Greetings, welcome to Grocery Outlet FQ2 2023 earnings result conference call. At this time, all participants are in the 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 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lyn Walther, from ICR. Thank you, Ms. Walther. You may begin. Good afternoon, welcome to Grocery Outlet's call to discuss financial results for the Q2, ending July first, 2023. Speaking from management on today's call will be RJ Sheedy, President and Chief Executive Officer, and Charles Bracher, Chief Financial Officer. Following prepared remarks from RJ and Charles, we will open the call for questions. Please note that this conference call is being webcast live, and a recording will be available via telephone 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 law. 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. A description of these factors can be found in this afternoon's press release, as well as 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, except as required by law. These statements are estimates only and not a guarantee of future performance. During today's call, the company will also 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 and the company's SEC filing. With that out of the way, I would now like to turn the call over to RJ. Good afternoon, everyone. Thank you for joining us. We are very pleased with our Q2 results and the continued momentum in our business. Our differentiated model and strong value proposition are driving industry-leading sales growth. We are fulfilling our mission of touching lives for the better. More customers are shopping us for the first time, existing customers are spending more with us. Overall customer satisfaction continues to increase. Q2 sales grew 13%, driven by a 9% increase in comparable store sales. Total quarterly sales reached a new record of over $1 billion. Traffic remained very strong in the quarter, increasing 9%. Average basket remained high and consistent with last year. Gross margin was also very strong in the quarter, up 120 basis points to 32.3%. This, together with sales growth, drove a 23% increase in Adjusted EBITDA to $71 million. At the end of the Q2, we operated 447 stores across 8 states. We remain pleased with the performance of our newer stores, with sales levels and growth in line with our historical performance and underwriting model. We continue to see positive momentum in our newer markets, particularly in the East, where we are increasing awareness in our customer base through targeted marketing investments, strong IO execution, and expanding store count. Our strong performance is driven by our differentiated model and compelling value proposition. We save customers an average of 40% compared to conventional grocery retailers, with our best WOW! items saving customers 70% or more. Shopping at Grocery Outlet combines a fun, treasure hunt experience with the convenience of a small box format, and our independent operators provide a localized assortment and personalized customer service while giving back to the communities in which they live and operate. We are a unique, high-growth, specialty discount retailer. We have delivered strong and consistent performance with an average annual same-store sales increase of 5% over the past 20 years. As a result, we have steadily increased our market share and touched countless lives for the better. Providing access to high-quality food, saving customers money, and giving back to our communities is a formula that works across demographics, geographies, and macroeconomic environments, and we are still in the early stages of our growth story. Our model is unique in two distinct ways: opportunistic purchasing and independent operators. Our opportunistic purchasing model delivers an ever-changing assortment of high-quality items at prices that are well below our competitors. We have a talented and tenured team of specialized buyers who work in close partnership with suppliers to deliver WOW! items to our customers. We work strategically and creatively to provide solutions to our partners while strengthening the trusted relationships that we share. We also manage a flexible and agile supply chain to quickly move all types of products from suppliers to stores and customers. This business was built from the ground up around the opportunistic purchasing model, and we have been perfecting and expanding upon it for more than 75 years. Our growing size and scale make us a stronger partner with even better access to products. The Independent Operator model is equally important to our success. Our IOs are entrepreneurs, merchants, business owners, and community leaders. We partner with them to deliver the wow shopping experience to customers, and we support them in every aspect of the business. Operators enjoy the autonomy of running their own stores, selecting localized product, making merchandising decisions, and providing outstanding service to their customers every day. Operators also offer employment and career growth opportunities for their teams, and they demonstrate community leadership by giving back. Running a store is hard work, but independent operators are incredibly talented and resourceful. They are true entrepreneurs in every sense of the word. Throughout our history, operators have navigated numerous changes in the business environment, always meeting challenges head-on. Current operator satisfaction and engagement levels are high, and voluntary turnover remains consistently low. The Grocery Outlet model offers very attractive operator economics with a low upfront investment, healthy annual income potential, and unlimited upside. We split gross profit with our operators in the form of commission payments, we therefore both benefit from sales and margin growth. In the Q2, comparable store operator commission payments increased by more than 10% versus the prior year. Since 2019, average operator net income has grown in the low single digits on an annual% basis. Strong commission growth, combined with labor and operating efficiencies, have more than offset higher store-level expenses, such as wages and utilities. Last year, average mature store operator net income exceeded $250,000. We are always investing to support long-term operator success. We deploy capital to build new stores, we consign inventory to operators, and we market to customers across