8-K
Sprouts Farmers Market, Inc. (SFM)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 28, 2020
Sprouts Farmers Market, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 001-36029 | 32-0331600 |
|---|---|---|
| (State or other jurisdiction<br><br><br>of incorporation or organization) | (Commission<br><br><br>File Number) | (I.R.S. Employer<br><br><br>Identification No.) |
5455 E. High Street, Suite 111
Phoenix, Arizona 85054
(Address of principal executive offices and zip code)
(480) 814-8016
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
|---|---|---|
| Common Stock, $0.001 par value | SFM | NASDAQ Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Item 2.02. Results of Operations and Financial Condition.
On October 28, 2020, Sprouts Farmers Market, Inc. (the “Company”) issued a press release announcing its results of operations for its third fiscal quarter ended September 27, 2020. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated into this Item 2.02 by reference.
The information furnished in this Item 2.02, including Exhibit 99.1 attached hereto and incorporated herein, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
The text of this Current Report on Form 8-K is available on the Company’s investor relations website located at investors.sprouts.com, although the Company reserves the right to discontinue that availability at any time.
Item 9.01. Financial Statements and Exhibits.
| (d) | Exhibits |
|---|---|
| Exhibit<br><br><br>Number | Description |
| --- | --- |
| 99.1 | Press release of Sprouts Farmers Market, Inc., dated October 28, 2020, entitled “Sprouts Farmers Market, Inc. Reports Third Quarter 2020 Results” |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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 hereunto duly authorized.
| SPROUTS FARMERS MARKET, INC. | ||
|---|---|---|
| Date: October 28, 2020 | By: | /s/ Brandon F. Lombardi |
| Name: | Brandon F. Lombardi | |
| Title: | Chief Legal Officer and Corporate Secretary |
sfm-ex991_6.htm
Exhibit 99.1
| Investor Contact: | Media Contact: |
|---|---|
| Susannah Livingston | Diego Romero |
| (602) 682-1584 | (602) 682-3173 |
| susannahlivingston@sprouts.com | media@sprouts.com |
Sprouts Farmers Market, Inc. Reports Third Quarter 2020 Results
PHOENIX, Ariz. – (Globe Newswire) – October 28, 2020 – Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week third quarter ended September 27, 2020.
Third Quarter Highlights:
| • | Net sales of $1.6 billion; a 9.5% increase from the same period in 2019 |
|---|---|
| • | Comparable store sales growth of 4.2% and two-year comparable store sales growth of 5.7% |
| --- | --- |
| • | Net income of $60 million and adjusted net income^(1)^^^of $62 million; compared to net income and adjusted net income of $26 million from the same period in 2019 |
| --- | --- |
| • | Diluted earnings per share of $0.51 and adjusted diluted earnings per share^(1)^ of $0.52; compared to $0.22 diluted and adjusted diluted earnings per share from the same period in 2019 |
| --- | --- |
“Sprouts continues to prioritize the wellbeing of our team members and customers through our safe store operations and the wholesome foods we offer,” said Jack Sinclair, chief executive officer of Sprouts Farmers Market. “Our strong financial performance in the third quarter was driven by our curation of healthy offerings, coupled with ongoing strategic changes. With each passing quarter, the progression of our strategy strengthens our conviction in our long-term growth and our ability to provide exceptional returns for years to come.”
________________________________________________________________________________________
| ^1^ | Adjusted net income and adjusted diluted earnings per share, non-GAAP financial measures, exclude the impact of certain special items. See the “Non-GAAP Financial Measures” section of this release for additional information about these items. |
|---|
Third Quarter 2020 Financial Results
Net sales for the third quarter of 2020 were $1.6 billion, a 9.5% increase compared to the same period in 2019. Net sales growth was driven by continued demand from the COVID-19 pandemic, contributing to a 4.2% increase in comparable store sales and strong performance in new stores opened.
Gross profit for the quarter increased 23% to $585 million, resulting in a gross profit margin of 37.1%, an increase of 400 basis points compared to the same period in 2019. A number of sustainable strategic changes contributed to this increase, from promotional activities to shrink initiatives, partially accelerated by the COVID-19 landscape, as well as positive leverage from additional sales.
