1Q: Early Signs Of Stabilization On Comps, Optimization Effort Underway

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1Q: Early Signs Of Stabilization On Comps, Optimization Effort Underway

TD Cowen Grocery Outlet Holding Corp.

Global Research May 14, 2026

Synthetic Promotions Support Traffic, But At A Cost. Synthetic promotions are being used

as a stop-gap measure to stabilize traffic during the rebuild of opportunistic supply. While

management emphasized these promotions are temporary and targeted, they are margin-

dilutive and underscore the importance of restoring consistent opportunistic availability for

durable comp and margin recovery. Management cited $20mm in synthetic promotions. Gross

margin in 1Q declined about ~80bps, and the company attributed ~50bps to store-closure

inventory liquidations. We estimate the gross margin drag related to promotions for the full

year could be in the ~40-50bps range, prior to offsets such as opportunistic mix and inventory

management.

TD Cowen On Roadmap Ahead:

Nearer-Term Initiatives & Opportunities

■Opportunistic Mix: We view improved opportunistic mix as most important, as it is tied to

value perception and can help convert traffic gains into basket recovery. Opportunistic mix

was up +200bps in the quarter. While the company does not disclose the exact mix, they did

comment that closer to 50/50 is healthy for the business.

■Store Rationalization: GO completed the closure of 36 underperforming stores, which

management expects to drive approximately $12mm of annual run-rate EBITDA improvement,

improving fleet quality and earnings durability.

■Promo Bridge: While promotional activity appears to be supporting traffic trends, it weighs

on gross margin and underscores the importance of replacing promotions with structurally

higher opportunistic availability over time.

Longer-Term Initiatives & Opportunities