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) February 25, 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><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<br><br><br>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 February 25, 2021, Sprouts Farmers Market, Inc. (the “Company”) issued a press release announcing its results of operations for its fourth fiscal quarter and fiscal year ended January 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><br>Number | Description |
| --- | --- |
| 99.1 | Press release of Sprouts Farmers Market, Inc., dated February 25, 2021, entitled “Sprouts Farmers Market, Inc. Reports Fourth Quarter and Full Year 2020 Results” |
| 99.2 | Sprouts Farmers Market, Inc. Presentation, dated February 25, 2021, entitled “Q4 & Full-Year 2020 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: February 25, 2021 | 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 FOURTH QUARTER AND FULL YEAR 2020 RESULTS
PHOENIX, Ariz. – (Globe Newswire) – February 25, 2021 – Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 14-week fourth quarter and 53-week year ended January 3, 2021. Period-over-period increases stated herein reflect the comparison of 14 and 53 weeks in fourth quarter and fiscal year 2020 to 13 and 52 weeks in fourth quarter and fiscal year 2019, respectively, unless otherwise noted.
Fourth Quarter Highlights:
| • | Net sales of $1.6 billion; a 17% increase from the same period in 2019 |
|---|---|
| • | Comparable store sales growth of 3.7% and two-year comparable store sales growth of 5.2%, both on a 13-week basis |
| --- | --- |
| • | Net income of $68 million and adjusted net income^(^^1)^^^of $70 million; compared to net income and adjusted net income of $32 million from the same period in 2019; adjusted net income increased 119% from the same period in 2019 |
| --- | --- |
| • | Diluted earnings per share of $0.58 and adjusted diluted earnings per share^(^^1)^ of $0.59; compared to diluted and adjusted diluted earnings of $0.27 per share from the same period in 2019 |
| --- | --- |
| • | Adjusted diluted earnings per share of $0.49, estimated on a 13-week basis, an 81% increase from the same period in 2019 |
| --- | --- |
Fiscal Year 2020 Highlights:
| • | Net sales of $6.5 billion; a 15% increase from 2019 |
|---|---|
| • | Comparable store sales growth of 6.9% and two-year comparable store sales growth of 8.0%, both on a 52-week basis |
| --- | --- |
| • | Net income of $287 million and adjusted net income^(^^1)^^^of $294 million; compared to net income and adjusted net income of $150 million from 2019; adjusted net income increased 96% from 2019 |
| --- | --- |
| • | Diluted earnings per share of $2.43 and adjusted diluted earnings per share^(^^1)^ of $2.49; compared to diluted and adjusted diluted earnings per share of $1.25 from 2019 |
| --- | --- |
| • | Adjusted diluted earnings per share of $2.39, estimated on a 52-week basis, a 91% increase from 2019 |
| --- | --- |
“In 2020, we generated record earnings and cash flow from a 15% increase in sales while absorbing costs associated with a 340% increase in ecommerce sales, paying record bonuses to our frontline team members, and opening 22 new stores,” said Jack Sinclair, chief executive officer of Sprouts Farmers Market. “Executing our strategic initiatives at a more rapid pace than we originally planned is fueling these encouraging results and establishing a solid base from which we can invest and grow. I want to thank not only our dedicated team members at Sprouts, but also our supply chain partners, vendors, farmers and growers, who worked collectively to make healthy food accessible to our customers in this extraordinary year.”
________________________________________________________________________________________
| ^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. |
|---|
Fourth Quarter 2020 Financial Results
Net sales for the fourth quarter 2020 were $1.6 billion, a 17% increase compared to the same period in 2019. On a 13-week comparable basis, net sales increased 8% to $1.5 billion. Net sales growth was driven by a 3.7% increase in comparable store sales, the 53rd week in 2020, continued demand from the COVID-19 pandemic, as well as solid performance in new stores opened.
Gross profit for the quarter increased 25% to $588 million, resulting in a gross profit margin of 36.7%, an increase of 235 basis points compared to the same period 2019. A number of sustainable strategic changes contributed to this increase, from promotional activities started in the fourth quarter of 2019 to shrink initiatives, as well as positive leverage from additional sales, partially accelerated by the COVID-19 landscape. The impact of the 53rd week on gross profit margin was insignificant.
