10q10k10q10k.net

What changed in Grocery Outlet Holding Corp.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of Grocery Outlet Holding Corp.'s 2023 and 2024 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 2024 report.

+358 added−332 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-01)

Top changes in Grocery Outlet Holding Corp.'s 2024 10-K

358 paragraphs added · 332 removed · 263 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

69 edited+30 added−24 removed68 unchanged
Biggest changeWe do this by setting an appropriate tone at the top with an open-door policy, having robust policies/procedures in our Code of Ethics and Whistleblower Policy as well as maintaining an internal audit function - all of which support compliance with regulations and ethical behavior. Website Disclosure We use our website, https://investors.groceryoutlet.com, as a channel of distribution of Company information.
Biggest changeWe do this by setting an appropriate tone at the top with an open-door policy, having robust policies/procedures in our Code of Ethics and Whistleblower Policy as well as maintaining an internal audit function - all of which support compliance with regulations and ethical behavior. 11 Table of Contents Acquisition of United Grocery Outlet On February 14, 2024, Grocery Outlet Inc., our wholly owned subsidiary, entered into a stock purchase agreement with BBGO Acquisition, Inc., a Delaware corporation ("Holdings"), specified parties therein that beneficially own Holdings (the "Sellers"), and Southvest Fund VII, L.P., a Delaware limited partnership (the "Sellers' Representative", and together with the Sellers, the "Seller Parties" and, together with Holdings and Grocery Outlet, the "Parties") to acquire all of the issued and outstanding capital stock of Holdings for approximately $62.0 million in cash, subject to customary purchase price adjustments (the "Transaction").
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.
Additionally, we provide generous and highly competitive health and welfare benefits programs. Equity, Diversity 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.
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 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 and inclusion topics, including those relating to current events in our communities.
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 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 and employee safety, 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.
Some 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.
Some of our offerings during 2023 (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.
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.
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 and 2023. Our model also is somewhat insulated from store labor-related variability because IOs directly employ their store workers.
Sheedy served in various roles at Staples Inc., an office supply company, from 2005 to 2012, most recently as their Vice President, Strategy. Charles C. Bracher has served as our EVP, Chief Financial Officer since August 2012. Before joining us, Mr.
Sheedy served in various roles at Staples Inc., an office supply company, from 2005 to 2012, most recently as its Vice President, Strategy. Charles C. Bracher has served as our EVP, Chief Financial Officer since August 2012. Before joining us, Mr.
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.
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 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.
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.
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.
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.
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.
We have continued to expand our product assortment to meet customer needs, including a wide selection of 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.
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.
IOs are responsible for expenses required for business operations, including all labor costs, utilities, credit card processing 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.
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 .
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 .
Alerts," social media, television and radio commercials, print circulars and in-store and outdoor signage. We have increased our utilization of digital advertising, allowing us to more quickly develop, deploy and target marketing communications based on our changing inventories and store- specific deals.
Alerts," social media, television and radio commercials and in-store and outdoor signage. We have increased our usage of digital advertising, allowing us to more quickly develop, deploy and target marketing communications based on our changing inventories and store- specific deals.
During fiscal 2022, we promoted 42 corporate and field employees. Employee Health and Safety —Providing a safe and compliant working environment and ensuring safety is critical to the Company. We have robust safety programs in place to prevent workplace injury and illness.
During fiscal 2023 , we promoted 79 corporate and field employees. Employee Health and Safety —Providing a safe and compliant working environment and ensuring safety is critical to the Company. We have robust safety programs in place to prevent workplace injury and illness.
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.
Deliveries to our stores occur from our distribution centers or directly from our suppliers. 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.
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.
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 former Chief Executive Officer, has continued to advance this mission. Grocery Outlet Holding Corp. was incorporated in Delaware on September 11, 2014.
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.
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 30, 2023, we had 468 stores in California, Washington, Oregon, Pennsylvania, Idaho, Nevada, Maryland, New Jersey and Ohio. Our headquarters is in Emeryville, California.
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.
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. As an example, our current Chief Executive Officer, Robert J.
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.
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. 6 Table of Contents Our Stores and Expansion Opportunities As of December 30, 2023, our 468 total stores averaged approximately 14,000 square feet on the sales floor.
In fiscal 2022, we refined and adopted additional safety training initiatives in a variety of areas, including among others, hazard communications, fire prevention, emergency action playbooks, blood borne pathogens, health illness avoidance, and active shooter. These refinements and initiatives are ongoing.
In recent years, we have refined and adopted additional safety training initiatives in a variety of areas, including among others, hazard 10 Table of Contents communications, fire prevention, emergency action playbooks, blood borne pathogens, health illness avoidance, and active shooter. These refinements and initiatives are ongoing.
As an example, our current Chief Executive Officer, Robert Joseph Sheedy, Jr., joined Grocery Outlet in 2014 as our Vice President of Strategy and thereafter was promoted three times before becoming President and Chief Executive Officer in January 2023.
Sheedy, Jr., joined Grocery Outlet in 2012 as our Vice President of Strategy and thereafter was promoted three times before becoming President and Chief Executive Officer in January 2023.
We also have built a series of tools that empower IOs to make intelligent decisions to grow their business from improving product ordering, reducing shrink, and gaining intelligence into their store performance and profitability. We believe these investments have resulted in valuable business insights and operational improvements.
We also have built a series of tools that empower IOs to make intelligent decisions to grow their business from improving product ordering, reducing shrink, and gaining intelligence into their store performance and profitability.
We intend to continue to invest in our distribution and logistics infrastructure in order to support our anticipated store growth over the long term.
We intend to continue to invest in our distribution and logistics infrastructure in order to support our anticipated store growth over the long term, including as we enter into new geographies.
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.
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.
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 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.
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.
We believe these investments have resulted in valuable business insights and operational improvements. 8 Table of Contents 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.
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.
We supplement our opportunistic purchases with competitively priced everyday staples in order to provide a convenient shopping experience. 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.
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.
As of December 30, 2023, our distribution centers employed 355 persons. The remaining employees were employees in our Company-operated stores. As of December 30, 2023, 126 of our employees were union employees, all of whom were employees at two Company-operated stores.
We 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 existing and new local regions and states. • Implement Productivity Improvements to Reinvest in Our Value Proposition .
We believe that new store growth remains our biggest driver of long-term stockholder value and continue to 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 existing and new local regions and states.
The combination of local decision-making supported by our purchasing expertise and corporate resources results in a "small business at scale" model that we believe is difficult for competitors to replicate. Our collaborative relationship with the IOs creates a powerful selling model allowing us to deliver customers exceptional value with a local touch.
The combination of local decision-making supported by our purchasing expertise and corporate resources results in a "small business at scale" model that we believe is difficult for competitors to replicate.
Luke D. Thompson has served as our SVP, General Counsel and Secretary since July 2022. Before joining us, Mr. Thompson served in various roles at Big 5 Sporting Goods, a sporting goods retailer, from 2002 to 2022, most recently as Executive Vice President, General Counsel and Secretary. 12 Table of Contents
Previously, he served as our SVP, General Counsel and Secretary from July 2022 until February 2024. Before joining us, Mr. Thompson served in various roles at Big 5 Sporting Goods, a sporting goods retailer, from 2002 to 2022, most recently as Executive Vice President, General Counsel and Secretary. Steven K.
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.
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. Luke D. Thompson has served as our EVP, General Counsel and Secretary since February 2024.
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.
In addition, we have a customized enterprise resource planning system, components of which have been replaced over the past several years, including our financial ledger, inventory management platform and product data warehouse system, which were replaced in late August 2023.
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 Robert Joseph Sheedy, Jr 48 President and Chief Executive Officer Charles C. Bracher 50 EVP, Chief Financial Officer Andrea R. Bortner 60 EVP, Chief Human Resources Officer Pamela B.
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 Robert J. Sheedy, Jr 49 President and Chief Executive Officer Charles C. Bracher 51 EVP, Chief Financial Officer Ramesh Chikkala 59 EVP, Chief Operations Officer Andrea R.
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.
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 4 Table of Contents available to us and maintains a disciplined yet solutions-oriented approach.
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.
As of December 30, 2023, we had 997 employees, 901 of whom were full-time and 96 of whom were part-time. As of December 30, 2023, 516 of our employees were based at our corporate headquarters in Emeryville, California, and our Leola, Pennsylvania office, 158 of which were classified as field employees.
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.
Wilson has served as our EVP, Chief Purchasing Officer since January 2023. Previously, 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.
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.
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.
Robert Joseph Sheedy, Jr. has served as our President, Chief Executive Officer and as a director since January 2023. Previously, Mr.
All of our officers serve at the discretion of our Board of Directors. Robert J. Sheedy, Jr. has served as our President, Chief Executive Officer and as a director since January 2023. Previously, Mr.
