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    Earnings call· Jun 2026(Q2 FY26)

    Grocery Outlet Holding Q2 FY26 earnings call GO

    Aug 12, 2026 Source

    Executive summary

    Grocery Outlet Q2 FY26 — Opportunistic Offering Drives Sequential Comp Improvement

    Grocery Outlet delivered stronger-than-expected Q2 results, driven by a revitalized opportunistic offering and improved value communication, leading to sequential comparable sales improvement. The company is focused on disciplined execution of its core model, enhancing independent operator support, and a measured approach to capital allocation, despite facing a temporary Cyclospora-related headwind in Q3. Management expressed confidence in returning to historical comp growth levels in the long term.

    Highlights

    5

    • Revenue increased 1% to $1.19 billion, exceeding outlook.

    • Comparable store sales declined only 30 basis points, a 70-basis-point improvement from Q1, and above outlook for a 1.5%-2% decline.

    • Gross margin reached 30.2%, exceeding the 29.8%-30.0% outlook, driven by lower promotional spending.

    • Adjusted EBITDA was $66 million and adjusted EPS was $0.20, both well above outlook.

    • Traffic grew 1.8% year-over-year, and opportunistic comp store sales accelerated meaningfully in Q2, up 500 basis points relative to Q1.

    Concerns

    5

    • Basket declined 2.1% year-over-year, despite sequential improvement.

    • Gross margin declined 30 basis points year-over-year due to promotions and store closure-related markdowns.

    • Adjusted net income decreased to $20.3 million ($0.20 per share) from $22.8 million ($0.23 per share) last year.

    • Operating cash flow decreased to $43.2 million from $73.6 million last year.

    • A Cyclospora outbreak is expected to create a headwind of roughly 100 basis points to total company comps for Q3 FY26.

    Guidance & targets

    15
    CategoryTargetConfidence
    Comparable store sales (Q2 outlook)
    decline of 1.5% to 2%
    high materiality
    High
    Gross margin (Q2 outlook)
    29.8% to 30.0%
    high materiality
    High
    Net new store openings
    30 to 33
    medium materiality
    High
    Net sales
    $4.7 billion to $4.72 billion
    high materiality
    High
    Comparable store sales
    negative 0.5% to 0.0%
    high materiality
    High
    Incremental promotional investment
    $20 million
    medium materiality
    High
    Adjusted EBITDA
    $225 million to $235 million
    high materiality
    High
    Diluted adjusted EPS
    $0.51 to $0.55 a share
    high materiality
    High
    Capital expenditures net of tenant improvement allowances
    $170 million
    medium materiality
    High
    Comparable store sales
    negative 1% to 0.0%
    high materiality
    High
    Gross margin
    29.8% to 30%
    high materiality
    High
    Adjusted EBITDA
    $58 million to $61 million
    high materiality
    High
    Diluted adjusted EPS
    $0.14 to $0.16 a share
    high materiality
    High
    Store refreshes completed
    approximately 100
    low materiality
    Medium
    Store optimization plan annualized adjusted EBITDA benefit
    eliminate $12 million drag
    medium materiality
    High

    Operational metrics

    39
    Net sales
    $1.19 billionup 1% YoY
    Q2 FY26

    Exceeded outlook.

    Comparable store sales
    -0.3%70 bps improvement from Q1
    Q2 FY26

    Above outlook for a decline of 1.5% to 2%.

    Traffic growth
    1.8%vs 1.5% last year
    Q2 FY26

    Remained positive.

    Basket decline
    -2.1%improved 100 bps from Q1
    Q2 FY26

    Customers responded to stronger opportunistic offerings.

    Gross margin
    30.2%exceeded outlook
    Q2 FY26

    Above 29.8% to 30.0% outlook.

    Adjusted EBITDA
    $65.7 millionvs $67.7 million last year
    Q2 FY26

    Both adjusted EBITDA and diluted adjusted EPS exceeded outlook.

    Adjusted EPS
    $0.20vs $0.23 last year
    Q2 FY26

    Both adjusted EBITDA and diluted adjusted EPS exceeded outlook.

    Opportunistic comp store sales acceleration
    500 bpsrelative to Q1
    Q2 FY26

    Helped lift total company comps into positive territory in May and June.

