Sprouts Farmers Market, Inc 10-Q for FY2025 Q1
Sprouts Farmers Market, Inc. (SFM)
10-Q
2025-04-30
For: 2025-03-30
View Original
Added on
April 07, 2026
About this 10-Q
Sprouts Farmers Market, Inc filed this 10-Q on April 30, 2025, covering the quarter ended March 30, 2025 (FY2025 Q1).
Headline figures
Quarter ended March 30, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.24B
- up 18.7% from $1.88B a year earlier
- Net income
- $180.03M
- up 57.8% from net income of $114.1M a year earlier
- Diluted EPS
- $1.81
- up 61.6% from $1.12 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 30, 2025
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-36029
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices and zip code)
(480 ) 814-8016
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| x | Accelerated filer | o | ||||||||||||
| Non-accelerated filer | o | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of April 28, 2025, the registrant had 97,858,620 shares of common stock, $0.001 par value per share, outstanding.
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2025
TABLE OF CONTENTS
| Page | ||||||||||||||||||||
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the “Exchange Act”), including, but not limited to, statements regarding our expectations, beliefs, intentions, strategies, future operations, future financial position, future revenue, projected expenses, and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the fiscal year ended December 29, 2024, and our other filings with the Securities and Exchange Commission. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to the “Company,” “Sprouts,” “Sprouts Farmers Market,” “we,” “us” and “our” refer to Sprouts Farmers Market, Inc. and, where appropriate, its subsidiaries.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
| March 30, 2025 | December 29, 2024 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net of accumulated depreciation | |||||||||||
| Operating lease assets, net | |||||||||||
| Intangible assets | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Accrued salaries and benefits | |||||||||||
| Accrued income tax | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Current portion of finance lease liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Long-term debt and finance lease liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Deferred income tax liability | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 6) | |||||||||||
| Stockholders’ equity: | |||||||||||
Undesignated preferred stock; $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||||||||||||||
| Net sales | $ | $ | |||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization (exclusive of depreciation included in cost of sales) | |||||||||||||||||||||||
| Store closure and other costs, net | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Interest (income) expense, net | ( | ||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Basic | $ | $ | |||||||||||||||||||||
| Diluted | $ | $ | |||||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
For the thirteen weeks ended March 30, 2025
| Shares | Common Stock | Additional Paid In Capital | Retained Earnings | Total Stockholders’ Equity | |||||||||||||||||||||||||
| Balances at December 29, 2024 | $ | $ | $ | $ | |||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
| Issuance of shares under stock plans | — | — | |||||||||||||||||||||||||||
| Repurchase and retirement of common stock, including excise tax | ( | ( | — | ( | ( | ||||||||||||||||||||||||
| Share-based compensation | — | — | — | ||||||||||||||||||||||||||
| Balances at March 30, 2025 | $ | $ | $ | $ | |||||||||||||||||||||||||
For the thirteen weeks ended March 31, 2024
| Shares | Common Stock | Additional Paid In Capital | Retained Earnings | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Balances at December 31, 2023 | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of shares under stock plans | — | ||||||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock, including excise tax | ( | ( | — | ( | ( | ||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | ||||||||||||||||||||||||||||||||
| Balances at March 31, 2024 | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
| Thirteen weeks ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| Operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization expense | |||||||||||
| Operating lease asset amortization | |||||||||||
| Share-based compensation | |||||||||||
| Deferred income taxes | |||||||||||
| Other non-cash items | |||||||||||
| Changes in operating assets and liabilities, net of effects from acquisition: | |||||||||||
| Accounts receivable | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Other assets | ( | ||||||||||
| Accounts payable | |||||||||||
| Accrued liabilities | |||||||||||
| Accrued salaries and benefits | ( | ( | |||||||||
| Accrued income tax | |||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Other long-term liabilities | ( | ( | |||||||||
| Cash flows from operating activities | |||||||||||
| Investing activities | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Cash flows used in investing activities | ( | ( | |||||||||
| Financing activities | |||||||||||
| Payments on finance lease liabilities | ( | ( | |||||||||
| Repurchase of common stock | ( | ( | |||||||||
| Proceeds from exercise of stock options | |||||||||||
| Cash flows used in financing activities | ( | ( | |||||||||
| Increase in cash, cash equivalents, and restricted cash | |||||||||||
| Cash, cash equivalents, and restricted cash at beginning of the period | |||||||||||
| Cash, cash equivalents, and restricted cash at the end of the period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash refunded for income taxes | |||||||||||
| Supplemental disclosure of non-cash activities | |||||||||||
| Property and equipment in accounts payable and accrued liabilities | $ | $ | |||||||||
| Excise tax accrued on repurchase of common stock | |||||||||||
| Leased assets obtained in exchange for new operating lease liabilities, net of lease terminations | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
Sprouts Farmers Market, Inc., a Delaware corporation, through its subsidiaries, offers a unique specialty grocery experience featuring an open layout with fresh produce at the heart of the store. The Company continues to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. As of March 30, 2025, the Company operated 443 stores in 24 states. For convenience, the “Company” is used to refer collectively to Sprouts Farmers Market, Inc. and unless the context otherwise requires, its subsidiaries. The Company’s store operations are conducted by its subsidiaries.
The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP.
The Company reports its results of operations on a 52- or 53-week fiscal calendar ending on the Sunday closest to December 31. The fiscal year ending December 28, 2025 (“fiscal year 2025”) and fiscal year 2024 are 52-week years. The Company reports its results of operations on a 13-week quarter, except for 53-week fiscal years (in which the fourth quarter has 14 weeks).
All dollar amounts are in thousands, unless otherwise noted.
8
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company’s performance obligations are satisfied upon the transfer of goods to the customer, which occurs at the point of sale, and payment from customers is also due at the time of sale. Proceeds from the sale of gift cards are recorded as a liability at the time of sale and recognized as sales when they are redeemed by the customer and the performance obligation is satisfied by the Company. The Company’s gift cards do not expire. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was not material in any period presented. A summary of the activity and balances in the gift card liability, net is as follows:
| Thirteen weeks ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| Beginning Balance | $ | $ | |||||||||
Gift cards issued during the period but not redeemed(1) | |||||||||||
| Revenue recognized from beginning liability | ( | ( | |||||||||
| Ending Balance | $ | $ | |||||||||
(1)Net of estimated breakage
The nature of goods the Company transfers to customers at the point of sale are inventories, consisting of merchandise purchased for resale.
Restricted Cash
Restricted cash relates to the Company's defined benefit plan forfeitures and the Company's healthcare, general liability and workers’ compensation plan benefits of $2.1
Recently Issued Accounting Pronouncements Not Yet Adopted
Income Taxes – Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU no. 2023-09, “Income Taxes (Topic 740) Improvements to Income Tax Disclosures." The amendments in this update enhance a public entity's annual income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance will be effective for the Company for its fiscal year 2025. Early adoption is permitted, and the guidance should be applied prospectively, with an option to apply it retrospectively. The Company expects this update to impact its income tax disclosures but does not anticipate that this update will impact its results of operations, cash flows or financial condition.
9
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU no. 2024-03, "Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses". The standard requires public entities to disclose additional disaggregation of expense in the notes to the financial statements for interim and annual reporting periods. The guidance is effective for the Company for its fiscal year 2027. Early adoption is permitted, and the guidance should be applied prospectively, with an option to apply it retrospectively. The Company is currently evaluating the potential impact of this ASU on its consolidated financial statements and disclosures.
No other new accounting pronouncements issued or effective during the thirteen weeks ended March 30, 2025 had, or are expected to have, a material impact on the Company’s consolidated financial statements.
3. Fair Value Measurements
The Company records its financial assets and liabilities in accordance with the framework for measuring fair value in accordance with GAAP. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:
Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in the impairment analysis of goodwill, intangible assets and long-lived assets.
The Company did no
The determination of fair values of certain tangible and intangible assets for purposes of the Company’s goodwill or long-lived asset impairment evaluation is based upon Level 3 inputs. When necessary, the Company uses third party market data and market participant assumptions to derive the fair value of its asset groupings, which primarily include right-of-use lease assets and property and equipment.
4. Long-Term Debt and Finance Lease Liabilities
A summary of long-term debt and finance lease liabilities is as follows:
| As of | ||||||||||||||||||||||||||
| Facility | Maturity | Interest Rate | March 30, 2025 | December 29, 2024 | ||||||||||||||||||||||
| Senior secured debt | ||||||||||||||||||||||||||
$ | March 25, 2027 | Variable | $ | $ | ||||||||||||||||||||||
| Finance lease liabilities | Various | n/a | ||||||||||||||||||||||||
| Long-term debt and finance lease liabilities | $ | $ | ||||||||||||||||||||||||
10
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Credit Agreement
The Company’s subsidiary, Sprouts Farmers Markets Holdings, LLC (“Intermediate Holdings”), is the borrower under a credit agreement entered into on March 25, 2022 (the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility (the "Revolving Credit Facility") with an initial aggregate commitment of $700.0 million. Amounts outstanding under the Credit Agreement may be increased from time to time in accordance with an expansion feature set forth in the Credit Agreement.
The Company capitalized debt issuance costs of $3.4 million related to the Credit Agreement, which, combined with the remaining $0.5 million debt issuance costs in respect of that certain amended and restated credit agreement entered into on March 27, 2018, by and among the Company, Intermediate Holdings, certain lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (the “Former Credit Facility”), which remained outstanding as of the time of Intermediate Holdings’ entry into the Credit Agreement, were recorded to prepaid expenses and other current assets and other assets in the consolidated balance sheets and are being amortized on a straight-line basis to interest expense over the five-year term of the Credit Agreement.
The Credit Agreement provides for a $70.0 million letter of credit sub-facility (the "Letter of Credit Sub-Facility") and a $50.0 million swingline facility. Letters of credit issued under the Credit Agreement reduce the capacity of Intermediate Holdings to borrow under the Revolving Credit Facility. Letters of credit totaling $21.6 million have been issued as of March 30, 2025 under the Letter of Credit Sub-Facility, primarily to support the Company’s insurance programs.
Guarantees
Obligations under the Credit Agreement are guaranteed by the Company and substantially all of its existing and future wholly-owned material domestic subsidiaries, and are secured by first-priority security interests in substantially all of the assets of the Company, Intermediate Holdings, and the subsidiary guarantors, including, without limitation, a pledge by the Company of its equity interest in Intermediate Holdings.
Interest and Fees
Loans under the Credit Agreement will initially bear interest, at the Company's option, either at the Term SOFR (with a floor of 0.00 %) plus a 0.10 % SOFR adjustment and 1.00 % per annum or base rate (with a floor of 0.00 %) plus 0.00 % per annum. The interest rate margins are subject to upward adjustments pursuant to a pricing grid based on the Company’s total net leverage ratio as set forth in the Credit Agreement and to upward or downward adjustments of up to 0.05 % based upon the achievement of certain diversity and sustainability-linked metric thresholds, as set forth in the Credit Agreement.
Under the terms of the Credit Agreement, the Company is obligated to pay a commitment fee on the available unused amount of the commitments, which commitment fee ranges between 0.10 % to 0.225 % per annum, pursuant to a pricing grid based on the Company’s total net leverage ratio. The commitment fees are subject to upward or downward adjustments of up to 0.01 % based upon the achievement of certain diversity and sustainability-linked metric thresholds, as set forth in the Credit Agreement.
