Grocery Outlet Holding Corp.

Results of Operations

The following table summarizes key components of our results of operations both in dollars and as a percentage of net sales (amounts in thousands, except for percentages):

(1)Components may not sum to totals due to rounding.

Operating Metrics and Non-GAAP Financial Measures

Number of New Stores

The number of new stores reflects the number of stores opened or acquired during a particular reporting period. 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.

We expect new store growth to be a significant and critical driver of our net sales growth over the long term. We lease substantially all of our store locations. 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. 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. Included in our comparable store definition are those stores that have been remodeled, expanded, or relocated in their existing location or respective trade areas. Excluded from our comparable store definition are those stores that have been temporarily closed for an extended period, those that have had their business materially disrupted for both planned projects as well as due to unforeseen circumstances, permanent store closures and dispositions. When applicable, as is the case with fiscal 2025, we exclude the net sales in the non-comparable week of a 53-week year from the same store sales calculation after comparing the current and prior year weekly periods that are most closely aligned. Starting in the second quarter of fiscal 2025, comparable stores sales include the addition of stores from the acquisition of United Grocery Outlet on April 1, 2024.

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. Accordingly, comparable store sales is only one of many measures we use to assess the success of our growth strategy.

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 of Directors to assess our financial performance. 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 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. In addition, we use adjusted EBITDA to supplement GAAP financial measures of performance to evaluate our performance in connection with compensation decisions. We believe that excluding items from operating income (loss), net income (loss) and earnings (net loss) 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 define EBITDA as net income (loss) before net interest expense, income taxes and depreciation and amortization expenses. Adjusted EBITDA represents EBITDA adjusted to exclude share-based compensation expenses, 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. Adjusted net income represents net income (loss) 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 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. In the future, we will incur expenses or charges such as those added back to calculate adjusted EBITDA or adjusted net income. 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.

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):

(1)For the 13 and 26 weeks ended June 29, 2024, includes the addition of 40 stores from acquisition of United Grocery Outlet.

(2)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, or the thirteenth full fiscal month following the store's acquisition.

(3)See "GAAP to Non-GAAP Reconciliations" section below for the applicable reconciliations.

GAAP to Non-GAAP Reconciliations

The following tables provide reconciliations from our GAAP net income (loss) to EBITDA and adjusted EBITDA, GAAP net income (loss) to adjusted net income, and our GAAP earnings (net loss) per share to adjusted earnings per share for the periods presented (amounts in thousands, except per share data):

(1)Includes non-cash share-based compensation expense.

(2)Represents non-restructuring asset impairment charges and gains or losses on dispositions of assets.

(3)Represents costs related to the acquisition and integration of United Grocery Outlet, including due diligence, legal, other consulting and retention bonus expenses.

(4)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 of United Grocery Outlet. 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 expense, net, respectively.

(5)Represents charges related to the Restructuring Plan, which include lease termination costs, non-cash impairment and disposal of long-lived assets, employee severance and benefit costs and legal, professional and other costs. See Note 11 to the condensed consolidated financial statements for additional information on the Restructuring Plan.

(6)Represents other non-recurring, non-cash or non-operational items, such as certain personnel-related hiring and termination costs, system implementation costs, strategic project costs, costs related to employer payroll taxes associated with equity awards, store closing costs, legal settlements and other legal expenses and miscellaneous costs.

(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 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.

(8)Represents the tax effect of the total adjustments. We calculate the tax effect of the total adjustments on a discrete basis excluding any non-recurring and unusual tax items.

(9)As discussed in Note 9 to the condensed consolidated financial statements, for the 26 weeks ended June 28, 2025, there is no difference in the weighted-average shares outstanding used to calculate the basic and diluted GAAP net loss per share due to the Company's net loss.

(10)To calculate diluted adjusted earnings per share, we adjusted the weighted-average shares outstanding for the dilutive effect of all potential shares of common stock.

Comparison of the 13 and 26 weeks ended June 28, 2025 and June 29, 2024 (amounts in thousands, except percentages)

Net Sales

The increases in net sales for the 13 and 26 weeks ended June 28, 2025 were primarily attributable to the addition of 28 net new stores opened over the last 12 months as well as an increase in comparable store sales.

Comparable store sales increased 1.1% for the 13 weeks ended June 28, 2025, driven by a 1.5% increase in the number of transactions, partially offset by a 0.4% decrease in average transaction size. Comparable store sales were positively impacted by the timing of the Easter holiday, which occurred during the first quarter of fiscal 2024 while comparatively occurring during the second quarter of fiscal 2025. For the 26 weeks ended June 28, 2025, comparable store sales increased 0.7%, driven by a 1.9% increase in the number of transactions, partially offset by a 1.2% decrease in average transaction size.

Cost of Sales, Gross Profit and Gross Margin

The increases in cost of sales and gross profit for the 13 and 26 weeks ended June 28, 2025 were primarily the result of the addition of 28 net new stores opened over the last 12 months combined with an increase in comparable store sales.

