Greetings, and welcome to the Grocery Outlet Full Year 2023 Earnings Results Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. Please note, participants are restricted to one question at a time. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Christine Chen, Head of Investor Relations. Please go ahead, ma'am. Good afternoon, and welcome to Grocery Outlet's call to discuss financial results for the fourth quarter and fiscal year for the period ending December 30th, 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 laws. All statements that address future operating, financial, or business performance, or the company's strategies or expectations are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from these statements. 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. Good afternoon, everyone, and thank you for joining us. We are happy to be speaking to you today about our business results, acquisition of United Grocery Outlet, and outlook for 2024. Let me start by providing some commentary on business performance and notable growth initiatives over the next few years. First, our fourth quarter results were slightly ahead of our expectations, and traffic and customer acquisition remained strong. We continue to deliver unbeatable value with an exciting Treasure Hunt experience, and our underlying business fundamentals remain healthy. Second, we are excited to be acquiring United Grocery Outlet, which adds 40 stores to our network. This is an ideal strategic fit given our similar business models, customer value propositions, and shared mission of serving and helping others. This acquisition provides Grocery Outlet with scale in a new geography, as well as a platform for future expansion in the Southeast. We are thrilled to welcome the United Grocery Outlet team into the Grocery Outlet family, and we look forward to working together on the many growth opportunities ahead. Third, we are making good progress on a number of strategic initiatives that we believe will strengthen our value proposition and contribute to future growth. Our personalization app is now rolling out to all stores, and we will soon begin to invest in marketing to drive downloads and adoption. We are also looking forward to the launch of our new private label program later this year. Finally, we are excited to welcome Ramesh Chikkala to Grocery Outlet in the new role of Chief Operations Officer. I have known Ramesh for a number of years, and he is familiar with our business through previous consulting work. Ramesh is leading our business technology and supply chain teams to help us scale and improve our capabilities to support growth. Let me now expand on each of these with more details. Fourth quarter sales increased 6.3%, driven by a 2.7% increase in comparable store sales, which was ahead of our expectations. Transaction count remained strong at 7.5%, increasing throughout the quarter. While food inflation has been moderating, consumers still face higher food prices and other financial burdens. Our compelling savings and ever-changing assortment of high-quality WOW items continue to drive healthy traffic increases and market share gains. Fourth quarter gross margin was also ahead of our expectations at 30.2%. The closeout market remains strong, and our growing size and scale provide increasing access to products with strong customer value and healthy margin. We opened 13 new stores in the fourth quarter, including our first store in Ohio, ending the year with 468 locations. Recent vintages continue to ramp well, and we are pleased with new store performance. We have made steady progress with our systems implementation work, though data integration efforts are taking longer than expected and are still impacting our business results. The largest remaining issues are related to warehouse product expiry data and store-level reporting for IOs. We expect these to be resolved soon, after which the P&L impact will be behind us. Charles will provide more details in his comments. Despite the systems disruption, business fundamentals are healthy, and our new applications are supporting daily operations well. We are proud to have delivered strong results during 2023, growing sales by 11% to a record $4 billion. This was driven by comp store sales growth of 7.5% and a customer count increase of 8.3%. We also leveraged gross profit by 76 basis points and grew Adjusted EBITDA by 18%. Now let's turn to the acquisition. United Grocery Outlet is a healthy, profitable, and growing business. Their opportunistic buying model, similar company values, and adjacent geographic footprint make it an ideal strategic fit. Founded 50 years ago, United Grocery Outlet offers customers tremendous savings within a Treasure Hunt shopping environment. Strong partnerships with national and regional brands enable it to provide quality food at unbeatable prices to its loyal customer base. United Grocery Outlet also operates as a local business with a mission of giving back and making a positive impact on their community. Their stores average 17,000 sq ft and have seen healthy same-store sales growth in recent years, driven by both transaction count and Ring. This acquisition provides Grocery Outlet a great entry point into the Southeast region with 40 stores across the six states of Tennessee, North Carolina, Georgia, Alabama, Kentucky, and Virginia. United Grocery Outlet also operates a distribution center, which can support additional new store growth in the broader Southeast region. This is an exciting addition as we pursue our white space opportunity of over 4,000 stores across the U.S. Distribution center infrastructure in this region also provides us with better access to opportunistic product that can benefit all Grocery Outlet stores. We have many levers to accelerate sales growth in partnership with the United Grocery Outlet team. Some of these opportunities include assortment expansion, additional store fixtures and improvements, and technology and marketing investments. We also see our independent operator model as another lever for growth. It is an important differentiator for us, and we believe that it can have a positive impact in this region as well. We look forward to updating