Greetings and welcome to the Grocery Outlet Second Quarter Fiscal 2019 Earnings 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. It is now my pleasure to introduce your host, Joe Pelland, Vice President of Investor Relations. Please go ahead sir. Thank you.

Good afternoon everyone and thank you for joining us on today's call to discuss Grocery Outlet’s second quarter 2019 results. Participants on this call will make forward-looking statements which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such items including our outlook for fiscal 2019 and future performance should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A description of these factors can be found in this morning's press release as well as in our registration statement and quarterly reports on Form 10-Q filings with the SEC, all of which can be found on our website at investors.groceryoutlet.com. We undertake no obligation to revise or update any forward-looking statements or information. During our call, we may 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 can be found in the supplemental financial tables included in this afternoon's press release and in our filings. We use non-GAAP measures as a lead in some of our financial discussions and we believe they more accurately represent true operational performance and underlying results of our business. Presenting on today's call, will be Grocery Outlet’s, Chief Executive Officer, Eric Lindberg, Vice Chairman MacGregor Read, President RJ Sheedy and Chief Financial Officer Charles Bracher. Following our prepared remarks we will open the call for questions. With that, I'll turn it over to Eric.

Thank you, Joe, and good afternoon everyone. Thank you for joining us today, MacGregor, RJ and I will share highlights from our second quarter and overview of our differentiated business model and an outline of our growth strategies. Charles will then review our financial results and provide outlook for our fiscal 2019. We're all really excited to be speaking to you today on our first call as a public company, but before we jump into it, I want to take a moment and thank our entire corporate team and our family of independent operators for their contributions in getting us to where we are today. Thank you. Looking back at our second quarter, we're very pleased with our results. We delivered top line year-over-year growth of 12.2% driven by a 5.8% increase in comp store sales. In addition, we've opened 30 new stores since the end of the second quarter last year and we're pleased with their performance. Our comp growth reflects broad-based strength across product categories and store vintages as well as a modest benefit from a later Easter. We attribute our comp result to three primary drivers; One the deep value and treasure hunt experience our assortment offers customers. Second, the WOW! shopping experience delivered by the independent operators and third, the strong customer awareness and engagement resulting from our corporate and our operator marketing efforts. We'll talk about each one of these today. In addition to our strong top line growth, second quarter adjusted EBITDA increased 15% to $45 million and adjusted net income grew 12.1% to $14.5 million. We achieved a strong growth through gross margin expansion and tight expense controls while reinvesting in areas of our business that will support future growth such as new store development, buying business technology. Power of our business model…

Thanks Eric and good afternoon everyone. I am excited to be here today to share more about our business and comp growth strategies. Stated simply, we have an extremely strong customer value proposition and our focus is on making it even stronger. This has been and will continue to be what drives our comp growth. Let me start first with opportunistic buying, which represents about half of our assortment. We referred to our best opportunistic purchases as WOW! deals. These items deliver extreme value and an everchanging treasure hunt experience, which drive frequent visits and bigger baskets as customers look to stock-up on these exciting items before they sell out. We deliver WOW! deals through a fast and efficient sourcing model that benefits both the supplier and grocery outlet. We purchase product in the secondary market from a large network of supplier partners. Over the last several years, we have developed an ever growing list of supplier relationships. On average, we work with approximately 1,500 suppliers per year with no single partner representing more than 5% of our buys. We provide a fast, flexible and efficient outlet for them to sell their products without disrupting their primary channels of distribution. There are two ways we grow our supply of opportunistic product. The first way is by expanding our supplier relationships with our existing partners, many of which we have worked with for decades. The second way is by forming new relationships with emerging brands. One of the goals of expanding and forming supplier relationships has been to deliver WOW! deals with more brands and items. The great illustration of this is within our natural organic specialty and healthy category, what we call NOSH. This high growth category demonstrates our success in expanding our supply and value proposition in response to…