many channels. We also provide financing to help IOs with new store startup costs, and we offer cash flow support as needed during the early years as stores ramp. We are continually reinvesting capital to upgrade fixtures, implement new technology, and deliver tools that help IOs grow sales and profit. For example, we offer platforms and support to help operators with local marketing and community engagement that complement our company-wide marketing initiatives. Another example is our forthcoming store portal, which is a new platform that will provide operators with better analytics and easier access to information to make smarter business decisions. We look forward to delivering this new application to operators this quarter. Interest in becoming an operator is at an all-time high. We received nearly 30,000 leads last year, which is up 50% over the past four years. Becoming an IO is a highly selective process, as we accepted less than 1% of interested candidates to the GO family last year. Our selective recruiting process, combined with a comprehensive training program, continues to produce high-quality operators to support store growth. Our unique independent operating model demonstrates the power and differentiation of small business at scale, and the strong partnership we have with operators allows us, as we say, to out-chain the locals and out-local the chains. There is nothing else quite like it. Looking ahead, we have tremendous white space with the potential to operate over 4,000 stores in the US. We are continuing to invest in real estate and construction resources to fulfill our future store potential. We've recently hired new people to the team, and we are expanding strategic relationships with external partners, including large property owners. We are also considering opportunistic real estate and small regional acquisition opportunities that align with our geographic expansion and store growth strategies. We are excited about the many activities underway and our store growth potential in both infill and developing markets. Before turning the call over to Charles, let me finish with what matters most, our mission of touching lives for the better. We just completed our annual Independence From Hunger campaign. This is an event where our IOs partner with local nonprofits to provide critical food resources to their communities at the time of year when they need it most. In addition to the incredible efforts from our operators, our supplier partners also contribute by donating food and collaborating on events. I'm very proud to share that we raised a record $4 million this year, benefiting over 500 local organizations. We are equally proud of the $20 million that we've raised over the 13-year history of this program. In closing, I would like to thank our entire team and our IO partners for going above and beyond to serve our customers and communities. We appreciate all that you do to make the GO shopping experience one of a kind. We are well-positioned to build on this current momentum, and we are pleased to be raising our guidance for the year. Looking forward, we are excited for the growth ahead and the positive impact we will have on an ever-expanding group of customers. I will now turn the call over to Charles to discuss our financials. Thanks, RJ. Good afternoon, everyone. Our Q2 came in ahead of our expectations, driven by strong same-store sales growth and margin expansion. As RJ mentioned, we achieved quarterly sales over $1 billion for the first time in our history. We are all proud of this achievement, and I want to thank our employees and our Independent Operators for their contribution in achieving this significant milestone. For the quarter, net sales increased 12.5% - $1.01 billion, primarily due to a 9.2% increase in comparable store sales, along with the impact of new stores opened since the Q2 of last year. Strong transaction growth drove our comp, while our average transaction size remained high and flat to last year. We opened four new stores and closed one store during the quarter, ending with 447 locations. We remain pleased with our new store initial sales volumes. Recent vintages are ramping in line with our expectations. Q2 gross margin increased 120 basis points to 32.3%. Gross profit increased 16.9% - $326.6 million. Our buyers are doing a fantastic job partnering with suppliers. We are seeing healthy deal flow across categories. Strong execution, combined with a favorable buying environment, drove the better-than-expected margin result. SG&A expense increased 14.9% - $290.1 million compared to the Q2 of 2022. The increase was driven by higher commission payments to IOs, reflecting gross profit growth, store occupancy costs due to new unit growth, and incentive comp expense based on our strong first half results. As a percentage of sales, SG&A increased 60 basis points versus the prior year, primarily due to higher variable commission expense resulting from our strong gross margin performance. Net interest expense increased 23% - $4.8 million due to the impact of higher interest rates on our variable cost debt, partially offset by a reduction in average borrowings outstanding versus the prior year. With respect to the bottom line, GAAP net income for the Q2 increased 21.8% - $24.5 million or $0.24 per diluted share. Adjusted Net income increased 18.5% - $31.9 million, or $0.32 per diluted share. Adjusted EBITDA increased 22.7% - $70.5 million for the quarter. As a percentage of sales, Adjusted EBITDA expanded 60 basis points from the prior year to 7%. Turning to the balance sheet, we ended the quarter with $88 million of cash and $320 million of inventory. Our inventory balance remains healthy in terms of quantity, mix, and turnover. Gross debt was $298 million at the end of the Q2, with net leverage less than 1 times Adjusted EBITDA. We generated $70 million of operating cash flow during the quarter and invested $35 million in Capex, net of tenant improvement allowances, primarily for new store growth, upgrades to our existing fleet, and ongoing technology and infrastructure investments. Next, let me provide some commentary on our outlook for the balance of the year. Given our strong first half performance and continued momentum, we are raising our guidance for the fiscal year. For the Q3, we expect comp growth to be approximately 6.5%. For the full year, we are raising