and corporate resources results in a "small business at scale" model that we believe is difficult for competitors to replicate.
These factors both align our interests and incentivize IOs to grow their business profitably to realize financial upside. This combination of local decision-making supported by our purchasing scale and corporate resources results in a "small business at scale" model that we believe is difficult for competitors to replicate.
Our value proposition has broad appeal with bargain-minded customers across all income levels, demographics and geographies. We believe that our sustained focus on delivering ever-changing "WOW!" deals within a fun, treasure hunt shopping environment has generated strong customer loyalty and brand affinity.
Our value proposition has broad appeal with bargain-minded customers across a broad range of income levels, demographics and geographies. We believe that our sustained focus on delivering ever-changing "WOW!" deals within a fun, treasure hunt shopping environment has generated strong customer loyalty and brand affinity.
We selected and developed these technologies to provide the flexibility and functionality to support our unique buying and selling model as well as to identify and respond to merchandising and operating trends in our business. The ongoing modernization, enhancement and maintenance of our information systems have allowed us to support the growth in our business and store base.
We selected and developed these technologies to provide the flexibility and functionality to support our unique buying and selling model as well as to identify and respond to merchandising and operating trends in our business. 8 Table of Contents The ongoing modernization, enhancement and maintenance of our information systems have allowed us to support the growth in our business and store base.
The vast majority of the IOs operate a single store, with most working as a two-person team to leverage complementary operator skill sets. We encourage the IOs to establish local roots and actively participate in their communities to foster strong personal connections with customers.
The vast majority of the IOs operate a 5 Table of Contents single store, with most working as a two-person team to leverage complementary operator skill sets. We encourage the IOs to establish local roots and actively participate in their communities to foster strong personal connections with customers.
As the store tenant, we fund the build-out of the store including racking, refrigeration and other equipment and pay rent, common area maintenance and other lease charges. IOs must cover their own initial working capital requirements and acquire certain store and safety assets.
As the store tenant, we fund the build-out of the store including racking, refrigeration and other equipment (which we maintain ownership of) and pay rent, common area maintenance and other lease charges. IOs must cover their own initial working capital requirements and acquire certain store and safety assets.
Independent Operators IOs are independent business entities owned by one or more entrepreneurially minded individuals who typically live in the same community as their store with a focus on ordering and merchandising the best products for their communities, 5 Table of Contents providing personalized customer service and driving improved store performance.
Independent Operators IOs are independent business entities owned by one or more entrepreneurially minded individuals who typically live in the same community as their store with a focus on ordering and merchandising the best products for their communities, providing personalized customer service and driving improved store performance.
Bortner served as Chief Human Resources Officer at Maxar Technologies, Inc., a space technology company, from August 2016 to October 2019 and as Chief Human Resources Officer at Catalina, an advertising and marketing company, from August 2012 to June 2016. Pamela B. Burke has served as our EVP, Chief Stores Officer, Interim General Counsel and Secretary since January 2022. Ms.
Bortner served as Chief Human Resources Officer at Maxar Technologies, Inc., a space technology company, from August 2016 to October 2019 and as Chief Human Resources Officer at Catalina, an advertising and marketing company, from August 2012 to June 2016. Pamela B. Burke has served as our EVP, Chief Stores Officer since January 2022. Ms.
We have experienced no material interruptions of operations due to disputes with our employees and consider our relations with our employees to be very good. Our mission is to Touch Lives for the Better .
We have experienced no material interruptions of operations due to disputes with our employees and consider our relations with our employees to be very good. 10 Table of Contents Our mission is to Touch Lives for the Better .
ITEM 1. BUSINESS Our Company Grocery Outlet is a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores. As of January 1, 2022, we had 415 stores in California, Washington, Oregon, Pennsylvania, Idaho, Nevada and New Jersey. Our headquarters is in Emeryville, California.
ITEM 1. BUSINESS Our Company Grocery Outlet is a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores. As of December 31, 2022, we had 441 stores in California, Washington, Oregon, Pennsylvania, Idaho, Nevada, Maryland and New Jersey. Our headquarters is in Emeryville, California.
Based on the strength of that business plan, including an AOT's familiarity with the local market, we ultimately select an IO as new store opportunities open and facilitate the transition. Our Stores and Expansion Opportunities As of January 1, 2022, our 415 total stores averaged approximately 14,000 square feet on the sales floor.
Based on the strength of that business plan, including an AOT's familiarity with the local market, we ultimately select an IO as new store opportunities open and facilitate the transition. Our Stores and Expansion Opportunities As of December 31, 2022, our 441 total stores averaged approximately 14,000 square feet on the sales floor.
Sheedy previously served as our Chief Merchandise, Marketing & Strategy Officer from April 2017 to December 2018, our Chief Merchandise & Strategy Officer from March 2014 to April 2017 and our Vice President, Strategy from April 2012 to February 2014. Before joining us, Mr.
Sheedy served as our President from January 2019 to December 2022, as our Chief Merchandise, Marketing & Strategy Officer from April 2017 to December 2018, our Chief Merchandise & Strategy Officer from March 2014 to April 2017 and our Vice President, Strategy from April 2012 to February 2014. Before joining us, Mr.
We rely on our distribution and transportation network, including by means of truck, ocean and rail to provide goods to our distribution centers and stores in a timely and cost-effective manner. Deliveries to our stores occur from our distribution centers or directly from our suppliers. We distribute inventory through eight primary distribution centers.
We rely on our distribution and transportation network, including by means of truck, ocean and rail to provide goods to our distribution centers and stores in a timely and cost-effective manner. Deliveries to our stores occur from our distribution centers or directly from our suppliers.
Moreover, as Millennials mature and Baby Boomers age, we believe that they are increasingly focused on value, driving shopper traffic towards the deep discount channel. In the near term, we plan to grow our store base to capture whitespace in existing markets as well as contiguous regions.
Moreover, we believe that they are increasingly focused on value, driving shopper traffic towards the deep discount channel. In the near term, we plan to grow our store base to capture whitespace in existing markets as well as contiguous regions.
In a typical year, we field over 20,000 leads for prospective new IOs annually in pursuit of smart and entrepreneurially minded retail leaders to support our continued growth. After a robust screening and interview process, we select the top candidates to enter a rigorous Aspiring Operator in Training ("AOT") program with the goal of potentially becoming an IO.
In a typical year, we receive and filter thousands of leads for prospective new IOs in pursuit of smart and entrepreneurially minded retail leaders to support our continued growth. After a robust screening and interview process, we select the top candidates to enter a rigorous Aspiring Operator in Training ("AOT") program with the goal of potentially becoming an IO.
As of January 1, 2022, 411 of our 415 stores were operated by IOs. We have entered into an Operator Agreement with each IO, which grants that IO a license to operate a particular Grocery Outlet Bargain Market retail store and to use our trademarks, service marks, trade names, brand names and logos under our brand standards.
As of December 31, 2022, 438 of our 441 stores were operated by IOs. We have entered into an Operator Agreement with each IO, which grants that IO a license to operate a particular Grocery Outlet Bargain Market retail store and to use our trademarks, service marks, trade names, brand names and logos under our brand standards.
Trademarks and Other Intellectual Property We own federally registered trademarks related to our brand, including "GROCERY OUTLET BARGAIN MARKET", "WOW!", "NOSH" and "BARGAINS ON BRANDS YOU TRUST!" In addition, we maintain trademarks for the images of certain logos that we use, including the "GROCERY OUTLET BARGAIN MARKET" logo, the "NOSH" logo and the "WOW!" logo.
Trademarks and Other Intellectual Property We own federally registered trademarks related to our brand, including "GROCERY OUTLET BARGAIN MARKET", "WOW!", "NOSH" and "BARGAIN BLISS" In addition, we maintain trademarks for the images of certain logos that we use, including the "GROCERY OUTLET BARGAIN MARKET" logo, the "NOSH" logo and the "WOW!" logo.
In addition, we have a customized enterprise resource planning system, components of which have been replaced and additional components of which we are replacing over the next several years, including our financial ledger, inventory management platform and product data warehouse system.
In addition, we have a customized enterprise resource planning system, components of which have been replaced and additional components of which we are currently replacing, including our financial ledger, inventory management platform and product data warehouse system.
Underlying this differentiated model was a mission that still guides us today: "Touching Lives for the Better." Since 2006, the third generation of Read family leadership, Eric Lindberg, Jr., Chief Executive Officer, and MacGregor Read, Jr., Vice Chairman of our Board of Directors, have advanced this mission. 3 Table of Contents Grocery Outlet Holding Corp. was incorporated in Delaware on September 11, 2014.
Underlying this differentiated model was a mission that still guides us today: "Touching Lives for the Better." Since 2006, the third generation of Read family leadership, Eric Lindberg, Jr., Chairman of our Board of Directors (and Chief Executive Officer during fiscal 2022), has continued to advance this mission. 3 Table of Contents Grocery Outlet Holding Corp. was incorporated in Delaware on September 11, 2014.
Opportunistically sourced products represent approximately half of our purchasing mix. We refer to our best opportunistic purchases as "WOW!" deals, which generally represent deep discounts of 40% to 70% relative to conventional retailers. These products encourage repeat shopper visits and typically sell quickly due to their compelling value, short duration and continually changing availability.
We refer to our best opportunistic purchases as "WOW!" deals, which generally represent deep discounts of 40% to 70% 4 Table of Contents relative to conventional retailers. These products encourage repeat shopper visits and typically sell quickly due to their compelling value, short duration and continually changing availability.
While these challenges will impact our new store growth in 2022, our goal is to expand our store base by approximately 10% annually by penetrating existing and contiguous regions. Over the long term, we believe the market potential exists to establish 4,800 locations nationally.
While these challenges impacted our new store growth in 2022 and are expected to impact our new store growth in the first half of 2023, our long-term strategic goal is to expand our store base by approximately 10% annually by penetrating existing and contiguous regions. Over the long term, we believe the market potential exists to establish 4,800 locations nationally.
While COVID-19 has caused CPGs to reduce SKU assortment, we believe that this is temporary and we expect the supply of opportunistic products to continue to expand as incumbent CPGs continue to invest in new products, brands and marketing.
While recent macroeconomic conditions have caused CPGs to reduce SKU assortment, we believe that this is temporary and we expect the supply of opportunistic products to expand as incumbent CPGs continue to invest in new products, brands and marketing.
Our product offering includes a constant rotation of opportunistic products, complemented by an assortment of competitively priced everyday staples, across grocery, produce, refrigerated and frozen foods, beer and wine, fresh meat and seafood, general merchandise and health and beauty care. These products include a wide selection of Natural, Organic, Specialty and Healthy ("NOSH") products.
Our product offering includes a constant rotation of opportunistic products, complemented by an assortment of competitively priced everyday staples, across grocery, produce, refrigerated and frozen foods, beer and wine, fresh meat and seafood, general merchandise and health and beauty care.
We further believe the success of our stores across a broad range of geographies, population densities and demographic groups creates a significant opportunity to profitably increase our store count. In fiscal 2021 we opened 36 new stores, including 24 in California, five in Washington, three in Oregon, two in Pennsylvania, one in Idaho and one in New Jersey.
We further believe the success of our stores across a broad range of geographies, population densities and demographic groups creates a significant opportunity to profitably increase our store count. In fiscal 2022 we opened 27 new stores, including 12 in California, seven in Pennsylvania, three in Idaho, three in Maryland, one in Oregon and one in New Jersey.
We operate three distribution centers and use five distribution centers operated by third parties. We have an in-house transportation fleet as well as strong transportation partner relationships that provide consistent performance and timely deliveries to our stores.
We distribute inventory through eight primary distribution centers, three of which we operate and five of which are operated by third parties. We have an in-house transportation fleet as well as strong transportation partner relationships that provide consistent performance and timely deliveries to our stores.
Diversity, Equity and Inclusion —We report annually on employment data, including ethnicity, inline with Equal Opportunity Commission ("EEOC") guidelines and we believe that a diverse and inclusive team is critical to our long-term business success.
Additionally, we provide generous and highly competitive health and welfare benefits programs. Diversity, Equity and Inclusion —We report annually on employment data, including ethnicity, in line with Equal Opportunity Commission ("EEOC") guidelines and we believe that a diverse and inclusive team is critical to our long-term business success.
The FDA has comprehensive authority to regulate the safety, ingredients, labeling and good manufacturing practices for dietary supplements. The Dietary Supplement Health and Education Act (the "DSHEA") amended the FDCA in 1994 and expanded the FDA's regulatory authority over dietary supplements. Through DSHEA, dietary supplements became a regulated commodity while also allowing structure/function claims on products.
The Dietary Supplement Health and Education Act (the "DSHEA") amended the FDCA in 1994 and expanded the FDA's regulatory authority over dietary supplements. Through DSHEA, dietary supplements became a regulated commodity while also allowing structure/function claims on products.
Our common stock trades on the Nasdaq Global Select Market under the symbol "GO". Our Growth Strategies We plan to continue to drive sales growth and profitability by maintaining a steadfast focus on our value proposition and executing on the following strategies: • Drive Comparable Sales Growth .
Our Growth Strategies We plan to continue to drive sales growth and profitability by maintaining a steadfast focus on our value proposition and executing on the following strategies: • Drive Comparable Sales Growth .
As of January 1, 2022, our distribution centers employed 331 persons. The remaining 188 employees were employees in our Company-operated stores. As of January 1, 2022, 110 of our employees were union employees, all of whom were employees at two Company-operated stores.
As of December 31, 2022, our distribution centers employed 360 persons. The remaining 139 employees were employees in our Company-operated stores. As of December 31, 2022, 103 of our employees were union employees, all of whom were employees at two Company-operated stores.
Wilson has served as our SVP, Chief Purchasing Officer since August 2020 and previously served as Senior Vice President of Purchasing since February 2018 and served as our Vice President of Purchasing from July 2006 to January 2018. Prior to being appointed Vice President of Purchasing, Mr.
Wilson served as SVP, Chief Purchasing Officer from September 2020 to December 2022, as our Senior Vice President of Purchasing from February 2018 to August 2020 and as our Vice President of Purchasing from July 2006 to January 2018. Prior to being appointed Vice President of Purchasing, Mr. Wilson served in various positions of increasing responsibility with us since 1994.
Burke served in various management positions at CRC Health Group, Inc., a provider of specialized behavioral health services, most recently as Senior Vice President of Legal, HR and Risk from April 2010 to February 2015. Heather L.
Burke served in various management positions at CRC Health Group, Inc., a provider of specialized behavioral health services, most recently as Senior Vice President of Legal, HR and Risk from April 2010 to February 2015. Steven K. Wilson has served as our EVP, Chief Purchasing Officer since January 2023. Previously, Mr.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for our Annual Meeting of Stockholders are available, free of charge, on our website as soon as practicable after the we file the reports with the SEC. 11 Table of Contents Information about our Executive Officers The following table sets forth information about our executive officers as of the date of this filing: Name Age Position Eric J.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for our Annual Meeting of Stockholders are available, free of charge, on our website as soon as practicable after the we file the reports with the SEC.
Our centralized sourcing team, consisting of our purchasing and inventory planning groups have deep experience and decades-long relationships with leading CPG companies. Our team is highly selective when evaluating the growing number of opportunities available to us and maintains a disciplined yet solutions-oriented approach.
Our centralized sourcing team, consisting of our purchasing and inventory planning groups, have deep experience and decades-long relationships with leading CPG companies. Our team is highly selective when evaluating opportunities available to us and maintains a disciplined yet solutions-oriented approach. We are always seeking out and developing new supplier relationships to acquire desirable products at discounts that excite our customers.
To do this, we work together to foster a culture grounded in talented and passionate people who live our values: entrepreneurship, integrity, achievement, family, service to others, diversity and fun.
To do this, we work together to foster a culture grounded in talented and passionate people who live our values: entrepreneurship, integrity, achievement, family, service to others, diversity and fun. Our values translate into our human capital offerings to recruit, engage, develop, reward and retain employees who believe in our mission and emulate our values.
As of January 1, 2022, we had 946 employees, 803 of whom were full-time and 143 of whom were part-time. As of January 1, 2022, 427 of our employees were based at our corporate headquarters in Emeryville, California, and our Leola, Pennsylvania office, 130 of which were classified as field employees.
As of December 31, 2022, we had 969 employees, 864 of whom were full-time and 105 of whom were part-time. As of December 31, 2022, 470 of our employees were based at our corporate headquarters in Emeryville, California, and our Leola, Pennsylvania office, 144 of which were classified as field employees.
We believe that we have a leading share of the large and growing excess inventory market. As we grow, we expect to have even greater access to quality merchandise due to our increased scale, broader supplier awareness and expanded geographic presence.
As we grow, we expect to have even greater access to quality merchandise due to our increased scale, broader supplier awareness and expanded geographic presence.
The U.S. Department of Agriculture regulates these programs and their eligibility requirements. The registration and ongoing compliance requirements for SNAP participation are fairly complex and each of the IOs holds their registration under the name of their business entity and is responsible to ensure that their employees consistently comply with all SNAP rules.
The registration and ongoing compliance requirements for SNAP participation are fairly complex and each of the IOs holds their registration under the name of their business entity and is responsible to ensure that their employees consistently comply with all SNAP rules. Food and Dietary Supplement Advertising — The FTC exercises jurisdiction over the advertising of foods and dietary supplements.
In recent years, the FTC has instituted numerous enforcement actions against companies carrying dietary supplements for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims.
