Grocery Outlet Holding Corp. has reported an unexpected uptick in gross margins for the second quarter ending June 29, despite a noted decline in profitability. With a gross margin of 30.9%, down 140 basis points from the previous year, this figure still surpassed expectations, showing a 160-basis-point improvement from the first quarter. RJ Sheedy, the President and CEO, described this performance as “very strong,” especially considering it was affected by a 100 basis point impact from ongoing systems transition issues.

2023 has proven to be a tumultuous year for Grocery Outlet. In August, the company underwent significant upgrades to its inventory, financial, and reporting systems, causing operational disruptions. These transitions are projected to have hindered margins by about 110 basis points in the first quarter. Yet, with improvements now taking shape, the company’s gross profit rose by 6.9% to $349.2 million in Q2.

Adjusted EBITDA dropped 3.7% to $67.9 million, representing 6.0% of net sales, although this was ahead of projections. The company has seen healthy transaction counts rise by 5.1% alongside a strategic acquisition of 40 stores from United Grocery Outlet (UGO), marking a proactive expansion into the Southeast region.

Moreover, Grocery Outlet recently introduced a customer personalization app, achieving over 700,000 downloads and demonstrating higher basket sizes compared to traditional transactions. To further solidify its market position, the company launched its private label line, SimplyGO, which is expected to enhance value and improve margins.

Looking forward, Grocery Outlet projects fiscal year adjusted EPS between 89 cents and 95 cents per diluted share and anticipates a growth of approximately 3.5% in comparable store sales. The company continues to expand its footprint, targeting a robust 10% new store growth by 2025, further reinforcing its status as a key player in the grocery sector.