As of March 30, 2025, loans outstanding under the Credit Agreement bore interest at Term SOFR (as defined in the Credit Agreement) plus a 0.10 % SOFR adjustment and 0.95 % per annum. The Company had no loans outstanding under the Credit Agreement as of March 30, 2025.
As of March 30, 2025, outstanding letters of credit issued under the Credit Agreement were subject to a participation fee of 0.95 % per annum and an issuance fee of 0.125 % per annum.
Payments and Borrowings
The Credit Agreement is scheduled to mature, and the commitments thereunder will terminate on March 25, 2027, subject to extensions as set forth therein.
11
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company may prepay loans and permanently reduce commitments under the Credit Agreement at any time in agreed-upon minimum principal amounts, without premium or penalty (except SOFR breakage costs, if applicable).
In connection with the execution of the Credit Agreement, the Company's obligations under the Former Credit Facility were prepaid and terminated.
During the thirteen weeks ended March 30, 2025, the Company made no additional borrowings and had no outstanding debt under the Credit Agreement as of March 30, 2025. During 2024, the Company made no additional borrowings and made principal payments of $125.0 million, resulting in no outstanding debt under the Credit Agreement as of December 29, 2024.
Covenants
The Credit Agreement contains financial, affirmative and negative covenants. The negative covenants include, among other things, limitations on the Company’s ability to:
•incur additional indebtedness;
•grant additional liens;
•enter into sale-leaseback transactions;
•make loans or investments;
•merge, consolidate or enter into acquisitions;
•pay dividends or distributions;
•enter into transactions with affiliates;
•enter into new lines of business;
•modify the terms of certain debt or other material agreements; and
•change its fiscal year.
Each of these covenants is subject to customary and other agreed-upon exceptions.
In addition, the Credit Agreement requires that the Company and its subsidiaries maintain a maximum total net leverage ratio not to exceed 3.75 to 1.00, which ratio may be increased from time to time in connection with certain permitted acquisitions pursuant to conditions as set forth in the Credit Agreement, and a minimum interest coverage ratio not to be less than 3.00 to 1.00. Each of these covenants is tested as of the last day of each fiscal quarter.
The Company was in compliance with all applicable covenants under the Credit Agreement as of March 30, 2025.
5. Income Taxes
The Company’s effective tax rate decreased to 20.8 % for the thirteen weeks ended March 30, 2025, compared to 22.6 % for the thirteen weeks ended March 31, 2024. The decrease in the effective tax rate was primarily due to an increase in benefit from current year stock-based compensation partially offset by an increase in non-deductible executive compensation. The income tax effect resulting from excess tax benefits of share-based payment awards was $12.8 million and $4.5 million for the thirteen weeks ended March 30, 2025 and March 31, 2024, respectively.
The Company files income tax returns for federal purposes and in many states. The Company’s tax filings remain subject to examination by applicable tax authorities for a certain length of time, generally three years, with some exceptions, following the tax year to which those filings relate.
12
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. Commitments and Contingencies
The Company is exposed to claims and litigation matters arising in the ordinary course of business and uses various methods to resolve these matters that are believed to best serve the interests of the Company’s stakeholders. The Company’s primary contingencies are associated with self-insurance obligations and litigation matters. Self-insurance liabilities require significant judgment and actual claim settlements and associated expenses may differ from the Company’s current provisions for loss.
Litigation
In February 2025, the Company terminated its agreement with Harvest Sherwood Food Distributors, Inc. (“Harvest Sherwood”) for the distribution of certain meat and seafood products to the Company due to, among other things, Harvest Sherwood’s failure to pay the Company’s vendors for these products. Subsequently, on February 24, 2025, Harvest Sherwood filed a complaint against the Company in the Superior Court for the State of Delaware alleging breach of contract among other claims and seeking monetary damages. On March 6, 2025, the Company filed an answer and counterclaims against Harvest Sherwood, asserting its defenses to the complaint and its claims against Harvest Sherwood for breach of contract, negligent misrepresentation and unjust enrichment, among others. The court has set a trial date in February 2026. At this stage of the proceedings, the Company is unable to predict or reasonably estimate any potential loss or effect on the Company. Accordingly, no loss contingency was recorded for this matter.
7. Stockholders’ Equity
Share Repurchases
On May 22, 2024, the Company's board of directors authorized a $600 million share repurchase program for its common stock. The new authorization replaced the Company's then-existing share repurchase authorization of $600 million that was due to expire on December 31, 2024, of which $119.3 million remained available upon its replacement, and under which no further shares may be repurchased. The following table outlines the common stock share repurchase programs authorized by the Company’s board of directors and the related repurchase activity and available authorization as of March 30, 2025:
| Effective date | Expiration date | Amount authorized | Cost of repurchases | Authorization available | ||||||||||||||||||||||
| March 2, 2022 | December 31, 2024 | $ | $ | $ | ||||||||||||||||||||||
| May 22, 2024 | May 22, 2027 | $ | $ | $ | ||||||||||||||||||||||
The shares under the Company’s repurchase programs may be purchased on a discretionary basis from time to time through the applicable expiration date, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. The board’s authorization of the share repurchase programs does not obligate the Company to acquire any particular amount of common stock, and the repurchase programs may be commenced, suspended, or discontinued at any time.
Share repurchase activity under the Company’s repurchase programs for the periods indicated was as follows (total cost in thousands):
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||||||||||||||
| Number of common shares acquired | |||||||||||||||||||||||
| Average price per common share acquired | $ | $ | |||||||||||||||||||||
| Total cost of common shares acquired | $ | $ | |||||||||||||||||||||
Shares purchased under the Company’s repurchase programs were subsequently retired and the excess of the repurchase price over par value was charged to retained earnings. The cost of common shares repurchased included the 1% excise tax imposed as part of the Inflation Reduction Act of 2022.
13
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Subsequent to March 30, 2025 and through April 28, 2025, the Company repurchased an additional 0.3 million shares of common stock for $53.0 million, excluding excise tax.
8. Net Income Per Share
The computation of basic net income per share is based on the number of weighted average shares outstanding during the period. The computation of diluted net income per share includes the dilutive effect of share equivalents consisting of incremental shares deemed outstanding from the assumed exercise of options and unvested restricted stock units ("RSUs"). Performance share awards ("PSAs") are included in the computation of diluted net income per share only to the extent that the underlying performance conditions are satisfied prior to the end of the reporting period or would be satisfied if the end of the reporting period were the end of the related performance period, and if the effect would be dilutive.
A reconciliation of the numerators and denominators of the basic and diluted net income per share calculations is as follows (in thousands, except per share amounts):
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||||||||||||||
| Basic net income per share: | |||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Weighted average shares outstanding - basic | |||||||||||||||||||||||
| Basic net income per share | $ | $ | |||||||||||||||||||||
| Diluted net income per share: | |||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Weighted average shares outstanding - basic | |||||||||||||||||||||||
| Dilutive effect of share-based awards: | |||||||||||||||||||||||
| Assumed exercise of options to purchase shares | |||||||||||||||||||||||
| RSUs | |||||||||||||||||||||||
| PSAs | |||||||||||||||||||||||
| Weighted average shares and equivalent shares outstanding - diluted | |||||||||||||||||||||||
| Diluted net income per share | $ | $ | |||||||||||||||||||||
For the thirteen weeks ended March 30, 2025, the Company had 0.1 million options and 0.3 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met. For the thirteen weeks ended March 31, 2024, the Company had 0.1 million options, 0.3 million RSUs and 0.4 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met.
9. Segments
The Company has one operating segment and, therefore, one reportable segment: healthy grocery stores. The Company derives all its revenues from the sale of products at its various store locations across the United States. The accounting policies of the segment are the same as described in the summary of significant accounting policies. The Company’s chief operating decision maker (“CODM”) is the chief executive officer. The CODM assesses performance and allocates resources based on consolidated net income. The measure of segment assets is reported on the balance sheet as total consolidated assets.
In accordance with ASC 280, the following table represents the significant expense and key metrics reviewed by the CODM:
14
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||||||||||||||
| Net Sales | $ | $ | |||||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Direct store expenses | |||||||||||||||||||||||
Other segment items (1) | |||||||||||||||||||||||
| Interest (income) expense, net | ( | ||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
(1) Other segment items include non-store selling, general, and administrative expenses, depreciation and amortization, store closure costs, and other overhead expenses.
The Company categorizes the varieties of products it sells as perishable and non-perishable. Perishable product categories include produce, meat and meat alternatives, seafood, deli, bakery, floral and dairy and dairy alternatives. Non-perishable product categories include grocery, vitamins and supplements, bulk items, frozen foods, beer and wine, and natural health and body care.
In accordance with ASC 606, the following table represents a disaggregation of revenue for the thirteen weeks ended March 30, 2025 and March 31, 2024:
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||||||||||||||
| Perishables | $ | % | $ | % | |||||||||||||||||||
| Non-Perishables | % | % | |||||||||||||||||||||
| Net Sales | $ | % | $ | % | |||||||||||||||||||
10. Share-Based Compensation
2022 Incentive Plan
In March 2022, the Company’s board of directors adopted the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (the “2022 Incentive Plan”), which became effective May 25, 2022, upon approval by the Company’s stockholders. The 2022 Incentive Plan provides team members of the Company, certain consultants and advisors who perform services for the Company, and non-employee members of the Company's board of directors with the opportunity to receive grants of equity awards, including stock options, RSUs, PSAs, and other stock-based awards. The 2022 Incentive Plan replaced the 2013 Incentive Plan (as described below).
Awards Granted under the 2022 Incentive Plan
During the thirteen weeks ended March 30, 2025, the Company granted the following share-based compensation awards under the 2022 Incentive Plan:
| Grant Date | RSUs | PSAs | Options | |||||||||||||||||
| March 18, 2025 | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| Weighted-average grant date fair value | $ | $ | $ | |||||||||||||||||
| Weighted-average exercise price | $ | $ | $ | |||||||||||||||||
15
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The aggregate number of shares of common stock that may be issued to team members and directors under the 2022 Incentive Plan may not exceed 6,600,000 , subject to the following adjustments. If any awards granted under the 2022 Incentive Plan, terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested or paid in shares, the shares will again be available for purposes of the 2022 Incentive Plan. The number of shares subject to outstanding awards under the Sprouts Farmers Market, Inc. 2013 Incentive Plan (the “2013 Incentive Plan”) that terminate, expire, are paid in cash, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid in shares under the 2013 Incentive Plan after the effective date of the 2022 Incentive Plan will be available for issuance under the 2022 Incentive Plan. As of March 30, 2025, there were 1,151,016 stock awards outstanding and 5,286,442 shares remaining available for issuance under the 2022 Incentive Plan.
2013 Incentive Plan
Prior to the adoption of the 2022 Incentive Plan, the 2013 Incentive Plan served as the umbrella plan for the Company’s share-based and cash-based incentive compensation programs for its directors, officers and other team members. Upon stockholder approval of the 2022 Incentive Plan on May 25, 2022, no further awards will be granted under the 2013 Incentive Plan, but awards outstanding under the 2013 Incentive Plan will remain outstanding in accordance with their terms and the terms of the 2013 Incentive Plan.
Stock Options
The Company uses the Black-Scholes option pricing model to estimate the fair value of options at grant date. Options vest in accordance with the terms set forth in the grant letter.
Time-based options vest annually over a period of three years .
RSUs
The fair value of RSUs is based on the closing price of the Company’s common stock on the grant date. RSUs generally vest annually over a period of or three years from the grant date.
