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) November 4, 2021
Sprouts Farmers Market, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 001-36029 | 32-0331600 |
|---|---|---|
| (State or other jurisdiction<br><br>of incorporation or organization) | (Commission<br><br>File Number) | (I.R.S. Employer<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 November 4, 2021, Sprouts Farmers Market, Inc. (the “Company”) issued a press release announcing its results of operations for its third fiscal quarter ended October 3, 2021. On the same date, the Company posted on its investor relations website, located at investors.sprouts.com, a PowerPoint presentation (the “Presentation”) that will be used by management during the Company’s earnings conference call. A copy of the press release and the Presentation are furnished herewith as Exhibits 99.1 and 99.2, respectively, and are incorporated into this Item 2.02 by reference.
The information furnished in this Item 2.02, including Exhibits 99.1 and 99.2 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 7.01. Regulation FD Disclosure.
The information set forth under Item 2.02 is hereby incorporated by reference.
The information furnished in this Item 7.01, including Exhibits 99.1 and 99.2, 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 Company does not have, and expressly disclaims, any obligation to release publicly any updates or any changes in our expectations or any change in events, conditions, or circumstances on which any forward-looking statement in the attached press release or Presentation is based.
The text of this Current Report on Form 8-K and the attached press release and Presentation are 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>Number | Description |
|---|---|
| 99.1 | Press release of Sprouts Farmers Market, Inc., dated November 4, 2021, entitled “Sprouts Farmers Market, Inc. Reports Third Quarter 2021 Results” |
| 99.2 | Sprouts Farmers Market, Inc. Presentation, dated November 4, 2021, entitled “Q3 2021 Earnings” |
| 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: November 4, 2021 | By: | /s/ Brandon F. Lombardi |
| Name: | Brandon F. Lombardi | |
| Title: | Chief Legal Officer and Corporate Secretary |
EX-99.1
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 2021 Results
PHOENIX, Ariz. – (Globe Newswire) – November 4, 2021 – Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week third quarter ended October 3, 2021.
Third Quarter Highlights(1):
Net sales of $1.5 billion; a 4% decrease from the same period in 2020 and a 5% increase from the same period in 2019
Comparable store sales growth of -5.4% and two-year comparable store sales growth of -2.1%(2)
Net income of $64 million; compared to net income of $60 million and adjusted net income(3) of $62 million in the same period in 2020; and compared to net income of $26 million from the same period in 2019
Diluted earnings per share of $0.56; compared to $0.51 diluted earnings per share and adjusted diluted earnings per share(3) of $0.52 in the same period in 2020; and compared to $0.22 diluted earnings per share from the same period in 2019
“Our third quarter sequential improvement in sales and robust profits, combined with the early performance of our two newly designed stores, give us confidence we are making progress in transforming Sprouts, built on the long-standing foundation of a farmer’s market heritage," said Jack Sinclair, chief executive officer of Sprouts Farmers Market. "Moving forward, while there is work to be done, we are supported by a robust unit growth story, passionate team members, a loyal customer base, and our fresh differentiation, providing the ingredients for long-term success as a specialty store destination."
1 The Company’s results for the third quarter of 2020 were significantly impacted by the COVID-19 pandemic. Accordingly, this presentation also includes certain comparisons to results in the third quarter of 2019.
2 To account for the 53rd week in fiscal 2020 we shifted each week back one week, thereby ignoring the first week of fiscal 2020 to better align holidays for comparison purposes. More information can be found at investors.sprouts.com under additional reports.
3 Adjusted net income and adjusted diluted earnings per share, non-GAAP financial measures, exclude the impact of certain special items. There were no such adjustments for the quarter ended October 3, 2021. See the “Non-GAAP Financial Measures” section of this release for additional information about these items.
Third Quarter 2021 Financial Results
Net sales for the third quarter of 2021 were $1.5 billion, a 4% decrease compared to the same period in 2020. The sales decrease was primarily due to a decrease of 5.4% in comparable store sales, partially offset by sales from new stores opened.
