Greetings, and welcome to Grocery Outlet's Fiscal Second Quarter 2022 Earnings Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Arvind Bhatia, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good afternoon and thank you for joining us on todays call to discuss Grocery Outlet's second quarter 2022 financial results. Joining me on today's call are Grocery Outlet's Chief Executive Officer, Eric Lindberg; President, RJ Sheedy; and Chief Financial Officer, Charles Bracher. Following our prepared remarks, we will open the call for questions. This conference call is being webcast live and a recording will be available via telephone playback for approximately two weeks. It will also be archived in the Investor Relations section of our website. Participants on this call will make forward-looking statements, including our outlook for fiscal 2022 and future performance. These forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. A description of these factors can be found in this afternoon's press release as well as in our periodic reports we file with the SEC, all of which may be found on our website at investors.groceryoutlet.com or on sec.gov. We undertake no obligation to revise or update any forward-looking statements or information. These statements are estimates only and not a guarantee of future performance. During our call, we will also reference certain non-GAAP financial information, including adjusted items. Reconciliations of GAAP to non-GAAP measures as well as the description, limitations and rationale for using each measure may be found in the supplemental financial tables included in this afternoon's press release and our SEC filings and the Investors tab for our website. With that, it is my pleasure to turn the call over to Eric.

Thanks, Arvind. Good afternoon, everyone, and thank you for joining us for our discussion of our second quarter results. We are extremely pleased to report another strong quarter as we continue to deliver deep values and unmatched WOW! shopping experiences for all our customers every day. As consumers grapple with unprecedented levels of inflation, our mission of providing access to affordable quality food and significant savings could not be more relevant. Our healthy inventory position, flexible sourcing and distribution model and our strong IO execution are fueling the momentum in our business. In addition, we continue to make progress on our long-term initiatives to increase customer reach and offer greater convenience, including SKU expansion, e-commerce and our forthcoming mobile app pilot. I want to thank the entire team for their dedication and contribution to our strong execution. Our IOs bring energy enthusiasm to our stores each and every day. And our buying team continues to do a fantastic job of leveraging their relationships to maintain a strong supply pipeline. As a result, we are very well positioned to serve our customers in this inflationary environment as they seek out ways to stretch their budgets. With respect to our second quarter, we grew top line sales approximately 16%, driven by over 11% growth in comparable store sales, which was well ahead of our expectations. Our comp store sales increase was broad-based with growth in both traffic and basket as well as strength across product categories and store vintages. We were pleased with our gross margin performance at 31.1% as we continue to efficiently leverage our opportunistic buying model and supplier relationships to navigate ongoing cost increases, all while delivering industry-leading value. Solid sales and gross margin performance drove strong bottom line results for the quarter. As I look forward, I'm excited…

Thanks, Eric. Our strong second quarter and year-to-date performance reflects focused execution by our team and a more favorable environment for our extreme value model. Inflation remains at elevated levels, and consumers are increasingly looking for ways to save. With our exceptionally low prices, strong product offering and WOW! shopping experience, we are very well positioned to provide unmatched value to our customers. We are maintaining healthy in-stock levels and product variety across our store base and our supply pipeline is robust. With ongoing supply chain challenges, unpredictable demand patterns and high inflation, suppliers continue to navigate a dynamic environment. Our scale, long-standing relationships and ability to move quickly and creatively make us the preferred partner for our supplier’s excess inventory. Let me share an example highlighting this. We recently purchased 90,000 cases of biscuits and cinnamon rolls from a leading global packaged foods company. They needed to move through excess inventory, and we were the first partner they turned to for a solution. We acted quickly to purchase all available cases and, in turn, offered it to our customers at 75% savings. Our strong relationships and regular cadence of communication enable the strategic partnerships we have with this supplier plus many others. We provide helpful solutions for our suppliers and incredible savings that delight our customers and set us apart from the competition. Next, I would like to share a quick update on our strategic initiatives. We advanced our SKU expansion strategy during the quarter as we added 150 new everyday items, resulting in a total of 600 additional SKUs since last year. Based on customer preferences and industry trends, we continue to prioritize growth categories such as NOSH, fresh, ethnic and local. Expansion of our everyday assortment is adding convenience and value for our customers resulting in incremental…