Selling, general and administrative expenses (“SG&A”) for the quarter increased $76 million to $464 million, or 28.9% of sales, a deleverage of 56 basis points compared to the same period in 2019. This deleverage was primarily driven by increased ecommerce fees and higher quarterly store performance bonuses, partially offset by leveraging fixed costs on increased sales and the 53^rd^ week in 2020. Store operational expenses from COVID-19 were approximately $36 million for the fourth quarter.
Depreciation and amortization for the quarter increased 2.6% to $31 million, or 2.0% of sales, a decrease of 30 basis points compared to the same period 2019.
Net income for the quarter was $68 million and diluted earnings per share (“EPS”) was $0.58, compared with $32 million and $0.27 respectively, in 2019. Excluding the impact of special items, adjusted net income was $70 million and adjusted diluted EPS was $0.59; an increase of 119% compared to the same period in 2019 (see “Non-GAAP Financial Measures”). On an estimated 13-week comparable basis, adjusted diluted earnings per share increased 81% to $0.49.
Fiscal Year 2020 Financial Results
Net sales for fiscal year 2020 were $6.5 billion, a 15% increase compared to 2019. On a 52-week comparable basis, net sales increased 13% to $6.3 billion. Net sales growth was driven by demand from the COVID-19 pandemic, contributing to a 6.9% increase in comparable store sales, strong performance in new stores opened as well as the 53^rd^ week in 2020.
Gross profit for the year increased 26% to $2.4 billion, resulting in a gross profit margin of 36.8%, an increase of 315 basis points compared to 2019. A number of sustainable strategic changes contributed to this increase, from promotional activities to shrink initiatives, as well as positive leverage from additional sales, partially accelerated by the COVID-19 landscape. The impact of the 53rd week on gross profit margin was insignificant.
SG&A for the year increased $314 million to $1.9 billion, or 28.8% of sales, a deleverage of 130 basis points compared to 2019. Increased operational expenses from COVID-19 were approximately $176 million for the year, driving the majority of the deleverage. Additionally, we realized increased ecommerce fees from higher online sales, partially offset by leveraging fixed costs. The impact of the 53rd week on the SG&A rate was insignificant.
Depreciation and amortization for the year increased 3.0% to $124 million, or 1.9% of sales, a decrease of 20 basis points compared to 2019.
Store closure and other costs, net for the year were a credit of $0.4 million compared to a cost of $7.3 million in 2019.
Net income for the year was $287 million and diluted EPS was $2.43, compared with $150 million and $1.25, respectively, in 2019. Excluding the impact of special items, adjusted net income was $294 million and adjusted diluted EPS was $2.49; an increase of 99% compared to 2019 (see “Non-GAAP Financial Measures”). On an estimated 52-week comparable basis, adjusted diluted earnings per share increased 91% to $2.39.
Unit Growth and Development
During the fourth quarter of 2020, Sprouts opened six new stores, resulting in a total of 362 stores in 23 states as of January 3, 2021.
Leverage and Liquidity
Sprouts generated cash from operations of $494 million in fiscal 2020 and invested $96 million in capital expenditures net of landlord reimbursements, primarily for new stores. During fiscal year 2020, we paid down $288 million of outstanding debt. We ended the year with $250 million in loans and $34 million of letters of credit under our revolving credit facility, as well as $170 million in cash and cash equivalents.
Full Year 2021 Outlook
The impact that the COVID-19 pandemic will have on the U.S. economy and the Company’s fiscal 2021 results remain uncertain. Given the evolving nature of the COVID-19 pandemic on food at home demand and consumer spending, the Company is planning for fiscal 2021 based on a range of potential outcomes. The following provides information on our expected outlook for 2021:
| Full-year 2021 Guidance | |
|---|---|
| 52-week to 52-week | |
| Net sales growth | Flat to up slightly |
| Unit growth | Approximately 20 new stores |
| Comparable store sales growth | Down low to mid-single digits |
| Adjusted EBIT | $295M to $315M |
| Adjusted diluted earnings per share^^ | $1.78 to $1.91 |
| Effective tax rate | Approximately 26% |
| Capital expenditures | $140M to $160M |
| (net of landlord reimbursements) |
The company’s adjusted diluted earnings per share and adjusted EBIT outlook for the year do not include charges and costs which are expected to be similar to those charges and costs excluded from adjusted diluted earnings per share and adjusted EBIT in prior periods. Please see the explanation and reconciliation of these non-GAAP measures to the comparable GAAP measures for the 14 and 53 weeks ended January 3, 2021 and the 13 and 52 weeks ended December 29, 2019 in the tables included below.