PSAs
PSAs granted in 2022 are subject to the Company achieving certain EBIT performance targets for the 2024 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0 % to 200 % of the base number of awards granted. The performance conditions with respect to fiscal year 2024 EBIT were deemed to have been met, and PSAs vested at 148 % pay out level on the third anniversary of the grant date (March 2025). During the thirteen weeks ended March 30, 2025, 182,560 of the PSAs vested. There were no outstanding 2022 PSAs as of March 30, 2025.
PSAs granted in 2023 are subject to the Company achieving certain EBIT performance targets for the 2025 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0 % to 200 % of the base number of awards granted. If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2026).
PSAs granted in 2024 are subject to the Company achieving certain EBIT performance targets for the 2026 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0 % to 200 % of the base number of awards granted. If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2027).
PSAs granted in 2025 are subject to the Company achieving certain EBIT performance targets for the 2027 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0 % to 200 % of the base number of awards granted. If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2028).
16
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Share-based Compensation Expense
The Company presents share-based compensation expense in selling, general and administrative expenses on the Company’s consolidated statements of income. The amount recognized was as follows:
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||||||||||||||
| Share-based compensation expense | $ | $ | |||||||||||||||||||||
The following share-based awards were outstanding under the 2022 and 2013 Incentive Plans as of March 30, 2025 and March 31, 2024:
| As of | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Options | |||||||||||
| Vested | |||||||||||
| Unvested | |||||||||||
| RSUs | |||||||||||
| PSAs | |||||||||||
As of March 30, 2025, total unrecognized compensation expense and remaining weighted average recognition period related to outstanding share-based awards were as follows:
| Unrecognized compensation expense | Remaining weighted average recognition period | ||||||||||
| Options | $ | ||||||||||
| RSUs | |||||||||||
| PSAs | |||||||||||
| Total unrecognized compensation expense at March 30, 2025 | $ | ||||||||||
11. Goodwill
12. Store Closures
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the 2024 fiscal year, filed on February 20, 2025 (“Form 10-K”) with the Securities and Exchange Commission. All dollar amounts included below are in thousands, unless otherwise noted.
Business Overview
Sprouts Farmers Market offers a unique specialty 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. We continue to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. From our founding in 2002, we have grown rapidly, significantly increasing our sales, store count and profitability. Headquartered in Phoenix with 443 stores in 24 states as of March 30, 2025, we are one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States.
Our Growth Strategy
We continue to execute on our long-term growth strategy that we believe is transforming our company and driving profitable growth, focusing on the following areas:
•Win with Target Customers. We are focusing attention on our target customers, identified through research as ‘health enthusiasts’ and ‘selective shoppers’, where there is ample opportunity to gain share within these customer segments. We believe our business can continue to grow by leveraging existing strengths in a unique assortment of better-for-you, quality products and by providing a full omnichannel offering through delivery or pickup via our website or the Sprouts app.
•Market Expansion. We are delivering unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer’s market heritage Sprouts is known for. From 2021 through March 30, 2025, we have opened 78 new stores and remodeled one store featuring our updated format. Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, which we believe will provide a long runway of approximately 10% annual unit growth.
•Create an Advantaged Supply Chain. We believe our network of distribution centers can drive efficiencies across the chain and support our growth plans. To further deliver on our fresh commitment and reputation, as well as to increase our local offerings and improve financial results, we aspire to ultimately position fresh distribution centers within a 250-mile radius of stores. We are better leveraging our existing distribution center capacity, and approximately 80% of our stores were within 250 miles of a distribution center as of March 30, 2025.
•Customer Engagement and Personalization. We believe we are elevating our national brand recognition and positioning by telling our unique brand story rooted in product innovation and differentiation. We are increasing our use of data analytics and insights. We believe this data-driven intelligence will increase customer engagement through personalization efforts with digital and social connections to drive additional sales growth and loyalty.
•Inspire and Engage Our Talent to Make Sprouts a Best Place to Work. Subsequent to the initial launch of our long-term growth strategy, we have added the focus area of inspiring and engaging our talent through our culture, acquisition and development and total rewards program to attract and retain the talent we believe we need to execute on our strategic goals and transform our company into a premier place to work.
•Invest in Technology for Growth. We continue to make investments in technology in support of our strategy, with a focus on enhancing efficiency, scalability, and customer experience. While we are showing positive outcomes on our strategic investments in inventory management and customer personalization, we believe that ongoing investments in our technology foundation will allow us to streamline operations and improve decision making to execute on our strategy.
18
•Deliver on Key Financial Metrics. We are measuring and reporting on the success of this strategy against a number of long-term financial and operational targets. Since the implementation of our strategy beginning in 2020, we have significantly improved our margin structure above our 2019 baseline.
Results of Operations for Thirteen Weeks Ended March 30, 2025 and March 31, 2024
The following tables set forth our unaudited results of operations and other operating data for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. All dollar amounts are in thousands, unless otherwise noted.
| Thirteen weeks ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| Unaudited Quarterly Consolidated Statement of Income Data: | |||||||||||
| Net sales | $ | 2,236,436 | $ | 1,883,808 | |||||||
| Cost of sales | 1,350,073 | 1,161,495 | |||||||||
| Gross profit | 886,363 | 722,313 | |||||||||
| Selling, general and administrative expenses | 623,226 | 539,771 | |||||||||
| Depreciation and amortization (exclusive of depreciation included in cost of sales) | 35,099 | 32,232 | |||||||||
| Store closure and other costs, net | 1,706 | 2,044 | |||||||||
| Income from operations | 226,332 | 148,266 | |||||||||
| Interest (income) expense, net | (924) | 818 | |||||||||
| Income before income taxes | 227,256 | 147,448 | |||||||||
| Income tax provision | 47,230 | 33,348 | |||||||||
| Net income | $ | 180,026 | $ | 114,100 | |||||||
| Weighted average shares outstanding - basic | 98,537 | 101,071 | |||||||||
| Diluted effect of equity-based awards | 1,182 | 953 | |||||||||
| Weighted average shares and equivalent shares outstanding - diluted | 99,719 | 102,024 | |||||||||
| Diluted net income per share | $ | 1.81 | $ | 1.12 | |||||||
| Thirteen weeks ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| Other Operating Data: | |||||||||||
| Comparable store sales growth | 11.7 | % | 4.0 | % | |||||||
| Stores at beginning of period | 440 | 407 | |||||||||
| Closed | — | — | |||||||||
| Opened | 3 | 7 | |||||||||
| Stores at end of period | 443 | 414 | |||||||||
19
Comparison of Thirteen Weeks Ended March 30, 2025 to Thirteen Weeks Ended March 31, 2024
Net sales
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | Change | % Change | ||||||||||||||||||||
| Net sales | $ | 2,236,436 | $ | 1,883,808 | $ | 352,628 | 19 | % | |||||||||||||||
| Comparable store sales growth | 11.7 | % | 4.0 | % | |||||||||||||||||||
Net sales during the thirteen weeks ended March 30, 2025 totaled $2.2 billion, an increase of $352.6 million or 19%, compared to the thirteen weeks ended March 31, 2024. The sales increase was driven by sales from new stores opened in the last twelve months and a 11.7% increase in comparable store sales. Comparable stores contributed approximately 93% of total sales for the thirteen weeks ended March 30, 2025 and approximately 94% of total sales for the thirteen weeks ended March 31, 2024.
Cost of sales and gross profit
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | Change | % Change | ||||||||||||||||||||
| Net sales | $ | 2,236,436 | $ | 1,883,808 | $ | 352,628 | 19 | % | |||||||||||||||
| Cost of sales | 1,350,073 | 1,161,495 | 188,578 | 16 | % | ||||||||||||||||||
| Gross profit | 886,363 | 722,313 | 164,050 | 23 | % | ||||||||||||||||||
| Gross margin | 39.6 | % | 38.3 | % | 1.3 | % | |||||||||||||||||
Gross profit totaled $886.4 million during the thirteen weeks ended March 30, 2025, an increase of $164.1 million or 23%, compared to the thirteen weeks ended March 31, 2024, driven by increased sales volume. Gross margin increased by 1.3% to 39.6% for the thirteen weeks ended March 30, 2025, compared to 38.3% for the thirteen weeks ended March 31, 2024, primarily driven by improved inventory management.
Selling, general and administrative expenses
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | Change | % Change | ||||||||||||||||||||
| Selling, general and administrative expenses | $ | 623,226 | $ | 539,771 | $ | 83,455 | 15 | % | |||||||||||||||
| Percentage of net sales | 27.9 | % | 28.7 | % | (0.8) | % | |||||||||||||||||
Selling, general and administrative expenses increased $83.5 million or 15%, compared to the thirteen weeks ended March 31, 2024. The increase was primarily due to the increase in new stores opened since the comparable period last year. As a percentage of net sales, selling, general and administrative expenses improved slightly as a result of leverage gained from store compensation and occupancy costs.
Depreciation and amortization
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | Change | % Change | ||||||||||||||||||||
| Depreciation and amortization | $ | 35,099 | $ | 32,232 | $ | 2,867 | 9 | % | |||||||||||||||
| Percentage of net sales | 1.6 | % | 1.7 | % | (0.1) | % | |||||||||||||||||
Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $35.1 million for the thirteen weeks ended March 30, 2025, compared to $32.2 million for the thirteen weeks ended March 31, 2024. Depreciation and amortization expense primarily consists of depreciation and amortization for
20
buildings, store leasehold improvements, and equipment for new stores as well as remodel initiatives in older stores.
Store closure and other costs, net
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | Change | % Change | ||||||||||||||||||||
| Store closure and other costs, net | $ | 1,706 | $ | 2,044 | $ | (338) | (17) | % | |||||||||||||||
| Percentage of net sales | 0.1 | % | 0.1 | % | — | % | |||||||||||||||||
Store closure and other costs, net for the thirteen weeks ended March 30, 2025 of $1.7 million primarily related to disaster recovery charges from the California wildfires as well as ongoing occupancy costs associated with our closed locations. Store closure and other costs, net for the thirteen weeks ended March 31, 2024 of $2.0 million primarily related to ongoing occupancy costs associated with our closed store locations. See Note 12, “Store Closures” of our unaudited consolidated financial statements.
Interest (income) expense, net
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | Change | % Change | ||||||||||||||||||||
| Long-term debt | $ | 210 | $ | 2,202 | $ | (1,992) | (90) | % | |||||||||||||||
| Finance leases | 176 | 196 | (20) | (10) | % | ||||||||||||||||||
| Deferred financing costs | 193 | 193 | — | 0 | % | ||||||||||||||||||
Interest income and other | (1,503) | (1,773) | 270 | (15) | % | ||||||||||||||||||
| Total interest (income) expense, net | $ | (924) | $ | 818 | $ | (1,742) | (213) | % | |||||||||||||||
The decrease in interest (income) expense, net for the thirteen weeks ended March 30, 2025 compared to the thirteen weeks ended March 31, 2024 was primarily due to lower average debt outstanding. See Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements.