Thanks RJ and good afternoon everyone. I'm going to speak with you about our store expansion strategy and our corporate culture, both of which are key components of our long-term growth. Beginning with store expansion and as Eric stated, our business model is highly portable and we've seen our stores succeed across a variety of geographies, urbanicities and income levels. We have wide demographic appeal with the common denominator being value minded consumers and we believe that the continued importance of value to shoppers positions us very well for the future. We plan to continue to grow our store base at approximately 10% annually and see the potential to open 400 additional stores in existing states and 1,600 more including neighboring states. Our stores range in size from 15,000 to 20,000 square feet and we target convenient, highly visible locations. We've developed a rigorous site selection process that helps us to achieve a highly attractive return on investment. Our stores offer compelling economics for both our organization and our independent operators. As a typical new store builds its customer base over its first four years of operation, we expected sales will grow roughly 25% over that period and then continue to comp positively once mature. We target store cash on cash returns of 35% by year four and to full payback on our average $2 million capital investment over that same timeframe. These store economics reflect a balance of store openings in existing mature markets where we are well established and also developing markets such as southern California and the mid-Atlantic where we are continuing to build our brand awareness. In the second quarter we opened eight new stores 16 year-to-date with a balanced mix of stores and existing and developing markets. We're really pleased with the early results for…

Thanks Mac, and good afternoon everyone. I will start with a discussion of our second quarter financial results and finish with an outlook for fiscal 2019. We were very pleased with our second quarter performance across all of our financial metrics. Sales for the second quarter increased 12.2% to $645 million, compared to $575 million in the same period last year. This growth was driven by a 5.8% increase in comparable store sales on top of a 2.7% comp increase in the same period last year. As well as by the opening of 30 net new stores since the end of the second quarter last year. As Eric mentioned, our second quarter’s comp growth reflects broad-based strength across product categories as well as store geographies and vintages. Our comps also benefited modestly from the later Easter this year versus last. During the second quarter, we opened eight new stores with a balanced mix between mature Western markets where we have high brand recognition and developing markets including Southern California, where we continue to make good progress building customer awareness. Our stores opened thus far in 2019 look to be off to a good start in line with our expectations and we remain very pleased with the continued growth of recent vintages along with the productivity of our entire store base. We closed one store in Pennsylvania during the second quarter which was at the end of its lease term and ended the period with 330 stores in six states. This closure was a legacy company-operated site from the Amelia's acquisition that didn't enjoy the location of box characteristics that we look to achieve. With respect to March end performance, second quarter gross profit increased 13.5% to $198.7 million from $175.1 million in fiscal 2018. Gross margin rate expanded 35 basis…

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Robbie Holmes from Bank of America. Your line is now live.

Hi guys and a great quarter. And thanks for taking my questions. I was hoping we could get you to talk a little bit more about the very strong comp, you guys have put up in the second quarter. I think it's one of the best in at least a few years. Maybe a little help on just how much you think the Easter shift benefited and then was there – was the WOW! buying assortment stronger than a normal quarter and maybe marketing significantly be better year-over-year. You talked a little bit about that on the call, but maybe walk us through all that and then help us understand what the guidance you gave, why we would expect the compliment and to slow significantly in the back half from the first half? Thanks.

Yes. Hey Robbie. It's Eric. Thank you for the question. So I'll start out and then I'm going to flip it over to RJ and then maybe possibly back to Charles. Look, it was a good quarter. That was made better by Easter, by the shift, roughly 50 bps. We're really pleased with everything in the quarter from the buying side. I think RJ is probably better fit to sort of talk about some of the WOW! buying and opportunistic. RJ?

