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What changed in Grocery Outlet Holding Corp.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Grocery Outlet Holding Corp.'s 2024 and 2025 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 2025 report.

+448 added−412 removedSource: 10-K (2025-02-26) vs 10-K (2024-02-28)

Top changes in Grocery Outlet Holding Corp.'s 2025 10-K

448 paragraphs added · 412 removed · 332 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

82 edited+26 added−39 removed46 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. 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").
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.
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.
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 (the "Board") and former Chief Executive Officer, has continued to advance this mission. Grocery Outlet Holding Corp. was incorporated in Delaware on September 11, 2014.
In addition, we and the IOs are subject to environmental laws, including but not limited to hazardous waste laws, regulations related to refrigeration and stormwater, pursuant to which we and/or the IOs could be strictly and jointly and severally liable, regardless of our knowledge or responsibility.
In addition, we and the IOs are subject to environmental laws, including but not limited to hazardous waste laws, and regulations related to refrigeration and stormwater, pursuant to which we and/or the IOs could be strictly and jointly and severally liable, regardless of our knowledge or responsibility.
Our differentiated model for buying and selling delivers a "WOW!" shopping experience, which generates customer excitement, inspires loyalty and supports profitable sales growth: • How we buy: We source quality, name-brand consumables and fresh products opportunistically through a large, centralized purchasing team that leverages long-standing and actively managed supplier relationships to acquire merchandise at significant discounts.
Our differentiated model for buying and selling delivers a "WOW!" shopping experience, which generates customer excitement, inspires loyalty and supports profitable sales growth: • How we buy: We source quality, name-brand consumables and fresh products opportunistically through a centralized purchasing team that leverages long-standing and actively managed supplier relationships to acquire merchandise at significant discounts.
Our speed and efficiency in responding to supplier needs, combined with our specialized supply chain capabilities and flexible merchandising strategy, enhance our access to discounted products and allow us to turn inventory quickly and profitably. Our buyers proactively source on-trend products based on changing consumer preferences, including a wide selection of Natural, Organic, Specialty and Healthy ("NOSH") products.
Our speed and efficiency in responding to supplier needs, combined with our specialized supply chain capabilities and flexible merchandising strategy, enhance our access to discounted products and allow us to turn inventory quickly and profitably. Our buyers proactively source on-trend products based on changing consumer preferences, including a wide selection of Natural, Organic, Specialty or Healthy ("NOSH") products.
We have modernized and added several systems that provide us additional functionality and scalability in order to better support operational decision-making, including enhanced point of sale, warehouse management, human resource planning, business intelligence, vendor tracking and lead management, store communications, real estate lease management and financial planning and analysis systems.
We have added several systems that provide us additional functionality and scalability in order to better support operational decision-making, including enhanced point of sale, warehouse management, human resource planning, business intelligence, vendor tracking and lead management, store communications, real estate lease management and financial planning and analysis systems.
We generally share 50% of store-level gross profits with IOs, thereby incentivizing them to grow their business profitably and realize financial upside. The independent operator agreement (the "Operator Agreement") that we sign with each IO gives the IO broad responsibility over store-level decision-making, unlike a store manager of a traditional retailer.
We generally share 50% of store-level gross profits with IOs, thereby incentivizing them to grow their business profitably to realize financial upside. The independent operator agreement (the "Operator Agreement") that we sign with each IO gives the IO broad responsibility over store-level decision-making, unlike a store manager of a traditional retailer.
We selected and developed these technologies to provide the flexibility and functionality to support our unique buying and selling model as well as to identify and respond to merchandising and operating trends in our business. The ongoing modernization, enhancement and maintenance of our information systems have allowed us to support the growth in our business and store base.
We selected and developed these technologies to provide the flexibility and functionality to support our unique buying and selling model as well as to identify and respond to merchandising and operating trends in our business. The modernization, enhancement and maintenance of our information systems have allowed us to support the growth in our business and store base.
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.
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, waste reduction and the operation of stores and warehouse facilities.
Unlike a store manager of a traditional retailer, IOs are independent businesses and are responsible for store operations, including ordering, merchandising and managing inventory, marketing locally and directly hiring, training and employing their store workers. IOs initially contribute capital to establish their business and share store-level gross profits with us.
Unlike a store manager of a traditional retailer, IOs are independent businesses and are responsible for store operations, including ordering, merchandising and managing inventory, marketing locally and directly hiring, training and employing their store workers. IOs initially contribute capital to establish their business and generally share 50% of store-level gross profits with us.
Each store offers a curated and ever-changing assortment of items, creating a "buy now" sense of urgency that promotes return visits and fosters customer loyalty. • How we sell: Our stores are independently operated by entrepreneurial small business owners who have a relentless focus on selecting the best products for their communities, providing personalized customer service and driving improved store performance.
Each store offers a curated and ever-changing assortment of items, creating a "buy now" sense of urgency that promotes return visits and fosters customer loyalty. • How we sell: Our Grocery Outlet stores are independently operated by entrepreneurial IOs, who are small business owners that have a relentless focus on selecting the best products for their communities, providing personalized customer service and driving improved store performance.
IOs choose merchandise from our order guide according to their knowledge and experience with local customer purchasing trends, preferences, historical sales and other related factors. IOs are able to uniquely display and merchandise product in order to appeal to their local customer base.
IOs choose merchandise from our order guide according to their knowledge and experience with local customer purchasing trends, preferences, historical sales and other related factors. IOs are able to uniquely display and merchandise products in order to appeal to their local customer base.
To protect our brand and reputation, the Operator Agreement requires IOs to adhere to brand standards, including cleanliness, customer service, store appearance, conducting their business in compliance with all laws and observing requirements for storing, handling and selling merchandise. As consignor of all merchandise, the aggregate sales proceeds belong to us.
To protect our brand and reputation, the Operator Agreement requires IOs to adhere to brand standards, including cleanliness, customer service, store appearance, conducting their business in compliance with all laws and observing requirements for storing, handling and selling merchandise. 6 Table of Contents As consignor of all merchandise, the aggregate sales proceeds belong to us.
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.
In recent years, we have 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.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for our Annual Meeting of Stockholders are available, free of charge, on our website as soon as practicable after the we file the reports with the SEC.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for our Annual Meeting of Stockholders are available, free of charge, on our website as soon as practicable after we file the reports with the SEC. 12 Table of Contents
We rely on trademark and copyright laws, trade-secret protection and confidentiality, license and other agreements with the IOs, suppliers, employees and others to protect our intellectual property. Regulations We and the IOs are subject to regulation by various federal agencies, including the Food and Drug Administration (the "FDA"), the Federal Trade Commission (the "FTC"), the U.S.
We rely on trademark and copyright laws, trade-secret protection and confidentiality, license and other agreements with the IOs, suppliers, employees and others to protect our intellectual property. 9 Table of Contents Regulations We and the IOs are subject to regulation by various federal agencies, including the Food and Drug Administration (the "FDA"), the Federal Trade Commission (the "FTC"), the U.S.
In general, our purchase orders require that suppliers be compliant and represent and warrant to compliance with laws and require indemnification and/or insurance from our suppliers and manufacturers. However, even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer confidence in products we sell.
In general, our purchase orders require that suppliers be compliant and represent and warrant to compliance with laws and require indemnification and/or insurance from our suppliers and manufacturers. 10 Table of Contents However, even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer confidence in the products we sell.
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.
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 data analytics to make our marketing efforts more effective and efficient. IOs develop and fund their local marketing plan to drive customer engagement.
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.
Opportunistically sourced products represent a substantial portion of our purchasing mix. We refer to our best opportunistic purchases as "WOW!" deals, which generally represent deep discounts of 40% to 70% relative to conventional retailers. These products encourage repeat shopper visits and typically sell quickly due to their compelling value, short duration and continually changing availability.
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.
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 28, 2024, our 533 total stores averaged approximately 14,000 square feet on the sales floor.
We also regularly deploy updated fixtures, signage and enhanced in-store marketing to further improve the shopping experience, which we believe results in higher customer traffic and average basket sizes. We believe that new store growth remains our biggest driver of long-term stockholder value.
We also regularly deploy updated fixtures, signage and enhanced in-store marketing to further improve the shopping experience, which we believe results in higher customer traffic and average basket sizes. 7 Table of Contents We believe that strategic new store growth remains a significant and critical driver of long-term stockholder value.
A majority of the assortment in each Grocery Outlet store is selected by IOs based on local preference and shopping history while the remaining assortment is delivered to stores to support marketing circulars and manage "sell-by" dates.
Stores are assorted and merchandised uniquely by IOs providing a "WOW!" treasure hunt shopping experience. A majority of the assortment in each Grocery Outlet store is selected by IOs based on local preference and shopping history while the remaining assortment is delivered to stores to support marketing circulars and manage "sell-by" dates.
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.
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.
We have several customized systems and tools in place, including our ordering system that allows IOs to see our real-time inventory and provides ordering suggestions based on local store characteristics. We continue to implement operational initiatives to support IOs in enhancing the customer experience.
We have several customized systems and tools in place, including our ordering system that is designed to provide IOs visibility to our current inventory and ordering suggestions based on local store characteristics. We continue to implement operational initiatives to support IOs in enhancing the customer experience.
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.
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 employees' skill sets and career paths.
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 encourage internal promotions and hiring for open positions. During fiscal 2024 , we promoted 141 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.
Under the Operator Agreement, we provide IOs with the right to occupy the store premises solely to operate the retail store on the terms set forth in the Operator Agreement.
We lease and build out each Grocery Outlet location. Under the Operator Agreement, we provide IOs with the right to occupy the store premises solely to operate the retail store on the terms set forth in the Operator Agreement.
The FDA has comprehensive authority to regulate the safety, ingredients, labeling and good manufacturing practices for dietary supplements. The Dietary Supplement Health and Education Act (the "DSHEA") amended the FDCA in 1994 and expanded the FDA's regulatory authority over dietary supplements. Through DSHEA, dietary supplements became a regulated commodity while also allowing structure/function claims on products.
The Dietary Supplement Health and Education Act (the "DSHEA") amended the FDCA in 1994 and expanded the FDA's regulatory authority over dietary supplements. Through DSHEA, dietary supplements became a regulated commodity while also allowing structure/function claims on products.
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.
Trademarks and Other Intellectual Property We own federally registered trademarks related to our Grocery Outlet Bargain Market 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.
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.
ITEM 1. BUSINESS Our Company Grocery Outlet is a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold primarily through a network of independently operated stores. As of December 28, 2024, we had 533 stores in California, Washington, Oregon, Pennsylvania, Tennessee, Idaho, Maryland, Nevada, North Carolina, New Jersey, Georgia, Ohio, Alabama, Delaware, Kentucky and Virginia.
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.
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.
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.
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.
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.
Further, we 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, once optimized, will result in valuable business insights and operational improvements.
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.
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. We believe that strategic new store growth remains a significant and critical driver of long-term stockholder value.
