Title

Presentation

Grocery Outlet Holding Corp. beats earnings expectations. Reported EPS is $0.13, expectations were $0.07.

Operator: Greetings, and welcome to the Grocery Outlet First Quarter 2025 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Christine Chen, Vice President of Investor Relations. Thank you. You may begin.

Christine Chen: Good afternoon and welcome to Grocery Outlet’s call to discuss financial results for the first quarter ended March 28th, 2025. Speaking from management on today’s call will be Jason Potter, President and Chief Executive Officer; and Chris Miller, Chief Financial Officer. Following prepared remarks from Jason and Chris, we will open the call for questions. Please note that this conference call is being webcast live, and a recording will be available via telephone playback on the Investor Relations section of the company’s website. Participants on this call may make looking statements within the meaning of the Federal Securities laws. All statements that address future operating, financial or business performance or the company’s strategies or expectations are forward-looking statements.

These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from these statements. Description of these factors can be found in this afternoon’s press release as well as in the company’s periodic reports filed with the SEC, all of which may be found on the Investor Relations’ section of the company’s website or on sec.gov. The company undertakes no obligation to revise or update any forward-looking statements or information. These statements are estimates only and not a guarantee of future performance. Additionally, during today’s call, the company will reference certain non-GAAP financial information, including adjusted items. Reconciliation of GAAP to non-GAAP measures as well as the description limitations and rationale for using each measure may be found in the supplemental financial tables included in this afternoon’s press release and the company’s SEC filings.

And now, I would like to turn it over to Jason.

Jason Potter: Thank you, Christine and welcome everyone. It’s great to be with you on the call today. I’ll begin with a brief update on the quarter and then spend much of my time on what I focused on in my first couple of months and how I’m thinking about our priorities. First, we delivered on our first quarter outlook. Comp store sales increased 30 basis points from last year. slightly ahead of our guidance for the quarter that we provided. We opened 10 net new stores, positioning us to achieve our annual target for 33 to 35 stores this year. These stores are off to a solid start, performing ahead of expectations. We also exceeded our gross margin outlook by improving our shrink run rate through improved inventory visibility, reporting and execution.

Together, these wins enabled us to deliver net sales of $1.13 billion, up 8.5% over last year and report adjusted EBITDA and adjusted EPS above their respective outlook ranges for the first quarter. We also reached an important milestone with our systems integration, including the initial Phase 1 rollout of our real-time ordering guide that we plan on having fully rolled out by the end of the second quarter. Chris is going to walk you through the numbers in greater detail, but just having completed my first three months as CEO, I wanted to share some early observations and give everyone on the call a sense for the work we plan to undertake to unlock the tremendous opportunity that I see here in the business. Now, over the first three months, I visited and met with more than 50 of our independent operators, had the opportunity to meet and speak with dozens of suppliers, talked with many of the customers in our stores.

I’ve listened, gained valuable and candid feedback and learn more about what matters to all of them. First, our operators care very much about the communities they serve and are motivated to grow a profitable business together and seek more support from us to improve execution and participate in the building of the necessary capabilities to make this business stronger that supports our brand. Our suppliers continue to be a source of strength as we continue to work and grow our opportunistic supply and range of assortment together. We continue to deepen those existing relationships and are actively building new ones to expand our reach and our relevance. The customers I spoke with and the guests in our store are asking for more value with a more consistent experience that helps them complete their weekly shop.

They continue to visit our network, and we need to execute better to make filling their basket for their key shopping missions easier. In the short time I’ve been here, it’s clear to me that with the right focus and execution, this business can continue its history of leading growth and profitability. We have a highly differentiated offering, one driven by a value-based treasure hunt in a convenient box operated by motivated and engaged independent operators. By sharpening our focus on store experience, and strengthening our support to our operators, suppliers and guests, we can create value for many years to come. I’m bullish on the long-term addressable market and our ability to improve costs and margins as we continue to grow. As I’ve said, I believe with the right focus on execution, this business can be much larger and much more profitable in the future.

Achieving our potential, however, requires that focused execution. With that as a context, we’re pursuing four important strategic imperatives. The first is tackling our new store performance to drive long-term growth and strengthen returns on invested capital. Second, securing top talent to activate our strategy; third, addressing execution gaps by continuing to make progress on our systems to improve our performance, and finally, fourth, improve our ability to execute at scale by continuing to strengthen our leadership in opportunistic buying and by becoming a leading selling organization that delivers a winning customer experience by providing our network with world-class training and development, customer-centric data and insight, all supported by new capabilities and merchandising that will drive our performance.

