Grocery Outlet Holding Corp. (GO) Earnings Call Transcript

Greetings and welcome to the Grocery Outlet Third Quarter 2026 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce host, Nicolo Cottarelli, Senior Vice President of Strategic Finance and Investor Relations. Thank you. You may begin.

Good afternoon and welcome to Grocery Outlet's call to discuss financial results for the third quarter ended October 3, 2026. Speaking for management on today's call will be Jason Potter, President and Chief Executive Officer, and Ian Ferry, Chief Financial Officer. Following prepared remarks from Jason and Ian, we will open the call for questions. Please note that this conference call is being webcast live and a recording will be available via playback on the Investor Relations section of the company's website. Participants on this call may make forward-looking statements within the meaning of the Federal Securities Laws. All statements that address future operating, financial, or business performance, or the company's strategies or expectations are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from these statements. Description of these factors can be found in this afternoon's press release, as well as in the company's periodic reports filed with the SEC, all of which may be found on the Investor Relations section of the company's website or on sec.gov. The company undertakes no obligation to revise or update any forward-looking statements or information. These statements are estimates only and not a guarantee of future performance. Additionally, during today's call, the company will reference certain non-GAAP financial information, including adjusted items. Reconciliation 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 on the Investor section of the company's website under News and Releases and in the company's SEC filings. And now I would like to turn it over to Jason.