    Opportunistic units per transaction growth
    improved significantlyrelative to Q1
    Q2 FY26

    Early signs customers are responding to broader and better selection of deals.

    Grocery category comps
    3.5%
    Q2 FY26

    Outsized opportunistic improvement in the largest category.

    New supplier acquisitions
    11%up this year
    FY26 YTD

    Reflects renewed focus on supplier engagement.

    Store optimization plan closures
    36
    Q2 FY26

    Completed in April, resulting in a healthier portfolio.

    IO POS feedback system rollout
    100
    Q2 FY26

    Early results support fleet-wide rollout.

    Dynamic routing program rollout
    200
    Q2 FY26

    Optimizes delivery routes and increases opportunistic product flow.

    Gross profit dollars
    $360.7 millionflat YoY
    Q2 FY26

    GAAP figure, representing a gross margin of 30.2%.

    SG&A
    $339.5 millionincreased less than 1% YoY
    Q2 FY26

    Remained consistent with last year as a percentage of net sales.

    Net restructuring charges
    $5.4 million
    Q2 FY26

    Related to the store optimization plan.

    Net interest expense
    $6.6 millioncomparable to last year
    Q2 FY26

    GAAP figure.

    GAAP effective tax rate
    38.8%vs 20.3% last year
    Q2 FY26

    Increased significantly year-over-year.

    Net income
    $5.6 millionvs $5 million last year
    Q2 FY26

    GAAP figure.

    Diluted EPS
    $0.06vs $0.05 last year
    Q2 FY26

    GAAP figure.

    Adjusted net income
    $20.3 millionvs $22.8 million last year
    Q2 FY26

    Non-GAAP figure.

    Adjusted diluted EPS (prior year)
    $0.23
    Q2 FY25

    For comparison to current year adjusted diluted EPS of $0.20.

    Adjusted EBITDA as percentage of net sales
    5.5%vs 5.7% last year
    Q2 FY26

    Non-GAAP figure.

    Cash balance
    $74 million
    Q2 FY26 end

    Balance sheet item.

    Revolver availability
    $154 million
    Q2 FY26 end

    Balance sheet item.

    Total debt net of issuance costs
    $505.6 millionup $16.3 million from Q1
    Q2 FY26 end

    Balance sheet item.

    Net leverage
    1.8x
    Q2 FY26 end

    Remained 1.8x adjusted EBITDA.

    Capital expenditures
    $43.7 million
    Q2 FY26

    GAAP figure.

    Capital expenditures net of tenant improvement allowances
    $38.7 million
    Q2 FY26

    Non-GAAP adjusted figure.

    Q2 beat flow-through to H2 SG&A
    $4.5 million
    H2 FY26

    Represents SG&A dollars shifting from Q2 into the back half of the year.

    Q2 cost discipline savings
    $1.5 million
    Q2 FY26

    Represented good cost discipline versus plan.

    Opportunistic mix expansion
    300 bpsexpanded well over
    Q2 FY26

    Continues to accelerate, despite Cyclospora headwind.

    Discontinued SKUs
    400 to 500
    H1 FY26

    Transitions completed in the first half of the year.

    Retail inflation
    less than 1%
    Q2 FY26

    Partially due to opportunistic offering.

    Price gap vs mass
    15% to 20%below mass
    Q2 FY26

    Maintained on a basket of goods.

    Price gap vs conventional
    30% to 40%against conventional
    Q2 FY26

    Maintained on a basket of goods.

    Cyclospora impact on comps
    100 bps
    Q3 FY26

    Expected headwind to total company comps, primarily impacting produce sales.

    Historical comp range
    3% to 5%
    historical

    Management believes the business can return to this level.

    Industry KPIs

    7
    MetricValueDetails
    Sg a rate28.5%%
    Gross margin drivers30.2%%
    Warehouse store club count10stores
    Comparable same store sales-0.3%%
    E commerce digital sales growth—
    Private label own brand penetration—
    Category level comps and inflation deflation3.5%%

    Risks & headwinds

    4
    Cyclospora outbreak impact on produce salesQ3 FY26

    Roughly 100 basis points headwind to total company comps for Q3 FY26

    Mitigation: Monitoring the situation, expect it to moderate into Q4; underlying business performance continues to improve.