Thanks, RJ, and good afternoon, everyone. I will begin with a discussion of our second quarter results, followed by comments regarding the third quarter and our revised guidance for the fiscal year. Our second quarter performance exceeded both our top line and bottom line expectations as we capped off a strong first half. Comparable store sales increased 11.2%, accelerating versus the prior quarter, driven by continued strength in average ticket and our positive traffic trend. Net sales increased 15.7% to $897.7 million, fueled by our strong comparable store performance, combined with the impact of 25 net new stores opened since the second quarter of last year. During the quarter, we opened seven new stores, including three in the Mid-Atlantic market, ending the quarter with 425 locations. Our new stores are off to a solid start, and we continue to see healthy growth in recent vintages. For the first half of the year, our comp sales increased 8.2%, contributing to net sales growth of 13.2% versus the prior year. With respect to gross margin performance, we continue to leverage the flexibility of our model to mitigate the impact of higher costs, while at the same time delivering compelling savings to our customers. Second quarter gross margins of 31.1% improved approximately 40 basis points compared to the same period last year, reflecting a favorable purchasing environment and strong inventory management, which offset product and supply chain cost pressures. For the first half in total, our gross margin rate of 30.7% was roughly flat to the prior year. In terms of gross profit dollar growth, second quarter gross profit increased 17.5% versus the prior year. With respect to expenses, SG&A increased 16.2% to $224.2 million compared to the second quarter of 2021. This increase was driven primarily by higher commission expense as strong…

At this time, we will be conducting a question-and-answer session. [Operator Instructions] One moment, please, while we pole for questions. Our first question comes from Krisztina Katai with Deutsche Bank. Please proceed with your question.

Hey guys. Thank you for taking the question. And congratulations on a nice quarter. I guess I just wanted to talk about maybe the uptick that you saw in the second quarter? Maybe just talk about when customer traffic really started to pick up. As you did mention also a positive quarter-to-date trend so far is the traffic momentum that you're seeing continuing? And are your merchants doing anything differently from a pricing or even a merchandising perspective to essentially enable the momentum to continue progress of the year?

Hey, Christina, it's Eric. Thanks for the question. Yes, look, I'd say a lot of the conditions macro, the backdrop that we're seeing continue from Q1 into Q2 and Q3. But I'll go through some of those then we can bounce around a bit with Charles and RJ. But look, inflation remains at unprecedented levels and value certainly becomes very, very important to consumers, especially in some of the categories that we're seeing that are very high inflation, like meat and produce. You can see from our comp performance in our traffic that a lot of that is passing through. Consumer behavior is definitely shifting based on the momentum and traffic we're seeing. We're likely seeing some benefit of the customers shifting from, I'd say, more conventional, more expensive alternatives to the value model or to value shopping. Certainly seeing some increases in new customers, as well as some return of some churned customers which is great news. I think lastly, I'd say just the trend of eating at home, I think, continues to build. Certainly, we've all experienced it; eating out has become so expensive. I think that shift is certainly upon us.

And Krisztina, just to give you a bit, this is Charles, to give you a bit more color with respect to the cadence throughout the quarter, we are really pleased with the consistency that we saw sort of month-to-month through the quarter, as we mentioned, both ticket and traffic contributed to the positive comp in the quarter. Relative to the first quarter it was traffic that really improved. We saw that sequential improvement. So it was a larger contributor to comp in Q2 versus Q1. And then we're pleased that momentum has continued here into the third quarter. Seeing continued healthy trends. We're balancing that with being mindful of the fact that it continues to be a very dynamic macro environment but really happy with the results of work that we're seeing there.

That's great color. Thank you. And just as my follow-up, I wanted to ask about gross margins; clearly second quarter came in much better than expectations in your own guidance. But you did maintain the 30.6% for the full year. So maybe if you could talk about the dynamics that you expect, obviously in the third and the fourth quarter. And are you seeing anything in the marketplace that would essentially not allow you to continue to manage margins well or even higher on a three-year basis like we saw in the second quarter? Thank you.

Yes, just a bit more color around margin and likewise, another area where the team is just doing a great job continuing to manage yes cost increases, but value to the customer and really leveraging the flexibility of our model. Recall that we always speak to the fact that it's normal to see these quarter-to-quarter fluctuations because of the nature of our model. So I described Q2 performance is really consistent with that. It was a slightly more favorable buying environment. Team did a great job managing inventory through the chain, but those cost pressures are real and they continue to persist. So that was the nature of our expectation continuing to manage that 30.6% margin for Q3 and the full year. The full year guide includes the impact of what we typically see are lower seasonal margins in the fourth quarter of the year.

Great, thank you so much and enjoy the rest of your summer.

Likewise.

Our next question comes from Oliver Chen with Cowen and Company. Please proceed with your question.

