PHOENIX
,
October 31, 2023
(press release)
–
Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week third quarter ended October 1, 2023. "We are pleased to report another solid quarter at Sprouts, with continued increases in both traffic and comparable store sales," said Jack Sinclair, chief executive officer of Sprouts Farmers Market. "Our results signal the alignment of our 31,000 team members across merchandising, marketing, supply chain, and operational initiatives-- propelling our strategy forward." Third 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 Third Quarter 2023 Fourth Quarter and Full-Year 2023 Outlook The following provides information on our fourth quarter 2023 outlook: The following provides information on our full-year 2023 outlook: Third Quarter 2023 Conference Call Sprouts will hold a conference call at 10:30 a.m. Eastern Daylight Time on Tuesday, October 31, 2023, during which Sprouts executives will further discuss third 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 1:30 p.m. Eastern Daylight Time on October 31, 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 400 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 Thirty-nine weeks ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 Net sales $ 1,713,282 $ 1,591,026 $ 5,138,839 $ 4,827,669 Cost of sales 1,087,848 1,007,376 3,237,371 3,051,914 Gross profit 625,434 583,650 1,901,468 1,775,755 Selling, general and administrative expenses 502,801 460,834 1,486,961 1,382,854 Depreciation and amortization (exclusive of depreciation included in cost of sales) 31,802 30,313 99,834 93,377 Store closure and other costs, net 3,176 2,164 33,880 3,034 Income from operations 87,655 90,339 280,793 296,490 Interest expense, net 1,698 1,951 6,058 7,648 Income before income taxes 85,957 88,388 274,735 288,842 Income tax provision 20,644 22,648 65,928 72,798 Net income $ 65,313 $ 65,740 $ 208,807 $ 216,044 Net income per share: Basic $ 0.64 $ 0.61 $ 2.03 $ 1.98 Diluted $ 0.64 $ 0.61 $ 2.01 $ 1.97 Weighted average shares outstanding: Basic 101,881 107,229 102,844 109,066 Diluted 102,703 108,095 103,758 109,888 SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) October 1, 2023 January 1, 2023 ASSETS Current assets: Cash and cash equivalents $ 251,780 $ 293,233 Accounts receivable, net 16,203 16,108 Inventories 323,662 310,545 Prepaid expenses and other current assets 28,906 53,918 Total current assets 620,551 673,804 Property and equipment, net of accumulated depreciation 773,072 722,241 Operating lease assets, net 1,294,270 1,106,524 Intangible assets 208,060 184,960 Goodwill 381,741 368,878 Other assets 12,814 13,973 Total assets $ 3,290,508 $ 3,070,380 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 190,133 $ 172,904 Accrued liabilities 175,769 151,306 Accrued salaries and benefits 66,380 61,574 Current portion of operating lease liabilities 108,225 135,584 Current portion of finance lease liabilities 1,038 1,012 Total current liabilities 541,545 522,380 Long-term operating lease liabilities 1,382,937 1,145,173 Long-term debt and finance lease liabilities 158,936 258,902 Other long-term liabilities 38,009 36,340 Deferred income tax liability 54,072 61,123 Total liabilities 2,175,499 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, 101,623,482 shares issued and outstanding, October 1, 2023; 105,072,756 shares issued and outstanding, January 1, 2023 101 105 Additional paid-in capital 768,057 726,345 Retained earnings 346,851 320,012 Total stockholders' equity 1,115,009 1,046,462 Total liabilities and stockholders' equity $ 3,290,508 $ 3,070,380 SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) Thirty-nine weeks ended October 1, 2023 October 2, 2022 Operating activities Net income $ 208,807 $ 216,044 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 103,668 96,057 Operating lease asset amortization 94,403 87,316 Impairment of assets 27,845 171 Share-based compensation 14,731 11,672 Deferred income taxes (13,225 ) 1,025 Other non-cash items 596 404 Changes in operating assets and liabilities, net of effects from acquisition: Accounts receivable 10,070 16,491 Inventories (11,322 ) (36,280 ) Prepaid expenses and other current assets 21,093 (7,880 ) Other assets 3,870 1,678 Accounts payable 27,446 23,121 Accrued liabilities 19,027 2,482 Accrued salaries and benefits 4,509 (4,868 ) Operating lease liabilities (103,787 ) (99,055 ) Other long-term liabilities 1,294 (1,588 ) Cash flows from operating activities 409,025 306,790 Investing activities Purchases of property and equipment (165,016 ) (80,749 ) Payments for acquisition, net of cash acquired (13,032 ) — Cash flows used in investing activities (178,048 ) (80,749 ) Financing activities Proceeds from revolving credit facilities — 62,500 Payments on revolving credit facilities (100,000 ) (62,500 ) Payments on finance lease liabilities (749 ) (600 ) Payments of deferred financing costs — (3,373 ) Repurchase of common stock (180,415 ) (155,094 ) Proceeds from exercise of stock options 8,844 4,074 Cash flows used in financing activities (272,320 ) (154,993 ) (Decrease)/Increase in cash, cash equivalents, and restricted cash (41,343 ) 71,048 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 $ 253,849 $ 318,052 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 thirty-nine weeks ended October 1, 2023. There were no such material adjustments during the thirteen and thirty-nine weeks ended October 2, 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 thirty-nine weeks ended October 1, 2023 and October 2, 2022: SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NON-GAAP MEASURE RECONCILIATION (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Thirteen weeks ended Thirty-nine weeks ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 Gross profit $ 625,434 $ 583,650 $ 1,901,468 $ 1,775,755 Special items (1) 1,302 — 2,955 — Adjusted gross profit $ 626,736 $ 583,650 $ 1,904,423 $ 1,775,755 Gross margin 36.5 % 36.7 % 37.0 % 36.8 % Adjusted gross margin 36.6 % 36.7 % 37.1 % 36.8 % Net income $ 65,313 $ 65,740 $ 208,807 $ 216,044 Income tax provision 20,644 22,648 65,928 72,798 Interest expense, net 1,698 1,951 6,058 7,648 Earnings before interest and taxes (EBIT) 87,655 90,339 280,793 296,490 Special items (2) 2,392 — 46,034 — Adjusted EBIT 90,047 90,339 326,827 296,490 Depreciation, amortization and accretion, adjusted for special items 33,655 31,201 97,789 96,057 Adjusted EBITDA $ 123,702 $ 121,540 $ 424,616 $ 392,547 Net income $ 65,313 $ 65,740 $ 208,807 $ 216,044 Special items, net of tax (2) 1,780 — 34,272 — Adjusted net income $ 67,093 $ 65,740 $ 243,079 $ 216,044 Diluted earnings per share $ 0.64 $ 0.61 $ 2.01 $ 1.97 Adjusted diluted earnings per share $ 0.65 $ 0.61 $ 2.34 $ 1.97 Diluted weighted average shares outstanding 102,703 108,095 103,758 109,888 (1) For the thirteen and thirty-nine weeks ended October 1, 2023, special items included approximately $1 million and $3 million, respectively, in Cost of sales related to store closures and our supply chain transition. (2) For the thirteen weeks ended October 1, 2023, special items included approximately $1 million in Selling, general and administrative expenses primarily related to store closures and $1 million in Cost of sales related to our supply chain transition. For the thirty-nine weeks ended October 1, 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, $9 million in Selling, general and administrative expenses related to store closures, our supply chain transition and acquisition related costs, and $3 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: Source: Sprouts Farmers Market
Susannah Livingston
(602) 682-1584
susannahlivingston@sprouts.com
media@sprouts.com
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