Grocery Outlet Holding Corp. Price & Performance (GO)

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 InvestorRelationssectionofthecompany'swebsiteoronsec.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. During today's call, the company will also reference certain non GAAP financial information, including 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'd like to hand it over to Eric. Good afternoon, everyone, and thank you for joining us. We had a solid fourth quarter and are pleased with the progress we're making on our biggest areas of focus. We delivered on key value metrics and were able to generate comps that were above expectations driven by customer count, demonstrating that our model continues to resonate. As you know, Grocery Outlet is known for delivering unbeatable value a unique treasure hunt experience and amazing customer service.

On the surface, this is a simple business that performs very well when operations are executed properly. Due primarily to our systems conversion, 2024 was a year in which many critical operational elements were out of sync. Which was further exacerbated by trying to do too much, too fast. But we're working urgently to get back on track. As interim CEO, my intention was to slow things down, focus on executing the basics really, really well and to reevaluate some of our strategic initiatives We have made great progress on many fronts. But there's still more work to be done. As we discussed in our last earnings call, my immediate focus was around a few key areas. Namely, appointing key leaders to take us forward. Improving our value proposition, progressing on systems transition work, and reviewing our strategic initiatives and priorities. Let me provide you with a brief update on each one of these. We have put in place a talented and experienced team to drive the mission and vision of the company forward. I'm really excited to welcome Jason Potter as our new CEO. Jason brings over thirty years of experience Grocery in scaling successful grocery concepts, including franchise driven models.

Spent a lot of time with Jason recently and his vision values and hands on leadership style align well with our goals and our culture. He won't have a big role on the call today, but I wanted to take this opportunity to have him introduce himself and say a few words. Jason? Thank you, Eric. I'm thrilled to join the team here at The Grocery Outlet. The Grocery Outlet has a unique business model that combines the capability of opportunistic buying at scale with the potential for nimble execution by local independent operators. I was attracted to this business because the Grocery outlet team has over many decades, developed this differentiated concept creating an incredible customer experience that generates that feeling of the thrill of the treasure hunt. We have so much opportunity to grow this business, which creates very exciting opportunities for our team, customers, suppliers and our shareholders. As Eric has pointed out, while we have some near term challenges related to systems implementation and new store performance, these challenges are actively being addressed and will be overcome. These challenges and opportunities are familiar territory for me as I've spearheaded multiple turnarounds across many grocery models In each case, we were successful in driving sales, profitability and ultimately returns for all stakeholders by improving collaboration, execution and the customer experience.

Earlier this month, I hit the ground running with the support of the GEO Board, We are aligned on the core objective of delivering consistent and disciplined growth. I understand what it takes to lead and scale this business. And I look forward to working with the team our independent operators the Board and our suppliers to maximize the full potential of the grocery outlet. Thanks, Jason. In addition to Jason, we also welcomed our new CFO and CIO in January. Chris Miller joined as CFO and has over forty years of finance and accounting experience including twenty years of public company experience in wholesale and retail industries, with a great track record of delivering on execution and profitability objectives. Lindsey Gray, who has been serving as our Interim CFO for the company since March of last year, will continue in a role as Senior Vice President Accounting and Principal Accounting Officer. Which she held prior to and during her appointment as Interim CFO. I'd like to thank Lindsay for stepping up and leading us during a pivotal year for the business. And we are very fortunate to have her continued leadership over our accounting and reporting function moving forward.

Next is Kumar Mishra. He joined as our CIO and has twenty five years of experience in IT leadership including extensive experience implementing and fixing SAP. And will be instrumental as we continue our systems conversion journey. Most recently, he was the VP of Information Technology at Reynolds Consumer Products and also has worked at Nielsen and the Olam Group. Now moving on to our value proposition. Comparable store sales increased 2.9% in the fourth quarter, driven by a 3% growth in comp count as customers responded to our healthy assortment of Wow! Items featured Our value metrics are all improving and we continue to take advantage of the tremendous availability of opportunistic products that are available in the marketplace. While we're beginning to see value move in the right direction, we can do more to best communicate our industry leading value to our customers. Our marketing team is working on a more targeted approach with some exciting new messaging during the first quarter that centers on value and weekly deals. Meanwhile, our operations team is focusing on supporting our IOs with store merchandising on items with our deepest [indiscernible] Next, we've made steady progress improving and enhancing base functionality across the business in our operator, our buying and our back end finance systems and tools.

