On August 12, Grocery Outlet Holding Corp. (NASDAQ:GO) reported second-quarter fiscal 2026 results for the period ended July 4, and the numbers read like two different companies wrote them. Net sales rose 1.1% to $1.19 billion, comparable-store sales slipped just 0.3%, and management raised its full-year guidance on several key measures. Yet six months into the year, the discount grocer is carrying a net loss of $174.7 million, a swing driven mainly by a $158 million non-cash goodwill charge. Investors now have to decide which half of the story carries more weight.
Guidance Goes Up, Not Down
The clearest positive signal is that Grocery Outlet raised its own expectations. Full-year comparable-store sales guidance improved from a range of negative 2.0% to 0.0% up to negative 0.5% to 0.0%, and diluted adjusted earnings per share guidance tightened upward from $0.45 to $0.55 up to $0.51 to $0.55. Adjusted EBITDA guidance climbed too, from $220 million to $235 million, up to $225 million to $235 million. Narrowing your own numbers higher mid-year usually means the back half looks steadier than it did three months earlier.
The traffic data backs that up. Transactions rose 1.8% in the quarter even as comparable sales dipped, and CEO Jason Potter pointed to “sequential improvement in our basket with traffic remaining positive” compared with the first quarter. Net sales still grew 1.1% in the quarter and 2.3% over the first half, even while the company was actively closing stores under its Optimization Plan. That plan, which called for shutting 36 underperforming locations, is already finished, completed within the first half of fiscal 2026, well ahead of the original fiscal 2027 target. Management now expects just $15 million to $24 million in total remaining restructuring costs. Capital spending is easing too, falling $21.5 million in the quarter to $43.7 million as new store and warehouse investment slows.
The Loss Behind The Headline
The headline loss is hard to look past. Over the first 26 weeks of fiscal 2026, Grocery Outlet posted a net loss of $174.7 million, or $1.77 per diluted share, compared with an $18.4 million loss a year earlier, driven largely by that $158 million goodwill impairment tied to a decline in the company’s market capitalization. Strip out the one-time items, and the picture still softens. Adjusted net income fell to $24.9 million from $35.8 million over the same six months, and adjusted diluted earnings per share dropped to $0.25 from $0.36.
The comparable-sales trend, while improving, is still negative, and the cause matters. Average transaction size fell 2.1% in the quarter and 2.6% over the first half, meaning shoppers are visiting more often but spending less per trip. Gross margin slipped to 30.2% in the quarter from 30.6% a year earlier, and to 29.9% from 30.5% over six months, as promotions and markdowns tied to the store closures ate into profitability. Operating cash flow fell to $43.2 million in the quarter from $73.6 million a year earlier. And the restructuring bill isn’t finished: the company booked $5.4 million in net charges in the quarter and $23.6 million over the first half, with more still ahead.
What The Smart Money Sees
Hedge fund ownership slipped from 32 funds to 25 in the most recent quarter, a pullback that lines up with the stock’s uneven results. Short sellers have piled in heavily, with 36.45% of the float sold short, a level that signals deep skepticism while also raising the odds of a sharp move if sentiment turns. The stock trades at a forward P/E of 15.53 as of September 15, a modest multiple suggesting the market isn’t pricing in much of a turnaround. Falling fund interest paired with heavy short positioning points to a stock Wall Street currently treats as more risk than opportunity.
Two Stories, One Stock
Grocery Outlet’s second quarter leaves two competing narratives on the table. Management’s decision to raise guidance and finish its store-closure plan ahead of schedule signals confidence that the roughest part of the transition is behind it. But a shrinking average basket and thinning adjusted profits show the core business hasn’t fully stabilized on its own. The bulls need comparable sales to turn positive without leaning on promotions.
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