Sprouts Farmers Market, Inc.

Previous wording

You should read the following discussion of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the 2025 fiscal year, filed on February 19, 2026 (“Form 10-K”) with the Securities and Exchange Commission. All dollar amounts included below are in thousands, unless otherwise noted.

Current wording

You should read the following discussion of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the 2025 fiscal year, filed with the Securities and Exchange Commission ("SEC") on February 19, 2026 (“2025 Form 10-K”). All dollar amounts included below are in thousands, unless otherwise noted.

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 483 stores in 25 statesas of March 29, 2026, 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 490 stores in 25 statesas of June 28, 2026, we are one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States.

Previous wording

•Market Expansion. 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 29, 2026, we have opened 118 new stores and remodeled one store featuring our updated 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

•Market Expansion. 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 28, 2026, we have opened 125 new stores and remodeled one store featuring our updated 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

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 wording

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.

Previous wording

Net sales during the thirteen weeks ended March 29, 2026 totaled $2.3 billion, an increase of $92.7 million, or 4%, compared to the thirteen weeks ended March 30, 2025. The sales increase was driven by sales from new stores opened in the last twelve months, partially offset by a 1.7% decrease in comparable store sales. Comparable stores contributed approximately 93% of total sales for the thirteen weeks ended March 29, 2026 and March 30, 2025.

Current wording

Net sales during the thirteen weeks ended June 28, 2026 totaled $2.3 billion, an increase of $105.2 million, or 5%, compared to the thirteen weeks ended June 29, 2025. The sales increase was driven by sales from new stores opened in the last twelve months, partially offset by a 1.0% decrease in comparable store sales. Comparable stores contributed approximately 93% of total sales for the thirteen weeks ended June 28, 2026 and June 29, 2025.

Previous wording

Gross profit totaled $917.3 million during the thirteen weeks ended March 29, 2026, an increase of $30.9 million, or 3%, compared to the thirteen weeks ended March 30, 2025, driven by increased sales volume from new stores. Gross margin decreased by 0.2% to 39.4% for the thirteen weeks ended March 29, 2026, compared to 39.6% for the thirteen weeks ended March 30, 2025, primarily driven by the impact from our loyalty program as well as unfavorable shrink.

Current wording

Gross profit totaled $900.6 million during the thirteen weeks ended June 28, 2026, an increase of $38.0 million, or 4%, compared to the thirteen weeks ended June 29, 2025, driven by increased sales volume from new stores. Gross margin decreased by 0.1% to 38.7% for the thirteen weeks ended June 28, 2026, compared to 38.8% for the thirteen weeks ended June 29, 2025, primarily driven by the impact from our loyalty program and elevated fuel costs. This was partially offset by benefits from self-distribution and vendor participation.

Previous wording

Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $42.0 million for the thirteen weeks ended March 29, 2026, compared to $35.1 million for the thirteen weeks ended March 30, 2025. 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.

Current wording

Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $43.1 million for the thirteen weeks ended June 28, 2026, compared to $36.6 million for the thirteen weeks ended June 29, 2025. Depreciation and amortization expense primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment for new stores.

Previous wording

Store closure and other costs, net decreased $0.5 million to $1.2 million for the thirteen weeks ended March 29, 2026, compared to $1.7 million for the thirteen weeks ended March 30, 2025. Store closure and other costs, net primarily consists of ongoing occupancy costs associated with our closed store locations as well as one-time costs associated with disaster recovery activity. See Note 12, “Store Closures” of our unaudited consolidated financial statements.

Current wording

Store closure and other costs, net decreased $0.8 million to $0.8 million for the thirteen weeks ended June 28, 2026, compared to $1.5 million for the thirteen weeks ended June 29, 2025. Store closure and other costs, net primarily consist of ongoing occupancy costs associated with our closed store locations as well as one-time costs associated with disaster recovery activity.

Previous wording

The decrease in interest income, net for the thirteen weeks ended March 29, 2026 compared to the thirteen weeks ended March 30, 2025 was primarily due to lower interest rates and invested cash. See Note 4, “Long-Term Debt and Other Finance Obligations” of our unaudited consolidated financial statements.

Current wording

The change to interest expense/(income), net for the thirteen weeks ended June 28, 2026 compared to interest expense/(income), net in the thirteen weeks ended June 29, 2025 was primarily due to lower interest rates and invested cash. See Note 4, “Long-Term Debt and Other Finance Obligations” of our unaudited consolidated financial statements.

Previous wording

Net income decreased $16.3 million primarily due to decreased comparable store sales and higher selling, general and administrative expenses for the reasons discussed above.

Current wording

Net income decreased $4.5 million primarily due to decreased comparable store sales and higher selling, general and administrative expenses for the reasons discussed above.

Previous wording

Selling, general and administrative expenses increased $35.6 million, or 6%, compared to the thirteen weeks ended March 30, 2025. 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 increased slightly, primarily due to lower comparable store sales during the period, while fixed cost components, including payroll and occupancy expenses, remained relatively consistent.

