Greetings, and welcome to the Grocery Outlet's Third Quarter 2022 Earnings Results Conference Call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Arvind Bhatia, Vice President of Investor Relations. Please go ahead, sir. Thank you. Good afternoon, and thank you for joining us on today's call to discuss Grocery Outlet's third quarter 2022 financial results. Joining me on today's call are 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. This conference call is being webcast live, and a recording will be available via telephone playback for approximately two weeks. It will also be archived in the investor relations section of our website. Participants on this call will make forward-looking statements, including our outlook for fiscal 2022 and future performance. These forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. A description of these factors can be found in this afternoon's press release, as well as in our 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. These statements are estimates only and not a guarantee of future performance. During our call, we will also 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 and our SEC filings and the Investors tab for our website. With that, it is my pleasure to turn the call over to Eric. Thanks, Arvind. Good afternoon, everyone, and thank you for joining us. Before we jump into a discussion of our strong third quarter results, I'd like to comment on the leadership transition we announced this afternoon. As you may have seen, I plan to move to the role of Chairman of the Board, and RJ will become President and Chief Executive Officer, effective January first. This announcement is a culmination of careful and thoughtful succession planning with the board to ensure a seamless transition of the CEO role. RJ joined the company in early 2012 and has held key leadership positions in the area of strategy, purchasing and planning, marketing and operations, and has served as President since 2019. When RJ joined us, the business was roughly $1 billion in sales and over 170 stores. Over the past 10 years, RJ has played an integral role in both building and executing our strategic vision as we have tripled top line and grown to more than 430 locations. RJ and I have worked closely for many years, and he is more than ready to take this next step. His leadership style exemplifies our culture and values. He is passionate about the business, and his collaborative long-term approach resonates with and inspires our team. I am confident that there is no one better to lead Grocery Outlet into the next chapter of growth than RJ. I look forward to working closely with him and with the executive team in my future role as chairman, and I am immensely grateful for the opportunity to have led such a remarkable group of people. While I will move away from day-to-day, I will continue to be invested both emotionally and financially in Grocery Outlet's success as Chairman of the Board. As part of this transition, I also want to thank Eric Lindberg, our current chairman, for his many years of leadership and valuable advice and friendship. The company will continue to benefit from Eric's guidance as he moves into the role of lead independent director. As you'll hear throughout the call, our business is performing well, and our value-oriented model is positioned to continue gaining share. Our growth runway is long, with the potential for more than 10 times the store count we have today, and we have the right strategic initiatives to fuel sustained comp sales growth. I am extremely pleased with our third quarter results and the continued momentum in our business. We are seeing an increase in new customers to our stores, and existing customers are spending more with us. Third quarter sales grew 19%, driven primarily by strong comparable store sales growth of 15%, as well as contribution from new stores opened over the last year. We were also encouraged to see an uptick in transaction count and balanced contribution between traffic and ticket. We delivered gross margin in line with our expectation as we continue to benefit from our dynamic and opportunistic model. Better than expected top line and gross profit dollar growth resulted in bottom-line results that exceeded expectations. Based on our third quarter results and quarter to date trends, we are raising our full year guidance, which Charles will discuss shortly. Turning now to our store expansion strategy. We opened six stores in the third quarter, ending with 431 locations. We remain pleased with the new store trends as well as recent vintages continuing to ramp in line with our blended underwriting model. Especially encouraging has been the progress of our mid-Atlantic market, where we continue to invest in and build the brand. As store count increases and the consumer awareness grows, we are seeing higher traffic, which is fueling top line trends, including comparable store sales growth that is above company average. In terms of future store growth, we remain pleased with the real estate opportunities we are seeing as we continue to identify new sites across our existing and new markets. Our real estate construction and new store teams remain extremely active, and we are encouraged by the quality of our sites and our pipeline over the next 24 months. That said, we continue to face various headwinds in opening new stores on a timely basis, including permitting and inspection delays, equipment and labor availability, and utility related lead times. As a result, 2 fourth quarter openings have been pushed back into 2023. While it's difficult to predict exactly when those store opening challenges might ease, we will continue to adapt and remain nimble as we work our way towards our normalized target of 10% annual unit growth. With respect to our pipeline of future operators, our entrepreneurial model and our positive momentum are contributing to a strong inbound interest from prospective IOs. We are seeing a healthy number of qualified candidates apply for our aspiring operator and training program, and the quality of recent graduates is strong. At the same time, IOs operating existing stores have been energized by our momentum, increasing customer traffic and improving operating conditions. This renewed enthusiasm was evident throughout our regional operator meeting we held in late September. Our leadership team visited 10 cities over six days to share recent business updates, collaborate on holiday execution, and respond to the operators' questions and feedback. Throughout the meetings, IOs were enthusiastic about the expanded merchandise assortment and strategy heading into the holiday season, the health of the opportunistic inventory and treasure hunt experience, and