Grocery Outlet Holding Corp. (GO)

CIK: 0001771515. SIC: 5411 Retail-Grocery Stores. Latest 10-K as of: 2026-03-04.

SIC breadcrumb: Retail Trade > SIC Major Group 54 > SIC 5411 Retail-Grocery Stores

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1771515. Latest filing source: 0001771515-26-000015.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-04. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001771515.json. Derived margins are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Missing metrics are omitted rather than fabricated.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-13. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001771515.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001771515-26-000055.

Extracted between Part I Item 2 and the next Item 3/4 or Part II heading after HTML sanitization. Confidence: high. Filing date: 2026-05-13. Report date: 2026-04-04.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion of our financial condition and results of operations in conjunction with the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Form 10-Q, and the audited consolidated financial statements and related notes thereto and management's discussion and analysis of financial condition and results of operations included in our 2025 Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in other sections of this report. See "Special Note Regarding Forward-Looking Statements" in this report.

We operate on a fiscal year that ends on the Saturday closest to December 31st each year. The fiscal years ending January 2, 2027 (“fiscal 2026”) and ended January 3, 2026 ("fiscal 2025") consist of 52 weeks and 53 weeks, respectively. References to the first quarter of fiscal 2026 and the first quarter of fiscal 2025 refer to the 13 weeks ended April 4, 2026 and March 29, 2025, respectively.

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.

Overview

We are a growth-oriented 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. Our Grocery Outlet stores are primarily run by entrepreneurial independent operators ("IOs") who create a neighborhood feel through personalized customer service and a localized product offering. As of April 4, 2026, we had 549 stores in California, Washington, Oregon, Pennsylvania, Tennessee, Nevada, Idaho, North Carolina, Maryland, Ohio, Georgia, Virginia, New Jersey, Alabama, Delaware and Kentucky.

Recent Trends and Developments

The extent of the continuing impact of the factors set forth below on our operational and financial performance will depend on many factors, including certain factors outside of our control.

Macroeconomic Conditions. Over the past several years, our business has been and continues to be impacted by macroeconomic conditions including supply chain and labor challenges, varying rates of inflation, tariffs, fuel price increases and changes in consumer behavior, and our IOs have been impacted by staffing challenges and increased labor costs and utility costs within their businesses. In recent periods, comparable store sales have been negatively impacted by decreased average transaction size. We are actively pursuing initiatives to increase average transaction size through our deployment of enhanced in-store merchandising and execution to further improve the shopping experience.

Tariffs, such as those recently implemented or proposed by the U.S. government on goods imported from other countries, may result in cost increases on some of the products we sell, such as fresh meat and general merchandise that we import from impacted countries, as well as the materials and supplies we use for store construction. Tariffs may also negatively affect consumer sentiment. The tariff environment remains highly dynamic and specific tariffs applicable to our business continue to evolve. While we are regularly re-evaluating the potential impact of implemented and proposed tariffs, the short-term impact of price increases due to tariffs is largely dependent on our ability to negotiate with suppliers, opportunities to change sources of supply, our assortment decisions and whether or not we pass the effects through to our customers, which will largely depend upon competitive market conditions. It is reasonably possible that new or additional tariffs will be periodically implemented or proposed given the current global trade environment. Sustained uncertainty about, or worsening of, current global economic conditions and further tariffs and escalations of tensions between the U.S. and its trading partners has and could continue to adversely impact the stability of global financial markets and result in a global economic slowdown and long-term changes to global trade, which could in turn have a material adverse impact on our business and financial condition.

In the first quarter of fiscal 2026, the Supreme Court of the U.S. issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). The ultimate availability, timing, and amount of any potential refunds of such tariffs remain uncertain and are subject to further legal, regulatory, and administrative developments. The U.S. presidential administration subsequently invoked additional tariffs under other laws resulting in a rapidly changing tariff environment. At this time we cannot reasonably estimate the total financial impact of this ruling, however it, and any additional tariffs, may materially affect our future results of operations and cash flows.

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Pricing Competition. During the last few years we have observed an increase in promotional and pricing activities from key competitors, putting further pressure on our relative value proposition, which in turn, has resulted in our increased efforts to actively negotiate costs and adjust prices to sharpen our value proposition.

Opportunistic Product. We are working to increase opportunistic product levels to what we believe is necessary to improve the perception of our value leadership and drive sales. As part of these efforts we have invested and plan to continue to invest in additional promotional activity in the near term, which adversely impacted gross margin in the first quarter of fiscal 2026 and which we expect will continue to adversely impact gross margin for the remainder of fiscal 2026.

Optimization Plan. To strengthen long-term profitability and cash flow generation, improve operational execution, optimize our existing store footprint and align with our disciplined new store growth strategy, in the first quarter of fiscal 2026 we conducted a strategic, financial and operational analysis of our store fleet. Following that review, in the first quarter of fiscal 2026, our Board of Directors (the "Board") adopted a business optimization plan (the "Optimization Plan") that provides for the closure of 36 financially underperforming stores ("Closure Stores"), including the termination, sublease or assignment of the applicable store leases; the termination, sublease or assignment of a lease for a distribution center facility that we are no longer utilizing (together with the store leases, the "Lease Exits"); and the termination of operator agreements with IOs for the Closure Stores as well as certain other store locations (the "Operator Agreement Terminations").

Following the Board adoption of the Optimization Plan, during the first quarter of fiscal 2026, we closed 27 stores and initiated the closure process at the remaining 9 stores associated with the Lease Exits. In the second quarter of fiscal 2026, we completed the closure of the remaining 9 stores. During the first quarter of fiscal 2026, we also completed or initiated the Operator Agreement Terminations for the Closure Stores as well as certain other store locations, which resulted in an increase of $15.5 million to the provision for IO notes and IO receivables reserves in the first quarter of fiscal 2026.

