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Sprouts Farmers Market, Inc. Reports Second Quarter 2023 Results

Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week second quarter ended July 2, 2023.

"We are encouraged by another solid quarter, as we further establish Sprouts as a go-to healthy specialty food retailer," said Jack Sinclair, chief executive officer of Sprouts Farmers Market. "We believe we are on track with our long-term growth strategy, with positive traffic, an enhanced supply chain, and continued product innovation."

Second Quarter Highlights:

  • Net sales totaled $1.7 billion; a 6% increase from the same period in 2022
  • Comparable store sales growth of 3.2%
  • Diluted earnings per share of $0.65; Adjusted diluted earnings per share of $0.71(1); a 25% increase from the same period in 2022
  • Opened 6 new stores, resulting in 391 stores in 23 states as of July 2, 2023 (including the closure of 10 stores during the quarter, as previously announced).

(1) Adjusted diluted earnings per share, a non-GAAP financial measure, excludes the impact of certain special items. See the “Non-GAAP Financial Measures” section of this release for additional information about this item.

Leverage and Liquidity in Second Quarter 2023

  • Ended the quarter with $259 million in cash and cash equivalents and a $175 million balance on its $700 million revolving credit facility
  • Repurchased 1.4 million shares of common stock for a total investment of $50 million
  • Generated cash from operations of $295 million and invested $93 million in capital expenditures, net of landlord reimbursement, year-to-date thru July 2, 2023

Third Quarter and Full-Year 2023 Outlook

The following provides information on our full-year 2023 outlook:

  • Net sales growth: 5% to 6%
  • Comparable store sales growth: 2% to 3%
  • Adjusted EBIT: $378 million to $390 million
  • Adjusted diluted earnings per share: $2.68 to $2.76
  • Unit growth: 30 new stores
  • Capital expenditures (net of landlord reimbursements): $190 million to $210 million

The following provides information on our third quarter 2023 outlook:

  • Comparable store sales growth: low single digit comps
  • Adjusted diluted earnings per share: $0.59 to $0.63

Second Quarter 2023 Conference Call

Sprouts will hold a conference call at 5:00 p.m. Eastern Daylight Time on Tuesday, August 1, 2023, during which Sprouts executives will further discuss second quarter 2023 financial results.

A webcast of the conference call will be available through Sprouts’ investor relations webpage, accessible via the following link. Participants should register on the website approximately ten minutes prior to the start of the webcast.

A webcast replay will be available at approximately 8:00 p.m. Eastern Daylight Time on Tuesday, August 1, 2023. This can be accessed with the following link.

Important Information Regarding Outlook

There is no guarantee that Sprouts will achieve its projected financial expectations, which are based on management estimates, currently available information and assumptions that management believes to be reasonable. These expectations are inherently subject to significant economic, competitive and other uncertainties and contingencies, many of which are beyond the control of management. See “Forward-Looking Statements” below.

Forward-Looking Statements

Certain statements in this press release are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact (including, but not limited to, statements to the effect that Sprouts Farmers Market or its management "anticipates," "plans," "estimates," "expects," or "believes," or the negative of these terms and other similar expressions) should be considered forward-looking statements, including, without limitation, statements regarding the company’s outlook, growth, opportunities and long-term strategy. These statements involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this release. These risks and uncertainties include, without limitation, the company’s ability to execute on its long-term strategy; the company’s ability to successfully compete in its competitive industry; the company’s ability to successfully open new stores; the company’s ability to manage its growth; the company’s ability to maintain or improve its operating margins; the company’s ability to identify and react to trends in consumer preferences; product supply disruptions; equipment supply disruptions; general economic conditions that impact consumer spending or result in competitive responses; accounting standard changes; the current inflationary environment and future potential inflationary and/or deflationary trends; the impact of the COVID-19 pandemic; and other factors as set forth from time to time in the company’s Securities and Exchange Commission filings, including, without limitation, the company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The company intends these forward-looking statements to speak only as of the time of this release and does not undertake to update or revise them as more information becomes available, except as required by law.

