Grocery Outlet Holding Corp. Announces Third Quarter Fiscal 2024 Financial Results

Q3 fiscal 2024 net sales increased 10.4%
Q3 fiscal 2024 comparable store sales grew 1.2%, driven by a 2.0% increase in transactions
Company updates key guidance for fiscal 2024

EMERYVILLE, Calif., Nov. 05, 2024 (GLOBE NEWSWIRE) -- Grocery Outlet Holding Corp. (NASDAQ: GO) ("Grocery Outlet" or the "Company") today announced financial results for the third quarter of fiscal 2024 ended September 28, 2024.

Highlights for Third Quarter Fiscal 2024 as compared to Third Quarter Fiscal 2023:

• Net sales increased by 10.4% to $1.11 billion.
• Comparable store sales increased by 1.2%, driven by a 2.0% increase in the number of transactions, partially offset by a 0.7% decrease in average transaction size.
• The Company opened 5 new stores, ending the quarter with 529 stores in 16 states.
• Gross margin decreased by 30 basis points to 31.1%.
• Selling, general and administrative expenses increased by 9.5% to $304.6 million, or 27.5% of net sales.
• Net income decreased 10.9% to $24.2 million, or $0.24 per diluted share.
• Adjusted EBITDA(1) increased by 6.0% to $72.3 million, or 6.5% of net sales.
• Adjusted net income(1) decreased by 10.1% to $27.9 million, or $0.28 per adjusted diluted share(1).

Eric Lindberg, Chairman and Interim President and CEO of Grocery Outlet said, “Our double-digit third quarter net sales growth reflects the strong positioning of our consumer offering – value continues to win in the market and we continue to grow our share of consumer non-discretionary spending.”

Mr. Lindberg continued, “While these results were generally consistent with our expectations, our execution limited growth and earnings during the period. Challenges with the systems conversion have hindered our performance over the past year, and while we have made substantial progress on the implementation, it is critical that we return our focus to what we do best: executing well on the fundamentals and delivering outstanding value to our customers through our dedicated independent operators.”

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Highlights for the 39 Weeks Ended September 28, 2024 as compared to the 39 Weeks Ended September 30, 2023:

• Net sales increased by 9.9% to $3.27 billion.
• Comparable store sales increased by 2.6%, driven by a 4.6% increase in the number of transactions, partially offset by a 1.9% decrease in average transaction size.
• Gross margin decreased by 110 basis points to 30.5%. Disruptions as a result of the implementation of the new technology platforms in late August 2023 are estimated to have negatively impacted gross margin by 110 basis points in the 39 weeks ended September 28, 2024.
• Selling, general and administrative expenses increased by 11.4% to $931.1 million, or 28.4% of net sales. This included $16.2 million of commission support the Company elected to provide operators in connection with the Company's system upgrades.
• Net income decreased 43.1% to $37.2 million, or $0.37 per share.
• Adjusted EBITDA(1) decreased by 11.0% to $179.5 million, or 5.5% of net sales.
• Adjusted net income(1) decreased by 31.3% to $61.8 million, or $0.62 per adjusted diluted share(1).
  

Balance Sheet and Cash Flow:

• Cash and cash equivalents totaled $68.7 million at the end of the third quarter of fiscal 2024.
• Total debt was $429.3 million at the end of the third quarter of fiscal 2024, net of unamortized debt issuance costs.
• Net cash provided by operating activities during the third quarter of fiscal 2024 was $23.0 million.
• Capital expenditures for the third quarter of fiscal 2024, before the impact of tenant improvement allowances, were $49.1 million, and, net of tenant improvement allowances, were $38.2 million.

Outlook:

The Company is updating key guidance figures for fiscal 2024 as follows:

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Share Repurchase Program:

The Company's board of directors (the "Board") has approved a new share repurchase program (the "2024 Share Repurchase Program") pursuant to which the Company is authorized to repurchase up to $100.0 million in shares of the Company's common stock, inclusive of fees and commissions. This program replaces the Company’s previous share repurchase program adopted in 2021, under which $9.4 million remained available for repurchase. The 2024 Share Repurchase Program is effective immediately and does not have an expiration date.

Repurchases under the 2024 Share Repurchase Program may be made, from time to time, in amounts and prices the Company deems appropriate and may be made pursuant to a trading plan intended to qualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. Repurchases by the Company under the 2024 Share Repurchase Program will be subject to general market and economic conditions, applicable legal requirements and other considerations. The 2024 Share Repurchase Program may be suspended, modified or discontinued by the Board at any time without prior notice at the Company's discretion.

Conference Call Information:

A conference call to discuss the third quarter fiscal 2024 financial results is scheduled for today, November 5, 2024 at 4:30 p.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-9208 approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at https://investors.groceryoutlet.com.

A taped replay of the conference call will be available within two hours of the conclusion of the call and can be accessed both online and by dialing (844) 512-2921 and entering access code 13744383. The replay will be available for approximately two weeks after the call.

Non-GAAP Financial Information:

In addition to reporting financial results in accordance with accounting principles generally accepted in the United States ("GAAP"), management and the Board of Directors use EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share as supplemental key metrics to assess the Company's financial performance. These non-GAAP financial measures are also frequently used by analysts, investors and other interested parties to evaluate the Company and other companies in the Company's 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 the Company's operating results. Management uses these non-GAAP measures to supplement GAAP measures of performance to evaluate the effectiveness of the Company's business strategies, to make budgeting decisions and to compare the Company's performance against that of other peer companies using similar measures. In addition, the Company uses adjusted EBITDA to supplement GAAP measures of performance to evaluate performance in connection with compensation decisions. Management believes that excluding items from operating income, net income and net income per diluted share that may not be indicative of, or are unrelated to, the Company's core operating results, and that may vary in frequency or magnitude, enhances the comparability of the Company's results and provides additional information for analyzing trends in the Company's business.