Selling, general and administrative expenses (“SG&A”) for the quarter increased $71 million to $475 million, or 30.1% of sales, a deleverage of 200 basis points compared to the same period in 2019. Increased team member bonuses and store operational expenses from COVID-19 were approximately $34 million for the third quarter, driving the deleverage. Additionally, with our elevated ecommerce sales, we realized increased ecommerce fees, which were offset by other efficiencies and leveraging fixed costs on our higher sales.
Depreciation and amortization for the quarter increased 1.0% to $31 million, or 2.0% of sales, a decrease of 10 basis points compared to the same period in 2019.
Store closure and other costs, net for the quarter were $0.3 million compared to $2.1 million in the same period of 2019.
Net income for the quarter was $60 million and diluted earnings per share (“EPS”) was $0.51, compared with $26 million and $0.22, respectively, in 2019. Excluding the impact of special items, adjusted net income was $62 million and adjusted diluted EPS was $0.52; an increase of 136% from the same period in 2019 (see “Non-GAAP Financial Measures”).
Unit Growth and Development
During the third quarter of 2020, Sprouts opened six new stores, resulting in a total of 356 stores in 23 states as of September 27, 2020.
Leverage and Liquidity
Sprouts generated cash from operations of $410 million year-to-date through September 27, 2020 and invested $76 million in capital expenditures net of landlord reimbursements, primarily for new stores. After paying down $176 million of outstanding debt, Sprouts ended the quarter with $275 million in loans and $34 million of letters of credit outstanding under its revolving credit facility, and $138 million in cash and cash equivalents.
Fourth Quarter 2020 and Full Year 2021 Outlook
As customers continue to consume much of their food at home due to the COVID-19 pandemic, grocery spend and ecommerce penetration have remained at elevated levels, as do additional company expenses. For the fourth quarter we expect our comparable store sales to be in the low single digits and inclusive of the 53^rd^ week, adjusted diluted EPS to be between $0.36 to $0.40, which translates into a full-year adjusted diluted EPS range of $2.26 to $2.30, on a 53-week basis.
“We remain confident in executing our long-term unit growth plans, winning with our target customer, maintaining our strong balance sheet and delivering sustainable superior returns,” said Denise Paulonis, chief financial officer of Sprouts Farmers Market. “As we build out our 2021 plans, we are more focused than ever on maintaining the momentum we have captured in 2020, giving us confidence that our earnings before interest and taxes in 2021 will be in the range of $285 to $305 million.”
Third Quarter 2020 Conference Call
Sprouts will hold a conference call at 2 p.m. Pacific Daylight Time (5 p.m. Eastern Daylight Time) on Wednesday, October 28, 2020, during which Sprouts executives will further discuss third quarter 2020 financial results.
A webcast of the conference call will be available through Sprouts’ investor webpage located at investors.sprouts.com. Participants should register on the website approximately 15 minutes prior to the start of the webcast.
The conference call will be available via the following dial-in numbers:
| • | U.S. Participants: 877-398-9481 |
|---|---|
| • | International Participants: +1-408-337-0130 |
| --- | --- |
| • | Conference ID: 5589871 |
| --- | --- |
The audio replay will remain available for 72 hours and can be accessed by dialing 855-859-2056 (toll-free) or 404-537-3406 (international) and entering the confirmation code: 5589871.
Important Information Regarding Outlook
There is no guarantee that Sprouts will achieve its projected financial expectations, which are based on management estimates, currently available information and assumptions that management believes to be reasonable. These expectations are inherently subject to significant economic, competitive and other uncertainties and contingencies, many of which are beyond the control of management. See “Forward-Looking Statements” below.