    Promotional competitive environmentSecond half of the year

    Not quantified, but noted as 'somewhat promotional'

    Mitigation: Strengthening opportunistic offering, clearer value messaging, and precise marketing/promotional spending; not relying on incremental price investment.

    Consumer cautious spendingSecond half of the year

    Not quantified

    Mitigation: Differentiated model built for this environment, focusing on value proposition through opportunistic assortment.

    Elevated shrink from produce issuesQ3 FY26

    Meaningful hit to gross margins in Q3 FY26

    Mitigation: Included in Q3 gross margin guidance.

    What to watch in Q3 FY26

    5

    Comparable store sales

    Q3 FY26
    Current-0.3% in Q2 FY26
    Targetnegative 1% to 0.0% in Q3 FY26

    Why it matters

    This will indicate the underlying business momentum and the impact of the Cyclospora headwind, which management expects to be temporary.

    For the third quarter, we expect comparable store sales ranging from negative 1% to 0.0%

    Q&A highlights

    7

    Can you provide more color on the cadence of comp trends through Q2 and into Q3, and the traffic versus basket breakdown?

    Management noted sequential comp improvement, with total comps improving by 300 basis points by end of Q2 (pre-Cyclospora). Q2 traffic grew 1.8% year-over-year, and basket declined just over 2% but improved 100 basis points sequentially. The Q3 comp guidance of -1% to flat includes a 100-basis-point headwind from Cyclospora, which is expected to be temporary.

    “Pre-Cyclospora impact, total comps had improved by about 300 basis points to the end of Q2. To answer your question on traffic, Q2, again, a solid number there, 1.8% on top of the 1.5% last year. The basket declined by just over 2%, but did show about 100 basis points of sequential improvement from Q1.”

    asked by Unknown Analyst · answered by Jason Potter

    2 min read5 chapters

    Detailed Narrative

    01

    Revitalizing Opportunistic Offering and Value Communication

    Grocery Outlet's primary objective is improving comparable store sales by strengthening its opportunistic offering. This involves improved sourcing, product flow, visibility, and store-level execution, alongside expanding key supplier relationships. The impact is evident in sales, with opportunistic comp store sales improving significantly from Q1 and the breadth of opportunistic SKUs increasing. The company is also enhancing value communication through simpler signage, prominent value items, and targeted digital media, aiming to drive comps through product and marketing rather than incremental price investment.

    02

    Independent Operator (IO) Engagement and Store-Level Execution

    The company is leveraging its independent operator model by providing enhanced support, reporting, and training. Initiatives include actionable insights, direct field engagement, and new point-of-sale feedback systems rolled out to approximately 100 stores, with plans for fleet-wide expansion. A dynamic routing program is also being implemented in 200 stores to optimize delivery routes and improve opportunistic product flow, contributing to improved customer NPS and IO satisfaction.

    03

    Strategic Capital Allocation and Store Portfolio Management

    Grocery Outlet completed the closure of 36 underperforming stores in April as part of its store optimization plan, which is expected to eliminate a $12 million drag to annualized adjusted EBITDA by 2027. The remaining stores in the East are showing improved performance. The company is also applying greater rigor to new store growth, weighting 2027 openings towards infill opportunities, and pacing its store refresh program to ensure quality execution while focusing on opportunistic assortment.

    04

    Leadership Transition and Financial Discipline

    Chris Miller retired as CFO, and Ian Ferry was welcomed as the new Chief Financial Officer. Ian Ferry emphasized building a durable long-term shareholder value through disciplined capital allocation, measuring against long-term metrics, and transparent communication. The company's Q2 results reflect progress from operational improvements, with stronger sales trends, disciplined spending, and sharper capital allocation beginning to improve the business and its long-term earnings potential.

    05

    Cyclospora Outbreak Impact and Competitive Environment

    While the company's products were not involved in any recalls, a multi-state Cyclospora outbreak is expected to create a headwind of roughly 100 basis points to total company comps in Q3, primarily impacting produce sales. Management believes this is a temporary issue. The competitive environment remains promotional, but Grocery Outlet plans to navigate this through its strengthened opportunistic offering and clear value messaging, rather than increased promotional investment, maintaining a significant price gap against competitors.

    AI-generated summary of the company’s earnings call. Not investment advice.