Q2 2026 Grocery Outlet Holding Corp Earnings Call

August 12, 2026

Speaker #1: Greetings, and welcome to the Grocery Outlet's second quarter 2026 earnings results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

Operator: Greetings, and welcome to the Grocery Outlet's Q2 2026 earnings results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Niccolo Cotarelli, Senior Vice President of Strategic Finance and Investor Relations. Thank you. You may begin.

Operator: Greetings, and welcome to the Grocery Outlet's Q2 2026 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nicolo Cottarelli, Senior Vice President of Strategic Finance and Investor Relations. Thank you. You may begin.

Speaker #1: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Niccolò Cottarelli, Senior Vice President of Strategic Finance and Investor Relations.

Speaker #1: Thank you. You may begin.

Speaker #2: Good afternoon, and welcome to Grocery Outlet's call to discuss financial results for the second quarter and July 4, 2026. Speaking for management on today's call will be Jason Potter, President and Chief Executive Officer, and Ian Ferry, Chief Financial Officer.

Niccolo Cotarelli: Good afternoon and welcome to Grocery Outlet's call to discuss financial results for the Q2 ended 4 July 2026. Speaking for management on today's call will be Jason Potter, President and Chief Executive Officer, and Ian Ferry, Chief Financial Officer. Following prepared remarks from Jason and Ian, we will open the call for questions. Please note that this conference call is being webcast live, and a recording will be available via playback on the investor relations section of the company's website. Participants on this call may make forward-looking statements within the meaning of the federal securities laws. All statements that address future operating, financial, or business performance or the company's strategies or expectations are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from these statements.

Nicolo Cottarelli: Good afternoon and welcome to Grocery Outlet's Call to discuss financial results for the Q2 ended 4 July 2026. Speaking for management on today's call will be Jason Potter, President and Chief Executive Officer, and Ian Ferry, Chief Financial Officer. Following prepared remarks from Jason and Ian, we will open the call for questions. Please note that this conference call is being webcast live, and a recording will be available via playback on the investor relations section of the company's website. Participants on this call may make forward-looking statements within the meaning of the federal securities laws. All statements that address future operating, financial, or business performance or the company's strategies or expectations are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from these statements.

Speaker #2: Following prepared remarks from Jason and Ian, we will open the call for questions. Please note that this conference call is being webcast live, and a recording will be available for playback on the Investor Relations section of the company's website.

Speaker #2: Participants on this call may make forward-looking statements within the meaning of the federal securities laws. All statements that address future operating, financial, or business performance, or the company's strategies or expectations, are forward-looking statements.

Speaker #2: These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from these statements. A description of these factors can be found in this afternoon's press release, as well as in the company's periodic reports filed with the SEC, all of which may be found on the Investor Relations section of the company's website or on sec.gov.

Niccolo Cotarelli: Description of these factors can be found in this afternoon's press release, as well as in the company's periodic reports filed with the SEC, all of which may be found on the investor relations section of the company's website or on sec.gov. The company undertakes no obligation to revise or update any forward-looking statements or information. These statements are estimates only and not a guarantee of future performance. Additionally, during today's call, the company will reference certain non-GAAP financial information, including adjusted items. Reconciliation of GAAP to non-GAAP measures, as well as the description, limitations, and rationale for using each measure may be found in the supplemental financial tables included in this afternoon's press release on the investor section of the company's website under News & Releases and in the company's SEC filings. Now I would like to turn it over to Jason.

Nicolo Cottarelli: Description of these factors can be found in this afternoon's press release, as well as in the company's periodic reports filed with the SEC, all of which may be found on the investor relations section of the company's website or on sec.gov. The company undertakes no obligation to revise or update any forward-looking statements or information. These statements are estimates only and not a guarantee of future performance. Additionally, during today's call, the company will reference certain non-GAAP financial information, including adjusted items. Reconciliation of GAAP to non-GAAP measures, as well as the description, limitations, and rationale for using each measure may be found in the supplemental financial tables included in this afternoon's press release on the investor section of the company's website under News & Releases and in the company's SEC filings. Now I would like to turn it over to Jason.

Speaker #2: The company undertakes no obligation to revise or update any forward-looking statements or information. These statements are estimates only and are not a guarantee of future performance.

Speaker #2: Additionally, during today's call, the company will reference certain non-GAAP financial information, including adjusted items. Reconciliation of GAAP to non-GAAP measures, as well as the description, limitations, and rationale for using each measure, may be found in the supplemental financial tables included in this afternoon's press release on the Investor section of the company's website, under News and Releases, and in the company's SEC filings.

Speaker #2: And now, I would like to turn it over to Jason.

Speaker #3: Hey, good afternoon, everyone, and thank you for joining us. During the second quarter, our work to stabilize the business and return to growth gained momentum.

Jason Potter: Hey, good afternoon, everyone, and thank you for joining us. During Q2, our work to stabilize the business and return growth gained momentum. A stronger opportunistic offering and sharper value communication drove sequential comp improvement and results above our outlook across key financial metrics. Revenue increased 1% to $1.19 billion, with comparable store sales down 30 basis points. That was a 70 basis point improvement from Q1, despite an adverse headwind from the timing of Easter this year. Traffic grew 1.8%, basket declined 2.1% year-over-year, but improved approximately 100 basis points from Q1 as customers responded to our stronger opportunistic offerings. Gross margin of 30.2% also exceeded our outlook, due primarily to lower than planned promotional spending. Combined with disciplined cost management, the sales and margin outperformance drove adjusted EBITDA of approximately $66 million and adjusted EPS of $0.20, both well above our outlook.

Speaker #3: A stronger opportunistic offering and sharper value communication drove sequential comp improvement and results above our outlook across key financial metrics. Revenue increased 1% to $1.19 billion, with comparable store sales down 30 basis points.

Speaker #3: That was a 70 basis point improvement from Q1, despite an adverse headwind from the timing of Easter this year. Traffic grew 1.8%, and basket declined 2.1% year over year, but improved approximately 100 basis points from Q1 as customers responded to our stronger opportunistic offerings.

Speaker #3: Gross margin of 30.2% also exceeded our outlook due primarily to lower-than-planned promotional spending. Combined with disciplined cost management, the sales and margin outperformance drove adjusted EBITDA up approximately $66 million and adjusted EPS of $0.20, both well above our outlook.

Speaker #3: Our first-half progress reinforces our confidence that restoring the core strengths of the Grocery Outlet model can drive sustainable improvement. It's still early, but the business is responding. Let me start with our primary objective: improving comps.

Jason Potter: Our H1 progress reinforces our confidence that restoring the core strengths of the Grocery Outlet model can drive sustainable improvement. It's still early, but the business is responding, and let me start with our primary objective, improving comps. Strengthening our opportunistic offering is central to enhancing our value proposition and returning the business to sustainable comp growth. Since the start of this year, we've prioritized improved sourcing, product flow, visibility, and store-level execution while expanding key supplier relationships. Together, these actions have significantly increased and strengthened our opportunistic assortment and improved our mix. The impact is showing up in our sales. Opportunistic comp store sales improved significantly from Q1, helping lift the total company comps into positive territory in May and June. The breadth of opportunistic SKUs increased meaningfully quarter to quarter with improving quality.

Speaker #3: Strengthening our opportunistic offering is central to enhancing our value proposition and returning the business to sustainable comp growth. Since the start of this year, we've prioritized improved sourcing, product flow, visibility, and store-level execution, while expanding key supplier relationships.

Speaker #3: Together, these actions have significantly increased and strengthened our opportunistic assortment and improved our mix. The impact is showing up in our sales. Opportunistic comp store sales improved significantly from Q1, helping lift the total company comps into positive territory in May and June.

Speaker #3: The breadth of opportunistic SKUs increased meaningfully quarter to quarter, with improving quality. In addition, year-over-year growth in opportunistic units per transaction also improved significantly relative to the first quarter.

Jason Potter: In addition, year-over-year growth in opportunistic units per transaction also improved significantly relative to Q1. These are encouraging early signs that customers are responding to a broader and better selection of compelling deals as we improve our op mix. That growth is an outcome of category level focus and execution. We've prioritized and have seen outsized opportunistic improvement in grocery, our largest category. In grocery, a determined effort to revitalize supplier partnerships drove higher opportunistic product flow, opportunistic comps, and our total comps. This is how our model is designed to work, and we're implementing the same actions in other categories like deli and frozen. Paul Miller is leading the work to strengthen our sourcing and merchandising capabilities. Paul returned in June as Executive Vice President and Chief Purchasing and Merchandising Officer.

Speaker #3: These are encouraging early signs that customers are responding to a broader and better selection of compelling deals as we improve our op mix. That growth is an outcome of category-level focus and execution.

Speaker #3: We've prioritized and have seen outsized opportunistic improvement in grocery, our largest category. In grocery, a determined effort to revitalize supplier partnerships drove higher opportunistic product flow, opportunistic comps, and our total comps.

Speaker #3: This is how our model is designed to work, and we're implementing the same actions in other categories like deli and frozen. Paul Miller is leading the work to strengthen our sourcing and merchandising capabilities.

Speaker #3: Paul returned in June as Executive Vice President and Chief Purchasing and Merchandising Officer. The 25-year Grocery Outlet veteran helped develop our opportunistic offering, deepened key supplier relationships, and enhanced the Treasure Hunt experience.

Jason Potter: A 25-year Grocery Outlet veteran, he helped develop our opportunistic offering, deepen key supplier relationships, and enhance the Treasure Hunt experience. In just two months into his return, his merchant instincts and leadership are already making an impact here. We are very pleased to have him back. To support our revitalized offering, we are improving the ways that we communicate value to our customers. We completed our repositioning around extreme value and the Treasure Hunt, supporting our product efforts with simpler signage, more prominent value items, and targeted at-home and digital media. With a stronger assortment and better analytics, we can deploy marketing and promotional spending more precisely. That will allow us to rely more on product and marketing to drive comps and less incremental price investment in the H2 of the year, even as the competitive environment remains promotional.

Speaker #3: In just two months since his return, his merchant instincts and leadership are already making an impact here. We're very pleased to have him back.

Speaker #3: To support our revitalized offering, we are improving the ways that we communicate value to our customers. We completed our repositioning around extreme value and the Treasure Hunt, supporting our product efforts with simpler signage, more prominent value items, and targeted at-home and digital media.

Speaker #3: With a stronger assortment and better analytics, we can deploy marketing and promotional spending more precisely. That will allow us to rely more on product and marketing to drive comps, and less incremental price investment in the second half of the year, even as the competitive environment remains promotional.

Speaker #3: In Q3, we're deploying enhanced messaging to improve our price perception. We plan to deploy new signage in stores that supports our value positioning and will extend that messaging into our digital presence and our app.