our comp sales guidance to be in the range of 7%-8%. We continue to expect to open between 25 and 28 net new stores for the year. In the Q3, we expect to open eight stores, with the balance opening in the Q4. In total, we now project fiscal 2023 net sales of approximately $3.95 billion. We expect Q3 gross margin to be approximately 31.3%. Factoring in our normal Q4 margin seasonality, we now expect full year gross margin of approximately 31.3%. This represents an increase of 60 basis points from our prior full year outlook. With respect to the bottom line, we expect Q3 Adjusted EBITDA of approximately 6.4% of sales. For the full year, we are raising our guidance for Adjusted EBITDA to be in the range of $254 million-$260 million. At the midpoint, our guidance represents approximately 20% Adjusted EBITDA growth versus last year. Moving down the P&L, we expect net interest expense of approximately $21 million for the year, which reflects projected forward interest rates on our outstanding debt. For Adjusted Net income purposes, we forecast a slightly higher 2023 tax rate of 30%. This is up from our prior expectation of 28% due to the impact of increased taxable income in high rate states, as well as nondeductible compensation expense. We expect average diluted shares outstanding of approximately 101 million. As a result, we are raising our full-year adjusted EPS guidance to be in the range of $1.04-$1.08 per diluted share. With respect to Capex, we continue to project approximately $155 million net of tenant improvement allowances, reflecting new store growth and ongoing investments in our store base and business infrastructure. In closing, we are extremely pleased with our results this quarter. We know that our strong performance would not be possible without the tireless efforts of our operators and the entire Grocery Outlet team. We appreciate all you do to make Grocery Outlet the company that it is today. Our brand momentum is strong, and we look forward to continued growth in the years ahead. We will now open the call up to your questions. Operator? Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two, if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. First question comes from the line of Oliver Chen with TD Cowen. Please go ahead. Hi, thanks. Great quarter. As we look to the back half, do you expect for the basket to also be flat? What should we know about disinflation or deflation in terms of what you're seeing? Also, you, you commented on, on the great buying environment. Do you expect that to continue? It was quite favorable to your gross margins. Finally, a lot of great comments on developing markets and targeted marketing. What have been some of the key learnings in, in terms of making progress there? Thank you very much. Hey, Oliver, it's Charles. Let me start with the basket. We'll try to take these, take these questions in, in order. Really pleased with the, the basket trends that we're seeing in the Q2. You know, we are, as expected, seeing moderating inflation, so AUR, while still up, came down from the Q1. Recall that for us, the impact of inflation is more muted because of our, because of our buying model. Then units in the basket, it's down modestly versus, versus the prior year, which we would expect to see given the higher trip, trip frequency and traffic that we're driving. Again, for us, you know, it's not directly comparable, given the nature of the buy and the fact that it's an ever, ever-changing mix, and assortment within the store. Units overall, still slightly ahead of pre-pandemic levels, which we feel really good about. As we look towards the balance of the year, you know, we really think that the same trends continue. Traffic will be the larger driver of comp as customers continue to, to seek out value, and then ring, again, with moderating inflation should continue to, to moderate, as, as, as those trips increase. Regarding the buying environment, Oliver, yeah, we continue to be encouraged by the pipeline of opportunistic product. It continues to be broad-based across categories. The positive momentum, you know, all the way back, from the beginning of the year into through Q2, is carried forward to this quarter as well. We continue to see really healthy inventory positions and variety available to both operators and to customers, and contributing to the great value in Treasure Hunt and positive experience customers are having shopping our stores. A lot, a lot of positive trends there, that we like. In regards to marketing, we continue to see nice returns from our targeted marketing efforts. We do still continue to invest more in certain areas, and we're always following a test and learn approach as we deploy, try, learn from new marketing activities. You know, certainly very active in the digital space, as, as you're well aware, and always trying new activities there. We'll be even more targeted once we fully roll out and do a full launch behind our personalized program, the app that we have out there in some of our stores, and so we're excited for that and the additional benefit that it'll provide. Thank you. Best regards. Thank you. Thank you. Thank you. Next question comes from the line of Robby Ohmes with Bank of America. Please go ahead. Hey, good evening, guys. Great quarter. You know, two, two follow-ups to Oliver's questions. The first, just, can you give a little more on the gross margin increase? You know, I understand, you know, the buying could be better, but also, I, I think you and the IOs price usually do a certain, you know, gross margin. You also mentioned execution as part of the gross margin benefit. Can you give examples of what, you know, what, what you mean by that? Is that less, less clearance, less shrink? Then maybe how should we think about gross margin for next year versus these really strong gross margins you're putting up now? Is this the new sustainable gross margin we should be thinking about for you guys? That would be my, first, first question on gross margin. Yeah, Robby, it's Charles. Thanks for the question. Yeah, we're really proud of the margin performance that we delivered in the Q2. It clearly was ahead of our expectations as we went into the quarter. Really a few factors at play as we look at it. Number one, you know, we always talk about normal with our model to see the quarterly fluctuations just because of the nature of