First, on tackling our new store performance. We’re carefully calibrating our approach to grow to ensure we have the winning conditions in place before expanding more aggressively. We are in the process of piloting a new commercial execution playbook to drive year one sales at a higher starting point. We’re also clustering stores in new markets and calibrating our mix of new stores to incorporate approximately 50% infill in markets where our brand awareness is high. This is going to continue into 2026, during which we plan to open between 30 and 35 net new stores. We also plan to execute a series of lower CapEx store pilots to address inflation in labor, materials and equipment that’s occurred over the last couple of years. These store pilots are going to incorporate modifying our electricity demand footprint optimizing store size and implementing sourcing strategies to improve ROIC.

We’re also taking a systematic and data-driven approach to real estate selection in new markets to help improve returns. By standardizing and scaling the best aspects of our stores, we should be positioned to deliver stronger and more consistent returns for this company, our IOs and our shareholders. I’m very excited about the tremendous amount of white space available for us to grow. And I believe that by first slowing the pace and calibrating the business now to optimize our ROIC, we can earn the opportunity to accelerate the pace later. Second, another critical component of our future success is securing top talent. Our talented new CIO, Kumar Mishra, has gotten right to work in just a few months into the role. He’s already made significant progress getting our systems integration on the right track.

We’ve started the search for merchandising talent to help us become a stronger selling organization and we’re in the process of identifying a leader of store development as well as a head of supply chain to take our business to the next stage of development. As we look toward adding these critical leadership capabilities, today, we also announced the retirement of our Chief Operations Officer; Ramesh Chikkala, this June, and our Chief Store Officer, Pam Burke later this year. We appreciate the many important contributions to the business, both have made. Ramesh has helped stabilize and build leadership teams to drive systems improvements with an effective handoff to Kumar as our CIO, while also strengthening our supply chain and the team. Pam has led a number of functions and forged strong relationships with our IOs during her decade with the company.

Pam’s going to continue to help us ensure a seamless transition within store operations over the coming months. I want to thank them both for their dedication, their commitment and hard work, and of course, congratulate them. We wish them all the best in their retirements. Next, on addressing execution gaps, progress on our systems integration is key. For operations, successfully completing our systems integration is critical to ensure that we have the tools and the systems in place to be fully functional, getting the operational data we need to deliver high levels of execution in this business. In April, we began the first phase of our proprietary real-time order guide rollout, which is now up and running in all SKUs and in both our East Coast and California DCs. Our IOs in the East and in California, about 75% of our stores now have real-time inventory visibility for what’s available at the DC, what capacity is available to fully fill out what’s on your truck and improving our ability to plan and manage inventory collectively.

Our planners also have full real-time inventory visibility into the DC, which enables them to drive the flow of opportunistic product through the system. All of this makes it far easier to match supply and demand. We’re also on track to roll out the real-time order guide to the rest of our regions by the end of the second quarter. The next phase will include the new arrivals guide later this year, which is a further feature to health planning and merchandising. We’ve made progress here and have line of sight in improving our ability to execute. Finally, we need to improve our ability to execute at scale. And we’ve been focused on improving our merchandising efforts to get the right mix in our stores to promote the health of our basket to drive our comp store sales.

Commercially, we’ve made some initial efforts across three key elements of the guest experience; price, quality and service. First, we continue to strengthen our value. We’ve continued to tighten our gapping of KPIs across several MSAs and while also promoting a stronger mix of high margin, value driving opportunistic products and private label. We’ve also begun to experiment with some new in-store communication tools to make our value messaging work harder. It’s important that we’re consistently building trust with our guests and creating a sense of law in their treasure hunt. Second, we’ve also made some changes to our standards in the quality profile of key produce items ensuring they’re ripe and ready to eat. Starting with everyday items like bananas and avocados, builds the basket on profitable everyday items that matter most to our guests, making their shopping experience easier.

