To strengthen long-term profitability and cash flow generation, improve operational execution, optimize our existing store footprint and align with our disciplined new store growth strategy, in the first quarter of fiscal 2026 we conducted a strategic, financial and operational analysis of our store fleet. Following that review, in the first quarter of fiscal 2026, our Board adopted a business optimization plan (the "Optimization Plan") that provides for the closure of 36 financially underperforming stores ("Closure Stores"), including the termination, sublease or assignment of the applicable store leases; the termination, sublease or assignment of a lease for a distribution center facility that we are no longer utilizing (together with the store leases, the "Lease Exits"); and the termination of operator agreements with IOs for the Closure Stores as well as certain other store locations (the "Operator Agreement Terminations").

Following the Board adoption of the Optimization Plan, during the first quarter of fiscal 2026, we closed 27 stores and initiated the closure process at the remaining 9 stores associated with the Lease Exits. In the second quarter of fiscal 2026, we completed the closure of the remaining 9 stores. During the first quarter of fiscal 2026, we also completed or initiated the Operator Agreement Terminations for the Closure Stores as well as certain other store locations. In addition, we increased the provision for IO notes and IO receivables reserves and wrote off uncollectible IO notes and IO receivables associated with these store locations, as further discussed in Note 2.

We estimate that we will incur between $20 million and $27 million in net total restructuring charges in fiscal 2026 and fiscal 2027 related to the Optimization Plan, and we expect these actions to be substantially completed by the first quarter of fiscal 2027. Estimated restructuring charges expected to be incurred include bad debt expense and cash expenses for the Operator Agreement Terminations, as well as costs associated with the Lease Exits. We have negotiated, or intend to negotiate, a lease termination, sublease or assignment with the landlords of the Lease Exits. We expect to incur restructuring charges for the Lease Exits which primarily include lease termination fees, costs to prepare the premises for surrender to the landlords, sublessee or assignee, and idle property costs, partially offset by the net non-cash write-off of the right-of-use assets and lease liabilities associated with these leases.

The following table summarizes charges incurred related to the Optimization Plan during the first quarter of fiscal 2026 (amounts in thousands), which are included in Restructuring charges on the condensed consolidated statements of operations and comprehensive loss:


	13 Weeks Ended
	April 4, 2026
Cash restructuring charges:
Costs associated with the Lease Exits (1)	$	790
Costs associated with the Operator Agreement Terminations	1,609
Legal, professional and other costs	256
Total cash restructuring charges	2,655


Non-cash bad debt expense associated with the Operator Agreement Terminations	15,536




Total restructuring charges	$	18,191


	Lease Termination Costs		Operator Agreement Termination Costs		Legal, Professional and Other Costs		Total
Balance at January 3, 2026	$	—	$	—	$	—	$	—
Cash restructuring charges	790		1,609		256		2,655
Cash payments	(747)		(1,609)		(123)		(2,479)
Balance at April 4, 2026	$	43	$	—	$	133	$	176

We initiated a restructuring plan during the fourth quarter of fiscal 2024, intended to improve our long-term profitability, cash flow generation and return on invested capital, optimize the footprint of new store growth, and lower our cost base (the "Restructuring Plan"). The actions under the Restructuring Plan were substantially completed in the second quarter of fiscal 2025. The Restructuring Plan included (i) the termination of a total of 28 leases for unopened stores in suboptimal locations and the discontinued development of certain future store sites where we had incurred initial costs, but leases had not yet been signed, (ii) the cancellation of certain capital-intensive warehouse projects and (iii) a reduction in headcount in building a more scalable cost structure.

The following table summarizes charges incurred during the first quarter of fiscal 2025 related to the Restructuring Plan, which are included in Restructuring charges on the condensed consolidated statements of operations and comprehensive loss (amounts in thousands):


	13 Weeks Ended
	March 29, 2025
Cash restructuring charges:
Lease termination costs	$	29,093
Employee severance and benefit costs	1,532
Legal, professional and other costs	1,522
Total cash restructuring charges	32,147

Non-cash impairment and disposal of long-lived assets	1,728

Total restructuring charges	$	33,875


	Lease Termination Costs		Employee Severance and Benefit Costs		Legal, Professional and Other Costs		Total
Balance at December 28, 2024	$	—	$	—	$	—	$	—
Cash restructuring charges	29,093		1,532		1,522		32,147
Cash payments	(23,383)		(1,462)		(341)		(25,186)
Balance at March 29, 2025	$	5,710	$	70	$	1,181	$	6,961