Gross profit for the quarter decreased 7.7% to $540 million, resulting in a gross profit margin of 35.8%, a decrease of 131 basis points compared to the same period in 2020. This decrease was driven by the anniversary of elevated demand during the height of the pandemic and the balancing of cost inflation and retail pricing during the quarter. Our efficient promotions, attractive everyday pricing, shrink improvement and differentiated assortment continue to result in margins superior to our historic trends, contributing to a 265 basis point increase over third quarter 2019.
Selling, general and administrative expenses ("SG&A") for the quarter decreased $52 million to $423 million, or 28% of sales. This primarily reflects lower COVID-19 pandemic response costs, including incentive compensation in the prior year, along with lower marketing and e-commerce expenses. Compared to the same period in 2019, SG&A increased 4.7%.
Depreciation and amortization for the quarter was $30 million, or 2.0% of sales, an increase of 4 basis points compared to the same period in 2020 as a result of sales deleverage.
Store closure and other costs, net for the quarter were $0.1 million compared to $0.3 million in the same period of 2020.
Net income for the quarter was $64 million, compared to $60 million for the same period in 2020. Diluted earnings per share (“EPS”) was $0.56, compared to diluted earnings per share of $0.51 and adjusted diluted earnings per share of $0.52 for the same period in 2020 (see "Non-GAAP Financial Measures”).
Unit Growth and Development
During the third quarter of 2021, Sprouts opened three new stores and had one relocation with its new store format, resulting in 366 stores in 23 states as of October 3, 2021. Due to continued difficulties in obtaining necessary equipment from third parties because of supply chain delays complicated by the COVID-19 pandemic, we expect six planned new store openings in the fourth quarter of 2021 will be delayed until 2022.
Leverage and Liquidity
Sprouts generated cash from operations of $297 million year-to-date through October 3, 2021 and invested $53 million in capital expenditures net of landlord reimbursement, primarily for new stores. Sprouts ended the quarter with a $250 million balance on its revolving credit facility, $28 million of letters of credit outstanding under the facility, $260 million in cash and cash equivalents, and $163 million available under the current share repurchase authorization. Through October 3, 2021, we had repurchased 5.4 million shares of common stock under this authorization for a total investment of $137 million. Year-to-date through November 1, 2021, we have repurchased 6.3 million shares of common stock for a total investment of $157 million.
Fourth Quarter and Full Year 2021 Outlook
We have adjusted our fiscal 2021 outlook and added a fourth quarter outlook, reflecting our year-to-date performance and our expectations for the remainder of the year:
| Fourth -Quarter 2021 Outlook | Full-Year 2021 Outlook | |
|---|---|---|
| Net sales | $1,450M - $1,475M | $6,055M - $6,080M |
| Unit growth | 9 new stores | 14 new stores, including 1 relocation |
| Comparable store sales growth | (3%) to (5%) | (7.0%) to (7.5%) |
| Adjusted EBIT | $325M to $330M | |
| Adjusted diluted earnings per share | $0.26 to $0.30 | $2.04 to $2.08 |
| Effective tax rate | Approximately 24% | |
| Capital expenditures | $95M to $105M | |
| (net of landlord reimbursements) |
Third Quarter 2021 Conference Call
Sprouts will hold a conference call at 2 p.m. Pacific Daylight Time (5 p.m. Eastern Daylight Time) on Thursday, November 4, 2021, during which Sprouts executives will further discuss third quarter 2021 financial results.
A webcast of the conference call will be available through Sprouts’ investor relations webpage located at investors.sprouts.com. Participants should register on the website approximately 15 minutes prior to the start of the webcast.
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: 6572347.
Important Information Regarding Outlook
There is no guarantee that Sprouts will achieve its projected financial expectations, which are based on management estimates, currently available information and assumptions that management believes to be reasonable. These expectations are inherently subject to significant economic, competitive and other uncertainties and contingencies, many of which are beyond the control of management. See “Forward-Looking Statements” below.