the ongoing investments that we're making in technology and infrastructure. Before I turn the call over to RJ, I just wanted to take a moment to again thank our extended Grocery Outlet family, which includes our IOs, their employees, and all of our team members across the corporate office, field and supply chain. This truly is a unique company with dedicated and passionate people who care deeply about each other and the communities we serve. I'm so proud of what we have accomplished and even more excited about the opportunities in front of us. As I transition my role, I look forward to contributing in new ways as we fulfill our mission of touching lives for the better in the years ahead. With that, I'll turn the call over to RJ. Thanks, Eric. I am grateful and honored to be assuming the role of President and CEO as well as joining the board of directors. I want to first say thank you to Eric for his contributions and commitment to Grocery Outlet over the past three decades. His leadership and vision have inspired us all. It's been a privilege to work alongside him, and I look forward to our continued partnership as we transition into our new roles. I joined Grocery Outlet because of its mission and model and incredible people and culture. We provide access to affordable, quality food, and we save customers money to live better lives. We reduce food waste through our supplier partnerships and opportunistic sourcing. We provide opportunities for independent operators and their employees as well as our team members. We, together with our operators, give back to the communities in which we live and operate. As we grow and reach new customers, so does our impact. I'm so excited and humbled to be a part of this effort, working in partnership with our operators and our amazing team. Our business fundamentals remain healthy, and we are seeing several positive consumer trends. Traffic and spending from our core customers are up, indicating stronger retention with an expanding share of wallet. We are also gaining new customers as shoppers increasingly seek out value. In addition, overall satisfaction among both our core and tertiary customers remains strong. Lastly, awareness of and intent to shop Grocery Outlet over the next twelve months have increased. We believe our positive consumer and top line trends are the result of disciplined focus on our three primary comp growth drivers. Number one, providing our customers with the deepest value in a unique treasure hunt assortment of quality products. Number two, supporting our operators in delivering a wow shopping experience. Number three, driving customer awareness and engagement through company and operator marketing efforts. Let me provide an update across these initiatives, starting with the strength of our assortment. We have great product variety across departments. Our inventory position is healthy and our pipeline of opportunistic product is strong. In addition, we are pleased with the ongoing sales contribution from our expanded assortment and will continue to selectively add items based on customer demand. As we approach the holiday season, we are well positioned in key seasonal categories from both opportunistic deal flow and strategic SKU expansion. We are capitalizing on increased store traffic by delivering customers the deepest value for their holiday shopping at a time when they need it most. True to the Grocery Outlet model, our seasonal offering will provide customers unmatched savings and convenience within a fun treasure hunt shopping environment. Our operators continue to execute at a high level and serve their communities with passion and dedication. They are the best ambassadors of our brand, and we are excited to continue to support them in ways that allow them to grow their business and reach new customers. In addition to ongoing investments in store improvements and fixtures, we continue to strengthen our marketing, technology and infrastructure in ways that benefit IOs. Let me provide an example specific to technology. As we first shared with you last year, we continue to make steady progress on planned upgrades to our financial system, inventory platform, and operating applications. These enhancements will provide additional functionality and scalability to support key areas of our business, including purchasing, inventory management, and store operations. I'm particularly excited about the store-facing improvements that will enable operators to make smarter decisions and operate more efficiently to drive sales and profit growth. These new applications are being developed in partnership with our IOs, and we are excited for the planned implementation in the middle of next year. Turning now to marketing. We continue to utilize a test-and-learn approach to inform our strategy and allocate investments. As part of that effort, we are more effectively leveraging data, including market and store-level attributes, to gauge media effectiveness across markets and channels. Complementing this is the personal connection that our operators have with their communities and customers. Consumers are particularly receptive right now to our local IO and value messaging, and we are seeing it in our results. With respect to our digital efforts, we have developed and tested our new personalization app, and we are excited for customers to begin using it. The app will soon be available to download and use in our Washington test stores. As a reminder, this new program will give customers access to new, trending, and top-selling items on a real-time basis, as well as curated product recommendations based on their preferences. It will also track customer savings and provide opportunities for them to win what they saved by shopping at Grocery Outlet. Our test store operators have expressed a lot of enthusiasm for the user interface and functionality and are excited to see customers use it in their stores. High customer engagement will provide us with robust customer shopping data, which will further enhance our current marketing efforts and improve operating results over time. Last, with regards to e-commerce, we continue to expand our reach and capture incremental customers through our online partnerships. Today, substantially all our stores are live with both Instacart and DoorDash, and we expect to have a majority of stores up on Uber Eats by the end of this week. While we are still early in our e-commerce journey, we remain excited for the access this new channel provides to a more convenience-based customer. In closing, I want to thank Eric again for his successful leadership of Grocery Outlet. This is a special company that has our mission of Touching Lives for the Better at its core. I'm proud of what we