Grocery Outlet Q2 Earnings Call Highlights

Key Points

• Second-quarter results exceeded expectations: Net sales rose 1% to $1.19 billion, while comparable-store sales declined 0.3%, outperforming the company’s forecast. Traffic grew 1.8%, and adjusted EBITDA reached $65.7 million.
• Management is emphasizing opportunistic merchandise to improve the “Treasure Hunt” shopping experience; opportunistic sales and product mix both increased significantly, while promotional spending is expected to taper in the second half.
• Outlook remains tempered by a produce-related headwind: A Cyclospora outbreak is expected to reduce third-quarter comparable sales by roughly 100 basis points. Full-year guidance calls for comparable-store sales between down 0.5% and flat, adjusted EBITDA of $225 million to $235 million, and adjusted EPS of $0.50 to $0.55.

Grocery Outlet NASDAQ: GO reported second-quarter results that exceeded its outlook as the retailer said efforts to strengthen its opportunistic assortment, sharpen value messaging and improve store execution gained traction.

Net sales rose 1% year over year to $1.19 billion for the quarter ended July 4, 2026. Comparable-store sales declined 0.3%, an improvement of 70 basis points from the first quarter and better than the company’s projected 1.5% to 2% decline. The result included an estimated 50-basis-point headwind from the timing of Easter, according to Chief Financial Officer Ian Ferry.

Traffic increased 1.8% during the quarter, while average basket size declined 2.1%. However, basket performance improved by roughly 100 basis points sequentially as shoppers responded to an expanded selection of opportunistic merchandise, President and Chief Executive Officer Jason Potter said.

Profitability tops outlook

Gross profit was flat at $360.7 million, while gross margin declined 30 basis points from a year earlier to 30.2%. The margin nevertheless exceeded Grocery Outlet’s guidance range of 29.8% to 30%.

The year-over-year margin decline reflected promotions introduced earlier this year to reinforce the company’s value positioning, as well as markdowns and write-offs related to store closures. Better inventory management partially offset those pressures. On a sequential basis, gross margin increased 60 basis points from the first quarter due to reduced liquidation activity, lower promotional spending and seasonal factors.

SG&A expenses increased less than 1% to $339.5 million and held steady at 28.5% of sales. Grocery Outlet also recorded $5.4 million in net restructuring charges associated with its store optimization plan.

Net income was $5.6 million, or $0.06 per diluted share, compared with $5 million, or $0.05 per diluted share, a year earlier. Adjusted net income fell to $20.3 million, or $0.20 per diluted share, from $22.8 million, or $0.23 per diluted share, last year. Adjusted EBITDA was $65.7 million, or 5.5% of sales, compared with $67.7 million, or 5.7% of sales, in the prior-year quarter.

Ferry said adjusted EBITDA and adjusted earnings per share both exceeded the company’s outlook. Grocery Outlet ended the quarter with $74 million in cash, approximately $154 million of revolver availability and $505.6 million of total debt, net of issuance costs. Net leverage was 1.8 times adjusted EBITDA.

Opportunistic assortment drives strategy

Management said its central objective remains returning the business to sustainable comparable-sales growth through a stronger opportunistic product offering, which supports the company’s “Treasure Hunt” shopping experience.

Potter said opportunistic comparable sales improved by more than 500 basis points from the start of the first quarter through the second quarter, while opportunistic mix expanded by more than 300 basis points. Grocery, the company’s largest category, posted a 3.5% comparable-sales gain in the second quarter, he said.

The retailer is applying the same approach to its deli and frozen categories, where it has expanded the range of branded opportunistic products. Grocery Outlet also discontinued 400 to 500 made-to-order and private-label items during the first half to create additional space for opportunistic variety, Potter said.

Paul Miller returned to the company in June as executive vice president and chief purchasing and merchandising officer. Potter said Miller, a 25-year Grocery Outlet veteran, is helping strengthen sourcing and supplier relationships. New supplier acquisition is up about 11% this year, according to Potter.

The company plans to reduce promotional spending during the second half as opportunistic product availability improves. Grocery Outlet continues to expect about $20 million in incremental promotional investment for the full year, but said that spending should taper further in the back half and be largely complete by the end of the third quarter.

“The customer doesn’t really understand the distinction between a promoted branded item or op,” Ferry said. “They just see deals.”

Store optimization and operating initiatives

Grocery Outlet closed 36 underperforming stores in April as part of its store optimization plan. The company said it remains on track to eliminate a $12 million annualized adjusted EBITDA drag, with most of the benefit expected in 2027.

During the second quarter, the company opened 10 stores and closed 12. For the full year, it expects 30 to 33 net new store openings. Management said its 2027 openings will be weighted toward infill markets as it prioritizes returns, site selection and first-year store productivity.

The retailer remains on track to complete approximately 100 store refreshes by year-end, though Potter said the company has adjusted the program to shorten disruption periods after seeing more variability than desired in recent refresh cohorts.

Grocery Outlet also highlighted investments in operator support, including store-level customer feedback reporting, expanded field coaching and a dynamic-routing program designed to improve delivery quantities and opportunistic-product flow. The routing program is currently in about 200 stores and is expected to be deployed across the broader fleet over the next year.

Outlook includes produce-related headwind

Despite raising the low end of several full-year outlook ranges after its second-quarter outperformance, Grocery Outlet said a multi-state Cyclospora outbreak is weighing on produce sales. The company said none of its products were involved in recalls, but it expects the outbreak to reduce third-quarter total comparable sales by roughly 100 basis points and to create elevated produce shrink.

For the third quarter, Grocery Outlet expects comparable-store sales of negative 1% to flat, gross margin of 29.8% to 30%, adjusted EBITDA of $58 million to $61 million, and adjusted diluted earnings per share of $0.14 to $0.16.

For the full year, the company forecast net sales of $4.7 billion to $4.72 billion, comparable-store sales ranging from negative 0.5% to flat, adjusted EBITDA of $225 million to $235 million, and adjusted diluted EPS of $0.50 to $0.55. Capital expenditures, net of tenant improvement allowances, are expected to total $170 million.

Potter said the company expects the Cyclospora-related impact to moderate in the fourth quarter and remains focused on restoring what management considers a healthier level of comparable sales over time.

About Grocery Outlet (NASDAQ:GO)

Grocery Outlet Holding Corp. NASDAQ: GO is a specialty discount retailer that offers consumers deeply discounted groceries by purchasing excess inventory, closeouts, and overstocks from manufacturers and distributors. Headquartered in Emeryville, California, the company operates two primary banners—Grocery Outlet and Fresh2Go—with a combined footprint of more than 400 stores. Its product assortment spans fresh produce, meat, dairy, bakery items, household staples, natural and organic offerings, and select specialty products, all sold at significant markdowns compared to conventional supermarkets.

The company's unique buying model enables it to source inventory through opportunistic purchases of surplus freight, discontinued items, and closeout deals, which it then passes on as savings to its customers.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.

Continue following MarketBeat

Add MarketBeat as your preferred source on Google to see our latest stories in your feed.

Add As Preferred Source