On service, we believe that our real-time order guide rollout will assist our teams in better planning, driving in-stock improvements throughout the network. This is very helpful, especially to newer IOs and their team members. And the company is in the early stages of sharing impactful data and insights to better support our IOs in delivering a more consistent guest experience. While we make progress to improve our commercial execution with one foot on the gas, it’s important at this stage of this turnaround, we have one foot on the break. We’re being intentional about making meaningful progress on addressing the cost side of this business. Chris Miller, our new and very experienced CFO is leading a program on indirect procurement to create fuel to enhance the profitability and provide the space for the team to drive performance improvement through reinvestment.

And finally, to improve our ability to execute at scale, we continue to advance our supply chain. We’ll complete our consolidation from five DCs in the Pacific Northwest to one DC at the end of this month, which will drive greater efficiency and better levels of service to our stores. Later this year, we plan to activate our new DC in the East region at relatively low CapEx, which we expect to improve execution and expand our capacity for opportunistic supply. We’re also honing our approach to implementing scalable practices. I’m a firm believer in test and learn, and we will pilot test and gauge our network to develop repeatable cost-effective standards. We’re developing a new model store to support our goals of implementing more uniform merchandising and help provide effective and efficient operational SOPs to help our IOs drive more consistent customer experiences at lower cost.

Creating impecable partnerships with RIOs continues to be an essential element of the differentiation of this business, and we intend to continue to strengthen our support. With our systems progress, we’re working toward providing more data, analytics, training and best-in-class operational tools that will enable our IOs to deliver better service to their guests and drive performance. Building our brand’s reputation for our winning customer experience is the key to our shared success. Now on guidance. Before I turn it over to Chris, I want to touch on our outlook for the balance of the year. While we achieved our financial objectives for the first quarter and are making progress ramping our initiatives to deliver sustainable growth or moderating our outlook for annual comp store sales growth, reflecting current trends in the business as well as uncertainty given the macroeconomic environment.

The progress the team has made in yielding strong gross margin, while containing expenses gives us confidence in the outlook for gross margin, and adjusted EBITDA and adjusted EPS that we all shared previously. We believe the continued execution of the initiatives we outlined today, should build momentum as we move through the year, positioning us for profitable long-term growth. We believe the initiatives underway, should strengthen our competitive moat by emphasizing and executing what has made the grocery outlet, a unique and special destination. The focus we’re making on in-store experience should improve the treasure hunt, and we intend to amp up our focus on opportunistic products that delight our guests and keep them coming back. We have a powerful brand and a tremendous value proposition to work from.

We know this work is vital for our shareholders as well. We’ve said it before, but it’s worth emphasizing that the foundational work we’re undertaking, we’re making decisions with a determined focus on optimizing returns on invested capital with the goal of returning Grocery Outlet, the performance levels our model supports and driving shareholder value creation that our shareholders deserve. I’m very excited to lead this business into a bright future. Our vision is to become one of the country’s most loved brands and as we move forward, we will build trust, consistency, excitement, amongst our key stakeholders, including our guests, our IOs, our suppliers, our teams and our shareholders. I look forward to getting to know many of you better and sharing more about the progress we’re achieving against the plans I’ve laid out today.

Thank you to our IOs, to our suppliers and team members across this organization. Your support is invaluable and we look forward to rewarding that support. Now, I’ll turn it over to Chris to take you through the results and our outlook. Thank you.

Chris Miller: Thanks, Jason, and good afternoon, everyone. Our first quarter results highlight improved execution in a dynamic environment. We delivered on the key value metrics that are driving store traffic as our buyers continue to deliver value for both operators and customers, reinforcing the relevance of our model with consumers. We also continue to operate the business with discipline, enabling us to exceed our outlook for gross margin and deliver adjusted EBITDA and EPS above the top of our outlook range. As Jason noted, while first quarter results exceeded our outlook, we are making a modest adjustment to our comp store sales outlook for the balance of the year, reflecting our updated expectations for consumer trends, given the uncertainty of the macro environment.

Despite this adjustment, we remain confident in our ability to manage the factors within our control and deliver the gross margin, adjusted EBITDA and adjusted EPS outlook we shared with you in February. We also remain committed to improving same-store sales growth as we progress through the year with a sound strategy in place, as Jason shared. We believe the initiatives we are undertaking will not only drive meaningful near-term improvement, but also drive sustainable, long-term growth and return on invested capital for years to come. I will walk you through our first quarter results and then turn to our outlook. The comparisons I will provide are on a year-over-year basis, unless noted otherwise. Net sales increased 8.5% to $1.13 billion driven by a combination of new stores opened in the last 12 months, the addition of UGO in April last year as well as a 30 basis point increase in comparable store sales.