have accomplished this year, and I couldn't be more excited about the tremendous opportunity that lies ahead. Before I turn it over to Charles, I'd also like to take a moment to thank our independent operators, our supplier partners, and our corporate teams for their passion, dedication, and ongoing commitment to serving our customers and communities every day. I will now turn it over to Charles for a financial update. Thanks, RJ, and good afternoon, everyone. I will begin with a discussion of our third quarter results, followed by comments regarding the fourth quarter and our revised guidance for the fiscal year. We delivered strong third quarter results, which exceeded plan on both the top and bottom lines. Comparable store sales accelerated to 15.4%, driven by higher traffic and ticket. Our comp store sales growth resulted from a 7.9% increase in transaction count and 6.9% higher ring. Strong comp and new store performance drove 19.4% growth in net sales to $918.2 million. During the third quarter, we opened six new stores, ending with 431 locations. Third quarter gross profits increased 18.4% to $280.6 million. We were pleased with our third quarter gross margin performance of 30.6%, which was in line with expectations. Headwinds related to product and supply chain costs persist, but our purchasing and planning team continues to do a fantastic job delivering a compelling product assortment to customers at deep value along with healthy margins. Turning to expenses, third quarter SG&A increased 18.7% to $227.5 million compared to the third quarter of last year. The increase reflected $21.6 million in higher store-related expenses and $14.2 million in increased corporate related costs. Store-related expenses were driven by higher commission payments to IOs, reflecting strong gross profit growth, as well as higher store occupancy costs due to new store expansion. Corporate related expenses increased mostly due to higher incentive compensation, reflecting stronger financial performance versus the prior year. As a percentage of sales, SG&A decreased 10 basis points as leverage on store costs was largely offset by higher incentive compensation expense. D&A increased 10.9% to $19.4 million, and share-based compensation was $9.1 million, reflecting the impact of grants made in the past twelve months, as well as current expectations related to our performance-based share awards. Net interest expense increased 21.5% to $4.8 million due to the impact of higher interest rates on our variable cost debt. This was partially offset by the $75 million principal prepayment on our senior term loan in April this year. Our effective tax rate was 12%, which is below our normalized rate of approximately 28% due to excess tax benefits related to the exercise and vesting of equity awards. As a result of these factors, GAAP net income for the third quarter was $17.5 million or $0.17 per diluted share. Adjusted EBITDA increased 15% to $59.1 million for the quarter, reflecting 6.4% of sales. Adjusted net income increased 14.2% to $26.8 million, and adjusted diluted earnings per share was $0.27 based on an average of 100.5 million diluted shares. Turning to our balance sheet, our liquidity remains strong as we ended the quarter with $107.3 million of cash. Inventory grew 4% from the second quarter to $332 million and remains healthy in terms of quantity, mix, and turnover. Our third quarter CapEx net of tenant improvement allowances was $32.1 million, reflecting new store growth, continued upgrades to our existing fleet, and ongoing technology and infrastructure investments. Next, I'd like to touch on our fourth quarter trends and update you on our full year outlook. We remain pleased with our top-line momentum as well as the strength of our seasonal assortment. As a result, we expect comp sales growth of 12% in the fourth quarter, and we are raising our fiscal 2022 comp guidance to approximately 11%. In terms of unit growth, we expect to open 10 new stores in the fourth quarter and 26 net new stores for the year. Based on our comp sales and new store expectations, we are raising our fiscal 2022 sales guidance to approximately $3.55 billion. With respect to margins, we expect fourth quarter gross margins of approximately 30.3%, which reflects normal fourth quarter seasonality to the holiday product mix and targeted price investments. For the full year, we expect gross margins of approximately 30.5%. In terms of expenses, we expect fourth quarter SG&A as a percentage of sales to be down year-over-year due to the impact of store expense leverage from fixed costs and IO commissions, partially offset by higher incentive compensation expense. For the full year, we are increasing our adjusted EBITDA guidance to approximately $224 million. Further, we expect D&A of approximately $76 million for the year and share-based compensation of approximately $32 million, up slightly from prior guidance, reflecting performance expectations for our share-based awards. We continue to expect net interest expense of approximately $19 million for the full year, reflecting a run rate of $6.5 million for the fourth quarter based on current interest rates. Lastly, we forecast a normalized tax rate of 28% and average diluted shares outstanding of approximately 101 million for the fourth quarter. Taking all these factors into account, we are raising our full year adjusted EPS guidance to approximately $1 per share. In summary, we are pleased with our solid year-to-date performance and continued momentum in the fourth quarter. Customers are seeking out value more than ever, and our incredible family of IOs and team members is delivering on their behalf. Before we begin Q&A, I'd like to take a moment to thank Eric for his leadership and the indelible mark he has left on Grocery Outlet. We have a strong foundation and are incredibly well-positioned to drive long-term growth and shareholder value as we move forward. Now I would like to turn the call over to the operator to begin Q&A. Thank you, sir. Ladies and gentlemen, at this stage, we will begin the question-and-answer session. If you would like to ask a question, please press star and then one on your touchtone phone. A confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove yourself from the queue. Again, if you would like to ask a question, please press star and then one. In the interest of time, please limit yourself to one question and one follow-up question at a time. The first question we have is from Oliver Chen from Cowen and Company. Hi, everybody. Congrats, Eric and RJ. Great quarter as well. As we think ahead to the store growth pipeline, you called out some puts and takes in terms of what you're seeing with encouraging availability, yet