Income tax provision
Income tax provision differed from the amounts computed by applying the U.S. federal income tax rate to pretax income as a result of the following:
| Thirteen weeks ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | |||||||
| Change in income taxes resulting from: | |||||||||||
| State income taxes, net of federal benefit | 5.0 | % | 5.0 | % | |||||||
| Enhanced charitable contributions | (0.9) | % | (1.0) | % | |||||||
| Federal credits | (0.2) | % | (0.4) | % | |||||||
| Share-based payment awards | (5.6) | % | (3.0) | % | |||||||
| Return to Provision | — | % | — | % | |||||||
Non-deductible Executive Compensation | 1.4 | % | 1.0 | % | |||||||
| Other, net | 0.1 | % | — | % | |||||||
| Effective tax rate | 20.8 | % | 22.6 | % | |||||||
The effective tax rate decreased to 20.8% for the thirteen weeks ended March 30, 2025 from 22.6% for the thirteen weeks ended March 31, 2024. The decrease in the effective tax rate was primarily due to an
21
increase in benefit from current year stock-based compensation partially offset by an increase in non-deductible executive compensation.
Net income
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | Change | % Change | ||||||||||||||||||||
| Net income | $ | 180,026 | $ | 114,100 | $ | 65,926 | 58 | % | |||||||||||||||
| Percentage of net sales | 8.0 | % | 6.1 | % | 1.9 | % | |||||||||||||||||
Net income increased $65.9 million primarily due to higher gross profit, partially offset by higher selling, general and administrative expenses for the reasons discussed above.
Diluted earnings per share
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | Change | % Change | ||||||||||||||||||||
| Diluted earnings per share | $ | 1.81 | $ | 1.12 | $ | 0.69 | 62 | % | |||||||||||||||
Diluted weighted average shares outstanding | 99,719 | 102,024 | (2,305) | ||||||||||||||||||||
The increase in diluted earnings per share of $0.69 was driven by higher net income and fewer diluted shares outstanding compared to the prior year, due primarily to the share repurchase program.
Return on Invested Capital
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, we provide information regarding Return on Invested Capital (referred to as “ROIC”) as additional information about our operating results. ROIC is a non-GAAP financial measure and should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. ROIC is an important measure used by management to evaluate our investment returns on capital and provides a meaningful measure of the effectiveness of our capital allocation over time.
We define ROIC as net operating profit after tax (referred to as “NOPAT”), including the effect of capitalized operating leases, divided by average invested capital. Operating lease interest represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as a finance lease. The assumed ownership and associated interest expense are calculated using the discount rate for each lease as recorded as a component of rent expense within selling, general and administrative expenses. Invested capital reflects a trailing four-quarter average.
As numerous methods exist for calculating ROIC, our method may differ from methods used by other companies to calculate their ROIC. It is important to understand the methods and the differences in those methods used by other companies to calculate their ROIC before comparing our ROIC to that of other companies.
22
Our calculation of ROIC for the fiscal periods indicated was as follows:
Rolling Four Quarters Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
(dollars in thousands) | |||||||||||
Net income (1) | $ | 446,527 | $ | 296,797 | |||||||
Special items, net of tax (2), (3) | — | 7,751 | |||||||||
Interest (income) expense, net of tax (3) | (3,003) | 3,852 | |||||||||
| Net operating profit after tax (NOPAT) | $ | 443,524 | $ | 308,400 | |||||||
Total rent expense, net of tax (3) | 195,944 | 181,856 | |||||||||
Estimated depreciation on operating leases, net of tax (3) | (108,504) | (101,175) | |||||||||
Estimated interest on operating leases, net of tax (3), (4) | 87,440 | 80,681 | |||||||||
| NOPAT, including effect of operating leases | $ | 530,964 | $ | 389,081 | |||||||
| Average working capital | 171,007 | 217,750 | |||||||||
| Average property and equipment | 858,191 | 767,059 | |||||||||
| Average other assets | 603,576 | 602,634 | |||||||||
| Average other liabilities | (105,772) | (98,576) | |||||||||
| Average invested capital | $ | 1,527,002 | $ | 1,488,867 | |||||||
Average operating leases (5) | 1,640,730 | 1,480,590 | |||||||||
| Average invested capital, including operating leases | $ | 3,167,732 | $ | 2,969,457 | |||||||
| ROIC, including operating leases | 16.8 | % | 13.1 | % | |||||||
(1)Net income amounts represent total net income for the past four trailing quarters.
(2)Special items related to store closure and supply chain transition, net of tax.
(3)Net of tax amounts are calculated using the normalized effective tax rate for the periods presented.
(4)2025 and 2024 estimated interest on operating leases is calculated by multiplying operating leases by the 7.0% and 7.2% discount rate, respectively, for each lease recorded as rent expense within direct store expense.
(5)Average operating leases represents the average net present value of outstanding lease obligations over the past four trailing quarters.
Liquidity and Capital Resources
The following table sets forth the major sources and uses of cash for each of the periods set forth below, as well as our cash, cash equivalents and restricted cash at the end of each period (in thousands):
| Thirteen weeks ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 287,735 | $ | 314,354 | |||||||
| Cash flows from operating activities | $ | 299,089 | $ | 219,695 | |||||||
| Cash flows used in investing activities | $ | (59,479) | $ | (51,241) | |||||||
| Cash flows used in financing activities | $ | (219,088) | $ | (57,970) | |||||||
23
We have generally financed our operations principally through cash generated from operations and borrowings under our credit facilities. Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures primarily for opening new stores, remodels and maintenance, repurchases of our common stock and debt service. Our principal contractual obligations and commitments consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities. Our operating and finance leases for the rental of land, buildings, and for rental of facilities and equipment expire or become subject to renewal clauses at various dates through 2048. We believe that our existing cash, cash equivalents and restricted cash, and cash anticipated to be generated from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors, including new store openings, remodel and maintenance capital expenditures at existing stores, store initiatives and other corporate capital expenditures and activities. Our cash, cash equivalents and restricted cash position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within days from the related sale.
Operating Activities
Cash flows from operating activities increased $79.4 million to $299.1 million for the thirteen weeks ended March 30, 2025 compared to $219.7 million for the thirteen weeks ended March 31, 2024. The increase in cash flows from operating activities was primarily a result of higher net income adjusted for non-cash items of $75.3 million and favorable changes in working capital of $9.9 million, partially offset by higher payments on our operating lease liabilities of $4.7 million due to growth.
Cash flows provided by operating activities from changes in working capital were $77.9 million in the thirteen weeks ended March 30, 2025 compared to $68.0 million in the thirteen weeks ended March 31, 2024. This $9.9 million increase in cash flows from changes in working capital was primarily attributable to $25.1 million change in accrued income taxes, $13.6 million change in accounts payable and accrued liabilities primarily due to timing differences of payments for goods and services and $2.2 million change in accounts receivable driven by the timing of collections. These increases were partially offset by $14.9 million change in prepaid expenses and other current assets primarily driven by switching from a new prepaid tax position to a net payable position and $12.1 million change in accrued salaries and benefits primarily driven by increased corporate bonuses. Certain other immaterial items combined to result in an additional $4.0 million net increase in cash flows from changes in working capital.
Investing Activities
Cash flows used in investing activities consist primarily of capital expenditures in new stores, including leasehold improvements and store equipment, capital expenditures to maintain the appearance of our stores, sales enhancing initiatives and other corporate investments as well as cash outlays for acquisitions. Cash flows used in investing activities were $59.5 million and $51.2 million, for the thirteen weeks ended March 30, 2025 and thirteen weeks ended March 31, 2024, respectively.
We expect capital expenditures to be in the range of $230 - 250 million in 2025, including expenditures incurred to date, net of estimated landlord tenant improvement allowances, primarily to fund investments in new stores, remodels, maintenance capital expenditures and corporate capital expenditures. We expect to fund our capital expenditures with cash on hand and cash generated from operating activities.
Financing Activities
Cash flows used in financing activities were $219.1 million for the thirteen weeks ended March 30, 2025 compared to $58.0 million for the thirteen weeks ended March 31, 2024. During the thirteen weeks ended March 30, 2025, cash flows used in financing activities primarily consisted of $218.8 million for stock repurchases.
During the thirteen weeks ended March 31, 2024, cash flows used in financing activities primarily consisted of $60.0 million for stock repurchases, partially offset by $2.3 million in proceeds from the exercise of stock options.
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Long-Term Debt and Credit Facilities
The Company had no long-term debt outstanding as of March 30, 2025 and December 29, 2024.
See Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements for a description of our Credit Agreement and our Former Credit Facility (each as defined therein).
Share Repurchase Program
Our board of directors from time to time authorizes share repurchase programs for our common stock. The following table outlines the share repurchase program authorized by our board, and the related repurchase activity and available authorization as of March 30, 2025:
| Effective date | Expiration date | Amount authorized | Cost of repurchases | Authorization available | ||||||||||||||||||||||
| March 2, 2022 | December 31, 2024 | $ | 600,000 | $ | 480,715 | $ | — | |||||||||||||||||||
| May 22, 2024 | May 22, 2027 | $ | 600,000 | $ | 368,238 | $ | 231,762 | |||||||||||||||||||
The shares under our current repurchase program may be purchased on a discretionary basis from time to time through the applicable expiration date, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. Our board’s authorization of the share repurchase program does not obligate our Company to acquire any particular amount of common stock, and the repurchase program may be commenced, suspended, or discontinued at any time.
Share repurchase activity under our repurchase program for the periods indicated was as follows (total cost in thousands):
| Thirteen weeks ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||||||||||||||
| Number of common shares acquired | 1,568,017 | 957,780 | |||||||||||||||||||||
| Average price per common share acquired | $ | 140.68 | $ | 63.04 | |||||||||||||||||||
| Total cost of common shares acquired | $ | 220,594 | $ | 60,380 | |||||||||||||||||||
Shares purchased under our repurchase programs were subsequently retired and the excess of the repurchase price over par value was charged to retained earnings. The cost of common shares repurchased included the 1% excise tax imposed as part of the Inflation Reduction Act of 2022.
Subsequent to March 30, 2025 and through April 28, 2025, we repurchased an additional 0.3 million shares of common stock for $53.0 million, excluding excise tax.
Contractual Obligations
Our principal contractual obligations and commitments arising in the normal course of business consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities. Except as otherwise disclosed in Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements, there have been no material changes outside the normal course of business as of March 30, 2025 in our contractual obligations and commitments from those reported in our Annual Report on Form 10-K for the fiscal year ended December 29, 2024.
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Impact of Inflation and Deflation
Inflation and deflation in the prices of food and other products we sell may periodically affect our sales, gross profit and gross margin. Food inflation, when combined with reduced consumer spending, could also reduce sales, gross profit margins and comparable store sales. Inflationary pressures on compensation, utilities, commodities, equipment and supplies may also impact our profitability. Food deflation or declining levels of inflation across multiple categories, particularly in produce, could reduce sales growth and earnings, particularly if our competitors react by lowering their retail pricing and expanding their promotional activities, which can lead to retail deflation higher than cost deflation that could reduce our sales, gross profit margins and comparable store sales. The short-term impact of inflation and deflation is largely dependent on whether or not the effects are passed through to our customers, which is subject to competitive market conditions.
Food inflation and deflation is affected by a variety of factors and our determination of whether to pass on the effects of inflation or deflation to our customers is made in conjunction with our overall pricing and marketing strategies, as well as our competitors’ responses. Although we may experience periodic effects on sales, gross profit, gross margins and cash flows as a result of changing prices, we do not expect the effect of inflation or deflation to have a material impact on our ability to execute our long-term business strategy.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, cash flow and related disclosure of contingent assets and liabilities. Our critical accounting estimates include inventories, lease assumptions, self-insurance reserves, goodwill and intangible assets, impairment of long-lived assets, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.
