Sprouts Farmers Market Inc
For the period ended Jun 30, 2024. Filed Jul 29, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Jul 29, 2024
SFM$49.10-4.8%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-01.
0001575515-24-000095
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-07-29.
0001575515-24-000121
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 76 previous paragraphs and 97 current paragraphs.
53 unchanged; 21 reworded; 13 added; 2 removed; 0 previous and 10 current paragraphs rearranged.
Tables are not compared: 15 previous and 26 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (13)
Current report
Interest (income) expense, net
Current report
The effective tax rate increased to 25.2% for the thirteen weeks ended June 30, 2024 from 24.7% for the thirteen weeks ended July 2, 2023. The increase in the effective tax rate was primarily due to a prior period refund of interest from amended returns, partially offset by a tempered impact to the effective tax rate for executive compensation due to increased pre-tax income.
Current report
Results of Operations for Twenty-six Weeks Ended June 30, 2024 and July 2, 2023
Current report
Comparison of Twenty-six Weeks Ended June 30, 2024 to Twenty-six Weeks Ended July 2, 2023
Current report
Net Sales
Current report
Gross profit totaled $1.4 billion during the twenty-six weeks ended June 30, 2024, an increase of $164.6 million, or 13%, compared to the twenty-six weeks ended July 2, 2023, driven by increased sales volume. Gross margin increased to 38.1% for the twenty-six weeks ended June 30, 2024, compared to 37.3% for the twenty-six weeks ended July 2, 2023, due to improved inventory management and continued promotional optimization efforts as well as leverage on our supply chain from higher sales.
Current report
Selling, general and administrative expenses
Current report
Depreciation and amortization
Current report
Interest (income) expense, net
Current report
Interest (income) expense, net decreased to $0.7 million for the twenty-six weeks ended June 30, 2024, compared to $4.4 million for the twenty-six weeks ended July 2, 2023 primarily due to lower average debt outstanding and higher interest income earned as a result of higher interest rates. See Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements.
Current report
Income tax provision
Current report
Net income
Current report
Diluted earnings per share
Removed paragraphs (2)
Previous report
Interest expense, net
Previous report
The future amount and timing of interest payments are expected to vary with the outstanding amounts and then prevailing contractual interest rates. Interest payments through the March 25, 2027 maturity date of our Credit Agreement based on the outstanding amounts as of March 31, 2024 and interest rates in effect at the time of this filing, are estimated to be approximately $20.8 million, with $8.0 million payable within 12 months.
Reworded paragraphs (21)
Previous wording
Sprouts Farmers Market offers a unique specialty 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. We continue to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. From our founding in 2002, we have grown rapidly, significantly increasing our sales, store count and profitability. Headquartered in Phoenix with 414 stores in 23 statesas of March 31, 2024, we are one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States.
Current wording
Sprouts Farmers Market offers a unique specialty 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. We continue to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. From our founding in 2002, we have grown rapidly, significantly increasing our sales, store count and profitability. Headquartered in Phoenix with 419 stores in 23 statesas of June 30, 2024, we are one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States.
Previous wording
•Update Format and Expand in Select Markets. We are delivering unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer’s market heritage Sprouts is known for. From 2021 through March 31, 2024, we opened 49 new stores and remodeled one store featuring our new format. Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, which we believe will provide a long runway of approximately 10% annual unit growth.
Current wording
•Update Format and Expand in Select Markets. We are delivering unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer’s market heritage Sprouts is known for. From 2021 through June 30, 2024, we opened 54 new stores and remodeled one store featuring our new format. Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, which we believe will provide a long runway of approximately 10% annual unit growth.
Previous wording
Net sales during the thirteen weeks ended March 31, 2024 totaled $1.9 billion, an increase of $150.5 million or 9%, compared to the thirteen weeks ended April 2, 2023. The sales increase was driven by sales from new stores opened in the last twelve months and a 4.0% increase in comparable store sales. Comparable stores contributed approximately 94% of total sales for the thirteen weeks ended March 31, 2024 and approximately 97% of total sales for the thirteen weeks ended April 2, 2023.
Current wording
Net sales during the thirteen weeks ended June 30, 2024 totaled $1.9 billion, an increase of $201.3 million or 12%, compared to the thirteen weeks ended July 2, 2023. The sales increase was driven by sales from new stores opened in the last twelve months and a 6.7% increase in comparable store sales. Comparable stores contributed approximately 94% of total sales for the thirteen weeks ended June 30, 2024 and approximately 96% of total sales for the thirteen weeks ended July 2, 2023.
Previous wording
Gross profit totaled $722.3 million during the thirteen weeks ended March 31, 2024, an increase of $72.3 million or 11%, compared to the thirteen weeks ended April 2, 2023, driven by increased sales volume. Gross margin increased by 0.8% to 38.3% for the thirteen weeks ended March 31, 2024, compared to 37.5% for the thirteen weeks ended April 2, 2023, primarily driven by improved shrink management and continued promotional optimization efforts.