Yes. Hi Robbie. So as far as the balance of opportunistic in MTO goes, I'm pleased with performance on both halves of the business. Continue to see really healthy opportunities on the opportunistic side. Continue to see the benefits of our focus on expanding relationships with existing suppliers as well as forming new relationships and building those with emerging brands and some suppliers on that side. We're equally pleased with the performance that we've seen on the MTO side of the business or everyday side of the business. As we have organized our efforts around a healthy balance. Keep in mind that the customer doesn't know the difference between opportunistic and everyday. And for us it is about delivering great value to the customers. And I think we've been seeing the results of delivering value with healthy balance across both sides of the assortment. You did ask about marketing. I'm pleased with the activities and impact there as well. A number of things that I would point to as being newer or contributing this year. From a marketing standpoint, for one, we refreshed our brand and we launched our Bargain Bliss campaign earlier this year still in the very early innings stages of that. But the perception from customers and initially from the independent operators as we rolled it out is very positive. So believe that we're seeing a nice impact there. And then the other thing that I would point to is our continued development of digital initiatives. We continue to increase the activity that we put out on app platforms such as Flyp and AdAdapted. We're very active on social media across Facebook, Instagram, Twitter, Pinterest and others. Connected TV has become a nice platform for us active on Roku, Hulu, YouTube and others there as well. Digital continues to be a great platform for us to do the nature of our business in the in and out nature of our items. We mentioned the growth in our email database. And we continue to leverage and see impact from the WOW! alerts that we put out to our stores, which again are specific to the item in the store as new and exciting deals flow into those stores for those customers in the local markets. And then the last thing I'll say on marketing is, and we continue to place a heavy emphasis on supporting our IOs marketing is a shared effort between Grocery Outlet and the independent operators. And we support them in their local marketing efforts. It's a big differentiator for us and we believe continues to set us apart. And so as they're active on social media, as they're active in their communities, as they're active with programs such as Independence from Hunger, we provide the support that we can by way of creative templates, self service portal, et cetera. And we think those efforts and activities continue to benefit us.

And Robbie, this is Charles. Let me just layer onto that. In terms of guidance again, we feel great about the health of the business that we saw in the second quarter, broad-based strength, feel like we're executing well across the organization. As we think about guidance, however we do manage and plan the business over the long-term towards a low single-digit comp. And we simply believe that's a prudent range that we can deliver across a variety of different operating environments. And so what you see in our full year guidance the implied second half is really just consistent with that 1% to 3% long-term comp target.

Thank you. Our next question is coming from Randal Konik from Jefferies. Your line is now live.

Yes, thanks a lot. So I want to – I guess, ask a kind of strategic question around how you think about category expansion. You gave us – in public, a really good timeline on how you guys expanded by category. You gave us some perspective on the mass category that that was kind of launched in 2015. Maybe expand a little bit more on what you identified with NOSH, the opportunities you see going forward there from both the product assortment and presentation standpoint? And then any benefits you started to see in terms of acquiring new customers, but also increase your frequency of shop of existing customers by adding things like NOSH or the fresh seafood. You touched on a little bit earlier, its – I just want to get to expand that a little bit because the category expansion is seem to be able to kind of increase frequency of shop, drive up basket and then have the ability to attract new and different types of consumers to your store. So just wanted to kind of talk through that with you.

Okay, great. Yes. Hi, Randy. It's RJ. So a few things there, let me take them in order, if I can. So first from a category expansion opportunity standpoint, something that we're constantly looking at things that we – that maybe gaps in the assortment, really opportunities for growth. We monitor trends very closely. For us, it's always about delivering value. So if we're able to deliver value and meet customer demand and follow these trends that ends up being a great opportunity for us. And NOSH is a great example of that. It is a category that is broad-based really across the assortment. One that we as an organization put a much heavier emphasis on going back four or five years now. And we've seen the results of that really nice comp growth. We think it does a lot to help expand our customer reach. We think it certainly helps increase frequency with existing customers and so really, really pleased with the benefit that we've seen there. As far as future growth goes NOSH, we expect to continue to be a high growth category for us. We think we've got a long way to run, no projected ceiling, plenty of product opportunity on the opportunistic side. And we continue to strategically look for opportunities to introduce everyday items where customers are looking for a little more consistency. And we continue to provide tremendous value and excitement to customers with new and some cases, unexpected brands and items. We mentioned fresh seafood and grass-fed meat, two other more recent examples of what we identified as gaps within the assortment. We brought them in and we have seen very nice results thus far. And for both very recent so I think that growth continues and we continued to see the benefit…

