Press Release

Sprouts Farmers Market, Inc. Reports First Quarter 2016 Results

Company Release - 5/5/2016 9:00 AM ET

PHOENIX, May 05, 2016 (GLOBE NEWSWIRE) -- Sprouts Farmers Market, Inc. (Nasdaq:SFM) today reported results for the 13-week first quarter ended April 3, 2016. 

First Quarter Highlights:

  • Net sales of $993.2 million; a 16% increase from the same period in 2015
  • Comparable store sales growth of 4.8% and two-year comparable store sales growth of 9.5%
  • Net income of $46.2 million and diluted earnings per share of $0.30
  • Net Income increased 20% from adjusted net income in the same period in 2015
  • Diluted earnings per share increased 20% from adjusted diluted earnings per share the same period in 2015

“Our first quarter results reflect our customers’ continued strong engagement with the Sprouts brand, and the appeal of our fresh, natural and organic products at affordable prices,” said Amin Maredia, chief executive officer of Sprouts Farmers Market.  “Despite a near zero inflationary environment, our team delivered another solid quarter of comparable store sales growth and robust earnings improvement. We continue to further product innovation, enhance the customer experience, develop our team members and invest in infrastructure and technology, which position Sprouts for continued growth.”

In order to aid in understanding the company’s business performance, it has presented results in conformity with accounting principles generally accepted in the United States (“GAAP”) and has also presented certain non-GAAP measures which are explained and reconciled to the GAAP measures in the tables included in this release. For 2016 and 2015, the company has presented EBITDA and adjusted EBITDA, respectively. In addition, for 2015, the company has presented adjusted net income and adjusted earnings per share.  In each case, an “adjusted” measure excludes the after-tax impact of disposal of assets, store closure and exit costs, and secondary offering expenses.  For the first quarter of 2016, such adjustments would be immaterial.  Accordingly, the company has presented net income, earnings per share and EBITDA for the first quarter of 2016 without adjustment and has provided comparisons of such measures to the corresponding adjusted measures from the first quarter of 2015. Where applicable, results are first presented on a GAAP basis and then on an adjusted basis.

First Quarter 2016 Financial Results

Net sales for the first quarter of 2016 were $993.2 million, a 16% increase compared to the same period in 2015.   Net sales growth was driven by a 4.8% increase in comparable store sales and solid performance in new stores opened.

Gross profit for the quarter increased 19% to $306.5 million, resulting in a gross profit margin of 30.9%, an increase of 80 basis points compared to the same period in 2015.  This increase reflects higher margins in certain categories primarily due to deflation and more normalized promotions compared to the prior year.

Direct store expense (“DSE”) as a percentage of sales for the quarter increased 50 basis points to 19.5% compared to the same period in 2015.  This was primarily due to higher payroll expense from planned wage increases and increased training costs, partially offset by timing of the New Year’s holiday payroll.

Selling, general and administrative expenses (“SG&A”) as a percentage of sales for the quarter increased 30 basis points to 3.1%, compared to the same period in 2015. This was primarily driven by higher stock compensation costs due to executive changes and higher corporate overhead as we continue to build out infrastructure to support our growth.

Net income for the quarter was $46.2 million, or diluted earnings per share of $0.30, up $8.7 million from $37.5 million, or diluted earnings per share of $0.24 for the same period in 2015.  Excluding the after-tax impact of the loss on disposal of assets, the store closure and exit costs and secondary offering expenses in the first quarter of 2015, net income for the quarter increased 20%, compared to adjusted net income of $38.6 million for the same period in 2015.  Diluted earnings per share increased 20%, compared to adjusted diluted earnings per share of $0.25 for the same period in 2015.  These increases were driven by higher sales and margins, the benefit from lower interest expense due to a voluntary pay-down on our revolving credit facility and a more favorable interest rate resulting from our April 2015 refinancing, and a lower effective tax rate.

