Grocery Outlet Holding Corp.GO
Grocery Outlet Holding Corp. Income Taxes Disclosure
Income Taxes
Components of income tax expense
Income before income taxes consisted entirely of income from domestic operations of $56.2 million, $104.1 million, and $75.7 million for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively.
The components of income tax expense consisted of the following (amounts in thousands):
Fiscal Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
Current: | |||||||||||||||||
| Federal | $ | 1,195 | $ | 1,051 | $ | — | |||||||||||
| State | 3,388 | 4,774 | 330 | ||||||||||||||
| Total current | 4,583 | 5,825 | 330 | ||||||||||||||
Deferred: | |||||||||||||||||
| Federal | 10,781 | 16,127 | 7,308 | ||||||||||||||
| State | 1,342 | 2,692 | 3,059 | ||||||||||||||
| Total deferred | 12,123 | 18,819 | 10,367 | ||||||||||||||
| Income tax expense | $ | 16,706 | $ | 24,644 | $ | 10,697 | |||||||||||
Statutory rate reconciliation
A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:
Fiscal Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
| Taxes at federal statutory rates | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State income taxes net of federal benefit | 5.1 | % | 5.4 | % | 2.7 | % | |||||||||||
| Section 162(m) compensation limitation on covered employees | 3.2 | % | 2.2 | % | — | % | |||||||||||
| Excess federal tax benefits from exercise and vest of share-based awards | (2.6) | % | (3.3) | % | (9.2) | % | |||||||||||
| Return to provision | 1.9 | % | (2.0) | % | (1.1) | % | |||||||||||
Acquisition and integration costs(1) | 1.2 | % | — | % | — | % | |||||||||||
| Other | (0.1) | % | 0.4 | % | 0.7 | % | |||||||||||
| Effective income tax rate | 29.7 | % | 23.7 | % | 14.1 | % | |||||||||||
_______________________
(1)Represents costs related to the acquisition and integration of United Grocery Outlet. See NOTE 15—Business Combination, for additional information.
Deferred income taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of our deferred tax assets and liabilities were as follows (amounts in thousands):
| December 28, 2024 | December 30, 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Accrued compensation | $ | 2,406 | $ | 5,902 | |||||||
| Share-based compensation expense | 5,757 | 11,543 | |||||||||
Merchandise inventories | 7,385 | 6,534 | |||||||||
| Transaction costs | 492 | 596 | |||||||||
Lease liability obligations | 331,705 | 308,776 | |||||||||
| Net operating loss and other carryforwards | 26,269 | 32,299 | |||||||||
| Debt transaction costs | — | 369 | |||||||||
Accruals and reserves | 10,233 | 5,702 | |||||||||
| Other | 3,375 | — | |||||||||
| Total deferred tax assets | 387,622 | 371,721 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Prepaid expenses | (1,644) | (1,264) | |||||||||
Depreciation and amortization expenses | (88,499) | (85,261) | |||||||||
| Intangible assets | (5,231) | (5,876) | |||||||||
Lease right-of-use assets | (288,347) | (267,696) | |||||||||
| Goodwill | (53,379) | (48,865) | |||||||||
Software development costs | (6,700) | — | |||||||||
| Other | — | (1,360) | |||||||||
| Total deferred tax liabilities | (443,800) | (410,322) | |||||||||
| Net deferred tax liabilities | $ | (56,178) | $ | (38,601) | |||||||
We have net operating loss carryforwards of $119.6 million for federal income tax purposes, which carries forward indefinitely. There are also net operating loss carryforwards of $12.6 million for state income tax purposes, which begin to expire in 2034. Utilization of some of the federal net operating loss and state net operating loss and credit carryforward are subject to annual limitations due to the "change in ownership" provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. The Company believes that no such limitation has occurred through December 28, 2024.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. A significant piece of objective positive evidence was the cumulative income incurred over the three-year period ended December 28, 2024. Based on our current assessment, we anticipate it is more likely than not that we will generate sufficient taxable income to realize all of our material deferred tax assets. As such we did not record a valuation allowance against these material deferred tax assets as of December 28, 2024.
Our policy is to recognize interest and penalties associated with uncertain tax positions as part of the income tax provision in our consolidated statements of operations and comprehensive income and include accrued interest and penalties with the related income tax liability on our consolidated balance sheets. To date, we have not recognized any interest and penalties, nor have we accrued for or made payments for interest and penalties. We had no uncertain tax positions as of December 28, 2024 and December 30, 2023, respectively, and do not anticipate having any material uncertain tax positions within the next 12 months.
We are subject to taxation in the United States and various state jurisdictions. As of December 28, 2024, our tax returns remain open to examination by the tax authorities for tax years 2012 to 2023 for U.S. federal and for various state jurisdictions.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.