also lots of supply chain considerations. What are your thoughts for how the availability and the supply chain environment looks for store growth as we look to next year as well? Would love your thoughts on independent operators and the temporary commission adjustment program as well as rising interest rates. How have those interplayed with what you're seeing in terms of the health of the IOs and the environment we're in now? Thank you. Yeah. Thanks, Oliver, for the question. I'll start on that. Yeah, I would say, the pipeline's really healthy. We are, you know, seeing plenty of stores, you know, look out the next 24 months. That pipeline's healthy. The good news is that we're not really seeing an issue of real estate availability. I would say that, you know, the issue does remain, that the delays for timing, you know, for a host of issues that I detailed on the prepared remarks, it's real. It doesn't seem to be letting up. We are still working towards and pretty confident in that goal of 10% unit growth. You know, we look at it as a temporary, you know, sort of bump in the road. We're 400 stores. We've got decades of growth towards sort of filling out sort of our goals. No reason we can't exist in every market. We've talked about that a lot. We're in nine states today. The construction challenges, they persist. It's everything from, you know, labor availability to materials to, you know, things like just getting power connected to stores. I think we're not alone in stating that it's been a challenge. We're gonna work through it, and you know we'll get back to that 10%. Feel really confident in that. This will be a blip that we're dealing with in these last couple years. Relative to IOs, look, I'd say, they're doing really well. Our strong results are benefiting the IO. They're participating in the upside. You know, gross profit growth 18%, that gets split with the IOs. Traffic is growing. In-stock is getting healthier. Variety is really strong. It's as healthy as it's been. You know, we and they are super focused on, you know, driving sales and healthy margins. Relative to your question, you know, our job is really to make sure the operators can grow through all of their years of being an operator, particularly the early years of starting a new business. It's not easy. Some ramp fast, some ramp slow. Our job is to make sure we're supporting them, and that's the program you referenced. That's alive and well, and we're doing everything we can to make sure those stores, you know, get up to run rate volumes. Thank you. Best regards. Thank you. The next question we have is from Christina Chen from Deutsche Bank. Hi. Good afternoon. Congratulations on a very strong quarter, and congrats, RJ and Eric, well, RJ, on the promotion. I wanted to ask about a few of your initiatives that you mentioned in your prepared remarks. One of them is on marketing and just really focusing on delivering a consistent value message and then two, just on SKU expansion and data analytics. Can you just maybe tell us where you are seeing some of the benefits in terms of sales lift and how you are thinking about the opportunity as you head into 2023? Yeah, sure. Thanks, Christina. I'll take that. This is RJ. Just to start with, marketing, you know, for us, it is about providing a consistent message of value and quality, across the assortment, as we referenced in the comments. Inventory is really strong. Health of opportunistic is really strong. We have great representation of our everyday items. Just feel really good about the health of the inventory. Then as a result, what we're able to message to consumers, at this time of year, you know, holiday shopping, important time, for them and the food that they're buying, and particularly so right now, you know, looking for value, and we're able to offer that. As a reminder, from a marketing standpoint, Grocery Outlet, you know, centralized marketing, you know, a lot of tools and information that we push out complemented by operators. They continue to be a strong voice in their communities. That partnership really sets us apart, from the rest, we think, in terms of value and local and the personalization that the operators bring to it. We're really excited about our personalization app. That will allow us to be even more targeted and specific to consumers. We're just on the verge here of going live in our Washington test stores, and you know, that'll help us speak more specifically to what customers are buying, the items that they like, the items that we know they'll like that maybe they haven't found yet. Really look forward to use of that and then the data that it provides to be even more effective with our marketing efforts. In terms of SKU expansion, pleased with the progress we continue to make. We added another 150 items or so this past quarter, so year to date puts us close to 500, 700 over the past 12 months. Holiday time period is always a time when we're strategically introducing items, so feel good about the assortment we're representing now. You know, I'd point to a few other recent examples. We have a test underway right now with grab and go home meal replacement items. Early weeks still, but pleased so far with the results. We continue to focus on NOSH, natural, organic, specialty, healthy. That continues to be a growth driver for us. Then, you know, looking forward from here, as we've done, we will continue to strategically add items in categories. We think we've got a nice, well-rounded assortment, but always opportunities as consumer trends and supplier assortments change. That's great. Thank you so much, and enjoy your holidays. Thanks. You too. The next question we have is from Simeon Gutman from Morgan Stanley. Hey, guys. Good afternoon, everyone. Simeon Gutman. First, maybe more of a technical modeling question. The flow through in Q3 and then implied in Q4, can you talk about, I guess, what, if anything's changing at the margin? It looks a little bit, I guess, lighter on the incremental sales. I know we got some of the components, but curious if there's something high level we should be thinking about. Yeah, Simeon Gutman, it's Charles Bracher. Let me just talk to sort of our expectations with respect to to Q4 specific to gross margin and SG&A. As you heard in my prepared remarks, we expect Q4 gross margins of 30.3%, which is very typical in terms of our fourth quarter seasonal holiday mix impact. That's, again, down 30 basis points sequentially from the third quarter, reflecting that holiday mix. Also reflecting you know the fact that at the time when customers are really looking for savings, we're being especially sharp with respect to our seasonal assortment and pricing and expect to lead the market in terms of value. As