We have line of sight for enhancing other functionalities that are necessary for inventory planners and operators to optimize inventory management at both the store and the warehouse level. We have made progress towards launching our upgraded real time order guide which we expect to begin phasing in during the second quarter. As I mentioned on the last call, this is the critical merchandising and inventory management tool for our independent operators and we'll take the right amount of time that it takes to get this working the way it should. In addition, we continue to work on improving the speed and the visibility into key operational data and better reporting This includes tools for operators to make decisions and manage the business more efficiently and more automation to resolve back office inefficiencies. Our new CIO has his team focused on fully delivering all of the functionality that maximizes our efficiency. As I mentioned previously, we were trying to do too much too fast. We implemented a major new system completed a significant acquisition that increased our store count materially rapidly expanding into new markets and we began executing on a capacity increasing supply chain initiative. We know we have a vast addressable market and tremendous long term growth opportunities To best take advantage, we need to simplify and take a more rigorous and disciplined approach to how we allocate incremental capital.

With that in mind, infrastructure and growth initiatives. This work is ongoing, but I wanted to share a few key areas that we're addressing. First, we are reassessing our new store opening strategy. We know that when we open a new store in an existing market, where we have brand recognition, distribution support and close proximity These stores typically ramp faster than a store in a less developed new market. For new markets, clustering openings and adjacency to existing markets is important for brand recognition, for marketing and for operational synergies all of which contribute to how quickly a new store can ramp. As we looked at our opening schedule for the next two years, I saw that we were trying to open too many stores in too many new markets. Which don't perform as well as existing markets or new adjacent markets. Thus, we are narrowing the focus in our future new store openings to target existing markets in a smaller set of high priority adjacent new markets and that will help us improve new store sales productivity and the return on invested capital. In addition, a more narrowed focus to new store openings will allow our Lastly, we have experienced increasing pressure on build out costs.

And while we're focused on ways to value engineer these costs down, it will take us some time to test and achieve a lower cost store build. Therefore, we believe that it is prudent to approach our new store growth goals at a more disciplined and measured pace which will allow us to execute better and drive long term sustainable growth with improving ROIC. When we last spoke, we had over 50 leases signed for 2025. As a result of our narrowed focus, we expect an to open 33 to 35 net new stores in 2025, and exit leases with suboptimal locations. Chris will discuss a little bit more in detail later. While we are tempering our near term unit growth expectations, I want to reiterate that we believe our white space remains vast. With the potential to open over 4,000 stores across The United States. Next, in terms of supply chain, we've reassessed our infrastructure and taken a closer look at the most efficient and cost effective way to scale our warehousing and distribution network. In order to support long term expansion of our business, we need to continue investing in our supply chain. We spent a lot of time looking at the best use of capital to optimize our distribution network and to support our growth and have decided not to pursue an expansion into multi temperature distribution.

Which would have added complexity and required a much higher level of capital investment. We believe that we can simplify our regional supply chain strategy to drive operational efficiencies improve inventory management and support our growth in a more capital efficient way. For example, in February, we opened a new 680,000 square foot Ambient distribution center in Vancouver, Washington. To increase the warehouse capacity in the Pacific Northwest that will support our growing business in Washington, Oregon and Idaho. This DC will consolidate all or part of five warehouse facilities in the Greater Portland area, into a new and more modern facility with room to grow and is optimally located to more efficiently service stores across the Northwest. We are phasing in capacity by category and location and expect to be fully scaled in this warehouse by the end of twenty twenty five. Consolidating our Pacific Northwest distribution into one facility is expected to increase efficiencies and lower DC costs in the region over the long term. This facility will also offer better service and efficiencies for operators in that region. Finally, is an initial step to reassessing our G and A cost structure, have implemented a reduction in the workforce.

This reduction is a prudent step in building a more scalable cost structure. We're continuing to explore additional opportunities to further scale G and A through automation and process improvements over the longer term as we add new capabilities to the business. As we took a long hard look at these areas over the last three months, it was clear that these were necessary steps to building a stronger foundation from which scale in the future. We're taking these steps to grow the business profitably and allocate capital in a manner which we expect will generate solid returns. We know that we have tremendous long term growth potential. And believe we're taking the right steps to drive sustainable growth. Profitability and ROIC. Going forward. In closing, it's been a busy and rewarding four months for me serving as Interim CEO. As I step back into my role as Chairman, I wanted to share a few final perspectives on where we're going as a company. First, for me, it all starts with leadership. And Jason and Chris are the right people for the job. Their wealth of experience, coupled with their proven track records of driving operational execution we'll take this already differentiated business the next level.