Thanks a lot. Great quarter. On the comp store sales guidance, it does imply the three-year stack decelerates just would love your thoughts on what you are seeing? And also do you expect traffic to continue to be positive and also the dynamic with UPTs, relative to inflation? And the follow-up is just about the consumer environment that you are witnessing. It sounds like you have some reservations or you are planning around agility as a dynamic continue to evolve, but what are your thoughts about the nature of the consumer you are seeing and how you are prepared with your flexible and value-driven business model? Thanks.

Yes, Oliver its Charles. Let me tackle the first part and then I'll turn it over to Eric. But with respect to our thoughts on guidance and the implications in sort of the back half of the year, as I mentioned, feeling really good about what we are seeing in the business, but just trying to balance that against the reality of again, very dynamic macro and consumer environment. Lots of things at play that we're all well aware of across inflation, geopolitical, consumer jobs. It's really hard for us to say how each of those play out and the ultimate impact they have. So, our point of view is it's best to remain prudent as we think about the outlook. And so, again, while we're encouraged by the second quarter and the trends we're seeing, just being mindful of that reality. As it relates to kind of ring and traffic assumptions in the back half of the year, ring our expectation is it continues to be strong, recall that for us, the inflation impact is a bit more muted because of our model. And we will start to lap in the fourth quarter some of those higher AURs that we started to see last year. Traffic, our expectation very much is it will continue to be a positive driver particularly as customers continue to seek out value.

Hey, Oliver, Eric, I'll just tack on a bit here at the end. Yes, look, I'd say the environment is still somewhat uncertain. There's a lot – we don't know. Yes, we did raise guidance. We have increased overall expectations. We're really confident sort of looking forward into next year. But we just don't know from that uncertainty standpoint how prolonged inflation will be, how high will it go, when will it start to peak and start to come back down? We really don't know what's the reaction that the consumer will ultimately have at that peak. So we're remaining sort of where we are on those expectations. I think we all know things are really expensive. The consumer is hurting or will be hurting as this lasts a little bit longer. And look we think geo can offer some sort of Safe Harbor for those consumers at least on sort of a third of their budget. So it's still uncertain, I guess, is the headline.

Thank you very much. Best regards

Thanks Oliver.

Our next question comes from Robby Ohmes with Bank of America. Please proceed with your question.

Hey guys, thanks for taking my question. Really a follow-up on Oliver's question. Can you talk a little bit more about just the high inflation dynamic and how you guys are managing and also how the IOs are managing pricing? So, the gross margin is very consistent. So are you just passing through all the higher costs to maintain that gross margin? Are your IOs able to price above normal, versus what you would guide to because of the competitive environment with everything around them, inflating maybe more color on exactly what's happening out there with the inflation would be great.

Yes, sure. Hey Robby, it's RJ. I'll share some comments on that. So first, let me say inflation has certainly been a big part of managing the business this year. We do expect it to remain elevated through the year. We'll see how that plays out. Really proud of the team and how they have continued to navigate this. And all throughout, we've really been following the same strategy that we've talked about on prior calls. And we do believe we are uniquely positioned because of the model to mitigate inflationary challenges. So, first just as a reminder on the buying side, we remain very flexible moving between suppliers we're in and out of items, we're always managing value, cost, margin how all those things come together. Our diversified supplier base has been really helpful in this regard. From a competitive pricing standpoint competitor prices have been moving up. We are fast to follow, it's important for us to maintain consistent value deltas across the many metrics we track related to value, basket savings of 40% remains healthy. So, feel really good about that. And then just in general, we remain flexible in managing the assortment and pricing. Much of future inventory you are looking three, four, five weeks out, we haven't purchased it yet or priced it. And so that dynamic nature of the buying model is super helpful. In regards to the operator side of the model and how that helps manage inflation, I would describe pricing and margin management as being more centrally managed. So as we're negotiating deals, as we're pricing items, we're doing a lot of that. All of it to start centrally. And then at the store level operator has flexibility to manage pricing. They have always had that. It helps them be as competitive as they can for local market competitive dynamic purposes. And it's a mix of, I would say, both changes down and changes up. And so we are similarly aligned in wanting first and foremost to deliver value. But then also to manage margin and understanding that every store is unique. One of the powers of the model is we have this combination here with pricing like we do with other parts of the business where we're centralized, we have scale, but then also its local and it's specific to each store and each situation and with the eyes and the touch of the operator there for what's best for their customers,

That's really helpful. Thanks RJ.

You bet.

