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Section 1: 8-K (8-K)

sfm-8k_20180503.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) May 3, 2018

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 May 3, 2018, Sprouts Farmers Market, Inc. (the “Company”) issued a press release announcing its results of operations for its first fiscal quarter ended April 1, 2018. 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 May 3, 2018, entitled “Sprouts Farmers Market, Inc. Reports First Quarter 2018 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: May 3, 2018

 

By:

 

/s/ Brandon F. Lombardi

 

 

Name:

 

Brandon F. Lombardi

 

 

Title:

 

Chief Legal Officer and Corporate Secretary

 

 

 

 

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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 FIRST QUARTER 2018 RESULTS

PHOENIX, Ariz. – (Globe Newswire) – May 3, 2018 – 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 growth

10.5% to 11.5%

11.5% to 12.5%

Unit growth

Approximately 30 stores

Approximately 30 stores

Comparable store sales growth

1.5% to 2.5%

2.5% to 3.5%

Diluted earnings per share

$1.22 to $1.28

$1.22 to $1.28

Effective tax rate

19% 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

 

###

Source: Sprouts Farmers Market, Inc.

Phoenix, AZ

5/3/18

 

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