Grocery Outlet Q1 Earnings Call Highlights
Grocery Outlet (NASDAQ:GO) reported first-quarter fiscal 2026 results that management said were in line with its guidance, as the discount grocer works to restore comparable sales growth through a stronger mix of opportunistic merchandise, targeted promotions and operational changes.
President and Chief Executive Officer Jason Potter said the company generated first-quarter revenue of $1.17 billion, up 3.6% from a year earlier. Comparable store sales declined 1%, which was slightly better than the company’s prior outlook for a decline of 1.5% to 2.5%. Traffic rose approximately 2%, but that was offset by continued pressure on basket size, driven by lower units per transaction.
“While we’re encouraged by the progress we’re beginning to see, we’re not satisfied with our current level of performance and are focused on the work we have in front of us,” Potter said.
Chief Financial Officer Chris Miller said the company opened seven new stores and closed 28 during the quarter, ending the period with 549 stores across 16 states. The closures included 27 stores tied to a restructuring plan announced earlier in the year. Grocery Outlet closed the remaining nine restructuring-related stores in April.
Traffic Improves, But Basket Pressure Continues
Potter said performance improved as the quarter progressed, with traffic strengthening each month and exiting March at a “meaningful higher rate” than at the start of the quarter. In March, weekly traffic grew in a range of 2% to 5% year over year, which Potter said reaffirmed the appeal of Grocery Outlet’s value-oriented product offering.
Miller said comparable sales benefited from traffic growth of 2.1%, but average transaction size declined 3.1%. Management attributed the smaller baskets in part to a lower mix of opportunistic products, which it is now working to rebuild.
Potter said Grocery Outlet has increased its opportunistic product mix by nearly 2 percentage points since the start of the year, with improvement across inventory, shipments, variety and sales. He described opportunistic merchandise as the company’s “value engine,” noting that its best deals can offer savings of up to 70% compared with conventional retailers.
In response to analyst questions, Potter said the company ultimately would like opportunistic products to move closer to a roughly 50/50 blend with other merchandise, though he did not disclose the current overall mix. He said stores with higher levels of opportunistic products tend to have stronger sales.
Promotions Used as a Bridge While Opportunistic Supply Ramps
Grocery Outlet is also using what Potter called “synthetic promotional support” to drive store visits while it rebuilds its opportunistic product flow. He said those promotions were effective around major shopping occasions including the Super Bowl and Easter.
The company continues to expect promotional investments of about $20 million this year. Miller said those investments are expected to lessen in the third quarter and wind down entirely in the fourth quarter as opportunistic merchandise becomes a larger part of the mix.
Gross profit rose just under 1% to $345.2 million. Gross margin was 29.6%, down 80 basis points from a year earlier. Miller said the margin included about $6 million, or a 50-basis-point impact, from inventory liquidations and write-downs related to store closures. Promotional investments also weighed on gross margin, partially offset by improvements in inventory management.
For the second quarter, Grocery Outlet expects gross margin between 29.8% and 30%, including continued promotional spending and about $1.5 million of additional liquidation activity tied to store closures.
Net Loss Reflects Restructuring and Goodwill Impairment
Grocery Outlet reported a first-quarter net loss of $180.3 million, or $1.83 per diluted share, compared with a net loss of $23.3 million, or 24 cents per diluted share, a year earlier. Miller said the latest quarter was affected by $18.2 million of restructuring charges related to store closures and a non-cash goodwill impairment charge of $158 million tied to the decline in the company’s market capitalization.
Adjusted net income, excluding restructuring charges, the goodwill impairment and other items, was $4.6 million, or 5 cents per diluted share. Adjusted EBITDA was $43.1 million, or 3.7% of net sales, compared with $51.9 million, or 4.6% of net sales, a year earlier. Potter said adjusted EBITDA came in at the top end of the company’s guidance range, while adjusted earnings per share were 1 cent above the guidance range provided in March.
Grocery Outlet ended the quarter with $59 million in cash and approximately $175 million of available capacity on its revolver. Total debt, net of issuance costs, was $489.3 million, down $3.6 million from the end of 2025. Miller said net leverage was 1.8 times adjusted EBITDA.
Store Refresh Pace Slowed as Management Prioritizes Value Initiatives
Potter said Grocery Outlet completed 34 store refreshes during the first quarter and 58 in total as of the call. The refreshed stores include changes to layout, signage and merchandising intended to make shopping easier and communicate value more clearly.
However, the company now expects to complete approximately 100 store refreshes by year-end, a more measured pace than previously contemplated. Potter said the decision reflects a deliberate prioritization of resources toward improving opportunistic product execution, which management views as the fastest way to improve comparable sales.
During the question-and-answer portion of the call, Potter said the first group of refreshed stores with a full quarter of sales reporting was performing in line with the company’s expectations. But he also said there had been more variability in sales and execution as the program scaled, making a slower pace appropriate.
Potter said the company has completed its planned closure of 36 underperforming stores and continues to expect about $12 million of annualized adjusted EBITDA improvement once the restructuring is complete. He said Grocery Outlet is also applying more discipline to new store growth, including more selective real estate decisions and higher return hurdles.
Company Reiterates Full-Year Outlook
Miller said Grocery Outlet is reiterating its full-year guidance. For the second quarter, the company expects comparable store sales to decline between 1.5% and 2%, including an estimated 50-basis-point headwind from the Easter calendar shift. It expects adjusted EBITDA of $55 million to $58 million and diluted earnings per share of 11 cents to 13 cents.
Management said the outlook remains prudent given recent comparable sales volatility and the short period of stabilization so far. Potter said the company has historically benefited from countercyclical demand when consumers face pressure, and he expects Grocery Outlet to benefit as it improves value for customers.
Asked about inflation and fuel costs, Potter said Grocery Outlet monitors its savings gap regularly and seeks to maintain basket savings of 15% to 20% versus mass retailers and 30% to 40% versus conventional grocers. Miller said the impact of fuel on supply chain costs has not been significant to date, at roughly 10 basis points.
Potter also highlighted organizational changes, including the appointment of Jim Porterfield as chief marketing officer and the addition of Frances Allen and Felicia Thornton as independent directors. He said the company continues to explore strategic options for UGO and expects that process to remain a 2026 topic.
About Grocery Outlet (NASDAQ:GO)
Grocery Outlet Holding Corp. (NASDAQ: GO) is a specialty discount retailer that offers consumers deeply discounted groceries by purchasing excess inventory, closeouts, and overstocks from manufacturers and distributors. Headquartered in Emeryville, California, the company operates two primary banners—Grocery Outlet and Fresh2Go—with a combined footprint of more than 400 stores. Its product assortment spans fresh produce, meat, dairy, bakery items, household staples, natural and organic offerings, and select specialty products, all sold at significant markdowns compared to conventional supermarkets.
The company's unique buying model enables it to source inventory through opportunistic purchases of surplus freight, discontinued items, and closeout deals, which it then passes on as savings to its customers.
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