There have been no substantial changes to these estimates, or the policies related to them during the thirteen weeks ended March 30, 2025. For a full discussion of these estimates and policies, see “Critical Accounting Estimates” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 29, 2024.
Recently Issued Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies” to our accompanying unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As described in Note 4, “Long-Term Debt and Finance Lease Liabilities” to our unaudited consolidated financial statements located elsewhere in this Quarterly Report on Form 10-Q, our Credit Agreement bears interest at a rate based in part on SOFR. Accordingly, we could be exposed to fluctuations in interest rates. As of March 30, 2025, we had no outstanding borrowings under our Credit Agreement.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), as appropriate, to allow timely decisions regarding required disclosure.
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Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures under the Exchange Act as of March 30, 2025, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
During the quarterly period ended March 30, 2025, there were no changes in our internal controls over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time we are a party to legal proceedings, including matters involving personnel and employment issues, product liability, personal injury, intellectual property and other proceedings arising in the ordinary course of business, which have not resulted in any material losses to date. Although management does not expect that the outcome in these proceedings will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, we could incur judgments or enter into settlements of claims that could materially impact our results.
See Note 6, “Commitments and Contingencies” to our unaudited consolidated financial statements for information regarding certain legal proceedings in which we are involved.
Item 1A. Risk Factors.
Certain factors may have a material adverse effect on our business, financial condition and results of operations. You should carefully consider the risks and uncertainties referenced below, together with all of the other information in this Quarterly Report on Form 10-Q, including our consolidated financial statements and related notes. Any of those risks could materially and adversely affect our business, operating results, financial condition, or prospects and cause the value of our common stock to decline, which could cause you to lose all or part of your investment.
There have been no material changes to the Risk Factors described under “Part I – Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table provides information about our share repurchase activity during the thirteen weeks ended March 30, 2025.
Period (1) | Total number of shares purchased | Average price paid per share(2) | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs (3) | ||||||||||||||||||||||
| December 30, 2024 - January 26, 2025 | 559,105 | $ | 135.22 | 559,105 | $ | 375,019,000 | ||||||||||||||||||||
| January 27, 2025 - February 23, 2025 | 136,076 | $ | 157.54 | 136,076 | $ | 353,581,000 | ||||||||||||||||||||
| February 24, 2025 - March 30, 2025 | 872,836 | $ | 139.57 | 872,836 | $ | 231,762,000 | ||||||||||||||||||||
| Total | 1,568,017 | 1,568,017 | ||||||||||||||||||||||||
(1)Periodic information is presented by reference to our fiscal periods during the first quarter of fiscal year 2025.
(2)Average price paid per share includes costs associated with the purchases, but excludes the excise tax on share repurchases imposed as part of the Inflation Reduction Act of 2022.
(3)On May 22, 2024, our board of directors authorized a $600 million share repurchase program of our common stock. The shares may be purchased on a discretionary basis from time to time through May 22, 2027, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans.
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Item 5. Other Information.
Rule 10b5-1 Trading Arrangements
During the first quarter of 2025, except as described above, none of our other directors or executive officers adopted or terminated
Item 6. Exhibits.
Exhibit Number | Description | |||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 10.3 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101 | The following financial information from the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2025, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements | |||||||
| 104 | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101) | |||||||
_____________________________________________________________
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SPROUTS FARMERS MARKET, INC. | ||||||||
Date: April 30, 2025 | By: | /s/ Curtis Valentine | ||||||
| Name: | Curtis Valentine | |||||||
| Title: | Chief Financial Officer | |||||||
| (Principal Financial Officer) | ||||||||
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Exhibit 10.1
SPROUTS FARMERS MARKET, INC.
STOCK OPTION AGREEMENT
Cover Sheet
Sprouts Farmers Market, Inc., a company organized under the laws of the State of Delaware (“Company”), hereby grants an option (the “Option”) to acquire shares of its Common Stock (“Shares”) to the individual named below. The terms and conditions of the Option are set forth in this cover sheet (the “Cover Sheet”), in the attached Stock Option Agreement (the “Agreement”) and in the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (as may be amended from time to time, the “Plan”). All capitalized terms used but not defined in this Cover Sheet and the attached Stock Option Agreement will have the meanings ascribed to such terms in the Plan.
| Granted to: | ||||||||
| Option Grant Date: | ||||||||
Shares subject to the Option: | ||||||||
| Exercise Price per Share: | ||||||||
| Expiration Date: | ||||||||
Vesting Schedule: | ||||||||
By signing this Cover Sheet, you agree to all of the terms and conditions described in this Cover Sheet, in the Agreement and in the Plan. The Company has the right to rescind this award if you do not sign and return this Cover Sheet within 60 days of the Option Grant Date.
Signature: _____________________ Date: _______________
SPROUTS FARMERS MARKET, INC.
By:
Name:
Title:
SPROUTS FARMERS MARKET, INC.
2022 OMNIBUS INCENTIVE COMPENSATION PLAN
STOCK OPTION AGREEMENT
| Nonstatutory Stock Option | This Option is not intended to be an incentive stock option under section 422 of the Internal Revenue Code and will be interpreted accordingly. | ||||||||||
| Vesting | Your right to exercise this Option vests at the times and in the manner as shown on the Cover Sheet. This Option will cease vesting as of the date your employment with the Company and its subsidiaries (the “Employer”) has terminated for any reason, except as set forth herein. | ||||||||||
| Termination | Should your employment with the Employer terminate for any reason except pursuant to a Change in Control, due to death or Disability, or due to your Qualifying Retirement, in each case as described below, the portion of your Option that is not then vested will immediately terminate, and, except as provided below, the portion that is then vested will terminate at the close of business at the Company’s registered office on the 90th day after your termination date (or on the seventh anniversary of the Option Grant Date, if earlier). The grant of the Option does not confer upon you any right to continued employment with the Employer or interfere with the Employer’s right to terminate your employment at any time. | ||||||||||
| Death | If your employment terminates because of your death, any then-unvested portion of your Option shall become immediately vested and your right to purchase vested Shares under this Option will expire at the close of business at the Company’s registered office on the date that is six months and one day after the date of death (or on the seventh anniversary of the Option Grant Date, if earlier). During that period, your estate or heirs may exercise this Option. | ||||||||||
| Disability | If your employment terminates due to your Disability, any then-unvested portion of your Option shall become immediately vested and your right to purchase vested Shares under this Option will expire at the close of business at the Company’s registered office on the date that is six months and one day after your termination date (or on the seventh anniversary of the Option Grant Date, if earlier). | ||||||||||
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| Terminate due to Qualifying Retirement | Should your employment with the Employer terminate due to your Qualifying Retirement (as defined in Exhibit A), then a pro-rata portion of the Option will become immediately vested. Such pro-rata portion shall be equal to (a) the number of Shares subject to the Option, multiplied by a fraction, the numerator of which is the number of months (rounded to the nearest whole month) that elapsed between the Grant Date and the termination date, and the denominator of which is 36, (b) reduced by the number of Shares subject to the Option which vested on or prior to your termination date pursuant to the Vesting Schedule set forth on the Cover Sheet. Your right to purchase vested Shares under this Option will expire at the close of business at the Company’s registered office on the date that is 36 months and one day after your termination date (or on the seventh anniversary of the Option Grant Date, if earlier). | ||||||||||
| Termination for Cause; Specified Conduct | If your employment is terminated for Cause or following any termination of your employment you engage in Specified Conduct (as defined in Exhibit A), the Option, whether or not vested, will immediately terminate. | ||||||||||
| Change in Control | Notwithstanding the foregoing, in the event of a Change in Control, the Committee may take such actions with respect to the Option as it deems appropriate pursuant to the Plan. If the Option continues in effect after a Change in Control in accordance with the Plan and your employment is terminated by the Employer or an acquiror without Cause or by you for Good Reason, in each case within 24 months following the Change in Control, then the Option will become vested and exercisable immediately upon such termination. | ||||||||||
| Restrictions on Exercise | The Company will not permit you to exercise this Option if the issuance of Shares at that time would violate any law, regulation or Company policy. | ||||||||||
| Notice of Exercise | When you wish to exercise this Option, you must complete and execute such documents, if any, and complete such processes, that the Company or a securities broker approved by the Company may require to accomplish the Option exercise (“Notice of Exercise”). If someone else wants to exercise this Option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so. | ||||||||||
| Form of Payment | When you submit your Notice of Exercise, you must include payment of the exercise price for the Shares you are purchasing, along with applicable withholding taxes. Unless otherwise determined by the Committee, payment must be made in one (or a combination) of the following forms: | ||||||||||
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•Your personal check, a cashier’s check or a money order. •If permitted by the Company, irrevocable directions to a securities broker approved by the Company to sell your Shares subject to the Option and to deliver all or a portion of the sale proceeds to the Company in payment of the exercise price and applicable withholding taxes. (The balance of the sale proceeds, if any, will be delivered to you.) The directions must be given by signing forms, if any, provided by the Company or the securities broker. | |||||||||||
| Taxes | When you exercise any portion of the Option, the Employer will withhold taxes as required by applicable law, and your ability to exercise any portion of the Option is conditional upon your making arrangements satisfactory to the Company, in accordance with the methods set forth above, to enable it to satisfy its withholding obligation. | ||||||||||
| Restrictions on Resale | By signing this Agreement, you agree not to sell any Shares received upon exercise of the Option at a time when applicable laws, regulations or Company policies prohibit a sale. | ||||||||||
| Transfer of Option | Prior to your death, only you may exercise this Option. You cannot transfer or assign this Option. For instance, you may not sell this Option or use it as security for a loan. If you attempt to do any of these things, this Option will immediately become invalid. You may, however, dispose of this Option in your will. Regardless of any marital property settlement agreement, the Company or a securities broker, as applicable, is not obligated to honor a Notice of Exercise from your former spouse, nor is the Company or the securities broker obligated to recognize your former spouse’s interest in your Option in any other way. | ||||||||||
| Stockholder Rights | You, or your estate or heirs, have no rights as a stockholder of the Company with respect to the Shares subject to the Option until a proper Notice of Exercise has been submitted and the exercise price and withholding taxes have been tendered. No adjustments are made for dividends or other rights if the applicable record date occurs before a proper Notice of Exercise has been submitted and the exercise price has been tendered, except as described in the Plan. | ||||||||||
| Applicable Law | This Agreement will be interpreted and enforced under the laws of the State of Delaware. | ||||||||||
| Company Policies | This Agreement, the Option, and any Shares received upon exercise of the Option shall be subject to any applicable clawback or recoupment policies, share trading policies and other policies that may be implemented by the Board from time to time. | ||||||||||
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| 409A | This Agreement and the Option are intended to be exempt from the requirements of Section 409A of the Code. However, neither the Company nor any Affiliate of the Company shall have any responsibility or liability if the Option is not so exempt. | ||||||||||
| The Plan and Other Agreements | The text of the Plan and any amendments thereto are incorporated in this Agreement by reference. This Agreement, the Cover Sheet and the Plan constitute the entire understanding between you and the Company regarding this Option. Any prior agreements, commitments or negotiations concerning this Option are superseded. | ||||||||||
By signing the Cover Sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan and evidence your acceptance of the powers of the Committee of the Board of Directors of the Company that administers the Plan.