We estimate that we will incur between $20 million and $27 million in net total restructuring charges in fiscal 2026 and fiscal 2027 related to the Optimization Plan, and we expect these actions to be substantially completed by the first quarter of fiscal 2027. Estimated restructuring charges expected to be incurred in connection with the Operator Agreement Terminations include bad debt expense of approximately $16 million and cash costs of approximately $3 million. We have negotiated, or intend to negotiate, a lease termination, sublease or assignment with the landlords of the Lease Exits. We expect to incur net restructuring charges for the Lease Exits of between $1 million and $8 million, which primarily include cash costs of between $49 million and $60 million for lease termination fees, costs to prepare the premises for surrender to the landlords, sublessee or assignee, and idle property costs, partially offset by the net non-cash write-off of the right-of-use assets and lease liabilities associated with these leases of between $(48) million and $(52) million.

See Note 12 to the condensed consolidated financial statements for additional information regarding the Optimization Plan, including the costs incurred and restructuring liability activity.

New Store Growth. 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. Complementary growth opportunities may include expanding strategic relationships with large property owners, evaluating acquisitions of opportunistic real estate that become available through consolidation in the retail sector, and exploring strategic regional acquisitions of operating businesses.

We plan to open 30 to 33 net new stores in fiscal 2026, excluding the Closure Stores related to the Optimization Plan. We plan to expand with a more clustered location model in new markets to improve supply chain efficiency and marketing leverage that reflects our more disciplined approach. We are also making adjustments to how we go to market, including piloting new approaches to store openings and underwriting to stricter standards. For example, we plan to operate certain of these new stores as Company-operated stores initially, which differs from our historical practice, before eventually transitioning the operations to an IO.

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Key Factors and Measures We Use to Evaluate Our Business

We consider a variety of financial and operating measures in assessing the performance of our business. The key financial measures we use in accordance with accounting principles generally accepted in the United States of America ("GAAP") are net sales, gross profit and gross margin, selling, general and administrative expenses ("SG&A"), operating loss, net loss and comprehensive loss and net loss 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.

First Quarter of Fiscal 2026 Overview

Key financial and operating performance results for the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025 were as follows:

•Net sales increased 3.6% to $1.17 billion from $1.13 billion in the first quarter of fiscal 2025.

•Comparable store sales declined by 1.0%, driven by 3.1% decrease in average transaction size, partially offset by a 2.1% increase in the number of transactions.

•Gross margin was 29.6% in the first quarter of fiscal 2026 compared to 30.4% in the first quarter of fiscal 2025, a decline of 80 basis points, including a 50 basis point impact from inventory markdowns and write-offs associated with the Closure Stores under the Optimization Plan.

•We closed 28 stores, including 27 stores as a result of the Optimization Plan (see Note 12 to the condensed consolidated financial statements for additional information), and opened 7 new stores, ending the first quarter of fiscal 2026 with 549 stores in 16 states.

•Operating

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Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high. Filing date: 2026-03-04. Report date: 2026-01-03.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and related notes thereto included in "Item 8. Financial Statements and Supplementary Data." This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those described in "Item 1A. Risk Factors" or set forth in other sections of this report. See "Special Note Regarding Forward-Looking Statements" in this report.

For discussion related to the results of operations and changes in financial condition for fiscal 2024 compared to fiscal 2023 refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of the Annual Report on Form 10-K for the fiscal year ended December 28, 2024 ("2024 Form 10-K").

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, and fiscal 2023 refer to the fiscal years ended January 2, 2027, January 3, 2026, December 28, 2024, and December 30, 2023, respectively. Our 2025 fiscal year consisted of 53 weeks while our 2024 and 2023 fiscal years 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.

Overview

We are a growth-oriented 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. Our Grocery Outlet stores are primarily run by entrepreneurial IOs who create a neighborhood feel through personalized customer service and a localized product offering. As of January 3, 2026, we had 570 stores in California, Washington, Oregon, Pennsylvania, Tennessee, Idaho, Nevada, Maryland, Ohio, New Jersey, North Carolina, Georgia, Alabama, Delaware, Kentucky and Virginia.

Recent Trends and Developments

The extent of the continuing impact of the factors set forth below on our operational and financial performance will depend on many factors, including certain factors outside of our control.

Macroeconomic Conditions. Over the past several years, our business has been and continues to be impacted by macroeconomic conditions including supply chain and labor challenges, varying rates of inflation, tariffs, and changes in consumer behavior, and our IOs have been impacted by staffing challenges and increased labor costs and utility costs within their businesses. In recent periods, comparable store sales have been negatively impacted by decreased average transaction size. We are actively pursuing initiatives to increase average transaction size through our deployment of enhanced in-store merchandising and execution to further improve the shopping experience.

Tariffs, such as those recently implemented or proposed by the U.S. government on goods imported from other countries, may result in cost increases on some of the products we sell, such as fresh meat and general merchandise that we import from impacted countries, as well as the materials and supplies we use for store construction. Tariffs may also negatively affect consumer sentiment. The tariff environment remains highly dynamic and specific tariffs applicable to our business continue to evolve. While we are regularly re-evaluating the potential impact of implemented and proposed tariffs, the short-term impact of price increases due to tariffs is largely dependent on our ability to negotiate with suppliers, opportunities to change sources of supply, our assortment decisions and whether or not we pass the effects through to our customers, which will largely depend upon competitive market conditions. It is reasonably possible that new or additional tariffs will be periodically implemented or proposed given the current global trade environment. Sustained uncertainty about, or worsening of, current global economic conditions and further tariffs and escalations of tensions between the U.S. and its trading partners has and could continue to adversely impact the stability of global financial markets and result in a global economic slowdown and long-term changes to global trade, which could in turn have a material adverse impact on our business and financial condition.