Corporate Profile

True to its farm-stand heritage, Sprouts offers a unique grocery experience featuring an open layout with fresh produce at the heart of the store. Sprouts inspires wellness naturally with a carefully curated assortment of better-for-you products paired with purpose-driven people. The healthy grocer continues to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. Headquartered in Phoenix, and one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States, Sprouts employs approximately 31,000 team members and operates more than 390 stores in 23 states nationwide. To learn more about Sprouts, and the good it brings communities, visit about.sprouts.com.

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

 

 

 

 

 

 

 

 

Thirteen weeks ended

 

 

Twenty-six weeks ended

 

 

 

July 2, 2023

 

 

July 3, 2022

 

 

July 2, 2023

 

 

July 3, 2022

 

Net sales

 

$

1,692,247

 

 

$

1,595,482

 

 

$

3,425,557

 

 

$

3,236,643

 

Cost of sales

 

 

1,066,275

 

 

 

1,015,125

 

 

 

2,149,523

 

 

 

2,044,538

 

Gross profit

 

 

625,972

 

 

 

580,357

 

 

 

1,276,034

 

 

 

1,192,105

 

Selling, general and administrative expenses

 

 

497,965

 

 

 

462,110

 

 

 

984,160

 

 

 

922,020

 

Depreciation and amortization (exclusive of depreciation included in cost of sales)

 

 

33,964

 

 

 

31,244

 

 

 

68,032

 

 

 

63,064

 

Store closure and other costs, net

 

 

2,427

 

 

 

493

 

 

 

30,704

 

 

 

870

 

Income from operations

 

 

91,616

 

 

 

86,510

 

 

 

193,138

 

 

 

206,151

 

Interest expense, net

 

 

2,140

 

 

 

2,658

 

 

 

4,360

 

 

 

5,697

 

Income before income taxes

 

 

89,476

 

 

 

83,852

 

 

 

188,778

 

 

 

200,454

 

Income tax provision

 

 

22,142

 

 

 

21,855

 

 

 

45,284

 

 

 

50,150

 

Net income

 

$

67,334

 

 

$

61,997

 

 

$

143,494

 

 

$

150,304

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.65

 

 

$

0.57

 

 

$

1.39

 

 

$

1.37

 

Diluted

 

$

0.65

 

 

$

0.57

 

 

$

1.38

 

 

$

1.36

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

102,824

 

 

 

109,067

 

 

 

103,326

 

 

 

109,985

 

Diluted

 

 

103,514

 

 

 

109,619

 

 

 

104,240

 

 

 

110,762

 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

 

 

July 2, 2023

 

 

January 1, 2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

259,484

 

 

$

293,233

 

Accounts receivable, net

 

 

13,616

 

 

 

16,108

 

Inventories

 

 

320,006

 

 

 

310,545

 

Prepaid expenses and other current assets

 

 

40,231

 

 

 

53,918

 

Total current assets

 

 

633,337

 

 

 

673,804

 

Property and equipment, net of accumulated depreciation

 

 

738,693

 

 

 

722,241

 

Operating lease assets, net

 

 

1,232,725

 

 

 

1,106,524

 

Intangible assets

 

 

208,060

 

 

 

184,960

 

Goodwill

 

 

381,751

 

 

 

368,878

 

Other assets

 

 

13,630

 

 

 

13,973

 

Total assets

 

$

3,208,196

 

 

$

3,070,380

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

168,541

 

 

$

172,904

 

Accrued liabilities

 

 

194,621

 

 

 

151,306

 

Accrued salaries and benefits

 

 

59,311

 

 

 

61,574

 

Current portion of operating lease liabilities

 

 

114,685

 

 

 

135,584

 

Current portion of finance lease liabilities

 

 

1,068

 

 

 

1,012

 

Total current liabilities

 

 

538,226

 

 

 

522,380

 

Long-term operating lease liabilities

 

 

1,312,823

 

 

 

1,145,173

 

Long-term debt and finance lease liabilities

 

 

184,173

 

 

 

258,902

 

Other long-term liabilities

 

 

36,478

 

 

 

36,340

 

Deferred income tax liability

 

 

61,343

 

 

 

61,123

 

Total liabilities

 

 

2,133,043

 

 

 