you on integration progress as we go. In addition to the United Grocery Outlet stores, we plan to open 15-20 stores for a total of 55-60 net new stores this year. Our real estate pipeline is healthy, with approved sites for 2025 in good position to deliver our 10% annual growth goal. Given this, most of our recent real estate efforts have been focused on building the 2026 pipeline. This will add to what is currently over 100 approved sites for 2025 and 2026 combined. We continue to pursue organic growth combined with additional real estate opportunities that align with our long-term geographic expansion and store growth strategies. We are expanding strategic relationships with large property owners, evaluating opportunistic real estate lists, and exploring additional strategic regional acquisitions. The combination of these activities will help us deliver on our tremendous long-term store growth and geographic expansion opportunities. Let's turn now to other strategic initiatives. Our personalization app is on track to be active in all stores by the end of the first quarter. This app will allow us to communicate our weekly deals to customers and customize their Treasure Hunt experience. This will increase customer engagement with Grocery Outlet and help drive trip frequency and share of wallet. We are also looking forward to launching our first new Private Label products later in the second half of the year, with a goal of 100 SKUs by year-end. Our assortment will initially focus on everyday value commodity categories that deliver better value and margin and complete the full shop. These items will help us capture larger baskets and create a stickier customer relationship. Our private label strategy will also include NOSH categories and unique items that will serve as another differentiator, enhancing the customer shopping experience. Next, for a people update, we welcomed Ramesh Chikkala last month in the new role of Chief Operations Officer. Ramesh's experience in retail and operations organizations includes 14 years at Walmart, where as SVP, he led its global supply chain and food manufacturing operations, as well as its global technology organization. Most recently, Ramesh has been a senior advisor to Kearney in their operations, supply chain technology, and consumer industry and retail practices. I look forward to working with him to further optimize our supply chain and technology infrastructure to support our long-term growth. We are in process with our search for a new CFO, and I'm happy to have Lindsay Gray, our SVP of accounting and principal accounting officer, stepping into the role of interim CFO effective March 1st. Lindsay has been with Grocery Outlet for the last eight years, leading our accounting team. She is an experienced financial executive with deep knowledge of Grocery Outlet's business and over 14 years of leadership in finance. She also is well connected throughout the business and a strong supporter of the IO model. In closing, I would like to thank the Grocery Outlet team and our IOs for their dedication and many contributions. The entrepreneurial spirit of our IOs, combined with the buying power of our team, creates a powerfully unique customer experience, which positions us well to continue to grow our market share. I also want to thank Charles for his invaluable contributions to Grocery Outlet. Thank you, Charles, for all that you've done over the past 12 years. You'll be greatly missed by everyone, and we wish you the best of luck in the next chapter of your career. With that, I'll turn it over to Charles. Thanks, RJ, and good afternoon, everyone. Our fourth quarter results slightly exceeded our expectations, reflecting continued strength in transaction growth, which improved throughout the quarter. For fiscal 2023 in total, we delivered strong top-line growth, with comp sales increasing 7.5%, yielding $4 billion in total sales. We also drove healthy bottom-line growth with Adjusted EBITDA of 17.7% and Adjusted Net Income increasing 15.2%. For the quarter, net sales increased 6.3% to $989.8 million due to a 2.7% increase in comparable store sales and the impact of new stores opened over the past 12 months. Comp transaction growth of 7.5% was partially offset by a 4.5% decline in our average basket. We estimate the system transition impacted comp sales by approximately 200 basis points for the quarter. We opened 13 new stores during the quarter, including seven in the East and one in Southern California, ending the year with 468 locations. We remain pleased with the performance of our new stores, which are ramping in line with our expectations. Gross profit increased 6.3% to $298.9 million, representing a 30.2% gross margin rate, slightly better than our expectations. We continue to experience healthy deal flow, which helped offset the margin impact of our system integration, which we estimate was approximately 130 basis points in the quarter. Turning to expenses, fourth quarter SG&A increased 8.8% to $279.9 million. As a percentage of sales, SG&A increased 65 basis points. The increase was driven by higher commission payments to IOs, store occupancy due to new unit growth, and D&A expense. This was partially offset by lower incentive and stock-based compensation accruals. The higher commission expense reflects gross profit growth along with additional commission support we elected to provide our IOs in connection with our system transition. Net interest expense decreased 74.2% to $1.5 million in the quarter. This reflects a reduction in net borrowing versus the prior year, partially offset by higher average rates. In addition, we recorded a reduction of approximately $2 million in the quarter to reflect full-year capitalized interest costs related to store construction and other capital projects. Our effective GAAP tax rate during the quarter was 19.3%. For non-GAAP purposes, our normalized tax rate was approximately 31% in the quarter, which reflects a 30% rate for the full fiscal year. As a result of these factors, GAAP net income for the fourth quarter was $14.1 million or $0.14 per diluted share. For the fourth quarter, Adjusted EBITDA was $50.9 million or 5.1% of sales, slightly better than