To alleviate the disruption caused by the system upgrades that we implemented in late August 2023 and are more fully described below under "Business Technology", we elected to provide incremental commission support to IOs beginning in the third quarter of fiscal 2023 and extending into the first quarter of fiscal 2024. We lease and build out each Grocery Outlet location.
To alleviate the disruption caused by the system upgrades that we implemented in late August 2023 and as more fully described below under "Business Technology," we elected to provide commission support to IOs beginning in the third quarter of fiscal 2023 through fiscal 2024. We continue to provide minimal commission support to IOs for inventory shrinkage.
The U.S. Department of Agriculture regulates these programs and their eligibility requirements. The registration and ongoing compliance requirements for SNAP participation are fairly complex and each of the IOs holds their registration under the name of their business entity and is responsible to ensure that their employees consistently comply with all SNAP rules.
The registration and ongoing compliance requirements for SNAP participation are fairly complex and each of the IOs holds their registration under the name of their business entity and is responsible to ensure that their employees consistently comply with all SNAP rules. Food and Dietary Supplement Advertising — The FTC exercises jurisdiction over the advertising of foods and dietary supplements.
Each of our stores offers a fun, treasure hunt shopping experience in an easy-to-navigate, small-box format. An ever-changing assortment of "WOW!" deals, complemented by everyday staple products, generates customer excitement and encourages frequent visits from bargain-minded shoppers. Our flexible buying model allows us to offer quality, name-brand opportunistic products at prices generally 40% to 70% below those of conventional retailers.
Our headquarters is in Emeryville, California. Each of our stores offers a fun, treasure hunt shopping experience in an easy-to-navigate, small-box format. An ever-changing assortment of "WOW!" deals, complemented by everyday staple products, generates customer excitement and encourages frequent visits from bargain-minded shoppers.
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.
Our centralized sourcing team, consisting of our purchasing and inventory planning groups, has 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.
In recent years, the FTC has instituted numerous enforcement actions against companies carrying dietary supplements for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims.
The FTC has the power to impose monetary sanctions, consent decrees and/or other penalties that can severely limit a company's business practices. In recent years, the FTC has instituted numerous enforcement actions against companies carrying dietary supplements for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims.
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.
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 also source everyday staple products to complement our opportunistic offerings.
We also source everyday staple products and have recently introduced our own private label products to complement our opportunistic offerings.
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.
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. It differentiates us and provides a compelling value proposition to a wide range of customers.
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.
Our common stock has traded on the Nasdaq Global Select Market under the symbol "GO" since 2019. Our Growth Strategies We believe that our compelling WOW! shopping experience will continue to drive new and existing customers to shop our stores. Propelled by our strong business fundamentals, we believe we are well-positioned to expand our footprint and grow our customer base.
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.
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. 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 maintain a Safety Committee for our distribution center employees and our Safety Department regularly provides new injury avoidance information at monthly distribution center employee-wide meetings. Additionally, we provide detailed health and safety resources to our independently operated stores, including specific information and requirements by state to support their adherence to compliance.
We also maintain a Safety Committee for our distribution center employees and our Safety Department regularly provides new injury avoidance information at monthly distribution center employee-wide meetings.
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.
We continue to believe the success of our stores across a broad range of geographies, population densities and demographic groups creates a significant opportunity to grow our profitability and increase returns for our stores in existing and new local regions and states. We intend to continue to expand our reach to additional customers and geographies across the United States.
We believe that our broad customer appeal supports significant new store growth opportunities, and we plan to continue to expand our reach to additional customers and geographies across the United States. Our stores generally have performed well across all economic cycles, as demonstrated by our pattern of positive comparable store sales growth and healthy gross margin rates.
We believe that our broad customer appeal supports significant new store growth opportunities, and we plan to continue to expand our reach to additional customers and geographies across the United States.
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 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.
Our Operator Agreement grants the IOs a limited, non-exclusive license to use our trademarks solely in connection with the operation and promotion of their store and not in connection with other activities.
We also own several domain names, including www.groceryoutlet.com and www.ownagroceryoutlet.com, and registered and unregistered copyrights in our website content. Our Operator Agreement grants the IOs a limited, non-exclusive license to use our Grocery Outlet Bargain Market brand trademarks solely in connection with the operation and promotion of their store and not in connection with other activities.
We will continue to focus on genuine equal opportunity for all in hiring, retention and advancement, and cultivating an inclusive and diverse corporate culture through continued education, employee resource groups and education and development opportunities across our organization.
We focus on genuine equal opportunity for all in hiring, retention and advancement, and cultivating an inclusive, merit-based and diverse corporate culture through continued education and development opportunities across our organization. We strive to nurture and uphold an inclusive and diverse environment, free from discrimination of any kind, including sexual or other discriminatory/harassing behavior.
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.
Some of our offerings to our Grocery Outlet employees during 2024 (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; • Individual coaching for leadership development, and other leadership training for supervisors through Vice Presidents; and • Virtual learning platform, including leadership development courses and specific hard skills training on project management and Microsoft Excel.
Upon entering a store, customers are greeted by signage introducing the IOs, a tailored selection of fresh produce and other perishables, followed by a "Power Wall" displaying some of our most compelling offerings. Stores are assorted and merchandised uniquely by IOs providing a "WOW!" treasure hunt shopping experience.
Upon entering a store, customers are greeted by signage introducing the IOs, a tailored selection of fresh produce and other perishables, followed by a "Power Wall" displaying some of our most compelling offerings. We continue to operate and integrate acquired United Grocery Outlet stores to our standards as we evaluate the timing to transition such stores to our IO model.
Marketing Our ability to consistently deliver "WOW!" deals that generate customer excitement is our strongest marketing tool. We believe our value proposition has broad appeal with bargain-minded consumers. We promote brand awareness and drive customers to shop through centralized marketing initiatives along with local IO marketing efforts.
We believe our value proposition has broad appeal with bargain-minded consumers. We promote brand awareness and drive customers to shop through centralized marketing initiatives along with local IO marketing efforts. As a result of this approach and local marketing campaigns funded by IOs, our marketing expense as a percent of sales is relatively low.
We believe our white space remains vast with the potential to operate approximately 4,800 stores across the United States. Our new store growth efforts for fiscal 2024 and beyond remain focused on organic growth together with new real estate opportunities (such as our pending acquisition of United Grocery Outlet) that align with our long-term geographic expansion and store growth strategies.
Additionally, we further believe our white space remains vast with the potential to operate over 4,000 stores across the United States, demonstrated by the success of our stores across a broad range of geographies, population densities and demographic groups. Our new store growth efforts remain focused on organic growth that align with our long-term geographic expansion and store growth strategies.
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.
We have continued to expand our product assortment to meet customer needs, including a wide selection of NOSH, fresh, ethnic and local products.
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.
We also believe that the overall excess inventory market continues to grow due to increased manufacturing capacities and rapidly changing product assortments. 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.
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.
We have an in-house transportation fleet as well as a strong relationship with a third-party transportation partner that together provide consistent performance and timely deliveries to our stores. 5 Table of Contents 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.
We are always seeking out and developing new supplier relationships to acquire desirable products at discounts that excite our customers. Our inventory planning group collaborates with and supports our buyers to ensure we purchase the appropriate type and quantity of products in order to maintain adequate inventory levels in key product categories.
Our inventory planning group collaborates with and supports our buyers to evaluate 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.
As a result of this approach and local marketing campaigns funded by IOs, our marketing expense as a percent of sales is relatively low. We focus our centralized marketing efforts to build brand awareness and communicate specific in-store deals to drive customer traffic, primarily through digital ads, emailed "WOW!
We focus our centralized marketing efforts to build brand awareness and communicate specific in-store deals to drive customer traffic, primarily through digital ads, emailed "WOW! Alerts," social media, television and radio commercials and in-store and outdoor signage.
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.
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.
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.
We also continue to identify and implement productivity improvements through both operational initiatives and system enhancements, such as category assortment optimization, improved inventory management tools, greater purchasing specialization and back-office processing efficiencies.
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.
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. This authority applies to all domestic food facilities and, by way of imported food supplier verification requirements, to all foreign facilities that supply food products.
However, no statement on a dietary supplement may expressly or implicitly represent that it will diagnose, cure, mitigate, treat or prevent a disease. 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").
EBT Payments —Approximately 9% of our net sales in fiscal 2024 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"). The U.S. Department of Agriculture regulates these programs and their eligibility requirements.
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.
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.
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.
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 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 .
As of December 28, 2024, 139 of our employees were union employees, all of whom were employees at two Company-operated stores. 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.
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.
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, are designed to provide IOs visibility to our current inventory, and the anticipated launch of our upgraded real-time order guide in fiscal 2025 is expected to significantly reduce time to shelf.
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.
Our compensation components vary by employee level and can include cash based compensation, cash bonuses, equity awards and a profit-sharing program. Additionally, we provide generous and highly competitive health and welfare benefits programs. Equity, Diversity and Inclusion —We believe that a diverse and inclusive team is important to our long-term business success.
Beyond competition for consumers, we compete against a fragmented landscape of opportunistic purchasers, including retailers (e.g., Big Lots and 99 Cents Only) and wholesalers to acquire excess merchandise for sale in our stores.
We have entered into partnerships with these third party grocery delivery companies to provide online shopping at our stores and we have embraced online and digital marketing, including with our mobile personalization app. 8 Table of Contents Beyond competition for consumers, we compete against a fragmented landscape of opportunistic purchasers, including retailers and wholesalers to acquire excess merchandise for sale in our stores.
Our trademark registrations have various expiration dates; however, assuming that the trademark registrations are properly renewed, they have a perpetual duration. We also own several domain names, including www.groceryoutlet.com and www.ownagroceryoutlet.com, and registered and unregistered copyrights in our website content.
We also own federally registered trademarks utilized by United Grocery Outlet, including “1st Stop For Extreme Value,” “Shop G.O. 1st,” and “GO GROCERY OUTLET.” Our trademark registrations have various expiration dates; however, assuming that the trademark registrations are properly renewed, they have a perpetual duration.
Employee Compensation and Benefits —We provide compensation and comprehensive benefits designed to recruit, reward and retain the talent necessary to advance our mission, meet our business goals and execute our long-term growth strategy. Our compensation components vary by employee level and include cash based compensation, cash bonuses, equity awards and a profit-sharing program.
Additionally, we provide detailed health and safety resources to our independently operated stores, including specific information and requirements by state to support their adherence to compliance. 11 Table of Contents Employee Compensation and Benefits —We provide compensation and comprehensive benefits designed to recruit, reward and retain the talent necessary to advance our mission, meet our business goals and execute our long-term growth strategy.
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.
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. We supplement our opportunistic purchases with competitively priced everyday staples in order to provide a convenient shopping experience.
Under certain circumstances, this jurisdiction extends even to product-related claims and representations made on a company's website or similar printed or graphic media. All foods, including dietary supplements, must bear labeling that provides consumers with essential information with respect to standards of identity, net quantity, nutrition facts, ingredient statements and allergen disclosures.