We have embraced online and digital marketing, including recently piloting a mobile personalization app and rolling out online shopping to our stores through partnerships with online grocery delivery companies.
We have embraced online and digital marketing, including launching a mobile personalization app during fiscal 2023, which we plan to continue to expand in fiscal 2024, and rolling out online shopping to our stores through partnerships with online grocery delivery companies in recent years.
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.
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.
Bracher served in various roles at Bare Escentuals, Inc., a mineral cosmetics company, from 2005 to 2012, most recently as Chief Financial Officer. Mr. Bracher began his career in the Investment Banking Division of Goldman, Sachs & Co. Andrea R. Bortner has served as our EVP, Chief Human Resources officer since March 2020. Before joining us, Ms.
Bracher served in various roles at Bare Escentuals, Inc., a mineral cosmetics company, from 2005 to 2012, most recently as Chief Financial Officer. Mr. Bracher began his career in the Investment Banking Division of Goldman, Sachs & Co. As previously reported, on December 8, 2023, Mr.
Our History Our founder, Jim Read, pioneered our opportunistic buying model in 1946 and subsequently developed the IO selling approach, which harnesses individual entrepreneurship and local decision-making to better serve our customers.
The transaction is expected to close early in the second quarter of fiscal 2024 and remains subject to customary closing conditions. 3 Table of Contents Our History Our founder, Jim Read, pioneered our opportunistic buying model in 1946 and subsequently developed the IO selling approach, which harnesses individual entrepreneurship and local decision-making to better serve our customers.
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 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.
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.
We intend to continue to expand our reach to additional customers and geographies across the United States. 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.
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.
Bortner 61 EVP, Chief Human Resources Officer Pamela B. Burke 56 EVP, Chief Stores Officer Luke D. Thompson 51 EVP, General Counsel and Secretary Steven K. Wilson 59 EVP, Chief Purchasing Officer Calvin Chung 60 SVP, Chief Store Development Officer Set forth below is a brief description of the business experience of our executive officers.
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.
These items may include products without a UPC label, goods labeled for another geography, or inventory with damaged packaging. 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.
We also will continue to identify and implement productivity improvements through both operational initiatives and system enhancements, such as category assortment optimization, improved inventory management tools and greater purchasing specialization.
As previously disclosed, t he implementation of these system upgrades resulted in ordering and inventory disruptions, which impacted our results of operations during the remainder of fiscal 2023. We also will continue to identify and implement productivity improvements through both operational initiatives and system enhancements, such as category assortment optimization, improved inventory management tools and greater purchasing specialization.
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 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.
As a result, IOs are exposed to the risk of loss of such merchandise and are incentivized to minimize any such losses. We lease and build out each Grocery Outlet location.
As a result, IOs are exposed to the risk of loss of such merchandise and are incentivized to minimize any such losses. Our relationship with the IOs is an important part of our business.
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.
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.
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. Additionally, we believe that changing consumer preferences will continue to support the proliferation of small and innovative CPG brands, and allow us to add new suppliers to our network.
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.
The app allows customers to track their savings and provides new, trending and top selling items as well as curated product recommendations based on user preferences. Further, the app provides us with critical information to make our marketing efforts more effective and efficient. 7 Table of Contents IOs develop and fund their local marketing plan to drive customer engagement.
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.
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. 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.
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.
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 supply chain participants, such as in relation to partially hydrogenated oils, went into effect in 2021.
Supply Chain and Distribution Over time, we have honed our supply chain operations to support our opportunistic buying approach and to quickly and efficiently deliver products to our stores. We believe our supply chain flexibility enables us to solve suppliers' inventory challenges and, therefore, obtain significant discounts on purchases.
We also have near-term plans to develop and expand our private label products. Supply Chain and Distribution Over time, we have honed our supply chain operations to support our opportunistic buying approach and to quickly and efficiently deliver products to our 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. 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.
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.
After agreeing to purchase product from a supplier, we move quickly to receive, process and distribute the goods. Our systems allow IOs real-time visibility to our inventory, significantly reducing time to shelf. IOs typically order multiple deliveries per week resulting in higher inventory turns, lower shrink and a frequent assortment of new products on shelf.
We believe our supply chain flexibility enables us to solve suppliers' inventory challenges and, therefore, obtain significant discounts on purchases. After agreeing to purchase product from a supplier, we move quickly to receive, process and distribute the goods. Our systems, including our new store portal, allow IOs real-time visibility to our inventory, significantly reducing time to shelf.
We have a dedicated real estate team that utilizes a rigorous site selection process in order to source new store locations that generate strong overall returns. We deploy a store model that generates robust store-level financial results, strong cash flow and attractive returns.
We have a dedicated real estate team that utilizes a rigorous site selection process in order to source new store locations that generate strong overall returns and generally targets new stores of between 15,000 and 20,000 total square feet with an average of 4,000 square feet of non-selling space.
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.
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 promulgated regulations are now in effect and mandate that risk-based preventive controls be observed by the majority of food producers.
Entrepreneurial independent operators ("IOs") run our stores and create a neighborhood feel through personalized customer service and a localized product offering.
Entrepreneurial independent operators ("IOs") run our stores and create a neighborhood feel through personalized customer service and a localized product offering. This differentiated approach has driven consistent comparable store sales growth and allowed us to produce positive comparable store sales in 20 of the last 21 years.
In addition to our digital ads, we distribute print circulars to align with major holidays and other key promotional events, such as Thanksgiving. We also market via television, streaming television platforms and radio (terrestrial and digital) to specific markets to build brand awareness and highlight the value we provide.
We also market via television, streaming television platforms and radio (terrestrial and digital) to specific markets to build brand awareness and highlight the value we provide. We reinforce these efforts with in-store price and item signage as well as outdoor marketing via billboards and truck wraps.
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.
We strive to nurture and uphold an inclusive and diverse environment, free from discrimination of any kind, including sexual or other discriminatory/harassing behavior.
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.
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.
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.
However, no statement on a dietary supplement may expressly or implicitly represent that it will diagnose, cure, mitigate, treat or prevent a disease. 9 Table of Contents EBT Payments —Approximately 11% of our net sales in fiscal 2023 were 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").
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".
In June 2019, we completed the initial public offering of our common stock. Our common stock trades on the Nasdaq Global Select Market under the symbol "GO". Our Growth Strategies We believe that our compelling WOW! shopping experience will continue to drive new and existing customers to shop our stores.
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.
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 Walmart and Safeway as retailers where they also shop for consumables.
We also have dedicated teams to handle unique situations in which products need to be reconditioned or relabeled for sale. These items may include products without a UPC label, goods labeled for another geography, or inventory with damaged packaging.
IOs typically order multiple deliveries per week resulting in higher inventory turns, lower shrink and a frequent assortment of new products on shelf. We also have dedicated teams to handle unique situations in which products need to be reconditioned or relabeled for sale.
Removed
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 .
Added
As discussed below under "Acquisition of United Grocery Outlet" on February 14, 2024, Grocery Outlet Inc., our wholly owned subsidiary, entered into a stock purchase agreement to acquire BBGO Acquisition, Inc., a holding company that owns all of the outstanding capital stock of The Bargain Barn, Inc., which does business as United Grocery Outlet ("United Grocery Outlet").
Removed
We expect that our compelling value proposition will continue to enable us to attract new customers, drive repeat visits, increase basket sizes for existing customers and, as a result, generate strong comparable store sales growth.
Added
Propelled by our strong business fundamentals, we believe we are well-positioned to expand our footprint and grow our customer base. We are executing a long-term growth strategy built on three primary pillars: • Strengthen our core business model . Our unique buying and selling approach has always been and will continue to be the growth engine of this business.
Removed
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 .
Added
It differentiates us and provides a compelling value proposition to a wide range of customers. We remain focused on deepening our value, strengthening the treasure hunt shopping experience, elevating IO support, and increasing customer awareness, acquisition, and retention. We continually seek to strengthen supplier relationships and further develop opportunistic purchasing with new processes and investments. • Evolve our business.
Removed
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.
Added
We are focused on advancing our model through expanding our assortment and digitizing our business with more integrated end-to-end technology. We also continue to implement operational initiatives to support IOs in enhancing the customer experience. • Expand our footprint.
Removed
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.
Added
We believe that we have a leading share of the large and growing excess inventory market. We also believe that the overall excess inventory market continues to grow due to increased manufacturing capacities and rapidly changing product assortments.
Removed
Our IOs also faced and continue to face staffing challenges and increased labor costs within their businesses. Like many companies in the grocery and retail sectors, we continue to experience increased product costs, which is being reflected in part in higher retail pricing.

… 43 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

107 edited+35 added−14 removed194 unchanged
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.