2,023,918

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Undesignated preferred stock; $0.001 par value; 10,000,000 shares authorized, no shares issued and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized, 102,183,083 shares issued and outstanding, July 2, 2023; 105,072,756 shares issued and outstanding, January 1, 2023

 

 

102

 

 

 

105

 

Additional paid-in capital

 

 

761,181

 

 

 

726,345

 

Retained earnings

 

 

313,870

 

 

 

320,012

 

Total stockholders' equity

 

 

1,075,153

 

 

 

1,046,462

 

Total liabilities and stockholders' equity

 

$

3,208,196

 

 

$

3,070,380

 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

 

 

 

Twenty-six weeks ended

 

 

 

July 2, 2023

 

 

July 3, 2022

 

Operating activities

 

 

 

 

 

 

Net income

 

$

143,494

 

 

$

150,304

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization expense

 

 

70,013

 

 

 

64,856

 

Operating lease asset amortization

 

 

62,331

 

 

 

57,360

 

Impairment of assets

 

 

27,845

 

 

 

171

 

Share-based compensation

 

 

9,461

 

 

 

7,920

 

Deferred income taxes

 

 

(5,953

)

 

 

1,770

 

Other non-cash items

 

 

254

 

 

 

324

 

Changes in operating assets and liabilities, net of effects from acquisition:

 

 

 

 

 

 

Accounts receivable

 

 

8,390

 

 

 

11,389

 

Inventories

 

 

(7,665

)

 

 

(27,475

)

Prepaid expenses and other current assets

 

 

9,915

 

 

 

(12,851

)

Other assets

 

 

3,205

 

 

 

164

 

Accounts payable

 

 

3,374

 

 

 

32,877

 

Accrued liabilities

 

 

41,733

 

 

 

(318

)

Accrued salaries and benefits

 

 

(2,561

)

 

 

(10,521

)

Operating lease liabilities

 

 

(68,986

)

 

 

(65,502

)

Other long-term liabilities

 

 

(69

)

 

 

(1,505

)

Cash flows from operating activities

 

 

294,781

 

 

 

208,963

 

Investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(98,683

)

 

 

(53,098

)

Payments for acquisition, net of cash acquired

 

 

(13,042

)

 

 

 

Cash flows used in investing activities

 

 

(111,725

)

 

 

(53,098

)

Financing activities

 

 

 

 

 

 

Proceeds from revolving credit facilities

 

 

 

 

 

62,500

 

Payments on revolving credit facilities

 

 

(75,000

)

 

 

(62,500

)

Payments on finance lease liabilities

 

 

(482

)

 

 

(385

)

Payments of deferred financing costs

 

 

 

 

 

(3,373

)

Repurchase of common stock

 

 

(148,346

)

 

 

(111,071

)

Proceeds from exercise of stock options

 

 

7,238

 

 

 

2,710

 

Cash flows used in financing activities

 

 

(216,590

)

 

 

(112,119

)

(Decrease)/Increase in cash, cash equivalents, and restricted cash

 

 

(33,534

)

 

 

43,746

 

Cash, cash equivalents, and restricted cash at beginning of the period

 

 

295,192

 

 

 

247,004

 

Cash, cash equivalents, and restricted cash at the end of the period

 

$

261,658

 

 

$

290,750

 

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with accounting principles generally accepted in the United States (“GAAP”), the company presents Adjusted gross margin, Adjusted EBITDA, Adjusted EBIT, and Adjusted diluted earnings per share. These measures are not in accordance with, and are not intended as alternatives to, GAAP. The company's management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses these measures for reviewing the financial results of the company, and certain of these measures may be used as components of incentive compensation.

The company defines EBITDA as net income before interest expense, provision for income tax, and depreciation, amortization and accretion. Adjusted gross margin, Adjusted EBITDA, Adjusted EBIT and Adjusted diluted earnings per share exclude the impact of certain specified special items. The Company has begun reporting these adjusted measures to provide additional information with respect to the impact of store closure costs and certain other items during the thirteen and twenty-six weeks ended July 2, 2023. There were no such material adjustments during the thirteen and twenty-six weeks ended July 3, 2022.