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In February 2026, the Supreme Court of the U.S. issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). The ultimate availability, timing, and amount of any potential refunds of such tariffs remain highly uncertain and are subject to further legal, regulatory, and administrative developments. The U.S. presidential administration subsequently invoked additional tariffs under other laws resulting in a rapidly changing tariff environment. At this time we cannot reasonably estimate the total financial impact of this ruling, however it, and any additional tariffs, may materially affect our future results of operations and cash flows.

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law. The OBBBA includes several changes to U.S. federal tax law, including reinstatement of 100% bonus depreciation on qualified property and immediate expensing of domestic research and development expenses. Certain provisions of the OBBBA will impact the timing of cash tax payments in future periods.

The U.S. Government shutdown during the fourth quarter of fiscal 2025 adversely impacted the disbursement of benefits from federally-funded assistance programs that many of our customers depend on, including SNAP. Approximately 9% of our net sales in fiscal 2025 were in the form of EBT payments and a substantial portion of these payments may be related to benefits associated with SNAP. The U.S. Government shutdown during the fourth quarter of fiscal 2025 adversely impacted the disbursement of benefits from federally-funded assistance programs that many of our customers depend on, including SNAP, and our sales from EBT payments were negatively impacted during the period. Any future government shutdowns or other disruptions to these benefits could affect the spending habits of our customers and adversely impact our business performance and results of operations.

Pricing Competition. During the last few years we have observed an increase in promotional and pricing activities from key competitors, putting further pressure on our relative value proposition, which in turn, has resulted in our increased efforts to actively negotiate costs and adjust prices to sharpen our value proposition.

Optimization Plan and Restructuring Plan. To strengthen long-term profitability and cash flow generation, improve operational execution, optimize our existing store footprint and align with our disciplined new store growth strategy, in the first quarter of fiscal 2026 we conducted a strategic, financial and operational analysis of our store fleet. Following that review, on March 2, 2026, our Board adopted a business optimization plan (the "Optimization Plan") that provides for the closure of 36 financially underperforming stores ("Closure Stores"), including the termination or sublease of the applicable store leases; the termination or sublease of a lease for a distribution center facility that we are no longer utilizing (together with the store lease terminations and subleases, the "Lease Exits"); and the termination of operator agreements with IOs for the Closure Stores as well as certain other store locations (the "Operator Agreement Terminations"). These actions under the Optimization Plan are expected to be substantially completed during fiscal 2026.

In addition, preceding the adoption of the Optimization Plan, during the reporting process for the audited consolidated financial statements for fiscal 2025, we determined that the long-lived assets of the Closure Stores were impaired, and recognized $110 million of non-cash charges in Impairment of long-lived assets on the consolidated statements of operations and comprehensive income (loss).

We estimate that we will incur between $14 million and $25 million in net total restructuring charges in fiscal 2026 related to the Optimization Plan approved in the first quarter of fiscal 2026. Estimated restructuring charges expected to be incurred in connection with the Operator Agreement Terminations include bad debt expense of between $11 million and $14 million and cash expenses of between $2 million and $3 million. The Company intends to negotiate lease terminations with the landlords of the Closure Stores and one distribution center facility during fiscal 2026. If we are successful in negotiating these lease terminations, the Company expects to incur net restructuring charges for the Lease Exits of between $1 million and $8 million, which primarily includes cash costs of between $49 million and $60 million for lease termination fees, costs to prepare the premises for surrender to the landlords and idle property costs, partially offset by the net non-cash write-off of the right-of-use assets and lease liabilities associated with these leases of between $(48) million and $(52) million.

In addition to the above costs, we estimate that our fiscal 2026 gross profit may be negatively impacted by between $4 million and $6 million as a result of sales discounts or product markdowns to liquidate on-hand inventory during the wind-down of operations of the Closure Stores.

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Previously, we initiated a restructuring plan during the fourth quarter of fiscal 2024, which was substantially completed in the second quarter of fiscal 2025, to improve long-term profitability, cash flow generation and return on invested capital, optimize the footprint of new store growth and lower our cost base (the "Restructuring Plan"). The Restructuring Plan included (i) the termination of a total of 28 leases for unopened stores in suboptimal locations and the discontinued development of certain future store sites where we had incurred initial costs, but leases had not yet been signed, (ii) the cancellation of certain capital intensive warehouse projects and (iii) a reduction in headcount in building a more scalable cost structure. As of January 3, 2026, we incurred total costs under the Restructuring Plan of $61.8 million, of which $38.2 million were cash expenditures.

All costs incurred from the Optimization Plan and the Restructuring Plan during fiscal 2025 and fiscal 2024 are included in Restructuring charges on the consolidated statements of operations and comprehensive income (loss). See Note 16 to the consolidated financial statements for additional information regarding the Optimization Plan and the Restructuring Plan, including the costs incurred and restructuring liability activity.

New Store Growth. 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. Complementary growth opportunities may include expanding strategic relationships with large property owners, evaluating acquisitions of opportunistic real estate that become available through consolidation in the retail sector, and exploring strategic regional acquisitions of operating businesses. 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. As of January 3, 2026, 39 United Grocery Outlet stores were Company-operated stores.

We plan to open 30 to 33 net new stores in fiscal 2026, excluding the Closure Stores related to the Optimization Plan. We plan to expand with a more clustered model in new markets to improve supply chain efficiency and marketing leverage that reflects our more disciplined approach. We are also making adjustments to how we go to market, including piloting new approaches to store openings and underwriting to stricter standards. For example, we plan to operate certain of these stores as Company-operated stores for an uncertain time period, which differs from our historical practice, and intend to eventually transition the operations for each store to an IO.

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. Recently implemented and proposed tariffs could further impact our constructions costs.