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; • any significant disruption to our distribution network, the operations of our distributions centers and our timely receipt of inventory; • inflation and other changes affecting the market prices of the products we sell; • risks associated with newly opened stores; • failure to open, relocate or remodel stores on schedule and on budget; • 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; • inability to maintain sufficient levels of cash flow from our operations; • risks associated with leasing substantial amounts of space; • failure to properly integrate any acquired businesses; • natural or man-made disasters, 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; • failure to participate effectively in the growing online retail marketplace; • unexpected costs and negative effects if we incur losses not covered by our insurance program; • difficulties associated with labor relations and shortages; • inability to attract, train and retain highly qualified employees or the loss of key personnel; • failure to remediate our material weakness in our internal control over financial reporting; 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 associated with deploying our own private label brands; Risks Related to Our IO Model • inability to attract and retain qualified independent operators ("IOs"); • failure of our IOs to successfully manage their business; 14 Table of Contents • failure of our IOs to repay notes outstanding to us; • 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 Related to our Information Technology Systems, Data Protection and Cybersecurity • material disruption to 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; Risks Related to Legal and Regulatory Risks • risks associated with products we and our 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.
Maintaining adequate inventory of quality, name-brand products requires significant attention and monitoring of market trends, local markets and developments with suppliers and our distribution network, and it is not certain that we or IOs will be effective in inventory management. We base our purchases of inventory, in part, on our sales forecasts.
Maintaining adequate inventory of quality, name-brand products requires significant attention and monitoring of market trends, local markets and developments with suppliers and our distribution network, and it is not certain that we or our IOs will be effective in inventory management. We base our purchases of inventory, in part, on our sales forecasts.
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 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. 28 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 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.
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 2023 Credit Agreement bears interest at variable rates.
It could require significant expenditures to remediate any such failure or breach, severely damage our reputation and our relationships with customers, result in unwanted media attention and lost sales and expose us to risks of litigation and liability.
It could require significant expenditures to remediate any such failure or breach, severely damage our reputation and our relationships with customers and suppliers, result in unwanted media attention and lost sales and expose us to risks of litigation and liability.
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.
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 2023 Credit Agreement.
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.
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. 36 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.
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.
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. 27 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.
While our IOs and suppliers may indemnify us for certain adverse outcomes, we may still bear significant expenses related to such proceedings. 30 Table of Contents Risks Associated with Our Indebtedness Our substantial indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations under our debt and could divert our cash flow from operations for debt payments.
While our IOs and suppliers may indemnify us for certain adverse outcomes, we may still bear significant expenses related to such proceedings. 34 Table of Contents Risks Associated with Our Indebtedness Our substantial indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations under our debt and could divert our cash flow from operations for debt payments.
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.
Upon the occurrence of an event of default under our 2023 Credit Agreement, the lenders could elect to declare all amounts outstanding under our 2023 Credit Agreement to be immediately due and payable and terminate all commitments to extend further credit.
Alternatively, if a court were to find the choice of forum provisions that will be contained in our amended and restated bylaws to be inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition. 36 Table of Contents ITEM 1B.
Alternatively, if a court were to find the choice of forum provisions that will be contained in our amended and restated bylaws to be inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition. 39 Table of Contents ITEM 1B.
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.
Our future operating results may not be sufficient to enable compliance with the financial performance covenants in our 2023 Credit Agreement, and we may not have sufficient assets to repay amounts outstanding under our 2023 Credit Agreement.
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.
The operating and financial restrictions and covenants in our 2023 Credit Agreement may materially adversely affect our ability to finance future operations or capital needs or to engage in other business activities.
Restrictive covenants in our Credit Agreement 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.
Restrictive covenants in our 2023 Credit Agreement 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.
These provisions provide for, among other things: • the division of our Board of Directors into three classes (which provision sunsets in 2026); • the ability of our Board of Directors to issue one or more series of preferred stock with powers, preferences and rights that may be senior or on parity with our common stock, which may reduce its value and could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change of control; • advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at stockholder meetings; and • certain limitations on convening special stockholder meetings.
These provisions provide for, among other things: 38 Table of Contents • the division of our Board of Directors into three classes (which provision sunsets in 2026); • the ability of our Board of Directors to issue one or more series of preferred stock with powers, preferences and rights that may be senior or on parity with our common stock, which may reduce its value and could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change of control; • advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at stockholder meetings; and • certain limitations on convening special stockholder meetings.
For example, collecting the requisite accounting data from certain of our IO entities in order to consolidate their financial information would involve substantial time, effort and cost. 34 Table of Contents 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.
For example, collecting the requisite accounting data from certain of our IO entities in order to consolidate their financial information would involve substantial time, effort and cost. 37 Table of Contents 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.
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.
While fiscal 2022 and 2023 were years 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.
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.
Even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer 33 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.
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 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 our subsidiary, including restrictions under our Credit Agreement, and may be further restricted by the terms of any future debt or preferred securities.
As discussed under "Regulations" in Item I. Business, we and the IOs are subject to regulation by various federal agencies. If our products do not meet applicable safety standards or our customers' expectations regarding safety, we could experience lost sales, increased costs, litigation or reputational harm.
As discussed under "Regulations" in "Item 1. Business", we and the IOs are subject to regulation by various federal agencies. If our products do not meet applicable safety standards or our customers' expectations regarding safety, we could experience lost sales, increased costs, litigation or reputational harm.
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.
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.
In addition, subject to limited restrictions in our Credit Agreement, we may be able to incur substantial additional debt in the future.
In addition, subject to limited restrictions in our 2023 Credit Agreement, we may be able to incur substantial additional debt in the future.
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.
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.
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.
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 2023. As a result, we have incurred significant costs and will continue to incur such costs to monitor and safeguard our systems.
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.
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 30 Table of Contents behavioral advertising, and prohibiting covered businesses from discriminating against consumers (e.g., charging more for services) for exercising any of their CCPA/CPRA rights.
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.
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 certain consumer protection laws and some natural and other disasters or similar events.
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.
Over the last few 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.
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.
Your only opportunity to achieve a return on your investment currently is if the price of our common stock appreciates. Future sales, or the perception of future sales, by us or our existing significant stockholders in the public market could cause the market price for our common stock to decline.
Some of our larger competitors are in a better position to absorb cost increases while maintaining price competitiveness. If our competitors are more competitive on pricing relative to our pricing, we may lose customers and mark down prices.
Some of our larger competitors are in a better position to absorb cost increases while maintaining price competitiveness. If our competitors are more competitive on pricing relative to our pricing, we may lose customers and/or need to mark down prices.
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.
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.
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.
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.
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.
As discussed 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.
While we maintain cyber risk insurance intended to provide coverage in the event of a breach or other data security incident, there can be no assurance that these policies will cover all incidents that might occur or that the coverage limits under such policies will be adequate for any incidents, claims or damages that we might experience.
While we maintain cyber risk insurance intended to provide coverage in the event of a breach or other data security incident, there can be no assurance that these policies will cover all incidents that might occur or that the coverage limits under such policies will be adequate for any incidents, claims or damages that 31 Table of Contents we might experience.
These factors include but are not limited to unemployment, minimum wages, significant public health and safety events, inflation and deflation, the threat, outbreak or escalation of terrorism, military conflicts, or other hostilities and related international sanctions (such as the ongoing Russia-Ukraine conflict), trade wars and interest and tax rates.
These factors include but are not limited to unemployment, minimum wages, significant public health and safety events, inflation and deflation, the threat, outbreak or escalation of terrorism, military conflicts, or other hostilities and related international sanctions (such as the ongoing Russia-Ukraine or Middle East conflicts), trade wars and interest and tax rates.
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.
In addition, our failure to make payments under our operating leases could trigger defaults under other leases or under our 2023 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 2043.
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.
There can be no assurance that our investment in this area will be repaid. 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.
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.
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 subsidiary as an unrestricted subsidiary. 35 Table of Contents A breach of any of these covenants could result in a default under our 2023 Credit Agreement.
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, 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.
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.
Actions we have taken to establish and protect our intellectual property rights may not be adequate. 19 Table of Contents There may in the future be opposition and cancellation proceedings from time to time with respect to some of our intellectual property rights.
We rely on our distribution and transportation network to provide goods to our distribution centers and stores in a timely and cost-effective manner.
We rely on our distribution, transportation and technology network and systems to provide goods to our distribution centers and stores in a timely and cost-effective manner.
Future sales of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock and might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Future sales of shares of our common stock by our existing significant stockholders in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock and might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
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.
Natural or man-made disasters, climate change, 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.
Our cash flow from operations may not provide sufficient capital to support our expanding business and execute our growth strategy, including to pay our lease obligations, build out new stores and distribution centers, remodel our stores, purchase opportunistic inventory, pay employees competitive wages and provide benefits, continue the ongoing modernization, enhancement and maintenance of our information systems (including our ongoing updates to our customized enterprise resource planning system), make loans to IOs and further invest in the business.