Second, our focus on new store return economics, prudent capital deployment and building a scalable cost structure are the right steps to ensure that we drive sustainable growth going forward. There is still more work to be done. But we're on the right path. Third, being back in a day to day execution of this business is only reaffirmed by conviction at Grocery Outlet. Our recent financial performance reflects temporary impacts from systems conversions and executionional challenges. But I remain as confident as ever in the long term potential of this business to drive industry leading long term value for all of our stakeholders. Before handing things over to Chris, I'd like to thank the team, and our independent operators for all of their hard work during this challenging period. Your commitment to our stores commitment to our communities and your commitment to our mission of touching lives for the better inspires me every single day. With that, I'd like to turn the call over to Chris. Thanks, Eric, and good afternoon, everyone. Let me start by saying that I'm incredibly excited to be part of Grocery Outlet and to partner with Jason and team to drive the business forward.

The main reason I joined Grocery Outlet is for its unique business model and the significant growth opportunity it presents.

Believe we have the right priorities and strategies in place to optimize that model And combined with our strong balance sheet, I believe we can grow profitably while driving higher returns on capital over the long term. We are pleased with the progress we made during the fourth quarter We delivered on our key value metrics and traffic continued to drive comp. Demonstrating that our model remains very relevant with consumers. We continue to see significant availability of opportunistic goods and our buyers were able to execute on driving value for our operators and customers. This drove comps ahead of our guidance and earnings that was within our guidance. With that overview, I'll now share our fourth quarter results in more detail then review our outlook for 2025 Net sales increased 10.9% to $1,100,000,000 for the the fourth quarter due to new store sales and a 2.9% increase in comparable store sales, which represents 5.6% comp growth on a two year basis. Comp transactions increased 3% while average basket was flat.

We opened five new stores during the quarter ending the year with five thirty three locations which is approximately 14% unit growth for the year. Our fourth quarter gross profit increased 8.43 hundred and $23,900,000 Gross margin was 29.5% a decline of 70 basis points year over year. While an increase in opportunistic sales positively impacted margins for the quarter, This was more than offset by lower margins realized in our deli category mainly from a significant ongoing issue with the In addition, higher inventory shrinkage related primarily to continued systems issues negatively impacted margins for the quarter. SG and A expenses increased $32,600,000 11.6% to $312,500,000 compared to the of 2023. The increase in SG and A expenses was driven primarily by $15,900,000 in restructuring charges increases in store related expenses and depreciation, offset by lower incentive compensation. Regarding the aforementioned restructuring charges, approximately $9,200,000 is related to our decision to exit store leases in certain new markets as Eric mentioned, and the remaining $6,700,000 is related to we will not be moving forward with. Net interest expense was $7,000,000 an increase of $5,500,000 over the fourth quarter last year. The increase in interest expense was driven primarily by higher average principal debt to enable share repurchases and capital spending to support the continued growth of the business, after the acquisition of United Grocery Outlet, or UGO.

Our effective tax rate for the quarter was 47.4% compared with 19.3% for the fourth quarter last year. The increase was driven primarily by lower excess tax benefits related to the exercise of stock option and non deductible costs related to the acquisition of UGO. Net income for the fourth quarter was $2300000.0.0.02 dollars per fully diluted share Adjusted net income was $14,500,000 for the or $0.15 per fully diluted share Adjusted EBITDA increased 12.5% to $57,200,000 for the quarter and adjusted EBITDA margin was 5.2% of net sales. Turning to our balance sheet, we ended the quarter with $62,800,000 of cash and an inventory balance of $394,200,000 which is an increase of 12.6% over the prior year. We made progress in bringing inventory down in the fourth quarter and there's further opportunity to optimize inventory as we restore systems and tools throughout the year. We generated $112,000,000 in cash flow from operations which was used primarily to fund capital investments which totaled $185,700,000 net of tenant allowances in fiscal twenty twenty four. The majority of our capital investments were in new stores, store maintenance, systems and infrastructure related projects. Total debt net of issuance cost was $477,500,000 at the end of the fourth quarter with net leverage of 1.75 times adjusted EBITDA.

