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Section 1: 8-K (8-K)

sfm-8k_20180802.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) August 2, 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 August 2, 2018, Sprouts Farmers Market, Inc. (the “Company”) issued a press release announcing its results of operations for its second fiscal quarter ended July 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 August 2, 2018, entitled “Sprouts Farmers Market, Inc. Reports Second 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: August 2, 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

 

(602) 682-1584

(602) 682-3173

[email protected]

[email protected]

SPROUTS FARMERS MARKET, INC. REPORTS SECOND QUARTER 2018 RESULTS

PHOENIX, Ariz. – (Globe Newswire) – August 2, 2018 – Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week second quarter ended July 1, 2018.  

Second Quarter Highlights:

Net sales of $1.3 billion; a 12% increase from the same period in 2017

Comparable store sales growth of 2.0% and two-year comparable store sales growth of 3.4%

Net income of $42 million; a 2% increase from the same period in 2017

Diluted earnings per share of $0.32; a 10% increase from the same period in 2017

Raised the low end of 2018 EPS guidance

 

 

“Double-digit sales and EPS growth in our second quarter reflects the strength of Sprouts’ differentiated business model and our solid execution across new and existing markets,” said Amin Maredia, chief executive officer of Sprouts Farmers Market. “Our planned 2018 investments in our team members and technology, which increased this quarter, will strengthen our customer service, generate operational efficiencies and support our long-term growth.”

Second Quarter 2018 Financial Results

Net sales for the second quarter of 2018 were $1.3 billion, a 12% increase compared to the same period in 2017. Net sales growth was driven by strong performance in new stores opened and a 2.0% increase in comparable store sales.

Gross profit for the quarter increased 11% to $380 million, resulting in a gross profit margin of 28.8%, a decrease of approximately 10 basis points compared to the same period in 2017.  This deleverage was primarily driven by lower merchandise margins.

Direct store expense (“DSE”) for the quarter increased 16% to $273 million, or 20.7% of sales, compared to 19.9% in the same period in 2017.  This deleverage was primarily driven by planned wage investments funded by the savings from the Tax Cuts and Jobs Act, as well as increased healthcare costs and higher depreciation expense.  

Selling, general and administrative expenses (“SG&A”) for the quarter increased 14% to $43 million, or 3.3% of sales, compared to 3.2% in the same period in 2017. This primarily reflects costs associated with increased advertising expenses and strategic investments in technology.

Net income for the quarter was $42 million, a 2% increase compared to net income for the same period in 2017 and diluted earnings per share was $0.32, an increase of $0.03 or 10%, 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, higher sales, and fewer shares outstanding due to our repurchase program.


Fiscal Year-to-Date Financial Results

For the 26-week period ended July 1, 2018, net sales were $2.6 billion, a 13% increase compared to the same period in 2017. Growth was driven by solid performance in new stores opened and a 2.3% increase in comparable store sales.  Net income was $108 million, a 24% increase compared to net income for the same period in 2017.  Diluted earnings per share was $0.82, an increase of $0.20 or 32%, compared to diluted earnings per share of $0.62 for the same period in 2017.

Growth and Development

During the second quarter of 2018, we opened 7 new stores: two in California and one each in Arizona, Georgia, Nevada, North Carolina and our first store in the state of South Carolina. Four additional stores have been opened in the third quarter to date, resulting in a total of 305 stores in 17 states as of August 2, 2018.

Leverage and Liquidity

We generated cash from operations of $171 million year-to-date through July 1, 2018 and invested $92 million in capital expenditures net of landlord reimbursement, primarily for new stores. We ended the quarter with a $458 million balance on our revolving credit facility, $27 million of letters of credit outstanding under the facility, $23 million in cash and cash equivalents, and $299 million available under our current share repurchase authorization.  Year-to-date through August 1, 2018, we have repurchased 8.3 million shares of common stock for a total investment of $191 million.

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%

10.5% to 11.5%

Unit growth

Approximately 30 stores

Approximately 30 stores

Comparable store sales growth

1.5% to 2.5%

1.5% to 2.5%

Diluted earnings per share

$1.24 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.