Our cash flow from operations may not provide sufficient capital to support our expanding business and execute our growth strategy, including to pay our lease obligations, build out new stores and distribution centers, remodel our stores, purchase opportunistic inventory, pay employees competitive wages and provide benefits, continue the ongoing modernization, enhancement and maintenance of our information systems, make loans to IOs and further invest in the business.
Our future growth and performance depend on our ability to attract, develop and retain qualified IOs who understand and appreciate our culture and are able to represent our brand effectively, in particular because the vast majority of our IOs operate a single store.
Our future growth and performance depend on our ability to attract, develop and retain qualified IOs who can effectively and efficiently run stores, understand and appreciate our culture and are able to represent our brand effectively, in particular because the vast majority of our IOs operate a single store.
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.
Over the past couple years, 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 recent economic environment, which we have not been able to fully offset through price increases.
In the event of a natural or man-made disaster, governments have and, in the future, may declare a state of emergency and impose regulations on business operations.
In the event of a natural or man-made disaster, governments have and, in the future, may declare a state of emergency and impose regulations on 21 Table of Contents business operations.
Approximately 13% of sales are in the form of EBT payments and a substantial portion of these payments may be related to benefits associated with the Supplemental Nutritional Assistance Program ("SNAP"). Accordingly, changes in EBT regulations by the U.S. Department of Agriculture or in SNAP benefits by Congress could adversely affect our financial performance.
Approximately 11% of sales in fiscal 2023 were in the form of EBT payments and a substantial portion of these payments may be related to benefits associated with the Supplemental Nutritional Assistance Program ("SNAP"). Accordingly, changes in EBT regulations by the U.S. Department of Agriculture or in SNAP benefits by Congress could adversely affect our financial performance.
New stores, particularly those in new markets, build their sales volume, brand recognition and customer base over time and, as a result, generally have lower margins and higher operating expenses as a percentage of sales than our more mature stores.
New stores, particularly those in new markets, build their sales volume, brand recognition and customer base over time and, as a result, for approximately 4-5 years, generally have lower margins and higher operating expenses as a percentage of sales than our more mature stores.
We extend financing to IOs for their initial startup costs in the form of notes payable to us that bear interest at rates between 3.00% and 9.95%.
We extend financing to IOs for their initial startup costs in the form of notes payable to us that bear interest at rates between 5.50% and 9.95%.
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.
If these rates were to increase significantly, as they did in fiscal 2022, 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.
Our supply chain is subject to risks, including distribution and transportation, labor disputes or constraints, union organizing activities, financial liquidity, inclement weather, natural disasters, significant public health and safety events, supply constraints and general economic and political conditions that could limit their ability to provide us with quality products. As discussed in "Item 1.
Our supply chain is subject to risks, including distribution and transportation, labor disputes or constraints, union organizing activities, financial liquidity, inclement weather, natural disasters, significant public health and safety events, supply constraints and general economic and political conditions that could limit our suppliers' ability to provide us with quality products.
Our success depends on, among other things, increasing comparable store sales through our opportunistic purchasing strategy and the ability of the IOs to increase sales and profits.
The IOs are responsible for store operations. Our success depends on, among other things, increasing comparable store sales through our opportunistic purchasing strategy and the ability of the IOs to increase sales and profits.
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.
For example, there have been significant fires across the west coast of the United States over the last several years, 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.
Additionally, we may desire to or need to expand into neighboring states and regions in the United States and/or engage in acquisitions to meet our growth goals, and such expansion heightens the risks, challenges and uncertainties of development. We may not have the level of cash flow or financing necessary to support our growth strategy.
Additionally, we may expand into neighboring states and regions in the United States and/or engage in acquisitions (such as our pending acquisition of United Grocery Outlet) to meet our growth goals, and such expansion heightens the risks, challenges and uncertainties of development. We may not have the level of cash flow or financing necessary to support our growth strategy.
While we may invest more in the future in developing our own private labels, there can be no assurance that the performance of any such private label products would be sufficient to offset the potential decreased sales of name-brand products.
While we have started to invest in developing and selling our own private labels, there can be no assurance that the performance of any such private label products would be sufficient to offset the potential decreased sales of name-brand products.
As of December 31, 2022, we had tax-effected Federal and State deferred tax assets of $45.3 million and $3.1 million, respectively. Our ability to use our deferred tax assets is dependent on our ability to generate future earnings within the operating loss carry-forward periods.
As of December 30, 2023, we had tax-effected Federal and State net operating loss deferred tax assets of $30.4 million and $1.4 million, respectively. Our ability to use our deferred tax assets is dependent on our ability to generate future earnings within the operating loss carry-forward periods.
While we maintain business interruption insurance, in the event our distribution centers are shut down for any reason, such insurance may not be sufficient, and any related insurance proceeds may not be timely paid to us.
While we maintain business interruption and cybersecurity insurance, in the event our distribution centers are shut down for any reason, such insurance may not be sufficient and any related insurance proceeds may not be timely paid to us, and our reputation and customer relationships could still be adversely impacted.
When we assign leases or sublease space to third parties, we may have to pay a portion of the rent and other expenses and we can remain liable on the lease obligations if the assignee or sublessee does not perform. We have very limited experience competing in the growing online retail marketplace.
When we assign leases or sublease space to third parties, we may have to pay a portion of the rent and other expenses and we can remain liable on the lease obligations if the assignee or sublessee does not perform.
We may incur losses not covered by our insurance or claims may differ from our estimates. Our insurance coverage may not be sufficient, and any related insurance proceeds may not be timely paid to us. Our insurance coverage reflects deductibles, self-insured retentions, limits of liability and similar provisions that we believe are reasonable based on our operations.
Our insurance coverage may not be sufficient, and any related insurance proceeds may not be timely paid to us. Our insurance coverage reflects deductibles, self-insured retentions, limits of liability and similar provisions that we believe are reasonable based on our operations.
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.
While we have launched a mobile personalization app in some states and are increasing the rollout to additional states in fiscal 2024, 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.
UNRESOLVED STAFF COMMENTS None. 37 Table of Contents
UNRESOLVED STAFF COMMENTS None. 40 Table of Contents
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.
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.
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.
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. We may incur losses not covered by our insurance or claims may differ from our estimates.
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.
As of December 30, 2023, we operated 267 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 57% of our total stores.
We may not manage our expansion effectively, and our failure to achieve or properly execute our expansion plans could limit our growth or have a material adverse effect on our business, financial condition and results of operations. Our success depends upon the successful implementation of our marketing, advertising and promotional efforts.
We may not manage our expansion effectively, and our failure to achieve or properly execute our expansion plans could limit our growth or have a material adverse effect on our business, financial condition and results of operations.
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 total lease payment obligations for all operating leases in existence as of December 30, 2023 was $132.6 million for fiscal 2024 and $1.4 billion in aggregate for fiscal years 2025 through 2043, and these obligations will increase as we open new stores that are leased.
Any of these factors may disrupt our business and materially adversely affect our financial condition and results of operations and the occurrence of any of these events in a region where our stores or other operations are concentrated may increase the impact of such disruption and adverse effect.
Any of these occurrences may disrupt our business and materially adversely affect our financial condition and results of operations and the occurrence of any of these events in a region where our stores or other operations are concentrated may increase the impact of such disruption and adverse effect. We have very limited experience competing in the growing online retail marketplace.
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.
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. Our success depends upon the successful implementation of our marketing, advertising and promotional efforts.
The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Further, any issuance of additional equity securities by us may result in additional dilution to you. Provisions in our organizational documents could delay or prevent a change of control.
In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Further, any issuance of additional equity securities by us may result in additional dilution to you.
We use three primary leased distribution centers that we operate and five primary distribution centers operated by third-parties. Any disruption, unanticipated or unusual expense or operational failure related to this process could affect store operations negatively.
Deliveries to our stores occur from our distribution centers or directly from our suppliers. We use three primary leased distribution centers that we operate and five primary distribution centers operated by third-parties. Any disruption, unanticipated or unusual expense or operational failure related to these processes and systems could affect store operations negatively.
A material decrease in profitability of the IOs may make it more difficult for us to attract and retain qualified IOs.
A material decrease in profitability of the IOs may make it more difficult for us to attract and retain qualified IOs. Our relationship with the IOs is an important part of our business.
Due to the uniqueness of our model, the unexpected loss of services of any of our executive officers or other key personnel could have a material adverse effect on our business and operations. We do not maintain key person insurance on any of our key personnel. Effective January 1, 2023, Mr.
Due to the uniqueness of our model, the unexpected loss of services of any of our executive officers or other key personnel could have a material adverse effect on our business and operations.
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.
For example, there have been significant fires across the west coast of the United States over the last several years. 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.
As a result, fluctuations in our ultimate obligations may differ materially from amounts recorded in our financial statements and could adversely affect our business, financial condition and results of operations in the periods where such determination is made. In addition, certain states and local jurisdictions have approved or proposed gross receipt and other tax measures.