Enterprise Resource Planning System Upgrades and Challenges. In late August 2023, we replaced our internally-developed legacy applications with a customized enterprise resource planning system, including our financial ledger, purchasing, inventory management and reporting platforms as well as integrations with our warehouse and store systems. The implementation of these system upgrades resulted in significant disruption to our business operations, including ordering and inventory disruptions, as well as payment processing, which adversely impacted our results of operations during the remainder of fiscal 2023 through fiscal 2024 and into fiscal 2025. We have since implemented multiple capabilities in fiscal 2025 improving data visibility and increasing the speed and efficiency of tools that we and our IOs use to manage the business effectively, and we continue to work to further improve visibility into additional operating data.

Private Label Products. We offer our private label products in our stores, with approximately 485 private-label SKUs across various grocery, deli, frozen, general merchandise and wine categories as of January 3, 2026. Our private label products are intended to foster customer loyalty through both everyday commodity staples and unique items exclusive to us. In addition to providing better value and inventory consistency for our customers, our private label products generally deliver higher margins for us and our IOs.

Opportunistic Product. Our recent focus on improving in-stocks and ensuring the availability of everyday commodity staples adversely impacted our ability to deliver high-quality opportunistic product and the perception of our value leadership. As we work to increase opportunistic product levels to what we believe is necessary to improve sales, we intend to invest in additional promotional activity in the near term, which we expect will adversely impact gross margin in the first half of fiscal 2026.

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Key Factors and Measures We Use to Evaluate Our Business

We consider a variety of financial and operating measures in assessing the performance of our business. The key financial measures we use in accordance with accounting principles generally accepted in the United States of America ("GAAP") are net sales, gross profit and gross margin, selling, general and administrative expenses ("SG&A"), operating income (loss), net income (loss) and comprehensive income (loss) and earnings (net loss) 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.

Fiscal 2025 Overview

Key financial and operating performance results for our fiscal 2025 compared to our fiscal 2024 were as follows:

•Net sales increased by 7.3% to $4.69 billion for fiscal 2025 from $4.37 billion for fiscal 2024. Fiscal 2025 contained one additional week ("53rd week") as compared to fiscal 2024. The 53rd week included $82.4 million in net sales.

•Comparable store sales increased by 0.5% in fiscal 2025 on a 52-week basis, driven by a 1.6% increase in the number of transactions partially offset by a 1.1% decrease in average transaction size.

•Gross margin increased by 10 basis points to 30.3%, compared to gross margin of 30.2% for fiscal 2024.

•We opened 42 new stores and closed five, ending fiscal 2025 with 570 stores in 16 states.

•SG&A increased by 8.5% to $1.33 billion, or 28.4% of net sales.

•Operating loss was $221.7 million, which included $113.8 million in impairment of long-lived assets, $45.9 million in charges related to the Restructuring Plan and $149.0 million in non-cash charges related to the impairment of goodwill. Impairment of long-lived assets related to certain underperforming stores, substantially all of which we subsequently determined to close as part of the Optimization Plan. See Note 5 and Note 16 to the consolidated financial statements for additional information.

•Net loss was $224.9 million, or $(2.30) per diluted share for fiscal 2025, compared to net income of $39.5 million, or $0.40 per diluted share, for fiscal 2024.

•Adjusted net income(1) decreased by 1.5% to $75.2 million, or $0.76 diluted adjusted earnings per share(1), compared to $76.3 million, or $0.77 diluted adjusted earnings per share(1), for fiscal 2024.

•Adjusted EBITDA(1) was $254.3 million in fiscal 2025 compared to $236.8 million in fiscal 2024.

_______________________

(1)Adjusted net income, diluted adjusted earnings per share and adjusted EBITDA are non-GAAP financial measures, which exclude the impact of certain special items. Please note that our non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the "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.

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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. 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. 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. 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. 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. Because we offer a broad selection of merchandise at extreme values, our business has in the past benefited from certain periods of economic uncertainty.

Gross Profit and Gross Margin

Gross profit is equal to our net sales less our cost of sales, which includes, among other things, merchandise costs, inventory markdowns, inventory losses, transportation costs and distribution and warehousing costs, including depreciation. 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. 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. While our disciplined buying approach has produced consistent gross margins throughout economic cycles, which we believe has helped to mitigate adverse impacts on gross profit and results of operations, changes in consumer demand as a result of macroeconomic conditions, including inflationary cost increases for goods, labor and transportation, supply chain constraints and changes in discretionary income, have resulted and could continue to result in higher variability to our gross margins. The components of our cost of sales, as well as our gross profit and gross margin, may not be comparable to the same or similar measures of our competitors and other retailers.

Selling, General and Administrative Expenses

SG&A are comprised of both store-related expenses and corporate expenses. Our store-related expenses include commissions paid to IOs, occupancy and our portion of maintenance costs, depreciation and amortization of store-related assets, the cost of opening new IO stores and impairment of long-lived assets. Company-operated store-related expenses also include payroll, benefits, supplies and utilities. 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. SG&A generally increases as we grow our store base and invest in our corporate infrastructure. SG&A related to commissions paid to IOs are variable in nature and generally increase as gross profits rise and decrease as gross profits decline. We expect that our SG&A will continue to increase in future periods as we continue to grow our net sales and gross profit. The components of our SG&A may not be comparable to the components of similar measures of our competitors and other retailers.

Impairment of Long-lived Assets

Impairment of long-lived assets includes non-cash asset impairment charges related to certain underperforming stores, substantially all of which we subsequently determined to close as part of the Optimization Plan, and excludes asset impairment charges related to the Restructuring Plan. See Note 16 to the consolidated financial statements for additional information on the Optimization Plan and the Restructuring Plan.

Restructuring Charges

Restructuring charges include 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 16 to the consolidated financial statements for additional information on the Restructuring Plan.

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Goodwill Impairment

Goodwill impairment represents a non-cash impairment charge to the Company's goodwill as a result of our annual impairment evaluation of goodwill we performed during the fourth quarter of fiscal 2025. Our annual impairment evaluation concluded that the carrying value of goodwill exceeded its fair value and as such an impairment charge was recognized to reduce its carrying value to fair value. See Note 5 to the consolidated financial statements for additional information.