-5-
Exhibit A
Certain Definitions
“employment, employed by or employment with” means, unless determined otherwise by the Board in any circumstance, your employment or engagement in providing services as an advisor, consultant, board member or other service provider, with the Employer (so that, for the purposes of exercising your Option and vesting of your Option, you will not have been considered to have terminated employment or service with the employer until you have ceased to be an employee, advisor, consultant, board member or other service provider).
“Qualifying Retirement” means your termination of employment with the Employer, other than on account of Specified Conduct or death, where: (i) the sum of your age and Years of Service is at least 68 and (ii) you are at least 55 years old with at least three Years of Service. “Years of Service” for this purpose means the number of complete years that you have been employed by the Employer, measured from your most recent date of hire date.
“Specified Conduct” means, if you are party to an employment agreement that contains post-termination restrictive covenants, a breach of any such covenant, or if you are not party to an employment agreement that contains post-termination restrictive covenants, your (i) unauthorized disclosure of confidential information relating to the Company or its Affiliates, (ii) engaging, directly or indirectly, as an employee, partner, consultant, director, stockholder (other than as a passive investor in not more than 5% of the shares of any publicly traded class of securities of any business), owner, or agent in any business that is competitive with the businesses conducted by the Company and its Affiliates at the time of termination of your employment, (iii) soliciting or inducing, directly or indirectly, any former, present or prospective customer or client of the Company or its Affiliates to purchase any services or products offered by the Company or its Affiliates from any Person other than the Company or its Affiliates, or (iv) hiring, directly or indirectly, any individual who was an employee of the Company or its Affiliates within the six month period prior to termination of your employment, or soliciting or inducing, directly or indirectly, any such individual to terminate his or her employment with the Company or its Affiliates. Notwithstanding the foregoing, please note that:
•federal law provides criminal and civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose trade secrets to their attorneys, courts, or government officials in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law, and nothing in this Agreement prohibits or restricts your rights in connection with the foregoing;
•nothing in this Agreement prohibits or restricts you from initiating communications directly with, responding to any inquiry from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or filing a claim or assisting with an investigation directly with a self-regulatory organization or a government agency or entity, including the Equal Employment Opportunity Commission, the Department of Labor, the National Labor Relations Board, the Department of Justice, the Securities and Exchange Commission, Congress, any agency Inspector General or any other federal, state or local regulatory authority, or from making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation; and
•nothing in this Agreement requires you to obtain prior authorization from the Company before engaging in any conduct described in this paragraph, or to notify the Company that you have engaged in any such conduct.
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Exhibit 10.2
SPROUTS FARMERS MARKET, INC.
RSU AGREEMENT
Cover Sheet
Sprouts Farmers Market, Inc., a company organized under the laws of the State of Delaware (“Company”), hereby grants an award of restricted stock units (“RSUs”) to the individual named below. The terms and conditions of the RSUs are set forth in this cover sheet (“Cover Sheet”), in the attached RSU Agreement (the “Agreement”) and in the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (as may be amended from time to time, the “Plan”). All capitalized terms used but not defined in this Cover Sheet and the Agreement will have the meanings ascribed to such terms in the Plan.
| Granted to: | ||||||||
Grant Date: | ||||||||
Number of RSUs: | ||||||||
Vesting Schedule: | ||||||||
| Issuance of Shares: | ||||||||
By signing this Cover Sheet, you agree to all of the terms and conditions described in this Cover Sheet, in the Agreement and in the Plan. The Company has the right to rescind this award, if you do not sign and return this Cover Sheet and the attached Irrevocable Standing Order to Sell Shares within 60 days of the Grant Date.
Signature: _____________________ Date: _______________
SPROUTS FARMERS MARKET, INC.
By:
Name:
Title:
SPROUTS FARMERS MARKET, INC.
2022 OMNIBUS INCENTIVE COMPENSATION PLAN
RSU AGREEMENT
| Right to Shares | The award of RSUs represents your right to receive, and the Company’s obligation to issue, one Share per RSU, subject to the terms and conditions of this Agreement, the Plan and the Cover Sheet. | ||||||||||
| Vesting | The RSUs awarded to you will vest in accordance with the schedule set forth in the Cover Sheet. All RSUs will cease vesting as of the date your employment with the Company and its subsidiaries (the “Employer”) has terminated for any reason, except as set forth in this Agreement. | ||||||||||
| Change in Control | In the event of a Change in Control, the Committee may take such actions with respect to the RSUs as it deems appropriate pursuant to the Plan. If your employment is terminated by the Employer or an acquiror without Cause or by you for Good Reason, in each case within 24 months following the Change in Control, then any unvested RSUs will become fully vested. | ||||||||||
| Termination due to Death or Disability | If your employment with the Employer terminates on account of your death or Disability, any unvested RSUs shall become fully vested. | ||||||||||
| Terminate due to Qualifying Retirement | If your employment with the Employer terminates due to your Qualifying Retirement, then a pro-rata portion of RSUs will vest on the next applicable Vest Date. Such pro-rata portion shall be equal to: (A) the number of RSUs set forth on the Cover Sheet, multiplied by a fraction, the numerator of which is the number of months (rounded to the nearest whole month) that elapsed between the Grant Date and the termination date, and the denominator of which is 36, (B) reduced by the number of RSUs which vested on or prior to your termination date pursuant to the vesting schedule set forth on the Cover Sheet. Upon your termination of employment due to your Qualifying Retirement, all other unvested RSUs will terminate, and you will no longer have any right to receive any Shares (or Dividend Equivalents, as defined below) in respect of such RSUs. | ||||||||||
| Other Termination | Should your employment with the Employer terminate for any reason except pursuant to a Change in Control, due to death or Disability, or due to your Qualifying Retirement, in each case as described above, all of your RSUs then outstanding will terminate, and you will no longer have any right to receive any Shares (or Dividend Equivalents, as defined below) in respect of such RSUs. The grant of RSUs does not confer upon you any right to continued employment with the Employer or interfere with the Employer’s right to terminate your employment at any time. | ||||||||||
| Specified Conduct | If following your termination of employment you engage in Specified Conduct (as defined in Exhibit A), the RSUs, whether or not vested, will immediately terminate. | ||||||||||
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| Issuance of Shares; Settlement | A number of Shares equal to the number of RSUs which vest shall be issued to you in settlement of such RSUs on or within a reasonably practicable time following the applicable Vest Date (but no later than the March 15 following the applicable Vest Date), and upon such issuance, you shall have no further rights with respect to those RSUs. Notwithstanding the foregoing: (A)if the RSUs become vested upon your termination of employment on account of death or Disability, then within 60 days following such termination (or if earlier, by March 15 following the applicable Vest Date for the RSUs), a number of Shares equal to the number of RSUs which vest shall be issued in settlement of such RSUs, and upon such issuance, you shall have no further rights with respect to the RSUs; and (B)if the RSUs become vested upon your termination of employment by the Employer or an acquiror without Cause, by you for Good Reason, or on account of your Qualifying Retirement, in each case, within 24 months following a Change in Control (as described above), a number of Shares equal to the number of RSUs which vest shall be issued in settlement of such RSUs within 60 days following your termination of employment (or if earlier, by March 15 following the applicable Vest Date for the RSUs), and upon such issuance, you shall have no further rights with respect to the RSUs. | ||||||||||
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| Taxes | As a condition to receiving the RSUs, you are required to pay to the Company or make satisfactory arrangements with respect to the payment of any federal, state or local taxes that are required by law to be withheld with respect to the grant or settlement of the RSUs. The Company will satisfy this withholding obligation through a “sell to cover” whereby you irrevocably direct a securities broker approved by the Company to sell a portion of your Shares to be issued in settlement of the RSUs and to deliver the sale proceeds to the Company in payment of the applicable withholding taxes. You agree to provide sell-to-cover directions by signing and returning the Irrevocable Standing Order to Sell Shares attached hereto, along with a signed copy of the Cover Sheet, within 60 days of the Grant Date. The number of Shares that the broker will sell will be based on an estimate made by the broker of the Shares required to be sold to satisfy the withholding taxes. You agree that the proceeds received from the sale of Shares will be used to satisfy the withholding taxes and, accordingly, you authorize the broker to pay such proceeds to the Company for such purpose. To the extent that the proceeds obtained by such sale exceed the amount necessary to satisfy the withholding taxes, such excess proceeds shall be deposited into your brokerage account and in the event of a shortfall, additional Shares may be sold and/or cash withholding may be required from you. Any remaining Shares shall be deposited into your brokerage account. If there is not a market in the Shares or the Company determines in its sole discretion that the sell to cover procedure is not advisable or sufficient, the Company will have the right to make other arrangements to satisfy the withholding taxes due upon the issuance of the Shares with respect to the RSUs, including, but not limited to, the right to deduct amounts from salary or payments of any kind otherwise due to you or withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the statutory minimum withholding amount or such other amount approved by the Committee. If such other arrangements are made, your Irrevocable Standing Order to Sell Shares will be voided. You represent to the Company that, as of the date you sign the Irrevocable Standing Order to Sell Shares, you are not aware of any material nonpublic information about the Company or the Shares. You and the Company have structured this Agreement to constitute a “binding contract” relating to the sale of Shares, consistent with the affirmative defense to liability under Section 10(b) of the Exchange Act under Rule 10b5-1(c) issued under such Act. | ||||||||||
| Restrictions on Resale and Settlement | By signing this Agreement, you agree not to sell any Shares received upon settlement of RSUs at a time when applicable laws, regulations or Company policies prohibit a sale. The Company’s obligation to issue Shares upon settlement of the RSUs shall be subject to applicable laws, rules and regulations and also to such approvals by governmental agencies as may be deemed appropriate to comply with relevant securities laws and regulations. | ||||||||||
-4-
| Transfer of RSUs | You cannot transfer or assign your RSUs or your right to receive Shares upon settlement of RSUs. For instance, you may not sell your right to RSUs or use them as security for a loan. If you attempt to do any of these things, your RSUs will immediately become invalid. Regardless of any marital property settlement agreement, the Company or a securities broker, as applicable, is not obligated to recognize your former spouse’s interest in your right to RSUs in any way. | ||||||||||
| Stockholder Rights; Dividend Equivalent Rights | You, or your estate or heirs, have no rights as a stockholder of the Company in respect of RSUs until Shares have been issued in settlement of the RSUs. No adjustments are made for dividends or other rights if the applicable record date occurs before Shares are issued, except as described in the Plan. However, to the extent you hold RSUs on the record date of any cash dividend on Shares, you will contingently be entitled to a payment in an amount, per RSU held, equal to the amount of the cash dividend declared and paid in respect of one Share (a “Dividend Equivalent”). This Dividend Equivalent right will be subject to the same vesting schedule applicable to the related RSUs and shall be paid to you if and to the extent that the related RSUs vest as soon as practicable following such vesting. Any Dividend Equivalents, to the extent they become payable, will be subject to applicable withholding taxes. | ||||||||||
| Applicable Law | This Agreement will be interpreted and enforced under the laws of the State of Delaware. | ||||||||||
| Company Policies | This Agreement, the RSUs, and any cash or Shares you receive pursuant to this Agreement shall be subject to any applicable clawback or recoupment policies, share trading policies and other policies that may be implemented by the Board from time to time. | ||||||||||
| 409A | This Agreement and the RSUs are intended to comply with, or be exempt from, the requirements of Section 409A of the Code, and shall in all respects be administered in accordance with Section 409A of the Code. To the maximum extent possible, the RSUs are intended to be exempt from Section 409A of the Code as short-term deferrals pursuant to Treasury Regulation 1.409A-1(b)(4) and shall be construed in accordance with that intent. However, neither the Company nor any Affiliate of the Company shall have any responsibility or liability if the RSUs are not compliant with, or exempt from, Section 409A of the Code. If the RSUs are subject to Section 409A of the Code, payments to be made upon a termination of employment shall only be made upon a “separation from service” under Section 409A of the Code; and each payment hereunder shall be treated as a separate payment for purposes of Section 409A of the Code. If you are a Key Employee and any distribution with respect to the RSUs is to be distributed on a separation from service, such distribution shall be subject to delay for six months if required by Section 19(f)(iii) of the Plan. | ||||||||||
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| The Plan and Other Agreements | The text of the Plan and any amendments thereto are incorporated in this Agreement by reference. This Agreement, the Cover Sheet and the Plan constitute the entire understanding between you and the Company regarding the RSUs. Any prior agreements, commitments or negotiations concerning the RSUs are superseded. | ||||||||||
By signing the Cover Sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan and evidence your acceptance of the powers of the Committee of the Board of Directors of the Company that administers the Plan.