The FTC has the power to impose monetary sanctions, consent decrees and/or other penalties that can severely limit a company's business practices. In recent years, the FTC has instituted numerous enforcement actions against companies carrying dietary supplements for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims.
Our Operator Agreement grants the IOs a limited, non-exclusive license to use our trademarks solely in connection with the operation and promotion of their store and not in connection with other activities. IOs are not permitted to sublicense our trademarks to others. We attempt to obtain registration of our trademarks as practical and pursue infringement of those marks when appropriate.
Our Operator Agreement grants the IOs a limited, non-exclusive license to use our trademarks solely in connection with the operation and promotion of their store and not in connection with other activities.
As part of our succession planning, we prioritize growing talent internally within our organization and invest resources to develop our employee's skill sets and career path.
Employee Development —We seek to grow leaders at every level of our organization by creating a culture of mentoring and coaching. As part of our succession planning, we prioritize growing talent internally within our organization and invest resources to develop our employee's skill sets and career path.
Beyond competition for consumers, we compete against a fragmented landscape of opportunistic purchasers, including retailers (e.g., Big Lots and 99 Cents Only) and wholesalers to acquire excess merchandise for sale in our stores. Our established relationships with our suppliers along with our distribution scale, buying power, financial credibility and responsiveness often makes us the first call for available deals.
Beyond competition for consumers, we compete against a fragmented landscape of opportunistic purchasers, including retailers (e.g., Big Lots and 99 Cents Only) and wholesalers to acquire excess merchandise for sale in our stores.
We have modernized and added several systems that provide us additional functionality and scalability in order to better support operational decision-making, including enhanced point of sale, warehouse management, human resource planning, business intelligence, vendor tracking and lead management, store communications, real estate lease management and financial planning and analysis systems. 8 Table of Contents We modify, update and replace our systems and infrastructure from time to time, including by adding new hardware, software and applications; maintaining, updating or replacing legacy programs, converting to enhanced systems; integrating new service providers; and adding enhanced new functionality, such as cloud computing technologies.
We have modernized and added several systems that provide us additional functionality and scalability in order to better support operational decision-making, including enhanced point of sale, warehouse management, human resource planning, business intelligence, vendor tracking and lead management, store communications, real estate lease management and financial planning and analysis systems.
January 1, 2022 Employee Diversity Women 38 % Racially and ethnically diverse 58 % We have several employee resource groups that enhance our inclusive and diverse culture, including our overarching Equity, Diversity and Inclusion Council, our Black Partnership Network, and our WOW! (Winning with Outstanding Women) Network.
We have several employee resource groups that enhance our inclusive and diverse culture, including our overarching Equity, Diversity and Inclusion Council, our Black Partnership Network, and our WOW! (Winning with Outstanding Women) Network. We also provide regular training on diversity topics, including those relating to current events in our communities.
We believe that our broad customer appeal supports significant new store growth opportunities, and we plan to continue to expand our reach to additional customers and geographies across the United States.
We believe that our broad customer appeal supports significant new store growth opportunities, and we plan to continue to expand our reach to additional customers and geographies across the United States. Our stores generally have performed well across all economic cycles, as demonstrated by our pattern of positive comparable store sales growth and healthy gross margin rates.
McAndrews 61 SVP, Chief New Store Development Officer Steven K. Wilson 57 SVP, Chief Purchasing Officer Set forth below is a brief description of the business experience of our executive officers. All of our officers serve at the discretion of our Board of Directors. Eric J.
Burke 55 EVP, Chief Stores Officer Steven K. Wilson 58 EVP, Chief Purchasing Officer Luke D. Thompson 50 SVP, General Counsel and Secretary Set forth below is a brief description of the business experience of our executive officers. All of our officers serve at the discretion of our Board of Directors.
We are always seeking out and developing new supplier relationships to acquire desirable products at discounts that excite our customers. Our inventory planning group collaborates with and supports our buyers to ensure we purchase the appropriate type and quantity of products in order to maintain adequate inventory levels in key product categories.
Our inventory planning group collaborates with and supports our buyers to ensure we purchase the appropriate type and quantity of products in order to maintain adequate inventory levels in key product categories. We believe that we have a leading share of the large and growing excess inventory market.
We see discount retailers of consumable products, which include Walmart, WinCo, Aldi and Lidl, as competitors given their broad product offerings at low prices relative to conventional grocery stores. We compete with both conventional grocery stores and discounters by offering an ever-changing selection of name-brand products in a fun, treasure hunt shopping environment at a significant discount.
We compete with both conventional grocery stores and discounters by offering an ever-changing selection of name-brand products in a fun, treasure hunt shopping environment at a significant discount. Many competitors and a number of pure online retailers are attempting to attract customers by offering various forms of e-commerce.
Food and Dietary Supplements — The FDA regulates the safety of certain food and food ingredients, as well as dietary supplements under the federal Food, Drug, and Cosmetic Act (the "FDCA"). Similarly, the USDA's Food Safety Inspection Service ensures that the country's commercial supply of meat, poultry, catfish and certain egg products is safe, wholesome and correctly labeled and packaged.
Similarly, the USDA's Food Safety Inspection Service ensures that the country's commercial supply of meat, poultry, catfish and certain egg products is safe, wholesome and correctly labeled and packaged. 9 Table of Contents The Food Safety Modernization Act (the "FSMA") amended the FDCA in 2011 and expanded the FDA's regulatory oversight of all supply chain participants.
Based on our experience, in addition to third-party research, we believe existing and neighboring states can support a total of approximately 1,900 stores. The COVID-19 pandemic has had significant issues on new store development, including labor and materials shortages as well as longer lead times in lease execution, site permitting and 7 Table of Contents construction.
The COVID-19 pandemic and the current macroeconomic environment have contributed to significant issues with new store development, including labor 7 Table of Contents and materials shortages as well as longer lead times in lease execution, site permitting and construction.
We also provide regular training on diversity topics, including those relating to current events in our communities. We will continue to focus on hiring, retaining and advancing women and underrepresented populations, and cultivating an inclusive and diverse corporate culture through continued education, employee resource groups and targeted recruiting and development across our organization.
We will continue to focus on hiring, retaining and advancing women and underrepresented populations, and cultivating an inclusive and diverse corporate culture through continued education, employee resource groups and targeted recruiting and development across our organization. 11 Table of Contents We strive to nurture and uphold an inclusive and diverse environment, free from discrimination of any kind, including sexual or other discriminatory/harassing behavior.
Our model is also somewhat insulated from store labor-related variability because IOs directly employ their store workers. The result is a highly scalable business with lower corporate fixed costs, providing further protection in the event of an economic downturn.
The result is a highly scalable business with lower corporate fixed costs, providing further protection in the event of an economic downturn and growth opportunities in a strong economy.
We believe an e-commerce channel may allow us to expand our reach to existing and new customers and further leverage our existing retail footprint. Products and Pricing Each store offers a curated and ever-changing assortment of products, consisting of on-trend, quality, name-brand consumables and fresh products.
Products and Pricing Each store offers a curated and ever-changing assortment of products, consisting of on-trend, quality, name-brand consumables and fresh products.
The Food Safety Modernization Act (the "FSMA") amended the FDCA in 2011 and expanded the FDA's regulatory oversight of all supply chain participants. Most of the FDA's promulgating regulations are now in effect and mandate that risk-based preventive controls be observed by the majority of food producers.
Most of the FDA's promulgating regulations are now in effect and mandate that risk-based preventive controls be observed by the majority of food producers. This authority applies to all domestic food facilities and, by way of imported food supplier verification requirements, to all foreign facilities that supply food products.
However, no statement on a dietary supplement may expressly or implicitly represent that it will diagnose, cure, mitigate, treat or prevent a disease. EBT Payments —Approximately 13% of sales are in the form of Electronic Benefits Transfer ("EBT") payments and a substantial portion of these payments may be related to benefits associated with the Supplemental Nutritional Assistance Program ("SNAP").
EBT Payments —Approximately 13% of our net sales are in the form of Electronic Benefits Transfer ("EBT") payments and a substantial portion of these payments may be related to benefits associated with the Supplemental Nutritional Assistance Program ("SNAP"). The U.S. Department of Agriculture regulates these programs and their eligibility requirements.
In 2014, an investment fund affiliated with Hellman & Friedman LLC acquired approximately 80% of our common stock, with management and family retaining approximately 20%. In June 2019, we completed the initial public offering of our common stock. Hellman & Friedman distributed the remainder of its holdings in our common stock to its equity holders in May 2020.
In June 2019, we completed the initial public offering of our common stock. Hellman & Friedman LLC, our former private equity sponsor, distributed the remainder of its holdings in our common stock to its equity holders in May 2020. Our common stock trades on the Nasdaq Global Select Market under the symbol "GO".
Competition We compete for consumer spend with a diverse group of retailers, including mass, discount, conventional grocery, department, drug, convenience, hardware, variety, online and other specialty stores. These businesses compete with us on the basis of price, selection, quality, customer service, convenience, location, store format, shopping experience, or any combination of these or other factors.
These businesses compete with us on the basis of price, selection, quality, customer service, convenience, location, store format, shopping experience, or any combination of these or other factors. They may also compete with us for products and locations. We also face internally generated competition when we open new stores in markets we already serve.
We reinforce these efforts with in-store price and item signage as well as outdoor marketing via billboards and truck wraps. In fiscal 2021, we made progress building the infrastructure to test a mobile app in 2022 that would increase personalized customer marketing. IOs develop and fund their local marketing plan to drive customer engagement.
We reinforce these efforts with in-store price and item signage as well as outdoor marketing via billboards and truck wraps. In fiscal 2022, we tested and began piloting a mobile personalization app that we plan to launch to all of our stores during fiscal 2023.
The FDA also regulates the use of structure/function claims, health claims, nutrient content claims and the disclosure of calories and other nutrient information for frequently sold items. In addition, compliance dates on various nutrition initiatives that impacted many supply chain participants, such as in relation to partially hydrogenated oils, went into effect through 2022.
In addition, compliance dates on various nutrition initiatives that impacted supply chain participants, such as in relation to partially hydrogenated oils, went into effect in 2021. The FDA has comprehensive authority to regulate the safety, ingredients, labeling and good manufacturing practices for dietary supplements.
Under certain circumstances, this jurisdiction extends even to product-related claims and representations made on a company's website or similar printed or graphic media. All foods, including dietary supplements, must bear labeling that provides consumers with essential information with respect to standards of identity, net quantity, nutrition facts, ingredient statements and allergen disclosures.
All foods, including dietary supplements, must bear labeling that provides consumers with essential information with respect to standards of identity, net quantity, nutrition facts, ingredient statements and allergen disclosures. The FDA also regulates the use of structure/function claims, health claims, nutrient content claims and the disclosure of calories and other nutrient information for frequently sold items.
Our compensation components vary by employee level and include cash base compensation, cash bonuses, equity awards and a profit-sharing program. Additionally, we provide generous and highly competitive health and welfare benefits programs.
Employee Compensation and Benefits —We provide compensation and comprehensive benefits designed to recruit, reward and retain the talent necessary to advance our mission, meet our business goals and execute our long-term growth strategy. Our compensation components vary by employee level and include cash based compensation, cash bonuses, equity awards and a profit-sharing program.
In fiscal 2021, we began a strategic effort to expand our product assortment, particularly in key everyday areas such as NOSH and fresh, ethnic and local products. 4 Table of Contents A typical Grocery Outlet basket is priced approximately 40% lower than conventional grocers and approximately 20% lower than the leading discounters.
We have continued to expand our product assortment to meet customer needs, including a wide selection of Natural, Organic, Specialty and Healthy ("NOSH"), fresh, ethnic and local products. A typical Grocery Outlet basket is priced approximately 40% lower than conventional grocers and approximately 20% lower than discount retailers. Opportunistically sourced products represent approximately half of our purchasing mix.
IO efforts include community outreach such as partnering with food banks, sponsoring youth athletic programs and offering discounts to veterans. In addition, IOs develop and manage their own social media marketing platforms, posting creative and compelling content.
The app tracks customer savings and provides new, trending and top selling items as well as curated product recommendations based on user preferences. IOs develop and fund their local marketing plan to drive customer engagement. IO efforts include community outreach such as partnering with food banks, sponsoring youth athletic programs and offering discounts to veterans.
Lindberg, Jr. has served as our Chief Executive Officer since January 2019 and as a director since January 2006. Previously, from January 2006 to December 2018, Mr. Lindberg served as our Co-Chief Executive Officer. Prior to being appointed Co-Chief Executive Officer, Mr. Lindberg served in various positions with us since 1996. As our Chief Executive Officer, Mr.
Robert Joseph Sheedy, Jr. has served as our President, Chief Executive Officer and as a director since January 2023. Previously, Mr.
Our stores have generally performed well across all economic cycles, as demonstrated by our pattern of positive comparable store sales growth and gross margin, including during the economic downturn in the years 2009 and 2009. However, our comparable store sales decreased in fiscal year 2021 as we lapped heightened demand during the onset of the COVID-19 pandemic in 2020.
Our comparable store sales decreased in fiscal 2021 (for the first time in 18 years) as we lapped heightened demand during the onset of the COVID-19 pandemic in 2020. Our business returned to have positive comparable store sales in fiscal 2022. Our model also is somewhat insulated from store labor-related variability because IOs directly employ their store workers.
They may also compete with us for products and locations. We also face internally generated competition when we open new stores in markets we already serve. The competitive landscape is highly fragmented and localized; however, our customers most often cite Safeway as the retailer where they also shop for consumables.
The competitive landscape is highly fragmented and localized; however, our customers most often cite Walmart and Safeway as retailers where they also shop for consumables. We see discount retailers of consumable products, which include Costco, WinCo, Target, Trader Joe's, Aldi and Lidl, as competitors given their broad product offerings at low prices relative to conventional grocery stores.
Removed
We intend to reinforce our value proposition and drive further growth by reinvesting future productivity improvements into enhanced buying and selling capabilities. Fiscal 2021 and Recent Developments COVID-19 Pandemic. On March 11, 2020, the World Health Organization declared the novel strain of coronavirus, COVID-19, a global pandemic and recommended containment and mitigation measures worldwide.
Added
We intend to reinforce our value proposition and drive further growth by reinvesting future productivity improvements into enhanced buying and selling capabilities. Fiscal 2022 Macroeconomic Conditions. During fiscal 2022, our business was and continues to be impacted by current macroeconomic conditions including supply chain and labor challenges, inflation, and changes in consumer behavior.
Removed
During the third and fourth quarters of fiscal 2021 and continuing into fiscal 2022, there were surges of positive COVID-19 cases related to the Delta and Omicron variants around the country, including all the states in which we operate.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe following is a summary of the principal risks that could adversely affect our business, operations and financial results: Risks Related to Our Operations • failure of suppliers to consistently supply us with opportunistic products at attractive pricing, which is generally not in our control; • inability to successfully identify trends and maintain an appropriate level of opportunistic products; • failure to maintain or increase comparable store sales; • inflation and other changes affecting the market prices of the products we sell; • failure to open, relocate or remodel stores on schedule and on budget; • risks associated with newly opened stores; • costs and successful implementation of marketing, advertising and promotions; • failure to maintain our reputation and the value of our brand, including protecting our intellectual property; • any significant disruption to our distribution network, the operations of our distributions centers and our timely receipt of inventory; • inability to maintain sufficient levels of cash flow from our operations; • risks associated with leasing substantial amounts of space; • failure to participate effectively in the growing online retail marketplace; • natural or man-made disasters, unusual weather conditions (which may become more frequent due to climate change), power outages, pandemic outbreaks, terrorist acts, global political events or other serious catastrophic events and the concentration of our business operations; • unexpected costs and negative effects if we incur losses not covered by our insurance program; • inability to attract, train and retain highly qualified employees; • difficulties associated with labor relations and shortages; • loss of our key personnel or inability to hire additional qualified personnel; Risks Related to Our Business Environment • risks associated with economic conditions; • competition in the retail food industry; • movement of consumer trends toward private labels and away from name-brand products; • the outbreak of COVID-19 and its variants; Risks Related to Data Protection, Cybersecurity and our Information Technology Systems • failure to maintain the security of information we hold relating to personal information or payment card data of our customers, employees and suppliers; • material disruption to our information technology systems; Risks Related to Legal and Regulatory Risks • risks associated with products we and our independent operators ("IOs") sell; 14 Table of Contents • risks associated with laws and regulations generally applicable to retailers; • legal proceedings from customers, suppliers, employees, governments or competitors ; Risks Related to Our IO Model • failure of our IOs to successfully manage their business; • failure of our IOs to repay notes outstanding to us; • inability to attract and retain qualified IOs; • inability of our IOs to avoid excess inventory shrink; • any loss or changeover of an IO; • legal proceedings initiated against our IOs; • legal challenges to the IO/independent contractor business model; • failure to maintain positive relationships with our IOs; • risks associated with actions our IOs could take that could harm our business; Risks Associated with our Indebtedness • our substantial indebtedness could affect our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations; • restrictive covenants in our debt agreements may restrict our ability to pursue our business strategies, and failure to comply with any of these restrictions could result in acceleration of our debt ; Risks Related to Accounting, Tax and Financial Statement Matters • risks associated with tax matters; • changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters; Risks Related to Our Common Stock • our quarterly operating results fluctuate and may fall short of prior periods, our projections or the expectations of securities analysts or investors; • future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our common stock to decline; and • provisions in our organizational documents could delay or prevent a change of control.