Yes. Can I ask one more follow up here? It relates to your comments around infrastructure and technology advancement, you gave us a little bit of color on some improvement in distribution in ordering efficiencies. Can you perhaps expand upon that a little bit more, kind of give us some perspective where the organizations come from, areas of efficiency, how much efficiency you've kind of gotten with those technology enhancements and infrastructure advancements and think about some opportunities we should be thinking about in the future for the company to continue to kind of improve efficiency at the home office level, but also at the store level as well? Thanks guys.

Yes, sure. So a few things on that. First, I’ll say over the past five or six years, we've been very focused on continuing to enhance the systems that we use to run the business. We have a – what I would say is a very robust suite of best of breed system platforms that we operate on. And recent really been in the last five years, new warehouse management system and new business intelligence tool. We have a new system by which we manage communications within, throughout the organization. We use a CRM software to manage our business on the purchasing side as well as on the operating side of the business. And in addition to, in many of these our third-party systems. But in addition to this, we put a lot of investment and development into custom built software necessary for the unique nature of our business. So we have very important proprietary leading-edge systems that in getting specifically to your comment or question on inventory management that helps us improve the business there. So one that I would point to is the real-time order guide which is the mechanism by which operators pull products from the warehouse into their stores. We've made a number of enhancements to that tool recently to help them localize the assortment to help them optimize the SKU selection and to help them order products or I should say pull products into their stores in the right quantities and the right balance to manage both the needs from merchandising standpoint but also on the shrink side. And then another custom built system that we have is our distribution system. And so that is the mechanism by which we allocate and distribute product out to stores as we're managing inventory in the warehouse. And again that is a recently developed and enhanced and allows us to be far more sophisticated and specific as we are looking at turns and unique items and quantities and again, how product flows through the supply chain. And so the approach that we've taken from a system standpoint as we are always looking to enhance and make those investments will continue forward. And I think we'll continue to improve the business as a result.

Thank you. [Operator Instructions] Our next question today is coming from Oliver Chen from Cowen and Company. Your line is now live.

Hi. Thank you. The gross margins were impressive. Regarding inventory management, what are your thoughts on the next initiatives ahead and how we should model inventory relative to sales as well as the interplay between the personalization of the digital engagement and how that may factor into your enhancements and supply chain and inventory management? Thank you.

Okay. Hi Oliver. So let me take the first part and then Charles, I think can cover the second part. So as far as what we've done from an inventory management standpoint, I'd say it's very broad based. It starts with purchasing and we've gotten a lot of better and sharper both on the opportunistic and everyday side as far as inventory management goes. It starts with the buy and then it flows all the way through the supply chain. So that's number one. Number two, increased efficiencies in the way that we distribute products and the general information and approach that we take to managing inventory itself has all contributed to the benefit that we've seen from a margin standpoint year-over-year. So we're pleased with that. This is a constant balance for us. We are always looking at the value and the excitement that we're delivering to customers balanced with the margin that we're able to deliver. And we've seen some really nice contributions on the margin side and we think we're striking the right balance as we sit here today. Let me cover the marketing question and then Charles, maybe if you wanted to speak to inventory levels. From a personalization standpoint, we do look to that as a future enhancement for us. We're very, very pleased with the impact that we've seen from this store item database that we put out in WOW! alerts and other digital platforms. We're very early in our discussions around personalization, but we think it's that next level of sophistication and customization where we can be even more relevant to the customer that we think helps us as we look towards top line growth into the future.

And Oliver, this is Charles just to comment on inventory growth. Over the long-term, we do expect the inventory will grow in line with sales. There absolutely can be fluctuations quarter-to-quarter rate based on the opportunistic nature of our businesses will take positions as buys become available to us. But over the long-term from a modeling perspective, you can think about it growing in line with sales.