Our next question comes from Jeremy Hamblin with Craig-Hallum. Please proceed with your question.

Thanks and congrats on the really strong results. I wanted to come back to the buying environment and you noted on a couple of occasion that the buying environment was particularly strong over the last few months. I wanted to get a sense of how that's evolving over the last month or two, and reconcile that a little bit with your gross margin expectations, I understand the seasonality for Q4. But in terms of whether or not you are seeing kind of that environment where there was a lot of inventory available is that starting to dry up just a little bit where there is still plenty of deals to be had, but maybe not quite as attractive of an environment as we were in, let's say three, four, five months ago.

Yes, hi, Jeremy, thanks for the question. Yes, few comments on that. First, we continue to be really encouraged by the pipeline of opportunistic product that we're seeing. I would say the momentum from Q2 that we talk about here has carried over to the third quarter. So leading to healthy inventory positions broadly based. So feel good about that. We have seen improvement through the year, certainly supply chain disruption has been, is making it increasingly difficult for suppliers to manage inventory. We're encouraged in the broad based nature of the deals and the lists that we're seeing from suppliers. So really no changes there in terms of breadth from what we've reported previously. I would mentioned more specifically similar trends as we've seen in the past. So forecasting challenges continue due to inconsistency in demand patterns. And I'd say to some extent have even increased. Suppliers are still investing in product innovation and capacity. So that is yielding surplus inventory. And there has just been a lot of adjustments to products and assortment, whether it's to meet consumer needs and behaviors as those have been changing, as Eric mentioned, some inflation related packaging, sizes, et cetera, others, maybe more brand and marketing related as well. So, a number of trends that have been playing out increasingly this year that have led to continued healthiness in the pipeline of products. All that said, and maybe getting to the second part of your question, we are still navigating plenty of supply chain, labor, transportation challenges. Those have been impacting item-specific availability and delivery. So something we're keeping a close eye on. And then, just in general, the environment is very dynamic and there is just a lot going on. Inflation, you already talked about cost increases are still there and those have not abated. And so, plenty for us to manage closely through the rest of the year. But overall, feeling really good about inventory and future availability of supply.

Thanks. That's great color. And just a follow-up question, you noted some changes in your media spend, wanted to get a sense in terms of, it looks like maybe a little uptick in your TV ad spend. I think you noted some strong growth better than average in your Mid-Atlantic market and feeling confident about the 250 units there over time. Just want to get a sense, are you seeing the uptick, the outperformance in that region, is that kind of related to improved brand awareness, any studies that you guys have done on that would be helpful color? Thanks.

Yes. Sure. Yes, good question. So first let me say from marketing standpoint we continue to remain focused on delivering a consistent message of value and quality across the assortment. The objective here is to build brand awareness, drive traffic, repeat trips in addition to customer acquisition. I want to first say operators continue to do a great job with their local marketing efforts. How they connect with communities, the personal communication they have with customers and engagement within their community matters even more right now and continues to be a strong differentiator. And then we support that with brand marketing. We provide tools. We continue to push on digital platforms complimented by more traditional TV, radio and print. With respect to investment levels, I would say we've always taken a more targeted approach to marketing and we do make higher investments or more concentrated investments when we see better returns. We think this is a very attractive environment for us from a marketing standpoint. We're always testing new things, whether its media that we're investing, in geography assortment maybe messaging related. So just think about this continual test and learn cycle. We have found customers to be very responsive to value and quality messaging, right consistent with how we've always messaged in light of the environment. And for us the focus has really been on increasing that top of funnel awareness than driving trial from new customers, followed then by all the attributes of the model and continued marketing to build that loyal customer base and repeat visits. We do have a number of tests underway in markets many markets made different types of tests and as we see returns from those we'll look to adjust our marketing spend accordingly.

Our next question is with John Heinbockel with Guggenheim Partners. Please proceed with your question.

Hey, guys wanted to start with two initiatives. I don't think you touched on yet tonight, right? So private brand and data analytics, where do we stand on both of those and where are we – we kind of think about the bulk of that investment, right? Is that sort of a 2023 timeframe, but that'll be spread out over more years than that at least the upfront build?