Biggest changeThe following is a summary of the principal risks that could adversely affect our business, operations and financial results: Risks Related to Our Operations • failure of suppliers to consistently supply us with opportunistic products at attractive pricing, which is generally not in our control; • inability to successfully identify trends and maintain an appropriate level of opportunistic products; • failure to maintain or increase comparable store sales; • failure to open, relocate or remodel stores on schedule and on budget; • inflation and other changes affecting the market prices of the products we sell; • risks associated with newly opened stores; • costs and successful implementation of marketing, advertising and promotions; • failure to maintain our reputation and the value of our brand, including protecting our intellectual property; • any significant disruption to our distribution network, the operations of our distributions centers and our timely receipt of inventory; • inability to maintain sufficient levels of cash flow from our operations; • risks associated with leasing substantial amounts of space; • failure to participate effectively in the growing online retail marketplace; • natural or man-made disasters, unusual weather conditions (which may become more frequent due to climate change), power outages, major health epidemics, pandemic outbreaks, terrorist acts, global political events or other serious catastrophic events and the concentration of our business operations; • unexpected costs and negative effects if we incur losses not covered by our insurance program; • inability to attract, train and retain highly qualified employees; • difficulties associated with labor relations and shortages; • loss of our key personnel or inability to hire additional qualified personnel; Risks Related to Our Business Environment • risks associated with economic conditions; • competition in the retail food industry; • movement of consumer trends toward private labels and away from name-brand products; Risks Related to Our IO Model • failure of our IOs to successfully manage their business; • failure of our IOs to repay notes outstanding to us; • inability to attract and retain qualified IOs; • inability of our IOs to avoid excess inventory shrink; • any loss or changeover of an IO; • legal proceedings initiated against our IOs; • legal challenges to the IO/independent contractor business model; 13 Table of Contents • failure to maintain positive relationships with our IOs; • risks associated with actions our IOs could take that could harm our business; Risks Related to Data Protection, Cybersecurity and our Information Technology Systems • failure to maintain the security of information we hold relating to personal information or payment card data of our customers, employees and suppliers; • material disruption to our information technology systems; Risks Related to Legal and Regulatory Risks • risks associated with products we and our independent operators ("IOs") sell; • risks associated with laws and regulations generally applicable to retailers; • legal proceedings from customers, suppliers, employees, governments or competitors ; Risks Associated with our Indebtedness • our substantial indebtedness could affect our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations; • restrictive covenants in our debt agreements may restrict our ability to pursue our business strategies, and failure to comply with any of these restrictions could result in acceleration of our debt ; Risks Related to Accounting, Tax and Financial Statement Matters • risks associated with tax matters, including changes in tax laws; • changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters; Risks Related to Our Common Stock • our quarterly operating results fluctuate and may fall short of prior periods, our projections or the expectations of securities analysts or investors; • future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our common stock to decline; and • provisions in our organizational documents could delay or prevent a change of control.
The CCPA and CPRA provide new and enhanced data privacy rights to California residents, such as giving California consumers the right to access and/or delete their personal information, affording consumers the right to opt out of certain sales of personal information, as well as sharing for cross context behavioral advertising, and prohibiting covered businesses from discriminating against consumers (e.g., charging more for services) for exercising any of their CCPA/CPRA rights.
The CCPA and CPRA provide new and enhanced data privacy rights to California residents, such as giving California consumers and employees the right to access and/or delete their personal information, affording consumers and employees the right to opt out of certain sales of personal information, as well as sharing for cross context behavioral advertising, and prohibiting covered businesses from discriminating against consumers (e.g., charging more for services) for exercising any of their CCPA/CPRA rights.
After many years of consecutive growth in comparable store sales, we had year-over-year declines in fiscal 2021, primarily due to outsized financial performance in fiscal 2020 and continued impacts of the COVID-19 pandemic, including changes in consumer behavior, supplier issues and other related challenges.
After many years of consecutive growth in comparable store net sales, we had year-over-year declines in fiscal 2021, primarily due to outsized financial performance in fiscal 2020 and continued impacts of the COVID-19 pandemic, including changes in consumer behavior, supplier issues and other related challenges.
If any IOs were determined to be our employees, we would incur additional exposure under federal and state tax, workers' compensation, unemployment benefits, labor, employment, environmental and tort laws, which could potentially include prior periods, as well as potential liability for employee benefits and tax withholdings. 30 Table of Contents Even if IOs are properly classified as independent contractors, there is a risk that a governmental agency or court might disagree with our assessment that each IO is the sole employer of its workers and seek to hold us jointly and separately responsible as a co-employer of an IO's workers.
If any IOs were determined to be our employees, we would incur additional exposure under federal and state tax, workers' compensation, unemployment benefits, labor, employment, environmental and tort laws, which could potentially include prior periods, as well as potential liability for employee benefits and tax withholdings. 24 Table of Contents Even if IOs are properly classified as independent contractors, there is a risk that a governmental agency or court might disagree with our assessment that each IO is the sole employer of its workers and seek to hold us jointly and separately responsible as a co-employer of an IO's workers.
If we fail to protect our trademarks or other intellectual property rights, others may copy or use our trademarks or intellectual property without authorization, which may harm the value of our brand, reputation, competitive advantages and goodwill and adversely affect our financial condition, cash flows or results of operations.
Additionally, if we fail to protect our trademarks or other intellectual property rights, others may copy or use our trademarks or intellectual property without authorization, which may harm the value of our brand, reputation, competitive advantages and goodwill and adversely affect our financial condition, cash flows or results of operations.
The loss of one or more of our existing significant suppliers or our inability to develop relationships with new suppliers could reduce our competitiveness, slow our plans for further expansion and cause our sales and operating results to be materially adversely affected.
The loss of one or more of our existing significant suppliers or our inability to develop relationships with new suppliers could reduce our competitiveness, slow our plans for further expansion and cause our net sales and operating results to be materially adversely affected.
Competition for skilled and experienced management in our industry is intense, and we may not be successful in attracting and retaining qualified personnel. 22 Table of Contents Risks Related to Our Business Environment Economic conditions and other economic factors may materially adversely affect our financial performance and other aspects of our business by negatively impacting our customers' disposable income or discretionary spending, increasing our costs and expenses, affecting our ability to plan and execute our strategic initiatives, and materially adversely affecting our sales, results of operations and performance.
Competition for skilled and experienced management in our industry is intense, and we may not be successful in attracting and retaining qualified personnel. 21 Table of Contents Risks Related to Our Business Environment Economic conditions and other economic factors may materially adversely affect our financial performance and other aspects of our business by negatively impacting our customers' disposable income or discretionary spending, increasing our costs and expenses, affecting our ability to plan and execute our strategic initiatives, and materially adversely affecting our sales, results of operations and performance.
Many of the factors identified above also affect commodity rates, transportation costs, costs of labor, insurance and healthcare, the strength of the U.S. dollar, lease costs, measures that create barriers to or increase the costs associated with international trade, changes in laws, regulations and policies and other economic factors, all of which may impact our cost of goods sold and our selling, general and administrative expenses, which could materially adversely affect our business, financial condition and results of operations.
Many of the factors identified above also affect commodity rates, costs of transportation, leasing, labor, insurance and healthcare, the strength of the U.S. dollar, measures that create barriers to or increase the costs associated with international trade, changes in laws, regulations and policies and other economic factors, all of which may impact our cost of goods sold and our selling, general and administrative expenses, which could materially adversely affect our business, financial condition and results of operations.
If IOs were to not effectively control or manage inventory in their stores, they could experience higher rates of inventory shrink which could have a material adverse effect on their financial health, which in turn, may materially and adversely affect our business and results of operations. 29 Table of Contents Our Operator Agreements may be terminated by either party and upon short notice, and any loss or changeover of an IO may cause material business disruptions.
If IOs were to not effectively control or manage inventory in their stores, they could experience higher rates of inventory shrink which could have a material adverse effect on their financial health, which in turn, may materially and adversely affect our business and results of operations. 23 Table of Contents Our Operator Agreements may be terminated by either party and upon short notice, and any loss or changeover of an IO may cause material business disruptions.
Our ability to open stores in a timely and successful manner depends in part on the following factors: the ability to attract potential IOs who are strong entrepreneurs; the availability of attractive store locations (including stores that will not compete significantly with existing stores and that can be reasonably serviced by our distribution network) and rent prices; the costs of construction and the availability of construction labor and materials; the absence of entitlement processes or occupancy delays; the ability to negotiate acceptable lease and development terms; our relationships with current and prospective landlords; the ability to secure and manage the inventory necessary for the 17 Table of Contents launch and operation of new stores; the availability of capital funding for expansion; and general economic conditions.
Our ability to open stores in a timely and successful manner depends in part on the following factors: the availability of attractive store locations (including stores that will not compete significantly with existing stores and that can be reasonably serviced by our distribution network) and rent prices; the costs of construction and the availability of construction labor and materials; the absence of entitlement processes or occupancy delays; the ability to negotiate acceptable lease and development terms; our relationships with current and prospective landlords; the ability to attract potential IOs who are strong entrepreneurs; the ability to secure and manage the inventory necessary for the launch and operation of new stores; the availability of capital funding for expansion; and general economic conditions.
A failure of those systems could disrupt our business, subject us to liability, damage our reputation, or otherwise impact our financial results. 26 Table of Contents Legal and Regulatory Risks Real or perceived concerns that products we and the IOs sell could cause unexpected side effects, illness, injury or death could expose us to lawsuits and harm our reputation, which could result in unexpected costs.
A failure of those systems could disrupt our business, subject us to liability, damage our reputation, or otherwise impact our financial results. 28 Table of Contents Legal and Regulatory Risks Real or perceived concerns that products we and the IOs sell could cause unexpected side effects, illness, injury or death could expose us to lawsuits and harm our reputation, which could result in unexpected costs.
For example, there have been significant fires across the west coast of the United States from 2018 through 2021. In 2018, our store in Paradise, California, burned down entirely and we have also suffered inventory losses related to power outages and evacuations due to fires. These risks may be exacerbated in the future due to climate change.
For example, there have been significant fires across the west coast of the United States from 2018 through 2022. In 2018, our store in Paradise, California, burned down entirely and we have also suffered inventory losses related to power outages and evacuations due to fires. These risks may be exacerbated in the future due to climate change.
Even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer 27 Table of Contents confidence in products we sell. In addition, the failure of such products to comply with applicable regulatory and legislative requirements could prevent us from marketing the products or require us to recall or remove such products from our stores.
Even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer 29 Table of Contents confidence in products we sell. In addition, the failure of such products to comply with applicable regulatory and legislative requirements could prevent us from marketing the products or require us to recall or remove such products from our stores.
For a more complete discussion of the material risks facing our business, see below. 15 Table of Contents Risks Related to Our Operations We depend on suppliers to consistently supply us with opportunistic products at attractive pricing, which is generally not in our control.
For a more complete discussion of the material risks facing our business, see below. 14 Table of Contents Risks Related to Our Operations We depend on suppliers to consistently supply us with opportunistic products at attractive pricing, which is generally not in our control.
Changes in accounting rules or interpretations thereof, changes to the underlying Operator Agreements (as defined elsewhere in this report) as well as other factors that may impact the economic performance of the IO entities which may be relevant to our analysis of whether to consolidate the IO entities as VIEs could significantly impact our ability to issue our financial statements on a timely basis if, as a result, we are determined to be the primary beneficiary of the IO entities and should consolidate such entities.
Changes in accounting rules or interpretations thereof, changes to the underlying Operator Agreements (as defined elsewhere in this report) as well as other factors that may impact the economic performance of the IO entities which may be relevant to our analysis of whether to consolidate the IO entities as VIEs could significantly impact our ability to issue our financial statements on a timely basis if, as a 33 Table of Contents result, we are determined to be the primary beneficiary of the IO entities and should consolidate such entities.
As with most companies, we have experienced cyber-attacks, attempts to breach our systems and other similar incidents, none of which were material in fiscal 2021. As a result, we have incurred significant costs and will continue to incur such costs to monitor and safeguard our systems.
As with most companies, we have experienced cyber-attacks, attempts to breach our systems and other similar incidents, none of which were material in fiscal 2022. As a result, we have incurred significant costs and will continue to incur such costs to monitor and safeguard our systems.
If we incur additional debt above the levels currently in effect, including utilizing the availability under our revolving credit facility, the risks associated with our leverage, including those described above, would increase. Furthermore, all of our debt under our First Lien Credit Agreement bears interest at variable rates.
If we incur additional debt above the levels currently in effect, including utilizing the availability under our revolving credit facility, the risks associated with our leverage, including those described above, would increase. Furthermore, all of our debt under our Credit Agreement bears interest at variable rates.
Because we are an extreme value retailer and compete to a substantial degree on price, changes affecting the market prices of the products we sell, many of which we cannot control, including due to inflation or deflation, competition, supplier increases in freight, supply or other operating costs, including energy prices, or worsening economic conditions, could materially adversely affect our financial condition and operating results.
Because we are an extreme value retailer and compete to a substantial degree on price, changes affecting the market prices of the products we sell, many of which we cannot control, including due to inflation or deflation, competition, 16 Table of Contents supplier increases in freight, supply or other operating costs, including energy prices, or worsening economic conditions, could materially adversely affect our financial condition and operating results.
These agreements give rise to relationships that involve a complex set of mutual obligations and depends on mutual cooperation and trust. We have a standard Operator Agreement that we use with the IOs, which contributes to uniformity of brand standards.
These agreements give rise to relationships that involve a complex set of mutual obligations and depend on mutual cooperation and trust. We have a standard Operator Agreement that we use with the IOs, which contributes to uniformity of brand standards.
Natural or man-made disasters, unusual weather conditions, power outages, pandemics, terrorist acts, political events and other serious catastrophic events could disrupt our business, may expose us to unexpected costs and negatively affect our financial performance. The current concentration of our stores creates an exposure to local or regional impacts of such events and local economic downturns.
Natural or man-made disasters, unusual weather conditions, power outages, major health epidemics, pandemics, terrorist acts, political events and other serious catastrophic events could disrupt our business, may expose us to unexpected costs and negatively affect our financial performance. The current concentration of our stores creates an exposure to local or regional impacts of such events and local economic downturns.
Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider to be in its best interest, including attempts that might result in a premium over the market price of our common stock.
Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a merger, acquisition, tender offer, takeover attempt or other change of control 35 Table of Contents transaction that a stockholder might consider to be in its best interest, including attempts that might result in a premium over the market price of our common stock.
If we were unable to repay those amounts, these lenders could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral to secure our First Lien Credit Agreement.
If we were unable to repay those amounts, these lenders could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral to secure our Credit Agreement.
Any or all of these factors and conditions could materially adversely affect our growth and profitability. Our goal is to expand our store base by approximately 10% annually over the next several years.
Any or all of these factors and conditions could materially adversely affect our growth and profitability. Our long-term goal is to expand our store base by approximately 10% annually over the next several years.
Further, the time and resources required to implement or optimize the benefits of new technology initiatives, or potential issues that arise in implementing such initiatives, could reduce the efficiency of our operations in the short term. The efficient operation and successful growth of our business depends upon our information systems, including our ability to operate, maintain and develop them effectively.
Further, the time and resources required to implement or optimize the benefits of new technology initiatives, or potential issues that arise in implementing such initiatives, could reduce the efficiency of our operations in the short term. 27 Table of Contents The efficient operation and successful growth of our business depends upon our information systems, including our ability to operate, maintain and develop them effectively.
Our business has been and could in the future be severely impacted by natural or man-made disasters and unusual weather conditions (which may become more frequent due to climate change), power outages, pandemic outbreaks (including the COVID-19 pandemic), terrorist acts, global political events and other serious catastrophic events beyond our control.
Our business has been and could in the future be severely impacted by natural or man-made disasters and unusual weather conditions (which may become more frequent due to climate change), power outages, pandemic outbreaks, terrorist acts, global political events and other serious catastrophic events beyond our control.
The outstanding aggregate balance of notes receivable from IOs has increased over time as we have accelerated new store growth and initial IO capital and working capital requirements have increased. This balance may continue to increase as we open new stores. Further, during the COVID-19 pandemic we temporarily reduced interest rates on certain outstanding IO notes.
The outstanding aggregate balance of notes receivable from IOs has increased over time as we have accelerated new store growth combined with increases to initial IO capital and working capital requirements. This balance may continue to increase as we open new stores. Further, during the COVID-19 pandemic we temporarily reduced interest rates on certain outstanding IO notes.
However, we cannot assure you that we will be able to consistently (on a year-over-year basis) achieve this level of new store growth and believe that we will be below this goal for fiscal 2022.
However, we cannot assure you that we will be able to consistently (on a year-over-year basis) achieve this level of new store growth and we were below that goal for fiscal 2022.
Any of these factors could cause us to close stores in desirable locations, which could have a material adverse impact on our results of operations. Over time, current store locations may not continue to be desirable because of changes in demographics within the surrounding area or a decline in shopping traffic.
Any of these factors could cause us to close stores in desirable locations, which could have a material adverse impact on our results of operations. 19 Table of Contents Over time, current store locations may not continue to be desirable because of changes in demographics within the surrounding area or a decline in shopping traffic.
Upon the occurrence of an event of default under our First Lien Credit Agreement, the lenders could elect to declare all amounts outstanding under our First Lien Credit Agreement to be immediately due and payable and terminate all commitments to extend further credit.
Upon the occurrence of an event of default under our Credit Agreement, the lenders could elect to declare all amounts outstanding under our Credit Agreement to be immediately due and payable and terminate all commitments to extend further credit.