Current wording

Selling, general and administrative expenses during the twenty-six weeks ended June 28, 2026 increased by $73.1 million, or 6%, compared to the twenty-six weeks ended June 29, 2025. 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 slightly, primarily due to lower comparable store sales during the period, while fixed cost components, including payroll and occupancy expenses, remained relatively consistent.

Previous wording

The effective tax rate increased to 24.0% for the thirteen weeks ended March 29, 2026 from 20.8% for the thirteen weeks ended March 30, 2025. The increase in the effective tax rate was primarily driven by a reduction in the benefit for stock-based compensation in the current year partially offset by a decrease in non-deductible executive compensation.

Current wording

The effective tax rate increased to 24.8% for the twenty-six weeks ended June 28, 2026 from 22.9% for the twenty-six weeks ended June 29, 2025. The increase in the effective tax rate was primarily driven by a reduction in the benefit for share-based compensation in the current year partially offset by a decrease in non-deductible executive compensation.

Previous wording

The decrease in diluted earnings per share of $0.10 was driven by lower net income.

Current wording

The decrease in diluted earnings per share of $0.08 was driven by lower net income, partially offset by fewer outstanding shares largely due to our share repurchase program.

Previous wording

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, we provide information regarding Return on Invested Capital (referred to as “ROIC”) as additional information about our operating results. ROIC is a non-GAAP financial measure and should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. ROIC is an important measure used by management to evaluate our investment returns on capital and provides a meaningful measure of the effectiveness of our capital allocation over time.

Current wording

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, we provide information regarding Return on Invested Capital (“ROIC”) as additional information about our operating results. ROIC is a non-GAAP financial measure and should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. ROIC is an important measure used by management to evaluate our investment returns on capital and provides a meaningful measure of the effectiveness of our capital allocation over time.

Previous wording

We define ROIC as net operating profit after tax (referred to as “NOPAT”), including the effect of capitalized operating leases, divided by average invested capital. Operating lease interest represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as a finance lease. The assumed ownership and associated interest expense are calculated using the discount rate for each lease as recorded as a component of rent expense within selling, general and administrative expenses. Invested capital reflects a trailing four-quarter average.

Current wording

We define ROIC as net operating profit after tax (“NOPAT”), including the effect of capitalized operating leases, divided by average invested capital. Operating lease interest represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as a finance lease. The assumed ownership and associated interest expense are calculated using the discount rate for each lease as recorded as a component of rent expense within selling, general and administrative expenses. Invested capital reflects a trailing four-quarter average.

Previous wording

(4)Average operating leases represents the average net present value of outstanding lease obligations over the past four trailing quarters.

Current wording

(4)Average operating leases represent the average net present value of outstanding lease obligations over the past four trailing quarters.

Previous wording

The following table sets forth the major sources and uses of cash for each of the periods set forth below, as well as our cash, cash equivalents and restricted cash at the end of each period (in thousands):

Current wording

The following table sets forth the major sources and uses of cash for each of the periods set forth below, as well as our cash, cash equivalents and restricted cash at the end of each period:

Previous wording

We have generally financed our operations principally through cash generated from operations and borrowings under our credit facilities. Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures primarily for opening new stores, remodels and maintenance, repurchases of our common stock and debt service. Our principal contractual obligations and commitments consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities. Our operating and finance leases for the rental of land, buildings, and for rental of facilities and equipment expire or become subject to renewal clauses at various dates through 2049. We believe that our existing cash, cash equivalents and restricted cash, and cash anticipated to be generated from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors, including new store openings, remodel and maintenance capital expenditures at existing stores, store initiatives and other corporate capital expenditures and activities. Our cash, cash equivalents and restricted cash position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within days from the related sale.

Current wording

We have generally financed our operations principally through cash generated from operations and borrowings under our credit facilities. Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures primarily for opening new stores, remodels and maintenance, repurchases of our common stock and debt service. Our principal contractual obligations and commitments consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities. Our operating and finance leases for the rental of land, buildings, and for rental of facilities and equipment expire or become subject to renewal clauses at various dates through 2049. We believe that our existing cash, cash equivalents and restricted cash, and cash anticipated to be generated from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months and going forward. Our future capital requirements will depend on many factors, including new store openings, remodel and maintenance capital expenditures at existing stores, store initiatives and other corporate capital expenditures and activities. Our cash, cash equivalents and restricted cash position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within days from the related sale.

Previous wording

Cash flows from operating activities decreased $63.8 million to $235.3 million for the thirteen weeks ended March 29, 2026 compared to $299.1 million for the thirteen weeks ended March 30, 2025. The decrease in cash flows from operating activities was primarily a result of lower net income adjusted for non-cash items of $4.3 million and changes in working capital of $60.6 million.

Current wording

Cash flows from operating activities decreased by $41.3 million to $369.0 million for the twenty-six weeks ended June 28, 2026 compared to $410.3 million for the twenty-six weeks ended June 29, 2025. The decrease in cash flows from operating activities was primarily a result of changes in working capital of $72.5 million partially offset by a $19.6 million decrease in payment on our operating lease liabilities, higher net income adjusted for non-cash items of $6.0 million, and a $5.5 million increase in long term liabilities.