Operating Income (Loss)

Operating income (loss) is gross profit less SG&A, restructuring charges and goodwill impairment. Operating income (loss) excludes interest expense, net and income tax expense (benefit). We use operating income (loss) as an indicator of the productivity of our business and our ability to manage expenses.

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Results of Operations

For discussion related to the results of operations for fiscal 2024 compared to fiscal 2023 refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2024 Form 10-K.

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) for fiscal 2025 (53 weeks) and fiscal 2024 (52 weeks):

Fiscal Year Ended

January 3, 2026

December 28, 2024

Amount

% of Net Sales (1)

Amount

% of Net Sales (1)

$ Change

% Change

Net sales

$

4,688,759 

100.0 

%

$

4,371,501 

100.0 

%

$

317,258 

7.3 

%

Cost of sales

3,269,466 

69.7 

%

3,049,564 

69.8 

%

219,902 

7.2 

%

Gross profit

1,419,293 

30.3 

%

1,321,937 

30.2 

%

97,356 

7.4 

%

Selling, general and administrative expenses

1,332,288 

28.4 

%

1,227,722 

28.1 

%

104,566 

8.5 

%

Impairment of long-lived assets

113,807 

2.4 

%

— 

— 

%

113,807 

100.0 

%

Restructuring charges

45,903 

1.0 

%

15,888 

0.4 

%

30,015 

188.9 

%

Goodwill impairment

149,000 

3.2 

%

— 

— 

%

149,000 

100.0 

%

Operating income (loss)

(221,705)

(4.7)

%

78,327 

1.8 

%

(300,032)

*

Interest expense, net

27,480 

0.6 

%

22,156 

0.5 

%

5,324 

24.0 

%

Income (loss) before income taxes

(249,185)

(5.3)

%

56,171 

1.3 

%

(305,356)

*

Income tax expense (benefit)

(24,273)

(0.5)

%

16,706 

0.4 

%

(40,979)

(245.3)

%

Net income (loss) and comprehensive income (loss)

$

(224,912)

(4.8)

%

$

39,465 

0.9 

%

$

(264,377)

*

_______________________

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

*    Represents a change that is not meaningful

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 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 to fifteen years with options to renew for three or four 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 store sales include the addition of stores from the acquisition of United Grocery Outlet on April 1, 2024.

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Opening or, on a limited strategic basis, acquiring new stores is a significant 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 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 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, restructuring charges, goodwill impairment, 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):

Fiscal Year Ended

January 3,

2026

December 28,

2024

December 30,

2023

Other Financial and Operations Data

Number of new stores (1)

42 

67 

28 

Number of stores open at end of period

570 

533 

468 

Comparable store sales increase (2)

0.5 

%

2.7 

%

7.5 

%

EBITDA (3)

$

(91,317)

$

186,533 

$

208,424 

Adjusted EBITDA (3)

$

254,290 

$

236,779 

$

252,621 

Adjusted net income (3)

$

75,163 

$

76,275 

$

108,113 

_______________________

(1)Fiscal 2024 includes the addition of 40 stores from the acquisition of United Grocery Outlet on April 1, 2024.

(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. For fiscal 2025, which is a 53-week year, we excluded the sales in the non-comparable week from the comparable store sales calculation.

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

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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):

Fiscal Year Ended

January 3,

2026

December 28,

2024

December 30,

2023

Net income (loss)

$

(224,912)

$

39,465 

$

79,437 

Interest expense, net

27,480 

22,156 

16,361 

Income tax expense (benefit)

(24,273)

16,706 

24,644 

Depreciation and amortization expenses

130,388 

108,206 

87,982 

EBITDA

(91,317)

186,533 

208,424 

Share-based compensation expense

10,491 

10,516 

31,091 

Loss on debt extinguishment and modification

— 

— 

5,340 

Asset impairment and gain or loss on disposition (1)

115,570 

1,047 

485 

Acquisition and integration costs (2)

1,069 

8,631 

459 

Amortization of purchase accounting assets (3)

— 

839 

— 

Restructuring charges (4)

45,903 

15,888 

— 

Goodwill impairment

149,000 

— 

— 

Other (5)

23,574 

13,325 

6,822 

Adjusted EBITDA

$

254,290 

$

236,779 

$

252,621 

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Fiscal Year Ended

January 3,

2026

December 28,

2024

December 30,

2023

Net income (loss)

$

(224,912)

$

39,465 

$

79,437 

Share-based compensation expense

10,491 

10,516 

31,091 

Loss on debt extinguishment and modification

— 

— 

5,340 

Asset impairment and gain or loss on disposition (1)

115,570 

1,047 

485 

Acquisition and integration costs (2)

1,069 

8,631 

459 

Amortization of purchase accounting assets and deferred financing costs (3)

5,091 

6,328 

5,838 

Restructuring charges (4)

45,903 

15,888 

— 

Goodwill impairment

149,000 

— 

— 

Other (5)

23,574 

13,325 

6,822 

Tax adjustment to normalize effective tax rate (6)

2,728 

(1,179)

(6,423)

Tax effect of total adjustments (7)

(53,351)

(17,746)

(14,936)

Adjusted net income

$

75,163 

$

76,275 

$

108,113 

GAAP earnings (net loss) per share:

Basic

$

(2.30)

$

0.40 

$

0.80 

Diluted

$

(2.30)

$

0.40 

$

0.79 

Adjusted earnings per share:

Basic

$

0.77 

$

0.77 

$

1.10 

Diluted

$

0.76 

$

0.77 

$

1.07 

Weighted-average shares outstanding:

Basic

97,985 

98,707 

98,709 

Diluted (8)

97,985 

99,615 

100,831 

Non-GAAP weighted-average shares outstanding:

Basic

97,985 

98,707 

98,709 

Diluted (9)

98,550 

99,615 

100,831 

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___________________________

(1)Represents asset impairment charges and gains or losses on dispositions of assets, and includes asset impairment charges of $109.8 million related to certain underperforming stores which we subsequently determined to close as part of the Optimization Plan. See Note 16 to the consolidated financial statements for additional information on the Optimization Plan. Excludes long-lived asset impairment of $7.7 million, which were related to the Restructuring Plan.

