GO Filings — Grocery Outlet Holding Corp. - FilingSpy
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Grocery Outlet Holding Corp.
An extreme-value grocer that sells name-brand food and household goods at deep discounts, sourced from manufacturers' order cancellations and overruns in a rotating "treasure hunt" selection, through hundreds of independently operated stores across the US. It began in 1946 when founder Jim Read bought government surplus canned goods in San Francisco and resold them from vacant storefronts. Shoppers' astonished reactions to the markdowns gave the store's signature "WOW!" deals their name.
Grocery Outlet returned to operating profitability in Q2 FY2026, but comparable store sales declined 0.3% and gross margin fell to 30.2%.
Grocery Outlet returned to an after two quarters of losses. rose 1.1% to $1.19 billion and operating income was $15.8 million, but fell 0.3% and slipped 40 to 30.2% as product promotions and store-closure markdowns weighed on profitability. The core business is stabilizing, but the treasure-hunt model is still searching for traffic growth.
Key takeaways
declined 0.3% in Q2, as a 2.1% drop in average transaction size outweighed a 1.8% increase in transaction count, marking the second consecutive quarter of negative comps.
contracted 40 to 30.2%, driven by product promotions, markdowns, and write-offs tied to the 36 stores being closed under the Optimization Plan.
was $15.8 million, a return to profitability after two quarters of losses driven by non-cash impairments, though the result included $5.4 million in net restructuring charges.
Section summaries
Management's Discussion and Analysis
Q2 FY2026 net sales rose 1.1% to $1.19B, but comps fell 0.3% and gross margin slipped 40 bps to 30.2%.
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increased 1.1% to $1.19 billion in Q2 FY2026, driven by new store sales, partially offset by store closures and a 0.3% decline.
fell 0.3% as a 2.1% drop in average transaction size outweighed a 1.8% increase in transaction count; first-half comps declined 0.6%.
was $5.6 million, or $0.06 per diluted share, compared to a $180.3 million net loss in Q1 FY2026 that was driven by a $158.0 million non-cash .
rose 1.1% to $1.19 billion, supported by new store openings, partially offset by store closures and the negative .
fell 41.4% to $43.2 million, and was $1.4 million, as continued to absorb the majority of cash generated.
What changed
The Q1 FY2026 watch item on asked whether they would stabilize or continue to decline; the Q2 result of -0.3% is an improvement from Q1's -1.0%, but the metric remains negative, with the first-half comp at -0.6%.
The Q1 FY2026 watch item on asked whether it would recover from 29.6% once store-closure markdowns were complete; the Q2 result of 30.2% shows a partial recovery, but the filing states that markdowns and promotions tied to Closure Stores continued to pressure the metric.
The Q1 FY2026 watch item on CEO and CFO appointments remains unresolved; the company still has no permanent CEO or CFO, and the material weakness in internal controls over financial reporting remains unremediated.
The Q1 FY2026 watch item on generation noted only $52.6 million in and $170 million in expected ; Q2 operating cash flow was $43.2 million, bringing the first-half total to $95.8 million, leaving a significant gap to close against the full-year capex plan.
What to watch
Whether can return to positive territory in Q3 FY2026 now that the 36 store closures are underway, or whether the -0.3% Q2 result represents a new baseline for the remaining footprint.
The trajectory of once the store-closure markdowns and write-offs are complete, and whether the 30.2% Q2 level can build toward the 31-32% range seen in 2023 without the drag of liquidation activity.
The appointment of permanent CEO and CFO replacements, and whether new leadership arrives in time to set a strategic direction for fiscal 2027 before the current margin-comp trade-off becomes entrenched.
generation in the second half of fiscal 2026, with first-half free cash flow at just $1.2 million against full-year capital expenditure expectations of approximately $170 million.
declined 40 to 30.2% in Q2, primarily due to product promotions, markdowns, and write-offs tied to Closure Stores.
Q2 was $15.8 million, including $5.4 million in net from the Optimization Plan; was $5.6 million, or $0.06 per diluted share.
First-half net loss was $174.7 million, driven by a $158.0 million non-cash and $23.6 million in net .
Liquidity remained solid with $74.2 million in cash and $153.8 million of remaining borrowing capacity under the $400 million as of July 4, 2026.
The company plans 30 to 33 net new stores for fiscal 2026 and expects total , net of , of approximately $170.0 million.
Quantitative and Qualitative Disclosures About Market Risk
Interest-rate risk stems from variable-rate credit facilities; inflation has raised costs across supply chain, labor, and operations.
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As of July 4, 2026, outstanding borrowings were $266.3 million on the senior term loan and $240.0 million on the under the 2023 Credit Agreement, both at approximately 6% interest.
A hypothetical 10% relative increase or decrease in interest rates would change by approximately $3.0 million over the next 12 months, excluding .
The company does not use for speculative or trading purposes but may adopt hedging strategies in the future.
Inflation has driven higher shipping, transportation, commodity, labor, materials, and costs, and has affected IOs through staffing challenges and higher labor and utility costs.
Results are presented on a historical cost basis, and future inflation could materially impact results of operations and financial condition.
From time to time, we may be party to legal proceedings that arise in the ordinary course of our business, some of which may be covered by insurance. Except for the description of legal proceedings disclosed in Note 9 to the condensed consolidated financial statements, which is…
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From time to time, we may be party to legal proceedings that arise in the ordinary course of our business, some of which may be covered by insurance. Except for the description of legal proceedings disclosed in Note 9 to the condensed consolidated financial statements, which is incorporated herein by reference, management believes that we do not have any pending legal proceedings that, separately or in the aggregate, would have a material adverse effect on our results of operations, financial condition or cash flows. No material legal proceedings were terminated, settled or otherwise resolved during the second quarter of fiscal 2026.
In addition, SEC regulations require us to disclose information about certain environmental proceedings if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold. Pursuant to SEC regulations, we use a threshold of $1.0 million for purposes of determining whether disclosure of any such proceedings is required.
In addition to the other information set forth in this Form 10-Q, our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of our 2025 Form…
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In addition to the other information set forth in this Form 10-Q, our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of our 2025 Form 10-K under the heading "Risk Factors," any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price. There have been no material changes to our risk factors since the 2025 Form 10-K.