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Edited Transcript of GO.OQ earnings conference call or presentation 10-Nov-20 9:30pm GMT

·52 min read

Q3 2020 Grocery Outlet Holding Corp Earnings Call Nov 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Grocery Outlet Holding Corp earnings conference call or presentation Tuesday, November 10, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Charles C. Bracher Grocery Outlet Holding Corp. - Chief Finance Officer * Eric J. Lindberg Grocery Outlet Holding Corp. - CEO & Director * Joseph Pelland Grocery Outlet Holding Corp. - VP of IR * Robert Joseph Sheedy Grocery Outlet Holding Corp. - President ================================================================================ Conference Call Participants ================================================================================ * Jeremy Scott Hamblin Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst * John Edward Heinbockel Guggenheim Securities, LLC, Research Division - Analyst * Joseph Isaac Feldman Telsey Advisory Group LLC - Senior MD, Assistant Director of Research & Senior Research Analyst * Karen Fiona Short Barclays Bank PLC, Research Division - Research Analyst * Katharine Amanda McShane Goldman Sachs Group, Inc., Research Division - Equity Analyst * Michael Lasser UBS Investment Bank, Research Division - MD and Equity Research Analyst of Consumer Hardlines * Michael Allen Baker D.A. Davidson & Co., Research Division - MD & Senior Research Analyst * Michael Efram Kessler Morgan Stanley, Research Division - Research Associate * Oliver Chen Cowen and Company, LLC, Research Division - MD & Senior Equity Research Analyst * Paul Trussell Deutsche Bank AG, Research Division - Research Analyst * Randal J. Konik Jefferies LLC, Research Division - Equity Analyst * Robert Frederick Ohmes BofA Merrill Lynch, Research Division - MD ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings, and welcome to Grocery Outlet's Fiscal Third Quarter 2020 Earnings Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joe Pelland. Please go ahead. -------------------------------------------------------------------------------- Joseph Pelland, Grocery Outlet Holding Corp. - VP of IR [2] -------------------------------------------------------------------------------- Thank you. Good afternoon, everyone, and thank you for joining us on today's call to discuss Grocery Outlet's Third Quarter Financial Results. Participants on this call will make forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such items, including our outlook for fiscal 2020 and future performance should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A description of these factors can be found in this afternoon's press release as well as in our latest prospectus and periodic reports we file with the SEC, all of which may be found on our website at investors.groceryoutlet.com or on sec.gov. We undertake no obligation to revise or update any forward-looking statements or information. During our call, we may reference certain non-GAAP financial information, including adjusted items. Reconciliations 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, in our SEC filings and the Investors tab of our website. We reference non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. Presenting on today's call will be Grocery Outlet's Chief Executive Officer, Eric Lindberg; President, RJ Sheedy; and Chief Financial Officer, Charles Bracher. Following our prepared remarks, we will open the call for questions. With that, I'll turn it over to Eric. -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Joe. Good afternoon, everyone. I'm very pleased with our third quarter results as we continue to leverage our flexible and differentiated business model. Our performance reflects our commitment to providing our customers unbeatable values in a treasure hunt of ever-changing products along with friendly customer service and a locally curated assortment provided by our independent operators. For the third quarter, we generated 17% revenue growth, driven by 35 net store openings since the end of the same period last year in combination with 9.1% comp increase. This follows a 5.8% comp increase in the third quarter last year. Our strong comp performance was driven by higher basket size as customers continue to consolidate their shopping trips. Gross margin expanded 40 basis points, ahead of our expectations, primarily through the reduction in product markdowns and throwaways. Adjusted EBITDA increased 25% despite elevated costs related to COVID and reinvestments back into our business to support our long-term growth strategies. The consistency of our results would not be possible without the hard work and dedication of our entire team, including our IOs and their store associates. Our operators do an extraordinary job of creating a safe, friendly and exciting shopping environment. They actively engage with local consumers through social media and by personally connecting with customers in our stores. Over 7 decades, we have developed tremendous customer loyalty as we remain focused on delivering deep values and a fun, treasure hunt shopping experience for our customers. We know that our customers shop our stores in different ways and for different reasons. Some because they are on a limited budget and rely on us for our great values, and others because they just enjoy treasure hunt experiences and are seeking great deals. And we love to hear feedback from all of them. A few standout customer comments we recently received include: from a customer in Springfield, Oregon, "I love shopping here. I can get my money's worth in a hard economy." And from one of our fans in Santa Barbara, California, "I love this store. They are innovative and always well stocked with lots of cool things." And this one, one of my favorites, which came in from a response to one of our Instagram posts. "I like to wake up to a big bowl of Bargain Bliss before a hard day at the office. Thanks for being there for me." These testimonials are great illustrations of our strong connection with customers and the unique value proposition that our model delivers. While we're always looking to strengthen our relationships with our existing customers, we're equally focused on bringing Grocery Outlet's model to new communities and expanding our retail footprint. To that end, we opened 10 new stores during the third quarter, with 7 more expected to open in the fourth quarter. This will bring our total 2020 store openings to 34, representing approximately 10% unit growth. Looking forward, we remain pleased with the health of our real estate pipeline in support of our 10% annual unit growth objective. As we have discussed previously, we have significant white space in front of us, which we believe supports over 1,500 new stores in existing states and neighboring markets. Our business model is rooted in value and has a broad customer appeal. This has resulted in a store model that has proven to be highly portable with strong performance across geographies, urbanicities and with customers at various income levels. We have made great progress this year in establishing our foundation for growth in the Mid-Atlantic region, where we plan to open approximately 3 to 5 stores next year. We remain focused on building our pipeline to support ongoing growth in this region, and we're very encouraged by both the quality of the real estate sites we're seeing and the operator talent we're finding. While we're energized about the growth potential of the East, we will manage this expansion with the same disciplined growth we have taken in the West. Our first priority is to ensure we maintain high standards in freshness, product assortment, merchandising, cleanliness and safety. These standards ensure that we'll provide a consistent customer shopping experience as we continue to grow brand awareness in the market. I recently had an opportunity to tour the stores in Pennsylvania and held a small town hall meeting with our team. I want to thank our entire team for their incredible execution as I was extremely pleased to see the engagement and enthusiasm of our IOs. I can honestly say that the stores have never looked better from a merchandising, freshness and visual presentation