you compare against last year from a gross margin perspective, if you recall Q4 last year, a bit of an anomaly for us at 30.9%. But overall, feel really good about how we're managing margin with respect to the, you know, the cost inflation environment we're dealing with. As it relates to SG&A, looking at the fourth quarter, we are expecting to see a bit more SG&A leverage in Q4 compared to Q3. I'd say overall, the same fundamental SG&A drivers we're seeing, which is, we are getting fixed cost leverage on the higher comps that we're delivering. That's being partially offset by higher incentive compensation. Specific to Q4, also expecting that commission expense is a leverage driver. Again, back to the higher Q4 gross margin we saw last year. Of course, that's getting shared 50/50 with IOs. It really is that year-over-year Q4 margin rate differential, which will drive a little bit more SG&A leverage in Q4. Okay. Thanks, Charles. Maybe the quick follow-up on Eric, just on timing. I apologize if I missed, in prepared remarks, just stepping down, the continuity with the IOs. Then RJ, what does your bench look like in the next, you know, 6-12 months? Does it change at all from what it looks like today? Yeah. Simeon, Eric, I'll start, then RJ can follow up. We're starting the transition immediately. It'll be effective first day of January 2023. In terms of plan to have continuity with IOs, part of what I'll be doing is spending some time each month out, operationally in the stores, keeping the relationship with IOs, attending the IO meeting, which we'll have in February, the supplier conference in March, and just being present at, sort of bigger company meetings and maintaining relationships. Biggest thing I'll be doing, will be supporting RJ, making this a seamless transition, and, you know, just making sure that goes well. Hey, Simeon, in terms of a team and what might change, you know, I'd say we have a great team. No changes there. You know, naturally some reporting changes, as Eric moves to his new role. Otherwise, you know, we got a great group leading this company. Then I'd comment, just more in general, you know, looking forward, I've been with the business for quite a while now. I've played a leading role in setting our strategy and growth initiatives. No changes to strategy. That will remain consistent, as will the list of growth opportunities initiatives, that we've been talking about for a while now. You know, continue to focus on our comp growth drivers of providing the deepest value, the unique treasure hunt, supporting operators, and delivering the wow experience in the stores, driving customer awareness and engagement through marketing, you know, everything around new stores. You'll continue to hear a lot of consistency from us in our efforts to continue to grow this business. Thank you. Thank you. The next question we have is from Robert Ohmes from Bank of America. Hey, guys. Can you hear me? Yeah, we can hear you fine. Hey, Robbie. Excellent. Thanks. RJ, congrats, and Eric, congrats as well. My first question is, the new customers that you are seeing, anything different about them demographically that you can speak to? Where do you think they're coming from? Yes, I'll take that one, Robbie. Yeah, so we are very encouraged by what we're seeing with customers. More new customers. You know, also just note again, an increase in trip frequency. Overall spend is up, satisfaction levels are high, intent to shop high. So feel really, really good about that. In terms of demographics, I'd say, continue to see a healthy mix. And as you know, the demographic range is quite broad, so we appeal to a very broad set of consumers. I will note that we have seen, on average, a slightly higher income customer shopping and within our newer customers shopping at Grocery Outlet suggests to us a trade down behavioral change there, you know, for those customers that are feeling the pinch of inflation. We do continue to see strength with lower income customers as well. You know, we're more of a necessity item, and so customers are looking for value in the things that they, you know, they need to buy. Just one other final note, as we ask customers, you know, what are the most important shopping criteria and the things that draw them to Grocery Outlet, we've seen a higher percentage of customers ranking low prices and unexpectedly great deals within that top set of things that they're looking for and why they're choosing to shop Grocery Outlet. You know, all really consistent with you know, what we're seeing out in the market and some of those trends around inflation and consumers looking to save money. Thanks. That's helpful. You know, my second question is maybe a little bit of a, you know, intermediate term question. What would it take, you know, your same-store sales at a really high rate, what kind of environment or what dynamics would you guys need to see the adjusted EBITDA margin, you know, instead of sort of, you know, flatlining around 6.5%, you know, heading back over 7% again? You know, when could we see something like that happen and what combination of things would you guys need to see that happen? Yeah, Robbie, it's Charles. Let me tackle that one. I would say, you know, we feel great about the health of the business and how we're positioned heading into next year. You know, still unclear to us exactly what the backdrop will be presented with from an inflationary standpoint and potential recession here. For us, we continue to orient around the long-term algorithm that we've always talked about and been consistent so that low single digit comp, 10% unit growth and stable margins. As you think about, you know, why stable margins, EBITDA margins over time, for us, it is about, you know, sharing those gross margin gains 50/50 with the IOs, and then importantly, reinvesting in infrastructure and everything that we need to do to support future growth. You know, we feel great about how things are going and kind of where we're positioned heading into the year. We continue to think about that long-term algorithm as the one that's right for the business over the long term. Got it. Thank you. Thanks, Robert Ohmes. Sure. The next question we have is from Leah Jordan from Goldman Sachs. Hi, good afternoon. I just wanted to follow up on the growth margin discussion. What is the current view of your buying environment and how has that evolved from the strong level that you mentioned last quarter? The other pieces around kind of promotions, what is the current view of the promotional environment, and what are your expectations going into next year? Hi, Leah. Yeah. I'll hit the first part, and then I'll pass it over to Eric to talk about promotions. In terms of supply, continue