-6-
Exhibit A
Certain Definitions
“employment, employed by or employment with” means, unless determined otherwise by the Board in any circumstance, your employment or engagement in providing services as an advisor, consultant, board member or other service provider, with the Employer (so that, for the purposes of vesting of your RSUs, you will not have been considered to have terminated employment or service with the employer until you have ceased to be an employee, advisor, consultant, board member or other service provider).
“Qualifying Retirement” means your termination of employment with the Employer, other than on account of Specified Conduct or death, where: (i) the sum of your age and Years of Service is at least 68 and (ii) you are at least 55 years old with at least three Years of Service. “Years of Service” for this purpose means the number of complete years that you have been employed by the Employer, measured from your most recent date of hire date.
“Specified Conduct” means, if you are party to an employment agreement that contains post-termination restrictive covenants, a breach of any such covenant, or if you are not party to an employment agreement that contains post-termination restrictive covenants, your (i) unauthorized disclosure of confidential information relating to the Company or its Affiliates, (ii) engaging, directly or indirectly, as an employee, partner, consultant, director, stockholder (other than as a passive investor in not more than 5% of the shares of any publicly traded class of securities of any business), owner, or agent in any business that is competitive with the businesses conducted by the Company and its Affiliates at the time of termination of your employment, (iii) soliciting or inducing, directly or indirectly, any former, present or prospective customer or client of the Company or its Affiliates to purchase any services or products offered by the Company or its Affiliates from any Person other than the Company or its Affiliates, or (iv) hiring, directly or indirectly, any individual who was an employee of the Company or its Affiliates within the six month period prior to termination of your employment, or soliciting or inducing, directly or indirectly, any such individual to terminate his or her employment with the Company or its Affiliates. Notwithstanding the foregoing, please note that:
•federal law provides criminal and civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose trade secrets to their attorneys, courts, or government officials in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law, and nothing in this Agreement prohibits or restricts your rights in connection with the foregoing;
•nothing in this Agreement prohibits or restricts you from initiating communications directly with, responding to any inquiry from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or filing a claim or assisting with an investigation directly with a self-regulatory organization or a government agency or entity, including the Equal Employment Opportunity Commission, the Department of Labor, the National Labor Relations Board, the Department of Justice, the Securities and Exchange Commission, Congress, any agency Inspector General or any other federal, state or local regulatory authority, or from making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation; and
•nothing in this Agreement requires you to obtain prior authorization from the Company before engaging in any conduct described in this paragraph, or to notify the Company that you have engaged in any such conduct.
-7-
Exhibit B
IRREVOCABLE STANDING ORDER TO SELL SHARES
I have been granted an award in respect of restricted stock units (“RSUs”) by Sprouts Farmers Market, Inc. (the “Company”), which is evidenced by a restricted stock unit award agreement between me and the Company (the “Agreement,” copy attached). The RSUs vest according to the provisions of the Agreement.
I understand that on or as soon as practicable after the vesting date or my earlier termination of employment under certain circumstances as set forth in the Agreement (in either case, the “issuance date”), the shares issuable in respect of the RSUs (the “Shares”) will be deposited into my account at E*TRADE or such other broker the Company may engage at such time (the “Broker”) and that I will recognize taxable ordinary income as a result. Pursuant to the terms of the Agreement and as a condition of my receipt of the Shares, I understand and agree that, on the issuance date, I must sell a number of shares sufficient to satisfy all withholding taxes applicable to that ordinary income. Therefore, I hereby direct the Broker to sell, at the market price and on the issuance date (or the first business day thereafter if the issuance date should fall on a day when the market is closed), the number of Shares that the Company informs the Broker is sufficient to satisfy the applicable withholding taxes, which shall be calculated based on the closing price of the Company’s ordinary shares on the last trading day before the issuance date. I understand that the Broker will remit the proceeds to the Company for payment of the withholding taxes.
I understand and agree that by signing below, I am making an Irrevocable Standing Order to Sell Shares which will remain in effect until the issuance date. I also agree that this Irrevocable Standing Order to Sell Shares is in addition to and subject to the terms and conditions of any existing Account Agreement that I have with the Broker.
| Signature | ||
| Print Name | ||
-8-
Exhibit 10.3
SPROUTS FARMERS MARKET, INC.
PSU AWARD AGREEMENT
Cover Sheet
Sprouts Farmers Market, Inc., a company organized under the laws of the State of Delaware (“Company”), hereby grants an award of performance-based stock units (“PSUs”) to the individual named below. The terms and conditions of the PSUs are set forth in this cover sheet (“Cover Sheet”), in the attached PSU Award Agreement (the “Agreement”) and in the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (as may be amended from time to time, the “Plan”). All capitalized terms used but not defined in this Cover Sheet and the Agreement will have the meanings ascribed to such terms in the Plan.
| Granted to: | ||||||||
Grant Date: | ||||||||
| Number of PSUs: | ||||||||
Issuance of Shares; Settlement: | ||||||||
| Vesting Date: | ||||||||
By signing this Cover Sheet, you agree to all of the terms and conditions described in this Cover Sheet, in the Agreement and in the Plan. The Company has the right to rescind this award, if you do not sign and return this Cover Sheet and the attached Irrevocable Standing Order to Sell Shares within 60 days of the Grant Date.
Signature: _____________________ Date: _______________
SPROUTS FARMERS MARKET, INC.
By:
Name:
Title:
SPROUTS FARMERS MARKET, INC.
2022 OMNIBUS INCENTIVE COMPENSATION PLAN
PERFORMANCE STOCK UNIT AWARD AGREEMENT
| Right to Shares | The award of PSUs represents your right to receive, and the Company’s obligation to issue, one Share for each PSU that is earned, based on the Company’s achievement of the performance metric(s) set forth in the Cover Sheet, and becomes vested based on the conditions described below. | |||||||||||||
| Vesting | The vesting of the PSUs awarded to you will be subject to the performance criteria and other terms set forth on the Cover Sheet and subject to your continued employment through the Vesting Date (except as otherwise set forth in this Agreement) and the PSUs will be settled and issued as set forth below. | |||||||||||||
| Termination; Specified Conduct | Should your employment with Company and its subsidiaries (the actual entity that you are employed by, the “Employer”) terminate for any reason (except in connection with a Change in Control, due to death or Disability or due to your Qualifying Retirement, in each case, as provided for below) or if you engage in Specified Conduct (as defined in Exhibit A) prior to the Vesting Date, you shall forfeit all rights to receive any Shares in respect of the PSUs. Should your employment with the Employer terminate for any reason (except in connection with a Change in Control or due to death or Disability or due to your Qualifying Retirement, in each case, as provided for below) after the Certification Date or if you engage in Specified Conduct after the Certification Date, you shall forfeit all PSUs that are not then vested, and no Shares will be issued in respect of such PSUs. | |||||||||||||
| Issuance of Shares; Settlement | A number of Shares equal to the number of PSUs which become earned and vested vest shall be issued to you in settlement of such PSUs, and upon such issuance, you shall have no further rights with respect to those PSUs. Except as otherwise provided below, such Shares shall be issued to you (i) following the Certification Date and (ii) on, or as soon as practicable following, the Vesting Date and in all cases no later than March 15, 2028. | |||||||||||||
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| Change in Control | In the event of a Change in Control, the Committee may take such actions with respect to the PSUs as it deems appropriate pursuant to the Plan. Absent other action by the Committee: (A)if there occurs a Change in Control, and this award is not continued or assumed by, or replaced with an award that has comparable terms by, the surviving corporation (or a parent or subsidiary of the surviving corporation) in accordance with the Plan, then (i) if the Change in Control occurs prior to the Certification Date, you will become vested, immediately prior to the Change in Control, in the greater of (x) the Target Number of PSUs, or (y) the number of PSUs which would have been earned based on the Company’s actual achievement of the performance metric(s) set forth in the Cover Sheet, and (ii) if the Change in Control occurs after the Certification Date, all PSUs that have not yet vested but would have vested based on the Company’s actual achievement of the performance metric(s) set forth in the Cover Sheet shall vest immediately prior to the Change in Control; and (B)if there occurs a Change in Control, and this award continues or is assumed by, or replaced with an award that has comparable terms by, the surviving corporation (or a parent or subsidiary of the surviving corporation) in accordance with the Plan and your employment is terminated by the Employer without Cause or by you for Good Reason, in each case within 24 months following the Change in Control, then (i) upon such termination, you will become vested in the greater of (x) the Target Number of PSUs, or (y) the number of PSUs which would have been earned based on the Company’s actual achievement of the performance metric(s) set forth in the Cover Sheet through the date of such termination, and (ii) if such termination occurs after the Certification Date, all PSUs that have not yet vested but would have vested based on the Company’s actual achievement of the performance metric(s) set forth in the Cover Sheet shall vest immediately upon such termination. A number of Shares equal to the number of PSUs which become earned and vested in accordance with clauses (A) and (B) shall be issued to you within 60 days following the applicable vesting date, and you shall have no further rights with respect to the PSUs. For purposes of the foregoing, this award shall not be treated as continued, assumed or replaced on comparable terms unless it is continued, assumed or replaced with substantially equivalent terms, including, without limitation, continuation, replacement or assumption of the same Company performance metrics set forth in the Cover Sheet, subject to adjustment in accordance with the Plan. | |||||||||||||
-3-
| Termination due to Death or Disability | Should your employment with the Employer terminate due to death or Disability, then any unvested PSUs will be treated as follows: (A)if such termination occurs prior to the Certification Date, upon such termination you will become vested in a pro-rated number of PSUs that is equal to: (i) the greater of (x) the Target Number of PSUs, or (y) the number of PSUs which would have been earned based on the Company’s actual achievement of the performance metric(s) set forth in the Cover Sheet through the date of such termination, multiplied by, (ii) a fraction, the numerator of which is the number of days that elapsed between the Grant Date and the termination date, and the denominator of which is the number of days between the Grant Date and the Vesting Date; and (B)if such termination occurs on or after the Certification Date, all PSUs that have not yet vested but would have vested based on the Company’s actual achievement of the performance metric(s) set forth in the Cover Sheet shall vest immediately upon such termination. A number of Shares equal to the number of PSUs which become earned and vested in accordance with clauses (A) and (B) shall be issued to you within 60 days following the applicable vesting date, and you shall have no further rights with respect to the PSUs. | |||||||||||||
| Terminate due to Qualifying Retirement | Should your employment with the Employer terminate due to your Qualifying Retirement, then any unvested PSUs will not be forfeited and will instead be treated as follows: (A)if such termination occurs prior to the Certification Date, upon the Certification Date, you will become vested in a pro-rated number of PSUs that is equal to: the number of PSUs which would have been earned based on the Company’s actual achievement of the performance metric(s) set forth in the Cover Sheet, as determined by the Committee on the Certification Date, multiplied by a fraction, the numerator of which is the number of months (rounded to the nearest month) that elapsed between the Grant Date and the termination date, and the denominator of which is 36; and (B)if such termination occurs on or after the Certification Date, all PSUs that have not yet vested but would have vested based on the Company’s actual achievement of the performance metric(s) set forth in the Cover Sheet shall vest immediately upon such termination. A number of Shares equal to the number of PSUs which become earned and vested in accordance with clauses (A) and (B) shall be issued to you within 60 days following the applicable vesting date, and you shall have no further rights with respect to the PSUs. | |||||||||||||
