Toggle SGML Header (+)


Section 1: 8-K (8-K)

sfm-8k_20171102.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) November 2, 2017

Sprouts Farmers Market, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

001-36029

 

32-0331600

(State or other jurisdiction

of incorporation or organization)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

5455 E. High Street, Suite 111

Phoenix, Arizona 85054

(Address of principal executive offices and zip code)

(480) 814-8016

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

 


 

Item 2.02. Results of Operations and Financial Condition.

On November 2, 2017, Sprouts Farmers Market, Inc. (the “Company”) issued a press release announcing its results of operations for its third fiscal quarter ended October 1, 2017. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated into this Item 2.02 by reference.

The information furnished in this Item 2.02, including Exhibit 99.1 attached hereto and incorporated herein, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

The text of this Current Report on Form 8-K is available on the Company’s investor relations website located at investors.sprouts.com, although the Company reserves the right to discontinue that availability at any time.

Item 9.01. Financial Statements and Exhibits.

 

(d)

Exhibits

 

Exhibit

Number

  

Description

 

 

 

99.1

  

Press release of Sprouts Farmers Market, Inc., dated November 2, 2017, entitled “Sprouts Farmers Market, Inc. Reports Third Quarter 2017 Results”

 

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

SPROUTS FARMERS MARKET, INC.

 

 

 

Date: November 2, 2017

 

By:

 

/s/ Brandon F. Lombardi

 

 

Name:

 

Brandon F. Lombardi

 

 

Title:

 

Chief Legal Officer and Corporate Secretary

 

 

 

 

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

sfm-ex991_6.htm

Exhibit 99.1

 

 

 

Investor Contact:

Media Contact:

Susannah Livingston

Donna Egan

(602) 682-1584

(602) 682-3152

susannahlivingston@sprouts.com

media@sprouts.com

SPROUTS FARMERS MARKET, INC. REPORTS THIRD QUARTER 2017 RESULTS

PHOENIX, Ariz. – (Globe Newswire) – November 2, 2017 – Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week third quarter ended October 1, 2017.  

Third Quarter Highlights:

Net sales of $1.2 billion; a 16% increase from the same period in 2016

Comparable store sales growth of 4.6% and two-year comparable store sales growth of 5.9%

Net income of $31 million; a 32% increase from the same period in 2016

Diluted earnings per share of $0.23; a 44% increase from the same period in 2016

Increased full-year sales, comps and EPS guidance for 2017

 

 

“Sprouts is pleased to report strong top-line growth and demonstrate our ability to leverage those sales into exceptional earnings growth for the quarter. Sprouts’ hallmark of fresh, healthy, affordable products continues to resonate with our customers and positions us as a leader in the industry,” said Amin Maredia, chief executive officer of Sprouts Farmers Market. “We’ll continue to accelerate strategic priorities that will enhance our business – from product assortment to the digital experience to customer service. These, coupled with our technology investments to drive efficiencies, will provide the flexibility to make future investments where needed to ensure Sprouts is well-positioned for the future.”

 

Third Quarter 2017 Financial Results

Net sales for the third quarter of 2017 were $1.2 billion, a 16% increase compared to the same period in 2016. Net sales growth was driven by a 4.6% increase in comparable store sales and strong performance in new stores opened.

Gross profit for the quarter increased 19% to $346 million, resulting in a gross profit margin of 28.7%, an increase of 60 basis points compared to the same period in 2016.  This improvement was primarily driven by cycling a heightened promotional environment in the third quarter of 2016, in addition to leverage from increased comparable store sales.

Direct store expense (“DSE”) for the quarter increased 15% to $250 million, or 20.7% of sales, compared to 20.9% in the same period in 2016.  This leverage is primarily driven by improved comparable store sales, as well as operating efficiencies, partially offset by higher benefit costs.

Selling, general and administrative expenses (“SG&A”) for the quarter increased 35% to $40 million, or 3.3% of sales, compared to 2.9% in the same period in 2016. This primarily reflects higher bonus expense due to improved performance and other corporate costs versus the prior year.

Net income for the quarter was $31 million, a 32% increase compared to net income for the same period in 2016. Diluted earnings per share was $0.23, an increase of $0.07 or 44%, as compared to diluted earnings per share of $0.16 for the same period in 2016. This increase was driven by higher sales and margins, fewer shares outstanding due to our repurchase program and a lower effective tax rate.


Fiscal Year-to-Date Financial Results

For the 39-week period ended October 1, 2017, net sales were $3.5 billion, a 15% increase compared to the same period in 2016.  Growth was driven by a 2.4% increase in comparable store sales and solid performance in new stores opened.  Net income was $119 million, a 11% increase compared to net income for the same period in 2016. Diluted earnings per share was $0.86, an increase of $0.15 or 21%, compared to diluted earnings per share of $0.71 for the same period in 2016.