Comp growth was driven by a 2.3% increase in the number of transactions, partially offset by a 2% decrease in average transaction size. Our first quarter comp was impacted by the shift of the Easter holiday into the second quarter this year versus the first quarter last year. During the first quarter, we opened 11 new stores and closed one store putting us on track to achieve our annual target for 33 to 35 net new stores for the year. We ended the first quarter with 543 stores in 16 states. Gross profit increased 12.7% to $342.4 million. Gross margin increased by 110 basis points to 30.4%, exceeding the high end of our outlook driven primarily by improvements in inventory management, which contributed to lower inventory shrinkage. As Jason highlighted, we are also focusing on keeping our everyday items in stock and improving our assortment, including more fresh and opportunistic product, which drives increased traffic and our newly launched private label items, which all help complete and build baskets at accretive margins.

SG&A increased 9.1% to $333.1 million and increased 10 basis points to 29.4% of net sales. The increase in SG&A was driven primarily by additional personnel costs from company-owned UGO stores and was partially offset by a decrease in commissions as we are no longer paying elective commission support. We’ve embarked on a cost efficiency program, as Jason mentioned, that is aimed at finding procurement and efficiency-related savings that we will balance between driving enhanced profitability and reallocating toward growth investments. During the first quarter, the company incurred $33.9 million in restructuring charges, which included $29.1 million in lease termination costs $1.7 million in non-cash impairment and disposal of long-lived assets, $1.5 million in employee severance and benefit costs and $1.5 million in legal, professional and other costs related to the previously announced restructuring plan.

As we look at potential new store performance, cash flow and return on invested capital, we took one more pass-through to new stores for 2026 and 2027 and identified five additional stores that did not fit our revised approach for clustered openings with the most attractive market conditions. With these additional lease terminations, we still expect the total restructuring costs to come in within the range that we originally estimated and that the work related to the restructuring will be substantially completed by the end of the second quarter. Net loss was $23.3 million or negative $0.24 per diluted share compared to net loss of $1 million or negative $0.01 per diluted share last year. Adjusted net income increased to $13 million or $0.13 per diluted adjusted share from $8.8 million or $0.09 per adjusted diluted share last year.

Adjusted EBITDA increased 31.7% to $51.9 million compared to $39.4 million last year, and adjusted EBITDA margin was 4.6% of net sales, up 80 basis points from the prior year. Net interest expense was $6.5 million, an increase of $3.3 million over the first quarter last year. The increase in net interest expense was driven primarily by higher average principal debt outstanding due largely to support share repurchases and the acquisition of United Grocery Outlet last year and cash expenditures related to the restructuring plan. Our effective tax rate for the quarter was 19.7% compared with 60.8% for the first quarter last year. The change in our effective tax rate was driven primarily by excess tax expense from this exercise investing of stock compensation awards compared to excess tax benefits during the first quarter of last year.

Turning to cash flow. Net cash provided by operating activities during the first quarter of 2025 was $58.9 million compared with $7.8 million last year. The increase was driven primarily by improvements in working capital. Capital expenditures were $65.3 million in the first quarter, invested primarily in new stores, store maintenance, and infrastructure-related projects. In addition, we invested $4.8 million in system enhancements and improvements. Total debt, net of issuance costs was $458.9 million at the end of the first quarter, down $3.6 million from the end of 2024. And we exited the first quarter with $205.5 million of availability under our credit agreement. Our liquidity position remains strong, and we are focused on investing prudently in growth initiatives with an emphasis on driving high return on invested capital.

Now turning to our guidance. We are reiterating our previous full year outlook for total net sales, net new stores, gross margin, adjusted EBITDA and adjusted EPS. We are updating guidance for comp sales, restructuring charges and interest expense. Despite continued strength in traffic, we are updating our comp store sales guide for the year given pressure on the basket and broader softening of macroeconomic trends. As Jason mentioned, we have plans in place to drive basket, but this will take time to execute as the year progresses. For the full year, we now expect comp store sales growth to be between 1% and 2%, with slight sequential improvement in comps quarter-over-quarter as the year progresses. We now expect charges related to our restructuring plan to be in the range of $59 million to $61 million.