expected. Adjusted net income was $18.2 million for the quarter or $0.18 per diluted share. Turning to our balance sheet, we ended the quarter with $115 million of cash. Our inventory position improved throughout the quarter, ending at $350 million. Total debt was $292.7 million at the end of the fourth quarter, with net leverage less than 1x adjusted EBITDA. For fiscal 2023, we generated $303.5 million of operating cash flow, and we invested $175.6 million in CapEx, net of tenant improvement allowances. This was higher than initially planned due to the timing of payments for new stores and costs related to our system's implementation. Now, let me provide you with some commentary on our fiscal 2024 guidance, which includes the impacts of the United Grocery Outlet acquisition and the system transition. We expect the acquisition to close at the beginning of the second quarter. Our first quarter guidance assumes no financial impact from the acquisition, and our full-year guidance assumes nine months of financial results from United Grocery Outlet. As a result, our fiscal 2024 guidance assumes incremental sales of approximately $125 million, Adjusted EBITDA of $7 million, and a modest benefit to Adjusted EPS. With respect to our system transition, while we have made progress, the data integration efforts have taken longer than anticipated. Because of this, we expect we'll continue to experience P&L impacts during the first quarter. With that as background, let me provide you with our expectations for fiscal 2024. For the full year, we are projecting comp sales growth in the range of 3%-4%. We expect comp growth in the first quarter to be approximately 2%, which includes an estimated 50 basis point impact from the system transition. We expect to add a total of 55-60 net new stores this year. This includes the 40 newly acquired United Grocery Outlet stores, as well as 15-20 new stores under existing markets, evenly split by quarter. In total, we project fiscal 2024 net sales of $4.3-$4.35 billion. For the full fiscal year, we project gross margin of approximately 31.3%. We expect gross margin for the first quarter of approximately 30.4%, which includes an estimated 100 basis point impact from the system transition. We expect sequential improvement in gross margins into the back half of the year. For the full fiscal year, we expect adjusted EBITDA to be in the range of $275-$283 million. We expect first quarter adjusted EBITDA margin of approximately 5%, reflecting lower gross margin and higher IO commission support. For the year, we expect D&A to grow in the mid-teens on a percentage basis, reflecting the impact of store growth, the United Grocery Outlet acquisition, and infrastructure reinvestments. We expect stock-based compensation of approximately $32 million for the year. Net interest expense is anticipated to be approximately $17 million. We forecast a normalized tax rate of 30% and average diluted shares outstanding of approximately 102 million. We expect CapEx net of tenant improvement allowances of approximately $170 million, reflecting new store growth, upgrades to our existing fleet, including approximately $15 million of anticipated United Grocery Outlet store capital improvements, as well as ongoing investments in technology, supply chain, and infrastructure. We expect resulting full-year adjusted EPS to be in the range of $1.14-$1.20 per diluted share. In closing, I want to thank the Grocery Outlet team and operator community for an incredible past 12 years. Grocery Outlet is truly a unique company, and I will miss being part of this organization. I'm incredibly proud of all that we have accomplished, and I want to thank RJ, the board, and the leadership team for their fantastic partnership along the way. We will now open the call up to your questions. Operator? Thank you, Sal. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star and then one on your telephone keypad. 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 your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question that we have today is from Oliver Chen from TD Cowen. Please go ahead. Thanks a lot. Hi, RJ and Charles, and Charles, congratulations. The United Grocery Outlet deal sounds quite synergistic. I would love your thoughts on what characteristics were most attractive, how might the integration phases go, and then what should we know about the ramp to maturity of these stores and why you like the Southeast. A housekeeping item too, you mentioned that the deal will modestly benefit Adjusted EPS. Are there any details on how this will be financed and anything else we should know in looking at the EPS accretion dilution? Thank you. Thanks, Oliver. Hi, it's RJ. I'll take the first part of that and then kick it over to Charles for the second part of your question. Yeah, we're real excited about this acquisition. A lot of things that we like about it, first I'd say, is companies are a great match. We have a shared mission of touching lives and serving customers. We have similar business models, store size, shared customer value propositions around unbeatable value and the Treasure Hunt experience, all that supported by opportunistic sourcing and localized assortment. So just a lot of similarities between the two businesses. This is a growth acquisition and a lot of benefits there related to growth. United Grocery Outlet already is a healthy growing business across the six states in the Southeast where they operate. In addition to just continued growth of that business, we believe that we have several levers by which we can accelerate growth in the United Grocery Outlet stores. Just a few examples here. One, expanding the assortment, we think a nice opportunity there. Two would be to enhance the store experience through investments in fixtures and signage and technology. Also looking to make additional investments in marketing to continue to drive traffic and growth in that region. And then I mentioned in my comments, we also believe that there are benefits to introducing the operator model to this region as well. So a lot there to be we think can help the Grocery Outlet business. They have a bigger fresh meat assortment, so something for us to learn from. They, of