Thank you. Our next question today is coming from Simeon Gutman from Morgan Stanley. Your line is now live.

Hey guys. First of all, Eric, it looks like a lot of things are working. If you hone in on this three month period, can you share with us what may or may not be working or what's not working to exactly the way you laid out. And then maybe for RJ, can you talk about the lead time of the close out deals? Is it changing in any way, good or bad? And then you can talk about – can you talk about the volume of closeout deals in general? Are they increasing, are you always having more to choose from or decreasing?

Hey, Simeon, thanks for the question. So look, it was a great quarter. Top line, 12.5% comp 5.8 expanded gross profit margin. Good growth out of adjusted EBITDA, adjusted net income, new stores. It's really hard I think with a quarter like that to point at any one thing that isn't working. With that all said, we have a business that has a lot of complexity. It has a lot of moving parts. And I think the most difficult challenge for us as we look forward and I think what we've dealt with for sort of the last five or 10 years is just how do you how do you manage the growth responsibly? How do you say discipline in the business that you're in? There are so many opportunities out there to expand this business. There are so many platforms in retail that one can dive into. I think that the challenge for this management team and for this model is to stay in your lane, really remain very, very focused on your niche and not get pulled in a million different directions so that your impact gets diluted. So I would say that is the biggest sort of challenge to management challenge to the model which is really remaining focused on the niche in the business that we're in.

Okay. And to answer your other questions. As far as lead time goes, it varies widely. We, we can buy product or take advantage of a deal and, and receive it almost immediately. And we have other deals that will extend weeks just based on when the partner is looking to move it over to us. So very, very wide range there. As far as volume goes, we see way more product and opportunities than we take advantage of. We continue to be very bullish on the quality and availability of the deals that we are seeing. So, haven't seen any change, so to speak there and continue to have plenty of opportunity there in front of us. We certainly aren't complacent. We remain extremely focused on increasing our share of this market. And we believe that comes from deepening our relationships and becoming better partners with the suppliers we work with and attracting talking to some of the new and emerging companies and explaining to them the benefits that we can provide. So, as you look at the industry there always has been and will continue to be disruption. Disruption is a very good thing for us. Oftentimes leads to supply chain imbalances and that's where we can be a really helpful partner. And, if anything, we've seen more of those opportunities presented to us.

Thank you. Our next question today is coming from John Heinbockel from Guggenheim Securities. Your line is now live.

So guys two quick things. When you think, well, what are the most productive avenues of reinvestment do you think, of improving gross margin and in particular when you think about elasticity on the MTO side, is there enough there, and I know it'll vary by category, but enough there to make that a source of reinvestment. And then secondly, where are we – maybe give us a quick update on the mid-Atlantic expansion supply chain et cetera.

Okay. So hi John, it's RJ. The first question on areas to invest in the business, I'd say consistent with where our growth strategies and focus has been. Purchasing delivering deeper value to customers, managing the assortment, all of the things that we talk about between opportunistic and every day continuing to focus on supporting the operators in everything they're on the sell side of the business, continued investment in marketing. Those three we think continuing to drive comps from an infrastructure standpoint, continuing to develop our business technology, some of the things that I mentioned previously. And then and then just general around that, just general people and infrastructure to Eric's comments around supporting growth. So those would – those have been and would continue to be our areas of focus from an investment standpoint.

I Jon it is MacGregor, I’ll talk quickly to the mid-Atlantic and of this comment I think from our perspective we see it as a crawl before you walk, walk before you run strategy. I think consistent with what we shared with you and also prospective investors on the road show. We acquired the business almost 10 years ago really primarily for the purposes of expanding our reach of opportunistic product. And we feel like that has definitely played out. I think we've learned a lot of great lessons in southern California about developing a playbook for continuing to forge into new markets. We continue to believe that the model has great portability both from a market segmentation perspective, also a demography perspective. We really think that value is ubiquitous and we look at where we are today inside of our core Western markets and believe that we're operating in some of the most competitive markets in the country today that are only enhancing our toolbox to go elsewhere. We don't see any structural cost differences between regions. And we really think it's all about building the top line and the rest will follow. So we're excited about the opportunity ahead. We think we can cluster a large number of stores inside of a relatively tight circumference and we think the model will play very well.