The market price of our common stock has been highly volatile and may continue to fluctuate substantially due to fluctuations in our quarterly operating results or in response to other factors (regardless of our actual operating performance) included in this Risk Factors section and due to the following: • changes in expectations as to our future financial performance, including guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance, investment recommendations by securities analysts and investors or if securities analysts do not publish research or reports about our business; • declines in the market prices of stocks generally, changes in general economic or market conditions or trends in our industry or markets; • strategic actions or announcements by us, our competitors or other third parties; • changes in business or regulatory conditions; • additions or departures of key management personnel; • investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives; and • the development and sustainability of an active trading market for our stock.
The market price volatility of our common stock may continue due to fluctuations in our quarterly operating results or in response to other factors (regardless of our actual operating performance) included in this Risk Factors section and due to the following: • changes in expectations as to our future financial performance, including guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance, investment recommendations by securities analysts and investors or if securities analysts do not publish research or reports about our business; • declines in the market prices of stocks generally, changes in general economic or market conditions or trends in our industry or markets; • strategic actions or announcements by us, our competitors or other third parties; • changes in business or regulatory conditions; • additions or departures of key management personnel; • investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives; and • the development and sustainability of an active trading market for our stock.
The operating and financial restrictions and covenants in our First Lien Credit Agreement may materially adversely affect our ability to finance future operations or capital needs or to engage in other business activities.
The operating and financial restrictions and covenants in our Credit Agreement may materially adversely affect our ability to finance future operations or capital needs or to engage in other business activities.
However, there are types of losses we may incur but against which we cannot be insured or which we believe are not economically reasonable to insure, such as losses due to certain cyber events, acts of war, employee and certain other crime, certain wage and hour and other employment-related claims, including class actions, actions based on certain consumer protection laws and some natural and other disasters or similar events.
However, there are types of losses we may incur but against which we cannot be insured or which we believe are not economically reasonable to insure, such as losses due to acts of war, employee and certain other crime, certain wage and hour and other employment-related claims, including class actions, actions based on 20 Table of Contents certain consumer protection laws and some natural and other disasters or similar events.
In addition, a majority of the assortment in each Grocery Outlet store is selected by IOs based on local preference and shopping history, and the inability of the IOs to successfully identify trends in the local market could materially adversely affect our financial performance.
In addition, a majority of the assortment in each Grocery Outlet store is selected by IOs based on local 15 Table of Contents preference and shopping history, and the inability of the IOs to successfully identify trends in the local market could materially adversely affect our financial performance.
Our comparable store sales growth could continue to be lower than our historical average or our future target for many reasons, many of which we do not significantly control, including general economic conditions that may not favor our model, operational performance (including by the IOs), price inflation or deflation, or changes in response to competitive factors, changes in our existing supplier relationships or our inability to develop new supplier relationships, industry competition (e-commerce), new competitive entrants near our stores, price changes in response to competitive factors, any comparison year or quarter having above-average net sales results, possible supply shortages or other operational disruptions, the number and dollar amount of customer transactions in our stores, our ability to provide product or service offerings that generate new and repeat visits to our stores and the level of customer engagement that we and the IOs provide in our stores.
While fiscal 2022 was a year of comparable positive sales growth, our comparable store sales growth in future years could be lower than our historical average or our future target for many reasons, many of which we do not significantly control, including general economic conditions that may not favor our model, operational performance (including by the IOs), price inflation or deflation, or changes in response to competitive factors, changes in our existing supplier relationships or our inability to develop new supplier relationships, industry competition (e-commerce), new competitive entrants near our stores, price changes in response to competitive factors, any comparison year or quarter having above-average net sales results, possible supply shortages or other operational disruptions, the number and dollar amount of customer transactions in our stores, our ability to provide product or service offerings that generate new and repeat visits to our stores and the level of customer engagement that we and the IOs provide in our stores.
In addition, if our internal systems are breached or compromised, we and the IOs may be liable for card re-issuance costs, subject to fines and higher transaction fees and lose our ability to accept credit and/or debit card payments from our customers, and our business and operating results could be materially adversely affected.
In addition, if our internal systems are breached or compromised, we and the IOs may be liable for card re-issuance 26 Table of Contents costs, subject to fines and higher transaction fees and lose our ability to accept credit and/or debit card payments from our customers, and our business and operating results could be materially adversely affected.
In addition, our failure to make payments under our operating leases could trigger defaults under other leases or under our First Lien Credit Agreement (defined below), which could cause the counterparties under those agreements to accelerate the obligations due thereunder. The operating leases for our store locations, distribution centers and administrative offices expire at various dates through 2039.
In addition, our failure to make payments under our operating leases could trigger defaults under other leases or under our Credit Agreement (defined below), which could cause the counterparties under those agreements to accelerate the obligations due thereunder. The operating leases for our store locations, distribution centers and administrative offices expire at various dates through 2041.
For example, we and the IOs are subject to Payment Card Industry Data Security Standards, which contain compliance guidelines and standards with regard to our security surrounding the physical and electronic storage, processing and transmission of individual cardholder 25 Table of Contents data.
For example, we and the IOs are subject to Payment Card Industry Data Security Standards, which contain compliance guidelines and standards with regard to our security surrounding the physical and electronic storage, processing and transmission of individual cardholder data.
In addition, subject to limited restrictions in our First Lien Credit Agreement, we may be able to incur substantial additional debt in the future.
In addition, subject to limited restrictions in our Credit Agreement, we may be able to incur substantial additional debt in the future.
While we have the right to terminate some of our leases under specified 20 Table of Contents conditions, we may not be able to terminate a particular lease if or when we would like to do so.
While we have the right to terminate some of our leases under specified conditions, we may not be able to terminate a particular lease if or when we would like to do so.
Recently, we have experienced varying levels of inflation, resulting in part from various supply disruptions, increased shipping/transportation costs, increased commodity costs, increased labor costs in the supply chain and other disruptions caused by the COVID-19 pandemic and the uncertain economic environment, which we have not been able to fully offset through price increases.
Recently, we have experienced varying levels of inflation, resulting in part from various supply disruptions, increased shipping/transportation costs, increased commodity costs, increased labor costs in the supply chain and other disruptions caused by the recent economic environment, which we have not been able to fully offset through price increases.
These logistical challenges have also caused increased costs to deliver goods to our stores resulting from increased fuel costs, increased carrier rates and driver 19 Table of Contents wages as a result of driver shortages, a decrease in transportation capacity, and slowdowns.
These logistical challenges caused increased costs to 18 Table of Contents deliver goods to our stores resulting from increased fuel costs, increased carrier rates and driver wages as a result of driver shortages, a decrease in transportation capacity, and slowdowns.
If these rates were to increase significantly, whether because of an increase in market interest rates or a decrease in our creditworthiness, our ability to borrow additional funds may be reduced and the risks related to our substantial debt would intensify.
If these rates were to increase significantly, whether because of an increase in market interest rates or otherwise, our ability to borrow additional funds may be reduced and the risks related to our substantial debt would intensify.
AB-5 codifies a new test for determining worker classification that is much narrower than the traditional standard in defining the scope of who is classified as an independent contractor. Given AB-5's recent enactment, there has been limited guidance to date regarding interpretation or enforcement, and there is a significant degree of uncertainty regarding its application.
AB-5 codified a new test for determining worker classification that is much narrower than the traditional standard in defining the scope of who is classified as an independent contractor. There has been limited guidance to date regarding interpretation or enforcement, and there is a significant degree of uncertainty regarding its application.
If we fail to successfully implement our growth strategy, including by opening new stores on a timely basis and on budget, our financial condition and operating results may be adversely affected.
If we fail to successfully implement our growth strategy, including by opening new stores on a timely basis and on budget, our operations, financial condition and operating results would be materially and adversely affected.
Business" and elsewhere in these risk factors, these risks have and may continue to delay or preclude delivery of product to us on a timely basis or at all. We may not be able to successfully identify trends to meet consumer demand and maintain an appropriate level of opportunistic products.
Business" and elsewhere in these risk factors, these risks have in the past delayed or precluded, and may in the future delay or preclude, delivery of product to us on a timely basis or at all. We may not be able to successfully identify trends to meet consumer demand and maintain an appropriate level of opportunistic products.
The tax effected State deferred tax asset will expire beginning in 2029. Some or all of our deferred tax asset could expire unused if we are unable to generate taxable income in the future sufficient to utilize the deferred tax asset, or we enter into transactions that limit our right to use it.
Some or all of our deferred tax asset could expire unused if we are unable to generate taxable income in the future sufficient to utilize the deferred tax asset, or we enter into transactions that limit our right to use it.
The need to grow existing relationships and develop new relationships with qualified suppliers will be particularly important as we seek to expand our operations and enhance our product offerings in the future. Manufacturers and distributors of name-brand products have become increasingly consolidated.
The need to grow existing relationships and develop new relationships with qualified suppliers is particularly important as we seek to continue to expand our operations and enhance our product offerings in the future. Manufacturers and distributors of name-brand, large volume products have become increasingly consolidated.
There were $34.2 million and $37.2 million of notes to IOs outstanding as of January 1, 2022 and January 2, 2021, respectively, with allowances of $11.3 million and $7.6 million as of January 1, 2022 and January 2, 2021, respectively. If we are unable to attract and retain qualified IOs, our financial performance may be negatively affected.
There were $37.5 million and $34.2 million of notes to IOs outstanding as of December 31, 2022 and January 1, 2022, respectively, with allowances of $13.2 million and $11.3 million as of December 31, 2022 and January 1, 2022, respectively. If we are unable to attract and retain qualified IOs, our financial performance may be negatively affected.
We believe that new store growth remains our biggest driver of long-term stockholder value. We opened 36 new stores in fiscal 2021 .
We believe that new store growth remains our biggest driver of long-term stockholder value. We opened 27 new stores in fiscal 2022 .
During 2021 COVID-19-related labor shortages and supply chain disruptions caused and continue to cause logistical challenges for us and many other businesses in the retail industry, causing delay in product delivery to our distribution centers, stores and customers.
For example, during fiscal 2021 labor shortages and supply chain disruptions caused logistical challenges for us and many other businesses in the retail industry, causing delay in product delivery to our distribution centers, stores and customers.
Our future operating results may not be sufficient to enable compliance with the financial maintenance covenant in our First Lien Credit Agreement, and we may not have sufficient assets to repay amounts outstanding under our First Lien Credit Agreement.
Our future operating results may not be sufficient to enable compliance with the financial performance covenants in our Credit Agreement, and we may not have sufficient assets to repay amounts outstanding under our Credit Agreement.
Such restrictions and covenants limit our ability, among other things, to: • incur additional debt or issue certain preferred shares; • pay dividends on or make distributions in respect of our common stock or make other restricted payments; • make certain investments; • sell certain assets; • create liens on certain assets to secure debt; • consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; • make certain payments in respect of certain junior debt obligations; • enter into certain transactions with our affiliates; and • designate our subsidiaries as unrestricted subsidiaries.
Such restrictions and covenants limit our ability, among other things, to: • incur additional debt or issue certain preferred shares; • pay dividends on or make distributions in respect of our common stock or make other restricted payments; • make certain investments; • sell certain assets; • create liens on certain assets to secure debt; • consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; • make certain payments in respect of certain junior debt obligations; • enter into certain transactions with our affiliates; and • designate our subsidiaries as unrestricted subsidiaries. 31 Table of Contents A breach of any of these covenants could result in a default under our Credit Agreement.
Actions we have taken to establish and protect our intellectual property rights may not be adequate. There may in the future be opposition and cancellation proceedings from time to time with respect to some of our intellectual property rights. In some cases, litigation may be necessary to protect or enforce our trademarks and other intellectual property rights.
Actions we have taken to establish and protect our intellectual property rights may not be adequate. There may in the future be opposition and cancellation proceedings from time to time with respect to some of our intellectual property rights.
If we are unable to retain the loyalty of our customers, our sales could decrease and we may not be able to grow our store base as planned, which could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to retain the loyalty of our customers, our sales could decrease and we may not be able to grow our store base as planned, which could have a material adverse effect on our business, financial condition and results of operations. Certain of our competitors have established, long-standing, mobile apps and personalized marketing.
Our total lease payment obligations for all operating leases in existence as of January 1, 2022 was $113.2 million for fiscal year 2022 and $1.3 billion in aggregate for fiscal years 2023 through 2039, and these obligations will increase as we open new stores that are leased.
Our total lease payment obligations for all operating leases in existence as of December 31, 2022 was $117.2 million for fiscal 2023 and $1.3 billion in aggregate for fiscal years 2024 through 2041, and these obligations will increase as we open new stores that are leased.
Our future growth, performance and positive customer experience depends on our and the IOs' ability to attract, train, retain and motivate qualified employees who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and customers.
Our future growth, performance and positive customer experience depends on our and the IOs' ability to attract, train, retain and motivate qualified employees who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and customers. We and the IOs face intense competition for management personnel and hourly employees.
Certain of our competitors have established mobile apps and personalized marketing and there can be no assurance that our investment in this area will be repaid. 18 Table of Contents If we fail to maintain our reputation and the value of our brand, including protection of our intellectual property, our sales and operating results may decline and the carrying value of our goodwill and other intangible assets may be impaired.
There can be no assurance that our investment in this area will be repaid. 17 Table of Contents If we fail to maintain our reputation and the value of our brand, including protection of our intellectual property rights, our sales and operating results may decline and the carrying value of our goodwill and other intangible assets may be impaired.
We may not have the level of cash flow or financing necessary to support our growth strategy. Further, much of our new store growth is in new markets where we do not have the same brand recognition at this time. Our proposed expansion will place increased demands on our operational, managerial and administrative resources.
Further, much of our new store growth is in new markets where we do not have the same brand recognition at this time. Our proposed expansion will place increased demands on our operational, managerial and administrative resources.
The CPRA goes into effect January 1, 2023 and adds definitions for "sensitive information" as well as "contractors," and bolsters the requirements for agreements that cover the exchange of data. CPRA also establishes a California Privacy Protection Agency, which will be responsible for enforcement activities, rulemaking, and public awareness related to privacy and data protection.
The CPRA went into effect January 1, 2023 and added definitions for "sensitive information" as well as "contractors," and bolstered the requirements for agreements that cover the exchange of data. CPRA also established a California Privacy Protection Agency, which is responsible for enforcement activities, rulemaking, and public awareness related to privacy and data protection.
Any lost confidence on the part of our customers would be difficult and costly to reestablish. Issues regarding the quality or safety of any food items sold by us, regardless of the cause, could have a substantial and adverse effect on our sales and operating results. There is increasing governmental scrutiny, regulation of and public awareness of food safety.
Any lost confidence on the part of our customers would be difficult and costly to reestablish. Issues regarding the quality or safety of any food items sold by us, regardless of the cause, could have a substantial and adverse effect on our sales and operating results, as well as our reputation.
We depend on repeat visits by our customer base to drive sales, and we rely on desirable opportunistic products at discounts to excite our customers to make such repeat visits.
We depend on repeat visits by our customer base to drive sales, and we rely on desirable opportunistic products at discounts to excite our customers to make such repeat visits. Consumer preferences often change rapidly and without warning.
As of January 1, 2022, we operated 245 stores and distributed product from four distribution centers in California in addition to having our administrative offices in California, making California our largest market, representing 59% of our total stores.
As of December 31, 2022, we operated 257 stores and distributed product from four distribution centers in California in addition to having our administrative offices in California, making California our largest market, representing 58% of our total stores.
A number of factors, whether currently known or unknown, including but not limited to the factors described below, could materially adversely affect our business, business prospects, financial condition, operating results, cash flows and stock price, and may cause actual results, performance or achievements in future periods to differ materially from those assumed, projected or contemplated.
The factors described below, individually or in the aggregate, could materially adversely affect our business, business prospects, financial condition, operating results, cash flows and stock price, and may cause actual results, performance or achievements in future periods to differ materially from those assumed, projected or contemplated.
The market price of our common stock has been volatile and may continue to fluctuate substantially, due to fluctuations in our operating results or otherwise, which could result in substantial losses for purchasers of our common stock.
The market price of our common stock has been volatile and may continue to fluctuate substantially, due to fluctuations in our operating results or otherwise, which could result in substantial losses for purchasers of our common stock. Our operating results have fluctuated from quarter to quarter at points in the past and they may do so in the future.
ITEM 1A. RISK FACTORS The following risk factors may be important to understanding any statement in this Annual Report on Form 10-K or elsewhere.
ITEM 1A. RISK FACTORS The following risk factors are important to understanding various statements in this Annual Report on Form 10-K or elsewhere.
We may not be able to maintain compliance with these covenants in the future, and in the event that we are not able to maintain compliance, we cannot assure you that we will be able to obtain waivers from the lenders or amend the covenants. 33 Table of Contents Risks Related to Accounting, Tax and Financial Statement Matters Tax matters, including our ability to use our deferred tax assets or any gross receipts tax, could materially adversely affect our results of operations and financial condition.
We may not be able to maintain compliance with these covenants in the future, and in the event that we are not able to maintain compliance, we cannot assure you that we will be able to obtain waivers from the lenders or amend the covenants. 32 Table of Contents Risks Related to Accounting, Tax and Financial Statement Matters Tax matters, including changes in tax laws, our ability to use deferred tax assets, and the impact of tax audits, could have a material adverse effect on our business, financial condition and results of operations.