For the 13 weeks ended June 28, 2025, cost of sales as a percentage of net sales increased, and correspondingly gross margin declined, largely due to pricing adjustments on everyday staples designed to support our value proposition and appeal to the bargain-minded customer. Improvements in inventory management capabilities partially offset this decline.

For the 26 weeks ended June 28, 2025, cost of sales as a percentage of net sales decreased, and correspondingly gross margin increased, driven primarily by improvements in inventory management capabilities.

Selling, General and Administrative Expenses

The increase in SG&A for the 13 weeks ended June 28, 2025 was driven by $15.6 million in higher store-related expenses, partially offset by $2.0 million in lower corporate-related expenses. Store-related expenses increased primarily as a result of higher store occupancy costs and depreciation due to the 28 net new stores opened over the last 12 months, increases in other store costs and impairment of long-lived assets during the 13 weeks ended June 28, 2025. Corporate-related expenses decreased primarily due to lower incentive compensation expenses and United Grocery Outlet acquisition related costs in the prior year, partially offset by increases in costs to support the continued growth of the business. As a percentage of net sales, SG&A declined slightly for the 13 weeks ended June 28, 2025 due primarily to the aforementioned factors combined with a decrease from elective commission support we provided to operators in the prior year related to the systems conversion.

The increase in SG&A for the 26 weeks ended June 28, 2025 was driven by $38.3 million in higher store-related expenses and $3.0 million in higher corporate-related expenses. Store-related expenses increased primarily as a result of higher store occupancy costs and depreciation due to the 28 net new stores opened over the last 12 months, additional personnel costs from the Company-operated stores acquired in the United Grocery Outlet transaction in April of last year and increases in other store costs. Corporate-related expenses increased primarily due to increases in costs to support the continued growth of the business, partially offset by lower incentive compensation expenses and United Grocery Outlet acquisition related costs in the prior year. As a percentage of net sales, SG&A increased slightly for the 26 weeks ended June 28, 2025 due primarily to the aforementioned factors, partially offset by a decrease from elective commission support we provided to operators in the prior year related to the systems conversion.

Restructuring Charges

Restructuring charges for the 13 and 26 weeks ended June 28, 2025 included lease termination costs, non-cash impairment and disposal of long-lived assets, employee severance and benefit costs and legal, professional and other costs related to the Restructuring Plan (see Note 11 to the condensed consolidated financial statements for additional information).

Interest Expense, Net

The increases in net interest expense for the 13 and 26 weeks ended June 28, 2025 were primarily driven by higher average principal debt outstanding during the 13 and 26 weeks ended June 28, 2025, partially offset by lower average interest rates on these borrowings during the 13 and 26 weeks ended June 28, 2025.

Income Tax Expense (Benefit)

The decrease in income tax expense for the 13 weeks ended June 28, 2025 was primarily due to lower pretax book income and the change in our effective income tax rate, which was impacted by changes in our level of earnings, partially offset by non-deductible executive compensation.

During the 26 weeks ended June 28, 2025, we recorded a net income tax benefit of $4.4 million compared to a net income tax expense of $5.0 million during the 26 weeks ended June 29, 2024. The change in our income tax expense (benefit) and the change in our effective income tax rate were primarily driven by a pretax book loss combined with excess tax expense from share-based compensation awards during the 26 weeks ended June 28, 2025, compared to pretax book income combined with excess tax benefits from share-based compensation awards during the 26 weeks ended June 29, 2024.

On July 4, 2025, the OBBBA was signed into law. This legislation includes changes to U.S. federal tax law, which may be subject to further clarification and the issuance of interpretive guidance. We are assessing the legislation and its effects on our consolidated financial statements, which we expect to begin reflecting in the 13 weeks ended September 27, 2025.

Net Income (Loss)

As a result of the foregoing factors, net income decreased for the 13 weeks ended June 28, 2025 compared to the same period in fiscal 2024, and net loss was $18.4 million for the 26 weeks ended June 28, 2025 compared to net income of $13.0 million for the same period in fiscal 2024.

Adjusted EBITDA

Adjusted EBITDA decreased slightly for the 13 weeks ended June 28, 2025 compared to the prior year, primarily as a result of a decline in gross margin and comparable store sales.

The increase in adjusted EBITDA for the 26 weeks ended June 28, 2025 was primarily attributable to improved gross margin.

Adjusted Net Income

The decrease in adjusted net income for the 13 weeks ended June 28, 2025 was primarily attributable to a decline in gross margin, higher SG&A (including higher depreciation expense) and higher net interest expense, partially offset by an increase in net sales for the 13 weeks ended June 28, 2025, as discussed above.

The increase in adjusted net income for the 26 weeks ended June 28, 2025 was primarily attributable to increased gross margin and an increase in net sales for the 26 weeks ended June 28, 2025, partially offset by higher SG&A (including higher depreciation expense) and higher net interest expense, as discussed above.