All foods, including dietary supplements, must bear labeling that provides consumers with essential information with respect to standards of identity, net quantity, nutrition facts, ingredient statements and allergen disclosures. The FDA also regulates the use of structure/function claims, health claims, nutrient content claims and the disclosure of calories and other nutrient information for frequently sold items.
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.
See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Recent Trends and Developments – Restructuring Plan” for additional information. 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.
Complementary growth opportunities include expanding strategic relationships with large property owners, evaluating opportunistic real estate lists, and exploring strategic regional acquisitions. We believe organic growth combined with these complementary opportunities will enable us to grow our store base on average approximately 10% per year.
Complementary growth opportunities include expanding strategic relationships with large property owners, evaluating opportunistic real estate lists, and exploring strategic regional acquisitions. We deploy a store model that is designed to generate robust store-level financial results, strong cash flow and attractive return.
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.
IOs typically order multiple deliveries per week resulting in higher inventory turns, lower shrink (defined below) and a frequent assortment of new products on shelf. Since the implementation of system upgrades in August 2023, we and our IOs have experienced significant issues with ordering, inventory planning and management and payment processing. See “Business Technology” for additional information.
Our policies and our supplier compliance agreements mandate compliance with applicable law, including these laws and regulations. Human Capital Management Employees — Our people are at the heart of who we are and what we do. They are key to achieving our business goals and growth strategy.
Employees — Our people are at the heart of who we are and what we do. They are key to achieving our business goals and growth strategy. Following the acquisition of United Grocery Outlet in fiscal 2024, our employee population doubled due to the UGO stores being company-operated.
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.
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.
United Grocery Outlet operates 40 discount grocery stores across six adjacent states we do not operate in currently (Tennessee, North Carolina, Georgia, Alabama, Kentucky and Virginia) and a company-operated distribution center. With an opportunistic buying model, similar company values and adjacent geographic footprint, we believe United Grocery Outlet will be a strong strategic fit with our business.
On April 1, 2024, Grocery Outlet Inc., our wholly owned subsidiary, acquired The Bargain Barn, Inc., which does business as United Grocery Outlet ("United Grocery Outlet," or "UGO"), which included 40 stores in six adjacent states we did not operate in as of such date (Tennessee, North Carolina, Georgia, Alabama, Kentucky and Virginia) and a company-operated distribution center.
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.
Our stores generally have performed well across all economic cycles, and for the vast majority of our history, we have had positive comparative sales growth and healthy gross margin rates. Our model also is somewhat insulated from store labor-related variability because IOs directly employ their store workers.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe following is a summary of the principal risks that could adversely affect our business, operations and financial results: Risks Related to Our Operations • failure of suppliers to consistently supply us with opportunistic products at attractive pricing, which is generally not in our control; • inability to successfully identify trends and maintain an appropriate level of opportunistic products; • failure to maintain or increase comparable store sales; • 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.
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 or general inventory; • failure to maintain or increase comparable store sales; • any significant disruption to our distribution network, the operations, technology and capacity of our distributions centers and our timely receipt of inventory; • risks associated with newly opened stores; • risks associated with our growth strategy, including opening, relocating or remodeling stores on schedule and on budget, as well as the revised near-term new store growth strategy as reflected in the Restructuring Plan; • financial and operating impacts associated with our Restructuring Plan; • inflation and other changes affecting the market prices of the products we sell; • failure to maintain our reputation and the value of our brand, including protecting our intellectual property; • failure to remediate our material weakness in our internal control over financial reporting; • inability to maintain sufficient levels of cash flow from our operations to fund our growth strategy; • risks associated with leasing substantial amounts of space; • inability to attract, train and retain highly qualified employees or the loss of executive officers or other key personnel; • costs and successful implementation of marketing, advertising and promotions; • 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; • unexpected costs and negative effects if we incur losses not covered by our insurance program; • difficulties associated with labor relations and shortages; • failure to participate effectively in the growing online retail marketplace; • failure to properly integrate or achieve the expected benefits of any acquired businesses; 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, and risks associated with the continued deployment of our own private label brands; Risks Related to Our IO Model • inability to attract and retain qualified IOs; • failure of our IOs to successfully manage their business; 13 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 from our technology initiatives or third-party security breaches or other disruptions; • 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; • provisions in our organizational documents could delay or prevent a change of control; and • provisions in our organizational documents that limit the forum for certain stockholder litigation matters.
If an IO is unable to successfully establish, manage and operate the store, their store's performance and quality of service could be materially adversely affected. In addition, any poor performance could negatively affect our financial results and our brand reputation. Failure of the IOs to repay notes outstanding to us may materially adversely affect our financial performance.
If an IO is unable to successfully establish, manage and operate the store, their store's performance and quality of service could be materially adversely affected. In addition, any poor performance could negatively affect our financial results and our brand reputation. Failure of the IOs to repay IO Notes outstanding to us may materially adversely affect our financial performance.
In addition, we and the IOs are subject to environmental laws, including but not limited to hazardous waste laws, regulations related to refrigeration and stormwater, pursuant to which we and/or the IOs could be liable or to which we could be strictly and jointly and severally liable, regardless of our knowledge of or responsibility.
In addition, we and the IOs are subject to environmental laws, including but not limited to hazardous waste laws, and regulations related to refrigeration and stormwater, pursuant to which we and/or the IOs could be strictly and jointly and severally liable, regardless of our knowledge of or responsibility.
Additional financing may not be available to us on attractive terms to us, if at all. Inability to obtain necessary or desired liquidity could impede our competitive position, business, financial condition and results of operations and we may need to delay, limit or eliminate planned store openings or operations or other elements of our growth strategy.
Additional financing may not be available to us on attractive terms to us, if at all. The inability to obtain necessary or desired liquidity could impede our competitive position, business, financial condition and results of operations and we may need to delay, limit or eliminate planned store openings or operations or other elements of our growth strategy.
If we are unable to remediate the material weakness in our internal control over financial reporting or if we experience other material weaknesses, it may negatively impact our ability to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which in turn could cause the trading price of our common stock to decline.
If we are unable to remediate the existing material weakness in our internal control over financial reporting or if we experience other material weaknesses, it may negatively impact our ability to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which in turn could cause the trading price of our common stock to decline.
These increased demands could cause us to operate our existing business less efficiently, which in turn could cause deterioration in the financial performance of our existing stores. If we experience a decline in performance, we may slow or discontinue store openings, or we may decide to close stores that are unable to operate in a profitable manner.
These increased demands could cause us to operate our existing business less efficiently, which in turn could cause deterioration in the financial performance of our existing stores. If we experience a decline in performance, we may further slow or discontinue store openings, or we may decide to close stores that are unable to operate in a profitable manner.
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 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. 26 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.
In addition, cyber-attacks may cause us to incur significant remediation costs, result in delays and disruptions to key business operations, and divert attention of management and key information technology resources. These cyber-incidents could also subject us to liability, expose us to significant expense, and cause significant harm to our reputation and our business.
In addition, cyber-attacks may cause us to incur significant remediation costs, result in delays and disruptions to key business operations, and divert the attention of management and key information technology resources. These cyber-incidents could also subject us to liability, expose us to significant expense, and cause significant harm to our reputation and our business.
Epidemics, or the perception that such epidemics may occur, may cause people to avoid gathering in public places, which may adversely affect our customer traffic, our ability and that of our IOs to adequately staff our stores and operations, and our ability to transport product on a timely basis.
Epidemics or pandemics, or the perception that such epidemics or pandemics may occur, may cause people to avoid gathering in public places, which may adversely affect our customer traffic, our ability and that of our IOs to adequately staff our stores and operations, and our ability to transport product on a timely basis.
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.
The outstanding aggregate balance of notes receivable from IOs has increased over time as we have historically 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.
Some or all of our deferred tax asset could expire unused if we are unable to generate taxable income in the future sufficient to utilize the deferred tax asset, or we enter into transactions that limit our right to use it.
Some or all of our deferred tax assets could expire unused if we are unable to generate taxable income in the future sufficient to utilize the deferred tax asset, or we enter into transactions that limit our right to use it.
The market price volatility of our common stock may continue due to fluctuations in our quarterly operating results or in response to other factors (regardless of our actual operating performance) included in this Risk Factors section and due to the following: • changes in expectations as to our future financial performance, including guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance, investment recommendations by securities analysts and investors or if securities analysts do not publish research or reports about our business; • declines in the market prices of stocks generally, changes in general economic or market conditions or trends in our industry or markets; • strategic actions or announcements by us, our competitors or other third parties; • changes in business or regulatory conditions; • additions or departures of key management personnel; • investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives; and • the development and sustainability of an active trading market for our stock.
The market price volatility of our common stock may continue due to fluctuations in our quarterly operating results or in response to other factors (regardless of our actual operating performance) included in this Risk Factors section and due to the following: • changes in expectations as to our future financial performance, including guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance, investment recommendations by securities analysts and investors or if securities analysts do not publish research or reports about our business; • declines in the market prices of stocks generally, changes in general economic or market conditions or trends in our industry or markets; • strategic actions or announcements by us, our competitors or other third parties; • changes in business or regulatory conditions; • additions or departures of key management personnel; 33 Table of Contents • investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives; and • the development and sustainability of an active trading market for our stock.
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.
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. 25 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.
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.
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. 35 Table of Contents ITEM 1B.
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.
These provisions provide for, among other things: • the division of our Board into three classes (which provision sunsets in 2026); • the ability of our Board 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.
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.
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 subsidiaries, including restrictions under our Credit Agreement, and may be further restricted by the terms of any future debt or preferred securities.
Certain types of events, such as earthquakes or wildfires, may result in sizable losses for the insurance industry and adversely impact the availability of adequate insurance coverage or result in excessive premium increases. Our retail stores located in California, and the inventory in those stores, are not currently insured against losses due to earthquakes.
Certain types of events, such as earthquakes, wildfires or hurricanes, may result in sizable losses for the insurance industry and adversely impact the availability of adequate insurance coverage or result in excessive premium increases. Our retail stores located in California, and the inventory in those stores, are generally not currently insured against losses due to earthquakes.
If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation. Furthermore, we currently do not expect to declare any dividends on our common stock in the foreseeable future.
If we are involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation. Furthermore, we currently do not expect to declare any dividends on our common stock in the foreseeable future.
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.
Deliveries to our stores occur from our distribution centers or directly from our suppliers. We use four 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.
The testing goodwill and intangible assets for impairment requires us to make estimates that are subject to significant assumptions. Changes in our estimates, or changes in actual performance compared with these estimates, may affect the fair value of goodwill or intangible assets, which also may result in an non-cash impairment charge.
The testing goodwill and intangible assets for impairment requires us to make estimates that are subject to significant assumptions. Changes in our estimates, or changes in actual performance compared with these estimates, may affect the fair value of goodwill or intangible assets, which also may result in a non-cash impairment charge.
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.