Thank you. Our next question is coming from Paul Trussell from Deutsche Bank. Your line is now alive.

Good afternoon and good quarter. Wanted to just touch maybe on the balance sheet in a little bit more detail. I mean, you spoke just now about how you're thinking about maybe some reinvestment in capital allocation. Maybe just help us think about leveraged targets debt pay down as we look over the near and medium term.

Okay. Hey, Paul, it's Charles. Yes. So, we're really pleased with the deleverage that we achieved as part of the IPO. Initially we were envisioning being sort of sub-three times leverage in about 18 months, but because of the successful offering, we're able to deliver more quickly. We and then as a result of the subsequent reprising, we got annualized debt service down to $30 million. And so that would absolutely free up cash for us more than enough to fund our CapEx needs fund the debt. And so we would expect to take excess cash and continue to teach to further delever from here. We have not established a long-term leverage target. But we but we in the short-term near term, we would expect to continue to delever. In terms of capital priorities, number one for us continues to be new stores. We love the return we get on our stores that will encompass about two thirds of our overall CapEx spend. And then beyond that, the balance is everything we do to reinvest into the existing fleet. In terms of sales and margin driving initiatives as well as just general upgrades and maintenance. And lastly, any needs we have on the IT distribution or corporate side.

Thank you. Our next question is coming from Michael Lasser from UBS. Your line is now live.

Good evening. Thanks a lot for taking my question. Can you give us some more detail on the new store productivity? Recognizing that there's a lot of moving pieces as we calculated it was a bit lower than it's been historically or in the mid-to-high. And also recognizing the southern California as a relatively newer market for you. And then my follow-up question is on gross margin. It's been very healthy for the last four quarters. You're going to anniversary some bigger gains yet you're still guarding to some significant expansion in the back half. So, and you mentioned purchasing, presumably that's a big benefit along with a lower transportation costs. So, how high can you push that?

So Michael, this is Charles. Let me address the first part and then I'll turn it to RJ. So with respect to new store performance, it is really difficult and I would caution you from drawing conclusions in terms of the shorthand math around non-comp productivity. There's lots of noise when you go back and try to look at that math based on the timing of new store openings as well as the impact of store closures. So again, you really can't draw accurate conclusions from that. Overall, we were very pleased with the new store performance that we've seen go through the current 2019 vintage as well as recent vintages that continue to ramp. Those are all tracking very much in-line with our expectations. We monitor that closely and feel very good about the progress we're making.

And regarding margins. We're, as I said, pleased with the impact that we've seen this year. And that you mentioned we do expect those benefits to carry forward through the end of the year in expecting to see a similar lift in the second half as we did in the first half per Charles's comments earlier. We're always looking for ways to enhance margin as we look forward to next year and beyond. We believe the current gross margin rate strikes the right balance between margin that we see on the P&L but also value and to the extent that we see additional benefit on the margin side, we will look to reinvest that back into the value proposition, specifically driving customer excitement, which leads to trips and basket.

Thank you. Our next question is coming from Chris Prykull from Goldman Sachs. Your line is now live.

Good evening guys. Thanks so much for taking the questions. Can you talk a little bit about the new store performance in southern California? Are these stores opening stronger each year given building brand awareness in the region and then how is profitability trending for those stores versus the consolidated average? Is that improving as well? And then my second question is just related to some of the headlines out there around proposed changes to snap benefits. Can you talk about how those have impacted your business historically, if at all? And maybe speak to the 2016 cuts more specifically. Thank you.