the buy and the ever-changing assortment. I would describe the Q2 performance just as naturally at the higher end of that. Number two, yes, it is a favorable buying environment for us right now. We're seeing healthy deal flow across departments, which feels really good. Lastly, yeah, strong execution from the team. You can think about this as really end-to-end, the way we manage inventory from the buy through supply chain, through allocations to store, and importantly, everything the operators do at store level to efficiently manage inventory and minimize shrink. Each of those players has an important part to contribute to overall margin management, and I would say they're just executing really well, which we feel great about. As we look forward, you know, and I think you see this in our, in our guidance for the back half of the year, we do expect that some of these things continue in terms of purchasing. Back half of the year, deal flow and backdrop continues to look really positive. We are expecting, as we always see, normal seasonal moderation in margins as we move from Q1-- first half to second half. Again, that has to do with product mix in the Q3. You can think about, you know, higher mix of salty snacks and sodas and bottled water, and then in the Q4, the impact of holiday items. That's all factored into our back half guidance as it relates to margin. As we look forward longer term, you know, for us, I think that the recipe for success has always been, you know, we talk about managing for stable margins over the long term and always making sure that we're reinvesting in value back to the customer. You know, we, we've got a long list of what we, I'd say, are margin-driving improvements across buying, across IO ordering and allocations. Again, we always think about the flywheel of investing back into value and driving that, customer excitement within the store and incremental traffic. That's really helpful. Just a quick follow-up, any difference in the sort of more discretionary, like, non-food part of the assortment versus what the consumables food is doing? No, no, no, no notable difference, Robbie. what we're seeing strong growth really across the assortment, and it's, the performance that we're, we're seeing or, you know, that we're reporting is, is not related to mix. Great. Thanks so much, guys. Thank you. Thank you. Next question comes from the line of Krisztina Katai with Deutsche Bank. Please go ahead. Hi, good afternoon, and congrats, RJ and Eric, on, on the great results. I had a similar question, just to follow up on the gross margin, right? I just wanted to ask about the, the sort of the healthy buying environment. Is there anything that would tell you that maybe the buying environment's becoming permanently more favorable for Grocery Outlet as you are bigger, you have more importance with your vendors, and therefore, Grocery Outlet can essentially sustain structurally higher margins, and it wouldn't really have to go back to the pre-pandemic levels that you were really managing to before? Yeah. Thanks, Krisztina. I'll take that one. Yeah, we're, you know, I already mentioned, really pleased with the buying environment, but it's also the activities that we, you know, that we're always involved in, the investments that we make. Our objective is always to be an even better partner to the suppliers that we work with. You know, just as a reminder, some of these relationships go back decades. As we grow, we do become a stronger partner. We do gain even better access to product. Part of the growth story for us has been, as we expand geographically, we open up opportunities for other distribution centers, in areas where product is held, that we can then take advantage of. Yes, there is structural benefit improvement that comes from growth, and we're always looking to get better and, you know, we're certainly, certainly benefiting from that, in the partnerships that we have and the access to product that it gives us, and then the value that we're able then in turn to provide to our customers. You know, as far as the current environment, where, where it goes from here, you know, time will tell. It is cyclical. It is cyclical. You know, certainly at the item level, by definition, deals don't repeat themselves. We have relationships across many suppliers, and we're, our capabilities are such that we're able to provide solutions in lots of different ways and therefore continue to gain even better access to product. As it relates to margin, I would encourage you to think about both opportunistic and everyday product together, contributing to some of the more recent margin performance. You know, it's less about, yes, strength of opportunistic helps, but the mix is generally balanced and healthy. From an execution standpoint, we continue to get better at managing value together with margin for both opportunistic and everyday products. You know, like where we're at, you know, certainly like the view that we have to the end of this year and, you know, we'll just continue to manage the business in that way looking forward. ...Thank you for that. Just as a follow-up, it does sound like the IOs are feeling pretty great, and thank you for all of that, those statistics that you gave us. How are they feeling? One is just on the inflation front. Are they at all concerned about any potential promotional activity that that could be ramping up from bigger peers that are losing market share, or as vendor support is ramping up? Just how are they viewing the price gaps relative to peers? Yeah, I'd say that they, together with us, in terms of promotional environment, continue to see it remaining relatively stable. We have seen a, you know, call it a slight uptick in some promotional activity, but overall, other retailers are remaining very rational. They continue to be more targeted and specific in some of the discounts that they're offering, and the promotions that they apply. Operators keep a close eye on that. We keep a close eye on it as a value retailer. It's remained very, very stable. We will continue to watch it closely. You know, again, our model, very flexible. We've been in this business for a long time. you know, regardless of how the promotional environment changes or increases or what have you, we will continue to manage our assortment and pricing to continue to offer great value to customers, and that's