Unanticipated changes in any applicable actuarial assumptions and management estimates, could result in materially different expenses than expected under these programs, which could have a material adverse effect on our results of operations and financial condition. We and our IOs are experiencing and may continue to experience challenges in recruiting and retaining qualified employees.
Unanticipated changes in any applicable actuarial assumptions and management estimates, could result in materially different expenses than expected under these programs, which could have a material adverse effect on our results of operations and financial condition. If we or our IOs are unable to attract, train and retain qualified employees, our financial performance may be negatively affected.
Any material disruption to our information technology systems as a result of external factors or challenges or difficulties in maintaining or updating our existing technology, including modernizing components of our existing system architecture, or developing or implementing new technology could have a material adverse effect on our business or results of operations.
Additionally, we are exposed to vulnerabilities with respect to our IO's information technology systems. Any material challenges or difficulties in maintaining or updating our existing technology, including modernizing components of our existing system architecture, or developing or implementing new technology could have a material adverse effect on our business or results of operations.
If we decide to expand our online shopping business, we will be exposed to new risks and challenges. Furthermore, there can be no assurance that any investments that we make to test or expand our online shopping capabilities will be repaid. These factors could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, there can be no assurance that any investments that we make to expand our online shopping capabilities will result in a positive return on investment. These factors could have a material adverse effect on our business, financial condition and results of operations.
For example, there have been significant fires across the west coast of the United States from 2018 through 2021. In 2018, our store in Paradise, California, burned down entirely and we have also suffered inventory losses related to power outages and evacuations due to fires.
For example, there have been significant fires across the west coast of the United States from 2018 through 2022, causing a number of stores to be closed as well as suffer inventory losses related to power outages and evacuations. In 2018, our store in Paradise, California, burned down entirely.
Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our common stock to decline.
Your only opportunity to achieve a return on your investment is if the price of our common stock appreciates. Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our common stock to decline.
If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.
If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation. Furthermore, we currently do not expect to declare any dividends on our common stock in the foreseeable future.
If we decide to close stores, we are generally required to continue to perform obligations under the applicable leases, which generally include paying rent and operating expenses for the balance of the lease term. When we assign leases or sublease space to third parties, we can remain liable on the lease obligations if the assignee or sublessee does not perform.
If we decide to close stores, we are generally required to continue to perform obligations under the applicable leases, which generally include paying rent and operating expenses for the balance of the lease term.
Some food retailers may have greater financial or marketing resources than the IOs do and may be able to devote greater resources to sourcing, promoting and selling their products than the IOs.
Some of the other food retailers may have been in the region longer and may benefit from enhanced brand recognition in such regions. Some food retailers may have greater financial or marketing resources than the IOs do and may be able to devote greater resources to sourcing, promoting and selling their products than the IOs.
All of our inventory is acquired through purchase orders and we generally do not have long-term contractual agreements with our suppliers that obligate them to provide us with products exclusively or at specified quantities or prices, or at all. Any of our current suppliers may decide to sell products to our competitors and may not continue selling products to us.
As our store base continues to grow, our ability to secure opportunistic products in sufficient quantities may become more difficult. All of our inventory is acquired through purchase orders and we generally do not have long-term contractual agreements with our suppliers that obligate them to provide us with products exclusively or at specified quantities or prices, or at all.
If we or the IOs were to become subject to work stoppages, we could experience disruption in our operations and increases in our labor costs, either of which could materially adversely affect our business, financial condition and operating results. Our success depends in part on our executive officers and other key personnel.
We cannot predict the adverse effects that any future organizational activities will have on our business, financial condition and operating results. If we or the IOs were to become subject to work stoppages, we could experience disruption in our operations and increases in our labor costs, either of which could materially adversely affect our business, financial condition and operating results.
Recently, as a result of the COVID-19 pandemic, planned construction and opening of new stores have been, and may continue to be, negatively impacted due to labor and materials shortages as well as longer lead times in lease execution, site permitting and construction. These challenges will impact our new store growth in 2022.
Over the last two years, planned construction and opening of new stores have been, and may continue to be, negatively impacted due to labor and materials shortages as well as longer lead times in lease execution, site permitting and construction.
If our sales forecasts overestimate customer demand, we may experience higher inventory levels and need to take markdowns on excess or slow-moving inventory, 16 Table of Contents leading to decreased profit margins.
If our sales forecasts overestimate customer demand, we may experience higher inventory levels and need to take markdowns on excess or slow-moving inventory, leading to decreased profit margins. Conversely, if our sales forecasts underestimate customer demand, we may have insufficient inventory to meet demand, leading to lost sales, either of which could materially adversely affect our financial performance.
As we continue to implement our store growth strategy, effectively managing our distribution network and distribution centers will become more complex. Our new store locations receiving shipments may be further away from our distribution centers, which may increase transportation costs and may create transportation scheduling strains, or may require us to add additional facilities to the network.
Our new store locations receiving shipments may be further away from our distribution centers, which may increase transportation costs and may create transportation scheduling strains, or may require us to add additional facilities to the network. We will require significant capital to fund our expanding business, including for investing in technology upgrades.
We do not maintain a loyalty program for customers, and our competitors may be able to offer their customers promotions or loyalty program incentives that could result in fewer shopping trips to or purchases from our stores.
While we recently began piloting a mobile personalization app, which informs customers of new and top selling items, provides curated product recommendations and tracks savings, we do not maintain a traditional loyalty program for customers, and our competitors may be able to offer their customers promotions or loyalty program incentives that could result in fewer shopping trips to or purchases from our stores.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES As of January 1, 2022, we le ased 414 of our 415 stores and each of our self-operated distribution centers and warehouse facilities. The one remaining store was owned by an IO. Our stores are located in California (245), Washington (72), Oregon (59), Pennsylvania (20), Idaho (9), Nevada (9) and New Jersey (1).
Biggest changeITEM 2. PROPERTIES As of December 31, 2022, we leased 440 of our 441 stores and each of our self-operated distribution centers and warehouse facilities. The one remaining store was owned by an IO. Our stores are located in California (257), Washington (71), Oregon (60), Pennsylvania (27), Idaho (12), Nevada (9), Maryland (3) and New Jersey (2).
Our three self-operated primary distribution centers range from approximately 100,000 square feet to approximately 400,000 square feet. Including options to renew, our primary distribution centers have leases expiring between 2023 and 2035. We believe that our corporate and distribution center facilities are in good operating condition and adequate to support the current needs of our business. 38 Table of Contents
Our three self-operated primary distribution centers range from approximately 100,000 square feet to approximately 400,000 square feet. Including options to renew, our primary distribution centers have leases expiring between 2024 and 2035. We believe that our corporate and distribution center facilities are in good operating condition and adequate to support the current needs of our business. 38 Table of Contents
Our initial lease terms for store locations are typically ten years with options to renew for two or three successive five-year periods. Our corporate headquarters, located in Emeryville, California, is leased under an agreement that expires in 2023, with options to renew for two successive five-year periods.
Our initial lease terms for store locations are typically ten years with options to renew for two or three successive five-year periods. Our corporate headquarters, located in Emeryville, California, is leased under an agreement that expires in 2028, with an option to renew for a five-year period.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeManagement believes that we do not have any pending litigation that, separately or in the aggregate, would have a material adverse effect on our results of operations, financial condition or cash flows, and no material legal proceedings were terminated, settled or otherwise resolved during the fourth quarter of the fiscal year ended January 1, 2022. 39 Table of Contents ITEM 4.
Biggest changeManagement believes that we do not have any pending litigation that, separately or in the aggregate, would have a material adverse effect on our results of operations, financial condition or cash flows, and no material legal proceedings were terminated, settled or otherwise resolved during the fourth quarter of the fiscal year ended December 31, 2022. 39 Table of Contents ITEM 4.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeStock Performance Graph The following graph shows a comparison of cumulative total return (equal to stock appreciation plus dividends) during each quarterly accounting period from June 20, 2019 (the date our common stock began trading on the NASDAQ Global Select Market) through January 1, 2022 for: • Grocery Outlet Holding Corp. • Nasdaq Global Market Composite Index • Nasdaq US Benchmark General Retailers Index 41 Table of Contents 6/20/2019 12/28/2019 6/27/2020 1/2/2021 7/3/2021 1/1/2022 Grocery Outlet Holding Corp. $ 100.00 $ 117.40 $ 138.20 $ 137.67 $ 121.64 $ 99.19 Nasdaq Global Market Composite Index $ 100.00 $ 107.91 $ 118.09 $ 170.37 $ 179.77 $ 142.69 Nasdaq US Benchmark General Retailers Index $ 100.00 $ 112.61 $ 137.13 $ 167.61 $ 185.68 $ 194.45 We are required to provide a line-graph presentation comparing cumulative stockholder returns on an indexed basis with a broad equity market index and either a published industry index or an index of peer companies selected by us.
Biggest changeStock Performance Graph The following graph shows a comparison of cumulative total return (equal to stock appreciation plus dividends) from June 20, 2019 (the date our common stock began trading on the NASDAQ Global Select Market) through December 31, 2022 for: • Grocery Outlet Holding Corp. • Nasdaq Global Market Composite Index • Nasdaq US Benchmark Retailers Index 41 Table of Contents 6/20/2019 12/28/2019 6/27/2020 1/2/2021 7/3/2021 1/1/2022 7/2/2022 12/31/2022 Grocery Outlet Holding Corp. $ 100.00 $ 117.40 $ 138.20 $ 137.67 $ 121.64 $ 99.19 $ 152.58 $ 102.39 Nasdaq Global Market Composite Index $ 100.00 $ 107.91 $ 118.09 $ 170.37 $ 179.77 $ 142.69 $ 77.57 $ 67.69 Nasdaq US Benchmark Retailers Index $ 100.00 $ 112.61 $ 137.13 $ 167.61 $ 185.68 $ 194.52 $ 134.38 $ 133.28 We are required to provide a line-graph presentation comparing cumulative stockholder returns on an indexed basis with a broad equity market index and either a published industry index or an index of peer companies selected by us.
Total return includes reinvestment of dividends. • If the quarterly accounting period end date ends on a day that is not a trading day, the preceding trading day is used. • The information included under the heading "Stock Performance Graph" in Item 5 of this Annual Report on Form 10-K is "furnished" and not "filed" and shall not be deemed to be "soliciting material" or subject to Regulation 14A, shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the limitations of that section, and shall not be deemed incorporated by reference into any of our filings under the Securities Act or the Securities Exchange Act, whether made before or after the date of this report and irrespective of any general incorporation by reference language in any such filing. • The stock price performance shown in the graph is not necessarily indicative of future price performance.
Total return includes reinvestment of dividends. • If the accounting period end date ends on a day that is not a trading day, the preceding trading day is used. • The information included under the heading "Stock Performance Graph" in Item 5 of this Annual Report on Form 10-K is "furnished" and not "filed" and shall not be deemed to be "soliciting material" or subject to Regulation 14A, shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the limitations of that section, and shall not be deemed incorporated by reference into any of our filings under the Securities Act or the Securities Exchange Act, whether made before or after the date of this report and irrespective of any general incorporation by reference language in any such filing. • The stock price performance shown in the graph is not necessarily indicative of future price performance.
We have selected the Nasdaq Global Market Composite Index for the broad equity market index and the Nasdaq US Benchmark General Retailers Index as the published industry index. Notes: • Assumes initial investment of $100.00 at our closing stock price on June 20, 2019 (our initial listing date).
We have selected the Nasdaq Global Market Composite Index for the broad equity market index and the Nasdaq US Benchmark Retailers Index as the published industry index. Notes: • Assumes initial investment of $100.00 at our closing stock price on June 20, 2019 (our initial listing date).
This program, effective November 5, 2021 and without an expiration date, authorized us to repurchase up to $100.0 million of our outstanding common stock utilizing a variety of methods including open market purchases, accelerated share repurchase programs, privately negotiated transactions, structured repurchase transactions and under a Rule 10b5-1 plan (which would permit shares to be 42 Table of Contents repurchased when the Company might otherwise be precluded from doing so under securities laws).
This program, effective November 5, 2021 and without an expiration date, authorized us to repurchase up to $100.0 million of our outstanding common stock utilizing a variety of methods including open market purchases, accelerated share repurchase programs, privately negotiated transactions, structured repurchase transactions and under a Rule 10b5-1 plan (which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under securities laws).
As of February 24, 2022, there were 16 stockholders of record of our common stock. A substantially greater number of stockholders are "street name" or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions. Dividend Policy We currently do not expect to declare any dividends on our common stock in the foreseeable future.
As of February 23, 2023, there were 11 stockholders of record of our common stock. A substantially greater number of stockholders are "street name" or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions. Dividend Policy We currently do not expect to declare any dividends on our common stock in the foreseeable future.
Unregistered Sales of Equity Securities None. Issuer Purchases of Equity Securities In November 2021, our Board of Directors approved a share repurchase program.
Unregistered Sales of Equity Securities None. Issuer Purchases of Equity Securities 42 Table of Contents In November 2021, our Board of Directors approved a share repurchase program.
In addition, because we are a holding company, our ability to pay dividends on our common stock may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries, including restrictions under our First Lien Credit Agreement, and may be further restricted by the terms of any future debt or preferred securities.
In addition, because we are a holding company, our ability to pay dividends on our common stock may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries.
During the quarter ended January 1, 2022, we did not repurchase any of our equity securities. As of January 1, 2022, we had $100.0 million of repurchase authority remaining under the share repurchase program.
During the quarter ended December 31, 2022, we did not repurchase any shares of common stock. As of December 31, 2022, we had $96.6 million of repurchase authority remaining under the share repurchase program. ITEM 6. [RESERVED] 43 Table of Contents
Removed
See NOTE 6— Long-term Debt to our Consolidated Financial Statements for additional information about our First Lien Credit Agreement.
Added
Further, our ability to pay dividends on our common stock is subject to restrictions under our Credit Agreement, and may be further restricted by the terms of any future debt or preferred securities. See NOTE 14— Subsequent Event to our Consolidated Financial Statements for additional information about our Credit Agreement.
Removed
Subsequent to year end through February 24, 2022, we repurchased 139,718 shares of common stock totaling $3.5 million, including commissions, at an average price of $24.70 per share. ITEM 6. [RESERVED] 43 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

72 edited+29 added−40 removed36 unchanged
Biggest changeGAAP to Non-GAAP Reconciliations The following tables provide a reconciliation from our GAAP net income to EBITDA and adjusted EBITDA, GAAP net income to adjusted net income, and our GAAP earnings per share to adjusted earnings per share for the periods presented (amounts in thousands, except per share data): Fiscal Year Ended January 1, 2022 January 2, 2021 December 28, 2019 Net income $ 62,310 $ 106,713 $ 15,419 Interest expense, net 15,564 20,043 45,927 Income tax expense (benefit) 15,191 (19,579) 1,363 Depreciation and amortization expenses (1) 71,124 58,051 50,143 EBITDA 164,189 165,228 112,852 Share-based compensation expenses (2) 17,615 38,084 31,439 Non-cash rent (3) 10,753 10,673 10,582 Asset impairment and gain or loss on disposition (4) 1,241 1,727 1,957 Provision for (write-off of) accounts receivable reserves (5) 4,813 (456) 2,575 Other (6) (153) 7,666 8,928 Adjusted EBITDA $ 198,458 $ 222,922 $ 168,333 50 Table of Contents Fiscal Year Ended January 1, 2022 January 2, 2021 December 28, 2019 Net income $ 62,310 $ 106,713 $ 15,419 Share-based compensation expenses (2) 17,615 38,084 31,439 Non-cash rent (3) 10,753 10,673 10,582 Asset impairment and gain or loss on disposition (4) 1,241 1,727 1,957 Provision for (write-off of) accounts receivable reserves (5) 4,813 (456) 2,575 Other (6) (153) 7,666 8,928 Amortization of purchase accounting assets and deferred financing costs (7) 11,821 11,808 11,917 Tax adjustment to normalize effective tax rate (8) (5,928) (44,089) (3,587) Tax effect of total adjustments (9) (12,559) (19,461) (18,939) Adjusted net income $ 89,913 $ 112,665 $ 60,291 GAAP earnings per share Basic $ 0.65 $ 1.16 $ 0.20 Diluted $ 0.63 $ 1.08 $ 0.19 Adjusted earnings per share Basic $ 0.94 $ 1.23 $ 0.76 Diluted $ 0.90 $ 1.14 $ 0.74 Weighted average shares outstanding Basic 95,725 91,818 79,044 Diluted 99,418 98,452 81,863 ___________________________ (1) Includes depreciation related to our distribution centers which is included within the cost of sales line item in our consolidated statements of operations and comprehensive income.