Forward-Looking Statements
Certain statements in this press release are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact (including, but not limited to, statements to the effect that Sprouts Farmers Market or its management "anticipates," "plans," "estimates," "expects," or "believes," or the negative of these terms and other similar expressions) should be considered forward-looking statements, including, without limitation, statements regarding the company’s outlook, growth, opportunities and long-term strategy. These statements involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this release. These risks and uncertainties include, without limitation, 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 competitive industry; the company’s ability to successfully open new stores; the company’s ability to manage its growth; the company’s ability to maintain or improve its operating margins; the company’s ability to identify and react to trends in consumer preferences; product supply disruptions; equipment supply disruptions; general economic conditions; 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 360 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>Weeks Ended | Thirteen<br>Weeks Ended | Thirty-nine<br>Weeks Ended | Thirty-nine<br>Weeks Ended | ||||||
|---|---|---|---|---|---|---|---|---|---|
| October 3, 2021 | September 27, 2020 | October 3, 2021 | September 27, 2020 | ||||||
| Net sales | $ | 1,509,633 | $ | 1,577,598 | $ | 4,607,073 | $ | 4,866,925 | |
| Cost of sales | 969,904 | 992,829 | 2,931,089 | 3,075,665 | |||||
| Gross profit | 539,729 | 584,769 | 1,675,984 | 1,791,260 | |||||
| Selling, general and administrative expenses | 423,416 | 475,053 | 1,299,498 | 1,400,234 | |||||
| Depreciation and amortization (exclusive of depreciation included in cost of sales) | 30,377 | 31,067 | 92,036 | 92,637 | |||||
| Store closure and other costs, net | 128 | 268 | 1,757 | (344 | ) | ||||
| Income from operations | 85,808 | 78,381 | 282,693 | 298,733 | |||||
| Interest expense, net | 2,911 | 3,117 | 8,840 | 11,681 | |||||
| Income before income taxes | 82,897 | 75,264 | 273,853 | 287,052 | |||||
| Income tax provision | 19,030 | 15,023 | 65,924 | 67,999 | |||||
| Net income | $ | 63,867 | $ | 60,241 | $ | 207,929 | $ | 219,053 | |
| Net income per share: | |||||||||
| Basic | $ | 0.56 | $ | 0.51 | $ | 1.78 | $ | 1.86 | |
| Diluted | $ | 0.56 | $ | 0.51 | $ | 1.77 | $ | 1.85 | |
| Weighted average shares outstanding: | |||||||||
| Basic | 114,201 | 117,947 | 116,497 | 117,775 | |||||
| Diluted | 114,818 | 118,450 | 117,252 | 118,157 |
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
| January 3, 2021 | |||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | 260,218 | $ | 169,697 | ||
| Accounts receivable, net | 19,475 | 14,815 | |||
| Inventories | 271,084 | 254,224 | |||
| Prepaid expenses and other current assets | 36,126 | 27,224 | |||
| Total current assets | 586,903 | 465,960 | |||
| Property and equipment, net of accumulated depreciation | 709,342 | 726,500 | |||
| Operating lease assets, net | 1,061,825 | 1,045,408 | |||
| Intangible assets, net of accumulated amortization | 184,960 | 184,960 | |||
| Goodwill | 368,878 | 368,878 | |||
| Other assets | 14,512 | 14,698 | |||
| Total assets | 2,926,420 | $ | 2,806,404 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | 171,766 | $ | 139,337 | ||
| Accrued liabilities | 144,817 | 143,402 | |||
| Accrued salaries and benefits | 46,151 | 76,695 | |||
| Current portion of operating lease liabilities | 143,385 | 135,739 | |||
| Current portion of finance lease liabilities | 1,041 | 959 | |||
| Total current liabilities | 507,160 | 496,132 | |||
| Long-term operating lease liabilities | 1,087,586 | 1,069,535 | |||
| Long-term debt and finance lease liabilities | 259,871 | 260,459 | |||
| Other long-term liabilities | 43,562 | 40,912 | |||
| Deferred income tax liability | 60,158 | 58,073 | |||
| Total liabilities | 1,958,337 | 1,925,111 | |||
| Commitments and contingencies | |||||
| Stockholders' equity: | |||||
| Undesignated preferred stock; 0.001 par value; 10,000,000 shares authorized, no shares issued and outstanding | — | — | |||
| Common stock, 0.001 par value; 200,000,000 shares authorized, 113,155,419 shares issued and outstanding, October 3, 2021; 117,953,435 shares issued and outstanding, January 3, 2021 | 113 | 118 | |||
| Additional paid-in capital | 699,870 | 686,648 | |||
| Accumulated other comprehensive loss | (5,351 | ) | (8,474 | ) | |
| Retained earnings | 273,451 | 203,001 | |||
| Total stockholders' equity | 968,083 | 881,293 | |||
| Total liabilities and stockholders' equity | 2,926,420 | $ | 2,806,404 |
All values are in US Dollars.