Yes. Hey, John, thanks for the question. Yes. In terms of private brand, let me just first say really please with the progress that we've had in regards to SKU expansion, 600 items in the past year, we're seeing nice incremental sales. We love the focus areas around NOSH and fresh, ethnic and local. They've really gone, I think a long way to help make the assortment even more relevant than it is or than it has been, so really encouraged by that. Private label, product development this idea around introducing more unique destination items into the assortment is something we're really excited about. There's more work to be done just in terms of building that muscle, certainly it's a capability that, I would say we've introduced some private label, some unique products but we think the opportunity is still largely ahead of us. So we're excited for that continued growth. We think it will further enhance the assortment. Think about it here in the coming years in terms of really building the capability and then before you're able to see a more meaningful representation in the assortment itself. And then in regards to data and analytics we apply a lot of data and analytics to our business today and it really lives throughout the organization. But it's another one that we're excited about as we look forward into the future. How can we do it even better? How can we make sure that the right data lives across the business in the right ways and throughout the entire supply chain? I'd mentioned the personalization app is just one real time example of how new data into this business will help us make smarter decisions. And there are plenty of others as we think about the initiatives underway. So I'm excited for what's to come with that initiative as well.

All right. And then maybe as a follow-up high level, right, if you think about Mid-Atlantic versus let's say parts of California, maybe your thought puts and takes, right density value – consumer value orientation, competition, product availability on the east coast, how would you compare and contrast and do you think the – is the opportunity in the broader Northeast right, not just Mid-Atlantic, but say Boston to Virginia, that would seem to be at least on par with California, if not bigger?

Yes. If you take the John, hey, it's Eric. Thanks for the question. If you take the geography and you overlay sort of San Francisco to Seattle and take that to the east coast, there's a lot of similarities to the way we built the business last 20 or 30 years here. So yes, that's a point that you make. That's a good one. We look at it in terms of rooftop density, very, very appealing in the Mid-Atlantic. That's a check mark. We look at product availability and the number of times that we've been asked to help with inventories over the years, out of Carlisle, Pennsylvania that's a check mark, and then you look at the proximity of competition. I wouldn't say the Mid-Atlantic is super competitive compared to what we see, perhaps if you were to compare to the Southwest or LA. I think we already exist in some very, very competitive markets. So when we sort of run that across places we could expand, there's no mystery to why we chose a Mid-Atlantic. We looked at it as the best opportunity. A lot of stores around a small geography in circle from a distribution standpoint and then what we really like is that we can go north, we can go west, or we can go south. And those are all viable opportunities. It's just a matter of prioritization and really distribution capability where you decide to go next. But we continue to be very, very excited about it. Like what we're seeing so far. Some of our top performing stores are in that region this year. Really starting to build that brand awareness that you heard RJ talk about from a marketing medium mix and look, I think it's – we're doing what we said we were going to do, which is build the foundation and then start to layer in the stores.

Thank you.

You bet.

[Operator Instructions] Our next question comes from Simeon Gutman with Morgan Stanley. Please proceed with your question.

Good afternoon. I have two questions. My first is on the backdrop and this was touched on several questions. Any signs that the pressure on the consumer is abating at all, or the forces that they're facing are those accelerating? And then this is part of the first question. Within, if you look at the geometric stacks on a three-year which is what we look at, you did accelerate 300 basis points versus the prior quarter. Did you say or can you say how much of that was incremental inflation versus incremental traffic?

Hey, Simeon, it's Eric. Look I don't think we have a crystal ball on when the pressure on the consumer abates, but we have never seen the assault on the consumer that we're seeing right now from energy to fuel to pricing just inflation across the board, stack on top of that demand is creating just a massive imbalance of what's available and what they can get. Fortunately labor has caught up with that and I think we're starting to see some outstripping of wage gains with inflation, so that's not good. How long it lasts and how high it goes? I think are the questions you really need to answer before you can say when the consumer taps out. But we've seen a little bit of trade down. I think you're seeing some trade from other more expensive to GO. We're seeing a little bit inside of categories, things like in meat from beef to chicken, but those are more anecdotal than data. So I think it's anyone's guess how long this lasts I think is really going to equal, how bad it gets for the consumer.

And Simeon, it’s Charles. To your question about the inflation impact on the three-year stacks. No, we didn't quantify it. But I think getting to that part of your question as we thought – as we looked at Q1 to Q2 performance, it was AURs pretty consistent in terms of the impact there. It was the uptick in traffic that was really the difference between the two quarters.

That's helpful. My follow up is on expenses or I guess incremental margins. So you did mention that you're being conservative or prudent for the second half in terms of top line? And if you model out the top line with the second half, it looks like the incremental margins are a little below average, and I think we chalk that up to the SG&A, and Eric you mentioned that earlier. Do you have any sense that this SG&A environment when we get through the back half of this year, we look cleaner into the next year. I realize there isn't crystal ball on the cost pressure side of it, but do we lap enough of it where we start to see this abatement and then your incrementals can resume back to normal when we go to 2023?