Biggest changeGAAP to Non-GAAP Reconciliations The following tables provide a reconciliation from our GAAP net income to EBITDA and adjusted EBITDA, GAAP net income to adjusted net income, and our GAAP earnings per share to adjusted earnings per share for the periods presented (amounts in thousands, except per share data): Fiscal Year Ended December 31, 2022 January 1, 2022 January 2, 2021 Net income $ 65,052 $ 62,310 $ 106,713 Interest expense, net 17,967 15,564 20,043 Income tax expense (benefit) 10,697 15,191 (19,579) Depreciation and amortization expenses (1) 78,251 71,124 58,051 EBITDA 171,967 164,189 165,228 Share-based compensation expenses (2) 32,556 17,615 38,084 Asset impairment and gain or loss on disposition (3) 1,176 1,241 1,727 Other (4) 8,983 (153) 7,666 Adjusted EBITDA, revised definition $ 214,682 $ 182,892 $ 212,705 Revised definition no longer adjusts for: Non-cash rent (5) 6,932 10,753 10,673 Provision for (write-off of) accounts receivable reserves (6) 4,318 4,813 (456) Adjusted EBITDA, previous definition $ 225,932 $ 198,458 $ 222,922 49 Table of Contents Fiscal Year Ended December 31, 2022 January 1, 2022 January 2, 2021 Net income $ 65,052 $ 62,310 $ 106,713 Share-based compensation expenses (2) 32,556 17,615 38,084 Asset impairment and gain or loss on disposition (3) 1,176 1,241 1,727 Other (4) 8,983 (153) 7,666 Amortization of purchase accounting assets and deferred financing costs (7) 10,877 11,821 11,808 Tax adjustment to normalize effective tax rate (8) (10,084) (5,928) (44,089) Tax effect of total adjustments (9) (14,702) (8,318) (16,600) Adjusted net income, revised definition $ 93,858 $ 78,588 $ 105,309 GAAP earnings per share Basic $ 0.67 $ 0.65 $ 1.16 Diluted $ 0.65 $ 0.63 $ 1.08 Adjusted earnings per share, revised definition Basic $ 0.97 $ 0.82 $ 1.15 Diluted $ 0.94 $ 0.79 $ 1.07 Revised definition no longer adjusts for: Non-cash rent (5) 6,932 10,753 10,673 Provision for (write-off of) accounts receivable reserves (6) 4,318 4,813 (456) Change in tax effect of total adjustments (9) (3,087) (4,241) (2,861) Adjusted net income, previous definition $ 102,021 $ 89,913 $ 112,665 Adjusted earnings per share, previous definition Basic $ 1.05 $ 0.94 $ 1.23 Diluted $ 1.02 $ 0.90 $ 1.14 Weighted average shares outstanding Basic 96,812 95,725 91,818 Diluted 100,162 99,418 98,452 ___________________________ (1) Includes depreciation related to our distribution centers, which is included within the cost of sales line item in our consolidated statements of operations and comprehensive income.
Key Components of Results of Operations Net Sales We recognize revenues from the sale of products at the point of sale, net of any taxes or deposits collected and remitted to governmental authorities. Discounts provided to customers by us are recognized at the time of sale as a reduction in sales as the products are sold.
Key Components of Results of Operations Net Sales We recognize revenues from the sale of products at the point of sale, net of any taxes or deposits collected and remitted to governmental authorities. Discounts provided to customers by us are recognized at the time of sale as a reduction in net sales as the products are sold.
The estimated fair value of the asset or asset group is based on the estimated discounted future cash flows of the asset or asset group using a discount rate commensurate with the related risk. There were no adjustments to the carrying value of long-lived assets due to impairment charges during fiscal 2021 and 2020.
The estimated fair value of the asset or asset group is based on the estimated discounted future cash flows of the asset or asset group using a discount rate commensurate with the related risk. There were no adjustments to the carrying value of long-lived assets due to impairment charges during fiscal 2022, 2021 and 2020.
Cost of Sales, Gross Profit and Gross Margin Cost of sales includes, among other things, merchandise costs, inventory markdowns, inventory losses and transportation, distribution and warehousing costs, including depreciation. Gross profit is equal to our sales less our cost of sales. Gross margin is gross profit as a percentage of our sales.
Cost of Sales, Gross Profit and Gross Margin Cost of sales includes, among other things, merchandise costs, inventory markdowns, inventory losses, transportation costs and distribution and warehousing costs, including depreciation. Gross profit is equal to our net sales less our cost of sales. Gross margin is gross profit as a percentage of our net sales.
Gross margin is also impacted by the costs of distributing and transporting product to our stores, which can vary. Our gross profit is variable in nature and generally follows changes in sales.
Gross margin is also impacted by the costs of distributing and transporting product to our stores, which can vary. Our gross profit is variable in nature and generally follows changes in net sales.
Our customers' discretionary income is primarily impacted by wages, fuel and other cost-of-living increases including food-at-home inflation, as well as consumer trends and preferences, which fluctuate depending on the environment. Because we offer a broad selection of merchandise at extreme values, historically our business has benefited from periods of economic uncertainty.
Our customers' discretionary income is significantly impacted by wages, fuel and other cost-of-living increases including food-at-home inflation, as well as consumer trends and preferences, which fluctuate depending on the environment. Because we offer a broad selection of merchandise at extreme values, historically our business has benefited from periods of economic uncertainty.
(8) Represents adjustments to normalize the effective tax rate for the impact of unusual or infrequent tax items that we do not consider in our evaluation of ongoing performance, including excess tax benefits related to stock option exercises and vesting of RSUs that are recorded in earnings as discrete items in the reporting period in which they occur.
(8) Represents adjustments to normalize the effective tax rate for the impact of unusual or infrequent tax items that we do not consider in our evaluation of ongoing performance, including excess tax benefits related to stock option exercises and vesting of restricted stock units ("RSUs") that are recorded in earnings as discrete items in the reporting period in which they occur.
(3) Consists of the non-cash portion of rent expense, which represents the difference between our straight-line rent expense recognized under GAAP and cash rent payments. The adjustment can vary depending on the average age of our lease portfolio, which has been impacted by our significant store growth in recent years.
(5) Consists of the non-cash portion of rent expense, which represents the difference between our straight-line rent expense recognized under GAAP and cash rent payments. The adjustment can vary depending on the average age of our lease portfolio, which has been impacted by our significant store growth in recent years.
For purposes of this evaluation, long-lived assets are grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. Our retail stores are evaluated for impairment at the store level.
For purposes of this evaluation, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. Our retail stores are evaluated for impairment at the store level.
When applicable, as was the case with fiscal 2020, we exclude the net sales in the non-comparable week of a 53-week year from the same store sales calculation after comparing the current and prior year weekly periods that are most closely aligned.
When applicable, as was the case with fiscal 2020 and will be the case with fiscal 2025, we exclude the net sales in the non-comparable week of a 53-week year from the same store sales calculation after comparing the current and prior year weekly periods that are most closely aligned.
These estimates are subjective and our ability to realize future cash flows is affected by factors such as ongoing maintenance and improvement of the assets, changes in economic conditions and changes in operating performance. We have not made any material changes in the accounting methodology used to evaluate the impairment of long-lived assets during the last three fiscal years.
These estimates are subjective and our ability to realize future cash flows is affected by factors such as ongoing maintenance and improvement of the assets, changes in economic conditions and changes in operating performance. We have not made any material changes in the accounting methodology used to evaluate the impairment of long-lived assets during fiscal 2022.
See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information. 53 Table of Contents Gain on Insurance Recoveries Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change Gain on insurance recoveries $ (3,970) $ — $ (3,970) N/A % of net sales (0.1) % — % During fiscal 2021, we recorded a $4.0 million gain on insurance due to proceeds received related to the loss of our Paradise, California store due to a wildfire in 2018.
See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information. 53 Table of Contents Gain on Insurance Recoveries Fiscal Year Ended December 31, 2022 January 1, 2022 $ Change % Change Gain on insurance recoveries $ — $ (3,970) $ 3,970 (100.0) % % of net sales — % (0.1) % During fiscal 2021, we recorded a $4.0 million gain on insurance due to proceeds received related to the loss of our Paradise, California store due to a wildfire in 2018.
We operate on a fiscal year that ends on the Saturday closest to December 31st each year. References to fiscal 2021, fiscal 2020, and fiscal 2019 refer to the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019, respectively.
We operate on a fiscal year that ends on the Saturday closest to December 31st each year. References to fiscal 2022, fiscal 2021, and fiscal 2020 refer to the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, respectively.
Key Factors and Measures We Use to Evaluate Our Business We consider a variety of financial and operating measures in assessing the performance of our business. The key generally accepted accounting principles ("GAAP") financial measures we use are net sales, gross profit and gross margin, selling, general and administrative expenses ("SG&A") and operating income.
Key Factors and Measures We Use to Evaluate Our Business We consider a variety of financial and operating measures in assessing the performance of our business. The key generally accepted accounting principles ("GAAP") financial measures we use are net sales, gross profit and gross margin, SG&A and operating income.
Debt Obligations and Interest Payments See NOTE 6—Long-term Debt to our Consolidated Financial Statements for further detail of our First Lien Credit Agreement, which consists of a $460.0 million senior term loan and a revolving credit facility for an amount up to $100.0 million, and the timing of principal maturities.
Debt Obligations and Interest Payments See NOTE 6—Long-term Debt to our Consolidated Financial Statements for further detail of our Prior First Lien Credit Agreement, which consisted of a $385.0 million senior term loan and a revolving credit facility for an amount up to $100.0 million, and the timing of principal maturities.
New stores require an initial capital investment in the store build-outs, fixtures and equipment which we amortize over time as well as cash required for inventory and pre-opening expenses. We expect new store growth to be the primary driver of our sales growth over the long term. We lease substantially all of our store locations.
New stores require an initial capital investment from us for store build-outs, fixtures and equipment that we amortize over time as well as cash required for inventory and pre-opening expenses. We expect new store growth to be the primary driver of our net sales growth over the long term. We lease substantially all of our store locations.
Opening new stores is a primary component of our growth strategy and, as we continue to execute on our growth strategy, we expect a significant portion of our sales growth will be attributable to non-comparable store sales. Accordingly, comparable store sales is only one measure we use to assess the success of our growth strategy.
Opening new stores is a primary component of our growth strategy and, as we continue to execute on our growth strategy, we expect that a significant portion of our net sales growth will be attributable to non-comparable store net sales. Accordingly, comparable store sales is only one of many measures we use to assess the success of our growth strategy.
While our disciplined buying approach has produced consistent gross margins throughout economic cycles which we believe has helped to mitigate adverse impacts on gross profit and results of operations, changes in consumer demand like we experienced and continue to experience as a result of the COVID-19 pandemic, including inflationary cost increases for goods, labor and transportation, supply chain constraints and changes in discretionary income, have resulted and could continue to result in unexpected changes to our gross margins.
While our disciplined buying approach has produced consistent gross margins throughout economic cycles, which we believe has helped to mitigate adverse impacts on gross profit and results of operations, changes in consumer demand like we experienced and continue to experience as a result of the current macroeconomic conditions, including inflationary cost increases for goods, labor and transportation, supply chain constraints and changes in discretionary income, have resulted and could continue to result in 45 Table of Contents unexpected changes to our gross margins.
We did not borrow under this revolving credit facility during fiscal 2021 and had no borrowings outstanding thereunder as of January 1, 2022. As of January 1, 2022, we had $3.5 million of outstanding standby letters of credit and $96.5 million of remaining borrowing capacity available under this revolving credit facility.
As of December 31, 2022, we had $3.5 million of outstanding standby letters of credit and $96.5 million of remaining borrowing capacity available under this revolving credit facility. We did not borrow under this revolving credit facility during fiscal 2022 and had no borrowings outstanding thereunder as of December 31, 2022.
Additionally, borrowing availability under the revolving credit facility under our First Lien Credit Agreement is subject to a first lien secured leverage ratio of 7.00 to 1.00 (as defined in the First Lien Credit Agreement), tested quarterly if, and only if, the aggregate principal amount outstanding and/or issued, as applicable, from the revolving facility, letters of credit (to the extent not cash collateralized or backstopped or, in the aggregate, not in excess of the greater of $10.0 million and the stated face amount of letters of credit outstanding on the closing date) and swingline loans exceeds 35% of the total amount of the revolving credit facility commitments.
Additionally, borrowing under the revolving credit facility under our Prior First Lien Credit Agreement was subject to compliance with a first lien secured leverage ratio of 7.00 to 1.00 (as specified in the Prior First Lien Credit Agreement), tested quarterly if, and only if, the aggregate principal amount outstanding and/or issued, as applicable, from the revolving facility, letters of credit (to the extent not cash collateralized or backstopped or, in the aggregate, not in excess of the greater of $10.0 million and the stated face amount of letters of credit outstanding on the closing date) and swingline loans exceeded 35% of the total amount of the revolving credit facility commitments.
(7) Represents the amortization of debt issuance costs and incremental amortization of an asset step-up resulting from purchase price accounting related to our acquisition in 2014 by an investment fund affiliated with Hellman & Friedman LLC, which included trademarks, customer lists, and below-market leases.
(6) Represents non-cash changes in reserves related to our IO notes and accounts receivable. (7) Represents the amortization of debt issuance costs and incremental amortization of an asset step-up resulting from purchase price accounting related to our acquisition in 2014 by an investment fund affiliated with Hellman & Friedman LLC, which included trademarks, customer lists, and below-market leases.
A long-lived asset or asset group may be impaired if its carrying value exceeds its estimated undiscounted future cash flows over its remaining useful life. The total amount of property and equipment, including store assets, and operating lease right-of-use assets as of January 1, 2022 were $499.4 million and $898.2 million, respectively.
A long-lived asset or asset group may be impaired if its carrying value exceeds its estimated undiscounted future cash flows over its remaining useful life. The total amount of property and equipment, including store assets, and operating lease right-of-use assets as of December 31, 2022 were $560.7 million and $902.2 million, respectively.
For fiscal 2020, which is a 53-week year, we excluded the sales in the non-comparable week from the comparable store sales calculation after comparing the current and prior year weekly periods that are most closely aligned.
For fiscal 2020, which is a 53-week year, we excluded the sales in the non-comparable week from the comparable store sales calculation after comparing the current and prior year weekly periods that are most closely aligned. (2) See "—GAAP to Non-GAAP Reconciliations" section below for the applicable reconciliations.
As of January 1, 2022, we were in compliance with all applicable financial covenant requirements for our First Lien Credit Agreement.
As of December 31, 2022, we were in compliance with all applicable financial covenant requirements for our Prior First Lien Credit Agreement.
Cash Used in Investing Activities Net cash used in investing activities for fiscal 2021, fiscal 2020, and fiscal 2019 was primarily for capital expenditures and loans to IOs. Net cash used in investing activities was $136.7 million for fiscal 2021 compared to $133.8 million for fiscal 2020.
Cash Used in Investing Activities Net cash used in investing activities for fiscal 2022, fiscal 2021, and fiscal 2020 was primarily for capital expenditures and loans to IOs. Net cash used in investing activities was $149.9 million for fiscal 2022 compared to $136.7 million for fiscal 2021.
Adjusted EBITDA represents EBITDA adjusted to exclude share-based compensation expense, non-cash rent, asset impairment and gain or loss on disposition, provision for (write-off of) accounts receivable reserves and certain other expenses that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude.
Adjusted EBITDA represents EBITDA adjusted to exclude share-based compensation expense, asset impairment and gain or loss on disposition and certain other expenses that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude.
We use operating income as an indicator of the productivity of our business and our ability to manage expenses. 47 Table of Contents Results of Operations The following tables summarize key components of our results of operations both in dollars and as a percentage of net sales (amounts in thousands, except for percentages): Fiscal Year Ended January 1, 2022 January 2, 2021 December 28, 2019 Net sales $ 3,079,582 $ 3,134,640 $ 2,559,617 Cost of sales 2,130,796 2,161,293 1,772,515 Gross profit 948,786 973,347 787,102 Operating expenses: Selling, general and administrative 773,718 772,409 639,437 Depreciation and amortization 68,358 55,479 47,883 Share-based compensation 17,615 38,084 31,439 Total operating expenses 859,691 865,972 718,759 Income from operations 89,095 107,375 68,343 Other expenses (income): Interest expense, net 15,564 20,043 45,927 Gain on insurance recoveries (3,970) — — Debt extinguishment and modification costs — 198 5,634 Total other expenses (income) 11,594 20,241 51,561 Income before income taxes 77,501 87,134 16,782 Income tax expense (benefit) 15,191 (19,579) 1,363 Net income and comprehensive income $ 62,310 $ 106,713 $ 15,419 Fiscal Year Ended January 1, 2022 January 2, 2021 December 28, 2019 Percentage of net sales (1) Net sales 100.0 % 100.0 % 100.0 % Cost of sales 69.2 % 68.9 % 69.2 % Gross profit 30.8 % 31.1 % 30.8 % Operating expenses: Selling, general and administrative 25.1 % 24.6 % 25.0 % Depreciation and amortization 2.2 % 1.8 % 1.9 % Share-based compensation 0.6 % 1.2 % 1.2 % Total operating expenses 27.9 % 27.6 % 28.1 % Income from operations 2.9 % 3.4 % 2.7 % Other expense (income): Interest expense, net 0.5 % 0.6 % 1.8 % Gain on insurance recoveries (0.1) % — % — % Debt extinguishment and modification costs — % — % 0.2 % Total other expense (income) 0.4 % 0.6 % 2.0 % Income before income taxes 2.5 % 2.8 % 0.7 % Income tax expense (benefit) 0.5 % (0.6) % 0.1 % Net income and comprehensive income 2.0 % 3.4 % 0.6 % _______________________ (1) Components may not sum to totals due to rounding. 48 Table of Contents Operating Metrics and Non-GAAP Financial Measures Number of New Stores The number of new stores reflects the number of stores opened during a particular reporting period.
