Press Release

Sprouts Farmers Market, Inc. Reports Second Quarter 2017 Results

Company Release - 8/3/2017 9:00 AM ET

PHOENIX, Aug. 03, 2017 (GLOBE NEWSWIRE) -- Sprouts Farmers Market, Inc. (Nasdaq:SFM) today reported results for the 13-week second quarter ended July 2, 2017. 

Second Quarter Highlights:

  • Net sales of $1.2 billion; a 15% increase from the same period in 2016
  • Comparable store sales growth of 1.4% and two-year comparable store sales growth of 5.5%
  • Net income of $41 million; a 10% increase from the same period in 2016
  • Diluted earnings per share of $0.29; a 16% increase from the same period in 2016
  • Increased full-year sales, comps and EPS guidance for 2017

“Sprouts’ accelerating comp sales and strong top-line growth during this competitive grocery environment demonstrates the power of our brand,” said Amin Maredia, chief executive officer of Sprouts Farmers Market. “Strategic initiatives focused on product innovation, online customer engagement and knowledgeable customer service are driving new store productivity and customer loyalty.”

Second Quarter 2017 Financial Results

Net sales for the second quarter of 2017 were $1.2 billion, a 15% increase compared to the same period in 2016.   Net sales growth was driven by strong performance in new stores opened and a 1.4% increase in comparable store sales.

Gross profit for the quarter increased 12% to $342 million, resulting in a gross profit margin of 28.9%, a decrease of 70 basis points compared to the same period in 2016.  This primarily reflects the impact of modest cost inflation coupled with the ongoing competitive environment and higher occupancy costs.

Direct store expense (“DSE”) for the quarter increased 14% to $236 million, or 19.9% of sales, compared to 20.1% in the same period in 2016.  This leverage primarily reflects our strategic focus on labor productivity improvement and operating efficiencies, partially offset by higher benefit costs.

Selling, general and administrative expenses (“SG&A”) for the quarter increased 24% to $38 million, or 3.2% of sales, compared to 3.0% in the same period in 2016. This primarily reflects higher compensation expenses and other corporate costs versus the prior year.

Net income for the quarter was $41 million, a 10% increase compared to net income for the same period in 2016. Diluted earnings per share was $0.29, an increase of $0.04 or 16%, as compared to diluted earnings per share of $0.25 for the same period in 2016. This increase was driven by higher sales, fewer shares outstanding due to our repurchase program and a lower effective tax rate primarily related to the 2017 change in accounting standards for stock-based compensation.

Fiscal Year-to-Date Financial Results
For the 26-week period ended July 2, 2017, net sales were $2.3 billion, a 14% increase compared to the same period in 2016.  Growth was driven by a 1.2% increase in comparable store sales and solid performance in new stores opened.  Net income was $87 million, a 5% increase compared to net income for the same period in 2016. Diluted earnings per share was $0.62, an increase of $0.07 or 13%, compared to diluted earnings per share of $0.55 for the same period in 2016.

Growth and Development

During the second quarter of 2017, we opened 13 new stores: two each in Colorado, Florida, Georgia and Texas and five in California.  Five additional stores have been opened in the third quarter to date, resulting in a total of 279 stores in 15 states as of August 3, 2017.

Leverage and Liquidity

We generated cash from operations of $180 million year-to-date through July 2, 2017 and invested $113 million in capital expenditures net of landlord reimbursement, primarily for new stores. In addition, we repurchased 1.8 million shares of common stock for a total investment of $40 million during the quarter. We ended the quarter with a $310 million balance on our revolving credit facility, $25 million of letters of credit outstanding under the facility, $15 million in cash and cash equivalents, and $210 million available under our current share repurchase authorization.  Subsequent to the end of the quarter and through July 31, 2017, we repurchased an additional 0.7 million shares of common stock for an investment of $16 million. Year-to-date through July 31, 2017, we have repurchased 6.6 million shares of common stock for a total investment of $136 million.

“Our strong cash generation positions Sprouts well to invest in our business for growth and enhance shareholder returns through our ongoing share repurchase program,” said Brad Lukow, chief financial officer of Sprouts Farmers Market.