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 2024. As a result, we have incurred significant costs and will continue to incur such costs to monitor and safeguard our systems.
The reputation of our company and our brand may be damaged in all, one or some of the markets in which we do business, by adverse events at the corporate level or by an IO acting outside of Grocery Outlet's brand standards, or by action (or inaction), by us or our IOs on issues like social policies, merchandising, compliance related to social, product, labor and environmental standards or other sensitive topics.
The reputation of our company and our brand may be damaged in all, one or some of the markets in which we do business, by adverse events at the corporate level or by an IO acting 18 Table of Contents outside of Grocery Outlet's brand standards, or by action (or inaction), by us or our IOs on issues like social policies, merchandising, compliance related to social, product, labor and environmental standards or other sensitive topics.
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.
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.
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.
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. 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 we use a variety of methods to attract and develop the IOs, including through our Aspiring Operators in Training ("AOT") program, there can be no assurance that we will continue to be able to recruit and retain a sufficient number of qualified AOTs and other candidates to open successful new locations in order to meet our growth targets.
While we use a variety of methods to attract and develop the IOs, including through our AOT program, there can be no assurance that we will continue to be able to recruit and retain a sufficient number of qualified AOTs and other candidates to open successful new locations in order to meet our growth targets.
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.
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.
To increase net sales, and therefore comparable store sales growth and profits, we and the IOs focus on delivering value and generating customer excitement by strengthening opportunistic purchasing, providing an increasing number of everyday products, optimizing inventory management, maintaining strong store conditions and effectively marketing current products and new product offerings.
To increase 15 Table of Contents net sales, and therefore comparable store sales growth and profits, we and the IOs focus on delivering value and generating customer excitement by strengthening opportunistic purchasing, providing an increasing number of everyday products, optimizing inventory management, maintaining strong store conditions and effectively marketing current products and new product offerings.
If a material portion of our deferred tax asset expires unused, it could have a material adverse effect on our future business, results of operations, financial condition and the value of our common stock. Furthermore, we are required by accounting rules to periodically assess our deferred tax assets for a valuation allowance, if necessary.
If a material portion of our deferred tax asset expires unused, it could have a material adverse effect on our future business, 32 Table of Contents results of operations, financial condition and the value of our common stock. Furthermore, we are required by accounting rules to periodically assess our deferred tax assets for a valuation allowance, if necessary.
These occurrences could adversely impact our business by causing direct asset or inventory losses or physical damage to our distribution centers or our stores, store closures, reduced customer traffic or changed shopping behaviors, disruptions to production, supply and delivery of products to our stores, staffing shortages, increased costs or disruptions to our information systems and other systems.
These occurrences could adversely impact our business by causing direct asset or inventory losses or physical damage to our distribution centers or our stores, store closures, reduced customer traffic or 21 Table of Contents changed shopping behaviors, disruptions to production, supply and delivery of products to our stores, staffing shortages, increased costs or disruptions to our information systems and other systems.
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.
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. Risks Related to Our IO Model If we are unable to attract and retain qualified IOs, our financial performance may be negatively affected.
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.
Even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer confidence in the 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.
Such allegations, claims and proceedings may be brought by third parties, including our customers, suppliers, employees, governmental or regulatory bodies or competitors, and may include class actions. In recent years, companies have experienced an increase in the number of significant discrimination and harassment and wage and hour claims generally.
Such allegations, claims and proceedings may be brought by third parties, including our customers, suppliers, employees, governmental or regulatory bodies or competitors, and may include class actions. In recent years, companies have experienced an increase in the number of significant discrimination and harassment and wage 30 Table of Contents and hour claims generally.
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 recent 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.
Any weaknesses or deficiencies or any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, our obligations under our debt instruments or result in material omissions or misstatements in our financial statements.
Any weaknesses or deficiencies or any 19 Table of Contents failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, our obligations under our debt instruments or result in material omissions or misstatements in our financial statements.
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.
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, 24 Table of Contents in particular because the vast majority of our IOs operate a single store.
For a more complete discussion of the material risks facing our business, see below. 15 Table of Contents Risks Related to Our Operations We depend on suppliers to consistently supply us with opportunistic products at attractive pricing, which is generally not in our control.
For a more complete discussion of the material risks facing our business, see below. 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.
The loss of one or more of our existing significant suppliers or our inability to develop relationships with new suppliers could reduce our competitiveness, slow our plans for further expansion and cause our net sales and operating results to be materially adversely affected.
The loss of one or more of our existing significant suppliers or our inability to develop relationships with new suppliers could reduce our competitiveness, slow our plans for further expansion and cause our net sales and operating results, including our gross margin, to be materially adversely affected.
Because we and the IOs accept payments using a variety of methods, including cash and checks, credit and debit cards, Electronic Benefit Transfer ("EBT") cards and gift cards, we may be subject to additional rules, regulations, compliance requirements and higher fraud losses.
Because we and the IOs accept payments using a variety of methods, including cash and checks, credit and debit cards, EBT cards and gift cards, we may be subject to additional rules, regulations, compliance requirements and higher fraud losses.
These risks may be exacerbated in the future due to 22 Table of Contents climate change. To offset negative insurance market trends, we may elect to increase our self-insurance coverage, accept higher deductibles or reduce the amount of coverage.
These risks may be exacerbated in the future due to climate change. To offset negative insurance market trends, we may elect to increase our self-insurance coverage, accept higher deductibles or reduce the amount of coverage.
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.
Actions we have taken to establish and protect our intellectual property rights may not be adequate. There may in the future be opposition and cancellation proceedings from time to time with respect to some of our intellectual property rights.
If we decide to close stores, we are generally required to continue to perform obligations under the applicable leases, which generally include paying rent and operating expenses for the balance of the lease term.
If we decide to close stores, we are generally required to continue to perform obligations under the applicable leases, 20 Table of Contents which generally include paying rent and operating expenses for the balance of the lease term.
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%.
We extend financing to IOs for their initial startup costs in the form of IO Notes payable to us that bear interest at rates between 4.50% and 9.95%.
New store openings may negatively impact our financial results in the short-term due to the effect of store opening costs and lower sales and contribution to overall profitability during the initial period following opening.
New store openings may negatively impact our financial results due to the effect of store opening costs and lower sales and contribution to overall profitability during the initial period following opening.
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.
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.
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.
New stores, particularly those in new markets, build their sales volume, brand recognition and customer base over time and, as a result, for approximately four to five years, generally have lower margins and higher operating expenses as a percentage of sales than our more mature stores.
Our business has been and could in the future be severely impacted by natural or man-made disasters and unusual weather conditions (which may become more frequent due to climate change), power outages, pandemic outbreaks, terrorist acts, global political events and other serious catastrophic events beyond our control.
Our business has been and could in the future be severely impacted by natural or man-made disasters and unusual weather conditions (which may become more frequent due to climate change), power outages, major health epidemics, pandemics, terrorist acts, global political events and other serious catastrophic events beyond our control.
There can be no assurance that any IO, will achieve long-term store volumes or profitability that will allow them to repay any amounts due nor is there any assurance that any IO will be able to repay amounts due through other means.
There can be no assurance that any IO, will achieve long-term store volumes or profitability that will allow them to repay any amounts due under outstanding IO Notes, nor is there any assurance that any IO will be able to repay such amounts due through other means.
ITEM 1A. RISK FACTORS The following risk factors are important to understanding various statements in this Annual Report on Form 10-K or elsewhere.
ITEM 1A. RISK FACTORS The following risk factors are important to understanding various statements in this Form 10-K or elsewhere.
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.
Additionally, we may expand into neighboring states and regions in the United States and/or engage in further 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.
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.
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.
With respect to future outbreaks, to the extent that a pathogen is, or is perceived to be, food-borne, the price and availability of certain food products may be impacted and could cause our customers to consume less of such product.
Additionally, to the extent that a pathogen is, or is perceived to be, food-borne, the price and availability of certain food products may be impacted and could cause our customers to consume less of such product.
Controls and Procedures" of this Annual Report on Form 10-K, in connection with the preparation of financial statements for fiscal 2023, management determined that we had a material weakness in our internal control over financial reporting pertaining to certain information technology general computer controls that were insufficient during the replacement of components of our enterprise resource planning system in late August 2023, which led to a significant increase in the volume of transactions across user access, program change management, and IT operations for which our existing controls were not designed to address.
In connection with the preparation of financial statements for fiscal 2023, management determined that we had a material weakness in our internal control over financial reporting related to certain information technology general computer controls that were insufficient during the replacement of components of our enterprise resource planning system in late August 2023, which led to a significant increase in the volume of transactions across user access, program change management, and information technology operations for which our existing controls were not designed to address.
For certain payment methods, we or the IOs pay interchange and other related card acceptance fees, along with additional transaction processing fees.
For certain payment methods, we or the IOs pay interchange and other related card acceptance fees, along 28 Table of Contents with additional transaction processing fees.
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.
While we have recently launched 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.
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.
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. In early 2025, certain stores in Southern California were also impacted by fires.
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.
Approximately 9% of sales in fiscal 2024 were in the form of EBT payments and a substantial portion of these payments may be related to benefits associated with the 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.
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.
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. These challenges impacted our organic new store growth in recent years.
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.
While we have had positive comparative sales growth for the vast majority of our history, we may not be able to maintain or improve our comparable store sales growth in future years 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.
Our amended and restated bylaws provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the United States of America will be the sole and exclusive forums for certain stockholder litigation matters, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
As a result, our stockholders may be limited in their ability to obtain a premium for their shares. 34 Table of Contents Our amended and restated bylaws provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the United States of America will be the sole and exclusive forums for certain stockholder litigation matters, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
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.
As of December 28, 2024, we had tax-effected Federal and State net operating loss deferred tax assets of $25.1 million and $1.0 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.
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.
Consumer preferences often change rapidly and without warning. 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.
We rely on the integrity, security and consistent operation of a variety of information technology systems and back-up systems for the efficient functioning of our business, including point of sale, inventory management, purchasing, financials, logistics, accounts payable and human resources information systems.
Additionally, we are exposed to vulnerabilities with respect to our IO's information technology systems. We rely on the integrity, security and consistent operation of a variety of information technology systems and back-up systems for the efficient functioning of our business, including point of sale, inventory management, purchasing, financials, logistics, accounts payable and human resources information systems.
In addition, as we invest in and deploy our private label products, we are subjected to various new risks and regulations including product liability claims, claims related to product 25 Table of Contents labeling, claims related to rights of third parties and other risks associated with entities that source, sell and market exclusive private label offerings for retailers.
In addition, as we continue to invest in and deploy our private label products, we may become subject to various new risks and regulations including product liability claims, claims related to product labeling, claims related to rights of third parties and other risks associated with entities that source, sell and market exclusive private label offerings for retailers.
We promote brand awareness and drive customers to shop through centralized marketing initiatives along with local IO marketing efforts. We and the IOs use marketing and promotional programs to attract customers into our stores and to encourage purchases.
