Press Release

Sprouts Farmers Market, Inc. Reports First Quarter 2018 Results

Company Release - 5/3/2018 9:00 AM ET

PHOENIX, May 03, 2018 (GLOBE NEWSWIRE) -- Sprouts Farmers Market, Inc. (Nasdaq:SFM) today reported results for the 13-week first quarter ended April 1, 2018. 

First Quarter Highlights:

  • Net sales of $1.3 billion; a 14% increase from the same period in 2017
  • Comparable store sales growth of 2.7% and two-year comparable store sales growth of 3.8%
  • Net income of $67 million; a 44% increase from the same period in 2017
  • Diluted earnings per share of $0.50; a 52% increase from the same period in 2017

“Our proven Sprouts business model delivered double-digit sales growth of 14%, strong new store productivity and solid EBITDA growth of 12% in the first quarter of the year,” said Amin Maredia, chief executive officer of Sprouts Farmers Market. “Our strong new store openings in both existing and new markets demonstrate our appeal to a broad base of consumers looking for healthy products at affordable prices. Our strategic initiatives remain on track and are setting the foundation for future success.”

First Quarter 2018 Financial Results

Net sales for the first quarter of 2018 were $1.3 billion, a 14% increase compared to the same period in 2017. Net sales growth was driven by strong performance in new stores opened and a 2.7% increase in comparable store sales. Comparable store sales were impacted by slight deflation during the quarter, the calendar shift in the New Year's holiday, and tight produce supply early in the quarter.

Gross profit for the quarter increased 15% to $387 million, resulting in a gross profit margin of 30.1%, an increase of approximately 25 basis points compared to the same period in 2017.  This leverage was primarily driven by improved merchandise margins.

Direct store expense (“DSE”) for the quarter increased 15% to $263 million, or 20.4% of sales, compared to 20.3% in the same period in 2017.  This deleverage is primarily driven by higher holiday pay related to the calendar shift in New Years, as well as increased benefit costs and depreciation.  This was partially offset by labor productivity improvement and other operating efficiencies.

Selling, general and administrative expenses (“SG&A”) for the quarter increased 29% to $41 million, or 3.2% of sales, compared to 2.8% in the same period in 2017. This primarily reflects costs associated with strategic technology investments, as well as cycling lower stock-based compensation and bonus expenses in the prior year.

Net income for the quarter was $67 million, a 44% increase compared to net income for the same period in 2017 and diluted earnings per share was $0.50, an increase of $0.17 or 52%, as compared to diluted earnings per share for the same period in 2017. This increase was driven by a lower effective tax rate due to the Tax Cuts and Jobs Act and the exercise of expiring pre-IPO options, higher sales and margins, and fewer shares outstanding due to our repurchase program. 

Growth and Development

During the first quarter of 2018, we opened 9 new stores: three in Arizona, two in New Mexico and one each in California, North Carolina, Florida and our first store in the state of Maryland. Four additional stores have been opened in the second quarter to date, resulting in a total of 298 stores in 16 states as of May 3, 2018.

Leverage and Liquidity

We generated cash from operations of $104 million for the first quarter of 2018 and invested $38 million in capital expenditures net of landlord reimbursement, primarily for new stores. In addition, we repurchased 3.3 million shares of common stock for a total investment of $83 million. We ended the quarter with a $368 million balance on our revolving credit facility, $27 million of letters of credit outstanding under the facility, $21 million in cash and cash equivalents, and $394 million available under our current share repurchase authorizations.  Subsequent to the end of the first quarter and through April 30, 2018, we have repurchased 44 thousand shares of common stock for a total investment of $1 million.

During the first quarter, we closed on an amended and restated credit agreement that increased our total commitment to $700 million, from $450 million, extending its maturity through March 2023 and adding financial flexibility.

2018 Outlook

As previously communicated, with the savings from the Tax Cuts and Jobs Act(1), we will be investing $10 million, or approximately one third of our tax savings in team member wages and benefits.  The following provides information on our guidance for 2018:

 Full-Year 2018
Current Guidance
Full-Year 2018
Prior Guidance
Net sales growth10.5% to 11.5%11.5% to 12.5%
Unit growthApproximately 30 storesApproximately 30 stores
Comparable store sales growth1.5% to 2.5%2.5% to 3.5%
Diluted earnings per share$1.22 to $1.28$1.22 to $1.28
Effective tax rate19% to 20% (1)19% to 20% (1)
Capital expenditures$165M to $170M$165M to $170M
(net of landlord reimbursements)  


Footnotes

(1)The lower effective tax rate is due to the Tax Cuts and Jobs Act and 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.
  

First Quarter 2018 Conference Call

We will hold a conference call at 7 a.m. Pacific Daylight Time (10 a.m. Eastern Daylight Time) on Thursday, May 3, 2018, during which Sprouts executives will further discuss our first quarter 2018 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: 1759509

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: 1759509.

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 opportunities. 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. specializes in fresh, natural and organic products at prices that appeal to everyday grocery shoppers. Based on the belief that healthy food should be affordable, Sprouts’ welcoming environment and knowledgeable team members continue to drive its growth. Sprouts offers a complete shopping experience that includes an array of fresh produce in the heart of the store, a deli with prepared entrees and side dishes, The Butcher Shop, The Fish Market, an expansive vitamins and supplements department and more. Headquartered in Phoenix, Arizona, Sprouts employs more than 28,000 team members and operates in nearly 300 stores in 16 states from coast to coast. Visit about.sprouts.com for more information.