Good afternoon to you all, and thank you for joining us for our quarterly update. Our results improved in the third quarter with a return to positive comps driven by our focus on executing an enhanced opportunistic assortment. Revenue increased 0.9% to $1.18 billion with comparable store sales up 50 basis points. That was an 80 basis point improvement from the comp sales we reported for Q2, despite the adverse headwind from the Cyclospora outbreak during the third quarter. The comp was driven by a 2.4% increase in traffic, representing a 60 basis point sequential improvement from Q2. It was partially offset by a 1.9% decrease in basket, which was a 20 basis point sequential improvement from Q2. Gross margin of 30.0% was within our outlook range, reflecting slightly less promotional spend than was expected, but slightly greater than anticipated pressure on freight. Adjusted EBITDA of $59.4 million landed in the middle of our guidance range, and adjusted EPS at $0.16 at the high end, which Ian will discuss further. These results demonstrate continued progress in our efforts to revitalize Grocery Outlet's value proposition and drive sustainable growth. We're committed to reinforcing our position as a leading value retailer, and we're excited about what that progress means for our customers and communities, especially in this challenging economic environment. I'll begin today with more detail about our comp sales improvement and the critical link that improving our opportunistic product assortment execution had during Q3. I'll also share updates on how we're improving collaboration with our suppliers and supporting our operators in this focused effort, and I'll finish by sharing how we see the business developing through the end of the year. First, delivering comp improvement. Our progress on comp continues to be supported by continuing traffic growth, demonstrating that our focus on executing an improved opportunistic assortment and continued emphasis on value communication is drawing more customers into our stores. As inflation continues to pressure household budgets and more shoppers cite value as their top purchase criteria, we're working to ensure our offering is increasingly relevant. During the quarter, our prices on everyday assortment remained competitive, and our retail inflation has tracked below the broader market. During the quarter, we continued to shift our mix to higher levels of opportunistic product, creating greater absolute value and savings across the basket as a result. We see encouraging evidence that this focus is resonating with customers. Customer credit card data indicates that Q3 traffic growth was driven by an increase in the number of new customers. We're also gaining traction in e-commerce where our implementation of parity pricing has resulted in driving incremental sales and positive margin dollars. While economic conditions continue to pressure our customer basket down year on year, positive sequential trends in basket size and the underlying units per transaction show we are making progress as we strengthen our assortment and overall execution. Notably, year-on-year opportunistic units per transaction growth was positive in Q3, as customers are responding to the more compelling assortment in our stores. These efforts are strengthening our brand and contributing to positive improvements in customer NPS scores year on year. In August, we also celebrated Grocery Outlet's 80th anniversary with targeted marketing that emphasized our improving slate of opportunistic deals. Three-day events saw double-digit comps across the company and generated strong units per transaction growth. It's a useful example of how we've transitioned this year from broad-based site-wide promotions to now surgically deploying investments to drive more engagement from our customers. Our operators executed at a high level, and it was great to celebrate 80 years of both serving our customers and communities. Our comp progress was achieved despite the impact of the Cyclospora outbreak. While none of our products were involved in any of the Cyclospora recalls, the resulting impact on our produce business reduced total company comp by roughly 60 basis points during the third quarter. This was less than the 100 basis point impact we anticipated based on the data we had in front of us at the time of our Q2 call. Increased produce shrink also compressed overall gross margins slightly. With that noted, we've seen a nice recovery in both comps and margin in produce, and the category has been growing above inflation since the start of October. Our buying team and stores are ready to capitalize on the returning demand, and we expect no lingering impact of Cyclospora through the rest of the year. With this effect subsiding, overall company comps were positive in September and have accelerated into October. Returning to positive comps is an important marker of our progress, but the goal is to improve comps further and sustain those gains. To sustain our comp performance improvement, we remain laser focused on continuing to prioritize execution improvements in our opportunistic assortment and then sharing these amazing branded deals with our customers to consistently deliver excitement and discovery in every store. I'll now turn to how we execute against that priority in Q3 and the work to come as we close out this year. On revitalizing our opportunistic assortment: As we discussed, our primary goal since the start of this year has been to strengthen our opportunistic assortment, given its foundational and differentiating role in the Grocery Outlet customer value proposition. We've activated the entire organization in this effort, starting with our buying and merchandising teams and partnering with our suppliers and collaborating with our independent operators. We've made some important tradeoffs. One example is to reduce elements of our everyday assortment to ensure we make the space for opportunistic products in our supply chain and at the shelf. By sourcing more exciting opportunistic deals and merchandising them with excellence, we drove a meaningful improvement in opportunistic comp and mix during the third quarter. All of that in turn drives value for our customers. We are seeing this cycle of improvement show up in terms of positive value satisfaction, customer growth, and strengthening baskets. As we shared last quarter, we began this transformation with a specific set of actions to improve the opportunistic assortment for the grocery department. This process and focus drove grocery back to healthy levels of growth in Q2, which was sustained through the third quarter. During the early part of Q3, the team turned to repeating that same focused approach to both the frozen and deli departments. We're pleased to share that the same repeatable process is proving highly effective. Opportunistic mix increased materially in both departments over the quarter and the department comp has followed. As we move forward, we intend to maintain our methodical, focused approach to growing and maintaining the opportunistic assortment, working our way through the departments in a manner that allows us to deliver the right level of value, excitement, and novelty with our customers. This is supported by improved signage and updated digital outreach, including our new, more shoppable website and more focused messaging on deals and discovery. We're confident that customers will continue to respond to this renewed and more exciting experience. During Q3, our approach to collaboration and support with our suppliers and operators has also proved effective. As customers respond to the work we're doing in our stores, we're also actively engaging with our independent operators and suppliers. In Q3, we hosted a series of regional roadshows and workshops across the country, giving us the opportunity to connect in person with our operators. We continue to hear positive feedback about the new tools, processes, and improvements we introduced earlier this year. I continue to be impressed with the collaboration, dedication, and commitment to drive growth and profitability that our operators demonstrate every day. We've seen our IOs' average income increase year to date versus last year as a result of this work, an important indicator for the improving health of the business and operator engagement. In early Q4, we hosted our second supplier summit of the year, creating the perfect opportunity to work with our supplier partners to expand our business opportunities together. These valuable summits generate deal flow, generate new business, help improve execution, and build and reinforce strong relationships. This increased engagement with operators and suppliers creates meaningful opportunities for collaboration and getting the business back to the levels of growth we know we can all achieve together. We look forward to continuing to partner with our operators and our suppliers to drive performance improvement across the business. As discussed earlier this year, we remain committed to operational discipline and effective capital deployment. Our store refresh and new store programs continue at the measured pace we previously outlined. Finally, our strategic review of the UGO business remains ongoing, and we don't have anything new to share at this time. Now looking to Q4. Before closing, I'd like to take a moment to share some high-level expectations for the fourth quarter. We believe the positive trends we're seeing coming out of Q3 and into Q4 bode well for sales growth and our comp trajectory. We've wound down the synthetic promotional spending we introduced earlier this year as our opportunistic assortment's current weight, depth, and quality is now providing significant value and excitement for our customers. We've learned much during this last year, and we'll stay flexible in deploying targeted promotions where we have a high confidence in driving traffic, or for those promotions that create broader benefits, like our recent successful 80th anniversary celebration that I mentioned. For Q4, we're making a similar surgical investment into our Thanksgiving promotion that we believe will contribute to overall sales performance for this quarter and benefit subsequent periods by increasing the engagement of our most loyal customers. While that planned promotion and some cost pressures in our supply chain are embedded in the gross margin guidance that Ian will share, we feel confident in our ability to manage margin responsibly and in our ability to expand margins over time. That said, we're remaining diligent and focused on operational discipline as we aim to drive durable, profitable growth. In closing, we're encouraged by the results of the quarter, but have much left to do before we're satisfied with our performance. Our #1 priority continues to be strengthening our opportunistic assortment, which we believe will unlock higher levels of comp growth. We'll continue to optimize and refine our operations to promote growth and drive efficiency across our business. In an environment where value is essential to our customers, our model is uniquely positioned to serve, and we see continued evidence of that in our financial performance. I'm confident in our ability to achieve our goals, and with a stronger foundation, we're well positioned to capture on our long-term opportunities. We look forward to updating you on how we finish out this year. I'd like to thank our customers, our operators, our team, and our shareholders. Our focus lies firmly in delivering value to all of you. And with that, I'll turn it over to Ian. Ian?