As a result, fluctuations in our ultimate obligations may differ materially from amounts recorded in our financial statements and could adversely affect our business, financial condition and results of operations in the periods where such determination is made.
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.
Additionally, our success depends in part on our executive officers and other key personnel. 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.
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.
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. 17 Table of Contents 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.
Any failure to appropriately address some or all of these risks could have a material adverse effect on our sales, business, results of operations and financial condition. 22 Table of Contents Risks Related to Our IO Model If the IOs are not successful in managing their business, our financial results and brand image could be negatively affected.
Any failure to appropriately address some or all of these risks could have a material adverse effect on our sales, business, results of operations and financial condition. 26 Table of Contents Risks Related to Our IO Model If we are unable to attract and retain qualified IOs, our financial performance may be negatively affected.
Our stores are highly dependent on the successful operations of our distribution network, including because IOs typically order multiple deliveries per week and many of our products have a limited shelf life from the time of purchase, particularly opportunistic buys and fresh foods. Deliveries to our stores occur from our distribution centers or directly from our suppliers.
Our stores are highly dependent on the successful operations of our distribution, transportation and technology networks, as IOs use these systems to order multiple deliveries per week and many of our products have a limited shelf life from the time of purchase, particularly opportunistic buys and fresh foods.
When the lease term for our stores expire, we may be unable to negotiate renewals, either on commercially reasonable terms or at all, which could cause us to close stores or to relocate stores within a market on less favorable terms.
When the lease term for our stores expire, we may be unable to negotiate renewals, either on commercially reasonable terms or at all, which could cause us to close stores or to relocate stores within a market on less favorable terms. 20 Table of Contents 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.
We may not successfully address consumer trends or be able to acquire desirable opportunistic products, and we expect competition for customers to increase as online shopping by customers continues to expand. In response to recent macroeconomic conditions, many CPGs reduced SKU assortment, resulting in lower levels of opportunistic product.
We may not successfully address consumer trends or be able to acquire desirable opportunistic products, and we expect competition for customers to increase as online shopping by customers continues to expand.

… 76 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+1 added−0 removed1 unchanged
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).
Biggest changeITEM 2. PROPERTIES As of December 30, 2023, we leased 467 of our 468 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 (267), Washington (72), Oregon (61), Pennsylvania (31), Idaho (13), Nevada (11), Maryland (8), New Jersey (4) and Ohio (1).
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 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 2026 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.
Added
We intend to continue to invest in our distribution and logistics infrastructure in order to support our anticipated store growth over the long term, including as we enter new geographies. 42 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

2 edited+1 added−0 removed1 unchanged
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.
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 13 weeks ended December 30, 2023.
MINE SAFETY DISCLOSURES Not applicable. 40 Table of Contents PART II
MINE SAFETY DISCLOSURES Not applicable. 44 Table of Contents PART II
Added
SEC regulations require us to disclose information about certain environmental proceedings if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold. Pursuant to SEC regulations, we use a threshold of $1.0 million for purposes of determining whether disclosure of any such proceedings is required. 43 Table of Contents ITEM 4.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+2 added−1 removed5 unchanged
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.
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 30, 2023 for: • Grocery Outlet Holding Corp. • Nasdaq Global Market Composite Index • Nasdaq US Benchmark Retailers Index 45 Table of Contents 6/20/2019 12/28/2019 1/2/2021 1/1/2022 12/31/2022 12/30/2023 Grocery Outlet Holding Corp. $ 100.00 $ 117.40 $ 137.67 $ 99.19 $ 102.39 $ 94.56 Nasdaq Global Market Composite Index $ 100.00 $ 107.91 $ 170.37 $ 142.69 $ 67.69 $ 66.29 Nasdaq US Benchmark Retailers Index $ 100.00 $ 112.61 $ 167.61 $ 194.52 $ 133.28 $ 182.93 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.
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.
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 our subsidiary.
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.
As of February 22, 2024, there were 10 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.
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).
This program, effective November 5, 2021 and without an expiration date, authorizes us to repurchase, from time to time and at prices the Company deems appropriate, 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 repurchases 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).
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.
Further, our ability to pay dividends on our common stock is subject to restrictions under our 2023 Credit Agreement, and may be further restricted by the terms of any future debt or preferred securities. See NOTE 6— Long-term Debt to our Consolidated Financial Statements for additional information about our 2023 Credit Agreement.
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.
(2) In November 2021, our Board of Directors approved a share repurchase program.
Removed
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
Added
Unregistered Sales of Equity Securities None. 46 Table of Contents Issuer Purchases of Equity Securities The following table sets forth information on our share repurchase program activity during the fourth quarter of fiscal 2023 (amounts in thousands, except share and per share data): Period Total Number of Shares Purchased Average Price Paid Per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) October 1, 2023—October 28, 2023 69,554 $ 26.75 69,554 $ 91,422 October 29, 2023—November 25, 2023 27,939 26.93 27,939 90,671 November 26, 2023—December 30, 2023 34,161 26.97 34,161 89,751 Total fourth quarter 131,654 $ 26.84 131,654 _______________________ (1) Includes commissions for the shares repurchased under the share repurchase program.
Added
In addition to the Company's discretion, such repurchases are subject to, among other things, market conditions, applicable legal requirements and debt covenants. The shares purchased were made in open-market transactions pursuant to a Rule 10b5-1 plan. ITEM 6. [RESERVED] 47 Table of Contents

Item 7. Management's Discussion & Analysis

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

73 edited+25 added−29 removed35 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 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.
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 30, 2023 December 31, 2022 January 1, 2022 Net income $ 79,437 $ 65,052 $ 62,310 Interest expense, net 16,361 17,967 15,564 Income tax expense 24,644 10,697 15,191 Depreciation and amortization expenses 87,982 78,251 71,124 EBITDA 208,424 171,967 164,189 Share-based compensation expenses (1) 31,091 32,556 17,615 Loss on debt extinguishment and modification (2) 5,340 1,274 — Asset impairment and gain or loss on disposition (3) 485 1,176 1,241 Acquisition costs (4) 459 — — Other (5) 6,822 7,709 (153) Adjusted EBITDA $ 252,621 $ 214,682 $ 182,892 53 Table of Contents Fiscal Year Ended December 30, 2023 December 31, 2022 January 1, 2022 Net income $ 79,437 $ 65,052 $ 62,310 Share-based compensation expenses (1) 31,091 32,556 17,615 Loss on debt extinguishment and modification (2) 5,340 1,274 — Asset impairment and gain or loss on disposition (3) 485 1,176 1,241 Acquisition costs (4) 459 — — Other (5) 6,822 7,709 (153) Amortization of purchase accounting assets and deferred financing costs (6) 5,838 10,877 11,821 Tax adjustment to normalize effective tax rate (7) (6,423) (10,084) (5,928) Tax effect of total adjustments (8) (14,936) (14,702) (8,318) Adjusted net income $ 108,113 $ 93,858 $ 78,588 GAAP earnings per share Basic $ 0.80 $ 0.67 $ 0.65 Diluted $ 0.79 $ 0.65 $ 0.63 Adjusted earnings per share Basic $ 1.10 $ 0.97 $ 0.82 Diluted $ 1.07 $ 0.94 $ 0.79 Weighted average shares outstanding Basic 98,709 96,812 95,725 Diluted 100,831 100,162 99,418 ___________________________ (1) Includes non-cash share-based compensation expense and less than $0.1 million, $0.1 million, and $0.2 million of cash dividends paid in fiscal 2023, 2022, and 2021 respectively, on vested share-based awards as a result of dividends declared in connection with recapitalizations that occurred in fiscal 2018 and 2016.
The aggregate principal amount of such incremental facilities are limited to (a) an amount not in excess of the sum of the greater of $200.0 million and 100% of Consolidated EBITDA (as defined in the Credit Agreement), subject to certain limitations, plus (b) voluntary prepayments of the term loan facility, voluntary permanent reductions of the commitments for the revolving credit facility and voluntary prepayments of indebtedness secured by liens on the collateral securing the credit facilities, subject to certain exceptions, plus (c) an amount such that (assuming that the full amount of any such incremental revolving increase and/or incremental replacement revolving credit facility was drawn, and after giving effect to any appropriate pro forma adjustment events) we would be in compliance, on a pro forma basis (but excluding the cash proceeds of such incurrence), with a total net leverage ratio of 3.00 to 1.00.
The aggregate principal amount of such incremental facilities are limited to (a) an amount not in excess of the sum of the greater of $200.0 million and 100% of Consolidated EBITDA (as defined in the 2023 Credit Agreement), subject to certain limitations, plus (b) voluntary prepayments of the term loan facility, voluntary permanent reductions of the commitments for the revolving credit facility and voluntary prepayments of indebtedness secured by liens on the collateral securing the credit facilities, subject to certain exceptions, plus (c) an amount such that (assuming that the full amount of any such incremental revolving increase and/or incremental replacement revolving credit facility was drawn, and after giving effect to any appropriate pro forma adjustment events) we would be in compliance, on a pro forma basis (but excluding the cash proceeds of such incurrence), with a Total Net Leverage Ratio (as defined in the 2023 Credit Agreement) of 3.00 to 1.00.