Growth and Development

During the first quarter of 2016, we opened 11 new stores: one each in Missouri, Tennessee and Texas; two each in Colorado and Georgia; and four in California.  Three additional stores have been opened in the second quarter to date, resulting in a total of 231 stores in 13 states as of May 5, 2016.

Leverage and Liquidity

We generated cash from operations of $97.9 million for the first quarter of 2016 and invested $31.9 million in capital expenditures net of landlord reimbursement, primarily for new stores. In addition, we purchased $59.3 million of common stock under our $150 million share repurchase program. We ended the quarter with a $160.0 million balance on our revolving credit facility, $1.7 million of letters of credit outstanding under the facility, and $145.7 million in cash and cash equivalents.

2016 Outlook

We have adjusted our 2016 net sales growth, primarily due to a lower inflationary environment and timing of new store openings, and confirm our other targets including comparable store sales growth and diluted earnings per share. The following provides information on our guidance for 2016:

 Q2 2016 
 Guidance 
Comparable store sales growth4.0% to 5.0% 
  
   Full-Year 2016 Guidance
 52-week to 52-week53-week to 52-week
Net sales growth17% to 19%15% to 17%
Unit growth36 new stores36 new stores
Comparable store sales growth (1)4% to 6%4% to 6%
EBITDA growth (2)12% to 14%9% to 11%
Diluted earnings per share (2), (3) $0.96 to $0.98$0.96 to $0.98
Capital expenditures$145M to $155M$145M to $155M
(net of landlord reimbursements)  
   

Please see the explanation and reconciliation of EBITDA, adjusted EBITDA and adjusted earnings per share to the comparable GAAP measures for the 13 weeks ended April 3, 2016 and March 29, 2015 in the tables included below.

(1) Comparable store sales growth is on an equal 52-week to 52-week basis.
(2) Compared to adjusted measures in 2015.
(3) Based on a weighted average share count of approximately 154 million shares for 2016.

First Quarter 2016 Conference Call

We will hold a conference call at 7 a.m. Pacific Daylight Time (10 a.m. Eastern Daylight Time) on Thursday, May 5, 2016, during which Sprouts executives will further discuss our first quarter 2016 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 10 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: Dial +1-408-337-0130
  • Conference ID: 88859558

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: 88859558.

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 and outlook for 2016. 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 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 rapid 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; 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.  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 Farmers Market, Inc. is a healthy grocery store offering fresh, natural and organic foods at great prices. Sprouts offer a complete shopping experience that includes fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, natural body care and household items catering to consumers’ growing interest in health and wellness. Headquartered in Phoenix, Arizona, Sprouts employs more than 22,000 team members and operates more than 230 stores in thirteen states from coast to coast. For more information, visit www.sprouts.com or @sproutsfm on Twitter.

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
   Thirteen
Weeks Ended
 Thirteen
Weeks Ended
   April 3, 2016 March 29, 2015
      
Net sales $  993,241  $  857,506 
Cost of sales, buying and occupancy    686,728     599,713 
 Gross profit    306,513     257,793 
Direct store expenses    193,778     163,190 
Selling, general and administrative expenses    30,896     24,027 
Store pre-opening costs    3,966     2,773 
Store closure and exit costs    37     1,229 
 Income from operations    77,836     66,574 
         
Interest expense    (3,601)    (5,868)
Other income    101     62 
 Income before income taxes    74,336     60,768 
Income tax provision    (28,129)    (23,301)
 Net income $  46,207  $  37,467 
Net income per share:    
 Basic $  0.31  $  0.25 
 Diluted $  0.30  $  0.24 
Weighted average shares outstanding:    
 Basic    150,723     152,235 
 Diluted    153,144     155,482 

 