Management defines EBITDA as net income before net interest expense, income taxes and depreciation and amortization expenses. 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 and integration costs, costs related to the amortization of inventory purchase accounting asset step-ups and certain other expenses that may not be indicative of, or are unrelated to, the Company's core operating results, and that may vary in frequency or magnitude. 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. Basic adjusted earnings per share is calculated using adjusted net income, as defined above, and basic weighted average shares outstanding. Diluted adjusted earnings per share is calculated using adjusted net income, as defined above, and diluted weighted average shares outstanding.

These non-GAAP 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 the Company's results as reported under GAAP. The Company addresses the limitations of the non-GAAP measures through the use of various GAAP measures. In the future the Company will incur expenses or charges such as those added back to calculate adjusted EBITDA or adjusted net income. The presentation of these non-GAAP measures should not be construed as an inference that future results will be unaffected by the adjustments used to derive such non-GAAP measures.

The Company has not reconciled the non-GAAP adjusted EBITDA and adjusted diluted earnings per share forward-looking guidance included in this release to the most directly comparable GAAP measures because this cannot be done without unreasonable effort due to the variability and low visibility with respect to taxes and non-recurring items, which are potential adjustments to future earnings. The Company expects the variability of these items to have a potentially unpredictable, and a potentially significant, impact on the Company's future GAAP financial results.

Forward-Looking Statements:

This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this release other than statements of historical fact, including statements regarding the Company's future operating results and financial position, the Company's CEO search process, the Company's business strategy and plans, the integration of the Company's recent acquisition of United Grocery Outlet, the Company's enterprise resource planning system upgrades and continued refinements and recent impacts, business and market trends, macroeconomic and geopolitical conditions, our private label program, and the sufficiency of the Company's cash balances, working capital and cash generated from operating, investing, and financing activities for the Company's future liquidity and capital resource needs may constitute forward-looking statements. Words such as "anticipate," "believe," "estimate," "expect," "intend," "may," "outlook," "plan," "project," "seek," "will," and similar expressions, are intended to identify such forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied by any forward-looking statements, including the following: failure of suppliers to consistently supply the Company with opportunistic products at attractive pricing; inability to successfully identify trends and maintain a consistent level of opportunistic products; failure to maintain or increase comparable store sales; loss of key personnel or inability to attract, train and retain highly qualified personnel, including the ongoing recruitment for a permanent CEO or CFO; any significant disruption to the Company's distribution network, the operations of its distributions centers and timely receipt of inventory; inflation and other changes affecting the market prices of the products the Company sells; risks associated with newly opened or acquired 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 the Company's reputation and the value of its brand, including protecting intellectual property; inability to maintain sufficient levels of cash flow from 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 the Company's business operations; failure to participate effectively in the growing online retail marketplace; unexpected costs and negative effects if the Company incurs losses not covered by insurance; difficulties associated with labor relations and shortages; failure to remediate material weakness in the Company's internal control over financial reporting; 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 the Company's own private label brands; inability to attract and retain qualified independent operators of the Company ("IOs"); failure of the IOs to successfully manage their business; failure of the IOs to repay notes outstanding to the Company; inability of the IOs to avoid excess inventory shrink; any loss or changeover of an IO; legal proceedings initiated against the IOs; legal challenges to the IO/independent contractor business model; failure to maintain positive relationships with the IOs; risks associated with actions the IOs could take that could harm the Company's business; material disruption to information technology systems, including risks associated with any continued impact from the Company's systems transition; failure to maintain the security of information relating to personal information or payment card data of customers, employees and suppliers; risks associated with products the Company and its IOs sell; risks associated with laws and regulations generally applicable to retailers; legal or regulatory proceedings; the Company's substantial indebtedness could affect its ability to operate its business, react to changes in the economy or industry or pay debts and meet obligations; restrictive covenants in the Company's debt agreements may restrict its ability to pursue its business strategies, and failure to comply with any of these restrictions could result in acceleration of the Company's debt; risks associated with tax matters; changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters; and the other factors discussed under "Risk Factors" in the Company's most recent annual report on Form 10-K and in other subsequent reports the Company files with the United States Securities and Exchange Commission (the "SEC"). The Company's periodic filings are accessible on the SEC's website at www.sec.gov.

Moreover, the Company operates in a very competitive and rapidly changing environment, and new risks emerge from time to time. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, and the Company's expectations based on third-party information and projections are from sources that management believes to be reputable, the Company cannot guarantee that future results, levels of activity, performance or achievements. These forward-looking statements are made as of the date of this release or as of the date specified herein and the Company has based these forward-looking statements on current expectations and projections about future events and trends. Except as required by law, the Company does not undertake any duty to update any of these forward-looking statements after the date of this release or to conform these statements to actual results or revised expectations.

About Grocery Outlet:

Based in Emeryville, California, 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. Grocery Outlet and its subsidiaries have more than 520 stores in California, Washington, Oregon, Pennsylvania, Tennessee, Idaho, Nevada, Maryland, North Carolina, New Jersey, Georgia, Ohio, Alabama, Delaware, Kentucky and Virginia.

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INVESTOR RELATIONS CONTACTS: Christine Chen (510) 877-3192 cchen@cfgo.com John Rouleau (203) 682-4810 John.Rouleau@icrinc.com MEDIA CONTACT: Layla Kasha (510) 379-2176 lkasha@cfgo.com