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.
Our customers' discretionary income is 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.
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.
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 2023.
The Credit Agreement contains certain covenants that, among other things, limit the our ability and the ability of our restricted subsidiaries to: pay dividends or distributions, repurchase equity, prepay junior debt and make certain investments; incur additional debt or issue certain disqualified stock and preferred stock; incur liens on assets; merge or consolidate with another company or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets; enter into transactions with affiliates; and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments to the borrower.
The 2023 Credit Agreement contains certain covenants that, among other things, limit the our ability and the ability of our restricted subsidiary to: pay dividends or distributions, repurchase equity, prepay junior debt and make certain investments; incur additional debt or issue certain disqualified stock and preferred stock; incur liens on assets; merge or consolidate with another company or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets; enter into transactions with affiliates; and allow to exist certain restrictions on the ability of our subsidiary to pay dividends or make other payments to the borrower.
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.
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 2023, 2022 and 2021.
Debt Covenants The Credit Agreement contains certain customary representations and warranties, subject to limitations and exceptions, and affirmative and customary covenants.
Debt Covenants The 2023 Credit Agreement contains certain customary representations and warranties, subject to limitations and exceptions, and affirmative and customary covenants.
Our impairment calculations contain uncertainties because they require us to make assumptions and to apply judgment to estimate future cash flows. Key assumptions used in estimating future cash flows include projected sales growth and operating expenses.
Our impairment calculations contain uncertainties because they require us to make assumptions and to apply judgment to estimate future cash flows. Key assumptions used in estimating future cash flows include projected sales growth, gross margin and operating expenses.
Estimates of sales growth and operating expenses are based on internal projections and consider the store’s historical performance, length of time the store has been open, the local market economics and the business environment impacting the store’s performance.
Estimates of sales growth, gross margin and operating expenses are based on internal projections and consider the store’s historical performance, length of time the store has been open, the local market economics and the business environment impacting the store’s performance.
The new senior secured credit facilities of the Credit Agreement permit us to add incremental term loan facilities, increase any existing term loan facility, increase revolving commitments, and/or add incremental replacement revolving credit facility tranches.
The senior secured credit facilities of the 2023 Credit Agreement permit us to add incremental term loan facilities, increase any existing term loan facility, increase revolving commitments, and/or add incremental replacement revolving credit facility tranches.
(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.
(7) 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 expenses or benefits related to stock option exercises and vesting of restricted stock units that are recorded in earnings as discrete items in the reporting period in which they occur.
Recent Accounting Pronouncements Refer to NOTE 1—Organization and Summary of Significant Accounting Policies to our Consolidated Financial Statements. 60 Table of Contents
Recent Accounting Pronouncements Refer to NOTE 1—Organization and Summary of Significant Accounting Policies to our Consolidated Financial Statements. 61 Table of Contents
Gross margin is a measure used by management to indicate whether we are selling merchandise at an appropriate gross profit. Gross margin is impacted by product mix and availability, as some products generally provide higher gross margins, and by our merchandise costs, which can vary.
Gross margin is a measure used by 49 Table of Contents management to indicate whether we are selling merchandise at an appropriate gross profit. Gross margin is impacted by product mix and availability, as some products generally provide higher gross margins, and by our merchandise costs, which can vary.
On February 21, 2023, we entered into the Credit Agreement, which provides for senior secured credit facilities consisting of (i) a senior secured term loan facility in an aggregate principal amount of $300.0 million and (ii) a senior secured revolving credit facility in an aggregate principal amount of $400.0 million.
On February 21, 2023, we entered into the 2023 Credit Agreement, which provides for senior secured credit facilities consisting of (i) a senior secured term loan facility (the "senior term loan") in an original aggregate principal amount of $300.0 million and (ii) a senior secured revolving credit facility (the "revolving credit facility" and, together with the senior term loan, the "new credit facilities") in an aggregate principal amount of $400.0 million.
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.
Adjusted EBITDA represents EBITDA adjusted to exclude share-based compensation expense, loss on debt extinguishment and modification, asset impairment and gain or loss on disposition, acquisition costs 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.
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.
For discussion related to the results of operations and changes in financial condition for fiscal 2022 compared to fiscal 2021 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 December 31, 2022.
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.
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 30, 2023, we had cash and cash equivalents of $115.0 million, which consisted primarily of cash held in checking and money market accounts with financial institutions.
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.
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 as a result of 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 higher variability to our gross margins.
See the "Operating Metrics and Non-GAAP Financial Measures" section below for additional information about these items, including their definitions, how management utilizes such non-GAAP financial measures and reconciliations of the non-GAAP measures and the most directly comparable GAAP measures.
See the "Operating Metrics and Non-GAAP Financial Measures" section below for additional information about these items, including their definitions, how the non-GAAP measures provide useful information to investors and how management utilizes them, and reconciliations of the non-GAAP measures and the most directly comparable GAAP measures.
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.
Our purchase commitments consist of non-cancelable obligations under service and supply contracts. As of December 30, 2023, we had total purchase obligations of $4.9 million, with $4.6 million payable during fiscal 2024. Share Repurchases and Dividends We may repurchase our common stock pursuant to programs approved by our Board of Directors.
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.
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 30, 2023 were $642.5 million and $945.7 million, respectively.
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.
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 30, 2023 December 31, 2022 January 1, 2022 Other Financial and Operations Data Number of new stores 28 27 36 Number of stores open at end of period 468 441 415 Comparable store sales increase (decrease) (1) 7.5 % 11.8 % (6.0) % EBITDA (2) $ 208,424 $ 171,967 $ 164,189 Adjusted EBITDA (2) $ 252,621 $ 214,682 $ 182,892 Adjusted net income (2) $ 108,113 $ 93,858 $ 78,588 _______________________ (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.
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.
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, governmental benefit programs such as the Supplemental Nutrition Assistance Program and discretionary income.
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.
As compared to capital expenditures of $175.6 million, net of tenant improvement allowances, in fiscal 2023, we expect to incur capital expenditures of approximately $170.0 million, net of tenant improvement allowances, in fiscal 2024, primarily related to new store openings, ongoing store maintenance and improvements and systems and infrastructure investments.
The Credit Agreement also contains financial performance covenants requiring us to satisfy a maximum total net leverage ratio test and a minimum interest coverage ratio test as of the last day of each fiscal quarter ending on or after April 1, 2023, as specified therein.
The 2023 Credit Agreement also contains financial performance covenants requiring us to satisfy a maximum total net leverage ratio test and a minimum interest coverage ratio test as of the last day of each fiscal quarter.
(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.
(6) Represents the amortization of debt issuance costs as well as the 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.
(9) Represents the tax effect of the total adjustments.
(8) Represents the tax effect of the total adjustments.
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.
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.
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 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.
(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.
(5) Represents other non-recurring, non-cash or non-operational items, such as technology upgrade implementation costs, strategic project costs, costs related to employer payroll taxes associated with equity awards, legal settlements and other legal expenses, store closing costs, certain personnel-related costs and miscellaneous costs.
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.
We operate on a fiscal year that ends on the Saturday closest to December 31st each year. References to fiscal 2023, fiscal 2022, and fiscal 2021 refer to the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively. Our 2023, 2022 and 2021 fiscal years all consisted of 52 weeks.
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.
Comparable store sales increased 7.5% for fiscal 2023 compared to fiscal 2022. The increase was driven by an 8.3% increase in the number of transactions combined with a 0.8% decrease in average transaction size.
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.
Furthermore, planned construction and opening of new stores has been, 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, causing our new store growth in fiscal 2022 and 2023 to be below our long-term strategic goal of 10% annualized store growth on average .
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.
Debt Obligations and Interest Payments See NOTE 6—Long-term Debt to our Consolidated Financial Statements for further detail of our 2023 Credit Agreement, which consists of a senior term loan with $294.4 million of principal outstanding as of December 30, 2023 and a revolving credit facility for an amount up to $400.0 million, and the timing of principal maturities.
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.