Our success depends upon the successful implementation of our marketing, advertising and promotional efforts. We promote brand awareness and drive customers to shop through centralized marketing initiatives along with local IO marketing efforts. We and the IOs use marketing and promotional programs to attract customers into our stores and to encourage purchases.
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.
A breach of any of these covenants could result in a default under our 2023 Credit Agreement. 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.
For example, during fiscal 2023 we replaced components of our enterprise resource planning system, including our financial ledger, inventory management platform and product data warehouse system. The implementation of these system upgrades resulted in ordering and inventory disruptions beginning in late August 2023, which resulted in reduced net sales and gross margin.
In late August 2023, we replaced components of our enterprise resource planning system, including our financial ledger, inventory management platform and product data warehouse system. The implementation of these system upgrades resulted in significant ordering and inventory disruptions during fiscal 2023 and fiscal 2024. These disruptions negatively impacted net sales and gross margin in fiscal 2023 and fiscal 2024.
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.
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 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.
Our total lease payment obligations for all operating leases in existence as of December 28, 2024 was $146.3 million for fiscal 2025 and $1.5 billion in aggregate for fiscal years 2026 through 2043, and these obligations will increase as we open new stores that are leased.
We entered into a new Credit Agreement on February 21, 2023 (the "2023 Credit Agreement") under which we have a significant amount of indebtedness.
We entered into a Credit Agreement on February 21, 2023 with Bank of America, N.A. (the "2023 Credit Agreement") under which we have a significant amount of indebtedness.
UNRESOLVED STAFF COMMENTS None. 40 Table of Contents
UNRESOLVED STAFF COMMENTS None. 36 Table of Contents
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.
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.
As we continue to implement our store growth strategy, our distribution centers may not have sufficient capacity to optimally support all of our stores and effectively managing our distribution network and distribution centers will become more complex.
As we continue to implement our store growth strategy, our distribution centers have in the past and may continue to have insufficient capacity or technology to optimally support all of our stores and effectively managing our distribution network and distribution centers will become more complex.
The $30.4 million tax effected Federal deferred tax asset does not expire and will carryforward indefinitely. The tax effected State deferred tax assets of $1.4 million will expire beginning in 2029.
The $25.1 million tax effected Federal deferred tax asset does not expire and will carryforward indefinitely. The tax effected State deferred tax assets of $1.0 million will expire beginning in 2034.
For example, the results of U.S. Presidential and Congressional elections may lead to tax law changes. Further, the ultimate amount of tax payable in a given financial statement period may be impacted by sudden or unforeseen changes in tax laws, changes in the mix and level of earnings by taxing jurisdiction, or changes to existing accounting rules or regulations.
Further, the ultimate amount of tax payable in a given financial statement period may be impacted by sudden or unforeseen changes in tax laws, changes in the mix and level of earnings by taxing jurisdiction, or changes to existing accounting rules or regulations.
There were $41.1 million and $37.5 million of notes to IOs outstanding as of December 30, 2023 and December 31, 2022, respectively, with allowances of $11.2 million and $13.2 million as of December 30, 2023 and December 31, 2022, respectively. If the IOs are unable to avoid excess inventory shrink, our business and results of operations may be adversely affected.
There were $46.9 million and $41.1 million of IO Notes outstanding as of December 28, 2024 and December 30, 2023, respectively, with allowances of $11.8 million and $11.2 million as of December 28, 2024 and December 30, 2023, respectively. If the IOs are unable to avoid excess inventory shrink, our business and results of operations may be adversely affected.
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.
As of December 28, 2024, we operated 274 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 51% of our total stores.
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.
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 one or more of our subsidiaries as an unrestricted subsidiary.
We cannot assure that the measures we have taken to date and may take in the future will be sufficient to remediate the control deficiencies that led to our material weakness or that we will prevent or avoid potential future material weaknesses.
However, we cannot assure that the measures we have taken to date and may take in the future, will be sufficient to remediate the previously identified control deficiencies that led to our material weakness. We also cannot assure that we will be able to prevent or avoid material weaknesses in the future. See “Item 9A.
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.
These factors include but are not limited to unemployment, minimum wages, significant public 23 Table of Contents health and safety events, inflation and deflation, tariffs (including those currently announced or threatened, or that may be in the future), 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.
These provisions could make it more difficult for a third party to acquire us, even if the third-party's offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares.
These provisions could make it more difficult for a third party to acquire us, even if the third-party's offer may be considered beneficial by many of our stockholders.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur CIO has a Bachelor of Science in Computer Engineering and over 26 years of experience in senior leadership privacy, information technology and cybersecurity oversight roles, including within the grocery retail industry.
Biggest changeOur Chief Information Officer ("CIO") has a PGDip in Computer Science, an MBA, a Master of Mathematics and over 20 years of experience in senior leadership information technology and cybersecurity oversight roles, including within the retail industry.
Our ERM process is conducted on an annual basis by our internal audit team through feedback from senior management, certain functional leaders and certain Board members. Risks are categorized as low, medium and high risks based on a quantitative and qualitative evaluation of how each risk could impact the Company's operations, current objectives and long-term strategies.
Our ERM process is conducted on an annual basis by our internal audit team through feedback from senior management, certain functional leaders and certain members of the Board. Risks are categorized as low, medium and high risks based on a quantitative and qualitative evaluation of how each risk could impact the Company's operations, current objectives and long-term strategies.
We carry cyber risk insurance that provides protection against a breach or other data security incident, but such insurance may not be sufficient, and any related insurance proceeds may not be timely paid to us.
We carry cyber risk insurance that we believe provides protection against a breach or other data security incident, but such insurance may not be sufficient, and any related insurance proceeds may not be timely paid to us.
The annual risk assessment is reviewed with the Audit and Risk Committee and the Board of Directors. Our Audit and Risk Committee is responsible for the oversight of data security, privacy and cybersecurity related risks.
The annual risk assessment is reviewed with the Audit and Risk Committee of the Board and the Board. Our Audit and Risk Committee is responsible for the oversight of data security, privacy and cybersecurity related risks.
Although such risks have not materially affected us, including our results of operations or financial condition, in fiscal 2023 and recent years, we have, from time to time, experienced threats to and attempted breaches of our data and systems, including malware and computer virus attacks.
Although such risks have not materially affected us, including our results of operations or financial condition, in fiscal 2024 and recent years, we have, from time to time, experienced threats to and attempted breaches of our data and systems, including malware and computer virus attacks.
We continue to monitor and take reasonable actions intended to improve our security posture with process improvement, testing, simulation training and investments where necessary and appropriate for our company.
We continue to monitor and take reasonable actions intended to improve our security posture with process improvement, testing, simulation training and investments where necessary and appropriate for us.
For more information about the cybersecurity risks we face, see the risk factors under the heading entitled "Risks Related to our Information Technology Systems, Data Protection and Cybersecurity" in "Item 1A. Risk Factors" of this Annual Report on Form 10-K. 41 Table of Contents
For more information about the cybersecurity risks we face, see the risk factors under the heading entitled "Risks Related to our Information Technology Systems, Data Protection and Cybersecurity" in "Item 1A. Risk Factors" of this Form 10-K. 37 Table of Contents

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur initial lease terms for store locations are typically ten years with options to renew for two or three successive five-year periods. Our corporate headquarters, located in Emeryville, California, is leased under an agreement that expires in 2028, with an option to renew for a five-year period.
Biggest changeOur corporate headquarters, located in Emeryville, California, is leased under an agreement that expires in 2028, with an option to renew for a five-year period. We self-operate four primary distribution centers, one of which we are in process of relocating to a new distribution center space with a lease commencement in February 2025.
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
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. 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.
Including the relocated distribution center, our primary distribution centers range from approximately 100,000 square feet to approximately 700,000 square feet. Including options to renew, our primary distribution centers have leases expiring between 2025 and 2037. We believe that our corporate and distribution center facilities are in good operating condition and adequate to support the current needs of our business.
ITEM 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).
ITEM 2. PROPERTIES As of December 28, 2024, we leased 532 of our 533 stores and each of our self-operated distribution centers and warehouse facilities. The one remaining store was owned by an IO.
Added
Our stores are located in California (274), Washington (74), Oregon (61), Pennsylvania (35), Tennessee (24), Idaho (15), Maryland (12), Nevada (11), North Carolina (9), New Jersey (7), Georgia (4), Ohio (3), Alabama (1), Delaware (1), Kentucky (1) and Virginia (1).
Added
Our initial lease terms for store locations are typically ten years with options to renew for two or three successive five-year periods. As of December 28, 2024, our 533 total stores averaged approximately 14,000 square feet on the sales floor.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we may be party to litigation that arises in the ordinary course of our business.
Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we may be party to legal proceedings that arise in the ordinary course of our business, some of which may be covered by insurance.
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.
In addition, 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. 39 Table of Contents ITEM 4.
MINE SAFETY DISCLOSURES Not applicable. 44 Table of Contents PART II
MINE SAFETY DISCLOSURES Not applicable. 40 Table of Contents PART II
Management 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.
Except as discussed below, management believes that we do not have any pending legal proceeding that, separately or in the aggregate, would have a material adverse effect on our results of operations, financial condition or cash flows. No material legal proceedings were terminated, settled or otherwise resolved during the 13 weeks ended December 28, 2024.
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On January 30, 2025, a federal securities class action lawsuit was filed in the United States District Court in the Northern District of California against Grocery Outlet Holding Corp. and certain of its former officers purportedly on behalf of purchasers of our common stock between November 7, 2023 and May 7, 2024.
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The lawsuit alleges that the defendants violated federal securities laws by making materially false and misleading statements and/or failing to disclose material adverse facts regarding our transition to new and upgraded internal systems. The lawsuit seeks remedies under the Exchange Act, including an undisclosed amount of monetary damages, interest, fees and other costs. We intend to defend the lawsuit vigorously.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeUnregistered 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.
Biggest changeUnregistered Sales of Equity Securities None. 42 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 2024 (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),(3) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2),(3) September 29, 2024—October 26, 2024 1,507,211 $ 16.62 1,507,211 $ 9,431,093 October 27, 2024—November 23, 2024 — — — $ 100,000,000 November 24, 2024—December 28, 2024 — — — $ 100,000,000 Total fourth quarter 1,507,211 $ 16.62 1,507,211 _______________________ (1) Includes commissions for the shares repurchased under a share repurchase program adopted in 2021 (the "2021 Share Repurchase Program").
Total return includes reinvestment of dividends. • If the accounting period end date ends on a day that is not a trading day, the preceding trading day is used. • The information included under the heading "Stock Performance Graph" in Item 5 of this Annual Report on Form 10-K is "furnished" and not "filed" and shall not be deemed to be "soliciting material" or subject to Regulation 14A, shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the limitations of that section, and shall not be deemed incorporated by reference into any of our filings under the Securities Act or the Securities Exchange Act, whether made before or after the date of this report and irrespective of any general incorporation by reference language in any such filing. • The stock price performance shown in the graph is not necessarily indicative of future price performance.