perspective, so we continue to be very pleased with our results. As we look forward, we remain committed to reinvesting back in the business across talent and infrastructure as well as operational and systems enhancements as we scale for the long-term growth. We've added some incredible talent to our organization over the last 12 months, and I'm very pleased to share that we recently hired Harrison Lewis to be our Chief Information Officer. Harrison brings over 30 years of business leadership and IT experience to Grocery Outlet, including the design and integration of digital platforms, AI and big data adoption and cloud-based operations. His knowledge and expertise make him a great complement to our leadership team, and we are excited to have him onboard. In summary, I'm extremely proud of our operating results and the continued strong execution on behalf of our entire organization this year. We have a long track record of consistent performance in various economic cycles, and we've again proven our ability to react swiftly and effectively in uncertain times. We continue to see enormous growth opportunity in front of us and are making the right investments to scale our business for long-term success. We look forward to updating you on that progress in the future. With that, I'll turn it over to RJ. -------------------------------------------------------------------------------- Robert Joseph Sheedy, Grocery Outlet Holding Corp. - President [4] -------------------------------------------------------------------------------- Thanks, Eric. We attribute our strong third quarter and year-to-date performance to our differentiated and flexible business model, which has allowed us to successfully navigate COVID. This model enables us to consistently deliver a unique combination of extreme value, unexpected deals and friendly customer service. Our value proposition remains strong and is supported by all company departments working together and in partnership with our network of independent operators. Everyone is performing at an exceptional level, and we are incredibly thankful for the commitment and contribution of each and every team member. Our strong differentiated foundation has driven consistent performance over many years, and we are well positioned for continued growth. Our opportunistic and everyday inventory is healthy, and the pipeline remains strong. Our buying team continues to identify and source products that deliver the WOW! shopping experience for our customers. We are seeing the benefit of long-standing supplier relationships as well as those that have been established in recent months. Let me provide just a few examples from the thousands of deals that we have recently purchased to illustrate the types of opportunities that our relationships yield. Example number one is the purchase of 50,000 cases of coffee K-Cups from a top brand supplier in the category. This is a relatively new supplier relationship that we've grown nicely in the past 2 years. This item was recently discontinued by one of the supplier's primary channel partners, and we were able to help them move through the excess supply. We are selling this product with more than 50% savings to elsewhere retail pricing. Our supplier received good cost recovery, and our customers are enjoying a great deal in what has been a very high demand category this year. Example number two is the purchase of 60,000 cases of a leading brand of coconut water. This was a situation where a large multi-brand supplier decided to discontinue a product line to focus on its core offering. This opportunity was identified during one of our strategic planning meetings. We helped them move inventory and, in turn, are able to sell a 1 liter bottle of coconut water for $1.99. That's a 67% savings to elsewhere retail pricing. Example number three is the purchase of 30,000 cases of 1 gallon containers of salsa from a long term supplier. In fact, Peter Read, our founder Jim Read's son, started this relationship over 40 years ago. This was a food service item that ended up at surplus inventory due to lower demand. We are selling a gallon of salsa for $4.99, a 60% discount to elsewhere retail pricing. Our customers love the value from this unique retail item. These are just a few examples of the many WOW! deals that generate loyalty with our customers. We remain focused on cultivating relationships, creative problem-solving and quick decision-making as these are the core principles that allow us to capture these fantastic product opportunities. Longer term, we expect market disruption to yield even more opportunistic supply from large and small suppliers alike. Our buyers remain focused on deepening existing relationships, and we are very pleased with the many new supplier partnerships recently formed. Our marketing strategy is another critical component of creating and communicating excitement to our customers. Initiatives at both the corporate and local level are designed to increase brand awareness, foster customer engagement and drive traffic. Our messaging remains rooted in unbeatable value and high-quality brand names across the entire assortment. We target a broad spectrum of bargain-minded customers, which encompasses those that shop us as a primary, secondary or tertiary store. Our objective is to be the first choice for these consumers regardless of how they shop us and to continue to grow traffic and basket across all groups. We have increased our emphasis on digital marketing across e-mail, digital ads and social media platforms, and we are pleased with our progress. One example of our expanded digital reach is the price and item display ads that we run on Facebook, Instagram, Google and Flipp. These digital ads serve to highlight the excitement of the in-store treasure hunt experience for the local community. Digital platforms are the perfect medium for the dynamic fast-turning product within our localized assortments. We've developed store-level inventory APIs to highlight over 1,500 unique items each week with our ad partners. This allows us to dynamically feature new deals as they arrive in-store for both new and existing customers. Digital platforms are also a great complement to our hyperlocal IO model. Some examples are operator-curated digital ads, personalized IO activity on social media and geofenced targeting efforts to drive traffic. We've also begun to test on Nextdoor's neighborhood social network to spotlight our operators and their important donations to local food banks and charities. Our growing customer e-mail database will further amplify our digital marketing efforts. We recently enhanced our point of sale system to enable more seamless customer e-mail entry at checkout. Our Welcome series e-mail campaign is resonating with new customers and is garnering a high level of engagement. We look forward to leveraging our growing customer file as we continue on our journey towards personalized marketing. Our customer loyalty is also fueled by our commitment to the local market. We remain incredibly proud of the many ways in which our operators support their local communities. One recent example of this was shown by David and Karin Karen McKinney in our Lemoore, California store. They recently partnered with a local resident, Mitch Couch, to build and donate student desks to local families in this time of need. These families are currently facing the challenges of distance learning and Mitch and the McKinney's partnership is helping to ease that burden for their community. This is but one example of how IOs make a lasting impact in the neighborhoods they serve. As we look forward, we remain very well positioned to continue to deliver the WOW! shopping experience to both current and new customers. This unrelenting focus on delivering exceptional value to the customer has driven our past success, and we are confident it will continue to fuel future growth. I will now turn the call over to Charles. -------------------------------------------------------------------------------- Charles C. Bracher, Grocery Outlet Holding Corp. - Chief Finance Officer [5] -------------------------------------------------------------------------------- Thanks, RJ, and good afternoon, everyone. Sales for the third quarter increased 17.1% to $764.1 