Grocery Outlet (GO) Q3 2025: Store Refresh Delivers Mid-Single-Digit Comp Lift in Pilots, Accelerating 2026 Growth Path
Grocery Outlet’s Q3 revealed a pivotal inflection: early store refresh pilots are driving mid-single-digit comp lifts, setting the stage for a broader rollout in 2026. While comp sales lagged guidance due to marketing missteps, management is doubling down on operational consistency and merchandising fundamentals to restore momentum. With systems stabilization, new talent, and a scalable refresh model, the company is positioning for sustainable growth and stronger returns on capital next year.
Summary
- Store Refresh Drives Comp Acceleration: Pilot locations achieved mid-single-digit comp lifts, prompting a rapid scale-up plan.
- Operational Discipline Offsets Marketing Missteps: Margin and profitability held steady despite softer comps from failed promotions.
- 2026 Growth Anchored in Execution Fundamentals: Systems upgrades, core assortment, and IO support underpin a path to normalized comp growth.
Performance Analysis
Grocery Outlet’s third quarter results reflected a business in operational transition, balancing disciplined cost control with the need to reignite top-line growth. Net sales increased on the back of 11 net new stores and positive, albeit modest, comparable store sales. The company’s gross margin held at the upper end of guidance, despite promotional and marketing experiments that ultimately weighed on comp growth and average transaction size. Importantly, traffic growth remained positive, but basket size slipped as shoppers bought fewer units per visit.
SG&A, selling, general, and administrative expenses, rose due to new store growth, technology amortization, and incentive compensation, but management highlighted progress on a multi-year cost savings initiative. Adjusted EBITDA margin compressed year over year but stabilized sequentially, signaling that underlying profitability is being protected even as the company invests in foundational improvements. Cash flow from operations nearly doubled year over year, driven by working capital gains, while leverage remained conservative.
- Comp Sales Fell Short of Plan: Promotional and marketing mix changes eroded comps late in the quarter, but a course correction has since restored positive weekly comp trends.
- Gross Margin Stability Amid Promotional Testing: Margin held at 30.4% despite increased promotional intensity, reflecting disciplined execution on sourcing and inventory.
- SG&A Investments Balanced by Cost Initiatives: Cost savings of $15–20 million identified over two years, with incremental reinvestment in merchandising and supply chain capabilities.
While near-term comp growth remains subdued, the company’s operational and strategic resets are expected to yield stronger, more sustainable performance as refresh initiatives and system upgrades scale across the fleet.
Executive Commentary
"We began to roll out our store refresh concept to an initial wave of independently operated stores. We are seeing encouraging results with the pilot stores that are participating in this program, and we're planning to accelerate the expansion of the program throughout the rest of the year and into 26."
Jason Potter, President and CEO
"We expect capital spending of approximately $210 million for 2025. For 2026, we expect a meaningful reduction in our CapEx spending, even with our large store refresh efforts."
Chris Miller, Chief Financial Officer
Strategic Positioning
1. Store Refresh as Growth Engine
Grocery Outlet’s store refresh initiative is emerging as the primary lever for comp acceleration. The pilot stores, which implemented improved layouts, expanded core assortment, and enhanced value messaging, delivered mid-single-digit comp lifts—well above the chain average. These changes focus on retail basics: intuitive store flow, consistent in-stock positions on 400 core items, and clear signage. The company plans to scale the refresh to 20 stores by year-end, 150 more in 2026, and the remainder in 2027, with all new stores launching in the refreshed format. Management estimates a three-and-a-half-year payback, supporting capital discipline and long-term returns.
2. Systems Stabilization and IO Empowerment
After a disruptive SAP rollout, the company is restoring and enhancing inventory and order management systems for IOs, independent operators, the franchise-like local store owners. The new order guide and forecasting tools for fresh categories are designed to improve in-stock rates, reduce inventory friction, and enable sharper merchandising. Training and support are being ramped up to ensure IOs can execute consistently, with the aim of making the business “easy to run” and freeing IOs to focus on the customer experience.
3. Talent and Execution Upgrades
Recent hires in store operations and supply chain—seasoned executives from Lidl and Target—signal a commitment to operational excellence and scalable growth. These leaders bring expertise in fleet management, logistics, and merchandising, directly supporting the refresh and localization strategies. Management is also reinvesting cost savings into merchandising capabilities, aiming to create a “great selling organization” that leverages both buying and operational strengths.