Yeah, Chris. It's Mac. I'll start with southern California. As simply as I know how to say it, we are very happy with the performance of both armature market stores and our developing markets stores. We're happy with the awareness that we're building in the southern California market. We think from a store count perspective, we're about halfway there. So a lot of upside potential. We continue to add better distribution capabilities in market and resources that are helping those stores ramp in an ever faster pace and feel great about the playbook that we're developing as we think about mid-Atlantic.

And this is Charles, Chris let me just add to that. With respect to overall top line performance, we did see healthy positive comp growth across all the regions in the second quarter. And as MacGregor said, when you think about profitability it all obviously starts with the top line. So, there are no structural differences in terms of the cost structure between the region. So it really is just a matter of achieving scale. And so we're seeing that top line grow as brand awareness continues to build in these developing markets. And from there it's really a matter of driving further efficiencies throughout the balance of the P&L in terms of COGS in SG&A and marketing leverage that you just get with increased scale.

Hey, Chris, Eric I'll take the [EBT] and snap question. So really what you're asking is, is more just kind of tinder type and I would that were somewhat tinder agnostic or we're hyper focused on the product and the value that we drive the customer, whether they pay with cash or pay with EBT or credit is somewhat not material to us. That all said we have been watching the trends for years and tracking its decline, which has been fairly noticeable over the last call it five or six years. I'd say the good news for us is we have not seen any noticeable changes in product mix or margin profile or comp performance. Over that same period of time as the funding has declined. So, that leads us to two beliefs. One is we think that, value for that customer segment has become even more important and we believe that we're a growing importance to that same customer segment and they're just now paying in a slightly different way if they're not using EBT. So, hopefully that answers your question.

Thank you. Our final question today is coming from Karen Short from Barclays. Your line is now live.

Hey guys this is actually [indiscernible] on the line for Karen. Congrats on the nice quarter. So I guess my first question is really on IO applicant flow. It'd be helpful if you, just to hear more about how that's trending and then maybe if you can provide more color on the things you're doing to continue to keep interest in the concept pie from potential isles that will be helpful.

Yes. Hey [Raynado]. Thanks for the question. So flow has been very healthy. We're doing a lot of things relative to social media. We launch campaigns on a regular basis. We do targeted, targeted recruiting. As you heard us discuss. We spent some time back in the spring. We'll actually go into a market where we know we're going to open stores and we'll target locally from retailers. They're using all of the tools of a social media and marketing. Then I would say because we've gone after so many different, types of retailers, word of mouth is very, very strong. We're getting, 1500, 2000 inbound pieces of interest from applicants every month. And then we have a big filtration process where we take people through a number of tests and interviews, meetings with both AOTs or both with operators and folks here in the office to sort it down to eight or 10 that we'll pick per month. So I would say we're very bullish. The model has a great word of mouth. We're getting a lot of people, reaching out to operators who freely share with them, sort of their success and their passion for the brand and the ability they have to be in the community, work with, work with family and sort of have an impact plus run their own business and have a great degree of independence. So that as you imagine for in today's retail environment that word travels fast and continues to feed the pipeline.

Okay. That's helpful. And just a follow-up on the categories, obviously some nice things going on with seafood and, grass-fed meat. But just, sorry if I missed it, but I don't think you mentioned the whole meal replacement initiative. Just wondering if there was anything new on that front to speak of.

Yes, so we, the category that we continue to carry, we continue to look at the demand and the values that we can provide. Really no different than other emerging categories and so, that's one that we'll continue to manage and as part of the overall assortment.

Thank you. We reached end of our question-and-answer session. I'd like to turn the floor back over to Eric for any further or closing comments.

Yes. Thank you. Kevin. Just a reach out to all of you and say thanks for your thoughtful questions and your time and your attention going into the evening we really look forward to being back together with you as soon to report on progress. Thanks very much.

Thank you. That does conclude today's teleconference, you may disconnect your line at this time and have a wonderful day. We thank you for your participation today.