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
| Thirty-nine<br>Weeks Ended | Thirty-nine<br>Weeks Ended | |||||
|---|---|---|---|---|---|---|
| October 3, 2021 | September 27, 2020 | |||||
| Cash flows from operating activities | ||||||
| Net income | $ | 207,929 | $ | 219,053 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation and amortization expense | 94,422 | 94,748 | ||||
| Operating lease asset amortization | 80,295 | 71,765 | ||||
| Store closure and other costs, net | — | (321 | ) | |||
| Share-based compensation | 11,304 | 10,400 | ||||
| Deferred income taxes | 2,085 | 228 | ||||
| Other non-cash items | 883 | 1,996 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 12,999 | 7,372 | ||||
| Inventories | (16,860 | ) | 18,724 | |||
| Prepaid expenses and other current assets | (6,001 | ) | (8,937 | ) | ||
| Other assets | (2,834 | ) | (2,575 | ) | ||
| Accounts payable | 29,479 | 45,806 | ||||
| Accrued liabilities | 1,046 | (7 | ) | |||
| Accrued salaries and benefits | (30,544 | ) | 23,577 | |||
| Accrued income tax | — | 2,083 | ||||
| Operating lease liabilities | (88,664 | ) | (79,602 | ) | ||
| Other long-term liabilities | 1,120 | 5,954 | ||||
| Cash flows from operating activities | 296,659 | 410,264 | ||||
| Cash flows used in investing activities | ||||||
| Purchases of property and equipment | (70,010 | ) | (95,874 | ) | ||
| Cash flows used in investing activities | (70,010 | ) | (95,874 | ) | ||
| Cash flows used in financing activities | ||||||
| Payments on revolving credit facilities | — | (263,000 | ) | |||
| Payments on finance lease obligations | (507 | ) | (474 | ) | ||
| Repurchase of common stock | (137,484 | ) | — | |||
| Proceeds from exercise of stock options | 1,918 | 1,343 | ||||
| Cash flows used in financing activities | (136,073 | ) | (262,131 | ) | ||
| Increase in cash, cash equivalents, and restricted cash | 90,576 | 52,259 | ||||
| Cash, cash equivalents, and restricted cash at beginning of the period | 171,441 | 86,785 | ||||
| Cash, cash equivalents, and restricted cash at the end of the period | $ | 262,017 | $ | 139,044 |
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 they should not be considered in isolation or as a substitute for analysis of the company’s results as reported under GAAP.