Jason Potter: In Q3, we are deploying enhanced messaging to improve our price perception. We plan to deploy new signage in stores that supports our value positioning, and we will extend that messaging into our digital presence and our app. We are also taking steps to introduce parity pricing in e-commerce. These actions will make the savings available at Grocery Outlet easier for customers to see, to access, and understand. Together, stronger product, clear value messaging, and broader customer engagement are designed to drive more consistent comp growth. Capturing the full benefit requires strong execution in every store, which brings me to our independent operators. Our independent operators are one of the greatest advantages of the Grocery Outlet model. They know their communities and their customers. With the right assortment, the right tools, and support, their entrepreneurial energy really brings our model to life.

Speaker #3: We're also taking steps to introduce parity pricing in e-commerce. These actions will make the savings available at Grocery Outlet easier for customers to see, access, and understand.

Speaker #3: Together, stronger product, clearer value messaging, and broader customer engagement are designed to drive more consistent comp growth. Capturing the full benefit requires strong execution in every store, which brings me to our independent operators.

Speaker #3: Our independent operators are one of the greatest advantages of the Grocery Outlet model. They know their communities and their customers. With the right assortment, the right tools and support, their entrepreneurial energy really brings our model to life.

Speaker #3: Over the past year, we've expanded reporting and actionable insights, strengthened communication with our field organization, and invested in training. We're also spending more time in the field and engaging operators more directly.

Jason Potter: Over the past year, we have expanded reporting and actionable insights, strengthened communication with our field organization, and invested in training. We are also spending more time in the field and engaging operators more directly. Our goal is straightforward. We want operators to spend less time sifting through data and more time serving customers to grow their businesses. A common set of facts and priorities helps operators and field teams identify issues sooner, focus on actions that matter most, and deliver a more consistent customer experience. A good example of this is how we are working with IOs in the field. Using fleet-wide data, we identify stores where targeted coaching and operational support can have the greatest impact. Our field teams then work side by side with operators on a focused set of actions, including in-stock conditions, merchandising, store standards, and operating routines.

Speaker #3: Our goal is straightforward. We want operators to spend less time sifting through data and more time serving customers to grow their businesses. A common set of facts and priorities helps operators and field teams identify issues sooner, focus on actions that matter most, and deliver a more consistent customer experience.

Speaker #3: A good example of this is how we're working with IOs in the field. Using fleet-wide data, we identify stores where targeted coaching and operational support can have the greatest impact.

Speaker #3: Our field teams then work side by side with operators on a focused set of actions, including in-stock conditions, merchandising, store standards, and operating routines.

Speaker #3: This annual business review and enhanced merchandising reporting help translate the data into action. We're encouraged by these results so far. Participating stores have consistently outperformed their control groups, reinforcing that meaningful improvement can come from disciplined execution of store-level fundamentals.

Jason Potter: This annual business review and enhanced merchandising reporting help translate the data into action. We are encouraged by these results so far. Participating stores have consistently outperformed their control groups, reinforcing that meaningful improvement can come from disciplined execution of store-level fundamentals. We are turning those learnings into repeatable tools and routines for the broader fleet. We are also giving operators a more immediate view of customer sentiment. We have introduced new point-of-sale feedback that connects customer responses with transaction data, helping operators identify service gaps and adjust their actions at store level. This capability is now in approximately 100 stores, and the early results support a fleet-wide rollout. In parallel, we are improving efficiency. Our new dynamic routing program removes ordering constraints and optimizes delivery routes, increasing delivery quantity and improving opportunistic product flow across a significant portion of our fleet.

Speaker #3: We're turning those learnings into repeatable tools and routines for the broader fleet. We're also giving operators a more immediate view of customer sentiment. We've introduced new point-of-sale feedback that connects customer responses with transaction data, helping operators identify service gaps and adjust their actions at the store level.

Speaker #3: This capability is now in approximately 100 stores, and the early results support a fleet-wide rollout. In parallel, we're improving efficiency. Our new dynamic routing program removes ordering constraints and optimizes delivery routes, increasing delivery quantity and improving opportunistic product flow across a significant portion of our fleet.

Speaker #3: The program is currently in approximately 200 stores, and we expect to complete the rollout over the next year. These efforts are lifting customer and operator sentiment and engagement.

Jason Potter: The program is currently in approximately 200 stores, and we expect to complete the rollout over the next year. These efforts are lifting customer and operator sentiment and engagement. Customer NPS improved meaningfully again in Q2, while our IO survey feedback was overwhelmingly favorable. IO satisfaction increased across categories from last year, and the majority of our operators rated our recent systems upgrades as extremely or very valuable. Beyond the data, we are seeing increased engagement from our IOs on a variety of initiatives. These outcomes reinforce our conviction that we are focused on the right priorities. The same discipline we are bringing to store execution is also guiding how we manage the business and deploy capital. Improving operational discipline means making timely decisions, directing resources to the highest value opportunities, and holding every investment to rigorous performance standards.

Speaker #3: Customer NPS improved meaningfully again in Q2, while our IO survey feedback was overwhelmingly favorable. IO satisfaction increased across categories from last year, and the majority of our operators rated our recent systems upgrades as extremely or very valuable.

Speaker #3: Beyond the data, we're seeing increased engagement from our IOs on a variety of initiatives. These outcomes reinforce our conviction that we're focused on the right priorities.

Speaker #3: The same discipline we're bringing to store execution is also guiding how we manage the business and deploy capital. Improving operational discipline means making timely decisions, directing resources to the highest-value opportunities, and holding every investment to rigorous performance standards.

Speaker #3: In April, we completed the closure of 36 underperforming stores as part of our store optimization plan. The outcome is a healthier portfolio that we feel is better positioned for long-term, profitable growth.

Jason Potter: In April, we completed the closure of 36 underperforming stores as part of our store optimization plan. The outcome is a healthier portfolio that we feel is better positioned for long-term profitable growth. We remain on track to eliminate a $12 million drag to annualized adjusted EBITDA, with the majority of the benefit expected to occur in 2027. We see encouraging signs of progress in the remaining stores in the East. Comparable stores in May and June significantly exceeded the company average, while Q2 margins strengthened on a year-on-year basis. That discipline also extends to our new store growth program, where we are applying greater rigor to site selection, new store underwriting, IO engagement, and execution. We remain confident in the portability of our model and the immense white space that exists.

Speaker #3: We remain on track to eliminate a $12 million drag to annualized adjusted EBITDA, with the majority of the benefit expected to occur in 2027.

Speaker #3: We see encouraging signs of progress in the remaining stores in the East. Comparable stores in May and June significantly exceeded the company average, while Q2 margins strengthened on a year-on-year basis.

Speaker #3: That discipline also extends to our new store growth program, where we're applying greater rigor to site selection, new store underwriting, IO engagement, and execution.

Speaker #3: We remain confident in the portability of our model and the immense white space that exists. The ability to offer savings of up to 40% versus conventional players allows us to provide a unique and compelling value proposition to customers in a wide variety of geographies.

Jason Potter: The ability to offer savings up to 40% versus conventional players allows us to provide a unique and compelling value proposition to customers in a wide variety of geographies. However, as we continue to work on improving the core offering in our business and year one store productivity, it is critical that we prioritize the highest return markets and expand capacity at an appropriate pace. As such, our 2027 openings will be weighted toward infill opportunities. We are taking a similarly measured approach to our store refresh program. Improving the store experience remains an important long-term priority. As we continue those efforts, we are pacing our investment to ensure quality execution that allows the business to focus on our primary goal of driving comp through our opportunistic assortment. We continue to target approximately 100 refreshes completed by the end of the year.

Speaker #3: However, as we continue to work on improving the core offering in our business and year-one store productivity, it's critical that we prioritize the highest return markets and expand capacity at an appropriate pace.

Speaker #3: As such, our 2027 openings will be weighted toward infill opportunities. We're taking a similarly measured approach to our store refresh program. Improving the store experience remains an important long-term priority.

Speaker #3: And as we continue those efforts, we're pacing our investment to ensure quality execution that allows the business to focus on our primary goal of driving comp through our opportunistic assortment.

Speaker #3: We continue to target approximately 100 refreshes completed by the end of the year. So, looking to the second half, the consistent progress we've delivered since January reinforces our conviction that disciplined execution against our priorities remains the right approach.

Jason Potter: Looking to the second half, the consistent progress we have delivered since January reinforces our conviction that disciplined execution against our priorities remains the right approach, and we enter the second half with improving underlying momentum. Customers are responding to the stronger opportunistic offering and the clearer value messaging. Operator engagement has improved, and our sharper approach to execution and capital allocation is also beginning to improve performance. Those strengths will be important as consumers spend cautiously and the operating environment remains somewhat promotional. It will also help us navigate the near-term impact of the multi-state Cyclospora outbreak. Our products have not been involved in any Cyclospora recalls, but like others in the industry, we have experienced pressure on produce sales. We saw an impact in July and expect a headwind of roughly 100 basis points to total company comps for the Q3.

Speaker #3: And we enter the second half with improving underlying momentum. Customers are responding to the stronger opportunistic offering and the clearer value messaging. Operator engagement has improved, and our sharper approach to execution and capital allocation is also beginning to improve performance.

Speaker #3: Those strengths will be important as consumers spend cautiously and the operating environment remains somewhat promotional. They'll also help us navigate the near-term impact of the multi-state cyclospora outbreak. Our products have not been involved in any cyclospora recalls, but like others in the industry, we've experienced pressure on produce sales.

Speaker #3: We saw an impact in July and expect a headwind of roughly 100 basis points to total company comps for the third quarter. Even so, we're encouraged by the underlying direction of the business.

Jason Potter: Even so, we are encouraged by the underlying direction of the business and remain focused on advancing our core priorities. Before I close, I would like to recognize an important leadership transition. Chris Miller recently retired as CFO of Grocery Outlet. Chris provided steady, experienced leadership through the critical first year of our turnaround and leaves strong finance and accounting teams in place to carry the work forward. On behalf of the board and the entire organization, I want to thank him for his leadership and wish him all the best in retirement. I am also very pleased to welcome Ian Ferry, who many of you know, as our new Chief Financial Officer. Over the past year, Ian has become a trusted strategic partner to me and our board. His financial discipline, operating insight, and long-term perspective have already made a meaningful impact here. I look forward to continuing our work together.

Speaker #1: ...business and remain focused on advancing our core priorities. Before I close, I'd like to recognize an important leadership transition. Chris Miller recently retired as CFO of Grocery Outlet.

Speaker #1: Chris provided steady, experienced leadership through the critical first year of our turnaround and leaves strong finance and accounting teams in place to carry the work forward. On behalf of the board and the entire organization, I want to thank him for his leadership and wish him all the best in retirement.

Speaker #1: I'm also very pleased to welcome Ian Ferrie , who many of you know as our new Chief Financial Officer Over the past year , Ian has become a trusted strategic partner to me and our board His financial discipline , operating insight , and long term perspective have already made a meaningful impact here .