During the fourth quarter, we repurchased approximately 1,500,000.0 shares of stock totaling $25,000,000 at an average price of $16.62 For the year, we repurchased 3,980,000.00 shares at an average price of $20.23 per share for a total cost of $80,400,000 As we announced previously, our Board approved a new $100,000,000 share repurchase plan in November. Now turning to our guidance for fiscal 2025. As a reminder, this year is a fifty three week year. Sales from the fifty third week will be excluded from our same store sales calculation. For the full year, we expect comp store sales growth to to be between 2% to 3%. For the first quarter, we expect comparable store sales to be which reflects the timing of the Easter holiday in addition to impacts from overall general economic trends. Recall that last year, Easter was March 31, while this year Easter is April 20.

We expect this shift to impact comps by approximately 100 basis points. We expect to add between thirty three and thirty five net new stores this year fairly evenly distributed across the quarters. We expect total net sales for fiscal twenty twenty five of between $4,700,000,000 to $4,800,000,000 from the 5030% to 30.5% and first quarter gross margins in the range of 29.5% to 30%.

While we expect to continue to benefit from increased value penetration, egg prices and inventory shrinkage will continue to pressure margins for at least the first half of the year. As Eric mentioned earlier, we are still working to improve processes and outcomes to further improve shrink which although improved on a year over year basis, is still tracking at higher levels than before the systems conversion. Our inventory planners and operators still need better solutions and tools to optimize inventory management at both the store warehouse level. So we expect this will continue to have some impact on margin. In addition, we continue to work on process improvements, related to our utilization of SAP and refining the tools that we and our operators use to manage the business. Which should benefit gross margins in the long term. We expect to incur additional restructuring charges in 2025 in the range of 36 to forty five million dollars This includes $30,000,000 to $37,000,000 from exiting store leases dollars 1,600,000.0 in the first quarter related to organizational restructuring, and between $4,500,000 to $6,500,000 in professional fees. We expect the majority of these charges to be recognized in the first half of this year.

For the full fiscal year, we expect adjusted EBITDA of be in the range of $260,000,000 to $270,000,000 and we expect first quarter adjusted EBITDA between 45 to $50,000,000 For the year, we expect depreciation and amortization of about $30,000,000 driven primarily by CapEx spending net of tenant allowances of approximately $210,000,000 This includes investments in store openings and remodels, our distribution centers and systems, as well as store maintenance projects For the year, we expect net interest expense to approximately $38,000,000 an increase of approximately $16,000,000 compared with 2024. As I mentioned earlier, our debt increased last year to support share repurchases capital spending and the acquisition of UGO. We expect to invest the majority of our cash flow from operations and grow and thus we do not expect to reduce our debt load in 2025. We expect share based comp a normalized tax rate of 32% and average fully diluted shares outstanding for the year of approximately 99,000,000. Thus, we expect full year adjusted EPS to be in the range of $0.7 to $0.75 for fully diluted share and first quarter adjusted EPS of approximately $0.05 to $0.1 This reflects the impacts of higher depreciation and amortization and interest expense as previously [indiscernible] In closing, Grocery Outlet has a long history of consistent growth and a tremendous amount of white space still in front of it.

We are highly focused on executing on our strategic priorities and better enabling our passionate independent operators to serve our communities. I believe with our renewed focus we will be successful in generating meaningful profitability and returns on capital over the long term. I look forward to providing updates on our progress Going forward, will now open the call up to your questions. Operator? Thank you. We will now be conducting a question and answer session. Thank you. Our first question comes from the line of Christina Katya with Deutsche Bank. Please proceed. [indiscernible] I have a three part question. One, just starting with the leadership appointments, I'd be curious if you could discuss what attracted you to Grocery Outlet Two, just within the 2025 outlook, can you just bridge for us the adjusted EBITDA to EPS outlook I think you cited higher interest expense, but does the bottom line also include include the restructuring charges? And then lastly, just on the more narrowed focus with the new store openings, is that indicative of a change in the go forward algorithm as well? Thank you.

Good afternoon. Thanks for the warm welcome. It's Jason here. I guess the first part of the question I'll answer Many things attracted me to Grocery, but First and foremost, it's got a fantastic differentiated business model. The culture here and the people involved a record of winning all give me great confidence in the potential this business has. I think the model itself when you when I learn more about it these opportunistic supply that generates this thrill for customers, as they shop really paired with this opportunity for local operators to execute as really interesting and powerful combination.

And my experience, I guess my background also, I really am excited to help and help drive change here and results. So I think that was the first part of your question. The second part, I'll pass to Chris. I think he Yes.

Hi. Yes, you cited interest and that is certainly one of the reasons why EPS is not growing at the same rate as adjusted EBITDA. The adjusted EPS does not include the restructuring charges. So the other component that's impacting EPS is higher depreciation and amortization.