to be encouraged by the pipeline of deals that we're seeing. It's very broad-based. It's across all categories. You know, I'd say the environment is just generally very positive right now from a buying standpoint. We have seen momentum grow throughout the year and continues into the quarter that we're in right now, so feel really good about that. You know, as a result, inventory is healthy, and we're delivering customers great value for their holiday shopping at a time when they need it most. In terms of what we're seeing from suppliers, you know, I'd mention a few things. One, forecasting challenges persist due to inconsistency in demand and supply chain challenges, so that yields opportunities for us. Product innovation is healthy. We are seeing new items, brand extensions, brand and label changes. Again, a good thing for our business. A lot of additional capacity has come online, and this, in many cases, has been mismatched with demand, and back to inconsistency. We've seen some product and opportunities from that. Then in general, I'd say suppliers are just very actively adjusting products and assortments. Whether it's to meet the ongoing changes in consumer needs and behaviors or, you know, in some cases throughout this year, inflation related with packaging, you know, sizes, supply availability and other changes. All these things, very favorable for us, and ultimately our customers. Just feeling really good about opportunistic supply. Yeah. Hey, Leah, just briefly, on the second part of your question, what are we seeing in terms of competition, promotional environment? It's pretty consistent. I wouldn't say it's changed a lot since our answer in Q2, and that is that the promotional environment remains really stable. I'd say the traditional retailers are being pretty rational, as they think about pricing. A lot are still increasing because of all the cost pressure. They're being targeted, on some of their specific offering discounts. Obviously, we've all seen, the non-food retailers sort of moving through heavy excess inventories. But relative to folks that we compare against and compete against, we've seen promotions being, a lot more selective. I would say probably not back to the levels that we saw in 2019. Just keep in mind, you know, this model's super flexible, you know, enables us to be, you know, very nimble, and react to changes in that promotional environment as we see fit. Who knows when that changes? Don't have a crystal ball into next year, but for now it's a very stable environment. Great. Thank you. Thank you. Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one now. The next question we have is from Jeremy Hamblin from Craig-Hallum Capital Group. Thanks for taking the question and congrats to both of you. I had two questions here. The first is, in terms of unit development as we look ahead to next year, fair to assume that some of these headwinds continue into next year and maybe not quite back to that 10% growth algorithm. Then secondly, wanted to just understand a little bit more, you know, it's been several quarters now that the Mid-Atlantic region has been outperforming, and, you know, any additional color that you can share on why you think that's, you know, the case and Is it less competition? You know, is there something about why the brand is resonating so well in that market? Thanks. Yeah, Jeremy, Eric here. You heard me answer Oliver's questions. I won't repeat all of that. I would just say, yes, fair to say that a lot of the timing issues that we've detailed remain in place. Are they gonna get better? Yeah, we think they are. We're not exactly sure. We're gonna continue to adapt, keep signing up stores, putting through real estate, and make sure we've got a really good slate of stores to open in the next 24 months. The East is getting you know, really good traction. We'll be near 30 stores, 30-plus stores at the end of the year. We've put a lot into, you know, you've heard us in the past years talk about building the scale and the ability to, you know, open these stores and market and recruit IOs. We've done that a lot in the last couple years. We feel like that foundation is set. The brand's starting to get nice awareness, you know, something that's approaching the awareness numbers we have out in the West, so that feels good. We've put additional marketing into the market, which has been received very well. You know, what we're hearing back from the IOs through their customers and through surveys is the values are appreciated, the stores are incredibly relevant, they love the model, they love the brands, particularly the NOSH, particularly produce. These are all the things that we thought would occur once you start to get a little bit more scale, a little bit more brand awareness, and we'd see that continuing as we add, you know, additional stores there and expand some of the geography where we're currently serving. It's all good news. Great. Thanks. Best wishes, guys. Thank you. The next question we have is from John Heinbockel from Guggenheim. Hey, guys. Wanted to start on the East Coast question. Where do you think you need to get to, you know, to quote-unquote, "have scale", you know, and an ability to, you know, more significantly expand product assortment? And where would you think about items added, right? So you've added 700 items over the last year. How many items would you like to add on the East Coast, right, maybe relative to that, you know, as you move to scale, right, maybe get to, I don't know, 50 or 60 locations or more? Yeah. Hey, John. 70 stores feels like scale, the beginning of scale for us. You know, quickly approaching that with the additions. I'll let RJ talk a little bit about sort of the desired variety in the East. Yeah. When we talk about SKU expansion, John, it's not specific to the West. Those item counts, you know, for the most part available chain wide. You know, of course, we do have regional differences and, you know, different, certainly different assortments as it relates to opportunistic product in the warehouse. To Eric's point, you know, as we open more stores, it does help from an inventory standpoint, both in terms of localized assortment, volume for everyday items and then for opportunistic as well, and just being able to move more product through the system. You know, I wouldn't say there's a specific number or end state as it relates to variety. You know, that's in all stores, that's a number that we've seen continue to grow and for the better. You know, we've been able to maximize space within the stores, increase inventory turns, that's been done through both system enhancements and just the way that we manage inventory. You know, excited for all of the store growth