Jason Potter: I am also very pleased to welcome Ian Ferry, who many of you know, as our new Chief Financial Officer. Over the past year, Ian has become a trusted strategic partner to me and our board. His financial discipline, operating insight, and long-term perspective have already made a meaningful impact here. I look forward to continuing our work together.

Speaker #1: I look forward to continuing our work together. In closing our first half, progress strengthens my confidence in Grocery Outlet's long-term opportunity.

Jason Potter: In closing, our H1 progress strengthens my confidence in Grocery Outlet's long-term opportunity. It is still early and we have work ahead, but the business is responding. Consumers continue to prioritize value, and our differentiated model is built for this environment. When we strengthen the opportunistic assortment, equip operators with better tools, and apply greater discipline to execution and investment, performance improves. We have the foundation to build a stronger, more productive, and more profitable Grocery Outlet. I want to thank our independent operators, our team members here, and our supplier partners for their hard work this quarter. I would also like to note with gratitude that we just completed our annual Independence from Hunger campaign, during which IOs partner with local nonprofits to provide critical resources to those most in need.

Speaker #1: It's still early, and we have work ahead, but the business is responding. Consumers continue to prioritize value and are differentiated. Our model is built for this environment.

Speaker #1: When we strengthen the opportunistic assortment , equip operators with better tools and apply greater discipline to execution and investment performance . Improves . We have the foundation to build a stronger , more productive and more profitable grocery outlet .

Speaker #1: I want to thank our independent operators, our team members here, and our supplier partners for their hard work this quarter.

Speaker #1: I'd also like to note, with gratitude, that we just completed our annual Independence from Hunger campaign, during which IOs partner with local nonprofits to provide critical resources to those most in need. I'm proud of the positive impact our operators make in this regard.

Jason Potter: I am proud of the positive impact our operators make in this regard in the communities they serve, work, and live. Finally, I want to thank our shareholders for your continued support and engagement. We remain committed to earning your confidence through disciplined execution and consistent results. With that, I will turn it over to Ian. Ian?

Speaker #1: In the communities they serve, work, and live. Finally, I want to thank our shareholders for your continued support and engagement.

Speaker #1: We remain committed to earning your confidence through disciplined execution and consistent results. And with that, I'll turn it over to Ian. Ian?

Speaker #2: Thanks , Jason . As CFO , my objective is to help ensure we build a business that creates durable , long term shareholder value That means allocating capital with discipline , measuring ourselves against the right long term metrics and communicating our progress with transparency Our second quarter results provide further evidence that the operational improvements Jason discussed are translating into better financial performance .

Ian Ferry: Thanks, Jason. As CFO, my objective is to help ensure we build a business that creates durable long-term shareholder value. That means allocating capital with discipline, measuring ourselves against the right long-term metrics, and communicating our progress with transparency. Our Q2 results provide further evidence that the operational improvements Jason discussed are translating into better financial performance. While our performance has ample room for improvement, stronger sales trends, disciplined spending, and sharper capital allocation are beginning to improve the business and its long-term earnings potential. I will start with the quarter and then discuss our full year and Q3 outlook. Unless otherwise noted, the comparisons I provide are on a year-over-year basis. Starting with the top line. Q2 net sales increased 1% to $1.19 billion.

Speaker #2: While our performance has ample room for improvement , stronger sales trends , disciplined spending , and sharper capital allocation are beginning to improve the business and its long term earnings potential .

Speaker #2: I will start with the quarter and then discuss our full year and third quarter outlook Unless otherwise noted , the comparisons I provide are on a year over year basis , starting with the top line Second quarter net sales increased 1% to $1.19 billion .

Speaker #2: Sales from stores opened over the past 12 months more than offset the impact of optimization, planned closures, and a modest decline in comparable store sales.

Ian Ferry: Sales from stores opened over the past 12 months more than offset the impact of optimization plan closures and a modest decline in comparable store sales. We opened 10 stores and closed 12 during the quarter. Comparable store sales declined 30 basis points, including an approximately 50 basis point headwind from the Easter shift. This was above our outlook for a decline of 1.5% to 2%. Traffic remained positive, while basket improved roughly 100 basis points sequentially. Importantly, comps across our opportunistic portfolio improved significantly from Q1, reinforcing our confidence in the actions underway. Gross profit dollars were flat at $360.7 million, representing a gross margin of 30.2%, above our 29.8% to 30.0% outlook.

Speaker #2: We opened ten stores and closed 12 during the quarter , comparable store sales declined 30 basis points , including an approximately 50 basis point headwind from the Easter shift This was above our outlook for a decline of one and a half percent to 2% .

Speaker #2: Traffic remained positive , while basket improved roughly 100 basis points sequentially Importantly , comps across our opportunistic portfolio improved significantly from Q1 , reinforcing our confidence in the actions underway Gross profit dollars were flat at $360.7 million , representing a gross margin of 30.2% above our 29.8 to 30.0% outlook .

Speaker #2: Gross margin declined 30 basis points year over year , primarily due to the promotions we instituted at the start of the year to reinforce our value position , as well as store closure related markdowns and write offs , partially offset by better inventory management sequentially , gross margin improved 60 basis points from Q1 , reflecting reduced liquidation activity associated with the store optimization plan .

Ian Ferry: Gross margin declined 30 basis points year-over-year, primarily due to the promotions we instituted at the start of the year to reinforce our value position, as well as store closure-related markdowns and write-offs, partially offset by better inventory management. Sequentially, gross margin improved 60 basis points from Q1, reflecting reduced liquidation activity associated with the store optimization plan, lower promotional spending, and favorable seasonality. On a year-over-year basis, SG&A increased less than 1% to $339.5 million, and as a percentage of net sales remained consistent with last year at 28.5%. Sequentially, SG&A improved 130 basis points as a percentage of net sales compared to Q1, primarily driven by higher sales leverage, optimization benefits, and lower marketing expense. We also recorded $5.4 million in net restructuring charges related to the optimization plan.

Speaker #2: Lower promotional spending and favorable seasonality . On a year over year basis , sG&A increased less than 1% to $339.5 million . And as a percentage of net sales , remained consistent with last year at 28.5% sequentially , SGA improved 130 basis points as a percentage of net sales compared to Q1 , primarily driven by higher sales optimization benefits and lower marketing expense .

Speaker #2: We also recorded $5.4 million in net restructuring charges related to the optimization plan . This included $14.8 million in cash charges , partially offset by $9.4 million in non-cash credits , primarily from the net write off of right of use lease assets and lease liabilities below the operating line , net interest expense was 6.6 million .

Ian Ferry: This included $14.8 million in cash charges, partially offset by $9.4 million in non-cash credits, primarily from the net write-off of right-of-use lease assets and lease liabilities. Below the operating line, net interest expense was $6.6 million, comparable to last year. Our GAAP effective tax rate was 38.8%, compared with 20.3% last year. Net income was $5.6 million or $0.06 per diluted share, compared with $5 million or $0.05 per diluted share last year. Adjusted net income of $20.3 million or $0.20 per diluted adjusted share, compared with $22.8 million or $0.23 per diluted adjusted share last year. Adjusted EBITDA was $65.7 million or 5.5% of net sales, compared with $67.7 million or 5.7% of net sales last year. Both adjusted EBITDA and diluted adjusted EPS exceeded our outlook. Turning to the balance sheet and cash flow statement.

Speaker #2: Comparable to last year Our GAAP effective tax rate was 38.8% , compared with 20.3% last year . Net income was $5.6 million , or $0.06 per diluted share , compared with $5 million , or $0.05 per diluted share , last year Adjusted net income was $20.3 million , or $0.20 per diluted .

Speaker #2: Adjusted share , compared with $22.8 million , or $0.23 per diluted . Adjusted share , last year Adjusted EBITDA was $65.7 million , or 5.5% of net sales , compared with $67.7 million , or 5.7% of net sales last year .

Speaker #2: Both adjusted EBITDA and diluted adjusted EPS exceeded our outlook Turning to the balance sheet and cash flow statement , we ended the quarter with $74 million in cash and approximately $154 million of revolver availability Total debt , net of issuance costs , was $505.6 million , up $16.3 million from Q1 .

Ian Ferry: We ended the quarter with $74 million in cash and approximately $154 million of revolver availability. Total debt net of issuance costs was $505.6 million, up $16.3 million from Q1. Net leverage remained 1.8 times adjusted EBITDA. Operating cash flow was $43.2 million compared with $73.6 million last year. The decrease primarily reflected the timing of accrued and other liabilities, lower operating lease liabilities following the optimization plan, and lower net income after adjusting for non-cash charges. Capital expenditures were $43.7 million, or $38.7 million net of tenant improvement allowances. Now let me turn to our outlook. The actions we began implementing at the start of the year are delivering progress. Given our stronger than expected second quarter performance, we are raising the low ends of our full year financial outlook ranges.

Speaker #2: Net leverage remained 1.8 times . Adjusted EBITDA , operating cash flow was $43.2 million , compared with $73.6 million last year . The decrease , primarily reflected the timing of accrued and other liabilities , lower operating lease liabilities following the optimization plan and lower net income .

Speaker #2: After adjusting for non-cash charges, capital expenditures were $43.7 million, or $38.7 million net of tenant improvement allowances. Now, let me turn to our outlook.

Speaker #2: The actions we began implementing at the start of the year are delivering progress . Given our than expected second quarter performance , we are raising the low end of our full year financial outlook ranges for the full year .

Ian Ferry: For the full year, we now expect net new store openings of 30 to 33, net sales of $4.7 billion to $4.72 billion, comparable store sales in the range of -0.5% to 0.0%, gross margin of 29.8% to 30%. We continue to expect approximately $20 million of incremental promotional investment for the full year, with spending expected to further taper in the H2 as our stronger opportunistic mix and treasure hunt support underlying comp performance. We expect adjusted EBITDA of $225 million to $235 million, diluted adjusted EPS of $0.51 to $0.55 a share, and capital expenditures net of tenant improvement allowances of $170 million. For the Q3, we expect comparable store sales ranging from -1% to 0.0%, gross margin of 29.8% to 30%, adjusted EBITDA of $58 to $61 million, and diluted adjusted EPS of $0.14 to $0.16 a share.

Speaker #2: We now expect net new store openings of 30 to 33, net sales of $4.7 billion to $4.72 billion, and comparable store sales in the range of -0.5% to 0.0%.

Speaker #2: Gross margin of 29.8% to 30%. We continue to expect approximately $20 million of incremental promotional investment for the full year, with spending expected to further taper in the second half.

Speaker #2: As our stronger, opportunistic mix and treasure hunt support underlying comp performance, we expect adjusted EBITDA of $225 million to $235 million.