The following table shows a reconciliation of adjusted EBITDA to net income for the thirteen and thirty-nine weeks ended October 3, 2021 and September 27, 2020 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 October 3, 2021 and September 27, 2020:
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NON-GAAP MEASURE RECONCILIATION
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Thirteen<br>Weeks Ended | Thirteen<br>Weeks Ended | Thirty-nine<br>Weeks Ended | Thirty-nine<br>Weeks Ended | |||||
|---|---|---|---|---|---|---|---|---|
| October 3, 2021 | September 27, 2020 | October 3, 2021 | September 27, 2020 | |||||
| Net income | $ | 63,867 | $ | 60,241 | $ | 207,929 | $ | 219,053 |
| Income tax provision | 19,030 | 15,023 | 65,924 | 67,999 | ||||
| Interest expense, net | 2,911 | 3,117 | 8,840 | 11,681 | ||||
| Earnings before interest and taxes (EBIT) | 85,808 | 78,381 | 282,693 | 298,733 | ||||
| Special items: | ||||||||
| Strategic initiatives (1) | — | 2,416 | — | 7,033 | ||||
| Adjusted EBIT | 85,808 | 80,797 | 282,693 | 305,766 | ||||
| Depreciation, amortization and accretion | 31,270 | 31,647 | 94,422 | 94,428 | ||||
| Adjusted EBITDA | $ | 117,078 | $ | 112,444 | $ | 377,115 | $ | 400,194 |
| Net income | $ | 63,867 | $ | 60,241 | $ | 207,929 | $ | 219,053 |
| Special Items: | ||||||||
| Strategic initiatives, net of tax (1) | — | 1,795 | — | 5,226 | ||||
| Adjusted Net income | $ | 63,867 | $ | 62,036 | $ | 207,929 | $ | 224,279 |
| Diluted earnings per share | $ | 0.56 | $ | 0.51 | $ | 1.77 | $ | 1.85 |
| Adjusted diluted earnings per share | $ | 0.56 | $ | 0.52 | $ | 1.77 | $ | 1.90 |
| Diluted weighted average shares outstanding | 114,818 | 118,450 | 117,252 | 118,157 |
(1) Includes professional fees related to strategic initiatives. After-tax impact includes the tax benefit on the pre-tax charge.
Source: Sprouts Farmers Market, Inc
Phoenix, AZ
11/4/21
Q3 2021 Earnings November 2021 Exhibit 99.2
Forward-Looking Statements Certain statements in this presentation are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein (including, but not limited to, statements to the effect that Sprouts Farmers Market, Inc. (the “Company”) or its management "anticipates," "plans," "estimates," "expects," "believes," or the negative of these terms and other similar expressions) that are not statements of historical fact should be considered forward-looking statements, including, without limitation, statements regarding the Company’s guidance, outlook, strategy, financial targets, growth and opportunities. These statements involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this presentation. These risks and uncertainties include, without limitation, risks associated with the COVID-19 pandemic; the Company’s ability to execute on its long-term strategy; the Company’s ability to successfully compete in its competitive industry; the Company’s ability to successfully open new stores; the Company’s ability to manage its rapid growth; the Company’s ability to maintain or improve its comparable store sales and operating margins; the Company’s ability to identify and react to trends in consumer preferences; product supply disruptions; equipment 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. The Company intends these forward-looking statements to speak only as of the date of this presentation and does not undertake to update or revise them as more information becomes available, except as required by law. Non-GAAP Financial Measures We refer to EBIT, adjusted EBIT, adjusted EBIT Margin, and adjusted diluted earnings per share, each of which is a Non-GAAP Financial Measure. These measures are not prepared in accordance with, and are not intended as alternatives to, generally accepted accounting principles in the United States, or GAAP. The Company's management believes that such measures provide 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 EBIT, as net income before interest expense and provision for income tax, and adjusted EBIT as EBIT, excluding the impact of special items. Adjusted EBIT Margin reflects adjusted EBIT, divided by net sales for the applicable period. The Company defines adjusted diluted earnings per share as diluted earnings per share excluding 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. To the extent forward looking non-GAAP financial measures are provided herein, they are not reconciled to comparable forward-looking GAAP measures due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation.