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

(3)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.

(4)Represents charges related to the Restructuring Plan, including lease termination costs of $35.4 million, impairment and disposal of long-lived assets of $7.7 million, employee severance and benefit costs and legal, professional and other costs in fiscal 2025, and impairment and disposal of long-lived assets of $15.9 million in fiscal 2024. See Note 16 to the consolidated financial statements for additional information on the Restructuring Plan.

(5)Represents other non-recurring, non-cash or non-operational items. In fiscal 2025, amounts included certain personnel-related hiring and termination costs of $9.2 million, system implementation costs of $5.4 million, strategic project costs of $4.9 million and store closing costs of $1.8 million. In fiscal 2024, amounts included certain personnel-related hiring and termination costs of $7.2 million and system implementation costs of $3.5 million. In fiscal 2023, amounts included system implementation costs of $3.3 million and costs related to employer payroll taxes associated with equity awards of $1.1 million.

(6)Represents adjustments to normalize the effective tax rate for the impact of unusual or infrequent tax items that we do not consider in our evaluation of ongoing performance, including excess tax benefits or shortfalls 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.

(7)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.

(8)As discussed in Note 13 to the consolidated financial statements, for fiscal 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.

(9)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.

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Comparison of fiscal 2025 (53 weeks) to fiscal 2024 (52 weeks) (amounts in thousands, except percentages)

Net Sales, Gross Profit and Gross Margin

Fiscal Year Ended

January 3,

2026

December 28,

2024

$ Change

% Change

Net sales

$

4,688,759 

$

4,371,501 

$

317,258 

7.3 

%

Gross profit

$

1,419,293 

$

1,321,937 

$

97,356 

7.4 

%

Gross margin

30.3 

%

30.2 

%

The increase in net sales and gross profit was primarily attributable to the addition of 37 net new stores opened during fiscal 2025, an increase in comparable store sales, and $82.4 million of net sales from the 53rd week of fiscal 2025.

Comparable store sales increased by 0.5% on a 52-week basis, driven by a 1.6% increase in the number of transactions, partially offset by a 1.1% decrease in average transaction size.

Gross margin increased by 10 basis points, driven primarily by improved inventory management, partially offset by price investments, mix shift to lower margin categories and supply chain investments.

Selling, General and Administrative Expenses

Fiscal Year Ended

January 3,

2026

December 28,

2024

$ Change

% Change

SG&A

$

1,332,288 

$

1,227,722 

$

104,566 

8.5 

%

% of net sales

28.4 

%

28.1 

%

The increase in SG&A includes $89.6 million in higher store-related expenses driven primarily by higher commissions, store occupancy costs, depreciation, personnel costs from Company-operated stores acquired in the United Grocery Outlet transaction in April 2024, and bad debt reserves. Also contributing to the increase in SG&A was an increase of $19.1 million in higher corporate-related expenses due primarily to higher incentive compensation, software amortization and other costs to support the long-term growth strategy of the business, partially offset by acquisition costs in the prior year. As a percentage of net sales, SG&A increased compared to the prior year 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.

Impairment of Long-lived Assets

Fiscal Year Ended

January 3,

2026

December 28,

2024

$ Change

% Change

Impairment of long-lived assets

$

113,807 

$

— 

$

113,807 

100.0 

%

% of net sales

2.4 

%

— 

%

Impairment of long-lived assets in fiscal 2025 includes asset impairment charges of $109.8 million related to certain underperforming stores which we subsequently determined to close as part of the Optimization Plan.

See Note 16 to the consolidated financial statements for additional information.

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Restructuring Charges

Fiscal Year Ended

January 3,

2026

December 28,

2024

$ Change

% Change

Restructuring charges

$

45,903 

$

15,888 

$

30,015 

188.9 

%

% of net sales

1.0 

%

0.4 

%

The increase in restructuring charges was driven by the continued execution in fiscal 2025 of the actions under the Restructuring Plan. Fiscal 2025 included lease termination costs of $35.4 million and impairment and disposal of long-lived assets of $7.7 million, and fiscal 2024 represented impairment and disposal of long-lived assets.

See Note 16 to the consolidated financial statements for additional information.

Goodwill Impairment

Fiscal Year Ended

January 3,

2026

December 28,

2024

$ Change

% Change

Goodwill impairment

$

149,000 

$

— 

$

149,000 

100.0 

%

% of net sales

3.2 

%

— 

%

During the fourth quarter of fiscal 2025, we performed our annual impairment evaluation of goodwill, which indicated that the fair value of the Company was lower than its carrying value, resulting in the recognition of a non-cash impairment charge during fiscal 2025.

See Note 5 to the consolidated financial statements for additional information.

Interest Expense, Net

Fiscal Year Ended

January 3,

2026

December 28,

2024

$ Change

% Change

Interest expense, net

$

27,480 

$

22,156 

$

5,324 

24.0 

%

The increase in net interest expense was primarily driven by higher average principal debt outstanding during fiscal 2025, partially offset by lower average interest rates on these borrowings during fiscal 2025.

See Note 6 to the consolidated financial statements for additional information.

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Income Tax Expense (Benefit)

Fiscal Year Ended

January 3,

2026

December 28,

2024

$ Change

% Change

Income tax expense (benefit)

$

(24,273)

$

16,706 

$

(40,979)

(245.3)

%

Effective income tax rate

9.7 

%

29.7 

%

The decrease in income tax expense (benefit) was due primarily to the change in earnings in the current period, partially offset by the tax impact of non-deductible goodwill impairment and reduction in the tax benefit from share-based compensation during fiscal 2025.