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

  Thirteen
Weeks Ended
 
  April 1, 2018  April 2, 2017 
Net sales $1,287,196  $1,130,645 
Cost of sales, buying and occupancy  900,144   793,359 
Gross profit  387,052   337,286 
Direct store expenses  262,595   229,058 
Selling, general and administrative expenses  41,447   32,168 
Store pre-opening costs  3,320   3,458 
Store closure and other costs  10   91 
Income from operations  79,680   72,511 
Interest expense  (6,065)  (4,738)
Other income  208   95 
Income before income taxes  73,823   67,868 
Income tax provision  (7,199)  (21,581)
Net income $66,624  $46,287 
Net income per share:        
Basic $0.50  $0.34 
Diluted $0.50  $0.33 
Weighted average shares outstanding:        
Basic  132,423   137,069 
Diluted  133,752   140,147 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

  April 1, 2018  December 31, 2017 
ASSETS        
Current assets:        
Cash and cash equivalents $21,356  $19,479 
Accounts receivable, net  26,746   25,893 
Inventories  239,611   229,542 
Prepaid expenses and other current assets  27,301   24,593 
Total current assets  315,014   299,507 
Property and equipment, net of accumulated depreciation  738,656   713,031 
Intangible assets, net of accumulated amortization  195,855   196,205 
Goodwill  368,078   368,078 
Other assets  9,541   4,782 
Total assets $1,627,144  $1,581,603 
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable and other accrued liabilities $270,385  $244,853 
Accrued salaries and benefits  33,569   45,623 
Current portion of capital and financing lease obligations  11,964   9,238 
Total current liabilities  315,918   299,714 
Long-term capital and financing lease obligations  122,833   125,489 
Long-term debt  368,000   348,000 
Other long-term liabilities  134,215   130,640 
Deferred income tax liability  37,695   27,066 
Total liabilities  978,661   930,909 
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, 131,860,411 shares issued and outstanding, April 1, 2018; 132,823,981 shares issued and outstanding, December 31, 2017  131   132 
Additional paid-in capital  631,631   620,788 
Accumulated other comprehensive income (loss)  2,536   (784)
Retained earnings  14,185   30,558 
Total stockholders' equity  648,483   650,694 
Total liabilities and stockholders' equity $1,627,144  $1,581,603 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 (IN THOUSANDS)

  Thirteen
Weeks Ended
 
  April 1, 2018  April 2, 2017 
Cash flows from operating activities        
Net income $66,624  $46,287 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization expense  26,810   22,622 
Accretion of asset retirement obligation and closed store reserve  79   19 
Amortization of financing fees and debt issuance costs  376   116 
Loss on disposal of property and equipment  79   45 
Equity-based compensation  3,968   2,446 
Deferred income taxes  10,629   8,878 
Changes in operating assets and liabilities:        
Accounts receivable  (1,957)  213 
Inventories  (10,069)  196 
Prepaid expenses and other current assets  (2,135)  (1,350)
Other assets  (1,070)  (27)
Accounts payable and other accrued liabilities  18,637   31,547 
Accrued salaries and benefits  (11,995)  (1,642)
Other long-term liabilities  4,511   5,187 
    Cash flows from operating activities  104,487   114,537 
Cash flows used in investing activities        
Purchases of property and equipment  (44,158)  (57,205)
Proceeds from sale of property and equipment     30 
    Cash flows used in investing activities  (44,158)  (57,175)
Cash flows used in financing activities        
Proceeds from revolving credit facilities  40,000   60,000 
Payments on revolving credit facilities  (20,000)  (30,000)
Payments on capital and financing lease obligations  (1,039)  (1,093)
Payments of deferred financing costs  (2,131)   
Cash from landlords related to financing lease obligations  900   300 
Repurchase of common stock  (83,000)  (80,000)
Proceeds from exercise of stock options  6,877   2,292 
Other  (59)   
    Cash flows used in financing activities  (58,452)  (48,501)
    Increase in cash and cash equivalents  1,877   8,861 
Cash and cash equivalents at beginning of the period  19,479   12,465 
Cash and cash equivalents at the end of the period $21,356  $21,326 

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. 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 weeks ended April 1, 2018 and April 2, 2017:

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NON-GAAP MEASURE RECONCILIATION
(UNAUDITED)
(IN THOUSANDS)

  Thirteen
Weeks Ended
 
  April 1, 2018  April 2, 2017 
Net income $66,624  $46,287 
Income tax provision  7,199   21,581 
Interest expense, net  6,064   4,738 
Earnings before interest and taxes (EBIT)  79,887   72,606 
Depreciation, amortization and accretion  26,889   22,641 
Earnings before interest, taxes, depreciation and amortization (EBITDA) $106,776  $95,247 


  
Investor Contact: Media Contact:
Susannah LivingstonDonna Egan
(602) 682-1584(602) 682-3152
susannahlivingston@sprouts.com media@sprouts.com

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Source: Sprouts Farmers Market