Forward-Looking Statements
Certain statements in this press release are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact (including, but not limited to, statements to the effect that Sprouts Farmers Market or its management "anticipates," "plans," "estimates," "expects," or "believes," or the negative of these terms and other similar expressions) should be considered forward-looking
statements, including, without limitation, statements regarding the company’s guidance, outlook, growth, opportunities and long-term strategy. These statements involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this release. These risks and uncertainties include, without limitation, risks associated with the impact of the COVID-19 pandemic; the Company’s ability to execute on its long-term strategy; the company’s ability to successfully compete in its intensely competitive industry; the company’s ability to successfully open new stores; the company’s ability to manage its growth; the company’s ability to maintain or improve its operating margins; the company’s ability to identify and react to trends in consumer preferences; product supply disruptions; general economic conditions; accounting standard changes; and other factors as set forth from time to time in the company’s Securities and Exchange Commission filings, including, without limitation, the company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The company intends these forward-looking statements to speak only as of the time of this release and does not undertake to update or revise them as more information becomes available, except as required by law.
Corporate Profile
Sprouts is the place where goodness grows. True to its farm-stand heritage, Sprouts offers a unique grocery experience featuring an open layout with fresh produce at the heart of the store. Sprouts inspires wellness naturally with a carefully curated assortment of better-for-you products paired with purpose-driven people. The healthy grocer continues to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. Headquartered in Phoenix, and one of the fastest growing retailers in the country, Sprouts employs approximately 35,000 team members and operates more than 350 stores in 23 states nationwide. To learn more about Sprouts, and the good it brings communities, visit about.sprouts.com.
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Thirteen<br><br><br>Weeks Ended | Thirteen<br><br><br>Weeks Ended | Thirty-nine<br><br><br>Weeks Ended | Thirty-nine<br><br><br>Weeks Ended | ||||||
|---|---|---|---|---|---|---|---|---|---|
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | ||||||
| Net sales | $ | 1,577,598 | $ | 1,440,222 | $ | 4,866,925 | $ | 4,269,844 | |
| Cost of sales | 992,829 | 963,497 | 3,075,665 | 2,843,989 | |||||
| Gross profit | 584,769 | 476,725 | 1,791,260 | 1,425,855 | |||||
| Selling, general and administrative expenses | 475,053 | 404,285 | 1,400,234 | 1,162,226 | |||||
| Depreciation and amortization (exclusive of depreciation included in cost of sales) | 31,067 | 30,764 | 92,637 | 89,788 | |||||
| Store closure and other costs, net | 268 | 2,119 | (344 | ) | 3,396 | ||||
| Income from operations | 78,381 | 39,557 | 298,733 | 170,445 | |||||
| Interest expense, net | 3,117 | 5,557 | 11,681 | 15,997 | |||||
| Income before income taxes | 75,264 | 34,000 | 287,052 | 154,448 | |||||
| Income tax provision | 15,023 | 7,740 | 67,999 | 36,453 | |||||
| Net income | $ | 60,241 | $ | 26,260 | $ | 219,053 | $ | 117,995 | |
| Net income per share: | |||||||||
| Basic | $ | 0.51 | $ | 0.22 | $ | 1.86 | $ | 0.98 | |
| Diluted | $ | 0.51 | $ | 0.22 | $ | 1.85 | $ | 0.98 | |
| Weighted average shares outstanding: | |||||||||
| Basic | 117,947 | 118,029 | 117,775 | 119,846 | |||||
| Diluted | 118,450 | 118,174 | 118,157 | 120,227 |
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
| December 29,<br><br><br>2019 | |||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | 137,518 | $ | 85,314 | ||
| Accounts receivable, net | 24,258 | 15,713 | |||
| Inventories | 257,255 | 275,979 | |||
| Prepaid expenses and other current assets | 18,948 | 10,833 | |||
| Total current assets | 437,979 | 387,839 | |||
| Property and equipment, net of accumulated depreciation | 735,670 | 741,508 | |||
| Operating lease assets, net | 1,040,329 | 1,028,436 | |||
| Intangible assets, net of accumulated amortization | 184,960 | 185,395 | |||