We use operating income as an indicator of the productivity of our business and our ability to manage expenses. 46 Table of Contents Results of Operations The following tables summarize key components of our results of operations both in dollars and as a percentage of net sales (amounts in thousands, except for percentages): Fiscal Year Ended December 31, 2022 January 1, 2022 January 2, 2021 Net sales $ 3,578,101 $ 3,079,582 $ 3,134,640 Cost of sales 2,486,002 2,130,796 2,161,293 Gross profit 1,092,099 948,786 973,347 Operating expenses: Selling, general and administrative 889,347 773,718 772,409 Depreciation and amortization 75,206 68,358 55,479 Share-based compensation 32,556 17,615 38,084 Total operating expenses 997,109 859,691 865,972 Income from operations 94,990 89,095 107,375 Other expenses (income): Interest expense, net 17,967 15,564 20,043 Gain on insurance recoveries — (3,970) — Loss on debt extinguishment and modification 1,274 — 198 Total other expenses (income) 19,241 11,594 20,241 Income before income taxes 75,749 77,501 87,134 Income tax expense (benefit) 10,697 15,191 (19,579) Net income and comprehensive income $ 65,052 $ 62,310 $ 106,713 Fiscal Year Ended December 31, 2022 January 1, 2022 January 2, 2021 Percentage of net sales (1) Net sales 100.0 % 100.0 % 100.0 % Cost of sales 69.5 % 69.2 % 68.9 % Gross profit 30.5 % 30.8 % 31.1 % Operating expenses: Selling, general and administrative 24.9 % 25.1 % 24.6 % Depreciation and amortization 2.1 % 2.2 % 1.8 % Share-based compensation 0.9 % 0.6 % 1.2 % Total operating expenses 27.9 % 27.9 % 27.6 % Income from operations 2.7 % 2.9 % 3.4 % Other expenses (income): Interest expense, net 0.5 % 0.5 % 0.6 % Gain on insurance recoveries — % (0.1) % — % Loss on debt extinguishment and modification — % — % — % Total other expenses (income) 0.5 % 0.4 % 0.6 % Income before income taxes 2.1 % 2.5 % 2.8 % Income tax expense (benefit) 0.3 % 0.5 % (0.6) % Net income and comprehensive income 1.8 % 2.0 % 3.4 % _______________________ (1) Components may not sum to totals due to rounding. 47 Table of Contents Operating Metrics and Non-GAAP Financial Measures Number of New Stores The number of new stores reflects the number of stores opened during a particular reporting period.
(6) Represents other non-recurring, non-cash or non-operational items, such as gain on insurance recoveries, technology upgrade implementation costs, personnel-related costs, costs related to employer payroll taxes associated with equity awards, legal settlements and other legal expenses, store closing costs, strategic project costs, secondary equity offering transaction costs, debt extinguishment and modification costs, and miscellaneous costs.
(4) Represents other non-recurring, non-cash or non-operational items, such as store closing costs, technology upgrade implementation costs, legal settlements and other legal expenses, loss on debt extinguishment, costs related to employer payroll 50 Table of Contents taxes associated with equity awards, certain personnel-related costs, strategic project costs, gain on insurance recoveries, and miscellaneous costs.
Our purchase commitments consist of non-cancelable obligations under service and supply contracts. As of January 1, 2022, we had total purchase obligations of $11.8 million, with $10.1 million payable during fiscal year 2022. Share Repurchases and Dividends We may repurchase our common stock pursuant to programs approved by our Board of Directors.
Our purchase commitments consist of non-cancelable obligations under service and supply contracts. As of December 31, 2022, we had total purchase obligations of $2.5 million, with $0.6 million payable during fiscal 2023. Share Repurchases and Dividends We may repurchase our common stock pursuant to programs approved by our Board of Directors.
SG&A generally increases as we grow our store base and invest in our corporate infrastructure. SG&A expenses related to commissions paid to IOs are variable in nature and generally increase as gross profits rise and decrease as gross profits decline. The remainder of our expenses are primarily fixed in nature.
We continue to closely manage our expenses and monitor SG&A as a percentage of net sales. SG&A generally increases as we grow our store base and invest in our corporate infrastructure. SG&A related to commissions paid to IOs are variable in nature and generally increase as gross profits rise and decrease as gross profits decline.
As of January 1, 2022, total lease assets and lease liabilities were $905.0 million and $1.0 billion, respectively, and we had executed leases for 25 store locations that we had not yet taken possession of with total undiscounted future lease payments of $141.9 million and lease terms through 2039.
As of December 31, 2022, total lease assets and lease liabilities were $907.9 million and $1.0 billion, respectively, and we had executed leases for 43 store locations that we had not yet taken possession of with total undiscounted future lease payments of $224.7 million and lease terms through 2041.
(2) Includes non-cash share-based compensation expense and $0.2 million, $0.4 million, and $3.6 million of cash dividends paid in fiscal 2021, 2020, and 2019 respectively, on vested share-based awards as a result of dividends declared in connection with recapitalizations that occurred in fiscal 2018 and 2016.
(2) Includes non-cash share-based compensation expense and $0.1 million, $0.2 million, and $0.4 million of cash dividends paid in fiscal 2022, 2021, and 2020 respectively, on vested share-based awards as a result of dividends declared in connection with recapitalizations that occurred in fiscal 2018 and 2016. (3) Represents asset impairment charges and gains or losses on dispositions of assets.
Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Issuer Purchases of Equity Securities" for discussion about our Board-authorized share repurchase program. 56 Table of Contents As of January 1, 2022, we expect to pay an additional $0.2 million related to dividends declared in our recapitalization in 2018 for stock options that will vest during fiscal 2022 and beyond, of which $0.1 million is expected to be paid in fiscal 2022.
Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Issuer Purchases of Equity Securities" for discussion about our Board-authorized share repurchase program. 57 Table of Contents As of December 31, 2022, we expect to pay less than $0.1 million related to dividends declared in our recapitalization in 2018 for stock options that will vest during fiscal 2023.
Cash Flows The following table summarizes our cash flows for the periods presented (amounts in thousands): Fiscal Year Ended January 1, 2022 January 2, 2021 December 28, 2019 Net cash provided by operating activities $ 165,587 $ 181,237 $ 132,835 Net cash used in investing activities (136,713) (133,786) (108,019) Net cash provided by (used in) financing activities 5,885 29,774 (17,778) Net increase in cash and cash equivalents $ 34,759 $ 77,225 $ 7,038 Cash Provided by Operating Activities Net cash provided by operating activities was $165.6 million for fiscal 2021 compared to $181.2 million for fiscal 2020.
Cash Flows The following table summarizes our cash flows for the periods presented (amounts in thousands): Fiscal Year Ended December 31, 2022 January 1, 2022 January 2, 2021 Net cash provided by operating activities $ 185,511 $ 165,587 $ 181,237 Net cash used in investing activities (149,931) (136,713) (133,786) Net cash provided by (used in) financing activities (72,937) 5,885 29,774 Net increase (decrease) in cash and cash equivalents $ (37,357) $ 34,759 $ 77,225 Cash Provided by Operating Activities Net cash provided by operating activities was $185.5 million for fiscal 2022 compared to $165.6 million for fiscal 2021.
Discounts that are funded solely by IOs are not recognized as a reduction in sales as the IO bears the incidental costs arising from the discount. We do not accept manufacturer coupons.
Discounts that are funded solely by IOs are not recognized as a reduction in net sales as the IO bears the incidental costs arising from the discount. We do not accept manufacturer coupons. Net sales consist of net sales from comparable stores, described below under "Comparable Store Sales," and non-comparable stores.
As of January 1, 2022, we had $100.0 million of repurchase authority remaining under the current share repurchase program. See "Item 5.
As of December 31, 2022, we had $96.6 million of repurchase authority remaining under the current share repurchase program. See "Item 5.
We expect capital expenditures of approximately $115.0 million, net of tenant improvement allowances, in fiscal year 2022, primarily related to new store openings and ongoing store maintenance and improvements.
As compared to capital expenditures of $129.2 million, net of tenant improvement allowances, in fiscal 2022, we expect to incur capital expenditures of approximately $155.0 million, net of tenant improvement allowances, in fiscal 2023, primarily related to new store openings, ongoing store maintenance and improvements and systems and infrastructure investments.
Sales are impacted by the spending habits of our customers, product mix and availability, as well as promotional and competitive activities. Our ever-changing selection of offerings across diverse product categories supports growth in sales by attracting new customers and encouraging repeat visits from our existing customers.
Our ever-changing selection of offerings across diverse product categories supports growth in net sales by attracting new customers and encouraging repeat visits from our existing customers. The spending habits of our customers are affected by changes in macroeconomic conditions and discretionary income.
We calculate the tax effect of the total adjustments on a discrete basis excluding any non-recurring and unusual tax items. 51 Table of Contents Comparison of fiscal 2021 (52 weeks) to fiscal 2020 (53 weeks) (amounts in thousands, except percentages) Net Sales Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change Net sales $ 3,079,582 $ 3,134,640 $ (55,058) (1.8) % The decrease in net sales for fiscal 2021 compared to fiscal 2020 was primarily attributable to a decrease in comparable stores sales as well as the impact of the 53rd week of fiscal 2020 which included $53.3 million of net sales, partially offset by non-comparable store sales growth attributable to the net 35 new stores opened during fiscal 2021.
We calculate the tax effect of the total adjustments on a discrete basis excluding any non-recurring and unusual tax items. 51 Table of Contents Comparison of fiscal 2022 to fiscal 2021 (amounts in thousands, except percentages) Net Sales Fiscal Year Ended December 31, 2022 January 1, 2022 $ Change % Change Net sales $ 3,578,101 $ 3,079,582 $ 498,519 16.2 % The increase in net sales for fiscal 2022 compared to fiscal 2021 was primarily attributable to an increase in comparable store sales as well as non-comparable store net sales growth primarily from the 26 net new stores opened during fiscal 2022.
We continue to closely manage our expenses and monitor SG&A as a percentage of sales. The components of our SG&A may not be comparable to the components of similar measures of our competitors and other retailers. We expect that our SG&A will continue to increase in future periods as we continue to grow our sales revenue and gross profits.
We expect that our SG&A will continue to increase in future periods as we continue to grow our net sales and gross profits. The components of our SG&A may not be comparable to the components of similar measures of our competitors and other retailers. Operating Income Operating income is gross profit less SG&A, depreciation and amortization and share-based compensation.
We recorded impairment charges of $0.5 million during fiscal 2019. Recent Accounting Pronouncements Refer to NOTE 1—Organization and Summary of Significant Accounting Policies to our Consolidated Financial Statements. 59 Table of Contents
Recent Accounting Pronouncements Refer to NOTE 1—Organization and Summary of Significant Accounting Policies to our Consolidated Financial Statements. 60 Table of Contents
The net cash used in financing activities of $17.8 million for fiscal 2019 was primarily due to $414.8 million of principal payments on debt and $7.2 million of offering cost payments related to our IPO, partially offset by proceeds of $407.7 million from the IPO, net of $27.1 million of underwriting discounts and commissions paid. 58 Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with GAAP.
Net cash provided by financing activities of $5.9 million for fiscal 2021 was primarily due to $7.2 million in proceeds from the exercise of stock options, partially offset by $1.2 million in principal payments on finance leases. 59 Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with GAAP.
We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to calculate impairments of long-lived assets. However, if actual results are not consistent with our estimates and assumptions used to calculate estimated future cash flows, we may be exposed to impairment losses that could be material.
If actual results are not consistent with our estimates and assumptions used to calculate estimated future cash flows, we may be exposed to impairment losses that could be material.
Selling, General and Administrative Expenses SG&A expenses are comprised of both store-related expenses and corporate expenses. Our IO store-related expenses include commissions paid to IOs, occupancy and our portion of maintenance costs and the cost of opening new IO stores. Company-operated store-related expenses include payroll, benefits, supplies and utilities.
Our store-related expenses include commissions paid to IOs, occupancy and our portion of maintenance costs and the cost of opening new IO stores. Company-operated store-related expenses also include payroll, benefits, supplies and utilities. Corporate expenses include payroll and benefits for corporate and field support, marketing and advertising, insurance and professional services and operator recruiting and training costs.
Our presentation of EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share should not be construed as an inference that our future results will be unaffected by the adjustments we have used to derive our non-GAAP measures. 49 Table of Contents The following table summarizes key operating metrics and non-GAAP financial measures for the periods presented (amounts in thousands, except for percentages and store counts): Fiscal Year Ended January 1, 2022 January 2, 2021 December 28, 2019 Other Financial and Operations Data Number of new stores 36 35 34 Number of stores open at end of period 415 380 347 Comparable store sales increase (decrease) (1) (6.0) % 12.7 % 5.2 % EBITDA (2) $ 164,189 $ 165,228 $ 112,852 Adjusted EBITDA (2) $ 198,458 $ 222,922 $ 168,333 Adjusted net income (2) $ 89,913 $ 112,665 $ 60,291 _______________________ (1) Comparable store sales consist of net sales from our stores beginning on the first day of the fourteenth full fiscal month following the store's opening, which is when we believe comparability is achieved.
The following table summarizes key operating metrics and non-GAAP financial measures for the periods presented (amounts in thousands, except for percentages and store counts): Fiscal Year Ended December 31, 2022 January 1, 2022 January 2, 2021 Other Financial and Operations Data Number of new stores 27 36 35 Number of stores open at end of period 441 415 380 Comparable store sales increase (decrease) (1) 11.8 % (6.0) % 12.7 % EBITDA (2) $ 171,967 $ 164,189 $ 165,228 Adjusted EBITDA (2) $ 214,682 $ 182,892 $ 212,705 Adjusted net income (2) $ 93,858 $ 78,588 $ 105,309 _______________________ (1) Comparable store sales consist of net sales from our stores beginning on the first day of the fourteenth full fiscal month following the store's opening, which is when we believe comparability is achieved.
Operating Income Operating income is gross profit less SG&A, depreciation and amortization and share-based compensation. Operating income excludes interest expense, net, gain on insurance recoveries, debt extinguishment and modification costs and income tax expense (benefit).
Operating income excludes interest expense, net, gain on insurance recoveries, loss on debt extinguishment and modification and income tax expense (benefit).
As a percentage of net sales, SG&A increased slightly for fiscal 2021 compared to fiscal 2020 due to lower expense leverage as a result of reduced net sales. 52 Table of Contents Depreciation and Amortization Expense Fiscal Year End January 1, 2022 January 2, 2021 $ Change % Change Depreciation and amortization $ 68,358 $ 55,479 $ 12,879 23.2 % % of net sales 2.2 % 1.8 % The increase in depreciation and amortization expenses for fiscal 2021 compared to fiscal 2020 was primarily driven by new store growth and existing store investments.
Depreciation and Amortization Expense Fiscal Year End December 31, 2022 January 1, 2022 $ Change % Change Depreciation and amortization $ 75,206 $ 68,358 $ 6,848 10.0 % % of net sales 2.1 % 2.2 % The increase in depreciation and amortization expenses for fiscal 2022 compared to fiscal 2021 was primarily driven by new store growth and existing store investments.
Costs as a percentage of net sales increased for fiscal 2021 compared to fiscal 2020 due in large part to inflationary cost increases for goods, labor and transportation as well as supply chain constraints.
Costs as a percentage of net sales increased for fiscal 2022 compared to fiscal 2021 due to the impact of inflationary product and supply chain cost pressures, partially offset by increases in retail pricing.
Debt Covenants The First Lien Credit Agreement contains certain customary representations and warranties, subject to limitations and exceptions, and affirmative and customary covenants. The First Lien Credit Agreement restricts us from entering into certain types of transactions and making certain types of payments including dividends and stock repurchases and other similar distributions, with certain exceptions.
Our Prior First Lien Credit Agreement also contained certain customary representations and warranties, subject to limitations and exceptions, and affirmative and customary covenants and restricted us from entering into certain types of transactions.
The components of our cost of sales may not be comparable to the components of cost of sales or similar 46 Table of Contents measures of our competitors and other retailers. As a result, our gross profit and gross margin may not be comparable to similar data made available by our competitors and other retailers.
The components of our cost of sales, as well as our gross profit and gross margin, may not be comparable to the same or similar measures of our competitors and other retailers. Selling, General and Administrative Expenses SG&A are comprised of both store-related expenses and corporate expenses.
No such write-offs were made or debt modification costs incurred in fiscal 2021. See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information.
See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information.
Gross Profit and Gross Margin Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change Gross profit $ 948,786 $ 973,347 $ (24,561) (2.5) % Gross margin 30.8 % 31.1 % The decrease in gross profit for fiscal 2021 compared to fiscal 2020 was primarily the result of a decrease in comparable stores sales and gross profit from the 53rd week of fiscal 2020, partially offset by new store growth.
Gross Profit and Gross Margin Fiscal Year Ended December 31, 2022 January 1, 2022 $ Change % Change Gross profit $ 1,092,099 $ 948,786 $ 143,313 15.1 % Gross margin 30.5 % 30.8 % The increase in gross profit for fiscal 2022 compared to fiscal 2021 was primarily the result of an increase in comparable store sales combined with non-comparable sales from 26 net new stores opened during fiscal 2022 (as discussed above).
Sales consist of sales from comparable stores and non-comparable stores, described below under "Comparable Store Sales." Growth of our sales is generally driven by expansion of our store base in existing and new markets as well as comparable store sales growth.
Growth of our net sales is generally driven by expansion of our store base in existing and new markets as well as comparable store sales growth. Net sales are impacted by the spending habits of our customers, product mix and supply, as well as promotional and competitive activities.