Thanks, Jason. In the third quarter, we saw a return to positive comps and delivered financial results in line with our guidance as we continue to strengthen the foundation of the business. Our efforts to restore and enhance the attributes that make this business unique and differentiated are starting to resonate with consumers and drive sales improvement. As we build on the sales trends, we'll continue to spend with discipline and expect to improve our profitability and return on capital over time. I will start with the quarter and then discuss our fourth quarter and full year outlook. Unless otherwise noted, the comparisons I provide are year over year. Starting with the top line: Third quarter net sales increased 0.9% to $1.18 billion. Positive comparable store sales and sales from stores opened over the last 12 months more than offset the impact of the optimization plan store closures earlier this year. We opened 14 stores and closed 0 during the quarter. Comparable store sales increased 50 basis points, ahead of our guidance of -1% to flat. The improvement reflected 2 factors: a smaller than anticipated headwind from Cyclospora and stronger traffic and basket driven by our strategy to enhance the opportunistic assortment. On Cyclospora, we guided to a 100 basis point impact on Q3 comp, but we came in approximately 40 basis points favorable to that estimate. We continue to see evidence that our focus on the opportunistic assortment is driving traffic and sales. We are encouraged by customer credit card data showing sequential growth in the active number of customers shopping our stores, demonstrating traction in attracting shoppers. Notwithstanding the pressure on the basket, which is impacted by broader economic conditions, sequential improvement on basket and positive results on opportunistic units per transaction growth show that we are making progress. Gross profit trended slightly favorable to expectations in Q3 with gross margin of 30.0%, coming in at the high end of our outlook. Gross profit dollars of $353 million were down slightly year over year, and gross margin was down 40 basis points year over year. The decline was contemplated in our outlook and reflected pressures we experienced during the quarter, including the impact of the supplemental promotional spend introduced this year, higher supply chain costs, and increased produce shrink related to the Cyclospora outbreak, and were partially offset by the favorable shift in opportunistic mix. We spent less than we expected on our synthetic promotional investments in Q3, notwithstanding investments in the 80th anniversary celebration. GAAP SG&A increased slightly to $332.5 million, and as a percentage of net sales, declined 10 basis points to 28.2%. Sequentially, GAAP SG&A improved 30 basis points as a percentage of net sales, primarily driven by lower incentive compensation and professional fees, partially offset by higher costs to support our business growth. We also recorded $3.6 million in net restructuring credits related to the optimization plan. This included $15.8 million in non-cash credits, primarily from the net write-off of lease right-of-use assets and lease liabilities, partially offset by $12.2 million in cash charges. Below the operating line, net interest expense was $7 million, up 5.1% from last year. Our GAAP effective tax rate was 21.8% compared with 28% last year. Net income was $13.3 million, or $0.13 per diluted share, compared with $11.6 million, or $0.12 per diluted share, last year. Adjusted net income was $15.6 million, or $0.16 per diluted adjusted share, compared with $20.7 million, or $0.21 per diluted adjusted share, last year. Adjusted EBITDA was $59.4 million, or 5% of net sales, compared with $66.7 million, or 5.7% of net sales, last year. Adjusted EBITDA came in at the middle of our outlook range, while adjusted EPS came in at the high end. Turning to the balance sheet and cash flow statement: We ended the quarter with $59.8 million in cash and approximately $154 million of revolver availability. Total debt net of issuance costs was $502 million, down $3.7 million from Q2. Net leverage was 1.9x adjusted EBITDA at quarter end. Operating cash flow was $18.2 million compared with $17.3 million last year. The increase was driven primarily by higher accrued and other liabilities due primarily to timing, partially offset by lower operating lease liabilities as a result of the optimization plan. Capital expenditures were $28.1 million, or $25.7 million net of tenant improvement allowances. Now on to our outlook. Our fourth quarter guidance contemplates continued improvement in comp as we drive further execution on our opportunistic initiatives. Our margin outlook reflects the step-down of our promotional work from prior quarters balanced with some headwinds that we are managing. We are also expecting some pressure in SG&A driven by higher repairs and maintenance expenses on our fleet and other line items. As a reminder, last year's fourth quarter included a 53rd week in fiscal 2025, adding $82.4 million to net sales and $9 million to adjusted EBITDA. Our fourth quarter and full year outlook reflect the absence of those benefits this year. For the fourth quarter, we expect comparable store sales ranging from 1.5% to 2.5%, gross margin of 29.7% to 30.0%, adjusted EBITDA of $57 million to $61 million, and diluted adjusted EPS of $0.11 to $0.14 per share. For the full year, we now expect net new store openings of 30 to 31 stores, net sales of $4.7 billion to $4.72 billion, comparable store sales in the range of 0.2% to 0.4%, gross margin of 29.8% to 30%, adjusted EBITDA of $225 million to $229 million, diluted adjusted EPS of $0.52 to $0.55, and capital expenditures net of tenant improvement allowances of $170 million. In summary, we're confident in our ability to build off the results of the work we've done this year and drive towards sustainable, profitable growth. Near term, we remain focused on getting more opportunistic product into our stores across more departments, ensuring our value proposition is well communicated to customers, and managing the business with discipline. Echoing Jason, thanks to everyone across the business and to our shareholders. We look forward to updating you at the end of our fiscal year. With that, I will turn the call over to the operator for Q&A.