| Goodwill | 368,878 | 368,078 | |||
| Other assets | 14,407 | 11,727 | |||
| Total assets | 2,782,223 | $ | 2,722,983 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | 163,259 | $ | 122,839 | ||
| Accrued liabilities | 138,996 | 136,482 | |||
| Accrued salaries and benefits | 72,155 | 48,579 | |||
| Accrued income tax | 4,089 | 2,005 | |||
| Current portion of operating lease liabilities | 130,088 | 106,153 | |||
| Current portion of finance lease liabilities | 994 | 754 | |||
| Total current liabilities | 509,581 | 416,812 | |||
| Long-term operating lease liabilities | 1,074,267 | 1,078,927 | |||
| Long-term debt and finance lease liabilities | 285,704 | 549,419 | |||
| Other long-term liabilities | 50,140 | 41,517 | |||
| Deferred income tax liability | 54,585 | 54,356 | |||
| Total liabilities | 1,974,277 | 2,141,031 | |||
| Commitments and contingencies (Note 6) | |||||
| Stockholders’ equity: | |||||
| Undesignated preferred stock; 0.001 par value; 10,000,000 shares<br> authorized, no shares issued and outstanding | — | — | |||
| Common stock, 0.001 par value; 200,000,000 shares authorized,<br> 117,950,276 shares issued and outstanding, September 27, 2020;<br> 117,543,668 shares issued and outstanding, December 29, 2019 | 117 | 117 | |||
| Additional paid-in capital | 682,709 | 670,966 | |||
| Accumulated other comprehensive income (loss) | (9,484 | ) | (4,682 | ) | |
| Retained earnings (Accumulated deficit) | 134,604 | (84,449 | ) | ||
| Total stockholders’ equity | 807,946 | 581,952 | |||
| Total liabilities and stockholders’ equity | 2,782,223 | $ | 2,722,983 |
All values are in US Dollars.
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
| Thirty-nine<br><br><br>Weeks Ended | Thirty-nine<br><br><br>Weeks Ended | |||||
|---|---|---|---|---|---|---|
| September 27, 2020 | September 29, 2019 | |||||
| Cash flows from operating activities | ||||||
| Net income | $ | 219,053 | $ | 117,995 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation and amortization expense | 94,748 | 91,546 | ||||
| Operating lease asset amortization | 71,765 | 62,251 | ||||
| Store closure and other costs, net | (321 | ) | 850 | |||
| Share-based compensation | 10,400 | 6,901 | ||||
| Deferred income taxes | 228 | (245 | ) | |||
| Other non-cash items | 1,996 | (2,873 | ) | |||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 7,372 | 28,978 | ||||
| Inventories | 18,724 | (21,348 | ) | |||
| Prepaid expenses and other current assets | (8,937 | ) | (2,379 | ) | ||
| Other assets | (2,575 | ) | (762 | ) | ||
| Accounts payable | 45,806 | 63,947 | ||||
| Accrued liabilities | (7 | ) | 32,963 | |||
| Accrued salaries and benefits | 23,577 | (4,054 | ) | |||
| Accrued income tax | 2,083 | 3,764 | ||||
| Operating lease liabilities | (79,602 | ) | (52,209 | ) | ||
| Other long-term liabilities | 5,954 | (2,013 | ) | |||
| Cash flows from operating activities | 410,264 | 323,312 | ||||
| Cash flows used in investing activities | ||||||
| Purchases of property and equipment | (95,874 | ) | (146,480 | ) | ||
| Cash flows used in investing activities | (95,874 | ) | (146,480 | ) | ||
| Cash flows used in financing activities | ||||||
| Proceeds from revolving credit facilities | — | 187,405 | ||||
| Payments on revolving credit facilities | (263,000 | ) | (125,405 | ) | ||
| Payments on finance lease obligations | (474 | ) | (536 | ) | ||
| Repurchase of common stock | — | (163,310 | ) | |||
| Proceeds from exercise of stock options | 1,343 | 4,483 | ||||
| Other | — | (320 | ) | |||
| Cash flows used in financing activities | (262,131 | ) | (97,683 | ) | ||
| Increase in cash, cash equivalents, and restricted cash | 52,259 | 79,149 | ||||
| Cash, cash equivalents, and restricted cash at beginning of the period | 86,785 | 2,248 | ||||
| Cash, cash equivalents, and restricted cash at the end of the period | $ | 139,044 | $ | 81,397 |
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with accounting principles generally accepted in the United States (“GAAP”), the company presents EBITDA, adjusted EBITDA, adjusted EBIT, adjusted net income and adjusted diluted earnings per share. These measures are not in accordance with, and are not intended as alternatives to, GAAP. The company's management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses these measures for reviewing the financial results of the company, and certain of these measures may be used as components of incentive compensation.