Fourth Quarter and Full Year 2020 Conference Call
Sprouts will hold a conference call at 3 p.m. Mountain Standard Time (5 p.m. Eastern Standard Time) on Thursday, February 25, 2021, during which Sprouts executives will further discuss fourth quarter and fiscal year 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: 1285113 |
| --- | --- |
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: 1285113.
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; 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
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Fourteen weeks ended | Thirteen weeks ended | Fifty-three weeks ended | Fifty-two weeks ended | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| January 3,<br><br><br>2021 | December 29,<br><br><br>2019 | January 3,<br><br><br>2021 | December 29,<br><br><br>2019 | |||||||
| Net sales | $ | 1,601,834 | $ | 1,364,991 | $ | 6,468,759 | $ | 5,634,835 | ||
| Cost of sales | 1,013,805 | 896,028 | 4,089,470 | 3,740,017 | ||||||
| Gross profit | 588,029 | 468,963 | 2,379,289 | 1,894,818 | ||||||
| Selling, general and administrative expenses | 463,635 | 387,481 | 1,863,869 | 1,549,707 | ||||||
| Depreciation and amortization (exclusive of depreciation included<br><br><br>in cost of sales) | 31,487 | 30,703 | 124,124 | 120,491 | ||||||
| Store closure and other costs, net | (25 | ) | 3,864 | (369 | ) | 7,260 | ||||
| Income from operations | 92,932 | 46,915 | 391,665 | 217,360 | ||||||
| Interest expense, net | 3,106 | 5,195 | 14,787 | 21,192 | ||||||
| Income before income taxes | 89,826 | 41,720 | 376,878 | 196,168 | ||||||
| Income tax provision | 21,429 | 10,086 | 89,428 | 46,539 | ||||||
| Net income | $ | 68,397 | $ | 31,634 | $ | 287,450 | $ | 149,629 | ||
| Net income per share: | ||||||||||
| Basic | $ | 0.58 | $ | 0.27 | $ | 2.44 | $ | 1.25 | ||
| Diluted | $ | 0.58 | $ | 0.27 | $ | 2.43 | $ | 1.25 | ||
| Weighted average shares outstanding: | ||||||||||
| Basic | 117,951 | 117,934 | 117,821 | 119,368 | ||||||
| Diluted | 118,315 | 118,219 | 118,224 | 119,742 |
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
| December 29,<br><br><br>2019 | |||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | 169,697 | $ | 85,314 | ||
| Accounts receivable, net | 14,815 | 15,713 | |||
| Inventories | 254,224 | 275,979 | |||
| Prepaid expenses and other current assets | 27,224 | 10,833 | |||
| Total current assets | 465,960 | 387,839 | |||
| Property and equipment, net of accumulated depreciation | 726,500 | 741,508 | |||
| Operating lease assets, net | 1,045,408 | 1,028,436 | |||
| Intangible assets, net of accumulated amortization | 184,960 | 185,395 | |||
| Goodwill | 368,878 | 368,078 | |||
| Other assets | 14,698 | 11,727 | |||
| Total assets | 2,806,404 | $ | 2,722,983 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | 139,337 | $ | 122,839 | ||
| Accrued liabilities | 143,402 | 136,482 | |||
| Accrued salaries and benefits | 76,695 | 48,579 | |||
| Accrued income tax | — | 2,005 | |||
| Current portion of operating lease liabilities | 135,739 | 106,153 | |||
| Current portion of finance lease liabilities | 959 | 754 | |||
| Total current liabilities | 496,132 | 416,812 | |||
| Long-term operating lease liabilities | 1,069,535 | 1,078,927 | |||
| Long-term debt and finance lease liabilities | 260,459 | 549,419 | |||
| Other long-term liabilities | 40,912 | 41,517 | |||
| Deferred income tax liability | 58,073 | 54,356 | |||
| Total liabilities | 1,925,111 | 2,141,031 | |||
| Commitments and contingencies | |||||
| 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>117,953,435 shares issued and outstanding, January 3, 2021;<br>117,543,668 shares issued and outstanding, December 29, 2019 | 118 | 117 | |||
| Additional paid-in capital | 686,648 | 670,966 | |||
| Accumulated other comprehensive loss | (8,474 | ) | (4,682 | ) | |
| Retained earnings (Accumulated deficit) | 203,001 | (84,449 | ) | ||
| Total stockholders’ equity | 881,293 | 581,952 | |||
| Total liabilities and stockholders’ equity | 2,806,404 | $ | 2,722,983 |
All values are in US Dollars.