Yes. Good question. I think we will lap the higher incentive compensation and get to a more normalized incentive comp run rate next year particularly as you think about the year-over-year differences we're seeing this year in trends. As it relates to other inflationary pressures and when those abate, I think that's a little bit harder to tell, but we do very much continue to orient over the long-term back to the historical growth algorithm and have confidence in managing towards both consistent gross margins and bottom line EBITDA margins over time.

Fair enough. Thanks guys.

Our next question comes from Mark Carden with UBS. Please proceed with your question.

Good afternoon. Thanks a lot for taking my questions. So to start some of the underlying commodity and other factors that have driven heavy inflation are starting to roll over. If there happens to be broad based food deflation a few quarters out, while Grocery Outlet be any less impacted on others given its model? And then how much of an impact would lower gross profit dollars have on your independent operators? Thanks.

Hey, Mark, this is Charles. Let me take the first part of your question there, just thinking about deflation it potential in the future. And I would say back to the uniqueness of our model it is quite resilient. It does, we always talk about the fact that it mutes the impact of inflation on the way up and deflation on the way down. I think you can look back at our strong history of comps and margin stability across a number of cycles to see that. And so for us, it's all about continuing to deliver value – relative value for the consumer. And so feel good about the model's ability to handle deflation if that that comes about.

Great. That's helpful. And then over the past few quarters, you guys have noted some supply chain challenges impacting your ability to open as many stores as you may like to. Have you seen much relative improvement on that front when you think about 2023 and beyond?

Yes. We've seen a bit. Look, I think we're basically positive that we're seeing some pullback on some of the challenges. I separate the issues into two buckets. One we don't really see a real estate site selection problem. It's more of an issue of actually getting the stores open. We've had a really good cadence in recent months of fuel visits and real estate approval meetings to get sites open for 2023 and 2024. So the good news is that the sites are there. That the bad news is it's been very, very challenging to get things through I'd say the process. So we do believe that over time the next year or so, some of those headwinds will moderate. We think labor availability, the longer lead times and lease execution, the site permitting challenges will stabilize and get better. We've been very proactive in terms of what we can do to control, or at least impact some of those things. We've expanded the real estate team, and we've managed some of the delays by ordering fixtures far, far in advance just to get ready for it. So I would say we don't have total control over the entire process, but what we do, we're doing as well as we possibly can and we're going to return to that 10% growth algorithm next year.

Got it. Thanks so much. Good luck guys.

Yes thanks.

Our next question comes from Corey Tarlowe with Jefferies. Please proceed with your question.

Hi, good afternoon. I believe you mentioned that the buying environment has been, I think slightly more favorable than it has been in the past. And just touching on an earlier question, would you be able to provide any color as to which categories maybe you're seeing more or less availability in as you look across the supply that you have available to you?

Hi, Corey. Yes, it's RJ. Yes. Nothing really category specific, it has been broad-based. We're seeing healthy lists across really all the categories and down deeper into the assortment subcategories. So feeling really good about both the amount, the volume as well as the breadth of the opportunistic supply opportunities that we're seeing from our supplier partners.

Understood. And then just as a follow-up, as it relates to SKU expansion, you touched on how you've added. I believe it was close to 600 SKUs versus last year and categories like NASH, ethnic and local, do you have a plan as to how many more SKUs you intend to add into the assortment over the next say 12 months or so?

Yes. So we – as we mentioned before, SKU expansion is something that we've done it's just a regular course of business over a long period of time. So I'd say we'd look to continue to add items. We still like these focus areas that we've been adding items in. So just those focus areas – we've seen really nice incremental sales from these items themselves and then the extension of that of course is what it represents to the basket and future shopping trips. So we just really like the balance that it provides and in some cases consistency where those items remain in the assortment for a long period of time. So in terms of strategy going forward we'll continue to follow the same approach relying on data conversations with our supplier partners to strategically add items in some cases smaller categories. And I point to a recent introduction test of some grab-and-go and home replacement items as a recent example of that, but we'll continue to look for those opportunities and continue to evolve the assortments we have for a long period of time.

That's great. Very helpful. Thank you for all the color and best of luck.

Thanks Corey.

Thank you.

[Operator Instructions]

Okay. Thanks everyone for dialing in today. We look forward to catching up with you on the one-on-ones. Appreciate your attention and we will talk to you soon. Thanks so much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.