million compared with the same period last year. This growth was driven by a 9.1% increase in comparable store sales as well as the sales contribution from 35 net additional stores opened since the end of the third quarter last year. Our strong comp performance in the quarter was broad-based across all regions, vintages and categories. Trends were in line with our expectations, driven by an increase in average transaction size, partially offset by a reduction in traffic as customers continued to consolidate trips. Over the quarter, traffic trends remained stable, while average basket size moderated as food away-from-home spending increased. We opened 10 new stores in the quarter, ending with 372 locations. Sales productivity trends in our new stores, including recent vintages as well as 2020 openings remain healthy, reflecting elevated demand compared to last year. Third quarter gross profit increased 18.4% from the prior year to $238.2 million. Our gross margin rate increased 40 basis points to 31.2%, primarily due to reduced markdowns and throwaways resulting from faster inventory turns, which were better than expected. SG&A expense grew 17.9% to $190 million, with the increase largely due to higher variable commissions to independent operators related to gross margin dollar growth, higher store occupancy costs due to store expansion, increased investments in personnel and infrastructure and COVID-related expenses. Consistent with our commitment to reinvest in our business in support of our long-term growth objectives, our third quarter SG&A also includes incremental investments in talent and tools to improve our operating capabilities. As a result of these factors, SG&A as a percentage of sales increased 20 basis points to 24.9% from 24.7% in the same period last year. Stock-based compensation expense for the third quarter was $3.9 million, which reflects current performance expectations for annual awards issued under our long-term incentive program implemented earlier this year. As a result of the tax benefit associated with employee option exercises during the third quarter, we incurred a $15 million tax benefit, resulting in an effective tax rate of negative 58.8%. Relative to our normalized tax rate, this option-related tax benefit added $22 million to net income in the quarter or $0.22 per diluted share. As such, GAAP net income for the quarter increased to $40.5 million or $0.41 per diluted share compared to net income of $12.4 million or $0.13 per diluted share in the prior year. For the quarter, adjusted EBITDA increased 25.1% to $55.3 million from $44.2 million last year. Adjusted net income increased 142% to $49.9 million or $0.50 per diluted share based on an average of 99.3 million diluted shares in the quarter. Turning to our balance sheet and liquidity. We ended the third quarter with $59 million of cash as we built inventory to healthy levels to support holiday and year-end demand. We invested $35.9 million in CapEx in the third quarter as we continue to build new stores and invest back into the existing fleet. We remain very pleased with our liquidity position as we continue to conservatively manage our balance sheet through the pandemic and retain ample flexibility under our credit agreement. Now we would like to share our thinking with respect to the balance of the year. Comp sales for the fourth quarter-to-date are tracking in the positive mid-single digits. Based on current trends, we expect comp results for the fourth quarter remain consistent at these levels. While we always experienced a seasonal dip in our fourth quarter gross margins due to holiday mix, we expect our gross margin rate in the fourth quarter to be at or slightly below prior year levels, reflecting ongoing headwinds from COVID-related distribution expenses and commodity cost pressures. With respect to expenses, we remain focused on the health and safety of our employees, customers and independent operators. Accordingly, we will continue to incur incremental COVID-related costs for the foreseeable future. In addition, the fourth quarter will include higher personnel expenses as well as public company costs associated with our final stages of SOX implementation. As a result, we continue to expect adjusted EBITDA margins for the fourth quarter to be modestly below prior year levels. We expect interest expense to be roughly $5 million on a quarterly basis based on current rates. We continue to expect a normalized tax rate of approximately 28%, which excludes discrete items and a weighted average diluted share count for the fourth quarter to be approximately 100 million shares. We plan to open 7 stores in the fourth quarter with no additional closures. This would result in 34 new stores opened during the year and full year CapEx of approximately $105 million net of tenant allowances. In summary, we are extremely encouraged by our third quarter and year-to-date performance, which demonstrates the power and flexibility of our business model as well as exceptional dedication and consistent execution on behalf of all of our IOs and team members. We remain committed to investing in our business as we continue to strengthen our foundation for long-term growth. With that, we can turn it back to the operator to begin Q&A. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Randy Konik with Jefferies. -------------------------------------------------------------------------------- Randal J. Konik, Jefferies LLC, Research Division - Equity Analyst [2] -------------------------------------------------------------------------------- A couple of questions. Just, Charles, I think on the CapEx, I think the number you just gave is slightly below our model, yet there's -- it looks like there's some upside -- slight upside to the number of stores you're going to have done for the year versus our prior guidance. So I guess the question is, are you getting more favorable terms on your store builds? And then from a Brian McAndrews' perspective, what is he saying about what he's seeing in the field as he goes about his calls and relationship building with the different landlords and the different real estate opportunities that are out there? That's my first question, and then I have one more. -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [3] -------------------------------------------------------------------------------- Yes. Randy, I'll take the Brian McAndrews portion, and then perhaps, Charles want to come back with CapEx. So it's still early yet, I think, in the downturn cycle. I think we've all read that we think there's going to be some real estate opportunities coming next year. We've been really actually quite pleased with what we've seen. The pipeline for real estate remains really strong. We've got a lot of great sites signed up for 2021. We've managed through 2020 quite well. Lots of roadblocks thrown at us and the team has handled those well. The markets that we're in are quite competitive. We've used the same sort of flexibility that we have, i.e., splitting up boxes, taking smaller 10,000 square foot sites; taking larger, say, 30,000 square foot sites. We've used all the flexibility we can to make sure we have a first crack at a lot of these sites. I'd say similar to other parts of the business, we've really invested in this area, and I think it's paying off. The team has really gelled quite well. So I'd say it's early days yet to start counting a lot of these opportunistic sites, but our belief is that what's happened to the economy should produce nice opportunities going forward. -------------------------------------------------------------------------------- Charles C. Bracher, Grocery Outlet Holding Corp. - Chief Finance Officer [4] -------------------------------------------------------------------------------- Yes. And Randy, it's Charles. Just to add to that. I'd say from a CapEx standpoint, yes, no changes here relative to the way we thought about CapEx historically. Again, pleased that we opened 10 stores in the quarter and as we guided, expect to open an additional 7 here in the fourth quarter. So any CapEx change you're seeing there is really just as a result of timing shifts with respect to construction and the various projects we have in