Second 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, August 2, 2018, during which Sprouts executives will further discuss our second 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: 6775979


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: 6775979.

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 more than 300 stores in 17 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

 

 

Twenty-six

Weeks Ended

 

 

 

July 1, 2018

 

 

July 2, 2017

 

 

July 1, 2018

 

 

July 2, 2017

 

Net sales

 

$

1,321,693

 

 

$

1,183,975

 

 

$

2,608,889

 

 

$

2,314,620

 

Cost of sales, buying and occupancy

 

 

941,281

 

 

 

841,989

 

 

 

1,841,425

 

 

 

1,635,348

 

Gross profit

 

 

380,412

 

 

 

341,986

 

 

 

767,464

 

 

 

679,272

 

Direct store expenses

 

 

272,973

 

 

 

236,087

 

 

 

535,568

 

 

 

465,145

 

Selling, general and administrative expenses

 

 

43,437

 

 

 

38,189

 

 

 

84,884

 

 

 

70,357

 

Store pre-opening costs

 

 

2,275

 

 

 

4,141

 

 

 

5,595

 

 

 

7,599

 

Store closure and other costs

 

 

26

 

 

 

98

 

 

 

36

 

 

 

189

 

Income from operations

 

 

61,701

 

 

 

63,471

 

 

 

141,381

 

 

 

135,982

 

Interest expense

 

 

(6,544

)

 

 

(5,100

)

 

 

(12,609

)

 

 

(9,838

)

Other income

 

 

117

 

 

 

131

 

 

 

325

 

 

 

226

 

Income before income taxes

 

 

55,274

 

 

 

58,502

 

 

 

129,097

 

 

 

126,370

 

Income tax provision

 

 

(13,565

)

 

 

(17,534

)

 

 

(20,764

)

 

 

(39,115

)

Net income

 

$

41,709

 

 

$

40,968

 

 

$

108,333

 

 

$

87,255

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.32

 

 

$

0.30

 

 

$

0.83

 

 

$

0.64

 

Diluted

 

$

0.32

 

 

$

0.29

 

 

$

0.82

 

 

$

0.62

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

129,423

 

 

 

136,796

 

 

 

130,924

 

 

 

136,933

 

Diluted

 

 

130,012

 

 

 

139,493

 

 

 

131,949

 

 

 

139,847

 


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

 

  

 

July 1, 2018

 

 

December 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,174

 

 

$

19,479

 

Accounts receivable, net

 

 

27,580

 

 

 

25,893

 

Inventories

 

 

250,564

 

 

 

229,542

 

Prepaid expenses and other current assets

 

 

28,696

 

 

 

24,593

 

Total current assets

 

 

330,014

 

 

 

299,507

 

Property and equipment, net of accumulated depreciation

 

 

776,323

 

 

 

713,031

 

Intangible assets, net of accumulated amortization

 

 

195,504

 

 

 

196,205

 

Goodwill

 

 

368,078

 

 

 

368,078

 

Other assets

 

 

13,850

 

 

 

4,782

 

Total assets

 

$

1,683,769

 

 

$

1,581,603

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

265,578

 

 

$

244,853

 

Accrued salaries and benefits

 

 

38,410

 

 

 

45,623

 

Current portion of capital and financing lease obligations

 

 

14,362

 

 

 

9,238

 

Total current liabilities

 

 

318,350

 

 

 

299,714

 

Long-term capital and financing lease obligations

 

 

121,647

 

 

 

125,489

 

Long-term debt

 

 

458,000

 

 

 

348,000

 

Other long-term liabilities

 

 

139,984

 

 

 

130,640

 

Deferred income tax liability

 

 

44,616

 

 

 

27,066

 

Total liabilities

 

 

1,082,597

 

 

 

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,

  127,570,117 shares issued and outstanding, July 1, 2018;

  132,823,981 shares issued and outstanding, December 31, 2017

 

 

126

 

 

 

132

 

Additional paid-in capital

 

 

636,445

 

 

 

620,788

 

Accumulated other comprehensive income (loss)

 

 

3,702

 

 

 

(784

)