-4-
| Taxes | When Shares are issued to you upon settlement of your PSUs, the Company is required to withhold taxes pursuant to applicable law. The Company will satisfy this withholding obligation through a “sell to cover” whereby you irrevocably direct a securities broker approved by the Company to sell a portion of your Shares to be issued in settlement of the PSUs and to deliver the sale proceeds to the Company in payment of the applicable withholding taxes. You agree to provide sell-to-cover directions by signing and returning the Irrevocable Standing Order to Sell Shares attached hereto, along with a signed copy of the Cover Sheet, within 60 days of the Grant Date. The number of Shares that the broker will sell will be based on an estimate made by the broker of the Shares required to be sold to satisfy the withholding taxes. You agree that the proceeds received from the sale of Shares will be used to satisfy the withholding taxes and, accordingly, you authorize the broker to pay such proceeds to the Company for such purpose. To the extent that the proceeds obtained by such sale exceed the amount necessary to satisfy the withholding taxes, such excess proceeds shall be deposited into your brokerage account and in the event of a shortfall, additional Shares may be sold and/or cash withholding may be required from you. Any remaining Shares shall be deposited into your brokerage account. If there is not a market in the Shares or the Company determines in its sole discretion that the sell to cover procedure is not advisable or sufficient, the Company will have the right to make other arrangements to satisfy the withholding taxes due upon the issuance of the Shares with respect to the PSUs, including, but not limited to, the right to deduct amounts from salary or payments of any kind otherwise due to you or withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the statutory minimum withholding amount or such other amount approved by the Committee. If such other arrangements are made, your Irrevocable Standing Order to Sell Shares will be voided. You represent to the Company that, as of the date you sign the Irrevocable Standing Order to Sell Shares, you are not aware of any material nonpublic information about the Company or the Shares. You and the Company have structured this Agreement to constitute a “binding contract” relating to the sale of Shares, consistent with the affirmative defense to liability under Section 10(b) of the Exchange Act under Rule 10b5-1(c) issued under such Act. | |||||||||||||
| Restrictions on Resale | By signing this Agreement, you agree not to sell any Shares received upon settlement of the PSUs at a time when applicable laws, regulations or Company policies prohibit a sale. The Company’s obligation to issue Shares upon settlement of the PSUs shall be subject to applicable laws, rules and regulations and also to such approvals by governmental agencies as may be deemed appropriate to comply with relevant securities laws and regulations. | |||||||||||||
-5-
| Transfer of PSUs | You cannot transfer or assign your PSUs or your right to receive Shares upon settlement of PSUs. For instance, you may not sell your right to PSUs or use them as security for a loan. If you attempt to do any of these things, your PSUs will immediately become invalid. Regardless of any marital property settlement agreement, the Company or a securities broker, as applicable, is not obligated to recognize your former spouse’s interest in your right to PSUs in any way. | |||||||||||||
| Stockholder Rights; Dividend Equivalent Rights | You, or your estate or heirs, have no rights as a stockholder of the Company in respect of PSUs until after the Shares have been issued in settlement of the PSUs. No adjustments are made for dividends or other rights if the applicable record date occurs before Shares are issued, except as described in the Plan. However, to the extent you hold PSUs on the record date of any cash dividend on Shares, you will contingently be entitled to a payment in an amount, per PSU which becomes earned and vested, equal to the amount of the cash dividend declared and paid in respect of one Share (a “Dividend Equivalent”). This Dividend Equivalent right will be subject to the same vesting schedule applicable to the related PSUs and shall be paid to you if and to the extent that the related PSUs vest as soon as practicable following such vesting. Any Dividend Equivalents, to the extent they become payable, will be subject to applicable withholding taxes. | |||||||||||||
| Applicable Law | This Agreement will be interpreted and enforced under the laws of the State of Delaware. | |||||||||||||
| Company Policies | This Agreement, the PSUs and any Shares or cash you receive pursuant to this Agreement shall be subject to any applicable clawback or recoupment policies, share trading policies and other policies that may be implemented by the Board from time to time. | |||||||||||||
-6-
| 409A | This Agreement and the PSUs are intended to comply with, or be exempt from, the requirements of Section 409A of the Code, and shall in all respects be administered in accordance with Section 409A of the Code. To the maximum extent possible, the PSUs are intended to be exempt from Section 409A of the Code as short-term deferrals pursuant to Treasury Regulation 1.409A-1(b)(4) and shall be construed in accordance with that intent. However, neither the Company nor any Affiliate of the Company shall have any responsibility or liability if the PSUs are not compliant with, or exempt from, Section 409A of the Code. If the PSUs are subject to Section 409A of the Code, payments to be made upon a termination of employment shall only be made upon a “separation from service” under Section 409A of the Code; and each payment hereunder shall be treated as a separate payment for purposes of Section 409A of the Code. If you are a Key Employee and any distribution with respect to the PSUs is to be distributed on a separation from service, such distribution shall be subject to delay for six months if required by Section 19(f)(iii) of the Plan. | |||||||||||||
| The Plan and Other Agreements | The text of the Plan and any amendments thereto are incorporated in this Agreement by reference. This Agreement, the Cover Sheet and the Plan constitute the entire understanding between you and the Company regarding the PSUs. Any prior agreements, commitments or negotiations concerning the PSUs are superseded. | |||||||||||||
By signing the Cover Sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan and evidence your acceptance of the powers of the Committee of the Board of Directors of the Company that administers the Plan.
-7-
Exhibit A
Certain Definitions
“employment, employed by or employment with” means, unless determined otherwise by the Board in any circumstance, your employment or engagement in providing services as an advisor, consultant, board member or other service provider, with the Employer (so that, for the purposes of vesting of your PSUs, you will not have been considered to have terminated employment or service with the employer until you have ceased to be an employee, advisor, consultant, board member or other service provider).
“Qualifying Retirement” means your termination of employment with the Employer, other than on account of Specified Conduct or death, where: (i) the sum of your age and Years of Service is at least 68 and (ii) you are at least 55 years old with at least three Years of Service. “Years of Service” for this purpose means the number of complete years that you have been employed by the Employer, measured from your most recent date of hire date.
“Specified Conduct” means, if you are party to an employment agreement that contains post-termination restrictive covenants, a breach of any such covenant, or if you are not party to an employment agreement that contains post-termination restrictive covenants, your (i) unauthorized disclosure of confidential information relating to the Company or its Affiliates, (ii) engaging, directly or indirectly, as an employee, partner, consultant, director, stockholder (other than as a passive investor in not more than 5% of the shares of any publicly traded class of securities of any business), owner, or agent in any business that is competitive with the businesses conducted by the Company and its Affiliates at the time of termination of your employment, (iii) soliciting or inducing, directly or indirectly, any former, present or prospective customer or client of the Company or its Affiliates to purchase any services or products offered by the Company or its Affiliates from any Person other than the Company or its Affiliates, or (iv) hiring, directly or indirectly, any individual who was an employee of the Company or its Affiliates within the six month period prior to termination of your employment, or soliciting or inducing, directly or indirectly, any such individual to terminate his or her employment with the Company or its Affiliates. Notwithstanding the foregoing, please note that:
•federal law provides criminal and civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose trade secrets to their attorneys, courts, or government officials in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law, and nothing in this Agreement prohibits or restricts your rights in connection with the foregoing;
•nothing in this Agreement prohibits or restricts you from initiating communications directly with, responding to any inquiry from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or filing a claim or assisting with an investigation directly with a self-regulatory organization or a government agency or entity, including the Equal Employment Opportunity Commission, the Department of Labor, the National Labor Relations Board, the Department of Justice, the Securities and Exchange Commission, Congress, any agency Inspector General or any other federal, state or local regulatory authority, or from making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation; and
•nothing in this Agreement requires you to obtain prior authorization from the Company before engaging in any conduct described in this paragraph, or to notify the Company that you have engaged in any such conduct.
-8-
Exhibit B
IRREVOCABLE STANDING ORDER TO SELL SHARES
I have been granted an award in respect of performance-based stock units (“PSUs”) by Sprouts Farmers Market, Inc. (the “Company”), which is evidenced by a performance stock unit award agreement between me and the Company (the “Agreement,” copy attached). The PSUs vest according to the provisions of the Agreement.
I understand that at the time shares are issued to me in settlement the PSUs (the “Shares”) in accordance with the Agreement (the time of such issuance, the “issuance date”), the Shares will be deposited into my account at E*TRADE or such other broker the Company may engage at such time (the “Broker”) and that I will recognize taxable ordinary income as a result. Pursuant to the terms of the Agreement and as a condition of my receipt of the Shares, I understand and agree that, on the issuance date, I must sell a number of shares sufficient to satisfy all withholding taxes applicable to that ordinary income. Therefore, I hereby direct the Broker to sell, at the market price and on the issuance date (or the first business day thereafter if the issuance date should fall on a day when the market is closed), the number of Shares that the Company informs the Broker is sufficient to satisfy the applicable withholding taxes, which shall be calculated based on the closing price of the Company’s ordinary shares on the last trading day before the settlement date. I understand that the Broker will remit the proceeds to the Company for payment of the withholding taxes.
I understand and agree that by signing below, I am making an Irrevocable Standing Order to Sell Shares which will remain in effect until the issuance date. I also agree that this Irrevocable Standing Order to Sell Shares is in addition to and subject to the terms and conditions of any existing Account Agreement that I have with the Broker.
| Signature | ||
| Print Name | ||
-9-
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Jack L. Sinclair, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Sprouts Farmers Market, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 30, 2025 | /s/ Jack L. Sinclair | ||||
| Jack L. Sinclair | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Curtis Valentine, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Sprouts Farmers Market, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 30, 2025 | /s/ Curtis Valentine | ||||
| Curtis Valentine | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Sprouts Farmers Market, Inc. (the “Company”), on Form 10-Q for the quarterly period ended March 30, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jack L. Sinclair, Chief Executive Officer of the Company, certify, based on my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 30, 2025 | /s/ Jack L. Sinclair | ||||
| Jack L. Sinclair | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
This certification accompanies the Report to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Sprouts Farmers Market, Inc. (the “Company”), on Form 10-Q for the quarterly period ended March 30, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Curtis Valentine, Chief Financial Officer of the Company, certify, based on my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 30, 2025 | /s/ Curtis Valentine | ||||
| Curtis Valentine | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
This certification accompanies the Report to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.