process. -------------------------------------------------------------------------------- Randal J. Konik, Jefferies LLC, Research Division - Equity Analyst [5] -------------------------------------------------------------------------------- Great. And my last question is when you guys went public, I believe the statistics were that basket size was around $25, I could be mistaken, and the average visit was like twice a month. So if we think about that first, that normal live level, it seems as if there would be a lot of massive opportunity for that basket size to go up pretty substantially and the frequency of shop per month to go up pretty dramatically. So I guess, I want to get some perspective on that. And then when you look at just what's going on with the basket size now, could you just give us maybe a little color on that higher basket. Is it due to increased breadth within the basket? Or is it the consumer is loading up on more units per SKU? Just could you give a little more color on what you're actually doing will be super helpful. -------------------------------------------------------------------------------- Robert Joseph Sheedy, Grocery Outlet Holding Corp. - President [6] -------------------------------------------------------------------------------- Randy, it's RJ. I can take that, and others can chime in. Yes, we agree with your comment on the opportunity here in terms of both basket growth and trips as we think about the customers that are shopping our stores, the frequency with which they shop and then certainly, all the customers or consumers out there that we continue to attract to the model. So I think everything that you pointed out there, and as we've talked about in the past, continues to be true. We think that's a big opportunity for us. In terms of the composition of our comps, we do still continue to see some consolidation in trips. And so when customers are coming in, they're stocking up. They're buying more than they normally would or they did pre-COVID. And so that's the trend that we've seen really consistently since the beginning of this COVID time period with some moderation as food away-from-home spend has increased with openings of free markets. Regarding mix and what's in the basket and as we think about performance of the business, we continue to be really pleased with what we're seeing here, and that is very balanced. So we continue to see growth across the entire assortment. We continue to see growth in basket composition for both opportunistic and every day as we talk about those 2 different pieces of the assortment. We do still see some elevated demand in certain categories. That's persistent. I don't think that's unique to us. But when customers are coming in, looking for those items and buying them in larger quantities, they're also shopping the whole store, so -- across all of our fresh categories, center store, hard lines, GM and HBC as well. So happy with the composition there. And in terms of units and ring, I think consistent with what's happening more broadly in the industry, the bigger increases there have been on units when customers were initially stocking out there, just buying more items. And then that's moderated to some degree as, again, spend away-from-home has shifted with markets reopening. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Next question, Oliver Chen with Cowen. -------------------------------------------------------------------------------- Oliver Chen, Cowen and Company, LLC, Research Division - MD & Senior Equity Research Analyst [8] -------------------------------------------------------------------------------- Nice quarter. Regarding your comments on food away-from-home and that relationship with basket size, do you think you'll continue to see a certain degree of volatility there and/or as we all contemplate potential resurgences? Just would love your views there. And then the new customer element is quite compelling. What's the nature of the new customer? Any consumer insights you're seeing that can help lend itself to retention and engagement at that new customer acquisition point? -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [9] -------------------------------------------------------------------------------- Yes. Why don't I take the first one and then perhaps, RJ, you can jump in on the second one. So Oliver, macro trend, it's anyone's guess. I don't have a great sense for when or how this will start to unwind and return to normal, what's normal look like? We know that food-at-home has helped anyone that's in the food business, the grocery business, the discount business. I mean, we've all sort of benefited. How this starts to return, how long, how sustaining it is? I think it's just too tough to call, but we just remain super focused on value, very focused on the IO, very focused on delivering what our customers expect us to deliver to them, which is incredible value. Geo, even if I could give you the answer, it's really tough to compare geo to all the other conventionals out there. We're -- this treasure hunt, limited SKUs. We're sort of hard-hitting values in WOW!s. We don't have a lot of the other things that other retailers sort of use for their strategy. So it's really tough to say where the macro is headed and how the customers can respond, but we're just going to remain flexible and do what we do, focus on the buy, focus on the value and focus on the IO. -------------------------------------------------------------------------------- Robert Joseph Sheedy, Grocery Outlet Holding Corp. - President [10] -------------------------------------------------------------------------------- Oliver, regarding new customers, continue to be pleased with the amount of new customers that are shopping our stores. You've seen consistently healthy growth there. In particular, and we've mentioned this before, new customers continue to find us in our more developing markets, specifically Southern California and Pennsylvania. So -- like what we're seeing there in terms of new customer growth. When we think about customer segments and who these customers are, I'd say that we're seeing new customers across all types. We target, what we call, the bargain-minded customers. So these are people that are seeking value. There's certainly a lot of them out there. We think, if anything, there will continue to be more as the months roll ahead here. Some of these customers need to save money based on income levels. Others just are looking for more of the thrill of the hunt. But the common denominator here is that they seek value. It has been, and we think continues to be really important. So that's where our focus is. But because this is such a broad group of consumers, they do shop us differently, right? Some of us -- some of them shop us as a primary store. Others were more secondary or tertiary. We survey these customers all the time. We know that satisfaction levels are very high from the customer surveys that we put out there. And as we look at comps, they have been healthy across these customer groups as well. So as mentioned in the comments, our objective here is to grow and where we think the opportunity is, is to grow both basket and traffic with these customers and the typical progression is to first identify or get on the radar through awareness. We then engage with them through our marketing efforts. And then when they come into the store and they shop up and down the aisles, the model really resonates. It's the treasure hunt, it's the values, it's the great items. And then, of course, it's the connection with the operator, which is incredibly unique. So the strength of that model continues to be there. New customers are finding us and then those yield future loyal customers. -------------------------------------------------------------------------------- Oliver Chen, Cowen and Company, LLC, Research Division - MD & Senior Equity Research Analyst [11] -------------------------------------------------------------------------------- Just a last follow-up, Eric. The Mid-Atlantic independent operator opportunity sounds quite compelling, and you're making great progress there. Could you elaborate on what you're seeing with that? And how your program is scaling and continues to be very successful in new regions along that