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
   April 3,
 2016
 January 3,
 2016
ASSETS    
Current assets:    
 Cash and cash equivalents $  145,650  $  136,069 
 Accounts receivable, net    14,953     20,424 
 Inventories              172,552     165,434 
 Prepaid expenses and other current assets    18,741     23,288 
Total current assets                351,896     345,215 
Property and equipment, net of accumulated depreciation                507,398     494,067 
Intangible assets, net of accumulated amortization                198,300     198,601 
Goodwill                368,078     368,078 
Other assets    23,764     19,003 
Deferred income tax asset    -      1,400 
 Total assets $  1,449,436  $  1,426,364 
      
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
 Accounts payable $  157,000  $  134,480 
 Accrued salaries and benefits    25,650     30,717 
 Other accrued liabilities    44,298     50,253 
 Income tax payable    11,222     - 
 Current portion of capital and financing lease obligations    7,072     14,972 
Total current liabilities                245,242     230,422 
Long-term capital and financing lease obligations                113,942     115,500 
Long-term debt                160,000     160,000 
Other long-term liabilities                106,199     97,450 
Deferred income tax liability    6,010     - 
 Total liabilities                 631,393     603,372 
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, 150,731,088 and 152,577,884 shares issued and outstanding, April 3, 2016 and January 3, 2016                      151     153 
 Additional paid-in capital               585,545     577,393 
 Retained earnings                232,347     245,446 
Total stockholders' equity               818,043     822,992 
 Total liabilities and stockholders' equity $  1,449,436  $  1,426,364 

 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
 
    Thirteen
Weeks Ended
 Thirteen
 Weeks Ended
    April 3, 2016 March 29, 2015
Cash flows from operating activities   
Net income  $  46,207  $  37,467 
Adjustments to reconcile net income to net cash provided by operating activities:   
 Depreciation and amortization expense   18,832     15,853 
 Accretion of asset retirement obligation and closed facility reserve   80     79 
 Amortization of financing fees and debt issuance costs   116     339 
 (Gain)/Loss on disposal of property and equipment   (117)    272 
 Equity-based compensation   2,656     1,142 
 Deferred income taxes   7,410     1,657 
 Changes in operating assets and liabilities:   
  Accounts receivable   5,638     (11,895)
  Inventories   (7,119)    (5,960)
  Prepaid expenses and other current assets   4,547     (4,098)
  Other assets   (4,876)    (6,307)
  Accounts payable   15,578     29,474 
  Accrued salaries and benefits   (5,068)    (5,055)
  Other accrued liabilities   5,105     1,962 
  Other long-term liabilities   8,958     13,154 
   Net cash provided by operating activities   97,947     68,084 
       
Cash flows from investing activities   
Purchases of property and equipment   (34,000)    (33,755)
Proceeds from sale of property and equipment   662     - 
Purchase of leasehold interests   (138)    - 
   Net cash used in investing activities   (33,476)    (33,755)
       
Cash flows from financing activities   
Payments on term loan   -     (1,750)
Payments on capital lease obligations   (173)    (161)
Payments on financing lease obligations   (905)    (836)
Repurchase of common stock   (59,308)    - 
Excess tax benefit for exercise of stock options   3,563     12,199 
Proceeds from the exercise of stock options   1,933     3,425 
   Net cash (used in) provided by financing activities   (54,890)    12,877 
   Net increase in cash and cash equivalents   9,581     47,206 
Cash and cash equivalents at beginning of the period   136,069     130,513 
Cash and cash equivalents at the end of the period$  145,650  $  177,719 
        

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, the company has presented EBITDA and for 2015, adjusted net income, adjusted earnings per share and adjusted EBITDA. These measures are not in accordance with, and are not intended as an alternative to, GAAP. The company's management believes that these presentations 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 they are a component of incentive compensation. The company defines EBITDA as net income before interest expense, provision for income tax, and depreciation and amortization, and defines adjusted EBITDA as EBITDA as further adjusted to exclude store closure and exit costs, gains and losses from disposal of assets, and expenses incurred by the company in its secondary public offerings and employment taxes paid by the company in connection with options exercised in those offerings (“Public Offering Expenses”) and the loss on extinguishment of debt. The company defines adjusted net income as net income excluding, gain and losses from disposal of assets, store closure and exit costs, Public Offering Expenses , the loss on extinguishment of debt and the related tax impact of those adjustments. For the first quarter of 2016, such further adjustments to net income and EBITDA were immaterial; thus only EBITDA is presented.