This includes approximately $49 million to $51 million from exiting store leases, which includes the five additional store closures mentioned earlier and remains within the previously announced range. This includes approximately $9 million to $11 million in the second quarter related to the restructuring. For the year, we now expect net interest expense to be approximately $32 million, down from $38 million previously announced subject to the pace and degree of interest rate changes. For the second quarter, we expect comparable store sales to be approximately 1%, reflecting current trends in the business as well as uncertainty given macroeconomic trends. We expect gross margin of between 30% and 30.5% for the second quarter. Adjusted EBITDA between $62 million to $65 million and diluted EPS of $0.16 to $0.18 per share.

In closing, we delivered solid first quarter results. We are highly focused on execution in the near term with the objective of driving value and excellent in-store experiences for our customers and IOs. We believe our strategic plan will enable us to harness the many exciting opportunities in front of us and unlock value within the business while generating meaningful profitability and returns on capital over the long term. We will now open the call up to your questions. Operator?

Operator: Thank you. We will now be conducting question-and-answer session. [Operator Instructions] First question is Anthony Bonadio from Wells Fargo. Please go ahead.

Anthony Bonadio: Yeah. Hey, guys. Thanks for taking our question. So as you’ve got settled into your new seats, can you maybe just talk high level about how you’re thinking about the appropriate strategy and growth level for the business? And then maybe anything you’re thinking about differently versus what we’ve seen from management historically?

Jason Potter: Thanks for the question. It’s Jason here. Clearly, I believe the business is we’re going to focus on execution here. Creating a loved brand is essential. And so the priorities we have are the capabilities that we’re going to build against that to deliver that experience for customers that is going to drive loyalty and performance in the business over time. So the four key things I mentioned earlier, tackling new store performance matching talent for the strategy we’re going to execute, continuing to improve our system execution and executing at scale as we move this business to a selling organization are all essential capabilities we’re building against this focused execution, again, to deliver a brand reputation with a winning customer experience is going to be the key to our success. So happy to follow that on with another question.

Operator: And our next question are Corey Tarlowe from Jefferies. Please go ahead.

Corey Tarlowe: Great. Thanks. I appreciate all the color today. I was wondering if you could talk a little bit more about the second quarter guide and the full year outlook, and how we should be thinking about the change in the comp trajectory that you outlined. If I think you had used two things, it was basket and macro. Could you maybe unpack that a little bit more for us?

Jason Potter: Sure. Maybe I’ll take the first part here. The work we’re doing right now includes commercial and execution-related activity. And it’s a little harder for me to predict the short-term here, but I think we’re working on the right things. I know we are. So we’re doing several things on the commercial side. First, I mentioned earlier that we’re tightening our gapping on KPIs. We’re working on the mix and pushing our opportunistic opportunities through the network as well as promoting private label. Those elements are going to absolutely help value. We also have addressed some quality-related standards that I mentioned delivering that every day for guests is critical for their everyday shop. And then execution-related activities, like the work we’re doing on our DCs in the Pacific Northwest, and the progress we’ve made on the real-time order guide to help our in-stock and our fill rates, all of that will help the business tremendously.

And I believe we’ll add sales as this year goes on. It’s more of a timing question for me. Maybe I’ll ask Chris just to add a little more color to how the numbers flow.

Chris Miller: Yes, sure. So just given what we saw in the first quarter, we — our traffic is strong, a 2.3% growth, our basket was down 2%. And those trends are somewhat continuing, especially the softer basket into Q2. We’re still seeing very strong traffic. So — and then just given the uncertainty that’s out there from a macro lens, we thought it was prudent to lower the top line or comparable line store sales growth. But I would just say, as Jason mentioned, we’re — we believe we’re doing the right things to drive the basket and comp making sure we’re in stock on our top selling items and having very good produce, et cetera. There’s a lot of things that we’re doing right now, and we expect to see those help drive comps in the back half of the year. So what I’d say is that, we expect modest sequential improvement in the back half in our comps.

Operator: Next question is from Robbie Ohmes from Bank of America. Please go ahead.

Robbie Ohmes: Hey. Thanks for taking my questions. My first question is with the real-time order guide in place now in the East Coast stores in California, have you seen — I’m surprised — have you seen any improvement in comps related to that?