Speaker #2: Diluted adjusted EPS of $0.51 to $0.55 a share , capital expenditures , net of tenant improvement allowances of 170 million . For the third quarter , we expect comparable store sales ranging from negative 1% to 0.0% .

Speaker #2: Gross margin of 29.8% to 30% . Adjusted EBITDA of 58 to 61 million and diluted adjusted EPS of $0.14 to $0.16 a share .

Speaker #2: In summary, the initiatives we outlined at the start of the year are gaining traction, and we are managing the business with greater discipline. Strengthening the opportunistic offering and customer value proposition remains our priority.

Ian Ferry: In summary, the initiatives we outlined at the start of the year are gaining traction, and we are managing the business with greater discipline. Strengthening the opportunistic offering and customer value proposition remains our priority. We will stay focused on execution in the H2 and look forward to updating you on our progress. With that, I will turn the call over to the operator for questions.

Speaker #2: We will stay focused on execution in the second half, and look forward to updating you on our progress. With that, I will turn the call over to the operator for questions.

Speaker #3: Thank you . We will now be conducting a question and answer session . If you would like to ask a question , please press star one on your telephone keypad .

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question is from Jeremy Hamblin from Craig-Hallum Capital Group. Please go ahead.

Speaker #3: A confirmation tone will indicate your line is in the question queue . You may press star two . If you would like to remove your question from the queue for participants using speaker equipment , it may be necessary to pick up your handset before pressing the star keys One moment please , while we pull for questions The first question is from Jeremy Hamblin from Craig-hallum Capital Group .

Speaker #3: Please go ahead

Speaker #4: Hey , this is Will on for Jeremy . Thanks for taking our questions . I'm just wondering if we can or if you can share any more color on the cadence of comp trends through the quarter .

[Analyst] (Craig-Hallum Capital Group): Hey, this is Bill on for Jeremy. Thanks for taking our questions. I am just wondering if you can share any more color on the cadence of comp trends through the quarter, and then here into Q3. Then what traffic versus basket is looking like here quarter to date.

Speaker #4: And then here in Q3 , and then what traffic versus basket is looking like here , quarter to date

Speaker #1: Hey. Well, it's Jason here. Look, we're making progress on our comp store sales, and we're encouraged by the sequential improvement we've had. Just to walk you through that...

Jason Potter: Hey, Will. It's Jason here. Look, we're making progress on our comp store sales, and we're encouraged by the sequential improvement we've had. Just to walk you through that, January was meaningfully negative to remind everybody, and we've made significant progress since that point. 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. Basket declined by just over 2%, but did show about 100 basis points of sequential improvement from Q1. That was a mix of about 1%, a little less than 1% inflation and some mix. But we did also encouragingly experience an improvement in units per transaction with OP in the basket.

Speaker #1: January was meaningfully negative, to remind everybody. And we've made significant progress since that point. Pre-Cyclospora impact, total comps had improved by about 300 basis points to the end of Q2.

Speaker #1: To talk about , I answer your question on traffic Q2 again , solid number there . 1.8 on top of the one and a half last year , the basket declined by just over 2% , but did show about 100 basis points of sequential improvement from Q1 .

Speaker #1: And that was a mix of about 1%, and a little less than 1% inflation, and some mix. But we did also, encouragingly, experience an improvement in units per transaction.

Speaker #1: Unit units per transaction with OP in the basket. When you're thinking about the guide, I think the way that we've thought about this for Q3, as you pointed out...

Jason Potter: When you're thinking about the guide, I think the way that we've thought about this for Q3, as Ian's pointed out, -1% to flat. That 100 basis point Cyclospora impact is notable. Just a couple points there I'd like to make on that. Our produce business was running very healthy, and running well above inflation prior to the outbreak. We're continuing to monitor it. We've got an understanding of what's happening category to category. We think that that's going to moderate a bit into Q4, but right now estimating about 100 bps. Clearly, we can see things like bagged salads, a fairly large impact. But we feel that this is a temporary headwind and the underlying performance of the business continues to improve and we're encouraged by what we see going forward for Q4.

Speaker #1: Minus one to flat, that 100 basis point Cyclosporin impact is notable. And I just have a couple points there I'd like to make on that.

Speaker #1: Our produce business was running very healthy and running well above inflation prior to the outbreak. We're continuing to monitor it. We've got, you know, an eye on what's happening, category to category.

Speaker #1: We think that that's going to moderate a bit into Q4, but right now, estimating about 100 bps, clearly we can see things like bagged salads having a fairly large impact. But we feel that this is a temporary headwind.

Speaker #1: And while the underlying performance of the business continues to improve, we're encouraged by what we see going forward for Q4.

Speaker #4: Okay . That's that's very helpful . Then I just wanted to understand where the opportunistic product is mixing today versus Q1 . And then where you where you'd like to see that by year end .

[Analyst] (Craig-Hallum Capital Group): Okay. That's very helpful. Then I just wanted to understand where the opportunistic product is mixing today versus Q1, and then where you'd like to see that by year-end, and then what sort of total comp benefit you'd expect to see from that change in mix from the beginning of the year?

Speaker #4: And then what sort of total comp benefit you'd expect to see from that change in mix from the beginning of the year ?

Speaker #1: Yeah , certainly . First and foremost , you know , we're our pursuit of OP has everything to do with creating value for customers .

Jason Potter: Yeah, certainly. First and foremost, our pursuit of OP has everything to do with creating value for customers. There's a very high correlation between OP comps and our total comp business. We can see that in our store cohorts. It's the value in sales generating engine of the business, as you know. It's the heart of what drives our unique treasure hunt experience. The plan that we developed is meant to create a sustainable quality of sales and margin. What we've seen through this first half of the year, OP comp accelerated meaningfully in Q2, up about 500 basis points relative to the start of Q1. Our mix expanded well over 300 basis points and continues to accelerate. As I mentioned, we have this headwind with Cyclospora, but expect that to be temporary. We've got some really bright lights as we've executed this plan.

Speaker #1: There's a very high correlation between OMP comps and our total comp business . We can see that in our store cohorts . It's the value in sales generating engine in the business .

Speaker #1: As you know, it's the heart of what drives our unique treasure hunt experience. And the plan that we developed is meant to create a sustainable quality of sales and margin.

Speaker #1: What we've seen through this first half of the year, up comp accelerated meaningfully in Q2, up about 500 basis points relative to the start of Q1.

Speaker #1: Our mix expanded well over 300 basis points and continues to accelerate. As I mentioned, we have this headwind with Cyclospora, but expect that to be temporary.

Speaker #1: And we've got some really bright lights that have executed this plan. One great example is grocery, our largest and most important category.

Jason Potter: One great example is grocery, our largest and most important category. I know you may be curious about this. Our comps finished at 3.5% in Q2. That playbook being executed by Paul Miller is now we are seeing advancing sales momentum in the next two most important areas, both deli and frozen right now. Seeing good inventory flow where we have expanded our range of branded OP. Again, the confidence we have in the plan, the supplier engagement, supplier acquisition, what is happening in our basket. We see the momentum in the business and again, reflected in where we see the business going in the back half.

Speaker #1: I know you may be curious about this . Our comps finished at 3.5% in Q2 , and that playbook being executed by Paul Miller is now we're seeing advancing sales momentum in the next two most important areas , both deli and frozen .

Speaker #1: Right now , seeing good inventory flow . We've expanded our range of branded op and again , the confidence we have in the plan , the supplier engagement supplier acquisition , what's happening in our basket .

Speaker #1: We see the momentum in the business, and again, that's reflected in where we see the business going in the back half.

Speaker #4: Appreciate the color. Thank you.

[Analyst] (Craig-Hallum Capital Group): Appreciate the color. Thank you.

Speaker #1: You bet

Jason Potter: You bet.

Speaker #3: The next question is from Corey Carlo from Jefferies. Please go ahead. Great, thanks.

Operator: The next question is from Corey Tarlowe from Jefferies. Please go ahead.

Corey Tarlowe: Great. Thanks, Jason. Appreciate the time. I was wondering if you could talk just broadly around what specific milestones you are using to measure any improvements in the business, and when do you feel like you can shift to perhaps a more offensive posturing, if you will? How are you measuring that internal cultural shift back toward the traditional kind of Treasure Hunt model that Grocery Outlet tends to thrive in?

Speaker #5: Jason . Appreciate the time . I was wondering if you could talk just broadly around kind of what specific milestones you're using to measure in the improvements in the business ?

Speaker #5: And when do you feel like you can shift to perhaps a more offensive posturing , if you will , and how are you kind of measuring that internal cultural shift back toward the traditional kind of treasure hunt model that grocery outlet tends to thrive in ?

Speaker #1: Yeah, I think the things that we've been measuring and holding ourselves accountable to, we've made progress across all of what we think are the most important KPIs. Continued traffic growth, which is really important.

Jason Potter: Yeah, I think the things that we have been measuring and holding ourselves account to, we have made progress across all what we think are the most important KPIs. Continued traffic growth, which is really important. We saw some basket expansion we think is important. We also noted improving net promoter scores from the beginning of the year right through to the end of the quarter. Our OP mix has expanded. The comps have expanded. We see a lot of improvement in execution related to our reporting and visibility that has helped folks across the supply chain manage the flow of inventory both when they are writing POs, when they are meeting with suppliers, helping us execute with speed and more precision, which is really important. Seeing good inventory flow, good quality of opportunistic product, which is something we are measuring.

Speaker #1: We saw some basket expansion . We think it's important . We also noted improving net promoter scores from the beginning of the year , right through to the end of the quarter .

Speaker #1: Our OP mix has expanded. The comps have expanded. We see a lot of improvement in execution related to our reporting and visibility.

Speaker #1: That's helped folks across the supply chain manage the flow of inventory , both when they're writing POS , when they're meeting with suppliers , helping us execute with speed and more precision , which is really important .

Speaker #1: So seeing good inventory flow , good quality of opportunistic product , which is something we're measuring . We measure things like the amount of variety and balancing that as well as things like turns or Jim Roy , those are all important elements to measure .

Jason Potter: We measure things like the amount of variety and balancing that, as well as things like turns or GMROI. Those are all important elements to measure and ultimately, looking at what the customers are doing and the trips it is generating and what that means for things like NPS and value score. Ultimately, we expect to have that show up in a higher level of comp sales in terms of both traffic and basket.

Speaker #1: And ultimately, looking at what the customers are doing and the trips that's generating, and what that means for, you know, things like net NPS and value score. And ultimately, we expect to have that show up in a higher level of comp sales in terms of both traffic and basket.

Speaker #5: That's helpful. And then, just as a follow-up, a number of your competitors have highlighted investing into price throughout the back half.

Corey Tarlowe: That is helpful. Then just as a follow-up, a number of your competitors have highlighted investing into price throughout the back half, so it feels as if the grocery environment will be getting more competitive as we look over the next several months. I am curious how you think about your strategy in light of how some of your competitors are going to be posturing their pricing. Thanks.