The company defines EBITDA as net income before interest expense, provision for income tax, and depreciation, amortization and accretion and adjusted EBITDA as EBITDA excluding the impact of special items. The company defines adjusted EBIT, adjusted net income and adjusted diluted earnings per share by adjusting the applicable GAAP measure to remove the impact of special items.
Non-GAAP measures are intended to provide additional information only and do not have any standard meanings prescribed by GAAP. Use of these terms may differ from similar measures reported by other companies. Because of their limitations, non-GAAP measures should not be considered as a measure of discretionary cash available to use to reinvest in the growth of the company’s business, or as a measure of cash that will be available to meet the company’s obligations. Each non-GAAP measure has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of the company’s results as reported under GAAP.
The following table shows a reconciliation of adjusted EBITDA to net income for the thirteen and thirty-nine weeks ended September 27, 2020 and September 29, 2019 and a reconciliation of EBIT, net income and diluted earnings per share to adjusted EBIT, adjusted net income and adjusted diluted earnings per share for the thirteen and thirty-nine weeks ended September 27, 2020 and September 29, 2019:
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NON-GAAP MEASURE RECONCILIATION
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Thirteen<br><br><br>Weeks Ended | Thirteen<br><br><br>Weeks Ended | Thirty-nine<br><br><br>Weeks Ended | Thirty-nine<br><br><br>Weeks Ended | |||||
|---|---|---|---|---|---|---|---|---|
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | |||||
| Net income | $ | 60,241 | $ | 26,260 | $ | 219,053 | $ | 117,995 |
| Income tax provision | 15,023 | 7,740 | 67,999 | 36,453 | ||||
| Interest expense, net | 3,117 | 5,557 | 11,681 | 15,997 | ||||
| Earnings before interest and taxes (EBIT) | 78,381 | 39,557 | 298,733 | 170,445 | ||||
| Special items: | ||||||||
| Strategic initiatives^(1)^ | 2,416 | — | 7,033 | — | ||||
| Store closures^(2)^ | — | — | — | 508 | ||||
| Adjusted EBIT | 80,797 | 39,557 | 305,766 | 170,953 | ||||
| Depreciation, amortization and accretion | 31,647 | 31,335 | 94,428 | 91,546 | ||||
| Adjusted EBITDA | $ | 112,444 | $ | 70,892 | $ | 400,194 | $ | 262,499 |
| Net income | $ | 60,241 | $ | 26,260 | $ | 219,053 | $ | 117,995 |
| Special Items: | ||||||||
| Strategic initiatives, net of tax^(1)^ | 1,795 | — | 5,226 | — | ||||
| Store closures, net of tax^(2)^ | — | — | — | 377 | ||||
| Adjusted Net income | $ | 62,036 | $ | 26,260 | $ | 224,279 | $ | 118,372 |
| Diluted earnings per share | $ | 0.51 | $ | 0.22 | $ | 1.85 | $ | 0.98 |
| Adjusted diluted earnings per share | $ | 0.52 | $ | 0.22 | $ | 1.90 | $ | 0.98 |
| Diluted weighted average shares outstanding | 118,450 | 118,174 | 118,157 | 120,227 | ||||
| (1) | Includes professional fees related to our ongoing strategic initiatives. After-tax impact includes the tax benefit on the pre-tax charge. | |||||||
| --- | --- | |||||||
| (2) | Includes the direct costs associated with store closures and relocation. After-tax impact includes the tax benefit on the pre-tax charge. | |||||||
| --- | --- |
Source: Sprouts Farmers Market, Inc.
Phoenix, AZ
10/28/20