[Operator Instructions] And our first question today, we'll hear from Robert Ohmes with Bank of America. Please proceed with your question.

My first question would be for Jason. Just the delivery pricing change with parity pricing, did that hit this quarter, and did you see any significant changes in delivery? Things like that, maybe Instacart, DoorDash merging, could that have an impact on your delivery business?

Sure. Robbie, thanks for the question. First thing I'll say is we do believe the business will continue to generate positive in-store traffic and comp growth of over 3% over time, irrespective of what we're doing online. That said, we did, as we indicated before, implement price parity. And in doing that, the reason, the rationale for it, was to make sure that the customer, the consumer, could see our pricing and understand the offering online. That's been successful. We're really happy with the results. Their ability to see that value is translated into larger baskets and an inflow of new customers. We can kind of see that in the reporting. As we indicated, or what I will share is, it is margin dilutive, obviously, taking fees off and creating price parity, but the results are EBITDA positive. So we're excited with those changes as they are at this point. It's a small part of our business. And your follow-up question on DoorDash, Instacart, you know, it's early days. We're unsure of what that means, but both great partners, and we expect that great partnership to continue.

And just a quick follow-up. How are you thinking about longer term, a timeline to get the business back to sort of a 6% or higher EBITDA margin? What are sort of the 2 or 3 key things that need to happen?

Yes, Robbie, thanks for the question. We're still in the relative early innings. Our priority this year was to make sure that we were focusing on improving value by improving price perception through our opportunistic assortment. I would tell you that we're excited about the progress there with the team. On that part of the business, to get comps moving and obviously get back to a more normal level of profitability, we've seen our comp accelerate meaningfully through Q3. Our mix continues to expand. The playbook that Paul Miller and the team have put in place for grocery sustained itself through Q3. We've seen improvement across deli and frozen as we've turned our attention there. And so I think on the value component, what I would hope to be able to do in the next call is to give you an update on where we are there. We're likely kind of halfway through on that piece of the business. That work will continue meaningfully through next year. The value piece being the key priority of our offering is essential. And then when we look at the business, our customers have been clear about what else they need. It's all about the customer. It's also clear to us that the customer experience is important, and so as we work on things like improving our fresh offering, in-stocks, store standards, and so on, we'll see the basket growth, I think, rebound and start to grow. And our expectation is as we improve the business and continue to execute, loyalty will improve and ultimately we'll get the business back to where we know it can achieve.

Sounds great. Thanks, Jason.