ahead of us in the East and, you know, how it helps us from a merchandising and buying standpoint. Maybe secondly, right, you know, when you think about your transition, you know, what will you spend more time on, right, than you have been? What do you spend less on, right? I guess, you know, how do you tackle the CEO role in a way that is different, if at all, than Eric's? Yeah. You know, just in terms of where Eric has been more focused, you know, I'd point to operator relationships, real estate, you know, he's certainly been heavily involved in the company vision, infrastructure. I'd point to those areas as where I've certainly been involved, but would look for my level of attention and focus to increase stepping into the CEO seat. You know, as you know, John, I've had direct responsibility for purchasing, planning, supply chain, marketing operations, technology, you know, lots of different operating parts of the business together with strategy. Eric and I and the rest of the team manage this business in strong partnership, collaboration, and you know, feel really good about continuity within the team overall. To the second part of your question, I think similar answer to the one that I gave previously. You know, no major changes to strategy, no major changes to initiatives. We do follow. We'll continue to follow a disciplined annual strategic planning process. It's always a balance of near term and, you know, long term view. None of that changes. You know, as we move forward here, we'll continue to keep you updated on future initiatives and the evolution of the business. Thank you. Thank you. Thanks, John. The next question we have is from Joe Feldman from Telsey Advisory Group. Yeah. Hey, guys, thanks for taking the question. Wanted to ask on the digital side, I know it's still, you know, emerging and small, but I'm wondering if you're seeing, you know, any patterns with the way customers are interacting with you, those that are using digital. Are there, you know, certain products they're trending towards or certain, you know, maybe basket size, or are they, you know, higher end consumers, lower end consumers? Like, any kind of trends you could talk about with regard to the digital side of things? Yeah. I'd say more specifically, you know, the difference that we're seeing is just the makeup of the customer base. So we talk about the incrementality of e-commerce, and what it's offered to us so far is still early. You know, again, just rolled out chain wide with Instacart earlier this year and then more recently, DoorDash, and we're just on the verge here with Uber. But it is a more convenience-based customer. So that would be the biggest difference that I would point to between the three platform partners that we're working with. They each have, you know, slightly different use cases, customer groups, you know, reasons and occasions for which they're shopping online. So we see some slight differences there. Overall, we do see a bigger basket in terms of what they're shopping. You know, I'd say pretty broad representation of our assortment, and so they're finding all items gravitating, you know, of course, to value and the deals that we're providing, and those are across all categories. Nothing so specific in terms of you know, the basket itself or the mix. But overall, pleased. You know, it's been a nice rollout for us, seamless for the operators, incremental sales and profit dollars for both Grocery Outlet and IOs. We'll keep you posted on future enhancements. We've been focused on rolling out with these three partners and then, you know, certainly plenty of opportunity as it relates to different forms of e-commerce, delivery, pickup, and other enhancements, that we look to make from an online, merchandising and ultimately a customer experience. That's great. Thank you for that. Just another one. With regard to inflation, I was kind of curious if you could share how much it maybe contributed to sales or, asked another way, how you're thinking about it going forward as well, you know, just especially heading into next year and what's kind of, I assume it's baked into the guidance, but just kind of what level might be baked in too. Thanks. Yeah. We're not gonna provide a whole lot of guidance on next year until Q4. I'd say, look, this model's one that I would describe as really resilient, works well in a whole bunch of different macro environment backdrops. Just looking back over history, you know, you can see some really stable comps and margins throughout the year. That to us says that, you know, this flexibility is definitely an advantage. Particularly on next year and what we're thinking about inflation, we're really expecting disinflation. You know, prices have gone up quickly and stayed. I think they'll be a little bit sticky, and people will not repeal those and pull them back as quickly. I think the pricing will be a little bit more sticky. We're not expecting deflation, but we would expect to see some disinflation. Look, no crystal ball on recession, that's tied into that question as well. We just know that when customers are pressed hard on purchasing power, Grocery Outlet shines. Every situation is a little bit different, but the last time we had a pretty strong recession, 2008, 2009, we had some really nice numbers. We will just continue to focus on delivering value to the customers and take what we get relative to the backdrop. Sounds great. Thanks. Good luck with the quarter, and congrats to you guys, to RJ, especially. Thanks. Thanks, Joe Feldman. Thank you. The next question we have is from Mark Carden from UBS. Good afternoon. Thanks so much for taking my question. First, congratulations to both of you, Eric and RJ, on the transition and nice quarter. When you look at your traffic trajectory, how does it compare with what you saw in the early days of the 2008, 2009 recession? Has the acceleration come at a similar pace? Is trade down coming any faster this time around? What tools do you think will be most impactful in holding on to your new shoppers longer term? I'd say it's really different. The business is much more mature now. Just the offering, marketing, you know, our brand awareness, today versus 10, 11, 12 years ago. I'd say the offering, the variety, the freshness, the NOSH, some of the categories we've been talking about for a few years are much more developed. Just the store count from 120 or 130 back then to 430 now, the brand awareness, you know, we repurposed the brand, you know, once or twice since then. I would say similar patterns in terms of new customers coming in, perhaps you'd call it trade down, people moving from regular retail, traditional down into Grocery Outlet, looking for value. That's pretty similar. But it's