Grocery Outlet Q3 earnings are out. The discounter reports higher customer traffic and modest sales growth in the third quarter, while shrinking baskets, lower margins and restructuring costs continue to weigh on its turnaround.
Grocery Outlet Holding Corp. (NASDAQ:GO) returned to positive comparable-store sales in the third quarter of fiscal 2026, marking an improvement in customer traffic and sales trends as the discount grocer works to stabilize its business following a year of store closures and restructuring.
The company reported net sales of $1.18 billion for the 13 weeks ended Oct. 3, an increase of 0.9% from the same period last year. Comparable-store sales rose 0.5%, driven by a 2.4% increase in customer transactions that was partially offset by a 1.9% decline in average transaction size.
The results suggest Grocery Outlet is making progress in attracting shoppers, although customers continue to spend less per visit.
Profitability remained under pressure. Gross margin declined 40 basis points to 30%, reflecting increased promotional activity, higher transportation expenses and weaker produce demand associated with the Cyclospora outbreak.
Adjusted net income fell to $15.6 million, or 16 cents per diluted share, from $20.7 million, or 21 cents per share, a year earlier. Adjusted EBITDA declined to $59.4 million, representing 5% of sales, compared with $66.7 million, or 5.7% of sales, in the prior-year quarter.
Reported net income increased to $13.3 million, or 13 cents per diluted share, from $11.6 million, or 12 cents per share. However, the latest quarter included $3.6 million in net restructuring credits, contributing to the improvement in reported earnings.
Traffic Improves as Grocery Outlet Refines Its Offering
President and CEO Jason Potter attributed the improvement in comparable sales to better execution of Grocery Outlet’s opportunistic merchandising strategy, which emphasizes discounted branded products obtained through closeouts, excess inventory and other purchasing opportunities.
“In the third quarter we returned to positive comparable store sales, driven by continued improvements to the execution of our opportunistic product offering,” Potter said.
He added that customer traffic accelerated and basket trends improved sequentially as the company strengthened its value proposition.
The improvement comes as Grocery Outlet attempts to restore momentum following operational difficulties, inconsistent merchandise availability and an aggressive expansion strategy that left portions of its store network underperforming.
The company opened 14 stores during the quarter and reported no closures, ending the period with 561 locations across 16 states.
Despite the return to positive comparable sales, Grocery Outlet’s results illustrate the financial challenge facing the company. Promotional spending is helping attract shoppers, but those investments are also putting pressure on margins.
The company said the shift toward opportunistically sourced merchandise provided some margin relief, although it was insufficient to offset higher costs and weaker produce demand.
Store Closures Still Affect Results
Grocery Outlet’s restructuring program remains a central part of its turnaround.
The company announced plans earlier this year to close 36 underperforming stores, including 24 on the East Coast, after management concluded that expansion had outpaced its ability to operate those locations profitably.
The closures, completed in March and April, represented a significant retrenchment in a region where Grocery Outlet had been attempting to establish a larger presence.
During the first 39 weeks of fiscal 2026, Grocery Outlet opened 31 stores and closed 40, including the 36 locations covered by its optimization plan.
The company reported a net loss of $161.4 million for the nine-month period, compared with a $6.8 million loss a year earlier. The latest results included a $158 million noncash goodwill impairment charge recorded during the first quarter.
Nine-month sales increased 1.8% to $3.54 billion, while comparable-store sales declined 0.2%. Adjusted EBITDA fell to $168.2 million, compared with $186.3 million a year earlier.
Grocery Outlet now estimates total net restructuring charges of $22 million to $29 million, an increase reflecting revised expectations for lease termination and idle-property costs.
The company expects the operational actions and financial effects of the restructuring to be substantially completed by the fourth quarter of fiscal 2027.
Sales Outlook Improves, Profit Forecast Narrows
Grocery Outlet raised its comparable-store sales forecast for fiscal 2026, reflecting the improvement in third-quarter performance.
The company now expects comparable sales growth of 0.2% to 0.4%, compared with its previous forecast of a decline of 0.5% to flat sales.
Its full-year net sales outlook remains unchanged at $4.70 billion to $4.72 billion.
However, Grocery Outlet narrowed its adjusted EBITDA forecast to $225 million to $229 million, from the previous range of $225 million to $235 million.
The company also revised its new-store opening forecast, excluding closures under the optimization plan, to a net 30 to 31 locations, compared with the previous expectation of 30 to 33.
Adjusted earnings per diluted share are now projected at 52 to 55 cents, compared with the earlier forecast of 51 to 55 cents.
The revised outlook underscores the uneven nature of Grocery Outlet’s recovery. Customer traffic is improving, and comparable sales have returned to positive territory, but the company has yet to translate that momentum into stronger underlying profitability.
For Grocery Outlet, the immediate priority remains converting increased shopper visits into larger purchases while rebuilding margins and completing a restructuring program that will extend into late 2027.