So between those two items, that's why EPS is growing at a lower rate. Yes. Hey, Christina, it's Eric.

I'll take the third part.

We think the number that we've chosen for this year is going to help us address the executional challenges. We have. So think about it, we're going to go to work on two things. One is the new store in kind of new market, non adjacent market underperformance. And then second is sort of this creeping higher costs that we've seen. We need to better execute and we think this is a year to do that, give the team the time to go and open 33 to 35 stores As a reminder, we were probably on a plan to open something more like 55 to 60 stores which I think would have been a mistake. So this will help us get out and execute and have some wins in those markets. It's right now.

Thank you. Our next question comes from the line of Anthony Bonadillo with Wells Fargo.

Please proceed.

Yes. Hey guys. Thanks for taking our questions.

So just wanted to talk about the gross margin and the systems issues.

It looks like the gross margin came in quite a bit softer than guidance. So can you just talk a little bit more about what changed on the system side versus where you said on the last call how you're thinking about the path to recovery there? And then anything you can do to quantify the impact in Q4? Yes. Hi, Anthony. It's Chris.

So the Q4 margin As I mentioned in my remarks, we did see better value in the fourth quarter, which helped margins, but offsetting that was The impact of eggs and pricing and supply, which had about 50 basis points point impact for margin in the quarter. And then as you point out, the inventory shrinkage and continued issues around our systems and not being able to drive down shrink that was the other component. For the fourth quarter.

Thank you. Our next question comes from the line of Robbie Ohmes with Bank of America. Please proceed.

Hey, thanks for taking my question. My question is, maybe for Eric. With the phase in in the second quarter of improved tools for the operators. Will it when you get everything phased in, you want the system is working the way you want. Will the systems be better for the IOs than the old systems were?

Or will they just be better than obviously they're underperformance now?

And have you lost any IOs due to the system disruption? [indiscernible] It's a great question. I'll take the second part first.

I don't think we've lost operators due to the system. I think it was a tough year. We all know starting in 2023 and then getting into 2024, those were just challenging times.

And just as a reminder, overall turnover was kind of right in where it's been for historical last ten years or so. We are We are moving towards getting most of the And that will enable us to call the system, the environment efficient, effective, stabilized, pick the word you'd like. We go to work on the enhancements that will make the system better than it was August of twenty twenty three. We were on a legacy system that was unsupported and we chose a new system and obviously we know the history on that. We are hoping to be able to tell you by end of this year that we're there, which is things are working, we're back to being as efficient, we have some new tools in the arsenal both for operators and internally and that's the buyers and the financial team. That will make us better more efficient, and more effective. So, all eyes on that. And I feel like we're making pretty good progress against it.

Thank you.

Our next question comes from the line of Oliver Chen with TD Callen. Please proceed.

Hi, it's Tom Nes on for Oliver.

Was wondering if you could discuss the pace of comps throughout the quarter as well as the exit rate And then how should we think about the balance between investing in price versus prioritizing margin consistency for the year ahead? [indiscernible] Q4 felt pretty good, sort of the near term comp standpoint. I'd say customer count continued to be healthy transactions were positive across all geographies. That's great news. We think a lot of that is directly attributable to the work that the buyers did in terms of restoring value and really shifting back to value. That's what we talked about in the last call. And then following that was We do have some work to do on the basket. Obviously, if you just look at the composition, we think that's addressable in assortment and in some merchandising initiatives, which we're starting now. Transfer to Q1, I would say the first quarter has started out a little softer than we like. If you go and look at the data reported for other retailers sort of the all outlet data, we're following the same sort of trend. That is January, a little stronger and then there's a decelerate [indiscernible] Jan and Feb.

We believe some of that just tied to sort of general economic trends. But we have more variability in those numbers. Than across the geographies than we'd like. So we have some work to do. And then that Easter swing is going to cost us about 100 bps against the quarter. Thank you. Our next question comes from the line of Mark Hardin with UBS. Please proceed. Good afternoon. Thanks so much for taking the questions everyone and welcome Jason and Chris. So to start Jason, you had a turnaround at Fresh Market which serves as a bit of a different end market, but at the same time, it's a smaller grocer with unique go to market proposition. I know it's early days, but have you seen any parallels between the two organizations and along those lines opportunities to address similar improvements were low hanging fruit off the bat? [indiscernible] Spent the first three weeks or so here listening, learning, gathering information. Clearly that's going to help help my inform my thinking for the long term. My experience recently at the Fresh Market was a total team effort. We were proud to say we grew both sales and profitability and obviously returns for the shareholders in a pretty substantial way by focusing on a few things.