Non-GAAP measures are intended to provide additional information only and do not have any standard meanings prescribed by GAAP. Use of these terms may differ from similar measures reported by other companies. Because of their limitations, non-GAAP measures should not be considered as a measure of discretionary cash available to use to reinvest in the growth of the company’s business, or as a measure of cash that will be available to meet the company’s obligations. Each non-GAAP measure has its limitations as an analytical tool, and they should not be considered in isolation or as a substitute for analysis of the company’s results as reported under GAAP.

The following table shows a reconciliation of (i) Adjusted gross margin to gross margin, (ii) Adjusted EBITDA and Adjusted EBIT to net income and (iii) Adjusted diluted earnings per share to diluted earnings per share, in each case, for the thirteen and twenty-six weeks ended July 2, 2023 and July 3, 2022:

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NON-GAAP MEASURE RECONCILIATION

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

 

 

Thirteen weeks ended

 

 

Twenty-six weeks ended

 

 

 

July 2, 2023

 

 

July 3, 2022

 

 

July 2, 2023

 

 

July 3, 2022

 

Gross profit

 

$

625,972

 

 

$

580,357

 

 

$

1,276,034

 

 

$

1,192,105

 

Special items (1)

 

 

1,653

 

 

 

 

 

 

1,653

 

 

 

 

Adjusted gross profit

 

$

627,625

 

 

$

580,357

 

 

$

1,277,687

 

 

$

1,192,105

 

Gross margin

 

 

37.0

%

 

 

36.4

%

 

 

37.3

%

 

 

36.8

%

Adjusted gross margin

 

 

37.1

%

 

 

36.4

%

 

 

37.3

%

 

 

36.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

67,334

 

 

$

61,997

 

 

$

143,494

 

 

$

150,304

 

Income tax provision

 

 

22,142

 

 

 

21,855

 

 

 

45,284

 

 

 

50,150

 

Interest expense, net

 

 

2,140

 

 

 

2,658

 

 

 

4,360

 

 

 

5,697

 

Earnings before interest and taxes (EBIT)

 

 

91,616

 

 

 

86,510

 

 

 

193,138

 

 

 

206,151

 

Special items (2)

 

 

8,115

 

 

 

 

 

 

43,642

 

 

 

 

Adjusted EBIT

 

 

99,731

 

 

 

86,510

 

 

 

236,780

 

 

 

206,151

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion, adjusted for special items

 

 

33,221

 

 

 

32,136

 

 

 

64,134

 

 

 

64,856

 

Adjusted EBITDA

 

$

132,952

 

 

$

118,646

 

 

$

300,914

 

 

$

271,007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

67,334

 

 

$

61,997

 

 

$

143,494

 

 

$

150,304

 

Special items, net of tax (2)

 

 

5,971

 

 

 

 

 

 

32,492

 

 

 

 

Adjusted net income

 

$

73,305

 

 

$

61,997

 

 

$

175,986

 

 

$

150,304

 

Diluted earnings per share

 

$

0.65

 

 

$

0.57

 

 

$

1.38

 

 

$

1.36

 

Adjusted diluted earnings per share

 

$

0.71

 

 

$

0.57

 

 

$

1.69

 

 

$

1.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

 

103,514

 

 

 

109,619

 

 

 

104,240

 

 

 

110,762

 

 

(1) For the thirteen and twenty-six weeks ended July 2, 2023, special items included approximately $2 million in Cost of sales related to store closures and our supply chain transition.

(2) For the thirteen weeks ended July 2, 2023, special items included approximately $4 million in Selling, general and administrative expenses related to store closures, our supply chain transition and acquisition related costs, $2 million in Depreciation and amortization (exclusive of depreciation in cost of sales) for accelerated depreciation in connection with store closures and $2 million in Cost of sales related to store closures and our supply chain transition. For the twenty-six weeks ended July 2, 2023, special items included approximately $28 million in Store Closure and other costs, net primarily related to impairment charges and $6 million in Depreciation and amortization (exclusive of depreciation in cost of sales) for accelerated depreciation in connection with store closures, $8 million in Selling, general and administrative expenses related to store closures, our supply chain transition and acquisition related costs, and $2 million in Cost of sales related to store closures and our supply chain transition. After-tax impact included the tax benefit on the pre-tax charge.

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