Jason Potter: What we’re seeing initially is clearly, first of all, the feedback we’re getting from RIOs is really positive. They’re able to see what’s available and how to take advantage of putting the right things on their truck. And so what we’ve really seen to start with is an improvement in our fill rates. So the fill rates have jumped the 93% range to over 99%. And so that doesn’t always translate immediately into sales. But clearly, as you match the ability to match demand and your planning with supply, you should see an improvement, and we expect one, again, feeling really good about that work and that progress. And Robbie, like I mentioned, we’ll have that all complete by the end of the second quarter. So the better in stock you have, the more sales you get and around it goes.

Operator: Next question here is from Mark Carden from UBS. Please go ahead.

Matthew Rothway: Hi. This is Matthew Rothway on for Mark Carden. Thanks for taking our question. I was hoping you could unpack the gross margin performance in the quarter, obviously, coming in much better than expectations. What drove that outperformance? I know last quarter, there was some negative impact from the egg shortage and pricing. Did you see any of that this quarter? And then it looks like it’s — you’re not expecting this progress to quite carry through for the rest of the year. So what are your expectations as we look at the balance of the year? Thank you.

Chris Miller: Yeah. Sure. Hi. It’s Chris. So yeah, Q1, we definitely saw improvement in shrinkage, which I mentioned in my remarks, and that’s a result of a lot of the work we’re doing with our system as well as process around that. So we do expect that, that is sustainable as we go through the year. And I would just say for the full year margins, yes, there’s potentially more shrink there as well as improvement in assortment, whether that’s opportunistic, mix, private label, those are all things that could influence the margin. It’s just a little early at this point to know what impact that’s going to be. But we are definitely working on those things to also drive margin in the back half of the year.

Operator: Our next question is from Oliver Chen from TD Cowen. Please go ahead.

Tom Nass: Hey. This is Tom Nass on for Oliver Chen. I wanted to ask for any color around any trends you’ve been seeing on opportunistic sourcing given the current environment. And then secondly, any details you can share around independent operator profitability trends year-to-date so far?

Jason Potter: Yeah. Thanks, Tom, for the question. Opportunistic supply continues to be there. We’ve got very strong supplier relationships. I had a great opportunity in my first 90 days or so to meet a lot of them talk to a lot of them. That continues to be a source of strength. I think that part of our opportunity here, some of the upside in this business as I look at all the different opportunities is tools and visibility into what’s available. And so I know the feedback we got from our IOs, they’re very pleased to see and be able to see what’s available and opportunistic. The unique part of this business, there’s literally tens of thousands of SKUs that go through this business that are unique and the ability for our IOs to be able to see it, understand what it is, what the savings are, the value and helping them plan and then execute that is tremendous.

So we’ve also recently started to share specific scan data related to mix to help our IOs understand the opportunities and increase our level of communication on that front. So for us, it’s the opportunity to execute at a higher level. It’s not a question of supply. But obviously, that’s something we want to double down on and continue to build those supply relationships and grow the business as quickly as we can on that front.

Operator: Our next question is from John Heinbockel from Guggenheim Securities. Please go ahead.

John Heinbockel: Jason, two related questions. So when you talk about the KPIs, is your thought you sort of look at every day versus the treasury — close out treasure hunt. Where do you think there’s the bigger opportunity? I know treasury, you got away from that a little bit last year. So that’s number one. And then number two, when you talk about execution, what’s your thought on sort of field organization, right? Because I think the field organization has been historically by design, maybe a little bit lean. Is that an area of potential investment?

Jason Potter : Thanks, John, for the question. So I think the — in the early days here, and this is work that Eric had really begun in the late fall last year was to tighten up on KPIs. I think that’s a regular thing that you do. We’re in the process of continuing to improve our monitoring of that. We’ve made some adjustments in my time here. We’re going to continue to make adjustments as we go, where we think it’s necessary. It’s important to stay tight on that front. It helps value perception tremendously. So it’s very important, as you know. And the opportunistic is really with our real-time order guide unlock really helping our IOC and understand what’s there and that ability to flow supply through the system is going to be very helpful for us.