Current wording
Gross profit totaled $718.4 million during the thirteen weeks ended June 30, 2024, an increase of $92.4 million or 15%, compared to the thirteen weeks ended July 2, 2023, driven by increased sales volume. Gross margin increased by 0.9% to 37.9% for the thirteen weeks ended June 30, 2024, compared to 37.0% for the thirteen weeks ended July 2, 2023, primarily driven by improved inventory management and continued promotional optimization as well as positive leverage on our supply chain from the increase in sales.
Previous wording
Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $32.2 million for the thirteen weeks ended March 31, 2024, compared to $34.1 million for the thirteen weeks ended April 2, 2023. Depreciation and amortization expense primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment for new stores as well as remodel initiatives in older stores. Depreciation and amortization for the thirteen weeks ended April 2, 2023 was inclusive of $4.0 million in accelerated depreciation in connection with the decision to close certain underperforming stores during 2023. See Note 13, “Store Closures” of our unaudited consolidated financial statements.
Current wording
Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $31.5 million for the thirteen weeks ended June 30, 2024, compared to $34.0 million for the thirteen weeks ended July 2, 2023. Depreciation and amortization expense primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment for new stores as well as remodel initiatives in older stores. Depreciation and amortization for the thirteen weeks ended July 2, 2023 was inclusive of $1.9 million in accelerated depreciation in connection with the decision to close certain underperforming stores during 2023. See Note 12, “Store Closures” of our unaudited consolidated financial statements.
Previous wording
Interest expense, net decreased to $0.8 million for the thirteen weeks ended March 31, 2024, compared to $2.2 million for the thirteen weeks ended April 2, 2023, primarily due to lower average debt outstanding. See Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements.
Current wording
The decrease in interest (income) expense, net for the thirteen weeks ended June 30, 2024 compared to the thirteen weeks ended July 2, 2023 was primarily due to lower average debt outstanding and higher interest income driven by higher interest rates. See Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements.
Previous wording
The increase in diluted earnings per share of $0.39 was driven by higher net income and fewer diluted shares outstanding compared to the prior year, due primarily to the share repurchase program.
Current wording
The increase in diluted earnings per share of $0.29 was driven by higher net income and fewer diluted shares outstanding compared to the prior year, due primarily to the share repurchase program.
Previous wording
Selling, general and administrative expenses increased $53.6 million or 11%, compared to the thirteen weeks ended April 2, 2023. The increase was primarily due to the increase in new stores opened since the end of the same period of the prior year. As a percentage of net sales, selling, general and administrative expenses increased primarily due to higher holiday pay related to calendar shift in the New Year's Day holiday and higher incentive compensation costs and ecommerce fees due to strong sales performance.
Current wording
Selling, general and administrative expenses increased by $112.0 million, or 11%, compared to the twenty-six weeks ended July 2, 2023. The increase was primarily driven by the increase in new stores opened since the prior year period. As a percentage of net sales, selling, general and administrative expenses increased due to higher incentive compensation costs and ecommerce fees driven by strong sales performance and higher professional fees and other costs incurred related to strategic initiatives.
Previous wording
Store closure and other costs, net for the thirteen weeks ended March 31, 2024 of $2.0 million was primarily related to ongoing occupancy costs associated with our closed store locations. Store closure and other costs, net for the thirteen weeks ended April 2, 2023 of $28.3 million primarily consisted of $27.8 million of impairment losses related to the write-down of leasehold improvements and right-of-use assets in connection with the decision to close certain underperforming stores during 2023. See Note 13, “Store Closures” of our unaudited consolidated financial statements.
Current wording
Store closure and other costs, net decreased $25.5 million to $5.2 million, compared to $30.7 million for the twenty-six weeks ended July 2, 2023. Store closure and other costs, net during the twenty-six weeks ended June 30, 2024 was primarily related to ongoing occupancy costs associated with our closed store locations. Store closure and other costs, net during the twenty-six weeks ended July 2, 2023 primarily consisted of $27.8 million of impairment losses related to the write-down of leasehold improvements and right-of-use assets as well as other costs incurred in association with the closing of 11 underperforming stores during 2023. See Note 12, “Store Closures” of our unaudited consolidated financial statements.
Previous wording
The effective tax rate decreased to 22.6% for the thirteen weeks ended March 31, 2024 from 23.3% for the thirteen weeks ended April 2, 2023. The decrease in the effective tax rate was primarily due to an increase in excess tax benefits associated with share-based payment awards.