Growth and Development

During the third quarter of 2017, we opened 8 new stores: one each in Arizona and Florida, and two each in California, Nevada and Tennessee.  Three additional stores have been opened in the fourth quarter to date, resulting in a total of 32 new stores opened year-to-date for a total of 285 stores in 15 states as of November 2, 2017.

Leverage and Liquidity

We generated cash from operations of $259 million year-to-date through October 1, 2017 and invested $151 million in capital expenditures net of landlord reimbursement, primarily for new stores. In addition, we repurchased 3.2 million shares of common stock for a total investment of $72 million during the third quarter. We ended the quarter with a $349 million balance on our revolving credit facility, $25 million of letters of credit outstanding under the facility, $19 million in cash and cash equivalents, and $138 million available under our current share repurchase authorization.  Year-to-date through October 31, 2017, we have repurchased 9.1 million shares of common stock for a total investment of $192 million.

2017 Outlook

The following provides information on our guidance for 2017:

 

 

Full-Year 2017

Current Guidance

 

 

Full-Year 2017

Prior Guidance

Net sales growth

14.5% to 15%

 

 

13% to 14%

Unit growth

32 new stores

 

 

32 new stores

Comparable store sales growth

2.5% to 3.0%

 

 

1.5% to 2.0%

Diluted earnings per share

$0.98 to $0.99(1)

 

 

$0.88 to $0.92

Capital expenditures

Approximately $170M

 

 

$155M to $165M

(net of landlord reimbursements)

 

 

 

 

 

(1)

Guidance includes an estimated effective tax rate of 32.5% 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.

Third 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, November 2, 2017, during which Sprouts executives will further discuss our third 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: 97150787


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: 97150787.

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 future investments and positioning. 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 27,000 team members and operates more than 280 stores in 15 states from coast to coast. For more information, visit 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

 

 

Thirty-nine

Weeks Ended

 

 

Thirty-nine

Weeks Ended

 

 

 

October 1, 2017

 

 

October 2, 2016

 

 

October 1, 2017

 

 

October 2, 2016

 

Net sales

 

$

1,206,059

 

 

$

1,035,801

 

 

$

3,520,679

 

 

$

3,060,685

 

Cost of sales, buying and occupancy

 

 

859,650

 

 

 

744,288

 

 

 

2,494,998

 

 

 

2,156,857

 

Gross profit

 

 

346,409

 

 

 

291,513

 

 

 

1,025,681

 

 

 

903,828

 

Direct store expenses

 

 

250,191

 

 

 

216,932

 

 

 

715,336

 

 

 

617,817

 

Selling, general and administrative expenses

 

 

39,955

 

 

 

29,664

 

 

 

110,312

 

 

 

91,482

 

Store pre-opening costs

 

 

2,456

 

 

 

3,446

 

 

 

10,055

 

 

 

11,625

 

Store closure and other costs

 

 

803

 

 

 

24

 

 

 

992

 

 

 

159

 

Income from operations

 

 

53,004

 

 

 

41,447

 

 

 

188,986

 

 

 

182,745

 

Interest expense

 

 

(5,609

)

 

 

(3,723

)

 

 

(15,447

)

 

 

(10,985

)

Other income

 

 

162

 

 

 

135

 

 

 

388

 

 

 

326

 

Income before income taxes

 

 

47,557

 

 

 

37,859

 

 

 

173,927

 

 

 

172,086

 

Income tax provision

 

 

(16,071

)

 

 

(13,974

)

 

 

(55,186

)

 

 

(64,785

)

Net income

 

$

31,486

 

 

$

23,885

 

 

$

118,741

 

 

$

107,301

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.23

 

 

$

0.16

 

 

$

0.87

 

 

$

0.72

 

Diluted

 

$

0.23

 

 

$

0.16

 

 

$

0.86

 

 

$

0.71

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

134,320

 

 

 

147,743

 

 

 

136,063

 

 

 

149,202

 

Diluted

 

 

136,770

 

 

 

150,024

 

 

 

138,860

 

 

 

151,568

 

 


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

 

October 1, 2017

 

 

January 1, 2017

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,892

 

 

$

12,465

 

Accounts receivable, net

 

 

23,231

 

 

 

25,228

 

Inventories

 

 

222,216

 

 

 

204,464

 

Prepaid expenses and other current assets

 

 

25,594

 

 

 

21,869

 

Total current assets

 

 

289,933

 

 

 

264,026

 

Property and equipment, net of accumulated depreciation

 

 

690,763

 

 

 

604,660

 

Intangible assets, net of accumulated amortization

 

 

196,556

 

 

 

197,608

 

Goodwill

 

 

368,078

 

 

 

368,078

 

Other assets

 

 

5,886

 

 

 

5,521

 

Total assets

 

$

1,551,216

 

 

$

1,439,893

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

179,482

 

 

$

157,550

 

Accrued salaries and benefits

 

 

41,219

 

 

 

32,859

 

Other accrued liabilities

 

 

60,683

 

 

 

56,376

 

Current portion of capital and financing lease obligations

 

 

8,776

 

 

 

12,370

 

Total current liabilities

 

 

