SFM Sprouts Farmers Market Inc

Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week second quarter ended June 30, 2024.

"Sprouts saw outstanding second quarter results, thanks to exceptional teamwork and strategic focus,” said Jack Sinclair, chief executive officer of Sprouts Farmers Market. “Customers are responding to our healthy product assortment and our unique in-store experience. We are excited about the opportunities ahead."

Second Quarter Highlights:

• Net sales totaled $1.9 billion; a 12% increase from the same period in 2023
• Comparable store sales growth of 6.7%
• Diluted earnings per share of $0.94; compared to diluted earnings per share of $0.65 and Adjusted diluted earnings per share of $0.71(1) in the same period in 2023
• Opened 5 new stores, resulting in 419 stores in 23 states as of June 30, 2024

(1)

Adjusted diluted earnings per share, a non-GAAP financial measure, excludes the impact of certain special items. For the second quarter ended June 30, 2024, there were no adjustments due to special items. See the “Non-GAAP Financial Measures” section of this release for additional information about this item.

Leverage and Liquidity in Second Quarter 2024

• Ended the quarter with $177 million in cash and cash equivalents and zero balance on its $700 million revolving credit facility after a $125 million voluntary pay down
• Authorized a new $600 million share buyback program and repurchased 640 thousand shares of common stock for a total investment of $44 million, excluding excise tax
• Generated cash from operations of $311 million and invested $89 million in capital expenditures, net of landlord reimbursement, year-to-date thru June 30, 2024

Third Quarter and Full-Year 2024 Outlook

The following provides information on our third quarter 2024 outlook:

• Comparable store sales growth: 3.5% to 4.5%
• Adjusted diluted earnings per share: $0.71 to $0.75

The following provides information on our full-year 2024 outlook:

• Net sales growth: 9% to 10%
• Comparable store sales growth: 4% to 5%
• Adjusted EBIT: $445 million to $455 million
• Adjusted diluted earnings per share: $3.29 to $3.37
• Unit growth: Approximately 35 new stores
• Capital expenditures (net of landlord reimbursements): $225 million to $245 million

Second Quarter 2024 Conference Call

Sprouts will hold a conference call at 5:00 p.m. Eastern Time on Monday, July 29, 2024, during which Sprouts executives will further discuss second quarter 2024 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 Time on July 29, 2024. 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; 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 32,000 team members and operates more than 415 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

 

 

June 30, 2024

 

July 2, 2023

 

June 30, 2024

 

July 2, 2023

Net sales

$

1,893,519

 

 

$

1,692,247

 

$

3,777,327

 

$

3,425,557

Cost of sales

 

1,175,154

 

 

 

1,066,275

 

 

2,336,649

 

 

2,149,523

Gross profit

 

718,365

 

 

 

625,972

 

 

1,440,678

 

 

1,276,034

Selling, general and administrative expenses

 

556,367

 

 

 

497,965

 

 

1,096,138

 

 

984,160

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

 

31,489

 

 

 

33,964

 

 

63,721

 

 

68,032

Store closure and other costs, net

 

3,192

 

 

 

2,427

 

 

5,236

 

 

30,704

Income from operations

 

127,317

 

 

 

91,616

 

 

275,583

 

 

193,138

Interest (income) expense, net

 

(139

)

 

 

2,140

 

 

679

 

 

4,360

Income before income taxes

 

127,456

 

 

 

89,476

 

 

274,904

 

 

188,778

Income tax provision

 

32,167

 

 

 

22,142

 

 

65,515

 

 

45,284

Net income

$

95,289

 

 

$

67,334

 

$

209,389

 

$

143,494

Net income per share:

 

 

 

 

 

 

 

Basic

$

0.95

 

 

$

0.65

 

$

2.08

 

$

1.39

Diluted

$

0.94

 

 

$

0.65

 

$

2.06

 

$

1.38

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

100,460

 

 

 

102,824

 

 

100,765

 

 

103,326

Diluted

 

101,196

 

 

 

103,514

 

 

101,647

 

 

104,240

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

 

 

 

 

 

 

June 30, 2024

 

December 31, 2023

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

177,321

 

$

201,794

Accounts receivable, net

 

31,381

 

 

30,313

Inventories

 

325,578

 

 

323,198

Prepaid expenses and other current assets

 

33,771

 

 

48,467

Total current assets

 

568,051

 

 

603,772

Property and equipment, net of accumulated depreciation

 

836,010

 

 

798,707

Operating lease assets, net

 

1,402,161

 

 

1,322,854

Intangible assets

 

208,060

 

 

208,060

Goodwill

 

381,750

 

 

381,741

Other assets

 

14,487

 

 

12,294

Total assets

$

3,410,519

 

$

3,327,428

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

158,773

 

$

179,927

Accrued liabilities

 

193,814

 

 

164,887

Accrued salaries and benefits

 

69,656

 

 

74,752

Current portion of operating lease liabilities

 

126,395

 

 

126,271

Current portion of finance lease liabilities

 

1,119

 

 

1,032

Total current liabilities

 

549,757

 

 

546,869

Long-term operating lease liabilities

 

1,482,797

 

 

1,399,676

Long-term debt and finance lease liabilities

 

8,057

 

 

133,685

Other long-term liabilities

 

38,661

 

 

36,270

Deferred income tax liability

 

61,972

 

 

62,381

Total liabilities

 

2,141,244

 

 

2,178,881

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, 100,214,345 shares issued and outstanding, June 30, 2024; 101,211,984 shares issued and outstanding, December 31, 2023