Total return includes reinvestment of dividends. • If the accounting period end date ends on a day that is not a trading day, the preceding trading day is used. • The information included under the heading "Stock Performance Graph" in Item 5 of this Form 10-K is "furnished" and not "filed" and shall not be deemed to be "soliciting material" or subject to Regulation 14A, shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the limitations of that section, and shall not be deemed incorporated by reference into any of our filings under the Securities Act or the Exchange Act, whether made before or after the date of this report and irrespective of any general incorporation by reference language in any such filing. • The stock price performance shown in the graph is not necessarily indicative of future price performance.
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).
This program, effective November 5, 2021 and without an expiration date, authorized 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).
Any determination to declare dividends in the future will be at the discretion of our Board of Directors, subject to applicable laws, and will be dependent on a number of factors, including our earnings, capital requirements and overall financial condition.
Any determination to declare dividends in the future will be at the discretion of our Board, subject to applicable laws, and will be dependent on a number of factors, including our earnings, capital requirements and overall financial condition.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information for Common Stock The principal market on which our common stock is traded is the Nasdaq Global Select Market under the symbol "GO." Stockholders American Stock Transfer & Trust Company, LLC is the transfer agent and registrar for our common stock.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information for Common Stock The principal market on which our common stock is traded is the Nasdaq Global Select Market under the symbol "GO." Stockholders Equiniti Trust Company, LLC is the transfer agent and registrar for our common stock.
Instead, we anticipate that all of our earnings in the foreseeable future will be used to provide working capital, to support our operations, to finance the growth and development of our business and to reduce our net debt.
Instead, we anticipate that all of our earnings in the foreseeable future will be used to provide working capital, to support our operations, to finance our share repurchases and the growth and development of our business and to reduce our net debt.
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.
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 subsidiaries.
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.
As of February 20, 2025, there were 9 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.
We have selected the Nasdaq Global Market Composite Index for the broad equity market index and the Nasdaq US Benchmark Retailers Index as the published industry index. Notes: • Assumes initial investment of $100.00 at our closing stock price on June 20, 2019 (our initial listing date).
We have selected the Nasdaq Global Market Composite Index for the broad equity market index and the Nasdaq US Benchmark Retailers Index as the published industry index. Notes: • Assumes initial investment of $100.00 at our closing stock price on December 28, 2019.
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
In addition to the Company's discretion, such repurchases were 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.
(2) In November 2021, our Board of Directors approved a share repurchase program.
(2) In November 2021, our Board approved the 2021 Share Repurchase Program.
Stock 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.
Stock Performance Graph The following graph shows a comparison of cumulative total return (equal to stock appreciation plus dividends) from December 28, 2019 through December 28, 2024 for: • Grocery Outlet Holding Corp. • Nasdaq Global Market Composite Index • Nasdaq US Benchmark Retailers Index 41 Table of Contents 12/28/2019 1/2/2021 1/1/2022 12/31/2022 12/30/2023 12/28/2024 Grocery Outlet Holding Corp. $ 100.00 $ 117.27 $ 84.49 $ 87.21 $ 80.55 $ 46.22 Nasdaq Global Market Composite Index $ 100.00 $ 147.68 $ 109.53 $ 51.96 $ 50.89 $ 51.65 Nasdaq US Benchmark Retailers Index $ 100.00 $ 147.65 $ 172.04 $ 118.60 $ 136.50 $ 156.59 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.
Added
(3) In November 2024, the Board approved a new share repurchase program (the "2024 Share Repurchase Program"), which replaced the 2021 Share Repurchase Program, under which $9.4 million previously remained available for repurchase.
Added
The 2024 Share Repurchase Program, effective November 1, 2024 and without an expiration date, authorizes us to repurchase up to $100.0 million of our outstanding common stock (inclusive of fees and commissions) utilizing a variety of methods including open-market purchases, accelerated equity repurchase programs, privately negotiated transactions, block trades and under a Rule 10b5-1 plan.
Added
Any repurchased shares are constructively retired and returned to an unissued status. ITEM 6. [RESERVED] 43 Table of Contents

Item 7. Management's Discussion & Analysis

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

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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.
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 28, 2024 December 30, 2023 December 31, 2022 Net income $ 39,465 $ 79,437 $ 65,052 Interest expense, net 22,156 16,361 17,967 Income tax expense 16,706 24,644 10,697 Depreciation and amortization expenses 108,206 87,982 78,251 EBITDA 186,533 208,424 171,967 Share-based compensation expenses (1) 10,516 31,091 32,556 Loss on debt extinguishment and modification (2) — 5,340 1,274 Asset impairment and gain or loss on disposition (3) 1,047 485 1,176 Acquisition and integration costs (4) 8,631 459 — Amortization of purchase accounting assets (5) 839 — — Restructuring (6) 15,888 — — Other (7) 13,325 6,822 7,709 Adjusted EBITDA $ 236,779 $ 252,621 $ 214,682 50 Table of Contents Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Net income $ 39,465 $ 79,437 $ 65,052 Share-based compensation expenses (1) 10,516 31,091 32,556 Loss on debt extinguishment and modification (2) — 5,340 1,274 Asset impairment and gain or loss on disposition (3) 1,047 485 1,176 Acquisition and integration costs (4) 8,631 459 — Amortization of purchase accounting assets and deferred financing costs (5) 6,328 5,838 10,877 Restructuring (6) 15,888 — — Other (7) 13,325 6,822 7,709 Tax adjustment to normalize effective tax rate (8) (1,179) (6,423) (10,084) Tax effect of total adjustments (9) (17,746) (14,936) (14,702) Adjusted net income $ 76,275 $ 108,113 $ 93,858 GAAP earnings per share: Basic $ 0.40 $ 0.80 $ 0.67 Diluted $ 0.40 $ 0.79 $ 0.65 Adjusted earnings per share: Basic $ 0.77 $ 1.10 $ 0.97 Diluted $ 0.77 $ 1.07 $ 0.94 Weighted average shares outstanding: Basic 98,707 98,709 96,812 Diluted 99,615 100,831 100,162 ___________________________ (1) Includes non-cash share-based compensation expense and zero, less than $0.1 million, and $0.1 million of cash dividends paid in fiscal 2024, fiscal 2023, and fiscal 2022 respectively, on vested share-based awards as a result of dividends declared in connection with a recapitalization that occurred in fiscal 2018.
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.
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 any 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.
Capital Expenditures Our capital expenditures are primarily related to new store openings, ongoing store maintenance and improvements, expenditures related to our distribution centers and infrastructure-related investments, including investments related to upgrading and maintaining our information technology systems and corporate offices. We expect to fund capital expenditures through cash generated from our operations.
Capital Expenditures Our capital expenditures are primarily related to new store openings, ongoing store maintenance and improvements, expenditures related to our distribution centers and infrastructure-related investments, including investments related to upgrading and maintaining our information technology systems and corporate offices. We expect to fund capital expenditures primarily through cash generated from our operations.
The minimum interest coverage ratio test requires us to be in compliance with a Consolidated Interest Coverage Ratio (as defined in the 2023 Credit Agreement) no less than 1.75 to 1.00 as of the last day of each test period.
The minimum interest coverage ratio test requires us to be in compliance with a Consolidated Interest Coverage Ratio (as defined in the 2023 Credit Agreement) of no less than 1.75 to 1.00 as of the last day of each test period.
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.
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 financial measures on the same basis as management uses to evaluate our operating results.
We believe that excluding items from operating income, net income and net income per diluted share that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides additional information for analyzing trends in our business.
We believe that excluding items from operating income, net income and earnings per diluted share that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides additional information for analyzing trends in our business.
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 2023 Credit Agreement contains certain covenants that, among other things, limit 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 our subsidiaries to pay dividends or make other payments to the borrower.
There can be no assurance equity or debt financing will be available to us when we need it or, if available, the terms will be satisfactory to us and not dilutive to our then-current stockholders.
There can be no assurance that equity or debt financing will be available to us when we need it or, if available, the terms will be satisfactory to us and not dilutive to our then-current stockholders.
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.
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 2024.
(2) Represents the write-off of debt issuance costs and debt discounts as well as debt modification costs related to refinancing and/or repayment of our credit facilities. See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information. (3) Represents asset impairment charges and gains or losses on dispositions of assets.
(2) Represents the write-off of debt issuance costs and debt discounts as well as debt modification costs related to refinancing and/or repayment of our credit facilities. See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information. (3) Represents non-restructuring asset impairment charges and gains or losses on dispositions of assets.
In addition, we use adjusted EBITDA to supplement GAAP measures of performance to evaluate our performance in connection with compensation decisions.
In addition, we use adjusted EBITDA to supplement GAAP financial measures of performance to evaluate our performance in connection with compensation decisions.
If cash generated from our operations and borrowings under our revolving credit facility are not sufficient or available to meet our liquidity requirements, then we will be required to obtain additional equity or debt financing in the future.
(the "2023 Credit Agreement"). If cash generated from our operations and borrowings under the revolving credit facility are not sufficient or available to meet our liquidity requirements, then we will be required to obtain additional equity or debt financing in the future.
Our initial lease terms on stores are typically ten years with options to renew for two or three successive five-year periods . Comparable Store Sales We use comparable store sales as an operating metric to measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year.
Our initial lease terms on stores are typically ten years with options to renew for two or three successive five-year periods . 48 Table of Contents Comparable Store Sales We use comparable store sales as an operating metric to measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year.
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.
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 and increased labor costs and utility costs within their businesses. Pricing Competition.
(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.
(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 expenses or benefits related to stock option exercises and vesting of time-based restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") that are recorded in earnings as discrete items in the reporting period in which they occur.
We define EBITDA as net income before net interest expense, income taxes and depreciation and amortization expenses.
We define EBITDA as net income before net interest expense, income tax expenses and depreciation and amortization expenses.
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.
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.
Comparable store sales are impacted by the same factors that impact net sales. Comparable store sales consists 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.
Comparable store sales are impacted by the same factors that impact net sales. Comparable store sales consist of net sales from our stores beginning on the first day of the fourteenth full fiscal month following a store's opening, which is when we believe comparability is achieved, or the thirteenth full fiscal month following a store's acquisition.
Corporate expenses include payroll and benefits for corporate and field support, share-based compensation, marketing and advertising, insurance and professional services, depreciation and amortization of corporate assets and operator recruiting and training costs. We continue to closely manage our expenses and monitor SG&A as a percentage of net sales.
Corporate expenses include payroll and benefits for corporate and field support, share-based compensation, marketing and advertising, insurance and professional services, depreciation and amortization of corporate assets, operator recruiting and training costs and impairment of long-lived assets related to the Restructuring Plan. We continue to closely manage our expenses and monitor SG&A as a percentage of net sales.
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.
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 28, 2024, we had cash and cash equivalents of $62.8 million, which consisted primarily of cash held in checking and money market accounts with financial institutions.