And next, we'll move to Edward Kelly with Wells Fargo. Please go ahead.

Thanks for the question, Robbie.

I wanted to ask you about the guidance and the implied Q4 guidance. Coming in a little bit better than expected, that guide comes up. Q3 EBITDA was in line with the expectation, but I think the implied Q4 comes down a bit. I guess with what you did with the full-year EBITDA guide, can you just maybe talk a little bit more about what's impacting that, and then how much of that sort of carries into -- and then I guess like how close are you to sort of like run rate of what EBITDA should look like as you get to next year?

Hey, Ed. It's Ian. Thanks for the question. So, just to start out at a high level, as Jason said, our focus this year has been on driving comp acceleration through revitalizing the app pipeline. So, in the end of Q3, we exited the quarter at a comp rate that was 400 basis points higher than where we were in January. So, that feels good. And clearly, we're guiding to further improvement in Q4. Meanwhile, we do think we've aligned on a healthier approach to gross margin as we've moved through the year and tapered the promotional bridge that we put in place back in January. So for Q3, you're right, we did outperform on both comp and gross margin rate, which contributed about $2 million of upside, and that was offset by $2 million of unfavorable SG&A pressure. That came predominantly from elevated repairs and maintenance, so about $1 million, and then the rest just from a handful of discrete items. And it's a similar story as you move into Q4. There's probably about $1 million of upside versus the prior implied guide from comp outperformance. And we're guiding to a $3 million lower midpoint. So when you look at the $4 million net pressure on SG&A, again, a very big chunk of that is just elevated repairs and maintenance, which are just coming in much lumpier than what the budget had, and a handful of discrete items. So not really expecting that to repeat into next year, but net-net, we're happy with the performance and where we're looking at for Q4.

Okay, and just a follow-up. You mentioned that the promotional bridge is ending. You had some other promo around the 80th anniversary and then Thanksgiving coming up. I'm just kind of curious. As the promotional stuff's rolling off and you think about these more normal weeks, how would you gauge the underlying momentum of the business as the promotion has been rolling off? And then as part of that, could you just maybe dissect basket a bit? I'm just kind of curious about... Is basket turning sort of the way that you thought that it would? Is it a little bit slower? Just curious as to how you're thinking about that sequential change.

Yes, hey, Ed. I'll take the first part and then shift the basket commentary to Jason. On the promotional spend, we did consistently taper it throughout the year as we got more effective on running promotions as well as just restoring opt mix. And in fact, in October, we had no excess promotion in the system and comps accelerated month over month. So we felt good about that. And in aggregate, we spent certainly less than the $20 million that we had planned and think it would be unlikely that we would repeat that or move that back into the program as we look at next year.

Yes, just to answer your question on basket, I'll hit a few points here. First and foremost, the basket has improved significantly, a couple hundred basis points from the start of the year. We're happy to see that recovery. There was some improvement as well, Q3 to Q2 overall, and that was really driven by units per transaction from our AUP focus. So what we're seeing in the baskets is a higher degree of AUP. That's obviously showing up in a number of places, improving the value in the basket. And so, as I mentioned to the question that Robbie asked, to see the basket improving as we continue to execute and improve the business, I do expect to see basket growth in addition to traffic growth. So, what we are seeing right now is consistent ability to generate traffic but a lagging basket. And I think the continued work we're doing, the focus, it's clear that that's working. We're going to continue that work through next year. And as we improve the other side of value, which is the customer experience piece, we're going to see basket growth.

Great. Thank you.

Thanks, Ed.

And Corey Tarlowe with Jefferies will have our next question.

Jason, you've mentioned a few times that benefit that the business has realized from the change in strategy this year around opportunistic products. I was wondering if you could provide a little bit more detail or quantification around the magnitude of that benefit. When a certain number of products or percentage of products are in the store, do you notice any sort of critical mass forming? I want to just have a better understanding if possible of how tangible these benefits are and what the ultimate runway could look like for this.