Speaker #5: So, it feels as if the grocery environment will be getting more competitive as we look over the next several months. I'm curious how you think about your strategy in light of how some of your competitors are going to be posturing their pricing. Thanks.

Speaker #1: Yeah , no . Great question . Look , it's always competitive out there . In my 30 years , you're always fighting it out to win the customers hearts .

Jason Potter: Yeah. No, great question. Look, it is always competitive out there in my 30 years. You are always fighting it out to win the customers' hearts. We are obviously alert to the competitive activity and some of the announcements that have been made, as well as in the syndicated data, seeing a recent uptick in promotion. We know the customer is searching for value, the customer is under pressure. We all read the news and can see what happens at the pump and so on. I think what we have done to grow opportunistic this year, our positioning there, the plan we are executing against is right on the money, so to speak, to deal with this issue.

Speaker #1: And we're obviously alert to the competitive activity in some of the announcements that have been made, as well as in the syndicated data.

Speaker #1: We're seeing a recent uptick in promotion. We know the customer is searching for value—customers are under pressure. We all read the news and can see what's happening at the pump, and so on.

Speaker #1: I think what we've done to grow opportunistic this year , our positioning there , the plan we're executing against is right on the money , so to speak , to deal with this issue .

Speaker #1: And , you know , if you look at kind of what happened in our business in this first half and specifically in Q2 , our retail inflation was a little bit below 1% .

Jason Potter: If you look at what happened in our business in this H1 and specifically in Q2, our retail inflation was a little bit below 1%, and that has a lot to do with what we are doing with OP. When we think about competition or price, there are many things to evaluate. We are continually monitoring and measuring our pricing against a number of different competitors across major MSAs. We continue to see a nice price gapping on a basket of goods for us, 15% to 20% below mass, 30% to 40% against conventional. I think that is important to note. For us, when we are dealing with these kinds of things, the best way to deal with it is through OP. Opportunistic is a pretty magical thing for us. It drives sales and margins. It drives value for the customer.

Speaker #1: And that has a lot to do with what we're doing with OP . And , you know , when we think about competition or price , there's many things to to evaluate .

Speaker #1: We're continually monitoring and measuring our pricing against a number of different competitors across major MSAs . We continue to see a nice price gapping on a basket of goods for us 15 to 20% below mass , 30 to 40 against conventional .

Speaker #1: I think that's important to note. And for us, when we're dealing with these kinds of things, the best way to deal with it is through OP.

Speaker #1: It opportunistic is a pretty magical thing for us . It drives sales and margins . It drives value for the customer . You know , Paul came to me this week and shared a example of 50 plus truckloads of a well-known , relevant branded drink sells for $8 in the market that will be selling for under a dollar in the market sometime next week .

Jason Potter: Paul came to me this week and shared an example of 50 plus truckloads of a well-known relevant branded drink, sells for $8 in the market that we will be selling for under $1 in the market sometime next week. Those kinds of things just really displace comparisons and is a big part of what drives customers to our stores. I think staying competitive and making sure that we are paying attention to what is happening in the market is always going to be an important element of what we do here. But continue to see that we are being reinforced and encouraged by our work on opportunistic supply, variety, quality, distribution, and inventory flow and turns.

Speaker #1: Those kinds of things just really displace comparisons and is a big part of what drives customers to our stores and , you know , I think staying competitive and making sure that we're paying attention to what's happening in the market is always going to be an important element of what we do here .

Speaker #1: But continue to see that we're being reinforced and encouraged by our work on opportunistic supply, variety, quality, distribution, and inventory flow and turns.

Speaker #5: That's very helpful . Thanks so much and best of luck .

Corey Tarlowe: That is very helpful. Thanks so much, and best of luck.

Speaker #6: Thank you

Jason Potter: Thank you.

Speaker #3: The next question is from Ohmes from Bank of America . Please go ahead .

Operator: The next question is from Robert Ohmes from Bank of America. Please go ahead.

Speaker #7: Oh , hey , Jason . Hey . I was hoping as a follow up , can you can you help us ? Can you maybe parse out , you know , it sounds like you've really got opportunistic is an important initiative and it's and it's working and you're seeing great things , but you also have the store refresh programme .

Robert Ohmes: Hey, Jason.

Jason Potter: Sure

Robert Ohmes: As a follow-up, can you maybe parse out, it sounds like you've really got opportunistic as an important initiative and it's working, and you're seeing great things, but you also have the store refresh program. When we think of those two things, can you sort of help us think about how much each of those two things are going to drive and how much are they interrelated with each other?

Speaker #7: And when we think of those two things , can you sort of help us think about the , you know , what kind of , you know , how , how much each of those two things are going to drive and how much are they interrelated with each other ?

Speaker #1: Yeah . Great question . Robbie . You know , clearly we continue to believe in improving the in-store experience as an essential part of the strategy and what we've done in the first half of this year is to make sure that everybody in the company's priority is restoring OP network .

Jason Potter: Yeah, great question, Robbie. Clearly, we continue to believe in improving the in-store experience as an essential part of the strategy. What we've done in the H1 of this year is to make sure that everybody in the company's priority is restoring the OP across the network. That's what's driving improvement in our business. Clearly, refresh is an important component of that. Like I said on the recording, 100 stores by the end of the year is on track. We continue to get great feedback from customers and operators. We think that what's important here, and one of the calibrations we made as we focus on improving value and improving OP, is to make sure that we're supporting operators with the tools and the assistance to ensure a consistent execution as we do these rollouts.

Speaker #1: That's what's driving improvement in our business . Clearly , you know , refresh is an important component of that . Like I said , on the recording , 100 stores by the end of the year is on track .

Speaker #1: We continue to get great feedback from customers and operators We think that what's important here , and one of the calibrations we made as we focus on improving value and improving OP , is to make sure that we're supporting operators with the tools and the assistance to ensure a consistent execution , as we do these rollouts , we had more variability in the last couple cohorts than we'd like , and we wanted to shorten the disruption period to optimize the results .

Jason Potter: We had more variability in the last couple cohorts than we'd like, and we wanted to shorten the disruption period to optimize the results. We've calibrated that slightly. We continue to think that that's going to be an important long-term element of our turnaround story. The main event here for us is improving value through opportunistic supply, and that's going to continue to be the focus of the company in the H2.

Speaker #1: And so we've calibrated that slightly. And so we continue to think that that's going to be an important long-term element of our turnaround story.

Speaker #1: But the main event here for us is improving value through opportunistic supply . And that's going to continue to be the focus of the company in the back half .

Speaker #7: That's really helpful . And then my follow up on that is you mentioned earlier in the call the supplier partnerships , you know , improving or recovering or something like that .

Robert Ohmes: That's really helpful. My follow-up on that is, you mentioned earlier in the call the supplier partnerships improving or recovering or something like that. What happened with the supplier partnerships, and how much improvement is there to come from here?

Speaker #7: Can you what what happened with the supplier partnerships and how much improvement is there to , to come from here

Speaker #1: Look, I think I just want to say we're really proud of how the teams engage with suppliers and the relationships that the company's built with the supplier community over many decades.

Jason Potter: Look, I think, I just want to say we're really proud of how the teams engage with suppliers and the relationships that the company's built with the supply community over many decades, frankly. It's a critical point of difference for Grocery Outlet and part of our strategic moat. Paul Miller, in his leadership, brings a special understanding of supplier connection. I don't think we lost that connection, but I think as we've really outlined the plan for what we're going to do with opportunistic, it's an important point to call out that engaging with suppliers, face-to-face meetings, being a one-stop solution for our supply community, taking quick care of their brands, being good brand stewards, and responding in a rapid way is all part of Paul's philosophy. We're seeing good results there. New supplier acquisition's up about 11% this year.

Speaker #1: Frankly , it's a critical point of difference for grocery outlet and part of our strategic moat . Paul Miller and his leadership brings a special understanding of supplier connection .

Speaker #1: I don't think we lost that connection , but I think we , as we've , you know , really outlined the plan for what we're going to do with opportunistic .

Speaker #1: It's an important point to call out that engaging with suppliers face to face meetings , being a one stop solution for our supply community , taking care of their brands , being brand stewards and responding in a rapid way , is all part of Paul's philosophy .

Speaker #1: And , you know , we're we're seeing good results there . New supplier acquisitions up about 11% this year . And we're seeing just kind of great results across the board as the deals come in and it's just a doubling down of something that we've always done well .

Jason Potter: And we're seeing just kind of great results across the board as the deals come in, and it's just a doubling down of something that we've always done well and just made sure that the entire company, under Paul's leadership, is focused on it.

Speaker #1: And just made sure that the entire company, under Paul's leadership, is focused on it.

Speaker #7: It sounds great . Thank you .

Robert Ohmes: That sounds great. Thank you.

Speaker #1: Thanks , Robbie

Jason Potter: Thanks, Robbie.

Speaker #3: The next question , the next question is from Edward Kelly from Wells Fargo . Please go ahead .

Operator: The next question, pardon me, the next question's from Edward Kelly from Wells Fargo. Please go ahead.

Speaker #8: Yeah . Hi . Good afternoon everyone . So you know , business certainly seems to be starting to turn the corner as we think about , guidance .

Edward Kelly: Yeah. Hi, good afternoon, everyone. Business certainly seems to be starting to turn the corner. As we think about guidance, you didn't flow much of the upside this quarter or your better optimism, I guess, into the full year guide. Is that just Cyclospora, or are there some other incremental offsets? Related to the Cyclospora and the 100 basis point impact, is that just July through August so far, that impact? Would you expect that to continue all quarter? Just kind of curious as to how you came up with that.

Speaker #8: You didn't flow much of the upside this quarter or you're better optimism I guess into the full year guide is that just Cyclospora or are there some other incremental offsets .

Speaker #8: And then, related to the Cyclospora and the 100 basis point impact, is that just July through August so far, that impact? Is that something you expect to continue all quarter?

Speaker #8: Just kind of curious as to how you came up with that.

Speaker #6: Yeah .

Speaker #2: Hey , this is Ian . I'll take that . So if you look at the beat for Q2 and we are pleased with where the performance ended up , we beat the midpoint by about $9 million , roughly half of that was due to outperformance on comp and gross margin rate .

Ian Ferry: Yeah. Hey, this is Ian. I'll take that. If you look at the beat for Q2, and we are pleased with where the performance ended up, we beat the midpoint by about $9 million. Roughly half of that was due to outperformance on comp and gross margin rate. Of the remaining $4.5 million, two-thirds of that is SG&A dollars that will actually shift into the back half of the year, primarily the third quarter. $1.5 was just good cost discipline versus plan. The way that I would think about the quarter is roughly a $6 million beat versus midpoint on an organic basis with $3 million shifting. As you think about Q3, there will be a sequential step down in gross margins even though we are further tapering promotional investment and there's a little bit of store closure costs that roll off.