One, improving execution, focusing on the guest experience, we worked hard there to build a service culture and really working as a team on a clear defined strategy. And so so there's some some things there to take away and to utilize here. Clearly, when you execute at a high level, at least the experience of the fresh market, we were able to really shift the guest experience and maybe as evidenced as our at that time during my time there, we were able to achieve Reader's Choice Award at USA TODAY For 2021, 2022, 2023, Best in America and For sure, those are things that I'll take forward in my thinking here. But as Eric said, the near term priorities are clear and we've got to make sure we're focused on the key focused priorities as we go forward.

Thank you. Our next question comes from the line of John Hemmelbockel with Guggenheim. Please proceed.

Hey, Eric, two quick things. Historically, you guys have picked up market share in tougher macros. Is the issue now with UPT just level of inflation? Right, versus what you might have seen historically? So it's not not you as much as it is macro. And then secondly, where are we with UGO? Right. In terms of moving that to an IO model, Is it possible could you use a company operated model in certain geographies and just keep it company operated and not IO or you don't believe in that [indiscernible] touch on the first one and then we'll maybe a couple of us can talk about UGI just philosophically.

Look, you guys have looked at our basket. We're blessed by traffic transaction, customer count, which you want to call it, has been really healthy for a lot of years. We have some work to do on the basket. We probably have more questions than we have answers to be quite honest. It's been a lot of fun and very engaging to have Jason here asking a lot of questions that frankly, we need to do some deeper work on. So let us put a pin in that one and come back. With a better thought perhaps next quarter or in a separate call. But UGO philosophically the magic of having an operation that is different than the operator model is that you can test and learn. We don't have a hard date that tells us we need to go execute the IO plan today. I would say that it is in the plan as we integrate into the future We've got 41 stores. We've got distribution. We've got a DNA that's very much steeped in buying opportunistic We've got a pretty good following in the Southeast and we think we've got lots and lots of opportunities from our playbook that we've learned over 400 plus stores to go and apply there.

Relative to other YuJa integration, Doran, you may want to just sort of give the one, two, three's of where we are.

Yes. Just a couple of main things we're working on there as we've talked about before. First, store refreshes, second product introductions, really expanding a store [indiscernible] good progress in the back half of the year. On refreshes. So completed about five across the network. Seeing a nice uplift in sales there. We continue to introduce new products really on a weekly basis that includes both some of our everyday assortment that were GAAP in the UGO assortment before as well as introductions to vendors that we've been doing business with for a long time, but maybe if not done business with UGO. So feeling good there. And then to Eric's point, we've got some work to do there first. To really drive sales and then over time integrate more broadly including the operator model.

Thank you.

Our next question comes from the line of Cory Carlow with Jefferies. Please proceed. Great. Thanks.

I guess my question is to Eric. Eric, does the restructuring plan cause you to think differently about the right cadence of store openings and or margin profile over the long term.

Yes. Hey, Corey. I wouldn't say this the restructuring plan made me think differently. I would say the business made me think about we needed to do something different to To me, we have to address the subperformance and we need to do something different than we were doing before. And when I talked in the last call, I talked about reducing the priorities let's narrow down to the things we can execute well, we're going to start with value, need to fill the leadership team. But in that was, look, we were going to try and to adjacent markets. And that's really hard to do. You start with sort of four or five things that you need to be successful, market awareness, You need people power, meaning you got to be able to recruit them and train them and support them in region you need some distribution and marketing synergies and then you got to have the messaging that's going to hit in market with lots and lots of stores and we were not doing that. So that execution informed I think, the start of the look at the [indiscernible] reorg and the real estate, then we can go a little deeper on supply chain and then at home here for SG and A. We worked with some really talented outside folks on costs and we made cuts where we're actually pulling back on priorities.

So we sort of put the three of them together That's the way we think about it.

Thank you.

Next question comes from the line of Anthony Chuk Chukwamba with Loop Capital Markets. Please proceed.

That's Chukumba, but that was close enough for government work. So first off, let me just add my welcome to Jason and Chris as well. I guess my question was on how you feel about [indiscernible] because I remember on the last earnings call you were talking about the fact that you felt like maybe the value wasn't as compelling as it has been historically. In the second and third quarter but you felt like you were sort of getting that back. And certainly our pricing work showed that we saw very compelling value pricing relative to a very large company in Bentonville, Arkansas. But we just love your perspective in terms of kind of where you are on values and whether you are where you where you want to be? Thank you.