Sure, great question. Thanks for asking. You know, op has been the value and sales-generating edge of the business for some time. It's our source of differentiation, obviously. And the areas that we see tangible evidence, it's across a host of KPIs, but we know that the degree of op we have in the business and its comp performance is correlated with comp sales. Mix matters, so the improvements we made, several hundred basis points year to date, demonstrate a weight, a range of products, so your point about how many items in store, we are measuring that and we do measure what do we have every day, what do we have in op, that does matter across the network, and the quality as well. And so we do have measures on quality, things like brand strength and so on, that help us understand what that looks like. We also measure things like the discount, the actual pricing, how that shows up in the basket, and then things like turns. There's a newness and discovery to this. That flow is important, making sure we continue to be relevant across the network is important. So we also manage and monitor the SKUs that are unique in different markets. We don't always have an item that covers every single store. So that's also important. All of that to say, I think by the time we have the next call, we'll likely be halfway through the work. I think this work will continue well into next year, but there's a clear relationship for us that we see with the performance of this part of the business and the overall performance of the core of the business. Improvements we've seen, especially, I would say, notable is October. Our comp run rate has now exited at a very nice kind of high end of the range that we gave for Q4, all driven by op. So that synthetic promotion was gone. And again, the value piece that's driven from price perception and value comes from that part of the business. So excited about what we're doing, and there is more to do, Corey.

Great, thank you. That's very helpful. And then I was just wondering if you could provide a little bit of color on pricing. With fuel prices being what they are, how are you thinking about pricing as we head into next year?

Yes, no, that's a great question. It's on everyone's minds, obviously. I would tell you that our pricing gaps are stable. We're monitoring that across the major MSAs. We look at that every day. We do see inflation on everyday assortment. That's something we're managing. We're passing through appropriately to manage the gaps that we have. That's been straightforward for the team. I think the benefits of what we've done with op, extending its mix and its reach, the AURs are lower. People that come in our stores are getting more value with more items in a basket of goods, especially in a period like this. And our ability to maintain the gaps is there. The team has an agility to move sources of supply, which we've done this year in some cases. And again, the continued work on the mix has been especially helpful during this period. As far as we're concerned, we're managing inflation appropriately, and the team has the tools to get it done.

Thank you. And next we'll hear from John Heinbockel with Guggenheim Partners. Please proceed.

Jason, do you think, when you look at op comp versus every day, and I don't know if you look at it that way, where we are today, op comp should lead every day because you're driving traffic on an improved value proposition. Is that fair? And then I think historically, right, the op margins were quite a bit higher. Do you want to run the business that way or, if the mix is higher, you can provide more value and earn a little bit less margin?

Yes, thanks for the question, John. It's a good question. So, we do monitor different categories of product growth. Op comp has clearly been running faster than the MTO part of our business. That's by design. As the team has continued to improve inventory flow, new supply chain, supplier acquisition, engagement with our existing suppliers, that's worked really nicely in the business and also really fights inflation effects, if you will, on a basket of goods. So the more op we drive, the higher mix of quality op that's available. And you always have to turn the product. People want newness in the store, and that's important. Those things are very healthy for the business, and they drive traffic and they drive comps. And so we're going to continue to manage the business on the value side when it comes to price. If you kind of break value, there's price, there's quality, and customer experience. The price part of what our work is, is the priority right now, and that work is clearly showing some early dividends in getting the momentum back into the business. The second part of your question on margin, there is a clear margin advantage. It's accretive for us. Every op item we sell versus an MTO item is more profitable. We do have to manage the business as well to make sure that we have enough everyday assortment to meet a broad-based set of needs that customers have. And so as we move to next year and work on things like better inventory management tools, those kinds of things will also help us build the basket, but op will remain a central focus of the team and our #1 priority throughout next year.

The follow-up is I know you guys had some work you were doing right on store layout and format, and I think that was kind of pulled back a little bit. When do you think the top line is sustainable enough where you go back and the IOs want to put some more capital, or you put more capital into the stores?

Yeah, no, that's a great question, John. Thank you. You know, we are going to go at a certain pace here. I think we've moderated that with new stores. We've moderated that with some of the conversation we had around those refreshes to make sure that everyone in the organization was focused on the price part of value, which our customers were telling us clearly we needed to do some work on. That will likely continue well into next year. I think when we get enough momentum behind us and consistency in results, we'll make sure that at that point we'll turn our attention to those kinds of opportunities, which are still there and provide a lot of headroom for the business. So we're still excited about what those things mean. Some of what we did this year with making the stores easier to shop has shown up in positive feedback from customers and is also helping the digital experience for people that are coming into our stores for the first time. So those things are there. They're present. They're available. Our operators have a good understanding now of what's to come. But again, our focus is going to be to continue to work this part of the business, make sure that's dialed in. And the team there is working hard to create a repeatable set of processes to make sure that this continues. And so, again, we're excited about the progress, but more to come.

Thank you.

Thanks, John.