The decrease in our effective income tax rate was driven primarily by the tax impact of non-deductible goodwill impairment, a reduction in the tax benefit from share-based compensation and non-deductible executive compensation.

On July 4, 2025, the OBBBA was signed into law and includes several changes to U.S. federal tax law, including reinstatement of 100% bonus depreciation on qualified property and immediate expensing of domestic research and development expenses. The tax impacts of the OBBBA are reflected in the tax provision for fiscal 2025 and there was no material impact to income tax expense. Certain provisions of the OBBBA will impact the timing of cash tax payments in future periods.

See Note 10 to the consolidated financial statements for additional information.

Net Income (loss)

Fiscal Year Ended

January 3,

2026

December 28,

2024

$ Change

% Change

Net income (loss)

$

(224,912)

$

39,465 

$

(264,377)

*

% of net sales

(4.8)

%

0.9 

%

_______________________

*    Represents a change that is not meaningful

Net loss was $224.9 million for fiscal 2025 compared to net income of $39.5 million for fiscal 2024 as a result of the foregoing factors.

Adjusted EBITDA

Fiscal Year Ended

January 3,

2026

December 28,

2024

$ Change

% Change

Adjusted EBITDA

$

254,290 

$

236,779 

$

17,511 

7.4 

%

The increase in adjusted EBITDA was primarily attributable to an increase in net sales for fiscal 2025, partially offset by higher SG&A, as discussed above.

Adjusted Net Income

Fiscal Year Ended

January 3,

2026

December 28,

2024

$ Change

% Change

Adjusted net income

$

75,163 

$

76,275 

$

(1,112)

(1.5)

%

The decrease in adjusted net income was primarily attributable to higher SG&A (including higher depreciation expense) and higher interest expense, net, partially offset by an increase in net sales for fiscal 2025, as discussed above.

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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. (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. 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. 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 January 3, 2026, we had cash and cash equivalents of $69.6 million, which consisted primarily of cash held in checking and money market accounts with financial institutions. In addition, we have a revolving credit facility with $400.0 million in borrowing capacity under the 2023 Credit Agreement. The 2023 Credit Agreement provides for senior secured credit facilities consisting of (i) a senior secured term loan facility (the "senior term loan") in an original aggregate principal amount of $300.0 million and (ii) a senior secured revolving credit facility (the "revolving credit facility" and, together with the senior term loan, the "new credit facilities") in an aggregate principal amount of $400.0 million. As of January 3, 2026, we had $220.0 million of borrowings outstanding under the revolving credit facility and $5.1 million of outstanding standby letters of credit, resulting in $174.9 million of remaining borrowing capacity available under the revolving credit facility. During fiscal 2025, $70.0 million was borrowed and $40.0 million was repaid under the revolving credit facility. See Note 6 to the consolidated financial statements for further detail regarding the 2023 Credit Agreement.

The 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. 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.

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 operating and finance lease arrangements for substantially all store locations, distribution centers, and certain office space and equipment. As of January 3, 2026, total lease assets and lease liabilities were $1.09 billion and $1.32 billion, respectively, and we had executed leases for 31 store locations that we had not yet taken possession of with total undiscounted future lease payments of $206.5 million and lease terms through 2045. We have identified 36 store locations and one distribution center facility to pursue negotiations to exit leases or enter into subleases with total undiscounted future lease payments of $101.8 million and lease terms through 2040 related to the Optimization Plan. See Note 4 to the consolidated financial statements for further detail of our lease obligations and the timing of lease liability maturities. See Note 16 to our consolidated financial statements for additional information on the Optimization Plan.

Debt Obligations and Interest Payments

See Note 6 to the consolidated financial statements for further detail of the 2023 Credit Agreement, which as of January 3, 2026 consists of a senior term loan with $273.8 million of principal outstanding and a revolving credit facility with an aggregate outstanding principal balance of $220.0 million, as well as outstanding letters of credit of $5.1 million and a remaining borrowing capacity available of $174.9 million. As of January 3, 2026, based on the then-current interest rate of 6.27%, expected future interest payments associated with our debt totaled $62.8 million, with $29.9 million payable during fiscal 2026. The 2023 Credit Agreement requires us to make scheduled quarterly amortization payments on the senior term loan. Such payments total $30.0 million over the remaining term of the senior term loan, with $15.0 million payable in fiscal 2026. The remaining senior term loan principal balance will become due in February 2028 at maturity.

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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. As compared to capital expenditures of $191.9 million, net of tenant improvement allowances, in fiscal 2025, we expect to incur capital expenditures of approximately $170.0 million, net of tenant improvement allowances, in fiscal 2026, primarily related to new store openings, ongoing store maintenance and improvements, supply chain investments and systems and infrastructure investments.

Working Capital and Purchase Commitments

Our primary working capital requirements are for the purchase of inventory, payroll, rent, issuance of IO notes, other store facilities costs, distribution costs and general and administrative costs. Our working capital requirements fluctuate during the year, driven primarily by the timing of inventory fluctuations, new store openings and capital spending.

Our purchase commitments consist of non-cancelable obligations under service and supply contracts, which includes a contract related to storage and handling services at certain third-party distribution centers and a contract related to cloud computing technology services. As of January 3, 2026, we had total purchase obligations of 31.0 million through 2031, of which $6.9 million is payable during fiscal 2026.

Share Repurchases and Dividends

We may repurchase our common stock pursuant to programs approved by our Board. As of January 3, 2026, 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.

As of January 3, 2026, we currently do not expect to declare any dividends on our common stock in the foreseeable future.

