Grocery Outlet (NASDAQ:GO) executives struck a candid tone while reviewing fourth-quarter results and outlining a 2026 plan centered on rebuilding value perception, restoring opportunistic product levels, and closing underperforming stores.
President and CEO Jason Potter said the company’s fourth-quarter performance was “unacceptable” and that management’s 2026 outlook reflects “a business that has more work to do than we expected.” Potter attributed recent comparable-sales deceleration to a tougher consumer environment, erosion in value perception despite competitive base pricing, and operational decisions that reduced the flow and in-store impact of the opportunistic products that underpin Grocery Outlet’s “treasure hunt” appeal.
Comparable sales weakened as basket pressure intensified
Miller said the comp decline (excluding the extra week) was driven by a 170-basis-point decline in average transaction size, partially offset by a 90-basis-point increase in traffic. Management pointed to multiple contributors, including an emphasis on in-stocks for everyday items that came “at the expense” of compelling value items, as well as macro factors that included the U.S. government shutdown’s impact on federally funded benefits and a more promotional competitive environment.
In Q&A, Miller said customer count remained positive through January but decelerated as the company moved from late 2025 into early 2026. Management said February results improved after promotional activity began in early February, with comp performance improving by about 100 basis points month over month relative to January, though leadership emphasized this was an early signal rather than a “declaration of victory.”
Management targets opportunistic mix and value perception
Potter said a central issue was a gap in the “breadth and weight” of opportunistic product during December and January, which management tied directly to pressure in units per transaction and basket size. He said the company believes ample opportunistic supply exists, but internal capacity and execution issues limited the ability to get the right product into stores.
To address the issue, Potter outlined changes intended to rebuild the opportunistic pipeline and improve execution:
- Adding distribution center capacity and reducing inventories in “non-productive categories” to make room for opportunistic product.
- Improving internal forecasting to maximize opportunistic buying.
- Extending planning horizons and communication so independent operators have more time to execute opportunistic product.
- Unifying merchandising and purchasing under a single leader, Matt Deli, to increase collaboration and agility, with a specific focus on opportunistic offerings and supplier engagement.
Potter said the opportunistic pipeline was “building,” citing roughly a 200-basis-point increase in opportunistic sales mix and roughly a 150-basis-point increase in opportunistic shipment volume over the past few weeks.
Promotions used as a temporary “bridge”
As the opportunistic pipeline rebuilds, management said it is investing in promotions to support value perception and drive traffic. Potter said Grocery Outlet expects about $20 million of incremental promotional investment in 2026—approximately 40 basis points of gross margin—most of which will be front-loaded in the first half of the year.
In response to analyst questions, Potter said the promotional effort is largely focused on branded and fresh products and is intended to be temporary. He emphasized the company does not intend to operate like a “traditional promotional company,” noting that opportunistic product is important not only for value perception but also because it supports margins.
Potter also said the company adjusted its marketing mix following negative impacts from marketing decisions made in late 2025. He said the company recalibrated “both in weight and channel,” emphasizing outdoor and search while reducing spending on initiatives management believed were not reaching the right target groups or delivering the desired return.
Store refresh acceleration and operator tools
Potter said Grocery Outlet is expanding its store refresh program after positive operator and customer feedback and “encouraging comp lifts versus our control group.” The company reiterated a target of refreshing 150 stores by the end of 2026.
He also said system stabilization work is allowing the company to reintroduce and improve tools for operators. Management highlighted item-level inventory management embedded into the produce and meat order guide, improved reporting for comparability and exception reporting, and additional investments in field support to improve planning and communication.
36 store closures, East Coast reset, and UGO strategic review
Management said it will close 36 stores that it determined lack a viable path to sustained profitability. Potter said 24 of the closures are in the East, representing roughly 30% of that region’s fleet, but the company is not exiting any state and believes it has long-term growth opportunity in the East.
Potter said the remaining 51 East stores are profitable on a four-wall basis and delivered a positive 3.3% comp in the fourth quarter, which management said supports confidence in the “go-forward portfolio.” The company expects the closures to improve annualized adjusted EBITDA by about $12 million.
Miller added that the company expects to complete closures during the second quarter and anticipates cash charges of about $57 million and bad debt expense of about $12 million, partially offset by net non-cash write-offs of lease liabilities of about $52 million as it exits associated leases. He also said the company expects approximately 40 basis points (about $4 million) of gross margin pressure in the first quarter from inventory liquidation tied to closures.
Potter said the company still expects to open 30 to 33 net new stores in 2026, with a more disciplined, clustered approach to improve supply chain efficiency and marketing leverage. He also described a pilot approach for Virginia in 2026 in which stores would begin as company-run and later be transferred to independent operators after reaching profitability.
Separately, Potter said the company initiated a strategic review of UGO, describing it as part of a broader effort to “remove distractions and improve shareholder value.” In Q&A, he said there is a range of possible outcomes, “from full integration to a potential sale,” but did not specify a timeline or expected conclusion.
For the fourth quarter, Miller reported gross profit of $361 million and gross margin of 29.7%, up 20 basis points year over year but below the company’s outlook due to higher seasonal promotions and markdowns to clear excess inventory. The quarter also included significant non-cash charges: $109.8 million in long-lived asset impairments related to store closures and a $149 million non-cash goodwill impairment. Net loss was $218.2 million, or -$2.22 per diluted share, while adjusted net income was $18.7 million, or $0.19 per share. Adjusted EBITDA was $68 million, up from $57.2 million, aided by the 53rd week.
Looking ahead, the company guided for 2026 comparable sales between -2% and flat (first quarter between -2.5% and -1.5%) and net sales between $4.6 billion and $4.72 billion. It guided to adjusted EBITDA of $220 million to $235 million and adjusted EPS of $0.45 to $0.55 for the full year, with first-quarter adjusted EPS of $0.01 to $0.04.
About Grocery Outlet (NASDAQ:GO)
Grocery Outlet Holding Corp. (NASDAQ: GO) is a specialty discount retailer that offers consumers deeply discounted groceries by purchasing excess inventory, closeouts, and overstocks from manufacturers and distributors. Headquartered in Emeryville, California, the company operates two primary banners—Grocery Outlet and Fresh2Go—with a combined footprint of more than 400 stores. Its product assortment spans fresh produce, meat, dairy, bakery items, household staples, natural and organic offerings, and select specialty products, all sold at significant markdowns compared to conventional supermarkets.
The company’s unique buying model enables it to source inventory through opportunistic purchases of surplus freight, discontinued items, and closeout deals, which it then passes on as savings to its customers.