 

100

 

 

101

Additional paid-in capital

 

791,364

 

 

774,834

Retained earnings

 

477,811

 

 

373,612

Total stockholders’ equity

 

1,269,275

 

 

1,148,547

Total liabilities and stockholders’ equity

$

3,410,519

 

$

3,327,428

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

 

 

 

 

 

Twenty-six weeks ended

 

 

June 30, 2024

 

July 2, 2023

Operating activities

 

 

 

Net income

$

209,389

 

 

$

143,494

 

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

 

 

 

Depreciation and amortization expense

 

67,756

 

 

 

70,013

 

Operating lease asset amortization

 

65,489

 

 

 

62,331

 

Impairment of assets

 

—

 

 

 

27,845

 

Share-based compensation

 

13,266

 

 

 

9,461

 

Deferred income taxes

 

(396

)

 

 

(5,953

)

Other non-cash items

 

2,189

 

 

 

254

 

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

 

 

 

Accounts receivable

 

18,746

 

 

 

8,390

 

Inventories

 

(2,380

)

 

 

(7,665

)

Prepaid expenses and other current assets

 

13,947

 

 

 

9,915

 

Other assets

 

(125

)

 

 

3,205

 

Accounts payable

 

(12,914

)

 

 

3,374

 

Accrued liabilities

 

24,081

 

 

 

41,733

 

Accrued salaries and benefits

 

(5,095

)

 

 

(2,561

)

Operating lease liabilities

 

(83,952

)

 

 

(68,986

)

Other long-term liabilities

 

1,294

 

 

 

(69

)

Cash flows from operating activities

 

311,295

 

 

 

294,781

 

Investing activities

 

 

 

Purchases of property and equipment

 

(108,925

)

 

 

(98,683

)

Payments for acquisition, net of cash acquired

 

—

 

 

 

(13,042

)

Cash flows used in investing activities

 

(108,925

)

 

 

(111,725

)

Financing activities

 

 

 

Payments on revolving credit facilities

 

(125,000

)

 

 

(75,000

)

Payments on finance lease liabilities

 

(542

)

 

 

(482

)

Repurchase of common stock

 

(104,488

)

 

 

(148,346

)

Proceeds from exercise of stock options

 

3,265

 

 

 

7,238

 

Cash flows used in financing activities

 

(226,765

)

 

 

(216,590

)

Decrease in cash, cash equivalents, and restricted cash

 

(24,395

)

 

 

(33,534

)

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

 

203,870

 

 

 

295,192

 

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

$

179,475

 

 

$

261,658

 

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 reported 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 June 30, 2024.

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 June 30, 2024 and July 2, 2023:

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NON-GAAP MEASURE RECONCILIATION

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

 

 

 

 

 

 

Thirteen weeks ended

 

Twenty-six weeks ended

 

 

June 30, 2024

 

July 2, 2023

 

June 30, 2024

 

July 2, 2023

Gross profit

$

718,365

 

 

$

625,972

 

 

$

1,440,678

 

 

$

1,276,034

 

Special items (1)

 

—

 

 

 

1,653

 

 

 

—

 

 

 

1,653

 

Adjusted gross profit

$

718,365

 

 

$

627,625

 

 

$

1,440,678

 

 

$

1,277,687

 

Gross margin

 

37.9

%

 

 

37.0

%

 

 

38.1

%

 

 

37.3

%

Adjusted gross margin

 

37.9

%

 

 

37.1

%

 

 

38.1

%

 

 

37.3

%

 

 

 

 

 

 

 

 

Net income

$

95,289

 

 

$

67,334

 

 

$

209,389

 

 

$

143,494

 

Income tax provision

 

32,167

 

 

 

22,142

 

 

 

65,515

 

 

 

45,284

 

Interest (income) expense, net

 

(139

)

 

 

2,140

 

 

 

679

 

 

 

4,360

 

Earnings before interest and taxes (EBIT)

 

127,317

 

 

 

91,616

 

 

 

275,583

 

 

 

193,138

 

Special items (2)

 

—

 

 

 

8,115

 

 

 

—

 

 

 

43,642

 

Adjusted EBIT

 

127,317

 

 

 

99,731

 

 

 

275,583

 

 

 

236,780

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion, adjusted for special items

 

33,234

 

 

 

33,221

 

 

 

67,756

 

 

 

64,134

 

Adjusted EBITDA

$

160,551

 

 

$

132,952

 

 

$

343,339

 

 

$

300,914

 

 

 

 

 

 

 

 

 

Net income

$

95,289

 

 

$

67,334

 

 

$

209,389

 

 

$

143,494

 

Special items, net of tax (2)

 

—

 

 

 

5,971

 

 

 

—

 

 

 

32,492

 

Adjusted net income

$

95,289

 

 

$

73,305

 

 

$

209,389

 

 

$

175,986

 

Diluted earnings per share

$

0.94

 

 

$

0.65

 

 

$

2.06

 

 

$

1.38

 

Adjusted diluted earnings per share

$

0.94

 

 

$

0.71

 

 

$

2.06

 

 

$

1.69

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

101,196

 

 

 

103,514

 

 

 

101,647

 

 

 

104,240

 

(1)

For the thirteen and twenty-six weeks ended June 30, 2024, there were no special items. 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 and twenty-six weeks ended June 30, 2024, there were no special items. 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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Investor Contact: Susannah Livingston (602) 682-1584 susannahlivingston@sprouts.com

Media Contact: media@sprouts.com