Quick Look

  • Grocery Outlet's first-quarter net sales increased 3.6% year over year to $1.17 billion. The discount retailer announced on Wednesday that same-store sales fell slightly more than 1%.
  • Chief Financial Officer Chris Miller told investors on Wednesday's earnings call that first-quarter results were in line with company guidance, and that the company improved its opportunistic product mix, increased promotional investment, and strengthened its value messaging.
  • President and CEO Jason Potter said on the call that more work remains, especially in improving the in-store experience. "While we are encouraged by the progress we are beginning to see, we are not satisfied with our current performance and are focused on the work ahead," he told investors.

Deeper Dive

After a fourth quarter that "we believe has bottomed out," Grocery Outlet's financial performance is recovering. Potter told investors that the company had hit a low point due to lagging sales and traffic.

"We firmly believe the business will return to healthy same-store sales growth over time," Potter said.

The first-quarter same-store sales decline was primarily driven by a 3% decrease in average transaction size, partially offset by a 2% increase in transaction counts. Potter said traffic improved consistently throughout the quarter, with weekly traffic up 2% to 5% year over year in March.

When answering analysts' questions about the disconnect between traffic and basket size, Potter said that value messaging and a consistent store experience need "time" to translate into higher loyalty and larger baskets.

In the first quarter, Grocery Outlet made "meaningful progress" in "improving sourcing, increasing product visibility, and helping operators further differentiate their stores," Potter said.

The retailer also invested in event-driven promotions around high-traffic holidays such as the Super Bowl and Easter to drive traffic and same-store performance, and to reinforce value messaging, he noted.

As part of what Grocery Outlet sees as a "significant opportunity," the company is improving inventory levels and introducing signage that highlights the retailer's value proposition, Potter said.

"Value matters more than ever. We must make that value visible, consistent, exciting, and easy to shop... These three initiatives, all focused on enhancing value, are beginning to generate meaningful and positive customer feedback," Potter said.

The discount retailer's store remodeling program is improving the customer in-store experience, Potter said. The company completed 34 store remodels in the first quarter. The company plans to complete approximately 100 store remodels by the end of 2026—about 50 fewer than originally anticipated, Potter said.

The retailer completed the closure of 36 stores (announced in March), which "improved the quality of the store portfolio and will enhance the profitability of the business over time," Potter said. Going forward, Grocery Outlet plans to adopt a "tightened" new store growth strategy, being more selective in real estate choices and applying rigorous underwriting standards, Potter added.

"Grocery Outlet has significant advantages, a differentiated model, a highly relevant value proposition, strong independent operators, and a store format that resonates when we execute well," Potter said. "Our focus is on converting these strengths into more consistent performance."