course, have relationships with regional suppliers that we think we can take advantage of, and then some other unique operating practices that we look forward to learning from. Another benefit that I mentioned here is the infrastructure that comes with the deal. It provides us infrastructure in an adjacent region to our current East footprint. It's a great entry point for us into the Southeast. It's great infrastructure to support future growth as we continue to pursue this tremendous white space opportunity that we have. When you think about the infrastructure that comes with this deal, together with the platform that we already have up in the Mid-Atlantic region, we now have a lot of the Eastern U.S. covered in terms of infrastructure for supporting future growth. And then lastly, I'd say, from an infrastructure standpoint, a nice benefit here expected as far as opportunistic buying goes and giving us better access to product that's in this region, an advantage there for having local presence to land product locally. And then, Charles, do you want to touch on? Yeah. Yeah, Yeah, Oliver, it's Charles. Just quickly on how we're approaching the financing and sort of EPS impact of the acquisition with respect to 2024. So we do anticipate using cash on hand upon closing to finance the deal. And so in our guidance, we talked to the EBITDA impact from the deal, which we estimate to be roughly $7 million prorated for 2024. And so think of that as really steady-state performance of the business as it currently stands. Then further down the P&L, because of the financing with cash, we have factored into our interest expense the impact of really lost interest income into our guidance there. Likewise, in D&A, our mid-teens guidance reflects the impact of depreciation and amortization related to United Grocery Outlet. All that comes together to deliver modest EPS accretion in 2024. Thank you very much. Best regards. Thanks. Thanks, Oliver. Thank you. Ladies and gentlemen, just a reminder, participants are restricted to one question at a time. The next question we have comes from Christine Chen of Deutsche Bank. Please go ahead. Hi, good afternoon. Thank you for taking the question. I just had a question about the Southern states and how you're thinking about the store expansion potential there now that you will have 40 stores in the region. So one, is there a profitability differential? So how do you view the profitability potential in the region and how it compares relative to the rest of the GO network? Are these included in your 2025 and 2026 store plans? Just anything that you can share in terms of if you started to look for IOs in the region. And just lastly, the acquired DC, you've talked about that it can support further growth. Just wondering how many stores it can fully support. Thank you. Yeah, hi, Christine. Thanks for the question. I'll take the first part, and then Charles can touch on part of your question as well. Yeah, as I mentioned, we are excited about the infrastructure here. United Grocery Outlet operates a multi-temperature DC, and so that we think will serve us well, both, of course, supporting growth in existing stores and then also to your question, as we think about future new store growth. Our immediate focus right now is on integration, so we don't have immediate plans to accelerate store growth beyond what the United Grocery Outlet team already had planned. So we'll do the work together with the UGO team to proceed on that integration plan. And then as we look forward, the Southeast region, a lot of potential for growth there. The existing DC can support growth for the next, call it, several years from a new store growth standpoint. And then similar to how we manage across the entire network and across all of our points of distribution center and infrastructure, we'll make the necessary investments in that to support future store growth. But again, love the volume that it provides us, love the scale that it provides us, and love the entry point into this region of the country, which will support a lot of future stores. And Christine, it's Charles, just a bit more color on the store productivity and comparisons versus our GO stores. So yeah, we're excited about the potential here, as RJ said. Looking at store productivity, the average sales volumes for the UGO store is about half of our current stores. The basket, really similar. Traffic is really the opportunity for us. So we think there is big opportunity to drive that higher through a combination of expanding the assortment and driving trips there, investments we can make into store CapEx and technology, as well as on the marketing side. In terms of the margin profile, I'd say no real structural margin challenges as we look at the business. Gross margins a little bit higher than our own stores, really because of mixed differences and the more limited everyday assortment that they have. Store expenses a little bit higher than IOs currently operate. But all of that nets down to a very similar EBITDA profile. And so again, looking ahead, we're excited about what we can do here as we grow these stores to look more like Grocery Outlet stores in the future. Thank you so much. Thank you. Thanks. Thank you. Our next question is coming from the line of Robbie Ohmes with Bank of America. Please proceed with your question. Oh, hey, guys. Thanks for taking my questions. One, just a clarification. Sorry, the UGO stores that you're acquiring, are they currently in the IO model? They are not, no. They're coming from. Are you planning to convert them to the IO model? We do, yes. We do think, of course, the IO model is super important to our business, an important part of our value proposition. We think those benefits will all apply to the Southeast region as well. We are still getting to know the business, the individual stores. We're putting integration plans in place as we speak. We just announced the deal right a little over a week ago, so we're now working together with the United Grocery Outlet team on those plans. But yes, we do think about introducing the operator model to these stores as well. And then RJ, just again, to kind of clarify, so I think you're going to do 55 