Chip Molloy CFO
Ongoing Strategic Changes are Producing Solid Financials 4 See the Appendix to this presentation for a reconciliation of adjusted diluted EPS to net income Q3 NET SALES $1.5B Q3 ADJUSTED DILUTED Earnings Per Share $0.56 ($ in mm) (1) Q3 NET CASH PROVIDED by OPERATIONS $119M ($ in mm)
Structurally Improved Margin Profile 5 See the Appendix to this presentation for a reconciliation of EBIT to adjusted EBIT. For 2017,2018, 2019, & 2021 adjustments to EBIT were immaterial; thus only EBIT is presented. ($ in mm) ADJUSTED EBIT & Adjusted EBIT Margin(1)
Ecommerce Remains Here to Stay and Sales Appear to be Settling at New Levels Ecommerce Penetration Customers can now shop how they like – In-Store, Pick-up, or Delivery Ecommerce Penetration ($ in mm)
2021 Fourth Quarter Outlook 7 Net Sales $1,450M to $1,475M Approximately 9 New Stores (3%) to (5%) Comps Adjusted EPS $0.26 to $0.30
2021 Annual Outlook 8 Net Sales $6,055M to $6,080M Approximately 14 New Stores, including 1 relo (7%) to (7.5%) Comps Adjusted EBIT $325M to $330M Adjusted EPS $2.04 to $2.08 Capex $95M to $105M Approximately 24% Corporate Tax Rate
Jack Sinclair CEO
Remain Focused on Innovation
Leveraging Brand Messaging with an Embedded Call to Action Broadening our mass media targeting Focusing on our competitive advantages Produce value Differentiated products Increased emphasis on call-to-action messaging Organic sale Bulk sale 72 hour sale Q4 will also highlight Holiday
Successfully Launched 2 New Format Stores in Q3, with Two More to Come in Q4 in GA and FL EARLY DAYS… Phoenix relocation – sales up significantly despite new store being 23% smaller Remodeled Tustin CA store – performance is encouraging Protein sales above company average with the emphasis on center of plate in the front of the store Deli sales above company average with more grab and go items Frozen sales up dramatically
New Format Will Significantly Reduce Cost to Build and Operate Cost to Operate On average ~20% less cost to operate Cash Investment On average ~20% less cost to build 50% lower cost in Deli fixtures 50% lower cost in Protein fixtures Partially offset by higher cost in Frozen fixtures (more doors) Labor mix benefits and self-checkout create savings Lower Rent due to reduced square footage & lower DA Improved Shrink
Appendix
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NON-GAAP MEASURE RECONCILIATION (UNAUDITED) (IN THOUSANDS) The following table shows a reconciliation of EBIT and adjusted EBIT to net income, as well as a reconciliation of net income and diluted earnings per share to adjusted net income and adjusted diluted earnings per share for the thirteen weeks ended October 3, 2021, September 27, 2020, September 29, 2019, September 30, 2018, and October 1, 2017: Appendix Includes professional fees related to strategic initiatives. After-tax impact includes the tax benefit on the pre-tax charge. During the quarter ended September 30, 2018, the Company adopted a tax calculation method change for the accelerated deduction of certain items, resulting in a discrete tax benefit of $3 million that was recognized in the third quarter of 2018. Thirteen Weeks Ended Thirteen Weeks Ended Thirteen Weeks Ended Thirteen Weeks Ended Thirteen Weeks Ended October 3, 2021 Sept 27, 2020 Sept 29, 2019 Sept 30, 2018 October 1, 2017 Net income $ 63,867 $ 60,241 $ 26,260 $ 37,500 $ 31,486 Income tax provision 19,030 15,023 7,740 7,867 16,071 Interest expense, net 2,911 3,117 5,557 7,411 5,608 Earnings before interest and taxes (EBIT) 85,808 78,381 39,557 52,778 53,165 Special Items: Strategic initiatives (1) - 2,416 - - - Total Special Items - pre tax - 2,416 - - - Adjusted EBIT $ 85,808 $ 80,797 $ 39,557 $ 52,778 $ 53,165 Net income $ 63,867 $ 60,241 $ 26,260 $ 37,500 $ 31,486 Special Items: Strategic Initiatives, net of tax $ - $ 1,795 $ - $ - $ - Adjusted Net income before one time tax benefits $ 63,867 $ 62,036 $ 26,260 $ 37,500 $ 31,486 Income tax benefit related to Tax Act and other one time tax benefits (2) - - - (2,573) - Adjusted Net income $ 63,867 $ 62,036 $ 26,260 $ 34,927 $ 31,486 Diluted EPS $ 0.56 $ 0.51 $ 0.22 $ 0.29 $ 0.23 Adjusted Diluted EPS $ 0.56 $ 0.52 $ 0.22 $ 0.27 $ 0.23 Diluted Weighted Average Shares Outstanding 114,818 118,450 118,174 127,627 136,770