So both things are very important when you’re building value. It’s also important to communicate well in store. And so we’ve been experimenting with some marketing materials. We think that’s a nice opportunity. And I guess the second part of your question is clearly, whatever we can do to improve the support for stores, we’ll consider. I think it’s a little early on that front. But as I spend more time with the operations team and our IO group, we want to make sure that we’re doing everything we can to help them be successful. So at least that’s the way I think about it.

Operator: Our next question is from Joe Feldman from Telsey Advisory Group. Please go ahead.

Joe Feldman : Yes. Hi. Thanks for taking my question guys. I wanted to go back to the basket size for a minute. Is it — can you share a little more color like what you’re seeing with the basket? Like is it lower mix of — is it lower units, fewer units in the basket? Is it the pricing? Is it because the inventory issues that we’re still dealing with, maybe that’s why there’s just not the items people want when they come in. I was just hoping you could get a little more color there. Thanks.

Jason Potter : Sure. Sure. Well, the great news is the hardest part in any of these businesses is the traffic. Traffic has been quite good, it remains solid. I think that’s usually the most difficult thing to achieve. And we’ve got the people coming in. This business has a tremendous value delivery system to it. And forever in a day, people are going to be looking for value. So we feel good from the work that’s been done on both KPIs and the opportunistic mix efforts that we’re making. In the basket in particular, when we look at it, it’s items per basket. So there is an opportunity for us on a couple of fronts there to do some work. And the work we’ve done early on ensuring that we’re making sure that commercially, we’re in the right place.

Some of the things I mentioned on base quality, things like bananas and avocados as small as that might sound, are critical for day-to-day shopping. Again, having — make sure the fill rates are in the right place so that our stores are able to fulfill the customer shop, all important elements to building the basket. So our focus and our conversations here and the communication that we’re providing and the work we’re doing is really to help build those baskets. That’s going to be a focus.

Operator: Our next question is from Michael Baker from D.A. Davidson. Please go ahead.

Michael Baker: Okay. Thanks. I wanted to ask you if you could quantify the Easter shift because I’m a little surprised that April — it doesn’t sound at least as if April is off to a great start, given the Easter shift. So I wonder if you think you’re seeing any impact already from the uncertainty from “Liberation Day” on April 2. Did you — maybe it might be hard to tease out because of the Easter shift, but have you seen any kind of downshift in how the consumer is reacting since then?

Jason Potter: Yeah, I would say we thought it was a little soft, for sure. It’s difficult to sort of pin it to what. But clearly, there’s a shift there. And with some other, I guess, a lot of news out there, changes for the customer. There’s clearly some uncertainty for them. But that’s probably part of our thinking here at April was a little softer than I’d like.

Michael Baker: Okay. It makes sense. And if I could ask a follow-up, when you talk about the KPIs, can you talk about where — do you think your price gaps? I know that the previous management team had some — knew that they need to get a little bit sharper and close some of those price gaps with competitors. Where do you think you stand now? You said you always need to focus on the value, but do you feel like you need to get specifically catch-up with some other guys who are being more prices promotional?

Jason Potter: I think we’re in a good spot, as we sit here today. There clearly has been some work done over the last couple of quarters. And whenever there’s — that gets a little bit out of the pocket, so to speak, you can lose some perception. I think maybe that’s part of the story here. And so ensuring that you’re tight, you stay tight, and make sure you’re on top of that every day is critical. And that’s just an ongoing piece of work. So I feel good about where we are right now. It doesn’t mean that you’re ever done. And you want to be strategic about those things. Clearly, part of our work here as you think about customer — the consumer today, and maybe there’s some uncertainty out there is we want to be in their corner fighting hard for them to deliver value. So being fit and ready commercially and execution-wise are critical. And KPIs are just part of that equation.

Operator: Next question is from Anthony Chukumba from Loop Capital Markets. Please go ahead.

Anthony Chukumba: Thanks for taking my question. So you talked about seeking indirect cost reduction opportunities. I was just wondering if you can — if you can just sort of highlight some of the potential areas for cost reductions and sort of order of magnitude that you’re targeting. Thank you.

Chris Miller: Yeah. Sure, Anthony. It’s Chris. So there’s a couple of things on the cost efficiency program I mentioned. The first is, as you called out, is indirect procurement. And look, I’ve done a few of these before in my career. And we think there’s definitely meaningful cost there. But we have to work through it. It’s a kind of a methodical, intentional approach that we’re taking. And maybe some of the — I’ll give you a couple of examples. One is in the supply chain area, looking at freight, looking at buying supplies, pallets, simple things like that. In our IT organization, looking at different spend there as well as professional fees, et cetera. So that’s a piece of work we started. And as I said, it’s going to — we’ll progress through that.