Previous wording

Cash flows provided by operating activities from changes in working capital were $17.3 million in the thirteen weeks ended March 29, 2026 compared to $77.9 million in the thirteen weeks ended March 30, 2025. The $60.6 million decrease in cash flows from changes in working capital was primarily attributable to the following factors, each of which had a negative impact on working capital: (i) $56.8 million change in accounts payable and accrued liabilities primarily due to timing differences of payments for goods and services;(ii) $17.5 million change in accrued income tax, (iii) $7.9 million change in accounts receivable driven by the timing of collections, and (iv) $4.8 million change in accrued salaries and benefits primarily driven by increased corporate bonuses. These decreases were partially offset by a $21.5 million change in prepaid expenses and other current assets and $4.9 million change in inventory.

Current wording

Cash flows (used in)/provided by operating activities from changes in working capital were $(56.9) million in the twenty-six weeks ended June 28, 2026 compared to $15.6 million in the twenty-six weeks ended June 29, 2025. The $72.5 million decrease in cash flows from changes in working capital was primarily attributable to the following factors, each of which had a negative impact on working capital: (i) $59.5 million change in accounts payable and accrued liabilities primarily due to timing differences of payments for goods and services, (ii) $14.9 million change in accounts receivable driven by the timing of collections, (iii) $12.7 million change in accrued salaries and benefits primarily driven by the payout of annual corporate bonuses, and (iv) $1.9 million change in inventory largely driven by increased store count. These decreases were partially offset by a $16.4 million change in prepaid expenses primarily driven by tax expense exceeding tax payments.

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 $101.2 million and $59.5 million, for the thirteen weeks ended March 29, 2026 and thirteen weeks ended March 30, 2025, respectively.

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 $189.9 million and $120.3 million, for the twenty-six weeks ended June 28, 2026 and the twenty-six weeks ended June 29, 2025, respectively.

Previous wording

We expect capital expenditures to be in the range of $280 million to $310 million in 2026, 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 approximately $310 million in fiscal year 2026, including expenditures incurred to date, net of landlord reimbursements, 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 $140.2 million for the thirteen weeks ended March 29, 2026 compared to $219.1 million for the thirteen weeks ended March 30, 2025. In both periods, the cash flows used in financing activities primarily consisted of stock repurchases.

Current wording

Cash flows used in financing activities were $213.5 million for the twenty-six weeks ended June 28, 2026 compared to $293.7 million for the twenty-six weeks ended June 29, 2025. In both periods, the cash flows used in financing activities primarily consisted of repurchases of our common stock.

Previous wording

The shares under our current repurchase program may be purchased on a discretionary basis from time to time through the applicable expiration date, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. Our board’s authorization of the share repurchase program does not obligate our Company to acquire any particular amount of common stock, and the repurchase program may be commenced, suspended, or discontinued at any time.

Current wording

The shares under our current repurchase program may be purchased on a discretionary basis from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. Our board’s authorization of the share repurchase program does not obligate our Company to acquire any particular amount of common stock, and the repurchase program may be commenced, suspended, or discontinued at any time.

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. Except as otherwise disclosed in Note 4, “Long-Term Debt and Other Finance Obligations” and Note 6, "Commitments and Contingencies" of our unaudited consolidated financial statements, there have been no material changes outside the normal course of business as of March 29, 2026 in our contractual obligations and commitments from those reported in our Annual Report on Form 10-K for the fiscal year ended December 28, 2025.

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 Other Finance Obligations” and Note 6, "Commitments and Contingencies" of our unaudited consolidated financial statements, there have been no material changes outside the normal course of business as of June 28, 2026 in our contractual obligations and commitments from those reported in our 2025 Form 10-K.

Previous wording

Food inflation and deflation is affected by a variety of factors and our determination of whether to pass on the effects of inflation or deflation to our customers is made in conjunction with our overall pricing and marketing strategies, as well as our competitors’ responses. Although we may experience periodic effects on sales, gross profit, gross margins and cash flows as a result of changing prices, we do not expect the effect of inflation or deflation to have a material impact on our ability to execute our long-term business strategy.

Current wording

Food inflation and deflation are affected by a variety of factors and our determination of whether to pass on the effects of inflation or deflation to our customers is made in conjunction with our overall pricing and marketing strategies, as well as our competitors’ responses. Although we may experience periodic effects on sales, gross profit, gross margins and cash flows as a result of changing prices, we do not expect the effect of inflation or deflation to have a material impact on our ability to execute our long-term business strategy.

Previous wording

There have been no substantial changes to these estimates, or the policies related to them during the thirteen weeks ended March 29, 2026. For a full discussion of these estimates and policies, see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” in Part II — Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 28, 2025.

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 28, 2026. For a full discussion of these estimates and policies, see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” in Part II — Item 7 of our 2025 Form 10-K.