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
| Fifty-three<br><br><br>weeks ended | Fifty-two<br><br><br>weeks ended | |||||
|---|---|---|---|---|---|---|
| January 3,<br><br><br>2021 | December 29,<br><br><br>2019 | |||||
| Cash flows from operating activities | ||||||
| Net income | $ | 287,450 | $ | 149,629 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation and amortization expense | 126,507 | 122,804 | ||||
| Operating lease asset amortization | 99,276 | 81,842 | ||||
| Store closure and other costs, net | (321 | ) | 4,113 | |||
| Share-based compensation | 14,339 | 8,949 | ||||
| Deferred income taxes | 3,717 | (216 | ) | |||
| Other non-cash items | 3,683 | 4,136 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 25,977 | 36,062 | ||||
| Inventories | 21,754 | (11,612 | ) | |||
| Prepaid expenses and other current assets | (14,970 | ) | 19,208 | |||
| Other assets | (5,461 | ) | (1,275 | ) | ||
| Accounts payable | 20,184 | 9,420 | ||||
| Accrued liabilities | 4,296 | 17,274 | ||||
| Accrued salaries and benefits | 28,116 | 295 | ||||
| Accrued income tax | (2,005 | ) | 2,005 | |||
| Operating lease liabilities | (120,085 | ) | (88,002 | ) | ||
| Other long-term liabilities | 1,578 | 578 | ||||
| Cash flows from operating activities | 494,035 | 355,210 | ||||
| Cash flows used in investing activities | ||||||
| Purchases of property and equipment | (121,968 | ) | (183,232 | ) | ||
| Cash flows used in investing activities | (121,968 | ) | (183,232 | ) | ||
| Cash flows used in financing activities | ||||||
| Proceeds from revolving credit facilities | — | 265,405 | ||||
| Payments on revolving credit facilities | (288,000 | ) | (180,405 | ) | ||
| Payments on finance lease obligations | (754 | ) | (690 | ) | ||
| Repurchase of common stock | — | (176,310 | ) | |||
| Proceeds from exercise of stock options | 1,343 | 4,878 | ||||
| Other | — | (319 | ) | |||
| Cash flows used in financing activities | (287,411 | ) | (87,441 | ) | ||
| Increase in cash, cash equivalents, and restricted cash | 84,656 | 84,537 | ||||
| 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 | $ | 171,441 | $ | 86,785 |
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 fourteen and fifty-three weeks ended January 3, 2021 and for the thirteen and fifty-two weeks ended December 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 fourteen and fifty-three weeks ended January 3, 2021 and for the thirteen and fifty-two weeks ended December 29, 2019:
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NON-GAAP MEASURE RECONCILIATION
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Fourteen<br><br><br>weeks ended | Thirteen<br><br><br>weeks ended | Fifty-three<br><br><br>weeks ended | Fifty-two<br><br><br>weeks ended | |||||
|---|---|---|---|---|---|---|---|---|
| January 3,<br><br><br>2021 | December 29,<br><br><br>2019 | January 3,<br><br><br>2021 | December 29,<br><br><br>2019 | |||||
| Net income | $ | 68,397 | $ | 31,634 | $ | 287,450 | $ | 149,629 |
| Income tax provision | 21,429 | 10,086 | 89,428 | 46,539 | ||||
| Interest expense, net | 3,106 | 5,195 | 14,787 | 21,192 | ||||
| Earnings before interest and taxes (EBIT) | 92,932 | 46,915 | 391,665 | 217,360 | ||||
| Special Items: | ||||||||
| Strategic initiatives ^(1)^ | 1,802 | — | 8,835 | — | ||||
| Store closures ^(2)^ | — | — | — | 508 | ||||
| Adjusted EBIT | 94,734 | 46,915 | 400,500 | 217,868 | ||||
| Depreciation, amortization and accretion | 32,080 | 31,258 | 126,508 | 122,804 | ||||
| Adjusted EBITDA | $ | 126,814 | $ | 78,173 | $ | 527,008 | $ | 340,672 |
| Net income | 68,397 | 31,634 | 287,450 | 149,629 | ||||
| Special Items: | ||||||||
| Strategic initiatives, net of tax ^(1)^ | 1,339 | — | 6,565 | — | ||||
| Store closures, net of tax ^(2)^ | — | — | — | 377 | ||||
| Adjusted Net income | $ | 69,736 | $ | 31,634 | $ | 294,015 | $ | 150,006 |
| Diluted earnings per share | $ | 0.58 | $ | 0.27 | $ | 2.43 | $ | 1.25 |
| Adjusted diluted earnings per share | $ | 0.59 | $ | 0.27 | $ | 2.49 | $ | 1.25 |
| Diluted weighted average shares outstanding | 118,315 | 118,219 | 118,224 | 119,742 | ||||
| (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
2/25/2021
Q4 & Full-Year 2020 Earnings February 2021 Exhibit 99.2
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; 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 EBITDA, adjusted EBITDA, EBITDA Margin, EBIT, adjusted EBIT, adjusted EBIT Margin, adjusted diluted earnings per share and ROIC, 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 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 EBIT, as net income before interest expense and provision for income tax, and adjusted EBIT as EBIT, excluding the impact of special items. EBITDA Margin and adjusted EBIT Margin reflect adjusted EBITDA and adjusted EBIT respectively, 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. The Company defines ROIC as net operating profit after tax (“NOPAT”), including the effect of capitalized operating leases, divided by average invested capital. 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.