Debt Covenants

The 2023 Credit Agreement contains certain customary representations and warranties, subject to limitations and exceptions, and affirmative and customary covenants. 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. The 2023 Credit Agreement also contains financial performance covenants requiring us to satisfy a maximum total net leverage ratio test and a minimum interest coverage ratio test as of the last day of each fiscal quarter. The maximum total net leverage ratio test requires us to be in compliance with a Total Net Leverage Ratio no greater than 3.50 to 1.00 as of the last day of each test period ending prior to the test period ending on or about December 31, 2025, and no greater than 3.25 to 1.00 as of the last day of each test period ending thereafter, subject to certain adjustments set forth in the 2023 Credit Agreement. 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.

As of January 3, 2026, we were in compliance with all applicable financial covenant requirements for the 2023 Credit Agreement.

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Cash Flows

The following table summarizes our cash flows (amounts in thousands):

Fiscal Year Ended

January 3,

2026

December 28,

2024

December 30,

2023

Net cash provided by operating activities

$

222,133 

$

111,963 

$

303,447 

Net cash used in investing activities

(229,675)

(274,028)

(194,165)

Net cash provided by (used in) financing activities

14,316 

109,906 

(97,023)

Net (decrease) increase in cash and cash equivalents

$

6,774 

$

(52,159)

$

12,259 

Cash Provided by Operating Activities

The $110.2 million increase in net cash provided by operating activities for fiscal 2025 compared to fiscal 2024 was primarily driven by changes in merchandise inventories due to improved inventory management, trade accounts payable and accrued and other liabilities, partially offset by the net loss for fiscal 2025. The changes in accrued and other liabilities and trade accounts payable were primarily due to timing differences of accruals and payments for goods and services and the disruptions related to the implementation of our systems conversion.

Cash Used in Investing Activities

The $44.4 million decrease in net cash used in investing activities for fiscal 2025 compared to fiscal 2024 was due primarily to the acquisition of United Grocery Outlet in the prior year, partially offset by increased spending on property and equipment due to higher store count and construction related to future stores.

Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities of $14.3 million for fiscal 2025 was primarily due to the net borrowing of $30.0 million on our revolving credit facility under the 2023 Credit Agreement, partially offset by $15.0 million in scheduled principal payments on the senior term loan under the 2023 Credit Agreement. 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.

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Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. A summary of our significant accounting policies can be found in Note 1 to the consolidated financial statements. The preparation of our 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.

Management evaluated the development and selection of our critical accounting policies and estimates and believes that the following involves a higher degree of judgment or complexity and is most significant to reporting our results of operations and financial position, and is therefore discussed as critical. 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.

Long-lived asset impairment

We evaluate long-lived assets, including property and equipment and lease right-of-use assets, for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. For purposes of this evaluation, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. Our retail stores are evaluated for impairment at the store level. 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 January 3, 2026 were $743.0 million and $1.09 billion, respectively.

Our impairment calculations contain uncertainties because they require us to make assumptions and to apply judgment to estimate future cash flows. Key assumptions used in estimating future cash flows include projected sales growth, gross margin, operating expenses, fair market rent, assumptions related to our ability to sublease properties and the likelihood of obtaining a subtenant. Estimates of sales growth, gross margin and operating expenses are based on internal projections and consider the store’s historical performance, length of time the store has been open, the local market economics and the business environment impacting the store’s performance. 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. If actual results are not consistent with our estimates and assumptions used to calculate estimated future cash flows, we may be exposed to impairment losses that could be material.

If a long-lived asset or asset group is determined to be impaired, we record an impairment loss for the amount by which the carrying value of the asset or asset group exceeds its fair value. 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. We categorized the fair value determination as Level 3 in the fair value hierarchy due to our use of internal projections and unobservable measurement inputs.

In fiscal 2025 we recognized $121.5 million of impairment of long-lived assets, of which $109.8 million related to certain underperforming stores which we subsequently determined to close as part of the Optimization Plan, and $7.7 million related to the Restructuring Plan. In fiscal 2024 we recognized $15.9 million of impairment of long-lived assets related to the Restructuring Plan. There were no adjustments to the carrying value of long-lived assets due to impairment charges during fiscal 2023. See Note 1, Note 3, Note 4 and Note 16 to the consolidated financial statements for further discussions. On the consolidated statements of operations and comprehensive income (loss), impairment of long-lived assets related to the Restructuring Plan were included in Restructuring charges, and all other impairment of long-lived assets including impairment related to the Optimization Plan were included in Impairment of long-lived assets.

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 evaluation is performed, and if the quantitative evaluation 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.

Our annual impairment evaluation concluded that the carrying value of goodwill exceeded its fair value and, therefore, we recorded a goodwill impairment charge of $149.0 million during fiscal 2025. There were no goodwill impairment charges recorded during fiscal 2024 and fiscal 2023.

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For our fiscal 2025 impairment evaluation, we determined to bypass the qualitative assessment and performed a quantitative assessment. For the quantitative impairment assessment, we used a combination of an income approach and a market approach to determine the fair value of the reporting unit, and the income approach and market approach were equally weighted to estimate fair value. For the income approach, a discounted cash flow model was used that required forecasts of cash flows, assumptions such as revenue growth rates and gross profit margins, among others, and an estimate of weighted-average cost of capital that we believe approximates the assumptions from a market participant’s perspective. For the market approach, a guideline public company model was used, which required judgment in estimating key assumptions including the selection of guideline companies and multiples of sales revenue and EBITDA. These estimates incorporated many uncertain factors which could be impacted by changes in market conditions, interest rates, growth rate, tax rates, costs, customer behavior, regulatory environment and other macroeconomic changes. In addition, the Company considered the reasonableness of the fair value of the reporting unit by assessing the implied enterprise value control premium based on our market capitalization. We determined that the implied control premium was reasonable which corroborates our fair value estimates. We categorized the fair value determination as Level 3 in the fair value hierarchy due to our use of internal projections and unobservable measurement inputs.

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.

Recent Accounting Pronouncements

Refer to Note 1 to the consolidated financial statements.

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