We use operating income as an indicator of the productivity of our business and our ability to manage expenses. 50 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 30, 2023 December 31, 2022 January 1, 2022 Net sales $ 3,969,453 $ 3,578,101 $ 3,079,582 Cost of sales 2,727,774 2,486,002 2,130,796 Gross profit 1,241,679 1,092,099 948,786 Selling, general and administrative expenses 1,115,897 997,109 859,691 Operating income 125,782 94,990 89,095 Other expenses (income): Interest expense, net 16,361 17,967 15,564 Gain on insurance recoveries — — (3,970) Loss on debt extinguishment and modification 5,340 1,274 — Total other expenses (income) 21,701 19,241 11,594 Income before income taxes 104,081 75,749 77,501 Income tax expense 24,644 10,697 15,191 Net income and comprehensive income $ 79,437 $ 65,052 $ 62,310 Fiscal Year Ended December 30, 2023 December 31, 2022 January 1, 2022 Percentage of net sales (1) Net sales 100.0 % 100.0 % 100.0 % Cost of sales 68.7 % 69.5 % 69.2 % Gross profit 31.3 % 30.5 % 30.8 % Selling, general and administrative expenses 28.1 % 27.9 % 27.9 % Operating income 3.2 % 2.7 % 2.9 % Other expenses (income): Interest expense, net 0.4 % 0.5 % 0.5 % Gain on insurance recoveries — % — % (0.1) % Loss on debt extinguishment and modification 0.1 % — % — % Total other expenses (income) 0.5 % 0.5 % 0.4 % Income before income taxes 2.6 % 2.1 % 2.5 % Income tax expense 0.6 % 0.3 % 0.5 % Net income and comprehensive income 2.0 % 1.8 % 2.0 % _______________________ (1) Components may not sum to totals due to rounding. 51 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.
These judgments and estimates are based on historical experience and other factors believed to be reasonable under the circumstances.
We evaluate our estimates and assumptions on an ongoing basis. Our judgments and estimates are based on historical experience and other factors believed to be reasonable under the circumstances.
The following critical accounting policy reflects a significant estimate and judgment used in the preparation of our consolidated financial statements. With respect to critical accounting policies, even a relatively minor variance between actual and expected results can potentially have a materially favorable or unfavorable impact on subsequent results of operations.
With respect to critical accounting policies, even a relatively minor variance between actual and expected results can potentially have a materially favorable or unfavorable impact on subsequent results of operations.
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.
As of December 30, 2023, total lease assets and lease liabilities were $952.1 million and $1.1 billion, respectively, and we had executed leases for 41 store locations that we had not yet taken possession of with total undiscounted future lease payments of $229.5 million and lease terms through 2043.
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 calculate the tax effect of the total adjustments on a discrete basis excluding any non-recurring and unusual tax items. 54 Table of Contents Comparison of fiscal 2023 to fiscal 2022 (amounts in thousands, except percentages) Net Sales Fiscal Year Ended December 30, 2023 December 31, 2022 $ Change % Change Net sales $ 3,969,453 $ 3,578,101 $ 391,352 10.9 % The increase in net sales for fiscal 2023 compared to fiscal 2022 was primarily attributable to an increase in comparable store sales as well as non-comparable store net sales growth primarily from the 27 net new stores opened during fiscal 2023, partially offset by disruptions related to our aforementioned system upgrades.
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 store-related expenses include commissions paid to IOs, occupancy and our portion of maintenance costs, depreciation and amortization of store-related assets and the cost of opening new IO stores. Company-operated store-related expenses also include payroll, benefits, supplies and utilities.
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).
Cost of Sales Fiscal Year Ended December 30, 2023 December 31, 2022 $ Change % Change Cost of sales $ 2,727,774 $ 2,486,002 $ 241,772 9.7 % % of net sales 68.7 % 69.5 % The increase in cost of sales for fiscal 2023 compared to fiscal 2022 was primarily the result of an increase in comparable store sales combined with non-comparable sales from 27 net new stores opened during fiscal 2023.
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").
Adjusted Net Income Fiscal Year Ended December 30, 2023 December 31, 2022 $ Change % Change Adjusted net income $ 108,113 $ 93,858 $ 14,255 15.2 % The increase in adjusted net income for fiscal 2023 compared to fiscal 2022 was primarily attributable to an increase in comparable store sales of 7.5% for fiscal 2023 as well as higher net sales resulting from new store growth, combined with increased gross margin. 57 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 "2023 Credit Agreement").
Included in our comparable store definition are those stores that have been remodeled, expanded, or relocated in their existing location or respective trade areas. Excluded from our comparable store definition are those stores that have been closed for an extended period as well as any planned store closures or dispositions.
Included in our comparable store definition are those stores that have been remodeled, expanded, or relocated in their existing location or respective trade areas.
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.
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 prior credit facilities 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. 60 Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP.
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.
Loss on Debt Extinguishment and Modification Fiscal Year Ended December 30, 2023 December 31, 2022 $ Change % Change Loss on debt extinguishment and modification $ 5,340 $ 1,274 $ 4,066 319.2 % % of net sales 0.1 % — % During fiscal 2023, we recorded a $5.3 million loss on debt extinguishment related to the payoff of $385.0 million of principal on the senior term loan outstanding under our prior credit facilities.
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. 48 Table of Contents Beginning with the fourth quarter of fiscal 2022, we updated our definitions of adjusted EBITDA, adjusted net income and adjusted earnings per share to no longer exclude the impact of non-cash rent expense and the provision for (write-off of) accounts receivable reserves.
Our presentation of EBITDA, adjusted EBITDA, adjusted net 52 Table of Contents 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.
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.
As of December 30, 2023, we were in compliance with all applicable financial covenant requirements for our 2023 Credit Agreement. 59 Table of Contents Cash Flows The following table summarizes our cash flows for the periods presented (amounts in thousands): Fiscal Year Ended December 30, 2023 December 31, 2022 January 1, 2022 Net cash provided by operating activities $ 303,447 $ 185,511 $ 165,587 Net cash used in investing activities (194,165) (149,931) (136,713) Net cash provided by (used in) financing activities (97,023) (72,937) 5,885 Net increase (decrease) in cash and cash equivalents $ 12,259 $ (37,357) $ 34,759 Cash Provided by Operating Activities Net cash provided by operating activities was $303.4 million for fiscal 2023 compared to $185.5 million for fiscal 2022.
EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share are also frequently used by analysts, investors and other interested parties to evaluate us and other companies in our industry.
EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share are also frequently used by analysts, investors and other interested parties to evaluate us and other companies in our industry. Management believes it is useful to investors and analysts to evaluate these non-GAAP measures on the same basis as management uses to evaluate our operating results.
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.
Selling, General and Administrative Expenses Fiscal Year Ended December 30, 2023 December 31, 2022 $ Change % Change SG&A $ 1,115,897 $ 997,109 $ 118,788 11.9 % % of net sales 28.1 % 27.9 % The increase in SG&A for fiscal 2023 compared to fiscal 2022 was driven by $98.0 million in higher store-related expenses and $20.8 million in higher corporate-related expenses.
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.
Macroeconomic Conditions and Recent Developments Over the past several years, and to a lesser extent recently, our business has been and continues to be impacted by macroeconomic conditions including supply chain and labor challenges, inflation and subsequent disinflation, and changes in consumer behavior, and our IOs have been impacted by staffing challenges, increased labor costs and utility costs within their businesses.
The $19.9 million increase was primarily due to higher net sales driven by an increase in comparable store sales combined with changes to our working capital balances. Changes to trade accounts payable and accrued compensation increased net cash flow provided by operating activities, which were partially offset by changes to merchandise inventory levels.
The $117.9 million increase was primarily driven by higher trade accounts payable, higher accrued expenses and changes in merchandise inventory levels, combined with increased net sales driven by comparable stores sales and new store growth, partially offset by increases in prepaid expenses.
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).
Gross Profit and Gross Margin Fiscal Year Ended December 30, 2023 December 31, 2022 $ Change % Change Gross profit $ 1,241,679 $ 1,092,099 $ 149,580 13.7 % Gross margin 31.3 % 30.5 % The increase in gross profit for fiscal 2023 compared to fiscal 2022 was primarily the result of an increase in comparable store sales combined with non-comparable sales from 27 net new stores opened during fiscal 2023, partially offset by the late third quarter and fourth quarter of fiscal 2023 impacts related to our system upgrades.
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.
Fiscal 2023 Overview Key financial and operating performance results for our fiscal 2023 compared to our fiscal 2022 were as follows: • Net sales increased 10.9% to $3.97 billion for fiscal 2023 from $3.58 billion for fiscal 2022. • Comparable store sales increased by 7.5% in fiscal 2023, driven by a 8.3% increase in the number of transactions partially offset by a 0.8% decrease in average transaction size. • Gross margin increased by 80 basis points to 31.3%, compared to gross margin of 30.5% for fiscal 2022. • In late August, we implemented new technology platforms and, as a result, experienced disruptions which are estimated to have negatively impacted comparable store sales by approximately 90 basis points and gross margin by 50 basis points in fiscal 2023. • We opened 28 new stores and closed one, ending fiscal 2023 with 468 stores in nine states. • Net income increased 22.1% to $79.4 million, or $0.79 per diluted share for fiscal 2023, compared to net income of $65.1 million, or $0.65 per diluted share, for fiscal 2022. • Adjusted EBITDA (1) increased 17.7% to $252.6 million for fiscal 2023 compared to $214.7 million for fiscal 2022. • Adjusted net income (1) increased 15.2% to $108.1 million, or $1.07 per adjusted diluted share (1) for fiscal 2023 compared to $93.9 million, or $0.94 per adjusted diluted share, for fiscal 2022. _______________________ (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.