line? -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [12] -------------------------------------------------------------------------------- Yes. Absolutely, Oliver. Just took a nice trip back there last month. It's been a week with Heather and the team, and I was really happy with what I saw. Let me just give you few details deeper. So really high engagement with the IOs. They're leading in that market. When we walk stores, I mentioned that they never look better, merchandising, freshness upfront, item selection on the power wall and the in-caps, adjacencies in the market. We've invested in marketing, so every store back there has the Bargain Bliss package. That label rolled out last year. So that's looking great. And then from an IO standpoint, we've got some really strong market IOs. That's important because we'll use local market IOs for training. And so as we've recruited, I think we have half a dozen new recruits, AOTs, aspiring operators in training, in that market. And they do a lot of their training with our content, but they learn it in stores. We've got some really solid operators in that market that are helping us get those folks trained. And I'd say the last thing is just from a real estate standpoint, we took a tour with our local real estate market representative, and then Brian, myself, Tom McMahon and then Heather. I think we're going to see some nice opportunities in the broader Pennsylvania and New Jersey market. So Heather has done a great job. She's leading. She's in charge of that market as a general manager. She's making calls on what we're going to market and how we're going to market and where we're going to go. And from a training standpoint, I couldn't be more pleased just to see that team developing. So it's looking great. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Next question comes from Paul Trussell with Deutsche Bank. -------------------------------------------------------------------------------- Paul Trussell, Deutsche Bank AG, Research Division - Research Analyst [14] -------------------------------------------------------------------------------- Congrats on another good quarter. I wanted to first inquire about what your data or your -- just your gauge of how you're performing in your markets from a share standpoint? And what you're seeing more broadly as it relates to competition and promotional activity? And then as it relates to the quarter-to-date performance, mid-single-digit comps is what you were putting up pre-pandemic, but maybe just provide your level of confidence, right, that you will sustain that comp rate going forward, just given that the business has seen a natural deceleration over the last few months post-COVID? -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [15] -------------------------------------------------------------------------------- Yes. Paul, Eric here. So let me take the -- kind of the general market share, and then I'll jump over to promotion, and then we can talk sort of about the long term. We think the value proposition is strong as ever. We think what we would use to illustrate that is just a very strong top line growth across every geography and every vintage and every department. So just really strong across all of those. We know customer loyalty is solid, and RJ mentioned surveys. They tell us that satisfaction remains really high, and it's really high because we're combining these attributes of value and treasure hunt, customer service and then community connection. And those all continue to resonate with the customer. I'd bring you back to sort of last year, we first met to this concept about chaining the locals and outlocaling the chains. Don't underestimate that. That's alive and very, very healthy in the model. We are seeing new customers, particularly in our newer and developing markets, as RJ pointed out, Southern California, Mid-Atlantic. So we know -- we've literally got decades of growth out there for new units, and what we've proven, I think, is very portable and expandable model. So in the long term, we're going to continue just to reinvest in that algorithm of -- sort of multi-years in the future. Relative to promotion, you're right, we did see a decrease in the promotional activity early on in COVID. I think as people pull back their horns, they didn't know what to promote. We saw that activity go back. It has since increased, but I believe it to be still below where sort of normal levels, 30%, 35% product promotion levels. The way we stay intact with it, we do a lot of price checking, and we continue to monitor prices versus competitors relative to Grocery Outlet, and we keep really close to it to make sure we're delivering value because that's what our customers are coming to the store for. So what we're providing, the value on name brands, the local shopping experience and the IO, that's really tough to replicate. In terms of long term, I'm not sure we're changing our outlook. This year is going to be one heck of an anomaly, I think, for all of us. And certainly, we'd expect, at some point, in the future that the algorithm sort of returns back to more of the long-term targets that we've talked about before. -------------------------------------------------------------------------------- Paul Trussell, Deutsche Bank AG, Research Division - Research Analyst [16] -------------------------------------------------------------------------------- Just one quick follow-up would be, you mentioned some positives on the inventory front. Just are there any categories or areas where you are having challenges from a supply chain standpoint? -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [17] -------------------------------------------------------------------------------- No. I'd say -- look, I'd say the deal flow has been really healthy. Supply has been really healthy. And I'd cite 2 reasons: one, we've got an amazing team of buyers who are working really hard every day, and they've got great relationships. The pipeline of opportunistic is really strong. We continue to have more product available to us than we're able to buy. We've talked about this idea of market disruption. That is, and I think it's going to continue to be our friend. I think in the short term, the flexibility in the model, we're just built to react, Paul, to everything that's coming our way. I think in the long term, any sort of supply chain imbalance is going to be a positive for us. We're built that way. And I wouldn't underestimate -- I think what we've done is we've created solutions for suppliers along the way that sort of gets us to the top of the leadership position in terms of relationships. I wouldn't underestimate the importance of being with those suppliers during all kinds of cycles, and that's what we've tried to do. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Next question comes from Kate McShane with Goldman Sachs. -------------------------------------------------------------------------------- Katharine Amanda McShane, Goldman Sachs Group, Inc., Research Division - Equity Analyst [19] -------------------------------------------------------------------------------- We're just curious -- this is kind of building on a question that was asked earlier, but just if there's been any real difference with regards to your lower end consumer. Was the SNAP composition different this quarter than maybe you saw in the previous quarters and any learnings you have from that consumer? -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [20] -------------------------------------------------------------------------------- Yes. I would say the SNAP has not been markedly different other than -- you've obviously seen many more dollars sort of put into the system. States are famous for changing up how they distribute. So we're always trying to figure out what day what state is going to drop, but I wouldn't say it's been largely different, given the pandemic and the additional dollars. No. -------------------------------------------------------------------------------- Katharine Amanda McShane, Goldman Sachs Group, Inc., Research Division - Equity Analyst [21] -------------------------------------------------------------------------------- Okay. And again, this is building on a question that was already asked, but just given the