Current wording
The effective tax rate decreased to 23.8% for the twenty-six weeks ended June 30, 2024 from 24.0% in the same period last year. The decrease in the effective tax rate was primarily due to an increase in excess tax benefits associated with share-based payment awards and a tempered impact to the effective tax rate for executive compensation due to increased pre-tax income, partially offset by a prior period refund of interest from amended returns.
Previous wording
Net income increased $37.9 million primarily due to higher gross profit and lower store closure and other costs, net, partially offset by higher selling, general and administrative expenses for the reasons discussed above.
Current wording
Net income increased $65.9 million primarily due to higher gross profit and lower store closure and other costs, partially offset by higher selling, general and administrative expenses for the reasons discussed above.
Previous wording
Cash flows from operating activities increased $39.9 million to $219.7 million for the thirteen weeks ended March 31, 2024 compared to $179.8 million for the thirteen weeks ended April 2, 2023. The increase in cash flows from operating activities was primarily a result of favorable changes in working capital of $30.1 million and higher net income adjusted for non-cash items of $15.9 million.
Current wording
Cash flows from operating activities increased $16.5 million to $311.3 million for the twenty-six weeks ended June 30, 2024 compared to $294.8 million for the twenty-six weeks ended July 2, 2023. The increase in cash flows from operating activities was primarily a result of higher net income adjusted for non-cash items of $50.2 million, partially offset by a decrease in cash flows provided by operating activities from changes in working capital of $16.8 million and higher payments on our operating lease liabilities of $15.0 million due to growth.
Previous wording
Cash flows provided by operating activities from changes in working capital were $68.0 million in the thirteen weeks ended March 31, 2024 compared to $37.9 million in the thirteen weeks ended April 2, 2023. This $30.1 million increase in cash flow from changes in working capital was primarily attributable to a $19.7 million change in accrued liabilities primarily due to timing differences of payments for goods and services. Certain other immaterial items combined to result in an additional $10.4 million net increase in cash flows from changes in working capital.
Current wording
Cash flows provided by operating activities from changes in working capital were $36.4 million in the twenty-six weeks ended June 30, 2024 compared to $53.2 million in the twenty-six weeks ended July 2, 2023. This $16.8 million decrease in cash flow from changes in working capital was primarily attributable to a $33.9 million change in accounts payable and accrued liabilities, primarily due to timing differences of payments for goods and services, partially offset by a $10.4 million change in accounts receivable driven by the timing of collections. Certain other immaterial items combined to result in an additional $6.7 million net increase in cash flows from changes in working capital.
Previous wording
Cash flows used in investing activities consist primarily of capital expenditures in new stores, including leasehold improvements and store equipment, capital expenditures to maintain the appearance of our stores, sales enhancing initiatives and other corporate investments as well as cash outlays for acquisitions. Cash flows used in investing activities were $51.2 million and $60.1 million, for the thirteen weeks ended March 31, 2024 and thirteen weeks ended April 2, 2023, respectively. Cash flows used in investing activities during the thirteen weeks ended April 2, 2023 included our acquisition of Ronald Cohn, Inc. See Note 14, "Business Combination" of our unaudited consolidated financial statements.
Current wording
Cash flows used in investing activities consist primarily of capital expenditures in new stores, including leasehold improvements and store equipment, capital expenditures to maintain the appearance of our stores, sales enhancing initiatives and other corporate investments as well as cash outlays for acquisitions. Cash flows used in investing activities were $108.9 million and $111.7 million, for the twenty-six weeks ended June 30, 2024 and twenty-six weeks ended July 2, 2023, respectively. Cash flows used in investing activities during the twenty-six weeks ended July 2, 2023 included our acquisition of Ronald Cohn, Inc. See Note 13, "Business Combination" of our unaudited consolidated financial statements.
Previous wording
We expect capital expenditures to be in the range of $225 - $245 million in 2024, including expenditures incurred to date, net of estimated landlord tenant improvement allowances, primarily to fund investments in new stores, remodels, maintenance capital expenditures and corporate capital expenditures. We expect to fund our capital expenditures with cash on hand and cash generated from operating activities.
Current wording
We expect capital expenditures to be in the range of $225 - 245 million in 2024, including expenditures incurred to date, net of estimated landlord tenant improvement allowances, primarily to fund investments in new stores, remodels, maintenance capital expenditures and corporate capital expenditures. We expect to fund our capital expenditures with cash on hand and cash generated from operating activities.
Previous wording
Cash flows used in financing activities were $58.0 million for the thirteen weeks ended March 31, 2024 compared to $118.1 million for the thirteen weeks ended April 2, 2023. During the thirteen weeks ended March 31, 2024, cash flows used in financing activities primarily consisted of $60.0 million for stock repurchases, partially offset by $2.3 million in proceeds from the exercise of stock options.