As of December 30, 2023, we currently do not expect to declare any dividends on our common stock in the foreseeable future.
As of December 28, 2024, we currently do not expect to declare any dividends on our common stock in the foreseeable future.
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.
As of December 28, 2024, we had $100.0 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.
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.
Loss on Debt Extinguishment and Modification Fiscal Year Ended December 28, 2024 December 30, 2023 $ Change % Change Loss on debt extinguishment and modification $ — $ 5,340 $ (5,340) (100.0) % % 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.
Adjusted net income represents net income adjusted for the previously mentioned adjusted EBITDA adjustments, further adjusted for costs related to amortization of purchase accounting assets and deferred financing costs, tax adjustment to normalize the effective tax rate, and tax effect of total adjustments.
Adjusted net income represents net income adjusted for the previously mentioned adjusted EBITDA adjustments, further adjusted for the amortization of property and equipment purchase accounting asset step-ups and deferred financing costs, tax adjustment to normalize the effective tax rate, and tax effect of total adjustments.
EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share are supplemental key metrics used by management and our Board of Directors to assess our financial performance.
EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share are non-GAAP financial measures that are supplemental key metrics used by management and our Board to assess our financial performance.
(8) Represents the tax effect of the total adjustments.
(9) Represents the tax effect of the total adjustments.
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.
Adjusted EBITDA represents EBITDA adjusted to exclude share-based compensation expenses, loss on debt extinguishment and modification, asset impairment and gain or loss on disposition, acquisition and integration costs, costs related to the amortization of inventory purchase accounting asset step-ups, restructuring charges, 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.
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.
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 28, 2024 were $750.4 million and $1.0 billion, respectively.
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.
For discussion related to the results of operations and changes in financial condition for fiscal 2023 compared to fiscal 2022 refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of this Form 10-K for the fiscal year ended December 30, 2023.
Gross margin is also impacted by the costs of distributing and transporting product to our stores, which can vary. Our gross profit is variable in nature and generally follows changes in net sales.
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 also impacted by the costs of distributing and transporting product to our stores, which can vary. Our gross profit is variable in nature and generally follows changes in net sales.
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.
As compared to capital expenditures of $185.7 million, net of tenant improvement allowances, in fiscal 2024, we expect to incur capital expenditures of approximately $210.0 million, net of tenant improvement allowances, in fiscal 2025, primarily related to new store openings, supply chain investments, ongoing store maintenance and improvements and systems and infrastructure investments.
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.
As of December 28, 2024, total lease assets and lease liabilities were $1.0 billion and $1.2 billion, respectively, and we had executed leases for 69 store locations that we had not yet taken possession of with total undiscounted future lease payments of $451.5 million and lease terms through 2043.
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.
As of December 28, 2024, we were in compliance with all applicable financial covenant requirements for the 2023 Credit Agreement. 56 Table of Contents Cash Flows The following table summarizes our cash flows for the periods presented (amounts in thousands): Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Net cash provided by operating activities $ 111,963 $ 303,447 $ 185,511 Net cash used in investing activities (274,028) (194,165) (149,931) Net cash provided by (used in) financing activities 109,906 (97,023) (72,937) Net (decrease) increase in cash and cash equivalents $ (52,159) $ 12,259 $ (37,357) Cash Provided by Operating Activities Net cash provided by operating activities was $112.0 million for fiscal 2024 compared to $303.4 million for fiscal 2023.
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.
In addition, we have a revolving credit facility with $400.0 million in borrowing capacity under the 2023 Credit Agreement. As of December 28, 2024, we had $190.0 million of borrowings outstanding under the revolving credit facility and $4.5 million of outstanding standby letters of credit, resulting in $205.5 million of remaining borrowing capacity available under this revolving credit facility.
Cash Provided by (Used in) Financing Activities Net cash used in financing activities of $97.0 million for fiscal 2023 was primarily due to the payoff of $385.0 million of principal on the prior senior term loan outstanding under our prior credit facilities, repayment of the $25.0 million of principal on our revolving credit facility under our new credit facilities, $4.5 million in debt issuance costs paid, the repurchase of $5.9 million worth of common stock, and $5.6 million in scheduled principal payments on the senior term loan under our new current credit facilities, partially offset by $325.0 million in proceeds from the new credit facilities.
Net cash used in financing activities of $97.0 million for fiscal 2023 was primarily due to the payoff of $385.0 million of principal on the prior senior term loan outstanding under our prior credit facility, repayment of the $25.0 million of principal on our revolving credit facility, $4.5 million in debt issuance costs paid, the repurchase of $5.9 million worth of common stock, and $5.6 million in scheduled principal payments on the senior term loan under the 2023 Credit Agreement, partially offset by $325.0 million in proceeds from the 2023 Credit Agreement. 57 Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP.
We use EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures.
We use these non-GAAP financial measures to supplement GAAP financial measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures.
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.
Our purchase commitments consist of non-cancelable obligations under service and supply contracts. As of December 28, 2024, we had total purchase obligations of $8.3 million, which is fully payable during fiscal 2025. Share Repurchases and Dividends We may repurchase our common stock pursuant to programs approved by our Board.
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.
We use operating income as an indicator of the productivity of our business and our ability to manage expenses. 47 Table of Contents Results of Operations The following tables summarize key components of our results of operations both in dollars and as a percentage of net sales (amounts in thousands, except for percentages): Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Net sales $ 4,371,501 $ 3,969,453 $ 3,578,101 Cost of sales 3,049,564 2,727,774 2,486,002 Gross profit 1,321,937 1,241,679 1,092,099 Selling, general and administrative expenses 1,243,610 1,115,897 997,109 Operating income 78,327 125,782 94,990 Other expenses: Interest expense, net 22,156 16,361 17,967 Loss on debt extinguishment and modification — 5,340 1,274 Total other expenses 22,156 21,701 19,241 Income before income taxes 56,171 104,081 75,749 Income tax expense 16,706 24,644 10,697 Net income and comprehensive income $ 39,465 $ 79,437 $ 65,052 Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Percentage of net sales (1) Net sales 100.0 % 100.0 % 100.0 % Cost of sales 69.8 % 68.7 % 69.5 % Gross profit 30.2 % 31.3 % 30.5 % Selling, general and administrative expenses 28.4 % 28.1 % 27.9 % Operating income 1.8 % 3.2 % 2.7 % Other expenses: Interest expense, net 0.5 % 0.4 % 0.5 % Loss on debt extinguishment and modification — % 0.1 % — % Total other expenses 0.5 % 0.5 % 0.5 % Income before income taxes 1.3 % 2.6 % 2.1 % Income tax expense 0.4 % 0.6 % 0.3 % Net income and comprehensive income 0.9 % 2.0 % 1.8 % _______________________ (1) Components may not sum to totals due to rounding.
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").
Adjusted Net Income Fiscal Year Ended December 28, 2024 December 30, 2023 $ Change % Change Adjusted net income $ 76,275 $ 108,113 $ (31,838) (29.4) % The decrease in adjusted net income was primarily attributable to decreased gross margin, higher SG&A (including higher depreciation expense), and higher net interest expense, partially offset by an increase in comparable store sales of 2.7% for fiscal 2024 as well as non-comparable store sales, as discussed above. 54 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 February 21, 2023, with Bank of America, N.A.
Such payments total $50.6 million over the remaining term of the 58 Table of Contents senior term loan, with $5.6 million payable in fiscal 2024. The remaining senior term loan principal balance will become due in February 2028 at maturity.
Such payments total $45.0 million over the remaining term of the senior term loan, with $15.0 million payable in fiscal 2025. The remaining senior term loan principal balance will become due in February 2028 at maturity.
Opening new stores is a primary component of our growth strategy and, as we continue to execute on our growth strategy, we expect that a significant portion of our net sales growth will be attributable to non-comparable store net sales. Accordingly, comparable store sales is only one of many measures we use to assess the success of our growth strategy.
Opening or, on a limited strategic basis, acquiring new stores is a primary component of our growth strategy and, as we continue to execute on our growth strategy, we expect that a significant portion of our net sales growth will be attributable to non-comparable store net sales.
(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.
(7) Represents other non-recurring, non-cash or non-operational items, such as certain personnel-related hiring and termination costs, which were $7.8 million in fiscal 2024, system implementation costs, which were $3.7 million in fiscal 2024, legal settlements and other legal expenses, costs related to employer payroll taxes associated with equity awards, store closing costs, strategic project costs and miscellaneous costs.
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.
As of December 28, 2024, based 55 Table of Contents on the then-current interest rate of 6.92%, expected future interest payments associated with our debt totaled $99.6 million, with $33.1 million payable during fiscal 2025. The 2023 Credit Agreement requires us to make scheduled quarterly amortization payments on the senior term loan.
EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. We address the limitations of the non-GAAP measures through the use of various GAAP measures.
These non-GAAP financial measures may not be comparable to similar measures reported by other companies and have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. We address the limitations of the non-GAAP financial measures through the use of various GAAP measures.
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.
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.
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.
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 2024 to fiscal 2023 (amounts in thousands, except percentages) Net Sales Fiscal Year Ended December 28, 2024 December 30, 2023 $ Change % Change Net sales $ 4,371,501 $ 3,969,453 $ 402,048 10.1 % The increase in net sales was primarily attributable to an increase in comparable store sales as well as non-comparable store net sales growth primarily from the 65 net new stores acquired or opened during fiscal 2024.
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 .
New Store Growth. 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, hook up utilities as well as higher construction and development related costs.
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.
We operate on a fiscal year that ends on the Saturday closest to December 31st each year. References to fiscal 2026, fiscal 2025, fiscal 2024, fiscal 2023, and fiscal 2022 refer to the fiscal years ended January 2, 2027, January 3, 2026, December 28, 2024, December 30, 2023, and December 31, 2022, respectively.
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.
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 as of December 28, 2024 consists of a senior term loan with $288.8 million of principal outstanding and a revolving credit facility with an aggregate outstanding principal balance of $190.0 million, as well as outstanding letters of credit of $4.5 million and a remaining borrowing capacity available of $205.5 million.
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.
Fiscal 2024 Overview Key financial and operating performance results for our fiscal 2024 compared to our fiscal 2023 were as follows: • Net sales increased 10.1% to $4.37 billion for fiscal 2024 from $3.97 billion for fiscal 2023. • Comparable store sales increased by 2.7% in fiscal 2024, driven by a 4.2% increase in the number of transactions partially offset by a 1.4% decrease in average transaction size. • Gross margin decreased by 110 basis points to 30.2%, compared to gross margin of 31.3% for fiscal 2023. • We added 67 new stores, including 40 stores from the acquisition of United Grocery Outlet, and closed two, ending fiscal 2024 with 533 stores in 16 states. • SG&A increased 11.4% to $1.24 billion, or 28.4% of net sales. • Net income was $39.5 million, or $0.40 per diluted share for fiscal 2024, compared to net income of $79.4 million, or $0.79 per diluted share, for fiscal 2023. • Adjusted EBITDA (1) decreased 6.3% to $236.8 million for fiscal 2024 compared to $252.6 million for fiscal 2023. • Adjusted net income (1) was $76.3 million, or $0.77 per adjusted diluted share (1) for fiscal 2024 compared to $108.1 million, or $1.07 per adjusted diluted share (1) , for fiscal 2023. _______________________ (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.