3 Jack Sinclair CEO
4 Record Earnings & Robust Cash Flow in 2020 Earnings Growth Cash Generation 99% EPS Percentage increase presented on 53-week basis, adjusted EPS. (1) $494M Cash from Operations
5 Innovative & Differentiated Products with Lifestyle Friendly Ingredients Attributes include(1): Organics, Paleo, Keto, Plant Based, Non-GMO, Gluten Free, Vegan, Dairy-free, Grass Fed, Raw Organics represent 23% of total sales (1) Includes all produce
6 Good value every day, complemented by meaningful basket-driving promotions Convenient omnichannel offerings Delivery in every market Pick-up in every single store Owned Shop.sprouts.com Amplified fresh produce heritage - through better buying & smarter promotions Greatly increased our reach through targeted digital advertising
Changed our Go-to-Market Approach 50% Growth in customer email database
7 7 Sprouts’ Multi-Year Business Strategy Win with Target Customer Create an Advantaged Fresh Supply Chain Deliver Financial Targets and Box Economics Update Format and Expand in Select Markets Refine Brand and Marketing Approach Shifted media mix dramatically from print to digital Relaunched the brand Focus marketing on target customers and increase share of wallet In 2020, we laid the foundation… …in 2021, the strategy starts to come to life for our customers Designed new format store focused on target customers Expanded real estate team to prepare for store growth Our new format will make its debut Roll out innovation centers in some existing stores Started construction for 2 new DCs towards our vision of all stores within 250 miles of a DC Both new DCs will be operational by the end of May Fresher product to customer in over 100 stores Margin reset thru promo, shrink improvements & buying Capability Improvements Continue: shrink/labor efficiencies & customer analytics Inventory management Operationalize target customer focus across business Refined category strategies steeped in innovation, focused on target customers Product innovation will bring the newness to life in our store and online assortment
8 Tremendous Opportunity to Gain Share in Winning Target Customer Segments 8 Consumers Spend $1.2T on Food at Home Sprouts’ Share Today We still have Significant Opportunity to Introduce Target Customers to Sprouts Note: Aided Awareness represents awareness in Sprouts’ trade area zip codes only
Once Acquired, Sprouts’ Customer Affinity is Very Strong and Inline with Best-in-Class Peers Source: Sprouts NPS study, September 2020
10 Pivoting Our Marketing Strategy to Drive More Profitable Growth with a Broader Reach OUR DIGITAL-FIRST MARKETING PLATFORM IS FOCUSED ON CONNECTING WITH OUR MOST IMPORTANT CUSTOMERS Target Audience: Connect with Health Enthusiasts and Experience Seekers Geo-Targeting: Align media investments with our most valuable trading zone zip codes Continuous Optimization: Improve customer connections in real-time across all their screens Personal Relevance: Employ data-driven comms addressing target audience’s needs and affinities HIGHER VALUE CUSTOMERS TAPPING INTO CONSUMER NEEDS HYPER-PRECISION TARGETING DATA-DRIVEN MEDIA
11 Providing Value to our Customers, but in a Way that Builds the Sprouts Brand in a More Meaningful Way NEW OLD
12 Unit growth (1) 12 High Growth Retailer - Annual Unit Growth Target of 10% or More Beyond 2021 300 – 400 New Stores in Expansion Markets 2019 & 2020 actual unit growth, 2021 outlook, 2022 and beyond represent a range of potential growth Expansion Markets Existing DCs Future DCs Existing Markets DCs opening in 2021
13 13 Savings of nearly 3000 Metric Tons of Carbon Dioxide Equivalent Creating an Advantaged Fresh Supply Chain within 250 Miles of the Majority of Stores 2 New DCs - CO & FL Transportation & Shrink Freshness & Local Produce In 2021…
14 Denise Paulonis CFO
NET SALES $6.5B +15% YoY NET CASH PROVIDED by OPERATIONS $494M
