Grocery Outlet lays out 2025 restructuring planGrocery Outlet lays out 2025 restructuring plan

Grocery Outlet laid out its plans to right the ship in its Q4 earnings report on Tuesday, announcing plans to scale back store and warehouse expansion and refocus on existing and high-priority adjacent markets. 

The embattled grocery chain, which plans to spend up to $61 million on the restructuring plan, also introduced its newly appointed CEO, Jason Potter, who previously served as CEO of The Fresh Market and joined Grocery Outlet in late January. 

“We were proud to say we grew both sales and profitability and obviously returns for the shareholders [at The Fresh Market] in a pretty substantial way by focusing on a few things: One, improving execution; focusing on the guest experience—we worked hard there to build a service culture; and really working as a team on a clear, defined strategy,” he said. 

Potter succeeds CEO RJ Sheedy, who resigned from his role as president and CEO in late October, following poor performance in Q2, when net income dropped 42.8%, to $14 million, year over year. 

Net sales for the fourth quarter increased 10.9% to $1.1 billion, and comparable store sales were up 2.9%. Gross profit was also up 8.4% to $323.9 million compared to the prior period, according to the report. 

The grocer’s 2024 financial summary showed net income for the year was $39.5 million, or $0.40 per diluted share. That’s less than half the $79.4 million, or $0.79 per diluted share, for the previous year. 

“The decrease was attributable to lower gross margin and higher SG&A [overhead costs not directly related to production] as a percentage of net sales noted above, as well as an increase in net interest expense driven by higher average principal debt outstanding during fiscal 2024,” the company said. 

In 2024, Grocery Outlet added 67 new stores, 40 of which came from its purchase of United Grocery Outlet, and closed two stores, bringing the total store count to 533 across 16 states by the end of the fourth quarter. 

The treasure hunt-style grocery retailer also laid out its plans for restructuring on Tuesday, which includes opening fewer stores than expected, reducing its workforce, and scaling back on plans for new warehouses. Grocery Outlet said the restructuring would cost between $52 million and $61 million. 

“2024 was a year in which many critical operational elements were out of sync, which was further exacerbated by trying to do too much, too fast. But we're working urgently to get back on track,” Grocery Outlet Chairman Eric Lindberg, who served as interim president and CEO following Sheedy’s resignation, said during the earnings call.

Grocery Outlet said last year that it planned to open around 50 to 55 new locations in 2025, but on Tuesday, Lindberg said the chain is scaling back to 33 - 35 net new stores. They also plan to “exit leases with suboptimal locations.” Lindberg said there remains a lot for growth and that Grocery Outlet has “the potential to open over 4,000 stores across the United States.”

Grocery Outlet’s outlook for fiscal 2025 also includes: net sales of $4.7 billion to $4.8 billion; comparable store sale increase of 2-3%; gross margin of 30-30.5%; adjusted EBITDA of $260 million to $270 million; and adjusted diluted earnings per share of $0.70 to $0.75.

Lindberg also said Grocery Outlet is putting the brakes on the expansion of its warehouse facilities for the year.

“We spent a lot of time looking at the best use of capital to optimize our distribution network and to support our growth, and have decided not to pursue an expansion into multi-temperature distribution, which would have added complexity and required a much higher level of capital investment,” he said. “We believe that we can simplify our regional supply-chain strategy to drive operational efficiencies, improve inventory management, and support our growth in a more capital-efficient way.”

Lindberg said the chain also is reducing its workforce as “a prudent step in building a more scalable cost structure.”

“As we took a long, hard look at these areas over the last three months, it was clear that these were necessary steps to building a stronger foundation from which to scale in the future,” Lindberg said.