What Grocery Outlet (GO) Said on Its Q3 Earnings Call

Key Points

• Sales returned to growth: Q3 net sales rose 0.9% to $1.18 billion, while comparable-store sales increased 0.5%, beating the company’s forecast. Traffic climbed 2.4%, offset by a 1.9% decline in average basket size.
• Profitability weakened: Adjusted EBITDA fell to $59.4 million from $66.7 million a year earlier, and adjusted earnings declined to $0.16 per share from $0.21. Lower gross margin reflected promotional spending, higher supply-chain costs and produce shrink.
• Management expects continued sales growth: Grocery Outlet forecast Q4 comparable-store sales growth of 1.5%–2.5% and full-year sales of $4.7 billion–$4.72 billion. It plans 30–31 net new stores in 2026 and roughly 20 in 2027, all in existing markets.

Grocery Outlet NASDAQ: GO returned to positive comparable-store sales in the third quarter of 2026 as more shoppers visited its stores, although smaller customer baskets and higher costs continued to weigh on profitability.

Net sales rose 0.9% to $1.18 billion for the quarter ended October 3. Comparable-store sales increased 0.5%, exceeding the company’s forecast of a decline of 1% to flat. Customer traffic rose 2.4%, partly offset by a 1.9% decline in average basket size.

President and CEO Jason Potter attributed the improvement in part to a greater emphasis on opportunistic merchandise, the discounted products the company buys as deals become available. The retailer has reduced some everyday assortment to make room for those products in its supply chain and stores.

“Our progress on comp continues to be supported by continuing traffic growth,” Potter said, adding that the assortment and value messaging were drawing more customers into stores.

Traffic Improves Despite Produce Disruption

Potter said the company’s credit card data indicated that new customers contributed to traffic growth during the quarter. He also said those shoppers were returning, based on the company’s analysis of the data.

Comparable sales improved despite the effect of a Cyclospora outbreak on the produce business. Potter said none of Grocery Outlet’s products were involved in recalls, but weaker produce sales reduced overall comparable sales by approximately 60 basis points. The company had previously anticipated a 100-basis-point impact.

Produce sales and margins have since recovered, Potter said, with the category growing above inflation since the start of October. He said overall comparable sales were positive in September and accelerated into October.

Potter said the company’s online pricing change, which brought delivery prices in line with store prices, contributed to larger baskets and new customers. Although the change dilutes margins, he said the online business was generating positive EBITDA and remained a small part of the company.

Adjusted Earnings Decline as Costs Rise

Gross margin was 30%, down 40 basis points from a year earlier. CFO Ian Ferry attributed the decline to promotional spending, higher supply chain costs and increased produce shrink, partly offset by a greater mix of opportunistic products.

Adjusted EBITDA fell to $59.4 million, or 5% of sales, from $66.7 million, or 5.7% of sales, a year earlier. Adjusted earnings were $0.16 per share, down from $0.21. On a GAAP basis, net income rose to $13.3 million, or $0.13 per diluted share, from $11.6 million, or $0.12 per share.

The company opened 14 stores and closed none during the quarter. Ferry estimated that earlier closures under its optimization plan reduced quarterly sales by roughly $30 million.

Ferry said higher repairs and maintenance costs contributed to pressure on selling, general and administrative expenses. He said the company does not expect the elevated costs and other discrete items affecting the fourth quarter to repeat next year.

Fourth-Quarter Outlook and 2027 Plans

For the fourth quarter, Grocery Outlet forecast comparable-store sales growth of 1.5% to 2.5%, gross margin of 29.7% to 30%, adjusted EBITDA of $57 million to $61 million and adjusted earnings of $0.11 to $0.14 per share.

Ferry noted that the prior-year fourth quarter included an extra week, which added $82.4 million in sales and $9 million in adjusted EBITDA. The company’s 2026 outlook does not include those benefits.

For the full year, Grocery Outlet expects sales of $4.7 billion to $4.72 billion, comparable-store sales growth of 0.2% to 0.4%, adjusted EBITDA of $225 million to $229 million and adjusted earnings of $0.52 to $0.55 per share. It expects 30 to 31 net new stores.

The retailer has wound down the broad promotional spending introduced earlier in the year, though it plans a targeted Thanksgiving promotion. Ferry said there was no excess promotion in October, when comparable sales accelerated from the prior month.

Looking ahead, Potter said the company plans roughly 20 net new stores in 2027, all in existing markets. Ferry said he expects gross margin to increase next year as the company laps this year’s promotional spending and some store-closure costs, though occupancy expenses are likely to pressure selling, general and administrative costs.

Potter also said the strategic review of the UGO business remains ongoing, with no update to share.

About Grocery Outlet (NASDAQ:GO)

Grocery Outlet Holding Corp. operates Grocery Outlet Bargain Market, a discount grocery chain offering brand-name products and private-label items at value-oriented prices. Its stores carry a range of goods, including groceries, fresh produce, meat, dairy, frozen foods and household products. The company uses opportunistic buying to source products, which can result in changing assortments and limited-time deals. Founded in 1946 by Jim Read, Grocery Outlet has grown from a California-based business into a retailer serving communities across the western United States and parts of the East Coast.

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