Speaker #2: Of the remaining 4.5 million , two thirds of that is a dollars that will actually shift into the back half of the year , primarily the third quarter .

Speaker #2: And then one and a half was just good cost discipline versus plan . So the way that I would think about the quarter is roughly a $6 million beat versus midpoint on an organic basis , with 3 million shifting .

Speaker #2: And then as you think about Q3 , there will be a sequential step down in gross margins . Even though we are further tapering promotional investment .

Speaker #2: And there's a little bit of store closure costs that roll off the produce issues that Jason highlighted do come with elevated shrink , and that will be a meaningful hit in the third quarter .

Ian Ferry: The produce issues that Jason highlighted do come with elevated shrink, and that will be a meaningful hit in the third quarter that will flow through into gross margins. We also have just a modest level of seasonality. When you net all that out and then we look at the balance of the year, we felt like the guidance that we gave is appropriate and we want to be prudent with our outlook.

Speaker #2: That will flow through into gross margins . And we also have a modest level of seasonality . So when you net all that out , and then we look at the balance of the year , we felt like the guidance that we gave is , is appropriate .

Speaker #2: And we want to be prudent with our outlook.

Speaker #7: And as far

Edward Kelly: 100 basis points?

Speaker #2: Yeah, of the Cyclospora, we're basically assuming that the pressure is going to be with us through the end of the quarter.

Ian Ferry: Yeah, of the Cyclospora. We are basically assuming that the pressure is going to be with us through the end of the quarter.

Speaker #8: Okay . And then Jason , I wanted to ask you , you talked about promotion , just sort of going back , normalizing as you get into the back half of the year .

Edward Kelly: Okay. Jason, I wanted to ask you talked about the promotion, just sort of maybe pulling back, normalizing as you get into the back half of the year.

Speaker #8: But then .

Speaker #1: Sorry , you're breaking up there . I know . If you can just make sure the line is clear there . We just didn't hear anything .

Jason Potter: Sorry, you are breaking up there. I do not know, operator, if you can just make sure the line is clear there. We just did not hear anything. We are getting a few words in there. Sorry.

Speaker #1: Getting a few words in there . Sorry .

Speaker #6: Yeah .

Speaker #8: Sorry . Maybe it was the speaker . So , Jason , I wanted to ask you on a promotional side , you talked about maybe pulling back or normalizing to some extent in the back half and then some of that void gets filled , I guess with value communication .

Edward Kelly: Yeah, sorry. Maybe it was the speaker. Jason, I wanted to ask you on the promotional side, you talked about maybe pulling back or normalizing to some extent in the back half, then some of that void gets filled, I guess, with value communication and maybe it is increased OP as well. The backdrop is competitive. I am just kind of curious as to how you feel about sustaining some of the momentum that has improved while you normalize on the promo side.

Speaker #8: And , you know , maybe it's increased , you know , OP , you know as well , but the backdrop is and just kind of curious as to how you feel about sustaining some of the momentum that's improved , you know , while , you know , you normalize on a promo side .

Speaker #1: Yeah , no , great question . So a couple of things to say , you know , grocery outlet has not been traditionally a promotional company .

Jason Potter: Yeah, no, great question. So, a couple things to say. Grocery Outlet has not been traditionally a promotional company, and we don't intend to continue that. We create excitement and value through, obviously, the branded off deals and, as you pointed out, the treasure hunt experience. We did establish early in the year this $20 million promotional bridge, the synthetic bridge that was designed to supplement our off offering as we rebuilt the offering. Now, we're on track with that plan to rebuild our offering, which is why the focus of the company is, everyone's attention has turned there. And we're on track to taper those promotions, those replacement promotions, if you will, as opt mix is fully sort of restored by the end of Q3. So a couple things there.

Speaker #1: And we don't intend to continue that . We create excitement and value through , obviously , the branded op deals . And as you pointed out , the treasure hunt experience , we did establish early in the year , this $20 million promotional bridge , the synthetic bridge that was designed to supplement our op offering .

Speaker #1: As we rebuilt the offering . Now we're on track with that plan to rebuild our op offering , which is why the focus of the company is everyone is attention has turned there , and we're on track to taper those promotions .

Speaker #1: Those replacement promotions , if you will , as op mix is fully sort of restored by the end of the third quarter . So a couple of things there .

Speaker #1: When I look at the weight of OP, the number of deals at various levels of savings, and the KPIs that associate to call it promotion, our plan is also on track. So pleased with the growing—don’t expect to see the need for more promotional investment beyond what we’ve already discussed.

Jason Potter: When I look at the weight of op, the number of deals at various levels of savings and the KPIs that associate to call it promotion, our plan is also on track. So pleased with the progress on growing op. We don't expect to see the need for more promotional investment beyond what we've already discussed. And to your point, we remain disciplined but responsive. Obviously, maintaining the right competitive price gaps is critical. But I just want to reinforce, we think we're on the right track and we'll monitor if anything changes, but expect that our plan is prudent and appropriate for the back half of the year.

Speaker #1: And to your point , we remain disciplined , but responsive . Obviously maintaining the right competitive race price gaps is critical , but I just want to reinforce we think we're on the right track and we'll monitor if anything changes .

Speaker #1: But expect that our plan is prudent and appropriate for the back half of the year .

Speaker #8: Thank you .

Edward Kelly: Thank you.

Speaker #1: Thank you .

Jason Potter: Thank you.

Speaker #3: The next question is from Oliver Chen from TD Cowan . Please go ahead

Operator: The next question is from Oliver Chen from TD Cowen. Please go ahead.

Speaker #9: Hi. Good afternoon. This is Iris Stankic on for Alwar Fleet. Grocery Outlet is described as a countercyclical model that can benefit when consumers come under greater pressure.

Iris Stankich: Hi, good afternoon. This is Iris Stankich on for Oliver. Described Grocery Outlet as a countercyclical model that can benefit when consumers come under greater pressure. I am just wondering, as we have moved through the quarter, have you seen any change in customer behavior that gives you confidence that the value perception is becoming more visible to shoppers, whether through new customer acquisition, trip frequency, or basket? Thank you.

Iris Stankic: Hi, good afternoon. This is Iris Stankich on for Oliver. Described Grocery Outlet as a countercyclical model that can benefit when consumers come under greater pressure. I am just wondering, as we have moved through the quarter, have you seen any change in customer behavior that gives you confidence that the value perception is becoming more visible to shoppers, whether through new customer acquisition, trip frequency, or basket? Thank you.

Speaker #9: And I'm just wondering , as we've moved through the quarter , have you seen any change in customer behavior that confidence that the value perception is becoming more visible to shoppers , whether through new customer acquisition , trip frequency or basket ?

Speaker #9: Thank you .

Speaker #1: Yeah . Thanks for the question . Yeah . Clearly , generally what we've seen in the past is you'll see pressure in the basket first and then obviously with when trade down happens , we get traffic .

Jason Potter: Yeah, thanks for the question. Clearly, generally what we have seen in the past is, you will see pressure in the basket first, and then obviously when trade down happens, we get traffic. We haven't seen that yet, but we think the work we are doing positions us well for that. As I mentioned, traffic did increase just about 2% in the quarter. That has been sort of running about that 2% mark, which is the intent of our plan this year. We also saw improvement in our basket, and we did see improvement in UPT relative to OP in the basket. So our customers are recognizing value. They are seeing more of it in the store. That is showing up in the underlying metrics and we believe, and are convinced, that is what is driving our sales.

Speaker #1: We haven't seen that yet, but we think the work we're doing positions us well for that. As I mentioned, traffic did increase just about 2% in the quarter.

Speaker #1: That's been sort of running about that 2% mark , which is the intent of our plan this year . We also saw improvement in our basket , and we did see improvement in upped relative to OP in the basket .

Speaker #1: So our customers are recognizing value . They're seeing more of it in the store . That's showing up in the underlying metrics . And we believe and are convinced that that's what's driving our sales and the relationship between OP value and comps are connected .

Jason Potter: The relationship between OP value and comps are connected and drives the heart of the differentiation that we have in the business. So, that is what I would share today on that front.

Speaker #1: And drives the heart of the differentiation that we have in the business . So that's what I would share today on on that front .

Speaker #9: Okay . Got it . And then just as a follow up , I know that last quarter , you noted you were For United Grocery Outlet and expected it to be a 2026 discussion .

Iris Stankich: Okay, got it. And then just as a follow-up, I know that last quarter you noted for United Grocery Outlet and expected it to be a 2026 discussion. Are you able to provide an update on where that process stands today and whether your view of the strategic fit of the business has evolved since then?

Iris Stankic: Okay, got it. And then just as a follow-up, I know that last quarter you noted for United Grocery Outlet and expected it to be a 2026 discussion. Are you able to provide an update on where that process stands today and whether your view of the strategic fit of the business has evolved since then?

Speaker #9: Are you able to provide an update on where that process stands today and whether your view of the strategic fit of the business has evolved since then ?

Speaker #2: Yeah . Hey , Iris . This is Ian . I can take that . So you're right . We do think it's a 2026 conversation .

Jason Potter: Yeah, hey, Iris, this is Ian. I can take that. So, you're right. We do think it's a 2026 conversation. There's work ongoing. We're looking at a variety of options. When that work concludes, we'll update you as soon as that happens, but no update today of any note.

Ian Ferry: Yeah, hey, Iris, this is Ian. I can take that. So, you're right. We do think it's a 2026 conversation. There's work ongoing. We're looking at a variety of options. When that work concludes, we'll update you as soon as that happens, but no update today of any note.

Speaker #2: There's work ongoing. We're looking at a variety of options. When that work concludes, we'll update you as soon as that happens.

Speaker #2: No, no update today of any note.

Speaker #9: Got it . Thank you

Iris Stankich: Got it. Thank you.

Iris Stankic: Got it. Thank you.

Speaker #3: The next question is from John Heinbockel from Guggenheim Partners . Please go ahead .

Operator: The next question is from John Heinbockel from Guggenheim Partners. Please go ahead.

Speaker #10: Hey , Jason , I wanted to ask , as you lean more into ops . So what is changing , if anything , with Planograms and space allocation toward that ?

John Heinbockel: Hey, Jason. Wanted to ask, as you lean more into OP, what is changing, if anything, with planograms and space allocation towards that? Then, if you think about balance leaning into OP heavier, I think historically, right, you guys have been pretty good about avoiding markdowns, even on close code product. Maybe talk about that tension, leaning in-

Speaker #10: And then , you know , think if you think about balance leaning into OP heavier , I think historically , right ? You guys have been pretty good about avoiding markdowns even on close code product .