why they, they, they love us and continue to shop with us. Yeah, not, not overly concerned. Haven't seen a whole lot of changes recently, and wherever it goes from here, we, together with operators, I think we'll manage it just fine. That's great. Thank you so much, and, best of luck. Thank you. Thank you. Next question comes from the line of Joe Feldman with Telsey Advisory. Please go ahead. Yeah. Hey, guys, thanks for taking the question. You know, great quarter. I guess, what are, are you guys seeing in terms of the, the health of the consumer? It sounds like you're seeing a lot more frequency, the basket's holding up. I, I guess I'm curious if you're just seeing customers trading down, like more affluent customers shopping more often, or, you know, maybe buying differently within categories at all. Just anything about the health of the consumer would be great. Thanks. Sure. Yeah, thanks for the question, Joe. We continue to be encouraged by what we're seeing with consumer and shopping patterns and behaviors. I'd say it's all the same positive trends that we mentioned on our last call. We continue, which is, which is great. We continue to see strength across all income levels. You know, we think about different customer types and how they shop us, and there's strength more broadly across those different segments. We are still seeing an acceleration of new customer shopping stores, so of course, we, we love that. The operators are seeing them in their stores every day, and they're interacting with them and educating them on the model. That's a very positive trend for us and a driver of some of the same store, transaction count increases that we've seen throughout the year. Our survey data continues to show that there are more higher, middle to higher income customers shopping with us, suggesting that they are changing their behaviors. They're coming to us for value on the great brands and items that we're offering. Then we've also seen an increase in trip frequency, overall spend, from our existing customer base, as, you know, they too are really resonating... values are really resonating with them, and they've increased, or we've increased our share of wallet with them. Customer satisfaction, as mentioned, is high. Intent to shop more in the future is high. You know, I'd say beyond just the backdrop, of course, which is supportive, the initiatives that we are pursuing further support these positive trends. You know, already mentioned investments that we're always making in opportunistic purchasing. We continue to strengthen our everyday assortment, making sure that it is the most relevant assortment of items, brands, you know, of course, value always for the customer. Together with, I'd say some more recent initiatives around e-commerce, we've got more personalized communication here in front of us with the app and certainly many other initiatives that we're investing in to drive the business forward. Yeah, a lot, a lot of positive trends that have been playing out throughout the year as it relates to the customer. That's, that's excellent. Then just as a follow-up, I think I heard you guys say correctly, if I heard it correctly, I mean, that you would consider opportunistic real estate and small regional acquisition opportunities. I know you obviously did that in Mid-Atlantic, but are there some things that you're preparing us for, or things that you might see out ahead that, that you're excited about? Yeah, so, yeah, sure. Let me, you know, think of them, Joe, as within several activities that are underway right now, as we are going after the tremendous white space that's available to us. You know, first, I'd, I'd just remind or say again, that we continue to invest in resources, bringing in new team members to support the real estate and construction process. One notable recent hire is Calvin Chung. He joined us several months ago as a Chief Store Development Officer, overseeing real estate, construction, facilities management. He brings a wealth of experience in leading the team in our effort to scale and expand capabilities for growth. I'm really excited about some strengthening partnerships that we have with external partners. One in particular, some new strategic relationship discussions that we're having with large property owners, as a way to complement the traditional organic growth efforts that we've had underway. In addition to all of that, to your question, yes, we are considering opportunistic real estate lists, as we talked about on the last call, from retailers that have gone out of business, and liquidating and their real estate's available. Plenty of other instances where retailers are closing locations, closing stores, and lists have become available, where we may have an opportunity to capture several of those, more than one at a time. So we like that. Then we're also considering small regional acquisitions. What's important here is, thinking about these, that would line up with our geographic strategy, and also store growth, and long-term growth plans. So all of these things together, you know, certainly a lot underway. All of these things together, we think about them as supporting, future growth, in the same-- at the same rate and along the same lines that we've always talked about it. But we love that we have, lots of different avenues for that. Again, given the, the white space and the potential, with this business, those are interesting conversations to be, to be having right now. Thank you for clarifying that. Good luck with this quarter, guys. Thanks. Yeah. Thanks, Joe. Thank you. Next question comes from the line of Leah Jordan with Goldman Sachs. Please go ahead. Good afternoon. Thank you for taking my question. I wanted to check in on the new store pipeline. Your total count was reaffirmed, but it does seem like 2 or 3 may have slipped from the Q3 to the Q4 for this year versus your prior guide. Just curious what's driving that, and if you could provide a status update on how the pipeline is building for 2024 and into 2025, as well as any commentary on the permitting and construction environment. Sure. Yeah, Leah, it's Charles, let me take the first part of your question with respect to store count, for 2023. No change to our initial, guidance, and, for the year in total. We expect to open 8 stores, as I mentioned, in the Q3, and so you're always gonna get a little bit of