still state of the world where people are not traveling and they're at home, when -- I know you traditionally have a dip around holiday with regards to sales, but just given this holiday with more people being at home, they may have smaller gatherings, but it sounds like they'll be out less. Do you have any expectation or do you think there's a chance that you could see a reacceleration of the comp as we get more into the holiday season? -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [22] -------------------------------------------------------------------------------- I think it's possible. If you just do the math on what people are planning to do with their time, they're not going to travel. So that's more at home. They're going to have more discretionary dollars to spend. I think the gatherings are going to be more frequent, but smaller. I would say this, it's hard for us to project out and predict it, but we are prepared, I think, from an inventory standpoint and both on the MTO side, which the fourth quarter food prep for us tends to be a little bit more weighted toward made-to-order versus opportunistic. But just looking at the opportunistic deals that we've been buying every Friday, in the buyers review of the last 4 or 5 weeks, what's loaded into the store right now and into the warehouse is pretty exciting -- opportunistic. So those trends are, I think, going to be short-lived. We're looking at this much more from a long-term standpoint, but I think your thesis is as good as any, just looking at how the customer is going to behave in this fourth quarter. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- Next question comes from Robby Ohmes with Bank of America. -------------------------------------------------------------------------------- Robert Frederick Ohmes, BofA Merrill Lynch, Research Division - MD [24] -------------------------------------------------------------------------------- I think my follow-up is just -- on the mid-single-digit comps, it's obviously a deceleration from 3Q. The industry data I've seen hasn't decelerated like that for the grocery industry as far as we can tell. Is there something that happened in October? Was Halloween significantly different this year for you guys? What changed? Is it more traffic than basket? Just maybe be more color. I'd also be curious -- I mean when you look at the opportunistic menu that your IOs are looking at for 4Q this year versus last year, is the menu as good or better? Just trying to get a little more color on the decel in comps. -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [25] -------------------------------------------------------------------------------- Yes. Again, I'd just take you back to -- it's so hard to compare a Grocery Outlet experience to a conventional, so I'd stop with that. I'd go back on sort of recent trends. Look, we're thrilled with the quarter. I think every point we measure, 2020 as a year and the quarter, it's going to be a better year. Overall comp consistency, it's strong across departments, regions, vintages. We've stabilized in the mid-single digits. We are seeing increased basket. We said that on the call. We're continuing, Robby, just to play the game that we play. We're buying products. We're investing in the infrastructure and the team. We're really working on the IOs to make sure the experience in the store is this unbeatable value the customers get. We've added safe to that, just making sure that the stores are as safe as they can possibly be, and we're going to hold on through the pandemic until things start to get back to normal. But I wouldn't say, on your Halloween specific question, that other than -- there weren't a lot of trick or treaters out. We still bought and sold a lot of candy, and all of our, I'd say, home decor for fall and harvest sold out pretty quickly, which we bought more of that. But other than those 2 specifics, I would say there's nothing in the sort of late September-October numbers that we look at and say is markedly different. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Next question, Michael Lasser with UBS. -------------------------------------------------------------------------------- Michael Lasser, UBS Investment Bank, Research Division - MD and Equity Research Analyst of Consumer Hardlines [27] -------------------------------------------------------------------------------- So one of the enduring outcomes for the broader grocery sector coming out of this year is going to be a higher penetration of e-commerce. How does that make you rethink the digital aspect of your business? So if e-com penetration was -- pre-COVID was 3% to 4% and 5% in the grocery sector and now it's 10%, 15%. This means that the addressable market opportunity might be lower and more difficult if Grocery Outlet is not participating in that growth? -------------------------------------------------------------------------------- Robert Joseph Sheedy, Grocery Outlet Holding Corp. - President [28] -------------------------------------------------------------------------------- Yes. Michael, it's RJ. I'll take that one. Yes, with regards to e-commerce, we have not changed our position, which is to say that it is not a priority for us right now. Of course, it's something that we continue to look closely at, and it's not a priority for the same reasons that we've talked about in the past. It's really hard to replicate the treasure hunt experience online. And then on top of that, just the close connection customers have with the operator and the overall in-store, we call, WOW! shopping experience. In terms of growth prospects, we continue to be super excited about the ample long-term growth opportunity with real estate expansion for one. There's a lot of white space out there, and we're pleased with the progress that we've seen there. And the pipeline is very strong looking forward. And then also growth potential within our existing stores, I talked earlier about continuing to grow basket, customer count and gaining share within the markets where we already have stores. We're a lower share player, and so there's plenty of room on that front. Regarding, just more broadly, digital aspect of the business in the stores, we do continue to focus quite heavily on growing our digital infrastructure. Digital marketing is a big, big part of that. So as it relates to social media, the e-mail database, that continues to grow future plans for personalization. We think there's a ton of upside opportunity there. And then more broadly, continuing to use data and analytics to manage the business, both in terms of the decisions that we make, but also the information that helps us be more efficient or the systems that help us operate more efficiently within corporate and then certainly, at the store level, for what the operators are doing every day. So we'll continue to evaluate e-commerce over time, but no immediate changes in terms of prioritization. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Next question, Karen Short with Barclays. -------------------------------------------------------------------------------- Karen Fiona Short, Barclays Bank PLC, Research Division - Research Analyst [30] -------------------------------------------------------------------------------- Just a couple of questions. I'm curious on your inventory growth. I got dropped briefly, but did you give any color on why you had such high inventory growth relative to your comp guidance for 4Q? So maybe a little color on that. And then I had one or two other quick ones. -------------------------------------------------------------------------------- Charles C. Bracher, Grocery Outlet Holding Corp. - Chief Finance Officer [31] -------------------------------------------------------------------------------- Yes. Karen, it's Charles. Let me tackle that. I'd say, overall, we're really pleased with the quantity and composition of the inventory as we exited the third quarter. It was healthy across regions as we look at specific categories and key items. It was really right where we wanted it to be. It does reflect the build for holiday and end of the year demand. Keep in mind for us that over the long term, as we've talked about, we would expect inventory to grow roughly in line with sales on a