Grocery Outlet Holding Corp.

Our condensed consolidated financial statements are prepared in accordance with GAAP and the applicable rules and regulations of the SEC for interim reporting. The preparation of our condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our judgments and estimates are based on historical experience and other factors believed to be reasonable under the circumstances. With respect to critical accounting policies, even a relatively minor variance between actual and expected results can potentially have a materially favorable or unfavorable impact on subsequent results of operations.

Except as discussed below, there have been no material changes to our critical accounting policies and estimates during the first quarter of fiscal 2026 from those disclosed in our 2025 Form 10-K.

Goodwill

Goodwill is subject to an annual impairment evaluation which is performed during our fourth quarter or when events or changes in circumstances indicate that the value of goodwill may be impaired. Our impairment evaluation of goodwill consists of an initial qualitative assessment of our reporting unit to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than its carrying value. If it is concluded that this is the case, a quantitative assessment is performed, and if the quantitative assessment indicates that the carrying value of our reporting unit exceeds its fair value, an impairment loss is calculated and recognized during that period. Measurement of such an impairment loss would be based on the excess of the carrying amount over fair value.

During the first quarter of fiscal 2026, we determined that a triggering event had occurred due to a decline in our stock price, necessitating an interim goodwill impairment evaluation. We performed a quantitative assessment as of April 4, 2026.

The quantitative impairment assessment utilized a combination of an income approach and a market approach to estimate the fair value of the reporting unit, which were equally weighted. The income approach was based on a discounted cash flow model that incorporated projected cash flows and significant assumptions, including revenue growth rates, gross profit margins, and an estimate of the weighted-average cost of capital that we believe reflects market participant assumptions. The market approach utilized a guideline public company method, which required judgment in selecting comparable companies and determining appropriate multiples of revenue and EBITDA.

These estimates involve significant judgment and are subject to uncertainties, including changes in market conditions, interest rates, growth rates, tax rates, costs, customer behavior, regulatory developments, and other macroeconomic factors. In addition, we assessed the reasonableness of the estimated fair value by evaluating the implied control premium relative to our market capitalization and concluded that such premium was reasonable, thereby corroborating our fair value estimate.

The fair value measurement was classified as Level 3 within the fair value hierarchy due to the use of significant unobservable measurement inputs and internal projections.

Assumptions used in impairment testing are made at a point in time and require significant judgment; therefore, they are subject to change based on the facts and circumstances present at each impairment test date. Additionally, these assumptions are generally interdependent and do not change in isolation.

We will continue to closely monitor future performance and any potential impacts on the value of the reporting unit. If the estimated future cash flows decrease below our current expectations, specifically as a result of lower revenue growth rates or operating income margins, or due to an increase in the weighted average cost of capital, the fair value may further decrease resulting in an incremental material goodwill impairment.