Yes, this is Dorian. Let me talk a bit about value. So first off, really pleased with the value progress we made through Q4. If you remember back to the last call, really talked about a couple of different measures that we use to gauge value. The first overall basket, the value we deliver on a basket, we target 40% savings versus conventional grocer, 20% versus disc Second, the share of sales that we generate from items with 60% or greater savings versus conventional. Think of this as the extreme value treasure hunt driving items that people tell their friends and families about. This is where we said last call we had some work to do and we really improved that throughout the course of the quarter. The last piece is price parity with discounters on a targeted list of commodity items and we're where we want to be there. So feeling good about the value delivered versus conventional and disc We feel that's translated into traffic right as well in Q4 with the 3% traffic increase So continuing to focus on those and then also looking at execution now of that value as well, how do we just get all the credit for those great deals throughout the supply chain in our stores through marketing.

And that's a focus now.

Thank you. Our next question comes from the line of Joe Feldman with Telsey Advisory Group. Thanks guys for taking the question.

So wanted to follow-up. The CapEx budget for the year, I think it's a little bit above this past year. And I'm wondering with the reduction in stores, maybe you could share some thoughts as to where where you're allocating the CapEx dollars?

Yes, sure.

I'll take that. So you're right. Our guidance is $210,000,000 in CapEx for this year versus the $185,000,000 or $186,000,000 last year. It's actually more stores because we opened 26 stores last year and then we have of course, we had the UGO stores. Acquired and we're looking at 33 to 35 this year. So that's driving a big part of it as well as some CapEx related to our new distribution center in the Pacific Northwest. Those are probably the two main drivers of the increase overall.

Thank you. Our next question comes from the line of Mike Baker with D. A. Davidson. Please proceed.

Thanks. I just wanted to follow-up on a previous question and ask about the long term margin profile. This had always been a 6%, even mid 6% EBITDA business. You're obviously below that now. All these changes you're doing, focus [indiscernible] Is the idea that that gets you back to that 6% range? Does that get you above that 6% range? Or is that range sort of not in the cards anymore?

Yes.

So So We believe we've got a lot of opportunity in front of us. We already talked about the amount of white space and this company has performed very well historically. We've put out our guidance for this year We're not really prepared to talk about past that and Future years. So think we're just going to leave it at that at this point.

Our next question comes from the line of Lia Jordan with Goldman Sachs.

Please proceed. Good afternoon. Thank you for taking my question. I just wanted to talk about the comp guide of 2% to 3% because this is below your historical run rate of mid single digit, which you typically do in a normalized food environment, which we appear to be in right now. We've talked about a lot of the puts and takes you guys are working through around restructuring. But I guess my bigger question is, has anything changed in the competitive environment today that makes it more challenging for you to maybe get back to your older algo over time as it sounds like we've still had a year plus of issues, but we're still needing to advertise more improve our value. And then now I'm hearing about increased merchandising efforts as well. So any color there would be helpful.

Thank you.

Yes. Let me jump in quickly on comp competition. Nothing we feel has fundamentally changed in the competitive environment. Promotional environment remains pretty rational. Data suggests it's back around COVID levels. Obviously, promotional environment changed in in 2020 and for a couple of years. We continue to aim for prices 40% on the basket, 70% plus on our best deals, feel like we're delivering that. So our relative value proposition feels like it's good. Again, our model really flexible to deliver and different competitive environments as they change. We've proven that over the last many years to do that well. And we'll continue to do so. So nothing on the competitive side that makes this feel differently about comps this year going forward.

Thank you. Our next question comes from the line of Sameer Gutman with Morgan Stanley. Please proceed.

Good afternoon. Welcome to everyone new. I wanted to ask first on systems.

I guess at one point, we thought that it was temporal. It seems like they're continual. And at what point in 2025 do we our systems issues behind the company then part one. And then Eric, you mentioned some that was intriguing. You said Jason's asking a lot of questions and we need to I guess zoom in on them a bit.

Can you like hypothesize like the kind of things that you're looking at as far as I don't know if it's merchandising because you mentioned you have the footsteps, but you're not getting the basket or the conversion and localization value. What are these questions and like what are you probing? Yes. Let me take the first one. We, Simeon, We have made a lot of progress. I think $25,000,000 is going to be a completion year. And then put us in a position to harness the capabilities that we've installed. Systems are working. The financial visibility that we talked about some of the kinks from 2024 behind us.