quarter-to-quarter basis. It can definitely fluctuate due to the nature of our buying model. So it's not necessarily linear, but overall, really pleased with how we exited the third quarter. -------------------------------------------------------------------------------- Karen Fiona Short, Barclays Bank PLC, Research Division - Research Analyst [32] -------------------------------------------------------------------------------- Okay. And then wondering -- I guess you talked about new store productivity this quarter. And I'm just kind of curious, philosophically, because that's always a metric that you've kind of talked us away from anchoring onto. So I'm wondering why that's suddenly something that you want to point to and/or is more relevant when that really hasn't been something that we should have -- you've guided us to not look to in the past? -------------------------------------------------------------------------------- Robert Joseph Sheedy, Grocery Outlet Holding Corp. - President [33] -------------------------------------------------------------------------------- Yes. I wouldn't -- if that was the way you interpreted that, it really wasn't our intention. I would just say for us, we're pleased with new store productivity. We've talked about the fact that rising tides have lifted all boats, but I don't think fundamentally, we think about new store productivity any differently than we have. It really is, for us, the larger white space opportunity, and we just feel great about the infrastructure we're building to go after that for the long term. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- Next question, Simeon Gutman with Morgan Stanley. -------------------------------------------------------------------------------- Michael Efram Kessler, Morgan Stanley, Research Division - Research Associate [35] -------------------------------------------------------------------------------- This is Michael Kessler on for Simeon. I guess, first on gross margin, there's been some great expansion all year including Q3 and (inaudible), big benefit there. I guess my question there would be, longer term, the goal here has been to kind of keep margins flattish. And is that, I guess, still the goal? And would there be an expectation that maybe next year or the next couple of years that either -- that upside from this year would be either reinvested or might naturally reverse or are we perhaps thinking about it just a higher run rate on the margin going forward? -------------------------------------------------------------------------------- Charles C. Bracher, Grocery Outlet Holding Corp. - Chief Finance Officer [36] -------------------------------------------------------------------------------- Michael, it's Charles. Yes, I would say that nothing has changed for us in terms of the way we think about margin. We continue to manage for the long term with the goal towards stable margins and making sure we're always reinvesting back into the value proposition. If you think about third quarter, yes, that roughly 40 bps improvement versus last year was better than we thought. Frankly, that did come from more favorable strength than we had anticipated. And that did help to offset some of the commodity costs and COVID-related cost pressures in the third quarter. As we think about the fourth quarter with moderating top line, really that shrink benefit goes away. However, we continue to feel those headwinds around commodity and COVID costs. So that's really the nature of our guide. The color we provided around Q4 margins being at or slightly below prior year, but to your question, over the long term, continue to think the same way we always have about managing for stable gross margins. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- Next question, John Heinbockel with Guggenheim. -------------------------------------------------------------------------------- John Edward Heinbockel, Guggenheim Securities, LLC, Research Division - Analyst [38] -------------------------------------------------------------------------------- So 2 quick things. Maybe for RJ, how is NOSH performing in the current environment? And in the trip consolidating environment, have you tried to find more big pack product? And have you been able to? And then just secondly on the -- maybe for Charles or Eric, on investing back into the business, I know you talked about talent and technology. Any more color on that, particularly on the talent side, are you doing anything with regard to the buying staff, which is already pretty robust or anything out in the field? -------------------------------------------------------------------------------- Robert Joseph Sheedy, Grocery Outlet Holding Corp. - President [39] -------------------------------------------------------------------------------- John, yes, NOSH continues to be a great growth category for us, consistent with how it's been for a long, long time now. So I wouldn't say any material change there in terms of relative growth to the rest of the business. So really pleased with the continued growth there. And that's across many different categories, of course, in the assortment. Big pack product, yes, no specific initiative there to grow larger pack sizes within the assortment. As we do, it's about value. And in some cases, that could be larger pack items, larger quantities. We gave the example of the gallon of salsa. So seeing some of that with food service shift and lower demand there and some opportunities, but broadly speaking, we're continuing to seek where we can find value, whether it's in larger pack or regular-sized packaging. -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [40] -------------------------------------------------------------------------------- John, Eric. Let me talk just a little bit. I'd probably emphasize talent. We've made a lot of investments in talent, particularly as we saw the volumes start to pick up. And into Q1, Q2, we started to pull forward some of the positions to make sure we're ready for it. So we've really invested a lot in the whole real estate world, so that's construction and maintenance and everyone that sort of get stores ready to be opened, all the way through opening. Finance and accounting, in Charles' area, we've added some serious resources to help us through the first year compliance requirements for SOX, which is not exciting, but super important. I'd say field operations, we've continued to scale that group, both from a field training standpoint. Again, a lot of AOTs coming to the system. So between learning coaches and folks out in the field just shepherding them through the learning that is required for 4 to 6 months. I think probably most exciting is buying. We're always looking for talent. We were able to hire someone that was sort of a known veteran from 99 Cents Only, joined us about 1.5 months ago. So really excited about her addition and then multiple positions at the assistant buyer level. It's just a really incredible team of go-getters. We're really proud of them, and this has been a very challenging year for a group that really loves to get out in front of suppliers. They've done an amazing job staying really well connected. So it's all across, but just give you a few of those. Maybe, RJ, on the technology side, if you want to add anything, go for it. -------------------------------------------------------------------------------- Robert Joseph Sheedy, Grocery Outlet Holding Corp. - President [41] -------------------------------------------------------------------------------- Yes. No, I think -- I mean, consistent with investment across all parts of the business, we've made investments in the IT team, love having Harrison onboard, other members of the team and continued investment in really infrastructure as we look to further develop systems and then build capabilities to support future growth. