Grocery Outlet investor sues board over expansion, store closures

A Grocery Outlet investor alleges in a lawsuit that the company's board acted recklessly by expanding the chain's footprint too quickly, leading to dozens of closures and a sharp decline in the stock price.

The plaintiff, represented by The Brown Law Firm, P.C., filed a derivative lawsuit -- brought on behalf of the company against the board -- in Northern California federal court on Monday, after an earnings call last month led to a 27.9% decline in the Emeryville-headquartered company's share price.

The complaint alleges that the board of directors made false or misleading statements and breached its fiduciary duty to shareholders when it announced a slew of new stores and said it was on track to meet the goals of its restructuring plan, only to change its tune and say it would need to close 36 stores.

The individual defendants "failed to disclose the true nature of the Company's plans for expansion, the success of the Restructuring Plan, and its overall ability to meet its expected financial goals for the 2025 fiscal year. More specifically, the Individual Defendants failed to disclose the extent to which the Company could successfully expand into new stores and implement the Restructuring Plan," the complaint states. Marcus v. Potter et al., 4:26-cv-03116 (N.D. Cal., filed April 13, 2026).

The case is assigned to U.S. Magistrate Judge Kandis A. Westmore.

In the year leading up to the announcement, according to the complaint, the company repeatedly touted in earnings calls its expansion and strong metrics and said it was on track to meet the goals laid out in its restructuring plan. It added more than 10 stores in each of the two quarters leading up to the March earnings call, the plaintiff says. But the company failed to disclose that the increases in revenue it reported could be attributed to the new stores opening and didn't reflect its true financial performance, the complaint claims.

On the March 4 earnings call, CEO Jason Potter said the company had expanded at a faster rate than it could handle, the complaint says.

"It's clear now that we expanded too quickly, and these closures are a direct correction," the complaint quotes Potter as saying on the call.

The stock price fell from $8.79 to $6.34 the day after the call, the complaint says, and the company was hit with a securities class action.

"As a direct and proximate result of the Individual Defendants' conduct, Grocery Outlet has lost and will continue to lose and expend many millions of dollars. Such expenditures include, but are not limited to, legal fees, costs, and any payments for resolution of or to satisfy a judgment associated with the Securities Class Action, and amounts paid to outside lawyers, accountants, and investigators in connection thereto," the complaint says.

The lawsuit alleges the actions of the board members amounted to a conspiracy to cover each other's mistakes. It also alleges directors made wrongful gains from the alleged misstatements, although it doesn't specify when and how any alleged insider trading took place.

"The purpose and effect of the conspiracy, common enterprise, and common course of conduct was, among other things, to facilitate and disguise the Individual Defendants' violations of law, including breaches of fiduciary duty, unjust enrichment, waste of corporate assets, gross mismanagement, abuse of control, and violations of the Exchange Act," the complaint says.

The plaintiff brings claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets.

The plaintiff is seeking damages and restitution for any wrongful gains obtained by the board members and asks the court to direct the company to increase oversight of the board and call a shareholder vote to elect six new directors.