2017 Outlook

The following provides information on our guidance for 2017:

 Full-Year 2017Full-Year 2017
 Current GuidancePrior Guidance
Net sales growth13% to 14%12.5% to 13.5%
Unit growth32 new stores32 new stores
Comparable store sales growth1.5% to 2.0%0.5% to 1.5%
Diluted earnings per share$0.88 to $0.92(1)  $0.87 to $0.91
Capital expenditures
(net of landlord reimbursements)
$155M to $165M$155M to $165M

(1) Guidance includes an estimated effective tax rate of 33% for 2017. The lower effective tax rate is due to the 2017 change in accounting standards related to the recognition of excess tax benefits for stock-based compensation and the associated effect of actual and estimated option exercises for the year.

Second Quarter 2017 Conference Call

We will hold a conference call at 7 a.m. Pacific Daylight Time (10 a.m. Eastern Daylight Time) on Thursday, August 3, 2017, during which Sprouts executives will further discuss our second quarter 2017 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: 52336771

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: 52336771.

Important Information Regarding Outlook

There is no guarantee that Sprouts will achieve its projected financial expectations, which are based on management estimates, currently available information and assumptions that management believes to be reasonable.   These expectations are inherently subject to significant economic, competitive and other uncertainties and contingencies, many of which are beyond the control of management.  See “Forward-Looking Statements” below.

Forward-Looking Statements

Certain statements in this press release are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact (including, but not limited to, statements to the effect that Sprouts Farmers Market or its management "anticipates," "plans," "estimates," "expects," or "believes," or the negative of these terms and other similar expressions) should be considered forward-looking statements, including, without limitation, statements regarding the company’s guidance, outlook and new store openings for 2017. 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 27,000 team members and operates more than 275 stores in 15 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
 Twenty-six
Weeks Ended
 Twenty-six
Weeks Ended
   July 2, 2017 July 3, 2016 July 2, 2017 July 3, 2016
        
Net sales $1,183,975  $1,031,643  $2,314,620  $2,024,884 
Cost of sales, buying and occupancy  841,989   725,841   1,635,348   1,412,569 
 Gross profit  341,986   305,802   679,272   612,315 
Direct store expenses  236,185   207,205   465,334   401,020 
Selling, general and administrative expenses  38,189   30,922   70,357   61,818 
Store pre-opening costs  4,141   4,213   7,599   8,179 
 Income from operations  63,471   63,462   135,982   141,298 
          
Interest expense  (5,100)  (3,661)  (9,838)  (7,262)
Other income  131   90   226   191 
 Income before income taxes  58,502   59,891   126,370   134,227 
Income tax provision  (17,534)  (22,682)  (39,115)  (50,811)
 Net income $40,968  $37,209  $87,255  $83,416 
Net income per share:        
 Basic $0.30  $0.25  $0.64  $0.56 
 Diluted $0.29  $0.25  $0.62  $0.55 
Weighted average shares outstanding:        
 Basic  136,796   149,170   136,933   149,931 
 Diluted  139,493   151,498   139,847   152,322 
        


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
 
   July 2, 2017 January 1, 2017
ASSETS    
Current assets:    
 Cash and cash equivalents $14,814 $12,465
 Accounts receivable, net  19,782  25,228
 Inventories  218,404  204,464
 Prepaid expenses and other current assets  23,409  21,869
Total current assets  276,409  264,026
Property and equipment, net of accumulated depreciation  681,065  604,660
Intangible assets, net of accumulated amortization  196,906  197,608
Goodwill  368,078  368,078
Other assets  7,751  5,521
 Total assets $1,530,209 $1,439,893
      
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
 Accounts payable $181,913 $157,550
 Accrued salaries and benefits  34,910  32,859
 Other accrued liabilities  50,150  56,376
 Current portion of capital and financing lease obligations  14,870  12,370
Total current liabilities  281,843  259,155
Long-term capital and financing lease obligations  124,749  117,366
Long-term debt  310,000  255,000
Other long-term liabilities  123,957  116,200
Deferred income tax liability  37,302  19,263
 Total liabilities  877,851  766,984
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, 136,242,909 shares issued and outstanding, July 2, 2017;
140,256,313 shares issued and outstanding, January 1, 2017
  136  140
 Additional paid-in capital  609,461  597,269
 Retained earnings  42,761  75,500
Total stockholders' equity  652,358  672,909
 Total liabilities and stockholders' equity $1,530,209 $1,439,893
      



SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(UNAUDITED) 
(IN THOUSANDS) 
  
    Twenty-six
Weeks Ended
 Twenty-six
Weeks Ended
 
    July 2, 2017 July 3, 2016 
Cash flows from operating activities    
Net income  $87,255  $83,416  
Adjustments to reconcile net income to net cash provided by operating activities:    
 Depreciation and amortization expense 46,142   38,813  
 Accretion of asset retirement obligation and closed store reserve 94   176  
 Amortization of financing fees and debt issuance costs 231   231  
 Loss on disposal of property and equipment 356   57  
 Equity-based compensation 6,239   6,325  
 Deferred income taxes 18,039   13,590  
 Changes in operating assets and liabilities:    
  Accounts receivable 4,106   3,015  
  Inventories (13,940)  (23,731) 
  Prepaid expenses and other current assets (1,549)  3,334  
  Other assets (2,450)  (4,961) 
  Accounts payable 31,234   24,768  
  Accrued salaries and benefits 2,051   (2,038) 
  Other accrued liabilities and income taxes payable (6,238)  (7,395) 
  Other long-term liabilities 8,313   12,340  
   Cash flows from operating activities 179,883   147,940  
        
Cash flows from investing activities    
Purchases of property and equipment (117,753)  (85,081) 
Proceeds from sale of property and equipment 30   662  
Purchase of leasehold interests -   (491) 
   Cash flows used in investing activities (117,723)  (84,910) 
        
Cash flows from financing activities    
Proceeds from revolving credit facility 85,000   -  
Payments on revolving credit facility (30,000)  -  
Payments on capital and financing lease obligations (2,068)  (2,130) 
Cash from landlord related to financing lease obligations 1,325   -  
Repurchase of common stock (120,000)  (124,265) 
Proceeds from exercise of stock options 5,932   2,053  
Excess tax benefit for exercise of stock options -   3,687  
   Cash flows used in financing activities (59,811)  (120,655) 
   (Decrease) / Increase in cash and cash equivalents 2,349   (57,625) 
Cash and cash equivalents at beginning of the period 12,465   136,069  
Cash and cash equivalents at the end of the period$14,814  $78,444  
        


 Non-GAAP Financial Measures

In addition to reporting financial results in accordance with accounting principles generally accepted in the United States (“GAAP”), the company has referenced EBITDA. This measure is not in accordance with, and is not intended as an alternative 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 this measure for reviewing the financial results of the company and as a component of incentive compensation. The company defines EBITDA as net income before interest expense, provision for income tax, and depreciation, amortization and accretion.

Non-GAAP measures are intended to provide additional information only and do not have any standard meanings prescribed by GAAP. Use of these terms may differ from similar measures reported by other companies. Because of their limitations, non-GAAP measures should not be considered as a measure of discretionary cash available to use to reinvest in the growth of the company’s business, or as a measure of cash that will be available to meet the company’s obligations. Each non-GAAP measure has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of the company’s results as reported under GAAP.

The following table shows a reconciliation of EBITDA to net income for the thirteen and twenty-six weeks ended July 2, 2017 and July 3, 2016:

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES  
NON-GAAP MEASURE RECONCILIATION 
(UNAUDITED) 
(IN THOUSANDS)  
           
  Thirteen Weeks
Ended
 Thirteen Weeks
Ended
 Twenty-six
Weeks Ended
 Twenty-six
Weeks Ended
  
  July 2, 2017 July 3, 2016 July 2, 2017 July 3, 2016  
          
Net income $  40,968 $  37,209 $  87,255 $  83,416  
Income tax provision    17,534    22,682    39,115    50,811  
Interest expense, net    5,100    3,661    9,838    7,261  
Earnings before interest and taxes (EBIT)    63,602    63,552    136,208    141,488  
Depreciation, amortization and accretion    23,595    20,077    46,236    38,989  
Earnings before interest, taxes, depreciation and amortization (EBITDA) $  87,197 $  83,629 $  182,444 $  180,477  
           


Source: Sprouts Farmers Market, Inc.
Phoenix, AZ
8/3/17

 

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

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

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Source: Sprouts Farmers Market