a shifting from quarter to quarter. I would describe the back half overall as very consistent with our expectation, going into the year. Then RJ. Yeah. Yeah, regarding 2024 and out years, Leah, we continue to work on growing the future store count. As I, as I just mentioned, the work includes organic growth together with consideration for opportunistic real estate, as well as smaller regional acquisition opportunities, along with some additional new partnerships that complement our own internal activities. Some of the activities are new, as it relates to opportunistic real estate and, of course, consideration of regional acquisitions. They're interesting for us, again, given the white space that we have. All of these activities are in progress right now. They're all interconnected and we're in the process right now of evaluating it all together within the context of targeted growth over the next, I'll call it, 12 to 36 months. We'll, we'll plan to provide further update with more specifics together with what would be full year 2024 guidance during our February Q4 call. Okay, great. Thank you. I just wanted to follow up on the customer health kind of conversation. You know, wanted to touch on SNAP customers specifically. Could you add any color on how those customers' behavior trended throughout the quarter, and are you starting to see some normalization there? Yeah, Leah, it's, it's, I'd say, playing out very consistently with our expectations. We've always talked about, for us, you know, we, we don't view a reduction in SNAP benefits as a headwind. You think about our model, and it appeals very much to that value-oriented consumer. We can see that when we look back over time, where we positively comped through cycles of reduced, SNAP funding. Yeah, SNAP benefit reduction, you think about, it's just one more thing that's adding cumulative pressure to that consumer and encouraging them to stretch their dollar. You know, we expect over time that will continue to be a traffic driver for, for us. So far in 23, we've seen that migration just in tender type, as, as the SNAP benefits have been reduced, and I think you see that in our healthy comp and traffic trends. Very helpful. Thank you. Yeah. Thanks, Leah. Thank you. Next question comes from the line of Karen Short with Credit Suisse. Please go ahead Hi, thanks very much. I hope you're all well. Good to talk to you. A couple questions I had. The first question is, can you give us some sense of what the comps are on the East Coast, well, well, in on the East versus the West? Can you give some sense of what the actual interest rate is for the IOs, today, you know, versus what they would what you charge them as an interest rate versus what they would have to have as an interest rate as a totally independent operator? I had two more questions. Yeah, Karen, it's Charles. Let, let me take the first part. Regional performance, particularly in the East, we're really pleased with newer regions. I'd say both Southern California and Mid-Atlantic. Both of those continued to post kind of company-leading comps on both the current year basis on and on a multi-year stack basis, which feels great. Driving increased brand awareness and trial into the stores and continue to densify those regions, we're seeing kind of the momentum build, which we, which we feel great about. As it relates to interest rates for the IOs, so keep in mind, it's a fixed interest rate that we charge IOs. It's a standard 9.95%. That number has not changed as kind of variable interest rates have, have increased. That number has not-- But you've-- you're done with forgiving that interest rate, right? Yeah, we do not forgive the interest rate. If a store is on TCAP, we will reduce the interest rate for those stores, which we continue to do. Overall, interest rates are, are flat. Okay. Then my, my second or third question is, you said new customers are driving ticket. Then we obviously have inflation, but ticket is flat. I guess when you have new customers driving ticket and you also have inflation that would drive ticket, why is ticket flat? Yeah, no, the, the comment is that new customers are a notable component to transaction count increases, not ticket. Okay, ticket in general, why would that be flat with high inflation? Moderating for us, our model mutes the impact of inflation, so we're still seeing some inflation flow through, but it's moderated as we move through the year. We would expect that to continue to be the case. Then units, as I mentioned, slightly down versus the prior year. You can think about that having the in or being impacted by higher trip frequency as customers are making those incremental trips to stores. Okay, great. Thanks so much. Yep. Thank you. Thank you. Next question comes from the line of Mark Carden with UBS. Please go ahead. Good afternoon. Thanks so much for taking the question. So obviously, you guys posted a really strong traffic number this quarter, and it sounds like you're, you're doing well across all income levels. What are you seeing from some of the customers that you've acquired over the past few years? Are you holding on to more than you would have expected? How does your customer retention compare, I guess, to some prior cycles of elevated growth? Yeah. Hey, Mark, thanks for the question. We, we don't track specific customer transactions. That, that'll be a new capability that we have that'll come with the personalization app. We can't speak specifically to customer trends and, you know, how we're seeing the basket changing, et cetera. What I can say, though, is speaking more generally to retention and stickiness of the model, a lot of positive trends and data that we see in the customer survey. Already mentioned some of that already around high satisfaction levels and tend to shop more with healthy inventory levels, value, treasure hunt, you know, all the things that we're doing from an assortment standpoint, and then for the operator, providing great customer service and, and educating customers, new customers on the model. There's a tremendous amount of stickiness and retention that comes from that, for those that the model resonates with. It's not all customers, right? We're a very specific, differentiated model, and so, you know, not for everyone, but for plenty of people that are looking for value, they, they have and will continue to shop us, more