And then the other piece that’s worth mentioning is just overall efficiencies that we expect to get. And one example of that is in our — again, in our supply chain a little bit different, though, with the opening of our new facility in the Pacific Northwest, we’re able to consolidate several warehouses into one and really capture efficiencies in transportation, warehousing, just all across the supply chain. So — and we have other initiatives that we’re working on just to drive cost out as well. So that’s what I’d say about where we’re at with our program.

Operator: Next question is from Simeon Gutman from Morgan Stanley. Please go ahead.

Simeon Gutman: Good afternoon. So just to go back on the April trend line, was the traffic something that’s lower or the consumer got afraid with their basket. And I ask because the premise we would have is that if the backdrop does get weaker, you think that maybe trade down should help this business. This is part one. So it’s a question and the thought. And then the second, it looks like some of the language with restructuring plan changed maybe the cash expenditures, if that’s right. Does it impact the guidance in any way? Thank you.

Jason Potter: First part of the question, we’re — yes, I mentioned it was a little softer than I’d like. We’re not — we haven’t seen any evidence of things like trading down and so on that you typically see. But clearly, we’ve got some softness in the basket, and that’s something we think is more execution related, and we’re monitoring that, obviously. And I think the second part of the question is a cash question. I’ll pass to Chris.

Chris Miller: Yes. So on the restructuring, what we said was or what I said was that we’re going to be within the original range, which we said. 50 to 60 initially, we tightened that up to 59 to 61 is where we’re landing with the five additional stores. So there’s really no impact to the profitability guidance for the year, the adjusted profitability numbers, if that’s what you’re asking.

Operator: Next question is from Leah Jordan from Goldman Sachs. Please go ahead.

Leah Jordan: Thank you. Good afternoon. Your gross margin improved nicely in the quarter, but you’re still losing market share. So I just wanted to see if you could talk through how you’re thinking about the trade-offs between defending share and maintaining margins in the current environment. I guess just given the lower comp outlook, how are you thinking about reinvestment of any margin upside as you go throughout the year? Or just given the softer April, how quickly can you react on pricing when you see a behavior shift? Thank you.

Jason Potter: Thanks, Leah, I think the idea of one foot on the gas and one foot on the break is how I’m thinking about it. Clearly, we want to create room for ourselves to create the optionality to be more aggressive. And we think with the improvements that are naturally coming in the business from some of the capabilities we’re unlocking as well as the future work that we think will help us improve our cost base. Those things are very helpful for us to be fit and make adjustments in the business as we go. The commercial and execution related things we’ve begun here from here and no regret moves. So those things are going to add sales and we’ll do the job on balancing the margins for sales. Clearly, comps are an essential part, probably the number one metric that I look at. And so we have some work to do there, but good about what’s going to come later.

Operator: Next question is from Jeremy Hamblin from Craig-Hallum Capital Group. Please go ahead.

Q – Jeremy Hamblin: Thanks for taking the question. Just shifting gears a bit here. I wanted to ask about United Grocery Outlet as you get your first few months in here, and I don’t know how much time you spent on those locations, but I wanted to get a sense for how you feel like they’re performing. And I know that not a lot is going to be done with them in 2025, but just getting a sense for the time frame on how you think you might integrate that portion of the business a bit more with the total company.

Jason Potter: Yes. I think the basic headline there is we’re growing sales. It’s in line with expectation and it’s something we’re going to integrate 2026, late 2026 is probably the time frame. So that’s what I would share today.

Operator: This concludes the question-and-answer session. I’d like to turn the floor back to management for any closing comments.

Jason Potter: Can you repeat again? Sorry, what was that? Operator

Operator: This is our last question. Do you have any closing comments to close out the call?

End of Q&A:

Jason Potter: Oh, yes. Thank you very much for your interest today. I’m very excited to be here. This is a an incredible business to be a part of. I’m excited about the future. We’ve got lots of execution opportunity here. We’re going to get that back on track. We’ve got a great model, motivated people, and we look forward to sharing exciting wins as we go here, and thank you for your attention today.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you again for your participation.