4. Localization and Demographic Tailoring
Grocery Outlet is piloting localized assortments, particularly in Southern California, to better serve diverse customer bases. By providing IOs with regionally relevant products and marketing support, the company aims to drive productivity and deepen community relevance. Early results are promising, and management sees this as a scalable opportunity, especially in high-growth demographic markets.
5. Disciplined Capital Allocation
Despite the ambitious refresh rollout, management is guiding to lower capital expenditures in 2026, reflecting efficiencies in execution and a focus on return on invested capital. New store growth will continue, but with an emphasis on embedding refresh fundamentals from day one to ensure each location meets or exceeds 20% return targets.
Key Considerations
This quarter marks a strategic pivot from experimentation to execution, as management doubles down on proven retail fundamentals and operational consistency to drive future growth.
Key Considerations:
- Refresh Rollout Scale and Timing: Success in pilot stores must translate at scale, with 150+ refreshes planned in 2026 and all new stores adopting the model.
- IO Engagement and Training: Sustained comp growth depends on IO buy-in and proficiency with new systems, merchandising standards, and localized assortments.
- Marketing and Promotional Discipline: Recent comp volatility exposed sensitivity to marketing mix; future growth will hinge on effective, data-driven campaigns.
- Cost Management and Margin Stability: Cost savings and SG&A leverage are expected, but only if comp growth normalizes and refresh costs are contained.
- External Factors (SNAP, Macroeconomy): SNAP, Supplemental Nutrition Assistance Program, disruptions and consumer pressure could impact sales, especially as 9% of revenue is SNAP-related.
Risks
The primary risks include execution slippage in the refresh rollout, IO resistance or uneven adoption, and persistent macro or SNAP funding headwinds that could dampen traffic or basket recovery. Competitive intensity among deep discounters remains high, and any missteps in marketing or assortment could further erode comps. While management is not currently baking SNAP disruptions into guidance, any prolonged government shutdown or benefit cuts could materially impact sales and traffic in affected markets.
Forward Outlook
For Q4 2025, Grocery Outlet guided to:
- Same-store sales growth between flat and +1%
- Seven net new stores
- Gross margin of 30% to 30.3%
- Adjusted EBITDA of $72 to $76 million
- Adjusted EPS between 21 and 23 cents
For full-year 2025, management expects:
- Comp store sales of 0.6% to 0.9%
- Net sales of $4.7 to $4.72 billion
- Adjusted EBITDA of $258 to $262 million
- Adjusted EPS of 78 to 80 cents
Management flagged that 2026 will see normalized comp growth and a reduction in CapEx, with the refresh program and systems stabilization supporting a return to sustainable comp acceleration. Guidance excludes potential SNAP disruption impacts.
- Refresh rollout and IO execution are expected to be primary growth drivers.
- Cost savings will be partially reinvested to build merchandising and supply chain capabilities.
Takeaways
Grocery Outlet is entering a critical execution phase, with early refresh success providing tangible proof points but requiring flawless scaling to deliver on 2026 growth promises.
- Refresh Program Is the Central Growth Catalyst: Mid-single-digit comp lifts in pilots validate the strategy, but broad-based adoption and consistent execution are essential for chainwide impact.
- Systems and Talent Investments Lay Foundation for Scalability: Restored IO tools and new operational leadership should improve in-stock rates, merchandising, and overall store productivity.
- Watch for Comp Recovery and Margin Leverage in 2026: Investors should monitor comp trends as refreshes scale and assess whether cost savings translate to improved SG&A leverage and returns on capital.
Conclusion
Grocery Outlet’s Q3 underscores a business at a strategic crossroads: operational missteps have been met with decisive course correction, and early refresh results offer a credible blueprint for comp reacceleration. The next year will test the company’s ability to translate pilot wins into systemwide growth, with execution and IO engagement as the linchpins.
Industry Read-Through
Grocery Outlet’s experience highlights that disciplined execution of retail fundamentals—store flow, core assortment, and value messaging—remains a potent lever for comp growth, even in a challenging macro and promotional environment. The operational challenges and subsequent recovery in comps after marketing missteps serve as a cautionary tale for grocers and discounters experimenting with digital and promotional strategies. The company’s localization push and IO empowerment may presage broader moves among value retailers to deepen community relevance and operational agility. The focus on capital discipline and payback periods for store investments is likely to resonate across the sector as investors demand proof of ROI from growth initiatives.