These 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, none of these non-GAAP measures should be considered as a measure of discretionary cash available to use to reinvest in growth of the company’s business, or as a measure of cash that will be available to meet the company’s obligations. Each of these non-GAAP measures 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.

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NON-GAAP MEASURE RECONCILIATION
(UNAUDITED)
(IN THOUSANDS)
 
  Thirteen Weeks
Ended
 Thirteen Weeks
Ended
  April 3, 2016 March 29, 2015
     
Net income $  46,207  $  37,467 
Income tax provision    28,129     23,301 
Interest expense, net    3,601     5,863 
Earnings before interest and taxes (EBIT)    77,937     66,631 
Depreciation, amortization and accretion    18,912     15,932 
Earnings before interest, taxes, depreciation and amortization (EBITDA) $  96,849  $  82,563 
         

The following table shows a reconciliation of adjusted net income and adjusted EBITDA to net income, and adjusted earnings per share to net income per share, for the thirteen weeks ended March 29, 2015:

  Thirteen Weeks
Ended
  March 29, 2015
   
Net income $  37,467 
Income tax provision    23,301 
Net income before income taxes    60,768 
Store closure and exit costs (a)    1,229 
Loss on disposal of assets (b)    271 
Secondary offering expenses including employment taxes on options exercises (c)    335 
Adjusted income tax provision    (24,005)
Adjusted net income    38,598 
Interest expense, net    5,863 
Adjusted income tax provision (d)    24,005 
Adjusted earnings before interest and taxes (EBIT)    68,466 
Depreciation, amortization and accretion    15,875 
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) $  84,341 
   
   
Adjusted Net Income Per Share  
   
Net income per share - basic $  0.25 
Per share impact of net income adjustments $  - 
Adjusted net income per share - basic $  0.25 
   
Net income per share - diluted $  0.24 
Per share impact of net income adjustments $  0.01 
Adjusted net income per share - diluted $  0.25 
     

(a) Store closure and exit costs represents reserves established for closed stores and facilities, adjustments to those reserves for changes in expectations for sublease or actual subleases or settlements with landlords. Ongoing expenses related with the closed facilities are also included. The company excluded store closure and exit costs from its adjusted EBITDA and adjusted net income to provide period-to-period comparability of its operating results because management believed these costs did not directly reflect the ongoing performance of its store operations.

(b) Loss on disposal of assets represents the losses recorded in connection with the disposal of property and equipment.  The company excluded losses on disposals of assets from its adjusted EBITDA and adjusted net income to provide period-to-period comparability of its operating results because management believed these costs did not directly reflect the ongoing performance of its store operations.

(c) Secondary offering expenses including employment taxes on options exercises represents expenses the company incurred in its secondary public offerings and employment taxes paid by the company in connection with options exercised in those offerings. The company excluded these items from its adjusted EBITDA and adjusted net income to provide period-to-period comparability of its operating results because management believed these costs did not directly reflect the performance of its store operations.

(d) Adjusted income tax provision for all periods presented represents the income tax provision plus the tax effect of the adjustments described in notes (a) through (d) above based on statutory tax rates for the period. The company excluded these items from its adjusted income tax provision because management believed they did not directly reflect the ongoing performance of its store operations and were not reflective of its ongoing income tax provision.

Investor Contact:
Susannah Livingston
(602) 682-1584
susannahlivingston@sprouts.com

Media Contact:
Donna Egan
(602) 682-3152
donnaegan@sprouts.com

Primary Logo

Source: Sprouts Farmers Market