Grocery Outlet Holding Corp. Q2 FY2024 earnings call

• Systems Transition: Transitioned to SAP in August 2023, faced issues like poor data visibility, slow speeds, and loss of tools. Made progress but work remains to improve visibility and tools for better business operation. - Execution: Systems disruptions strained the organization, too many growth initiatives impacted everyday execution; will focus on core execution. - Value: Missed value earlier due to pricing actions, now working on restoring value, focusing on basket savings (target ~40% vs conventional, ~20% vs discounters), commodity price parity, and extreme value items. - Q3 Results: Net sales increased 10.4% to $1.11 billion; comp store sales +1.2%; two-year stack comp 7.6%; comp transaction growth 2%; opened 5 net new stores; gross profit margin 31.1%; adjusted EBITDA $72.3 million. - Near-term Priorities: Refocus on value, support independent operators by providing tools for efficient business operation, complete systems transition work to improve functionality, and simplify priorities to focus on core execution.

No detailed product segment financial performance provided in the transcript.

• Full year 2024: Comp store sales growth ~2.4%; Q4 comp ~2.0%; net new stores 66 total (40 from UGO acquisition, 26 organic); net sales slightly above $4.35 billion; gross margin ~30.4%; adjusted EBITDA $237 million to $242 million, Q4 ~$57M to $62M. - 2025: Focus on return to long-term growth algorithms: comp growth 1-3%, gross margin ~30.5%, adjusted EBITDA margin ~6%; increased CapEx due to more organic new store openings and supply chain investments.

• Systems transition issues still impacting visibility, system speed, and tools used by internal teams and operators. - Execution challenges due to attempting too many growth initiatives at once, impacting everyday business execution. - Competitive pricing pressures affecting the ability to maintain the desired value proposition.

Q: Krisztina Katai from Deutsche Bank asked about sales, execution, and systems integration.

A: Eric Lindberg mentioned focusing on value, supporting independent operators, and progress on systems transition; Lindsay Gray added on Q4 guide and cautious outlook.

Q: Robbie Ohmes from Bank of America asked about RJ's departure and systems disruption timeline.

A: Eric Lindberg talked about RJ's departure context and systems still needing work but making progress; Lindsay Gray on margins.

Q: Anthony Bonadio from Wells Fargo asked about margin profile and strategic priorities.

A: Lindsay Gray on long-term margin target of 30.5%; Eric Lindberg on simplifying priorities.

Q: John Heinbockel from Guggenheim Partners asked about CEO characteristics and guidance.

A: Eric Lindberg on CEO search criteria; Lindsay Gray on adjusted EBITDA margin target.

Q: Mark Carden from UBS asked about UGO acquisition and store transitions.

A: Eric Lindberg on UGO integration and store transition plans.

Q: Corey Tarlowe from Jefferies asked about unit growth and value investments.

A: Eric Lindberg on value investments and unit growth plans.

Q: Oliver Chen from TD Cowen asked about key priorities and operator relationships.

A: Eric Lindberg on focusing on value and supporting operators.

Q: Joseph Feldman from Telsey Advisory Group asked about execution areas and delays.

A: Eric Lindberg on various initiatives and prioritization.

Q: Leah Jordan from Goldman Sachs asked about systems impact on margins and competitive benefits.

A: Lindsay Gray on systems impact and competitive benefits; Eric Lindberg on 99 big announcements.

Q: Michael Baker from D.A. Davidson asked about buying environment and margins.

A: Eric Lindberg on buying environment and margin band.

Q: Simeon Gutman from Morgan Stanley asked about systems causing value issues.

A: Eric Lindberg on systems role in value pricing and operator input.

Q: Jacob Aiken-Phillips from Melius Research asked about comps, unit growth, and productivity.

A: Lindsay Gray on comp guide and unit growth; Eric Lindberg on new store growth.

Q: Jeremy Hamblin from Craig-Hallum asked about systems costs.

A: Eric Lindberg and Lindsay Gray on systems costs being ongoing but temporary.

Q: Bill Kirk from Roth Capital Partners asked about e-commerce competition.

A: Eric Lindberg on e-commerce impact on value proposition.