Current wording
Cash flows used in financing activities were $226.8 million for the twenty-six weeks ended June 30, 2024 compared to $216.6 million for the twenty-six weeks ended July 2, 2023. During the twenty-six weeks ended June 30, 2024, cash flows used in financing activities primarily consisted of $125.0 million in payments on our Credit Agreement and $104.5 million for stock repurchases, partially offset by $3.3 million in proceeds from the exercise of stock options.
Previous wording
During the thirteen weeks ended April 2, 2023, cash flows used in financing activities primarily consisted of $98.3 million for stock repurchases and $25.0 million in payments on our Credit Agreement, partially offset by $5.5 million in proceeds from the exercise of stock options.
Current wording
During the twenty-six weeks ended July 2, 2023, cash flows used in financing activities primarily consisted of $148.3 million for stock repurchases and $75.0 million in payments on our Credit Agreement, partially offset by $7.2 million in proceeds from the exercise of stock options.
Previous wording
Long-term debt outstanding was $125.0 million as of March 31, 2024 and December 31, 2023.
Current wording
The Company had no long-term debt outstanding as of June 30, 2024. Long-term debt outstanding as of December 31, 2023 was $125.0 million.
Previous wording
Subsequent to March 31, 2024 and through the date of this filing, we repurchased an additional 0.3 million shares of common stock for $21.5 million, excluding excise tax.
Current wording
Subsequent to June 30, 2024 and through the date of this filing, we repurchased an additional 0.1 million shares of common stock for $7.4 million, excluding excise tax.
Previous wording
Our principal contractual obligations and commitments arising in the normal course of business consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities. There have been no material changes outside the normal course of business as of March 31, 2024 in our contractual obligations and commitments from those reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Current wording
Our principal contractual obligations and commitments arising in the normal course of business consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities. Except as otherwise disclosed in Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements, there have been no material changes outside the normal course of business as of June 30, 2024 in our contractual obligations and commitments from those reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Previous wording
There have been no substantial changes to these estimates, or the policies related to them during the thirteen weeks ended March 31, 2024. For a full discussion of these estimates and policies, see “Critical Accounting Estimates” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Current wording
There have been no substantial changes to these estimates, or the policies related to them during the thirteen and twenty-six weeks ended June 30, 2024. For a full discussion of these estimates and policies, see “Critical Accounting Estimates” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Rearranged current paragraphs (10)
Current report — wording carried from elsewhere
Selling, general and administrative expenses increased $58.4 million or 12%, compared to the thirteen weeks ended July 2, 2023. The increase was primarily due to the increase in new stores opened since the comparable period last year. As a percentage of net sales, selling, general and administrative expenses remained relatively flat as a result of sales leverage, which was partially offset by higher incentive compensation costs and ecommerce fees due to strong sales performance and higher professional fees and other costs incurred related to strategic initiatives.
Current report — wording carried from elsewhere
Store closure and other costs, net for the thirteen weeks ended June 30, 2024 of $3.2 million and for the thirteen weeks ended July 2, 2023 of $2.4 million was primarily related to ongoing occupancy costs associated with our closed store locations. See Note 12, “Store Closures” of our unaudited consolidated financial statements.
Current report — wording carried from elsewhere
Net income increased $28.0 million primarily due to higher gross profit, partially offset by higher selling, general and administrative expenses for the reasons discussed above.
Current report — wording carried from elsewhere
The following tables set forth our unaudited results of operations and other operating data for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. All dollar amounts are in thousands, unless otherwise noted.
Current report — wording carried from elsewhere
Net sales during the twenty-six weeks ended June 30, 2024 totaled $3.8 billion, an increase of $351.8 million, or 10%, over the same period of the prior fiscal year. The sales increase was primarily due to new stores opened in the last twelve months and a 5.4% increase in comparable store sales. Comparable stores contributed approximately 94% of total sales for the twenty-six weeks ended June 30, 2024 and approximately 96% of total sales for the twenty-six weeks ended July 2, 2023.
Current report — wording carried from elsewhere
Cost of sales and gross profit
Current report — wording carried from elsewhere
Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $63.7 million for the twenty-six weeks ended June 30, 2024, compared to $68.0 million for the twenty-six weeks ended July 2, 2023. Depreciation and amortization expenses (exclusive of depreciation included in cost of sales) primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment. Depreciation and amortization for the twenty-six weeks ended July 2, 2023 was inclusive of $5.9 million in accelerated depreciation in connection with the closing of certain underperforming stores during 2023. See Note 12, “Store Closures” of our unaudited consolidated financial statements.
Current report — wording carried from elsewhere
Store closure and other costs, net
Current report — wording carried from elsewhere
Income tax provision differed from the amounts computed by applying the U.S. federal income tax rate to pretax income as a result of the following:
Current report — wording carried from elsewhere
The increase in diluted earnings per share of $0.68 was driven by higher net income and fewer diluted shares outstanding compared to the prior year due primarily to the share repurchase program.