Speaker #10: Maybe talk about that tension , you know , leaning in and trying to avoid markdowns .

Jason Potter: Sure. Sure.

John Heinbockel: and trying to avoid markdowns.

Speaker #1: Yeah , great question John . So we don't we have kind of call it planograms is sort of a , an industry term where you've got obviously every item is , is allocated in a space .

Jason Potter: Yeah, great question, John. We have kind of, call it planograms is sort of an industry term where you've got, obviously, every item is allocated in a space. We have space allocation.

Speaker #1: We have space allocation . And so what we did in the first half of the year , we did mention that we would be discontinuing 4 to 500 m2 and private label items to make space for more opportunistic variety .

Jason Potter: What we did in the H1 of the year, we did mention that we would be discontinuing 400 to 500 MTO and private label items to make space for more opportunistic variety. I am pleased to report that we did get that done, made those transitions. That has shown up in sales and in store. The vast majority of those markdowns, if there were any, were done already in the H1. We always have some markdowns when we are changing product out. The business, year-to-year, will sell 80,000 to 100,000 unique SKUs as products come and go. It is a normal cadence for the business to manage, and we are happy how that H1 has gone, John.

Speaker #1: I'm pleased to report that we did get that done , made those transitions that's shown up in sales and in store , and the vast majority of those markdowns , if there were any , were done already in the first half .

Speaker #1: We always have some markdowns when we're changing product out . The business year to year will sell 80 to 100 thousand unique SKUs as products come and go .

Speaker #1: And so it is a normal cadence for the business to manage . And we're happy how that first half has gone . John .

Speaker #10: Maybe as a follow up , the I think you talked about a lot of the 27 openings or a bigger percentage will be in existing markets .

John Heinbockel: Maybe as a follow-up, I think you talked about a lot of the 27 openings or a bigger percentage will be in existing markets. Is the plan to open more than you did this year, right, in 2027 or about the same? I think, the idea with when you did UGO is to have volume sufficient on the East Coast to really lean into OP product. I think you are probably there, where you do not need to open that many more on the East Coast to get access to OP. Is that fair?

Speaker #10: You know , is the is the plan to open more than you did this year ? Right . In 27 or about the same ?

Speaker #10: And then I think the idea, when you did UGO, is to have volume sufficient on the East Coast to really lean into OP product.

Speaker #10: I think . You're probably there . We don't need to open that many more in on the East Coast to get access to OP .

Speaker #10: Is that fair ?

Speaker #1: Yeah . On your first question , we haven't we're not prepared yet to release sort of a store count for next year . But it is our intent to open much more infill .

Jason Potter: Yeah. On your first question, we are not prepared yet to release a store count for next year. But, it is our intent to open much more infill. Obviously, as we stated, we are excited about the long-term white space and growth potential of the business. In the near term, we have made some tough decisions to make sure that we are focused on infill opportunities, and that really allows us to leverage the brand, power of the brand locally. The people power, our IO community is really important, and the density of stores helps with that. Distribution strength, obviously, which the core markets, we have got a well-oiled machine there and supported by disciplined underwriting, we think is the right approach in the near term.

Speaker #1: Obviously , as we stated , we're excited about the long term white space and growth potential of the business . And in the near term , you know , we've made some tough decisions to make sure that we're focused on infill opportunities .

Speaker #1: And that really allows us to leverage the brand , the power of the brand locally , the people power . You know , we , our I o communities really important .

Speaker #1: And the density of stores helps with that distribution strength . Obviously , which , you know , the core markets , we've got a well oiled machine there and supported by disciplined underwriting , we think is the right approach in the near term to your point , on the East , we just opened a new DC to support that stores , and we feel that that's absolutely helping our results in the East .

Jason Potter: To your point on the East, we just opened a new DC to support that group of stores, and we feel that is absolutely helping our results in the East. We are pleased with the performance of the stores post-closure work. Those stores are running profitably as a group and ahead of plan and positive comps already this year. All of those elements, we are feeling good about those decisions, John.

Speaker #1: We're pleased with the performance of the stores post-closure work. Those stores are running profitably as a group and are ahead of plan, with positive comps.

Speaker #1: Already this year. So all of those elements, we feel good about those decisions. John.

Speaker #10: Thank you

John Heinbockel: Thank you.

Speaker #6: You're .

Jason Potter: You are welcome.

Speaker #3: The next question is from Joe Feldman from Telsey Advisory Group . Please go ahead .

Operator: The next question is from Joe Feldman from Telsey Advisory Group. Please go ahead.

Speaker #5: Hey , guys . Thanks for taking the question . I wanted to ask . Dig in on that field . Operations changes you've made .

Joe Feldman: Hey, guys. Thanks for taking the question. I wanted to dig in on that field operations changes you have made. Can you share just a little more color on that? What is actually different that the field operations, I guess, field managers or whatever they are called, are doing in the stores, and how they are helping in a different way, and what maybe sales and costs are related to that? Thanks.

Speaker #5: Can you share just a little more color on that ? Like what's actually different that the field operations ? I guess field managers or whatever they're called , are doing in the stores and how they're helping in a different way and what may sales and costs are related to that Thanks .

Speaker #6: Yeah . No .

Jason Potter: Yeah, no, it's a great question. First and foremost, the IO model is a unique competitive advantage for us. We know that it's essential for us in the long term to continue to improve support for our operators. Execution is a huge component of the customer experience and the intent of the team is double down on communication and collaboration with our operators. Specifically, we're adding field support. That's been done. We've implemented things like dynamic routing that I mentioned in my opening remarks. That really helps with OP flow and in-stocks. So there's support there. Implementing things like store level POS, customer feedback reporting to give our IOs much more salient information about specific customer feedback trends. The DSMs work directly with them on action plans to help make improvements where needed.

Speaker #1: It's a great question . Look , first and foremost , the I o models a unique competitive advantage for us . We know that it's essential for us in the long term to continue to improve support for our operators .

Speaker #1: You know, execution is a huge component of the customer experience, and the intent of the team is to double down on communication and collaboration with our operators.

Speaker #1: Specifically , we're adding field support that's been done . We've implemented things like dynamic routing that I mentioned in my opening remarks that really helps with OP flow and in stocks .

Speaker #1: So there's there's support there implementing things like store level POS , customer feedback , reporting to give our iOS much more salient information about specific customer feedback trends and the Dsm's work directly with them on , you know , action plans to help make improvements where needed .

Speaker #1: And then one of the biggest wins we've had this year is really unlocking some of the data This process we call an annual business review , but it's really using fleet wide data to field teams , provide our operators a ranking against another group of stores .

Jason Potter: One of the biggest ones we've had this year is really unlocking some of the data. We have this process we call an annual business review, but it's really using fleet-wide data. The field teams provide our operators a ranking against another group of stores, similar state, similar volumes, and allow them to see in a way margin, sales, underlying cost drivers, and then support it with a suite of reporting that helps them dial in on opportunities to drive sales, to drive margins, to drive improvement in the business. This more frequent and ongoing collaboration and communication is definitely a change and I think everybody in the company, including the operators, are excited about that support and direction.

Speaker #1: Similar state , similar volumes , and allow them to see , in a way , margins , sales , underlying cost drivers , and then supported with a suite of reporting that helps them dial in on opportunities to drive sales , to drive margins , to drive improvement in their business .

Speaker #1: This frequent , more frequent and ongoing collaboration and communication is definitely a change . And I think everybody in the company , including the operators , are excited about that support and direction

Speaker #5: That's really helpful . Thank you . Maybe as a follow up , I probably asked you guys this in the past , but how are you communicating the changes to your existing base or prior customers ?

Joe Feldman: That's really helpful. Thank you. Maybe as a follow-up, I've probably asked you guys this in the past, but how are you communicating the changes to your existing base or prior customers? I know in the past people used to love the opportunistic goods. Now that you have them back and you're flowing it into the store, how are the customer finding out about it and to maybe recapture some of the ones that may have left Grocery Outlet? Thanks.

Speaker #5: Like , you know , I know in the past , people used to love the opportunistic goods . Now that you have them back and you're flowing it into the store like , are you , how are those the customer finding out about it and to maybe recapture some of the ones that may have left grocery outlet .

Speaker #5: Thanks .

Speaker #6: Yeah, no, it's a...

Jason Potter: Yeah, no. It's a great question. Clearly, driving value is key. We introduced extreme value in the front half of the year across channels with what we think is a clearer price messaging, clearer value communication. We've updated some signage, and we have actually a kit going out to all stores this quarter to support our 80th anniversary. We think that's going to be a helpful additional support piece. We continue to adjust our media mix to reach customers more effectively related to the groups that really get excited about the treasure hunt. They love discovery, they love value. We're seeing that work is helping satisfaction scores and resonating with those groups of customers, including lapsed customers.

Speaker #1: Great question . Clearly , you know , driving value is key . We introduced extreme value in the front half of the year across channels , which we think is a clearer price .

Speaker #1: Messaging , clearer value communication . We've updated some signage and we have a actually a kit going out to all stores . This quarter to support our 80th anniversary .

Speaker #1: We think that's going to be a helpful additional support piece . We continue to adjust our media mix to reach customers more effectively .

Speaker #1: Related to the groups that really get excited about the treasure hunt . They love discovery . They love value . And we're seeing that that work is helping satisfaction scores and resonating with those , those groups of customers , including lapsed customers .

Speaker #5: That's helpful . Thanks . Good luck with this third quarter .

Joe Feldman: Got it. That's helpful. Thanks. Good luck with this Q3.

Speaker #6: Thank you

Jason Potter: Thank you.

Speaker #3: The next question is from Simeon Gutman from Morgan Stanley . Please go ahead .

Operator: The next question is from Simeon Gutman from Morgan Stanley. Please go ahead.

Speaker #11: Hey , Jason . Hey , Ian . First I want to ask about this improvement through the anatomy of your customer cohorts . So are you seeing best customers shop more average ones stepping up .

Simeon Gutman: Hey, Jason. Hey, Ian. First, I want to ask about this improvement through the anatomy of your customer cohorts. Are you seeing best customers shop more, average ones stepping up? Then I don't know if there's a component of new customers coming to the brand.

Speaker #11: And then I don't know if there's a component of new customers coming to the brand

Speaker #6: Yeah .

Speaker #1: I think kind of high level , top level . Simeon , thanks for the question . Driving traffic was our first objective . And I think the that is proven to be effective in the first half .

Jason Potter: Yeah, I think kind of high level, top level, Simeon, thanks for the question. Driving traffic was our first objective, and I think that has proven to be effective in H1. We are going to continue to lean in there with our plan. Obviously, some of what you do is to drive frequency and the other pieces that help long term are continue to improve your business and your execution to work on things like the basket. There is always a combination of things that you are trying to achieve, but our first objective is to really dial in the value piece, get recognition for that, drive frequency and drive the traffic. That is the key priority.