stores, you're saying, for 2024, and 15-20 of them would sort of be organic, not part of the acquisition. But I think you guys were targeting 10% growth organically before you announced the acquisition, which would be more like 47 organic stores. So did you push stores into the future, or were you tracking to kind of miss opening the 47 organic stores, but then you made this acquisition? Maybe help me understand just the organic outlook. Sure. Yeah. Well, we've been focused on delivering the 10% annual store growth this year. We've talked about that throughout. On the past few calls, we've also talked about pursuing this growth across several fronts, right? Organic growth, of course, but also consideration of opportunistic real estate. We have some new exciting strategic relationships we've built, and then these regional acquisition opportunities that we've been considering as well. All of these activities combined would represent the 10%. As we started to see progress on the United Grocery Outlet acquisition, we were able to manage and moderate some of the other activities with this 10% goal in mind. Keep in mind that real estate is just one part of successfully opening new stores, right? We're super mindful of infrastructure needed to support them. Of course, there's operator recruiting and readiness. There's marketing, and there are a lot of other things that go into opening stores successfully. And so we were able to make those modifications. And we love where we're at. We've got 55-60 new stores planned this year. Okay, it's a little bit ahead of the 10% growth, but for the work that we've done and the plans that are in place, we're excited about the integration work with the 40 as well as the 15-20 that we will open organically. Great. Thanks so much. Yeah, you bet. Thank you. The next question we have comes from Joe Feldman of Telsey Advisory Group. Please go ahead. Hey, guys. Thanks for taking the question. I wanted to go back on the private label if you could share a little more color there. I know it's not coming till the second half, but just curious if you could dive in a little more on categories. You mentioned NOSH, but are there other, I guess, everyday categories that you're looking to fill with these products, and how might that impact the relationship with any of the vendors or suppliers that you have? Thanks. Yeah. Hi, Joe. Yeah, we're excited to be getting to the point here where we will be introducing these new items and brands later this year. And as you know, we've been spending a lot of time building capabilities and setting the strategy and the foundation this past year. So exciting for us to be at the point here soon where we'll have these new items being introduced to the store. These items will be an enhancement to our everyday assortment, provide better value for customers, better shopping experience, better baskets, and then also better margin for the business. So a lot of things to be excited for there. As I mentioned in my comments, second half of the year is when we'll start introducing these items to the store, and we have this goal of 100 new items by the end of the year. The initial focus will be in more commodity categories where we have a nice opportunity to offer better value and, again, margin than some of the items that we're currently carrying. I'll just give you a few examples for where you'll start to see some of these initial items. Water will be one of the first ones. We've got some nice opportunities and items lined up within the baking category, pasta category, and cheese as well. Those are just a few. We've got others, of course, on the list that'll be part of the 100 items. And then, in addition to some of these commodity categories, also planning to introduce y'all call them more differentiated items, and where NOSH is a great opportunity here, items that can just further strengthen the Treasure Hunt experience, can further differentiate us, and also serve as another point of, well, differentiation and destination for customers that are shopping our stores. So a lot there for us to like. Still just the beginning. This is going to be a longer journey, but at least excited to be taking this first big step and getting this initial wave of products out to the stores and to our customers. Great. Thank you. Good luck, Charles, with everything. Thanks. Thank you. Thank you, sir. Ladies and gentlemen, just another reminder. If you would like to ask a question, please press star and then one now. The next question we have comes from Mark Carden from UBS. Please go ahead. Good afternoon. Thanks so much for taking the question. So for the year ahead, you're expecting a Gross Margin that's north of 31% for the second straight year, even with the system's headwind, noticeably above your historical rate. Sounds like trends are expected to improve in 2H as well. Just what are the biggest factors driving this change? Thanks. Yeah, Mark, it's Charles. I would say for us, we're just really pleased with the purchasing backdrop that we continue to experience. Yes, the technology implementation has had an impact, but the deal flow we're seeing, the backdrop from a buying perspective, feels very good. Beyond that, continuing to see inflation moderate very much as we expected and promotional activity looks to still remain very, very rational. So feel great about the setup for the year. To your point, it's above our sort of historical margin performance looking back over time. But again, just think some of those tailwinds will play to our strengths this year. Great. And then how is the overall product pipeline shaping up for 2024? Are you guys expecting to see much change in the pace of CPG innovation? It's good. Yeah, we continue to be encouraged by the pipeline of opportunistic product. It continues to be broad-based across categories. There was a lot of positive momentum throughout all of last year through to the end of the year, and that's all carried forward through the first quarter so far. And we think carries forward through this year. And as far as just some of the trends we've talked about in the past, forecasting continues to be hard, so that contributes to opportunistic supply. Yes, product innovation