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- Next question comes from Jeremy Hamblin with Craig-Hallum. -------------------------------------------------------------------------------- Jeremy Scott Hamblin, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [43] -------------------------------------------------------------------------------- Congrats on a strong quarter. I wanted to just confirm something on the modestly slowing trends here. Is that coming more from your basket size getting a little smaller? Or is that more a reflection, it sounds like, of traffic trends softening just a bit as there's more food away-from-home? -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [44] -------------------------------------------------------------------------------- Charles, do you want to take that one? -------------------------------------------------------------------------------- Charles C. Bracher, Grocery Outlet Holding Corp. - Chief Finance Officer [45] -------------------------------------------------------------------------------- Jeremy, it's Charles. Let me take that one. I would say it really has been the same dynamics we've seen since the beginning of COVID just post the initial wave of that panic buying. It's been, first and foremost, customers continuing to prioritize safety and they're consolidating their trips. They're, again, as we've talked about very much engaging in mission-driven shopping. So those traffic trends have stayed steady. And what we have seen change is that the moderation in the basket. So they continue to stock up and buy more, but that -- those numbers have come down a little bit as, again, food away-from-home options have increased for them. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- Next question, Michael Baker with D.A. Davidson. -------------------------------------------------------------------------------- Michael Allen Baker, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [47] -------------------------------------------------------------------------------- A couple of follow-ups. First, in some of your customer survey work, we know you're picking up customers -- new customers, but are you seeing any increase in the percent of your customers that see you as a primary source versus a secondary source versus a tertiary source, has that changed at all during this pandemic? -------------------------------------------------------------------------------- Robert Joseph Sheedy, Grocery Outlet Holding Corp. - President [48] -------------------------------------------------------------------------------- It's been pretty consistent, meaning we're seeing healthy growth across all groups. And therefore, that balance is remaining pretty steady. -------------------------------------------------------------------------------- Michael Allen Baker, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [49] -------------------------------------------------------------------------------- Okay. Interesting. And then maybe this is just looking out over the coming quarters, and I don't know if you're prepared to talk about this, but you are up against some pretty tough comparisons in the first half of next year. No one knows what's going to happen, of course. But you do have to plan your inventory and you do plan it a couple of quarters in advance. So I'm just wondering how you think about planning your inventory when you know you're up against these double-digit comps? -------------------------------------------------------------------------------- Charles C. Bracher, Grocery Outlet Holding Corp. - Chief Finance Officer [50] -------------------------------------------------------------------------------- Yes. It's Charles. It's a good question. I think as you alluded to and Eric referenced earlier, there's just a lot that we don't know over the coming months here. We are expecting the backdrop to remain very fluid. We're looking at a range of scenarios having to do with the timing for when a vaccine is widely distributed, what's the macro backdrop. I would say whatever happens, we'll be ready. This business model is built on flexibility and particularly, as we think about the supply chain and the purchasing team and their ability to move quickly. So we'll be ready for whatever backdrop we're presented with over the next several quarters here. Really, as we think about next year, we're focused on what we can control. We're thinking about being very mindful to match our investments with the top line trends we're seeing in the business. So we'll stay nimble. We are excited about, as we think about next year, the ability to bring to bear a lot of the investments and see the benefit of those investments we've pulled into 2020 with respect to people and tools. But as we get more visibility, we'll provide it. So we look to provide everyone with an update here when we report Q4 numbers. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- Next question, Joe Feldman with TAG. -------------------------------------------------------------------------------- Joseph Isaac Feldman, Telsey Advisory Group LLC - Senior MD, Assistant Director of Research & Senior Research Analyst [52] -------------------------------------------------------------------------------- I also have a couple of follow-ups. Have you -- you talked about a little bit of the moderation down to that mid-single-digit level. Are there any categories that you've seen more or less moderation in? -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [53] -------------------------------------------------------------------------------- You want to take that? -------------------------------------------------------------------------------- Robert Joseph Sheedy, Grocery Outlet Holding Corp. - President [54] -------------------------------------------------------------------------------- Yes. Yes. No, it's been across the basket, Joe. Nothing specifically that I'd pull out other than it depends on how far back you're looking. Certainly, you had really high demand in categories like paper and sanitizer, cleaners, other items like that, soaps, et cetera. And so that certainly has come down from the higher levels earlier in the year. And then beyond that, I'd say it's more broadly across the basket, again, reflecting food away-from-home that -- the shift in spend. -------------------------------------------------------------------------------- Joseph Isaac Feldman, Telsey Advisory Group LLC - Senior MD, Assistant Director of Research & Senior Research Analyst [55] -------------------------------------------------------------------------------- Got it. And then one other one. I know it may be a little early to think about 2021, but just at kind of a high level, are there any puts and takes we should think about from a profitability standpoint? Or any -- I know the -- obviously, we have elevated COVID-related expenses. Presumably, that continues into next year. But are there any things that we should just think about as we look out to do our own models that might stick out? -------------------------------------------------------------------------------- Charles C. Bracher, Grocery Outlet Holding Corp. - Chief Finance Officer [56] -------------------------------------------------------------------------------- Yes. I think -- again, this is Charles. As I talked about, there are so many moving pieces as we think about what 2021 might present us with. So at this stage, I think it'd be premature to try to determine exactly what those are and what the magnitude of those puts and takes might be. But as we think about, again, reporting Q4 numbers here, early next year, we'll look to provide a more fulsome update based on what we're seeing. -------------------------------------------------------------------------------- Operator [57] -------------------------------------------------------------------------------- Thank you. I would like to turn the floor over to Eric for closing remarks. -------------------------------------------------------------------------------- Eric J. Lindberg, Grocery Outlet Holding Corp. - CEO & Director [58] -------------------------------------------------------------------------------- Thanks, everyone. Enjoyed your questions and connecting with you. Thanks a lot for your interest and all your continued support. We'll talk to you in a future quarter. Look forward to catching up with you over the next couple of days. So thank you. -------------------------------------------------------------------------------- Operator [59] -------------------------------------------------------------------------------- This concludes today's teleconference. You may disconnect your lines at this time.