Speaker #1: We're going to continue to lean in there with our plan. Obviously, some of what you do is to drive frequency, and the other pieces that help long term are continuing to improve your business and your execution, to work on things like the basket.

Speaker #1: So there's always a combination of things that you're you're trying to achieve . But our first objective is to really dial in the value piece , get recognition for that drive frequency , and drive the traffic .

Speaker #1: That's the key priority .

Speaker #11: And then related to it , you know , you have transactions . It sounds like , you know , the baskets still down .

Simeon Gutman: Related to it, you have transactions. It sounds like the basket is still down. You mentioned grocery is getting fixed or getting better. Positive. I think you called out deli and frozen as works in progress. How impactful can opportunistic be there? Is that just inherently more of an everyday category? What is that diagnosis? Meaning, how do you change the basket from here? I know this company used to comp much higher than where we were. What are the things that you need to finish to close the gap?

Speaker #11: You mentioned grocery is getting fixed or getting better, positive. I think you called out deli and frozen as works in progress. How impactful can opportunistic be?

Speaker #11: There ? Is that just inherently more of an everyday category ? And what is that diagnosis you change the basket from here ? I know this company used to comp much higher than where we were .

Speaker #11: So what are the things that you need to finish to close the gap ?

Speaker #6: Yeah, we're just executing.

Jason Potter: Yeah, we are just executing the same playbook. Those are the two next most important categories for OP. That is why I point them out. They are large, important, and OP will play a huge role in the turnaround here and getting sales. Those two categories are areas we see as the next most logical place to really drive sales. We are getting good positive early results as the team has not totally tuned everything in, but definitely we are seeing momentum there and excited about what that is going to mean as we go forward.

Speaker #1: The same playbook . And those are the two next most important categories for OP . That's why I point them out . They're large , important , and OP will play a huge role in in the turnaround here and getting sales .

Speaker #1: And those two categories are areas we see as the next most logical place to really drive sales . And we're getting early , good positive early results as the team has , you know , not not totally tuned everything in , but definitely we're seeing momentum there .

Speaker #1: And excited about what that's going to mean as we go forward

Speaker #3: The next question is from Mike Baker from D.A. Davidson. Please go ahead.

Operator: The next question is from Mike Baker from D.A. Davidson. Please go ahead.

Speaker #12: Great , thanks . You know , kind of a follow up on on what Simeon was just asking or maybe getting to your your guidance .

Michael Baker: Great. Thanks. Kind of a follow-up on what Simeon was just asking or maybe getting to. Your guidance, even if you add back Cyclospora, is about flat, yet Grocery Outlet, a big part of your business, is up 3%, I think you said. You are adding the playbook to other big categories. I think opportunistic is now probably, if you set up 200 basis points, that is about 48% now, versus it will get to 50%. You are getting there. You are doing all the things. When all those things are implemented, what do we think the long-term comp should be? I presume something better than flat to up 1%, if you add back the Cyclospora.

Mike Baker: Great. Thanks. Kind of a follow-up on what Simeon was just asking or maybe getting to. Your guidance, even if you add back Cyclospora, is about flat, yet Grocery Outlet, a big part of your business, is up 3%, I think you said. You are adding the playbook to other big categories. I think opportunistic is now probably, if you set up 200 basis points, that is about 48% now, versus it will get to 50%. You are getting there. You are doing all the things. When all those things are implemented, what do we think the long-term comp should be? I presume something better than flat to up 1%, if you add back the Cyclospora.

Speaker #12: Even if you add back cycle spur is about flat yet grocery , a big part of your business is up 3% . I think you said you're adding the playbook to other big categories .

Speaker #12: I think opportunistic is now probably if you set up hundred basis points , that's about 48% now versus it'll get to 50 like you're getting there .

Speaker #12: You're doing all the things . What other things are implemented ? What do we think the long term comp should be ? I presume something better than , you know , flat to up 1% .

Speaker #12: If you add back the Cyclospora.

Speaker #6: Yeah, we... Great question.

Jason Potter: Yeah. Great question. We definitely see continued acceleration through the year, and we fully expect the business to get back to a healthy level of comps, something well north of inflation. So I think in the past, this business comped 3% to 5% on a pretty regular basis, and we do not see a reason why we cannot do that.

Speaker #1: We definitely see continued acceleration through the year. And, you know, we fully expect the business to get back to a healthy level of comps.

Speaker #1: Something well north of inflation. So, I think in the past, this business comped 3% to 5% on a pretty regular basis, and we don't see a reason why we can't do that.

Speaker #13: Okay .

Michael Baker: Okay. Yeah, fair enough. That would certainly help. One other question. You said something, if I caught it right, about variability in the most recent implementation of systems. So if you could talk a little bit and then slowing it down. I may have misunderstood, but can you flesh that out a little bit?

Mike Baker: Okay. Yeah, fair enough. That would certainly help. One other question. You said something, if I caught it right, about variability in the most recent implementation of systems. So if you could talk a little bit and then slowing it down. I may have misunderstood, but can you flesh that out a little bit?

Speaker #12: Yeah . Fair enough .

Speaker #13: That would certainly help . One other question . You .

Speaker #12: Said something . If I caught it right about variability and the most recent implementation of systems . So if you could talk a little bit and then slowing it down , I may have misunderstood , but but can you talk about can you flesh that out a little bit ?

Speaker #1: Yeah . No , no , I wasn't referring to systems . Happily . We have nothing to report on . Systems . We're we've planted the flag in our systems are stable .

Jason Potter: Yeah. No, I was not referring to systems. Happily, we have nothing to report on systems. We have planted the flag, and our systems are stable. Good progress there a couple quarters ago. What I was referring to was the last couple of cohorts of refresh stores, and we found that just the length of time to make the changes was disrupting customers. And what the team is doing right now is dialing that down to make those changeovers much more rapidly with better support pre and post in order to make sure that we do not turn people away as we are making what we think are positive changes. So that is what I was referencing.

Speaker #1: Good progress there . A couple quarters ago , what I was referring to as the last couple of cohorts of refresh stores , and we found that just the length of time to make the changes was disrupting customers .

Speaker #1: And what the team is doing right now is dialing that down to make those changeovers much more rapidly, with better support pre and post, in order to make sure that we don't turn people away as we're making what we think are positive changes.

Speaker #1: So that's what I was referencing.

Speaker #12: Okay , I understood thank you .

Michael Baker: Okay. Understood. Thank you.

Mike Baker: Okay. Understood. Thank you.

Speaker #1: Thank you .

Jason Potter: Thank you.

Speaker #3: The next question is from Bill Kirk from Roth Capital Partners. Please go ahead.

Operator: The next question is from Bill Kirk from Roth Capital Partners. Please go ahead.

Speaker #14: Good evening everyone Jason and Ian , you both mentioned and even quantified the adverse impact of Easter timing in to queue . What I was wondering , I guess , is at the end of at the end of two .

Bill Kirk: Good evening, everyone. Jason and Ian, you both mentioned and even quantified the adverse impact of Easter timing in Q2. What I was wondering, I guess, is at the end of Q2, did you have a positive July 4th timing benefit? If so, how large was that?

Speaker #14: Q: Did you have a positive July 4th timing benefit? And if so, how large was that?

Speaker #2: It was immaterial

Ian Ferry: It was immaterial.

Bill Kirk: I see. Okay. Ian, in your prepared remarks, I think you opened with the importance of building a durable model focused on creating long-term shareholder value. Philosophically speaking, how do you evaluate the decision to ease up on promotion and pricing in the context of your focus on helping build that durable, sustainable model?

Speaker #14: Okay . And then Ian , in your in your prepared remarks , you talked about , I think you opened with the importance of building a durable model focused on creating long term shareholder value .

Speaker #14: So philosophically speaking , how do you evaluate the decision to ease up on promotion and pricing in the context of your focus on helping build that durable , sustainable model ?

Speaker #2: Yeah . Good question . I mean , as you think about what drives long term equity value creation , it's consistency of growth paired with improving returns on capital .

Ian Ferry: Yeah, good question. As you think about what drives long-term equity value creation, it is consistency of growth paired with improving returns on capital. We have a long way to go, but we think we are making progress along both of those fronts. I think the good news for us is that opportunistic really drives benefit to everyone in the model, whether you are a customer, a shareholder, or an IO. So there is great savings. It comes at a high margin. It delivers good excitement for the customer. So what we have seen is we have already started to taper the promotions. The reason why we have been able to do that is because we have been increasing OP. The customer does not really understand the distinction between a promoted branded item or OP. They just see deals.

Speaker #2: We have a long way to go , but we think we're making progress along both of those fronts . I think the good news for us is that opportunistic really drives benefit to everyone in the model , whether you're a customer , a shareholder or an I o .

Speaker #2: So there's great savings. It comes at a high margin, and it delivers good excitement for the customer. So what we've seen is we've already started to taper the promotions, and the reason why we've been able to do that is because we've been increasing OP. And the customer doesn't really understand the distinction between a promoted branded item or OP.

Speaker #2: They just see deals . And so as you mix out some of the more promotional stuff and mix in OP , it's not something that they , they notice .

Ian Ferry: As you mix out some of the more promotional stuff and mix in OP, it is not something that they notice. So we really did view that $20 million as a synthetic bridge. We expect it to be done by the end of Q3. As we look into 2027, perhaps we have a tailwind on gross margin to some extent. We expect to be back in a more normalized comp level. My philosophy as CFO is that we absolutely should be driving SG&A leverage. As you look to next year, we certainly hope, and it is our expectation, we will have a more normalized looking P&L.

Speaker #2: So, we really did view that $20 million as a synthetic bridge. We expect it to be done by the end of the third quarter.

Speaker #2: And, as we look into 2027, perhaps we have a tailwind on gross margin to some extent. We expect to be back at a more normalized comp level.

Speaker #2: And my philosophy is CFO is that we absolutely should be driving S , G , and a leverage . So , you know , as you look to next year , we certainly hope .

Speaker #2: And it's our expectation we'll have a more normalized looking P and L

Speaker #14: Thank you, Ann. That's what I was looking for. I'll pass it along.

Bill Kirk: Thank you, Ian. That is what I was looking for. I will pass it along.

Speaker #3: As a reminder to ask a question , please press star one . There are no further questions at this time . I would like to turn the floor back over to Jason Potter for closing comments .

Operator: As a reminder, to ask a question, please press star one. There are no further questions at this time. I would like to turn the floor back over to Jason Potter for closing comments.

Speaker #1: Well, thanks very much for your questions today. I look forward to continuing to engage and reporting continued improvement in our business in the future.

Jason Potter: Well, thanks very much for your questions today. I look forward to continued engagement and reporting continued improvement in our business in the future. Thanks, everybody, for today and wish you well.

Speaker #1: So thanks , everybody for today and wish you well

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.