(Accumulated deficit) retained earnings

 

 

(39,101

)

 

 

30,558

 

Total stockholders' equity

 

 

601,172

 

 

 

650,694

 

Total liabilities and stockholders' equity

 

$

1,683,769

 

 

$

1,581,603

 


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

 

 

 

 

Twenty-six

Weeks Ended

 

 

 

July 1, 2018

 

 

July 2, 2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

108,333

 

 

$

87,255

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

53,829

 

 

 

46,142

 

Accretion of asset retirement obligation and closed store reserve

 

 

147

 

 

 

94

 

Amortization of financing fees and debt issuance costs

 

 

517

 

 

 

231

 

Loss on disposal of property and equipment

 

 

236

 

 

 

356

 

Equity-based compensation

 

 

8,630

 

 

 

6,239

 

Deferred income taxes

 

 

17,550

 

 

 

18,039

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,954

)

 

 

4,106

 

Inventories

 

 

(21,022

)

 

 

(13,940

)

Prepaid expenses and other current assets

 

 

(1,312

)

 

 

(1,549

)

Other assets

 

 

(6,745

)

 

 

(2,450

)

Accounts payable and other accrued liabilities

 

 

10,379

 

 

 

24,996

 

Accrued salaries and benefits

 

 

(7,154

)

 

 

2,051

 

Other long-term liabilities

 

 

10,674

 

 

 

8,313

 

Cash flows from operating activities

 

 

171,108

 

 

 

179,883

 

Cash flows used in investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(103,936

)

 

 

(117,753

)

Proceeds from sale of property and equipment

 

 

1

 

 

 

30

 

Cash flows used in investing activities

 

 

(103,935

)

 

 

(117,723

)

Cash flows used in financing activities

 

 

 

 

 

 

 

 

Proceeds from revolving credit facilities

 

 

140,000

 

 

 

85,000

 

Payments on revolving credit facilities

 

 

(30,000

)

 

 

(30,000

)

Payments on capital and financing lease obligations

 

 

(2,135

)

 

 

(2,068

)

Payments of deferred financing costs

 

 

(2,131

)

 

 

 

Cash from landlords related to capital and financing lease obligations

 

 

2,113

 

 

 

1,325

 

Repurchase of common stock

 

 

(178,000

)

 

 

(120,000

)

Proceeds from exercise of stock options

 

 

6,734

 

 

 

5,932

 

Other

 

 

(59

)

 

 

 

Cash flows used in financing activities

 

 

(63,478

)

 

 

(59,811

)

Increase in cash and cash equivalents

 

 

3,695

 

 

 

2,349

 

Cash and cash equivalents at beginning of the period

 

 

19,479

 

 

 

12,465

 

Cash and cash equivalents at the end of the period

 

$

23,174

 

 

$

14,814

 


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 and twenty-six weeks ended July 1, 2018 and July 2, 2017:

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NON-GAAP MEASURE RECONCILIATION

(UNAUDITED)

(IN THOUSANDS)

 

 

 

Thirteen

Weeks Ended

 

 

Twenty-six

Weeks Ended

 

 

 

July 1, 2018

 

 

July 2, 2017

 

 

July 1, 2018

 

 

July 2, 2017

 

Net income

 

$

41,709

 

 

$

40,968

 

 

$

108,333

 

 

$

87,255

 

Income tax provision

 

 

13,565

 

 

 

17,534

 

 

 

20,764

 

 

 

39,115

 

Interest expense, net

 

 

6,540

 

 

 

5,100

 

 

 

12,604

 

 

 

9,838

 

Earnings before interest and taxes (EBIT)

 

 

61,814

 

 

 

63,602

 

 

 

141,701

 

 

 

136,208

 

Depreciation, amortization and accretion

 

 

27,087

 

 

 

23,595

 

 

 

53,976

 

 

 

46,236

 

Earnings before interest, taxes, depreciation and

   amortization (EBITDA)

 

$

88,901

 

 

$

87,197

 

 

$

195,677

 

 

$

182,444

 

 

###

Source: Sprouts Farmers Market, Inc.

Phoenix, AZ

8/2/18

 

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