Systems functional, We still do not have all of the tools that we need to execute as efficiently or as cost effectively as before. But those are coming. Some of the critical tools specifically are ones that we need to manage the inventory holistically, but really for operators to optimize opportunistic product, and their inventory management in the stores. So you've heard us talk a little bit about inventory shrink. So that's something that's getting better, but it's not improved to 100% of where it was. So there's still some fixes, but we are feeling very good and very confident. I'll take it shot at some of the things that I'm seeing from Jason and maybe he can add to it. But he is [indiscernible] why people are shopping grocery outlet, how we improve the trip, how do we improve the execution of the stores. I've never seen someone more comfortable out in a store looking at how we make money challenging what we do, how we do it doing it from an operator friendlier centric perspective because he has managed franchise operations. In fact, there was a day he wanted to be an operator of his own store. So he thinks about the store and how we make money.

And that lens comes across as he's going to dig very deep on how we operate the set piece I'd say and then I'll turn it over to him is all about data. Data integrity, data management, starting with the truth and then you can do a lot. And I would say our data is still somewhat imperfect, but it is on the list of things to get done this year. But that connecting the insights from a retailer, who's been very, very successful to the data that we have, I think is going to be pretty powerful. So those are a couple of examples for me.

Thanks, Eric. Yes, I guess I'm just really curious at this stage. So as I mentioned, I'm going to a learning mode and listening mode and a gathering information mode to make sure that I have everything I need to make quality decisions on behalf of everyone that touches this business, including the shareholders. I'm very excited about what I see for opportunity here. Just to be clear, I think we have a lot of upside in the future with at least the way I see the business and there's a lot of fantastic things going on here, but work on and get answers to and find new ways to drive the business in successful ways. So It's been a really interesting three weeks and we intend to [indiscernible] work hard to make progress every day here. So thanks for the question.

Thank you. Our next question comes from the line of Jeremy Hablin with Craig Hallum Group.

Please proceed.

Hey, guys. Will on for Jeremy. Thanks for taking my question. I'm just curious about the progress you've made with the private label penetration. And then as a follow-up, wondering if you can share how the private labels are performing versus the rest of the business?

And then maybe any specific categories or items you've seen the strongest response to so far? Thanks.

Yes, happy to chat a little about that. So overall pleased with the performance of a private label product that we've introduced so far. Customers responded positively. And while it's still a small portion of our business, A lot of these items are becoming top sellers in their categories.

We launched about 180 items by the end of last year. That's ahead of our original plan when we were thinking more 100.

We'll launch another 150 or so this year as well. In addition, we think we're hitting into the mark on better value to the customer, more consistent inventory, which is something our customers have told us they want. And these initial products are delivering some margin incrementality as well over some of the items that they're replacing. So that's benefiting both Grocery Outlet and our operators In the future, plan to introduce continue to introduce items differentiated items as well. Right now, we're focused a lot on core necessities, but we'll continue to put in some differentiated items that we think can add to the treasure hunting as we continue to grow area of the business.

Thank you.

Our last question comes from the line of Giga Paken Phillips Loulusis Group.

I mean research.

Hi, everyone. Good afternoon. I wanted to ask another one on the unit growth. So I understood that the twenty twenty stores were reduced this year in the new markets, but curious how you're thinking about building up the pipeline for new stores in like to the future beyond 2025? Like what's the timeline for that? And then also like I assume that there's a pipeline for independent operators and like like how is that affected and what's the pipeline for building up that as well?

Yes. Pipeline is healthy on both sides. Obviously, we had excess to what we needed to open for '25 and '26, so we did the reduction I think the gate that we're going to go through is execute [indiscernible] We reduced some of the I'd say, non adjacent markets so that execution risk goes down and performance goes up. So those will play out this year relative to IOs. It's still far north on the top end of the funnel of what we need if we're recruiting approximately 100 operators a year or so. Selectivity should be the name of the game in drawing in the most capable deploying them successfully. But I would say no issues on the funnel for either new stores real estate nor operators is all about what we're going to execute, what we're going to choose to do so that we can improve the ROIC in the model.

Thank you. There are no further questions at this time. I'd like to pass the call back over to Eric for any closing remarks.

Thanks, Hailey. Thanks everyone for your questions. [indiscernible] and Chris and Jason. So we will be on with you in a few moments with follow-up calls. So thank you, operator. Everyone. Bye bye.

This concludes today's teleconference. You may disconnect your lines at this time.