frequently or they'll return as more loyal customers. We, we reference, you know, 2008, 2009, just as a time period, certainly many different dynamics, but it was a time period where we had a really high increase in new customers shopping our stores, and then as the economy improved, many of them stuck with us and we continued to comp positively. We're a better, stronger company today than we were back then. All of the feedback that we get from consumers and what operators are, are seeing every day in their stores, we feel really good about future retention and continued growth. Okay, great. Then as a follow-up, just another question on real estate. If you guys did find a suitable acquisition, would you taper back planned new store openings to keep that 10% unit growth number, or would you expect for it to be incremental? Yeah, no, not, not incremental. You know, as best we can manage it, we, we do wanna stay disciplined and measured, at the rate, you know, that 10% rate that we've talked about growing over, over the long term. You know, we think that's a healthy way to grow. Store count or store growth to be ahead of investments that we're making in the business. Real estate is just one part of it, but yet you have to, and we do manage and consider, you know, think a lot about investments throughout the business to support growth, whether it's operator recruiting and training, you know, certainly inventory and supply chain, everything related to new markets, growing awareness and, and driving trial and then retaining, you know, future loyal customers. There's just a lot that goes into it. You know, as best we can, as we think about all these components, you know, whether they're acquisitions or real estate blocks that we're able to take advantage of, you know, together with organic growth, we'd look to try to keep that at that same rate that we've always talked about. Got it. Thanks so much, and goodbye. Yeah. Thank you. Thank you. A reminder to all the participants, please restrict yourself to one question and one follow-up. Next question comes from the line of John Heinbockel with Guggenheim Securities. Please go ahead. Hey, guys. I'm gonna beat the gross margin horse a little bit further. What are you seeing with shrink and mix? I'm curious, right? Even during the best days of 2020, gross margin didn't perform this well. What do you think is different? Is there less competition for opportunistic purchases? You know, is it more discipline, right, on how you're pricing that? I'm just, just curious, you know, what is different today, if anything, versus a couple of years ago? Yeah, John, it's Charles. let me answer the, the point you, you referenced there on shrink, and then I'll turn it to RJ. As it relates to shrink, and clearly, there's been a lot of headlines on this topic out there. we fortunately have not seen a significant change in our historical shrink rates. Probably, a couple factors at play when you think about our business. Number one, of course, we got lower, value price points. Number two, and probably more importantly, is just the IO control of the store and that, that customer local connection that they have, and the fact that we have a shared gross margin management, inventory management incentive with them. I think that really motivates them to, to keep a close eye on, on shrink, and as a result, we're seeing very consistent performance. You'd asked about mix as well within that question. Yeah. Generally, pretty balanced. It does fluctuate. The assortment's always changing. Yeah. Generally, the mix is pretty balanced. The-- and then to your question on opportunistic strength, it continues to be a really dynamic, you know, with plenty of disruption still in the supply chain. We, you know, we did anticipate as capacity was coming online, you know, production lines were increasing, reaching this point where there would be even more product available than, than is always available on a, you know, kind of a regular steady-state basis. That has continued to be the case throughout this year. Product innovation has come back pretty strong with suppliers. That always yields product. A lot of adjustments, generally speaking, with the state of work remote, work in the office, you know, as, as suppliers are looking to meet those, those needs. All of that has yielded product. Then again, together with what I've already mentioned, is the work that we do, to continue to offer even better solutions and stronger partnership with suppliers that we work with, and that's really benefited us as well. Hats off to our entire team, and the relationships that we have maintained and the partnerships where we work together and strategically with suppliers. Just working really well right now, and it's from a lot of hard work and effort from the team and the people that we partner with. All right. My follow-up would be: When is the store portal going to be out there? What do you think, if you had to pick two elements of that, that'll be the most impactful for the IOs, what would that be? I'm sort of curious in terms of you have so many items, you know, elasticity. Is that one of them that would allow the IOs to price more opportunistic if they haven't to date? Yeah, we're, we're really excited about the portal, together with some other system enhancements that we will be implementing, this quarter. It's here. Right ... being implemented very soon. Yeah, in terms of benefits for the operator, gosh, so many. You know, I think, John, first thing that comes to mind is just easier access to information and access to new information that they've not seen before, at least not in the format that it'll be available. With that comes better decision making. Faster, better decision making around inventory, around ordering, around you know, managing the mix really in all aspects for how they manage their business, which is, which is a huge benefit, so which to grow sales and improve margin. The other benefit that I would mention is just efficiencies. You certainly have talked about rise in costs, operating expenses, you know, labor, et cetera, you know, challenges that we, together with operators, have managed through for a long time now. This new platform portal will allow them to operate even more efficiently, better use of their time, reallocate it to spend time with customers or, you know, or operate the P&L more efficiently