just. It's a different business with a lot of the same themes. It's just I'd rather have the model we have today than the one we had in 2008 or 2009 because we're just so much more advanced in what we offer and how we take care of the customer. Fair enough. As a quick follow-up, can you talk through what you saw from a monthly cadence perspective on your comp? Presumably, you saw a pretty big spike mid-quarter. Where do you think the biggest source of upside was relative to what you might have expected three months back? Yeah, Mark Carden, it's Charles Bracher. Definitely the acceleration we saw was related to traffic as you think about the Q2 to Q3 trends. You know, really pleased with the overall health of comp and how balanced it was, and you slice and dice it across vintage of stores, geography, departments, it was very healthy. In terms of the cadence over the quarter, it was also quite consistent. Just feel really good about the momentum that we're seeing in the business and that nice uptick in traffic that we saw from Q2 to Q3. Like where we stand in Q4 here, still cognizant of the fact that it is a fluid environment. There's a lot here to play out in terms of exactly where inflation goes and the impact of Fed raising rates and consumer confidence. All those things, we're being a bit more prudent, as you probably saw with respect to our Q4 three-year stacked comp expectations. Again, really happy with the health of the comp base. Thanks so much. Good luck. Thank you. Thank you. The next question we have is from Michael Baker from D.A. Davidson. Okay, two real quick 'cause it's getting close here to the hour. One, any thoughts, any color on units per transaction? Or, you know, we know that the ticket was up, but was it all inflation driven, or are you seeing more units per transaction? Really what I'm getting at is anything that tells us that the consumer is trading down or, you know, buying fewer items per trip or anything along those lines that gives us insight into the consumer. Yeah. Mike, it's Charles. I'd say overall, you look at the basket, very similar trends in Q3 relative to Q2. To your point, it's coming from higher AURs. Units are down slightly versus last year. Again, we're comparing against a COVID elevated base and higher levels of trip consolidation last year. That overall, so the aggregate unit number holding steady for the past three quarters, and again, slightly ahead of where it was pre-pandemic. Basket feels really good to us. Okay. That's helpful. Then, you know, thinking about 2023 and the comments you just made about prices being sticky, there are some costs that might come down. First of all, presumably, you're lapping some big incentive comp this year, and in transportation, supply chain costs, maybe they don't go down, but they don't go up as much. It's unclear exactly what happens there. I guess the point is there an opportunity for some margin enhancement next year if prices are sticky and you don't have the same level of cost increases that we're seeing in 2022 on a couple different lines? Yeah. Yeah, perhaps. Again, we don't wanna get in front of ourselves and actually provide specific guidance right now. We'll do that in our normal cadence on the Q4 call. Yeah, when you look at this year, we are of course seeing better comp growth, but that's coming with slightly lower gross margins and EBITDA margins as we feel the impact of cost inflation as well as higher incentive compensation, as we've talked about on the SG&A line. As we think about you know next year and beyond, back to the long-term algorithm, would expect that we see those things normalize over time. It's just not a matter of if, but when. Well, if I could squeeze in one more follow-up then. The margins are down a little bit versus pre-pandemic. Pre-pandemic, EBITDA was 6.6%-6.7%, right in that range. They are down a little bit, you know, because of some of those costs. When you say stable, is it stable from a new base, which we've been, you know, this year and last year around 6.3%, or is it stable, you know, versus where it was pre-pandemic? We would say that we are confident that we can get back to those pre-inflation margins over time. You think about 2019 as a benchmark of a 30.8% gross margin and 6.6% EBITDA margins. We're fully confident that we'll get back to that, to those levels over time. Very helpful. I appreciate the color. Thank you. Sure. Thank you. The next question we have is from Corey Tarlowe from Jefferies. Hi. Good afternoon. Thanks for taking my question. Congrats, Eric and RJ, on the new roles. Thank you. Thanks. Firstly, I was wondering if you could just talk about labor availability, what that looks like at present as you look to open your new stores throughout the remainder of this year? Yeah. If you're talking about IO availability, really strong. You know, continued momentum on the recruiting side and the training side. Lots of people interested. Those numbers from last year are up this year. You know, we think it's purely the opportunity of people telling people and then the recruiting efforts. In terms of labor in the stores, still challenging, still expensive. I would say it's not as tight as it was this time last year or even at the beginning of this year. I would not say from our trips and travels out with the stores and our regional conference we just did that we're out of the woods yet on labor. We would anticipate that getting a little bit easier next year, but it's been slow to recover for the operators. Got it. Charles, could you just talk a little bit more about inventory and how you're expecting that to evolve throughout the remainder of this year? Yeah. Yeah, we feel really good about the health of inventory here in the fourth quarter. Again, up 4% versus Q2, up more significantly year-over-year. Again, keep in mind that with our model, those inventory changes are not necessarily linear, so comparing versus LY is a bit skewed for a variety of reasons. Feel great about where we're positioned here for the fourth quarter and just the health across categories and items and again back to the strength of the holiday assortment that we're putting forth. Would expect it as we exit the year to come down modestly from where we entered the quarter. Great. Thank you very much, and best of luck. Thank you. Thanks, Corey. Thank you. Ladies and gentlemen, we have reached the end of our question and answer session. I would now like to turn the floor back over to Eric Lindberg for closing comments. Please go ahead, sir. Thanks, operator. Thanks everyone for joining us. Thanks for your time. Look forward to catching up with you shortly, and we'll talk to you soon. Bye-bye. Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your line.