continues to be healthy and increase. And as suppliers introduce new items and they extend brands, and there's brand and label changes and packaging changes, those are all beneficial from a surplus inventory standpoint. And then just generally, changes in assortment and products are favorable. And so there continues to be a lot of dynamic factors to the supply environment. All those have us feeling pretty good about what we're seeing currently and what's in front of us here through the rest of the year. Great. Thanks so much. Good luck, guys. Thank you. Thank you. The next question we have comes from Corey Tarlowe of Jefferies. Please go ahead. Great. Thanks and good afternoon. So I wanted to ask about the UGO acquisition. And then as you think about this acquisition versus the one you made about a decade ago in Amelia's, when does the IO model make sense? Because I think RJ or Charles, you had mentioned that the productivity or the sales volumes are about half of the fleet currently. So when does it make sense to introduce an IO model? Is it a multi-quarter or a multi-year phasing? And then how do you think about some of the similarities and differences between when you bought Amelia's and how that integrated into the enterprise versus buying UGO today? Yeah, thanks, Corey. I'm going to start with your second question, and then let me come back to the first part of your question. The Amelia's acquisition was a long time ago. Many things have changed in our business since then. I will note some similarities between that acquisition and this one. Similar business models, value propositions, shared values for how we operate in both cases. So that's certainly similar. Both are providing us with infrastructure to support growth in a new region. In the case of Amelia's, it was really an entry point to the East Coast. And here, now a new region in the East Coast. But both coming with stores and distribution center, local team that will continue operating the business, those are all very helpful for entry into a new geography. And then this point about providing better access to opportunistic supply. We saw that play out in a really positive way with Amelia's, and we expect that to be the same for product that is local within that region in the case of United Grocery Outlet. A lot of similarities there. In terms of a lot of differences as well, just in terms of store count and other parts of operation, but probably more similarities than not. In terms of timing and integration, again, we are really just starting to work through integration planning together with the United Grocery Outlet team as it hasn't been that long since the deal has been announced. First, I'd say it's a healthy growing business, so our top priority is to maintain current business momentum and be smart about how we begin to integrate it and how we think about prioritizing and sequencing and timing for some of these growth opportunities. And that getting to your question around the operator model, but it would also apply to rebranding and other things that we might do. We want to make sure that we've got a well-integrated plan and we're doing and making these changes in the right cadence and at the right pace relative to the ongoing business and making sure we're striking a healthy balance there. Think about the activation of a lot of these accelerated growth opportunities that's taking place over the next couple of years. There are things that we would want to get in place prior to any rebranding or conversion. So some of the near-term opportunities would be around expanding the assortment, some of the investments that we'd want to make into the stores, and get some of those things in place. Then following that, we would think about sequencing the rebranding and then also some of the opportunities, which will need to be store-specific, need to be thoughtful about how we do this as far as introducing the operator model. But that wouldn't happen, at least as far as the operator opportunities go, wouldn't happen in this first year. Think of that as starting really in the second year and then following a period of time similar to Amelia's where we would look to introduce that over time and on a store-specific basis. Got it. And then just a quick follow-up. What was ring up in 2023? And then within your guide, what's the expectation for ticket or ring increase in 2024? Yeah. So let me start with the latter there. So as we think about the future for our business, the components of comp for the balance of the year, we think that 2024 will continue to see comps driven by traffic, and that's going to be offset in part by lower baskets. So on the traffic side, yes, food inflation moderating, but in absolute terms, remains high. The consumer is feeling pressured from that along with high interest rates and consumer credit. So we think all of that will be a tailwind for us from a traffic standpoint as we've seen recently. From a basket standpoint, it will be lower due to, number one, the increased trip frequency and the impact that has on baskets, so more trips at lower baskets, as well as moderating inflation. Within the basket itself, again, the components for our business, a little less comparable due to the changing nature of the assortment. Great. Thank you very much. Yep. Thanks, Corey. Thank you. Ladies and gentlemen, just a reminder, please note participants are restricted to one question at a time. The next question we have comes from John Heinbockel of Guggenheim Securities. Please go ahead. Hey, guys. I wanted to start with when do you think is it really the end of the first quarter when there's a complete normalization in how the IOs are using the systems and financial impact? Is that fair? And then how do you think about when you try to forecast the recovery in the back half of the year, right? Because you lost over 200 basis points of comp and over 100 basis points of gross. I mean, it looks like there's some recovery, but certainly nowhere near a complete recovery. Yeah. Yeah. John, it's Charles. Let me give you a little bit of context on the impact of technology. Probably helpful to just provide you with the impact on Q4 and then how we're thinking about the first quarter