The 53rd week included $53.3 million in net sales. • We opened 36 new stores and closed one, ending fiscal 2021 with 415 stores in seven states. • Net income decreased 41.6% to $62.3 million, or $0.63 per diluted share for fiscal 2021, compared to net income of $106.7 million, or $1.08 per diluted share, for fiscal 2020. • Adjusted EBITDA (1) decreased 11.0% to $198.5 million for fiscal 2021 compared to $222.9 million for fiscal 2020. 45 Table of Contents • Adjusted net income (1) decreased 20.2% to $89.9 million, or $0.90 per adjusted diluted share (1) , for fiscal 2021 compared to $112.7 million, or $1.14 per adjusted diluted share, for fiscal 2020. _______________________ (1) Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures, which exclude the impact of certain special items.
The key operational metrics and non-GAAP financial measures we use are number of new stores, comparable store sales, EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share. 44 Table of Contents Fiscal 2022 Overview Key financial and operating performance results for our fiscal 2022 compared to our fiscal 2021 were as follows: • Net sales increased 16.2% to $3.58 billion for fiscal 2022 from $3.08 billion for fiscal 2021; comparable store sales increased by 11.8% in fiscal 2022. • We opened 27 new stores and closed one, ending fiscal 2022 with 441 stores in eight states. • Net income increased 4.4% to $65.1 million, or $0.65 per diluted share for fiscal 2022, compared to net income of $62.3 million, or $0.63 per diluted share, for fiscal 2021. • Adjusted EBITDA (1) increased 17.4% to $214.7 million for fiscal 2022 compared to $182.9 million for fiscal 2021. • Adjusted net income (1) increased 19.4% to $93.9 million, or $0.94 per adjusted diluted share (1) for fiscal 2022 compared to $78.6 million, or $0.79 per adjusted diluted share, for fiscal 2021. _______________________ (1) Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures, which exclude the impact of certain special items.
Cost of Sales Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change Cost of sales $ 2,130,796 $ 2,161,293 $ (30,497) (1.4) % % of net sales 69.2 % 68.9 % The decrease in cost of sales for fiscal 2021 compared to fiscal 2020 was primarily the result of the comparable store sales decrease discussed above combined with cost of sales from the 53rd week of fiscal 2020, partially offset by new store growth and higher costs as a percentage of net sales.
Cost of Sales Fiscal Year Ended December 31, 2022 January 1, 2022 $ Change % Change Cost of sales $ 2,486,002 $ 2,130,796 $ 355,206 16.7 % % of net sales 69.5 % 69.2 % The increase in cost of sales for fiscal 2022 compared to fiscal 2021 was primarily the result of an increase in comparable store sales combined with non-comparable sales from 26 net new stores opened during fiscal 2022 (as discussed above).
Our flexible buying model allows us to offer quality, name-brand opportunistic products at prices generally 40% to 70% below those of conventional retailers. Entrepreneurial independent operators ("IOs") run our stores and create a neighborhood feel through personalized customer service and a localized product offering.
OVERVIEW We are a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores. Our flexible buying model allows us to offer quality, name-brand opportunistic products at prices generally 40% to 70% below those of conventional grocers.
Selling, General and Administrative Expenses Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change SG&A $ 773,718 $ 772,409 $ 1,309 0.2 % % of net sales 25.1 % 24.6 % The increase in SG&A for fiscal 2021 compared to fiscal 2020 was primarily driven by higher store occupancy and maintenance costs due to a higher store count and increased marketing expenses, partially offset by lower personnel costs as a result of decreased incentive compensation expenses and decreased commission payments to IOs.
Selling, General and Administrative Expenses Fiscal Year Ended December 31, 2022 January 1, 2022 $ Change % Change SG&A $ 889,347 $ 773,718 $ 115,629 14.9 % % of net sales 24.9 % 25.1 % The increase in SG&A for fiscal 2022 compared to fiscal 2021 was driven by $80.0 million in higher store-related expenses and $35.7 million in higher corporate-related expenses.
Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, as amended, under the subheading "Comparison of fiscal 2020 (53 weeks) to fiscal 2019 (52 weeks)." 55 Table of Contents Liquidity and Capital Resources Sources of Liquidity Based on our current operations and new store growth plans, we expect to satisfy our short-term and long-term cash requirements through a combination of our existing cash and cash equivalents position, funds generated from operating activities, and the borrowing capacity available in the revolving credit facility under our first lien credit agreement (the "First Lien Credit Agreement").
Adjusted EBITDA Fiscal Year Ended December 31, 2022 January 1, 2022 $ Change % Change Adjusted EBITDA $ 214,682 $ 182,892 $ 31,790 17.4 % The increase in adjusted EBITDA for fiscal 2022 compared to fiscal 2021 was primarily attributable to net sales growth, as discussed above, partially offset by decreases in gross margin and increases in SG&A. 54 Table of Contents Adjusted Net Income Fiscal Year Ended December 31, 2022 January 1, 2022 $ Change % Change Adjusted net income $ 93,858 $ 78,588 $ 15,270 19.4 % The increase in adjusted net income for fiscal 2022 compared to fiscal 2021 was primarily a result of net sales growth, as discussed above, partially offset by decreases in gross margin and increases in SG&A. 55 Table of Contents Liquidity and Capital Resources Sources of Liquidity Based on our current operations and new store growth plans, we expect to satisfy our short-term and long-term cash requirements through a combination of our existing cash and cash equivalents position, funds generated from operating activities, and the borrowing capacity available in the revolving credit facility under our credit agreement, dated as of February 21, 2023 (the "Credit Agreement").
This decrease was partially offset by an increase in expense driven by RSUs and PSUs granted during fiscal 2021. See NOTE 8—Share-based Awards to our Consolidated Financial Statements for additional information.
See NOTE 8—Share-based Awards to our Consolidated Financial Statements for additional information.
Interest Expense, net Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change Interest expense, net $ 15,564 $ 20,043 $ (4,479) (22.3) % % of net sales 0.5 % 0.6 % The decrease in interest expense, net for fiscal 2021 compared to fiscal 2020 was primarily driven by lower effective interest rates experienced under our First Lien Credit Agreement as a result of decreases in the London Inter-bank Offered Rate ("LIBOR").
Interest Expense, net Fiscal Year Ended December 31, 2022 January 1, 2022 $ Change % Change Interest expense, net $ 17,967 $ 15,564 $ 2,403 15.4 % % of net sales 0.5 % 0.5 % The increase in net interest expense for fiscal 2022 compared to fiscal 2021 was primarily driven by increases in the effective borrowing rate, partially offset by both the April 2022 prepayment of $75.0 million of principal on the senior term loan outstanding under our prior first lien credit agreement, dated as of October 22, 2018, as well as increased interest income from cash and cash equivalents.
Debt Extinguishment and Modification Costs Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change Debt extinguishment and modification costs $ — $ 198 $ (198) (100.0) % % of net sales — % — % During fiscal 2020, we wrote off $0.1 million of debt issuance costs and incurred $0.1 million of debt modification costs related to the repricing and amendment of our First Lien Credit Agreement.
Loss on Debt Extinguishment and Modification Fiscal Year Ended December 31, 2022 January 1, 2022 $ Change % Change Loss on debt extinguishment and modification $ 1,274 $ — $ 1,274 N/A % of net sales — % — % During fiscal 2022, we recorded a $1.3 million loss on debt extinguishment related to the prepayment of $75.0 million of principal on the senior term loan outstanding under our prior first lien credit agreement, dated as of October 22, 2018.
Additionally, we may seek to take advantage of market opportunities to refinance our existing debt instruments with new debt instruments at interest rates, maturities and terms we deem attractive. We may also, from time to time, in our sole discretion, purchase or retire all or a portion of our existing debt instruments through privately negotiated or open market transactions.
Additionally, we may seek to take advantage of market opportunities to refinance our existing debt instruments with new debt instruments at interest rates, maturities and terms we deem attractive. As of December 31, 2022, we had cash and cash equivalents of $102.7 million, which consisted primarily of cash held in checking and money market accounts with financial institutions.
As of January 1, 2022, based on the then current interest rate of 2.85%, e xpected future interest payments associated with our debt totaled $50.7 million, with $13.3 million payable during fiscal year 2022.
As of December 31, 2022, based on the then-current interest rate of 56 Table of Contents 7.13%, expected future interest payments associated with our debt totaled $78.2 million, with $27.8 million payable during fiscal 2023. In February 2023, we repaid this indebtedness with the net proceeds from borrowings under our Credit Agreement as discussed above.
Of the $133.8 million net cash used in investing activities during fiscal 2020, $124.9 million represented purchases of property and equipment prior to the application of tenant improvement allowances. 57 Table of Contents Cash Provided by (Used in) Financing Activities Net cash provided by financing activities was $5.9 million for fiscal 2021 compared to $29.8 million for fiscal 2020.
Of the $149.9 million net cash used in investing activities during fiscal 2022, $130.5 million represented purchases of property and equipment prior to the application of tenant improvement allowances. 58 Table of Contents Cash Provided by (Used in) Financing Activities Net cash used in financing activities of $72.9 million for fiscal 2022 was primarily due to the prepayment of $75.0 million of principal on the senior term loan outstanding under our First Lien Credit Agreement as well as the repurchase of $3.5 million worth of common stock, partially offset by $6.9 million in proceeds from the exercise of stock options.
We used the net proceeds from our IPO, together with excess cash on hand, to prepay a portion of the term loan outstanding under our First Lien Credit Agreement and to repay in full our Second Lien Term Loan, allowing us to terminate such agreement. See "—Liquidity and Capital Resources" for additional information.
We used the net proceeds from the Credit Agreement, together with cash on hand, to repay all of the outstanding balance on the credit facilities under our Prior First Lien Credit Agreement of $387.2 million, and pay fees and expenses in connection therewith. All of our subsidiaries’ obligations under the Prior First Lien Credit Agreement were discharged at such time.
Income Tax Expense (Benefit) Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change Income tax expense (benefit) $ 15,191 $ (19,579) $ 34,770 177.6 % % of net sales 0.5 % (0.6) % Effective tax rate 19.6 % (22.5) % During fiscal 2021, we recorded a net income tax expense of $15.2 million compared to a net income tax benefit of $19.6 million for fiscal 2020.
Income Tax Expense (Benefit) Fiscal Year Ended December 31, 2022 January 1, 2022 $ Change % Change Income tax expense (benefit) $ 10,697 $ 15,191 $ (4,494) (29.6) % % of net sales 0.3 % 0.5 % Effective tax rate 14.1 % 19.6 % The decrease in income tax expense for fiscal 2022 compared to fiscal 2021 was primarily driven by benefits associated with accelerated tax depreciation on fixtures and equipment as well as leasehold assets.
(2) See "—GAAP to Non-GAAP Reconciliations" section below for a reconciliation from our net income to EBITDA and adjusted EBITDA, net income to adjusted net income and GAAP earnings per share to adjusted earnings per share for the periods presented.
The presentation for adjusted EBITDA, adjusted net income and adjusted earnings per share for fiscal 2021 and 2020 has been recast to reflect these changes and a reconciliation between the current and previous definitions of adjusted EBITDA, adjusted net income and adjusted earnings per share have been provided within the “—GAAP to Non-GAAP Reconciliations” section below.
As of January 1, 2022, we had cash and cash equivalents of $140.1 million, which consisted primarily of cash held in checking and money market accounts with financial institutions. In addition, we have a revolving credit facility with $100.0 million in borrowing capacity under our First Lien Credit Agreement.
In addition, on such date we had a revolving credit facility with $100.0 million in borrowing capacity under a first lien credit agreement, dated as of October 22, 2018, with GOBP Holdings, Inc., as borrower (the "Prior First Lien Credit Agreement").
Comparable store sales decreased 6.0% for fiscal 2021 compared to fiscal 2020 on a 52-week basis for both periods. The decrease was primarily attributable to a decrease in customer traffic, partially offset by an increase in average transaction size.
Comparable store sales increased 11.8% for fiscal 2022 compared to fiscal 2021. The increase was driven by a 5.9% increase in the number of transactions combined with a 5.6% increase in average transaction size.
Share-based Compensation Expense Fiscal Year Ended January 1, 2022 January 2, 2021 $ Change % Change Share-based compensation $ 17,615 $ 38,084 $ (20,469) (53.7) % % of net sales 0.6 % 1.2 % The decrease in share-based compensation expenses for fiscal 2021 compared to fiscal 2020 was primarily due to $26.1 million in share-based compensation expense we incurred in fiscal 2020 related to 5.8 million performance-based stock options that vested in connection with performance events achieved with the closing of our February and April 2020 secondary offerings.
Share-based Compensation Expense Fiscal Year Ended December 31, 2022 January 1, 2022 $ Change % Change Share-based compensation $ 32,556 $ 17,615 $ 14,941 84.8 % % of net sales 0.9 % 0.6 % The increase in share-based compensation expenses for fiscal 2022 compared to fiscal 2021 was primarily due to the impact of share-based awards granted in October of fiscal 2021 and March of fiscal 2022 as well as an increase in the number of performance-based restricted stock units ("PSUs") expected to be earned based on revised performance expectations during fiscal 2022.
Planned construction and opening of new stores also have been, and may continue to be, negatively impacted due to increased lead times to acquire materials such as steel, obtain permits and licenses and set up utilities. Additionally, certain fixture upgrades and new refrigeration units now have longer lead times.
Further, planned construction and opening of new stores during fiscal 2022 was, and may continue to be, negatively impacted due to both increased lead times to acquire materials, obtain permits and licenses as well as higher construction and development related costs. In fiscal 2022 we opened 27 new stores, which was below our long-term strategic goal of 10% unit growth.
Our gross margin decreased modestly for fiscal 2021 compared to fiscal 2020 due to higher cost of sales as a percentage of net sales, as discussed previously.
As a percentage of net sales, SG&A decreased slightly for fiscal 2022 compared to fiscal 2021 as leverage on store-related expenses was largely offset by higher incentive compensation expense.
Removed
Our 2021 and 2019 fiscal years consisted of 52 weeks while our 2020 fiscal year consisted of 53 weeks. OVERVIEW We are a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores.
Added
For discussion related to the results of operations and changes in financial condition for fiscal 2021 compared to fiscal 2020 refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022.
Removed
As of January 1, 2022, we had 415 stores in California, Washington, Oregon, Pennsylvania, Idaho, Nevada and New Jersey. COVID-19 On March 11, 2020, the World Health Organization declared the novel strain of coronavirus, COVID-19, a global pandemic and recommended containment and mitigation measures worldwide.
Added
Our 2022 and 2021 fiscal years consisted of 52 weeks while our 2020 fiscal year consisted of 53 weeks. As used in this report, references to "Grocery Outlet," "the Company," "the registrant," "we," "us" and "our," refer to Grocery Outlet Holding Corp. and its consolidated subsidiaries unless otherwise indicated or the context requires otherwise.
Removed
As a result, many states, including states where we have significant operations, declared a state of emergency, closed non-essential businesses and enacted limitations on the size of gatherings.
Added
Entrepreneurial independent operators ("IOs") run our stores and create a neighborhood feel through personalized customer service and a localized product offering. As of December 31, 2022, we had 441 stores in California, Washington, Oregon, Pennsylvania, Idaho, Nevada, Maryland and New Jersey.
Removed
As we compare fiscal 2021 financial performance with the comparable period in fiscal 2020 that included significantly elevated COVID-related demand (only partially offset by periods of store closures) and financial outperformance relative to historical growth, we are reporting declines in year-over-year net sales and comparable store sales growth.
Added
Macroeconomic Conditions During fiscal 2022 and continuing into fiscal 2023, our business was and continues to be impacted by current macroeconomic conditions including supply chain and labor challenges, inflation, and changes in consumer behavior, and our IOs have been impacted by staffing challenges and increased labor costs within their businesses.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−1 removed1 unchanged
Biggest changeWe cannot be assured that our results of operations and financial condition will not be materially impacted by inflation in the future. 60 Table of Contents
Biggest changeSee "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information regarding the impact that inflation had on gross margin and net income during the periods reported. Furthermore, our results of operations and financial condition may be materially impacted by inflation in the future. 61 Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our operating results are subject to market risk from interest rate fluctuations on our credit facilities, which bear variable interest rates. As of January 1, 2022, our outstanding credit facilities includ ed a $460.0 million senior term loan under the First Lien Credit Agreement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our operating results are subject to market risk from interest rate fluctuations on our credit facilities, which bear variable interest rates. As of December 31, 2022, our outstanding credit facilities includ ed a $385.0 million senior term loan under the Prior First Lien Credit Agreement.
While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we have experienced varying levels of inflation, resulting in part from various supply disruptions, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain and other disruptions caused by the COVID‐19 pandemic and the uncertain economic environment.
While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we have experienced varying levels of inflation, resulting in part from various supply disruptions, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain, increased SG&A related to personnel, travel, and other operational costs and other disruptions caused by the current macroeconomic environment.
As of January 1, 2022, the interest rate on the senior term loan was 2.85% (See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information).
As of December 31, 2022, the effective interest rate on the senior term loan was 7.13% (See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information).
Based on the outstanding balance and interest rate of our senior term loan as of January 1, 2022, a hypothetical 10% relative increase or decrease in the effective interest rate would cause an increase or decrease in interest expense of approxima tely $1.3 million over t he next 12 months.
Based on the outstanding balance and interest rate of our senior term loan under the Prior First Lien Credit Agreement as of December 31, 2022, a hypothetical 10% relative in crease or decrease in the effective interest rate would cause an increase or decrease in interest expense of approximately $2.7 million over t he next 12 months.
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However, because of the flexibility of our unique buying model and our ability to price our products frequently, we were able to partially offset the impact of inflation on our business during fiscal 2021 through selective price increases.

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