- 39% YOY ADJUSTED DILUTED Earnings Per Share $2.49
- 99% YOY 15 Sprouts is on a Stronger Foundation than Beginning of 2020 15 ($ in mm) ($ in mm) (1) See the Appendix to this presentation for a reconciliation of adjusted diluted EPS to net income 2020 is presented on a 53-week basis. (2) (2)
16 One of the Best Grocery Ecommerce Growth Stories 340% YoY Ecommerce Growth Ecommerce Penetration 9.5% Fiscal year 2020 period Customers can now shop how they like – In-Store, Pick-up, or Delivery
17 Structurally Changed Gross Margin Modest Give back from: Buying/cost benefits from abrupt restaurant closures Shrink leverage from faster moving product during COVID Short-term shrink benefit from extreme out-of-stocks early in pandemic Strategic investments
In 2021… 2020 GM Improvement
18 Structurally Improved Margin Profile 18 ADJUSTED EBIT & Adjusted EBIT Margin(1) See the Appendix to this presentation for a reconciliation of EBIT to adjusted EBIT. For 2016-2017, adjustments to EBIT were immaterial; thus only EBIT is presented. 2020 is presented on a 53-week basis 2021E represents the mid-point of our 2021 outlook (3)
19 In-line with Strategic Goals…Improving ROIC 19 ROIC (1) ROIC is a non-GAAP measure that we define as net operating profit after taxes divided by average invested capital. See the Appendix to this presentation for a reconciliation of ROIC to net income.
20 2021 Outlook 20 Flat to up Slightly Sales Growth Approximately 20 New Stores Down Low to Mid Single Digit Comps Adjusted EBIT $295M to $315M Adjusted EPS $1.78 to $1.91 Capex $140M to $160M Approximately 26% Corporate Tax Rate
21 Appendix
22 SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NON-GAAP MEASURE RECONCILIATION (UNAUDITED) (IN THOUSANDS) The following table shows a reconciliation of EBITDA and adjusted EBITDA 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 fifty-three weeks ended January 3, 2021, fifty-two weeks ended December 29, 2019, December 30, 2018, December 31, 2017, and January 1, 2017: Appendix
23 Appendix Income tax provision (benefit) includes approximately $12 million (or $0.10 per diluted share) benefit during the fifty-two weeks ended December 30, 2018 and $10 million (or $0.08 per diluted share) in the fifty-two weeks ended December 31, 2017, in excess federal and state tax benefits for share based compensation primarily associated with the exercise of expiring pre-IPO options. Prior to 2017, these tax credits were credited to stockholders’ equity. Includes professional fees related to our ongoing strategic initiatives. After-tax impact includes the tax benefit on the pre-tax charge. During the fifty-two weeks ended December 30, 2018, the Company recorded one-time pretax compensation charges of $4 million, associated with the resignation of the former CEO. The after-tax impact includes incremental tax expense associated with certain nondeductible executive compensation costs. Includes the direct costs associated with store closures and relocation. During the fifty-two weeks ended December 30, 2018, in connection with the closure of two stores, the Company recorded one-time non-cash pre-tax charges of $8 million primarily related to the estimated fair value of the lease termination obligations and asset impairments. After-tax impact includes the tax benefit on the pre-tax charge. During the fifty-two weeks ended December 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. During the fifty-two weeks ended December 31, 2017, the Company recorded a one-time benefit associated with the adoption of the 2017 Tax Cuts and Jobs Act.
24 Appendix The following table shows a reconciliation of ROIC to net income for the Company’s 2017, 2018, 2019 and 2020 fiscal years. SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NON-GAAP MEASURE RECONCILIATION (UNAUDITED) (IN THOUSANDS)