Grocery Outlet closed 36 stores. The bill is still growing.
The discount grocer has shut the stores, but now expects a longer and more expensive cleanup as better sales fail to restore margins.
Grocery Outlet shut 36 underperforming stores in March and April. Months later, it expects a larger restructuring charge and a longer cleanup, even as sales at its remaining comparable stores return to growth.
The discount grocer now estimates $22 million to $29 million in net charges for the plan. It expects the operational actions and financial effects to be substantially complete in the fourth quarter of fiscal 2027.
The doors are shut. The leases remain.
Research by Ticker Byline shows that both the expected cost and the completion date have moved since August. The August quarterly release put net restructuring charges at $15 million to $24 million and substantial completion in the first quarter of fiscal 2027.
Grocery Outlet still needs to terminate, sublease or transfer store leases. It raised the estimated charge mainly because of higher expected lease-termination and idle-property costs.
The cash payments are larger than the net accounting charge suggests. The latest filing estimates $57 million to $64 million of cash lease-exit costs, offset by about $54 million of noncash credits from removing lease assets and liabilities from the accounts. Other restructuring costs also contribute to the overall $22 million to $29 million net charge.
Why reported profit rose while adjusted profit fell
The third quarter included a $3.6 million net restructuring credit, as noncash lease-accounting credits outweighed cash charges. That helped reported net profit rise to $13.3 million from $11.6 million a year earlier.
Removing restructuring and other adjustments gives a weaker operating picture. Adjusted net profit fell to $15.6 million from $20.7 million. Adjusted EBITDA, a profit measure before interest, taxes, depreciation, amortization and selected other items, fell 11% to $59.4 million.
Restructuring charges are excluded from that adjusted measure. The lower adjusted profit reflects pressure elsewhere in the business, rather than the larger closure estimate being charged against it.
Shoppers are spending less per trip
Grocery Outlet sells discounted groceries mostly through stores run by independent operators. Comparable-store sales, which track locations open long enough for a year-over-year comparison, rose 0.5% in the quarter ended October 3, as transactions increased 2.4% but the average purchase fell 1.9%.
Promotions, higher transportation costs and weaker produce demand during a Cyclospora outbreak weighed on gross margin, the share of sales left after the cost of goods. It fell to 30.0% from 30.4%. A better mix of discounted inventory bought when available helped offset some of that pressure. The demand shock also reached Marzetti's dressings, dips and croutons.
The company raised its annual comparable-sales forecast to growth of 0.2% to 0.4%, from a decline of 0.5% to no growth. But it cut the top of its adjusted EBITDA range to $229 million from $235 million, keeping the $225 million lower bound.
Quarterly operating cash flow edged up to $18.2 million from $17.3 million. Capital spending after landlord allowances was $25.7 million, leaving spending above the quarter's operating cash generation.
Sales are improving, but the store exits still have work and cash payments attached. Settling those leases and rebuilding profit margins are separate parts of the turnaround.
The Grocery Outlet company profile tracks the closure estimates, forecast changes, cash and debt.