In addition, we use adjusted EBITDA to supplement GAAP measures of performance to evaluate our performance in connection with compensation decisions. Management believes it is useful to investors and analysts to evaluate these non-GAAP measures on the same basis as management uses to evaluate our operating results.
In addition, we use adjusted EBITDA to supplement GAAP measures of performance to evaluate our performance in connection with compensation decisions.
Net Income Fiscal Year Ended December 31, 2022 January 1, 2022 $ Change % Change Net income $ 65,052 $ 62,310 $ 2,742 4.4 % % of net sales 1.8 % 2.0 % As a result of the foregoing factors, net income increased in fiscal 2022 compared to fiscal 2021.
See NOTE 10—Income Taxes to our Consolidated Financial Statements for additional information. 56 Table of Contents Net Income Fiscal Year Ended December 30, 2023 December 31, 2022 $ Change % Change Net income $ 79,437 $ 65,052 $ 14,385 22.1 % % of net sales 2.0 % 1.8 % As a result of the foregoing factors, net income increased in fiscal 2023 compared to fiscal 2022.
We may, from time to time, at our sole discretion, prepay or retire all or a portion of our outstanding debt. In April 2022, for example, we prepaid $75.0 million of principal on the senior term loan outstanding under our Prior First Lien Credit Agreement.
See NOTE 6—Long-term Debt to our Consolidated Financial Statements for further detail regarding the 2023 Credit Agreement and our prior first lien credit agreement. We may also, from time to time, at our sole discretion, prepay or retire all or a portion of our outstanding debt.
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.
Interest Expense, net Fiscal Year Ended December 30, 2023 December 31, 2022 $ Change % Change Interest expense, net $ 16,361 $ 17,967 $ (1,606) (8.9) % % of net sales 0.4 % 0.5 % The decrease in net interest expense for fiscal 2023 compared to fiscal 2022 was primarily driven by increased interest income from IO notes and cash and cash equivalents as well as $2.1 million in capitalized interest in fiscal 2023, partially offset by increased interest expense on loans.
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.
Income Tax Expense Fiscal Year Ended December 30, 2023 December 31, 2022 $ Change % Change Income tax expense $ 24,644 $ 10,697 $ 13,947 130.4 % % of net sales 0.6 % 0.3 % Effective tax rate 23.7 % 14.1 % The increase in income tax expense for fiscal 2023 compared to fiscal 2022 was primarily driven by higher pre-tax income.
The extent of the continuing impact of these factors on our operational and financial performance will depend on many factors, including certain factors outside of our control.
The extent of the continuing impact of these factors on our operational and financial performance will depend on many factors, including certain factors outside of our control. Our new store growth efforts for fiscal 2024 and beyond are focused on organic growth and new real estate opportunities that align with our long-term geographic expansion and store growth strategies.
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.
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.
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.
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. 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.
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.
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 subsidiary unless otherwise indicated or the context requires otherwise. 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.
Store-related expenses primarily increased as a result of 52 Table of Contents higher commission payments to IOs, reflecting gross profit growth, as well as higher store occupancy costs due to 26 net new stores opened during 2022. Corporate-related expenses increased largely due to higher incentive compensation, reflecting stronger financial performance versus the prior year.
Store-related expenses primarily increased as a result of higher commission payments to IOs, reflecting gross profit growth together with incremental support we elected to provide 55 Table of Contents to our IOs in connection with our system upgrades, as well as higher store occupancy costs due to 27 net new stores opened during 2023, partially offset by the recognition of e-commerce vendor obligations.
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.
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 credit facilities. See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information.
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.
In addition, we have a revolving credit facility with $400.0 million in borrowing capacity under our 2023 Credit Agreement. As of December 30, 2023, we had no borrowings outstanding under the revolving credit facility and $4.2 million of outstanding standby letters of credit, resulting in $395.8 million of remaining borrowing capacity available under this revolving credit facility.
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.
As of December 30, 2023, we had $89.8 million of repurchase authority remaining under the current share repurchase program. See "Item 5. 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.
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.
As of December 30, 2023, we had 468 stores in California, Washington, Oregon, Pennsylvania, Idaho, Nevada, Maryland, New Jersey and Ohio.
The term loan facility was borrowed in full on such date, and $25.0 million of the revolving credit facility was borrowed on such date, resulting in a remaining borrowing capacity of $375.0 million under the revolving credit facility.
The senior term loan was borrowed in full on such date, and $25.0 million of the revolving credit facility was borrowed on such date. Also on February 21, 2023, we repaid all of the outstanding indebtedness under our prior first lien credit agreement, as well as fees and expenses in connection therewith.
Operating income excludes interest expense, net, gain on insurance recoveries, loss on debt extinguishment and modification and income tax expense (benefit).
The reclassification of these items had no impact on net income, earnings per share, or retained earnings in the current or prior periods. Operating Income Operating income is gross profit less SG&A. Operating income excludes interest expense, net, gain on insurance recoveries, loss on debt extinguishment and modification and income tax expense.
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.
As of December 30, 2023, based on the then-current interest rate of 7.46%, expected future interest payments associated with our debt totaled $85.5 million, with $22.0 million payable during fiscal 2024. The 2023 Credit Agreement requires us to make scheduled quarterly amortization payments on the senior term loan.
See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information.
The increased interest expense on loans was due to increases in the effective borrowing rate on loans, partially offset by a decrease in principal debt outstanding over fiscal 2023. See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information.
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.
Costs as a percentage of net sales decreased for fiscal 2023 compared to fiscal 2022 primarily due to our changing assortment along with generally strong purchasing and inventory management in fiscal 2023, partially offset by the late third quarter and fourth quarter of fiscal 2023 impacts related to our system upgrades.
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.
The changes in trade accounts payable and accrued expenses were partially attributable to disruptions related to our aforementioned system upgrades. Cash Used in Investing Activities Net cash used in investing activities was $194.2 million for fiscal 2023 compared to $149.9 million for fiscal 2022.
Removed
We continue to utilize our unique buying model, our strong vendor relationships and our agile approach to inventory management to offer customers a compelling product assortment at a deep competitive value, however, like many companies in the grocery and retail sectors, we continue to experience increased product costs, which is being mitigated in part in higher retail pricing by us and IOs.
Added
Complementary growth opportunities may include expanding strategic relationships with large property owners, evaluating acquisitions of opportunistic real estate that become available through consolidation in the retail sector, and exploring strategic regional acquisitions of operating businesses.
Removed
These cost increases resulted in part from supply disruptions, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain and other disruptions. In addition to increased product costs, we have incurred greater selling, general and administrative expenses ("SG&A") related to personnel, travel, and other third party and operational costs due to the aforementioned factors.
Added
On February 14, 2024 we entered into a stock purchase agreement to acquire United Grocery Outlet, which includes 40 stores in six adjacent states we do not operate in currently (Tennessee, North Carolina, Georgia, Alabama, Kentucky and Virginia) and a company-operated distribution center. We expect this transaction to close early in the second quarter of fiscal 2024.
Removed
O ur planned new store growth in fiscal 2023 is also expected to be below our long-term strategic unit growth goal, however we expect the pace of openings to accelerate in the second half of the year to our 10% annualized new unit growth rate.
Added
In addition to the newly acquired United Grocery Outlet stores, we plan to open approximately 15 to 20 stores in existing markets in fiscal 2024, for a planned total of 55 to 60 net new stores in fiscal 2024.
Removed
Beginning with the fourth quarter of fiscal 2022, we updated our definitions of adjusted EBITDA, adjusted net income and adjusted earnings per share to no longer exclude the impact of non-cash rent expense and the provision for (write-off of) accounts receivable reserves.

… 47 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+1 added−1 removed1 unchanged
Biggest changeBased 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.
Biggest changeBased on the outstanding balance and interest rate of our senior term loan as of December 30, 2023, a hypothetical 10% relative in crease or decrease in the interest rate would cause an increase or decrease in interest expense, excluding the capitalization of interest, of approximately $2.2 million over t he next 12 months.
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.
While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we have experienced over the last several years 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 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).
As of December 30, 2023, the interest rate on the senior term loan was 7.46% (See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information).
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.
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 30, 2023, our outstanding borrowings includ ed $294.4 million from our senior term loan under the 2023 Credit Agreement.
Removed
See "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
Added
Similarly, our IOs have been impacted by staffing challenges and increased labor costs and utility costs within their businesses. Furthermore, our results of operations and financial condition may be materially impacted by inflation in the future. 62 Table of Contents

Other GO 10-K year-over-year comparisons