290,160

 

 

 

259,155

 

Long-term capital and financing lease obligations

 

 

126,806

 

 

 

117,366

 

Long-term debt

 

 

349,000

 

 

 

255,000

 

Other long-term liabilities

 

 

126,127

 

 

 

116,200

 

Deferred income tax liability

 

 

42,508

 

 

 

19,263

 

Total liabilities

 

 

934,601

 

 

 

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,

   133,070,570 and 140,256,313 shares issued and outstanding,

   October 1, 2017 and January 1, 2017, respectively

 

 

133

 

 

 

140

 

Additional paid-in capital

 

 

614,232

 

 

 

597,269

 

Retained earnings

 

 

2,250

 

 

 

75,500

 

Total stockholders' equity

 

 

616,615

 

 

 

672,909

 

Total liabilities and stockholders' equity

 

$

1,551,216

 

 

$

1,439,893

 

 


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

 

  

 

Thirty-nine

Weeks Ended

 

 

Thirty-nine

Weeks Ended

 

 

 

October 1, 2017

 

 

October 2, 2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

118,741

 

 

$

107,301

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

70,875

 

 

 

59,997

 

Accretion of asset retirement obligation and closed store reserve

 

 

168

 

 

 

237

 

Amortization of financing fees and debt issuance costs

 

 

347

 

 

 

347

 

Loss on disposal of property and equipment

 

 

820

 

 

 

226

 

Equity-based compensation

 

 

10,325

 

 

 

10,322

 

Deferred income taxes

 

 

23,245

 

 

 

20,119

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,660

 

 

 

(1,336

)

Inventories

 

 

(17,752

)

 

 

(29,784

)

Prepaid expenses and other current assets

 

 

(3,734

)

 

 

(1,212

)

Other assets

 

 

(702

)

 

 

(1,480

)

Accounts payable

 

 

31,669

 

 

 

24,050

 

Accrued salaries and benefits

 

 

8,360

 

 

 

(4,959

)

Other accrued liabilities and income taxes payable

 

 

4,288

 

 

 

(2,762

)

Other long-term liabilities

 

 

10,659

 

 

 

14,971

 

Cash flows from operating activities

 

 

258,969

 

 

 

196,037

 

Cash flows used in investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(158,459

)

 

 

(142,571

)

Proceeds from sale of property and equipment

 

 

30

 

 

 

662

 

Purchase of leasehold interests

 

 

 

 

 

(491

)

Cash flows used in investing activities

 

 

(158,429

)

 

 

(142,400

)

Cash flows used in financing activities

 

 

 

 

 

 

 

 

Proceeds from revolving credit facility

 

 

134,000

 

 

 

45,000

 

Payments on revolving credit facility

 

 

(40,000

)

 

 

 

Payments on capital and financing lease obligations

 

 

(3,053

)

 

 

(3,144

)

Cash from landlords related to financing lease obligations

 

 

300

 

 

 

 

Repurchase of common stock

 

 

(192,000

)

 

 

(187,836

)

Proceeds from exercise of stock options

 

 

6,640

 

 

 

2,616

 

Excess tax benefit for exercise of stock options

 

 

 

 

 

3,948

 

Cash flows used in financing activities

 

 

(94,113

)

 

 

(139,416

)

Increase / (Decrease) in cash and cash equivalents

 

 

6,427

 

 

 

(85,779

)

Cash and cash equivalents at beginning of the period

 

 

12,465

 

 

 

136,069

 

Cash and cash equivalents at the end of the period

 

$

18,892

 

 

$

50,290

 

 


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 thirty-nine weeks ended October 1, 2017 and October 2, 2016:

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NON-GAAP MEASURE RECONCILIATION

(UNAUDITED)

(IN THOUSANDS)

 

  

 

Thirteen

Weeks Ended

 

 

Thirteen

Weeks Ended

 

 

Thirty-nine

Weeks Ended

 

 

Thirty-nine

Weeks Ended

 

 

 

October 1, 2017

 

 

October 2, 2016

 

 

October 1, 2017

 

 

October 2, 2016

 

Net income

 

$

31,486

 

 

$

23,885

 

 

$

118,741

 

 

$

107,301

 

Income tax provision

 

 

16,071

 

 

 

13,974

 

 

 

55,186

 

 

 

64,785

 

Interest expense, net

 

 

5,608

 

 

 

3,723

 

 

 

15,447

 

 

 

10,985

 

Earnings before interest and taxes (EBIT)

 

 

53,165

 

 

 

41,582

 

 

 

189,374

 

 

 

183,071

 

Depreciation, amortization and accretion

 

 

24,808

 

 

 

21,245

 

 

 

71,043

 

 

 

60,234

 

Earnings before interest, taxes, depreciation and

   amortization (EBITDA)

 

$

77,973

 

 

$

62,827

 

 

$

260,417

 

 

$

243,305

 

 

###

Source: Sprouts Farmers Market, Inc.

Phoenix, AZ

11/2/17

 

(Back To Top)