August 2, 2023
(press release)
–
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: (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 Third Quarter and Full-Year 2023 Outlook The following provides information on our full-year 2023 outlook: The following provides information on our third quarter 2023 outlook: 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. Investor Contact: Media Contact:
Susannah Livingston
(602) 682-1584
susannahlivingston@sprouts.com
media@sprouts.com
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