as well. So in total, think about the EBITDA impact from the technology transition and interruptions is impacting EBITDA by $20 million in the fourth quarter. About half of that comes from the elective IO commission support that we provided to operators. The balance coming from combination of the impact of the top line and gross margin rate as we've disclosed. In the first quarter, those impacts continued, but to a lesser degree. So that what had been a $20 million EBITDA impact in Q4 down to what we estimate and is implied in our guidance of roughly $14 million impact to the first quarter. Again, half of that coming from elective IO commission and the balance from sales and margin impact. So continuing to provide that support during the impacted period, but the monthly impact, as we're tracking it, continues to decline, which feels good to us. Our current guidance assumes that we resolve the remaining issues in front of us and are back to steady-state operations and conclude the elective commission support by the end of the first quarter. All right. One quick follow-up then. And the food business is a little bit different, but have you seen any impact from all the bad weather and rain in California? That would be separate from the 50 basis points, if any, but have you seen anything? Yeah. Not significant. Nothing to call out for us. Okay. Thank you. Yep. Thanks, John. Thank you. Thank you. The next question we have comes from Leah Jordan of Goldman Sachs. Please go ahead. Good afternoon. Thank you for taking my question. I just wanted to touch on the 4Q comp a little bit. It looks like the headwind from the systems change came in about 100 basis points better than you initially guided, but less than that flowed through to the total comp. So I guess what surprised you versus your internal expectations for the core business? And can you talk about just the dynamics and ticket overall and how volumes trended as the ERP rollout improved? Yeah. So let me start first in terms of overall comp for, again, a 27 for us in the quarter, a bit better than we guided. It was a combination of slightly higher basket. So think about that as being the inventory recovery coming working through the system implementation was a bit faster than we thought, so that helped basket. And supplementing that, traffic was a little bit better. In terms of cadence throughout the quarter, we saw comps improve modestly as we progressed. More importantly, we're tracking very closely as the prior year comparisons get a little bit noisy now. We're looking at average weekly sales, and so saw nice improvement through the fourth quarter. That has continued into the first quarter. So feel like the underlying trends in the business are healthy and improving as we, again, work our way through the system transition. Great. Thank you. And then for my follow-up, I just wanted to go back to the gross margin discussion. Just curious if you've assumed any benefit from the private label rollout and any magnitude of that impact. And also on closeout, I guess what have you assumed within guidance? Is it relatively stable throughout the year or any impact on a year-over-year basis there? And then longer term, should we still think that margins stay relatively flat, or has anything structurally changed in the business? Yeah. So no impact from private label, small number of items rolling them out later in the year, so not meaningful to margin. From an opportunistic standpoint, I'd say stable, which is favorable. Those nice trends that I've talked about as they contributed in 2023, we expect to contribute similarly to gross margin in 2024. And then longer term, continue to operate this business for stable margins, always looking to reinvest back into value and driving customer trips, both acquisition and retention and frequency. And we continue to see some really nice trends there. So we like this balance that we have between the value that we're delivering and, of course, the margin that is being delivered to the P&L. So that continues to be the approach. Thank you. Thank you. The next question we have comes from Michael Baker of D.A. Davidson. Please go ahead. Okay. Thanks. So the acquired company's EBITDA margins are about 5.5%, right? Pretty close to what you guys do, maybe a little bit below the 6.4% that you did this year, but on half the sales volumes. So if you can get those sales volumes even close to your core stores, what does that mean about the margins from United Grocery Outlet? Do they go that much higher, or do you reinvest that to keep them at about that mid-6% range? It seems interesting that their margins are not that far from you on so much less sales. Thanks. Yeah, Mike. It's Charles. Probably, I'd say just premature at this point given, again, we haven't closed the transaction. The business, again, last year, roughly $160 million in top line, EBITDA about $10 million. So really similar EBITDA margin profile to our business. As RJ said, really excited about the long-term growth potential for this business, but we do want to be really measured in our approach. And so it would just be premature for us to put a number to it. But again, the path we're taking is integrate the business, make sure we protect what they have, combine the best of UGO and GO with the goal of continuing to operate the business really in steady state this year. We'll start to invest. Again, lots of ways we think we can drive growth. We're going to learn a lot. That will inform what exactly the P&L looks like in the future. We do think there's big opportunity for growth. Again, taking the best of what we do and what UGO does, we're excited about it. Fair enough. Makes sense. Thank you. Thanks. Thank you. Ladies and gentlemen, just a final reminder. If you would like to ask a question, please press star and then one now. The next question we have comes from Jeremy Hamblin of Craig-Hallum. Please go ahead. Thanks and congrats on the strong results. I wanted to come back to the new unit development here and just understand in terms of where you are now in opening these stores, kind of your capital outlay in doing that versus where it might have been a couple of years ago. And then just thinking about that