Discounts that are funded solely by IOs are not recognized as a reduction in net sales as the IO bears the incidental costs arising from the discount. We do not accept manufacturer coupons. Net sales consist of net sales from comparable stores, described below under "Comparable Store Sales," and non-comparable stores.
Discounts provided to customers by us are recognized at the time of sale as a reduction in net sales as the products are sold. Discounts that are funded solely by IOs are not recognized as a reduction in net sales as the IO bears the incidental costs arising from the discount. We do not accept manufacturer coupons.
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.
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. 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.
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.
Selling, General and Administrative Expenses Fiscal Year Ended December 28, 2024 December 30, 2023 $ Change % Change SG&A $ 1,243,610 $ 1,115,897 $ 127,713 11.4 % % of net sales 28.4 % 28.1 % The increase in SG&A was driven by $93.3 million in higher store-related expenses and $34.4 million in higher corporate-related expenses.
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.
See "Operating Metrics and Non-GAAP Financial Measures" section below for additional information about these items, including their definitions, how the non-GAAP financial measures provide useful information to investors and how management utilizes them, and reconciliations of the non-GAAP financial measures and the most directly comparable GAAP financial measures. 46 Table of Contents Key Components of Results of Operations Net Sales We recognize revenues from the sale of products at the point of sale, net of any taxes or deposits collected and remitted to governmental authorities.
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.
Net sales are impacted by the spending habits of our customers, customer perception of value in our offerings, product mix and supply, as well as promotional and competitive activities. 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.
New stores require an initial capital investment from us for store build-outs, fixtures and equipment that we amortize over time as well as cash required for inventory and pre-opening expenses. We expect new store growth to be the primary driver of our net sales growth over the long term. We lease substantially all of our store locations.
Newly opened stores require an initial capital investment from us for store build-outs, fixtures and equipment that we amortize over time as well as cash required for inventory and pre-opening expenses and typically the issuance of IO notes to support IO startup costs. Certain newly acquired stores may require refreshes and new fixtures.
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.
Cost of Sales, Gross Profit and Gross Margin Fiscal Year Ended December 28, 2024 December 30, 2023 $ Change % Change Cost of sales $ 3,049,564 $ 2,727,774 $ 321,790 11.8 % % of net sales 69.8 % 68.7 % Gross profit $ 1,321,937 $ 1,241,679 $ 80,258 6.5 % Gross margin 30.2 % 31.3 % The increase in cost of sales and gross profit was primarily the result of an increase in comparable store sales combined with non-comparable net sales from 65 net new stores acquired or opened during fiscal 2024, as well as impacts related to our system upgrades.
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 presentation of these non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by the adjustments we have used to derive such non-GAAP measures. 49 Table of Contents The following table summarizes key operating metrics and non-GAAP financial measures for the periods presented (amounts in thousands, except for percentages and store counts): Fiscal Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Other Financial and Operations Data Number of new stores (1) 67 28 27 Number of stores open at end of period 533 468 441 Comparable store sales increase (2) 2.7 % 7.5 % 11.8 % EBITDA (3) $ 186,533 $ 208,424 $ 171,967 Adjusted EBITDA (3) $ 236,779 $ 252,621 $ 214,682 Adjusted net income (3) $ 76,275 $ 108,113 $ 93,858 _______________________ (1) Fiscal year 2024 includes the addition of 40 stores from the acquisition of United Grocery Outlet on April 1, 2024.
(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.
For purposes of determining adjusted net income, in addition to the previously noted item, this line also represents 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, as well as the amortization of debt issuance costs, as these items are already included in the adjusted EBITDA reconciliation within the depreciation and amortization expenses and interest income, net, respectively.
Material Cash Requirements Leases We have operating and finance lease arrangements for substantially all store locations, distribution centers, and certain office space and equipment.
We may also, from time to time, at our sole discretion, prepay or retire all or a portion of our outstanding debt. Material Cash Requirements Leases We have opera ting and finance lease arrangements for substantially all store locations, distribution centers, and certain office space and equipment.
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.
On April 1, 2024, we acquired United Grocery Outlet, which included 40 stores in six adjacent states we did not operate in as of such date (Tennessee, North Carolina, Georgia, Alabama, Kentucky and Virginia) and a company-operated distribution center.
Cost of Sales, Gross Profit and Gross Margin Cost of sales includes, among other things, merchandise costs, inventory markdowns, inventory losses, transportation costs and distribution and warehousing costs, including depreciation. Gross profit is equal to our net sales less our cost of sales. Gross margin is gross profit as a percentage of our net sales.
Because we offer a broad selection of merchandise at extreme values, historically our business has benefited from periods of economic uncertainty. Cost of Sales, Gross Profit and Gross Margin Cost of sales includes, among other things, merchandise costs, inventory markdowns, inventory losses, transportation costs and distribution and warehousing costs, including depreciation.
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.
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. In fiscal 2024 we recognized $15.9 million of impairment of long-lived assets resulting from the Restructuring Plan, which is included in Selling, general and administrative expenses.
Recent Accounting Pronouncements Refer to NOTE 1—Organization and Summary of Significant Accounting Policies to our Consolidated Financial Statements. 61 Table of Contents
There were no adjustments to the carrying value of long-lived assets due to impairment charges during fiscal 2023 and fiscal 2022. Recent Accounting Pronouncements Refer to NOTE 1—Organization and Summary of Significant Accounting Policies to our Consolidated Financial Statements. 58 Table of Contents
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.
Cash Provided by (Used in) Financing Activities Net cash provided by financing activities of $109.9 million for fiscal 2024 was primarily due to the borrowing of $190.0 million on our revolving credit facility under the 2023 Credit Agreement and $8.8 million in proceeds from the exercise of stock options, partially offset by the repurchase of $81.4 million of our common stock and $5.6 million in scheduled principal payments on the senior term loan under the 2023 Credit Agreement.
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.
Comparable store sales increased 2.7%, driven by a 4.2% increase in the number of transactions, partially offset by a 1.4% decrease in average transaction size.
Our flexible buying model allows us to offer quality, name-brand opportunistic products at prices generally 40% to 70% below those of conventional retailers. Entrepreneurial independent operators ("IOs") run our stores and create a neighborhood feel through personalized customer service and a localized product offering.
Overview We are a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold primarily 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 retailers.
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.
Gross profit is equal to our net sales less our cost of sales. Gross margin is gross profit as a percentage of our net sales. Gross margin is a measure used by management to indicate whether we are selling merchandise at an appropriate gross profit.
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.
Our new store growth efforts are focused on organic growth combined with complementary real estate opportunities that align with our long-term geographic expansion and store growth strategies.
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.
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. 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.
(4) Represents costs related to the acquisition of United Grocery Outlet, including due diligence, legal, and other consulting expenses.
(4) Represents costs related to the acquisition and integration of United Grocery Outlet, including due diligence, legal, other consulting and retention bonus expenses. (5) For purposes of determining adjusted EBITDA, this line represents the incremental amortization of inventory step-ups resulting from purchase price accounting related to the acquisition.
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.
Our 2024, 2023 and 2022 fiscal years all consisted of 52 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.
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.
Income Tax Expense Fiscal Year Ended December 28, 2024 December 30, 2023 $ Change % Change Income tax expense $ 16,706 $ 24,644 $ (7,938) (32.2) % % of net sales 0.4 % 0.6 % Effective income tax rate 29.7 % 23.7 % The decrease in income tax expense was primarily due to lower pretax book income.
Growth of our net sales is generally driven by expansion of our store base in existing and new markets as well as comparable store sales growth. Net sales are impacted by the spending habits of our customers, product mix and supply, as well as promotional and competitive activities.
Net sales consist of net sales from comparable stores, described below under "Operating Metrics and Non-GAAP Financial Measures - Comparable Store Sales," and non-comparable stores. Growth of our net sales is generally driven by expansion of our store base in existing and new markets as well as comparable store sales growth.
The implementation of these system upgrades resulted in disruption to our business operations, including o rdering and inventory disruptions, which impacted our results of operations during the remainder of fiscal 2023, as more fully described below in “Comparison of fiscal 2023 to fiscal 2022." Some of these disruptions are still ongoing as of the date of this filing and are expected to negatively impact the first quarter of fiscal 2024 results.
The implementation of these system upgrades resulted in significant disruption to our business operations, including o rdering and inventory disruptions, as well as payment processing, which adversely impacted our results of operations during the remainder of fiscal 2023, as well as during fiscal 2024, as more fully described below in “Comparison of fiscal 2024 to fiscal 2023." We have since improved the data visibility to help us manage and forecast the business and we continue to work to further improve visibility into additional operating data, and to increase the speed and efficiency of the tools that we and our IOs use to manage the business.
See NOTE 4—Leases to our Consolidated Financial Statements for further detail of our lease obligations and the timing of lease liability maturities.
We have identified 17 of these store locations to pursue negotiations to exit leases with total undiscounted future lease payments of $66.7 million and lease terms through 2038 related to the Restructuring Plan. See NO TE 4—Leases to our Consolidated Financial Statements for further detail of our lease obligations and the timing of lease liability maturities.
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.
Store-related expenses increased primarily as a result of higher commission payments largely due to 25 net new stores operated by IOs. Also contributing to the increase in SG&A were higher store costs due to 65 net new stores, 40 of which are Company-operated, and the recognition of e-commerce vendor receivables during fiscal 2023.
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.
Cash Used in Investing Activities Net cash used in investing activities was $274.0 million for fiscal 2024 compared to $194.2 million for fiscal 2023.
For additional information regarding the risks related to our business and operations, see "Item 1A. Risk Factors" of this Annual Report on Form 10-K. 48 Table of Contents 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.
During fiscal 2024, we introduced over 180 new private-label SKUs across various grocery and deli categories. 45 Table of Contents 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 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.
See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs 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).
Biggest changeAs of December 28, 2024, our outstanding borrowings i ncluded $288.8 million from the senior term loan and $190.0 million from the revolving credit facility under the 2023 Credit Agreement. As of December 28, 2024, the interest rate on these borrowings ranged from 6.92% to 6.95% (See NOTE 6—Long-term Debt to our Consolidated Financial Statements for additional information).
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
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. 59 Table of Contents
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.
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 and subsequent disinflation, resulting in part from various supply disruptions, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain, increased materials costs to develop new stores, increased SG&A related to personnel, travel, and other operational costs and other disruptions caused by the recent macroeconomic environment.
Based 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.
Based on the outsta nding balances and interest rates of the senior term loan and the revolving credit facility as of December 28, 2024, 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 $3.3 million over t he next 12 months.
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.
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.

Other GO 10-K year-over-year comparisons