to help them with their income growth. All right. Thank you. Thank you. Thanks, John. Thank you. Next question comes from the line of Corey Tarlowe with Jefferies. Please go ahead. Great, thanks. Wanted to ask on category performance, or maybe if you could talk a little bit about dry grocery performance versus fresh, and then maybe any incremental details you can add on the NOSH category that's continued to grow very nicely? Yeah. Categories, I'd say in general, really strong, broad-based across the assortment. You know, I wouldn't, I wouldn't necessarily call out one versus the other. There's, there's really strength across the basket, which, of course, is a, is a good place to be. Nosh, yeah, Nosh, natural, organic, specialty, healthy, that, of course, lives across departments, and really throughout the whole store. We have really nice penetration of Nosh within the basket and continues to be, if I can call it a category or an attribute, anyway, set of attributes that continue to drive our comps. We, we, we see some of our higher growth items, some of the best values and some of the more exciting items for customers within the NOSH category, and we do expect that to continue to grow as a% of total sales. Great, thanks. Then just a quick follow-up on what you're seeing quarter to date. Looks like you've guided for, I think, a 6.5% comp for the Q3, but you've comped, I, I believe, around, you know, high single digits or, or low double digits so far, this year. What kinda informs that? Is that what you're seeing presently, or is that conservatism? Just any color there would be helpful. Yeah, we're, we're really pleased with the start to the Q3. Again, you can think about comp dynamics that we saw in the Q2 really continuing. Traffic continues to be very strong. As it relates to the guide for the year, for the balance of the year and the, the Q3 specifically, you know, we, we've looked at a variety of stacked comp metrics and implied average weekly sales on a seasonal basis. The big, the big factors there are, we're lapping higher comps in the back half of last year, so think kinda mid-teens, and just continue to be cognizant that the overall macro consumer environment is fluid, but we, we love the momentum that we're seeing. Great. That's very helpful. Thank you very much, and best of luck. Thank you. Thank you. Next question comes from the line of Mike Baker with D.A. Davidson. Please go ahead. Hey, I just wanted to ask about the online business. What are you seeing there? Yeah, e-commerce, continue to be pleased with some of the results there. We're seeing nice incremental sales. We, we're active across the three major platforms, Instacart, DoorDash, Uber Eats, and still with plenty room to grow as we think about developing other, other channels within e-commerce. We, we continue to be delivery only, which is, you know, just a percentage of the total channel, and, you know, we'll look to enhance that in the future. Everything's working great online. Any, any qualifications? What percent of the chain is that in? Can you remind us that, or any, you know, what percent of sales? Any way to, you know? Yeah. Quantify or contextualize it? Yeah, it's in all stores. All stores are active on those platforms, but it's a small% of sales. We haven't disclosed the specific penetration amount. Understood. Thank you. You're welcome. Thank you. Next question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead. Hi, everyone. Thanks. Good afternoon. This may be an easy one because I missed the beginning of it. Can you talk about what, what changed structurally or what, what changed with gross margin? I did hear the earlier question about something maybe being structural. Just given how consistent your gross margins have been, why shouldn't we take what we're run rating now as, as, as the right run rate going forward? Yes, Sim, it's Charles. We did address this earlier. I'll give you the, the, the quick summary here. As we look at Q2, margin performance, yes, stronger than we expected going into the quarter. Really proud of, of the number that we posted. As we look at that, you know, a few things that we point to, number one, we always talk about it's normal, given our buying model, to have these quarterly fluctuations, is the assortment is ever-changing. We think Q2 is just naturally at the higher end of that normal quarter-to-quarter variability. Number two, the buying environment, we're seeing some great tailwinds there, so healthy deal flow across departments and across categories, which is benefiting us. Number 3, the team has just been doing a fantastic job, and I'd say that's end-to-end, from purchasing through the warehouses, all the way to stores and everything that the operators do to effectively manage inventory at store level. Saw all of those benefits in the 2nd quarter. As we look towards the back half of this year, we think a lot of those things continue. We think the deal, opportunistic buying backdrop continues to be favorable. Just to remind you, we do always have seasonal margin moderation in the back half of the year due to summer product mix and holiday product mix. Just feel great about how the team is executing across the business. Okay, helpful, and sorry for repeating. The other question is. This is logistic. Does the IO have discretion to set a price, or it's company given and everyone conforms, or the IO can move price around based on their market, based on, you know, what they, what they want to do in their store? They can. Yeah, they do. We, we set prices centrally to start, and then they have the autonomy to adjust some prices based on what you just said, market dynamics, competitive factors, et cetera. It's a great, great part of the model. Okay. Yeah. Has it ever been a call-out as far as something that's been margin-enhancing or margin-degrading, where enough of that happens in your system? I don't think we've ever just talked about that. It's just a, just an outside question. No, it's a small number of items, Simeon, so no. Right. Okay. Thank you. Take care. Yeah, thanks. Thanks. Thank you. There are no further questions at this time. I would like to turn the floor back over to RJ Sheedy for closing comments. Yeah. Thanks everyone for joining us today. Appreciate the support. We look forward to updating you on our next call. Thanks. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you.