in context of the investments you're making here in UGO deal. And then it looks like I think you had indicated there's an additional $15 million of capital improvements that you're looking to make into the UGO locations. Can you just talk about in terms of returns on capital, are you getting more from kind of your base legacy business, and how does that compare to the United deal? Yeah. Jeremy, it's Charles. Let me provide you a little bit of context to how we've really thought about the returns for the acquisition. We do think this will generate healthy returns for us over time. And we really looked at it through a few different lenses. The first was just what's the base business that we're buying? So we think we're paying a fair multiple for the 40 stores that exist today plus the distribution center just based on the last 12 months' performance of the business. As we said, we think it will be modestly accretive to 2024 earnings, so that feels good. Beyond that, really, the next lens was thinking about the opportunity we have to drive growth within the existing store base. So as we said, it will take time. But as we integrate, as we invest in these stores, we think there's meaningful upside just within the 40 stores today to drive accelerated growth, higher productivity, better bottom line that fuels the return. And then lastly, again, is the platform that this gives us to accelerate growth into a new region. And RJ talked about not only the real estate opportunity and toehold it gives us, but also the impact it can have for us from a buying perspective. So those would all be additive to the way we've thought about the return. So we think this is going to be a great use of capital for us, and we love the way that it really supplements and complements what we do from an organic growth perspective. Got it. And then just a follow-up there. In terms of your existing Grocery Outlet stores, where does your kind of initial cash investment lie at this point in time? I think a few years ago, it was in the $2 million and change for the store buildout inventory pre-opening expense. We believe that's a little bit higher now. Just wanted to see what that stood here as you're looking at FY25 and 6 of 100 total locations. What's kind of the expected outlay related to that? Yeah. You're exactly right. We are seeing higher CapEx costs today than we were. Really, the $2 million number ties back to when we brought the business public in 2019. And so clearly, it's a different inflationary environment today versus then. So yeah, everything, labor, materials, equipment, have had an impact. Probably in total, we're seeing new store costs about 25% higher than where we were at time of IPO. That said, we've got a number of levers that we're actively working on to reduce costs, everything from value engineering the buildout to strategic sourcing and bulk purchasing of equipment. I will say that when you look at the store model and the returns, it's store volume and product profitability that have a much bigger impact on returns relative to CapEx. And so we continue to be pleased with the volumes and the profitability we're driving from new stores. So while the recent vintages are seeing those higher construction costs, it is not weighing down our returns in a meaningful way. You can think about it as really having about a 5-point impact on sort of mature year four ROICs. That's come down from 35%, but still really a healthy, roughly a 30% based on current construction costs. Great. Thanks for taking questions. Best wishes. Thank you. Thanks, Jeremy. Final question we have comes from. Your airtime is exhausted, and your call has been terminated. Please load airtime. Operator? Operator? Apologies. Apologies. The final question we have comes from Simeon Gutman of Morgan Stanley. Please go ahead. Hey, everyone. Luckily, our airtime has not expired yet. We don't know what happened with that one. We were just as appalled as you were. Apologies. No worries. I want to go back to the ticket size. I know it's a bit of an enigma to look at same-store inflation for your business. Is there a best guess on what that may be doing to the basket size versus we're putting fewer items in the basket or if there's some trade-down happening? And then I'll just put the follow-up in here given the interest of time. Charles gave us some numbers on the fourth quarter and the first quarter commission sharing. And I think you've disclosed the second and third, or they're in the filings. But if you can just give us that one more time because there's going to be a pretty meaningful inflection in the composition of the P&L during the year. Thanks. Yeah. Let me just start with spend in the basket. So you can think about within the basket, again, not directly comparable for us. We always talk about how our model mutes the impact of inflation on the way up, deflation on the way down. But we continue to see slightly higher average unit retails. That's being offset by fewer items in the basket. Again, as trip frequency has increased, as well as that's had a bit of an impact from the system transition. Just to reiterate the numbers I provided with respect to the system EBITDA impact for Q4 and Q1, I'll give you both numbers so you have them. Again, for the fourth quarter, total EBITDA impact, roughly $20 million, about half of which is IO commission support. As you look in the 10-Qs and the 10-Ks, you'll see that number as it relates to kind of the anomaly in commission trend. The balance, again, combination of sales impact and gross margin impact. For the first quarter, we're seeing the monthly trend come down in terms of the impact. We expect the full first quarter EBITDA headwind to be roughly $14 million, again, half of that being IO commission and sales and margin being the balance. Great. Thanks. Best of luck to you, Charles. Thank you. Thank you. Ladies and gentlemen, we have reached the end of our question and answer session. I would like to turn the call back to RJ Sheedy for closing remarks. Please go ahead, sir. Thanks, everyone, for your time today. We look forward to talking with you again on future calls. Appreciate it. Take care. Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.