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Section 1: 8-K (8-K)

sfm-8k_20181101.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 1, 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 November 1, 2018, Sprouts Farmers Market, Inc. (the “Company”) issued a press release announcing its results of operations for its third fiscal quarter ended September 30, 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 November 1, 2018, entitled “Sprouts Farmers Market, Inc. Reports Third 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: November 1, 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 THIRD QUARTER 2018 RESULTS

PHOENIX, Ariz. – (Globe Newswire) – November 1, 2018 – Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week third quarter ended September 30, 2018.  

Third Quarter Highlights:

Net sales of $1.3 billion; a 10% increase from the same period in 2017

Comparable store sales growth of 1.5% and two-year comparable store sales growth of 6.1%

Net income of $38 million; a 19% increase from the same period in 2017

Diluted earnings per share of $0.29; a 26% increase from the same period in 2017

Excluding the one-time income tax benefit of $3 million, diluted earnings per share of $0.27; a 17% increase from the same period in 2017

Raised the low-end of 2018 net sales and EPS guidance and tightened the comparable store sales growth range

 

 

“Robust new store productivity, continued product innovation and strong operations drove a double digit increase in net sales in the third quarter,” said Amin Maredia, chief executive officer of Sprouts Farmers Market. “During this time, we introduced Sprouts’ unique model of health, value and service to two new states where very strong sales demonstrated that our brand continues to resonate well in communities from coast to coast and is firmly positioned for long-term growth.” 

 

Third Quarter 2018 Financial Results

Net sales for the third quarter of 2018 were $1.3 billion, a 10% increase compared to the same period in 2017. Net sales growth was driven by strong performance in new stores opened and a 1.5% increase in comparable store sales.

Gross profit for the quarter increased 10% to $382 million, resulting in a gross profit margin of 28.8%, an increase of five basis points compared to the same period in 2017.  This leverage was primarily driven by higher merchandise margins partially offset by increased occupancy costs.

Direct store expense (“DSE”) for the quarter increased 12% to $281 million, or 21.2% of sales, compared to 20.7% in the same period in 2017.  This deleverage was primarily driven by planned wage investments funded by 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 10% to $44 million, or 3.3% of sales, flat as compared to the same period in 2017. This primarily reflects increased strategic investments and advertising expenses offset by lower bonus and stock-based compensation expense.

Net income for the quarter was $38 million and diluted earnings per share was $0.29. During the third quarter of 2018, the company recorded a $3 million discrete income tax benefit from the adoption of a tax calculation method change in conjunction with the Tax Cuts and Jobs Act. Excluding this benefit, adjusted net income was $35 million, an 11% increase compared to net income for the same period in 2017 and diluted earnings per share was $0.27, an increase of $0.04 or 17%, 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, partially offset by higher planned wage investments.

Fiscal Year-to-Date Financial Results

For the 39-week period ended September 30, 2018, net sales were $3.9 billion, a 12% increase compared to the same period in 2017. Growth was driven by solid performance in new stores opened and a 2.0% increase in comparable store sales.  Net income was $146 million and diluted earnings per share was $1.12. Excluding the $3 million discrete income tax benefit discussed above, adjusted net income was $143 million, a 21% increase compared to net income for the same period in 2017 and diluted earnings per share was $1.10, an increase of $0.24 or 28%, compared to diluted earnings per share of $0.86 for the same period in 2017.

Growth and Development

During the third quarter of 2018, we opened 12 new stores: three in California, two in Nevada and one each in Arizona, Oklahoma, Maryland, North Carolina, Texas and our first stores in the states of Pennsylvania and Washington. Two additional stores have been opened in the fourth quarter, resulting in a total of 315 stores in 19 states as of November 1, 2018.

Leverage and Liquidity

We generated cash from operations of $235 million year-to-date through September 30, 2018 and invested $129 million in capital expenditures net of landlord reimbursement, primarily for new stores. We ended the quarter with a $435 million balance on our revolving credit facility, $27 million of letters of credit outstanding under the facility, $17 million in cash and cash equivalents, and $283 million available under our current share repurchase authorization.  Year-to-date through October 29, 2018, we have repurchased 8.4 million shares of common stock for a total investment of $193 million.

2018 Outlook

As previously communicated, we are investing $10 million, or approximately one third of our savings from the Tax Cuts and Jobs Act (1) in team member wages and benefits in 2018.  The following provides information on our guidance for 2018:

 

 

 

Full-Year 2018

Current Guidance

Full-Year 2018

Prior Guidance

Net sales growth

11% to 11.5%

10.5% to 11.5%

Unit growth

30 stores

Approximately 30 stores

Comparable store sales growth

1.7% to 2.0%

1.5% to 2.5%

Diluted earnings per share

$1.28 to $1.30 (1)

$1.24 to $1.28

Effective tax rate

Approximately 18% (2)

19% to 20% (2)

Capital expenditures

$160M to $165M

$165M to $170M

(net of landlord reimbursements)

 

 

Footnotes

 

(1)

Including the one-time income tax benefit of $3 million, or $0.02 EPS, from the adoption of a tax calculation method change in conjunction with the Tax Cuts and Jobs Act.

(2)

The lower effective tax rate is due to the Tax Cuts and Jobs Act and the tax accounting method change noted above.

Third 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, November 1, 2018, during which Sprouts executives will further discuss our third 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: 8892508

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: 8892508.

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 19 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

 

 

Thirty-nine Weeks Ended

 

 

 

September 30, 2018

 

 

October 1, 2017

 

 

September 30, 2018

 

 

October 1, 2017

 

Net sales

 

$

1,329,109

 

 

$

1,206,059

 

 

$

3,937,998

 

 

$

3,520,679

 

Cost of sales, buying and occupancy

 

 

946,734

 

 

 

859,650

 

 

 

2,788,159

 

 

 

2,494,998

 

Gross profit

 

 

382,375

 

 

 

346,409

 

 

 

1,149,839

 

 

 

1,025,681

 

Direct store expenses

 

 

281,365

 

 

 

250,191

 

 

 

816,933

 

 

 

715,336

 

Selling, general and administrative expenses

 

 

43,944

 

 

 

39,955

 

 

 

128,828

 

 

 

110,312

 

Store pre-opening costs

 

 

3,819

 

 

 

2,456

 

 

 

9,414

 

 

 

10,055

 

Store closure and other costs

 

 

461

 

 

 

803

 

 

 

497

 

 

 

992

 

Income from operations

 

 

52,786

 

 

 

53,004

 

 

 

194,167

 

 

 

188,986

 

Interest expense

 

 

(7,419

)

 

 

(5,609

)

 

 

(20,028

)

 

 

(15,447

)

Other income

 

 

 

 

 

162

 

 

 

325

 

 

 

388

 

Income before income taxes

 

 

45,367

 

 

 

47,557

 

 

 

174,464

 

 

 

173,927

 

Income tax provision

 

 

(7,867

)

 

 

(16,071

)

 

 

(28,631

)

 

 

(55,186

)

Net income

 

$

37,500

 

 

$

31,486

 

 

$

145,833

 

 

$

118,741

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

 

$

0.23

 

 

$

1.13

 

 

$

0.87

 

Diluted

 

$

0.29

 

 

$

0.23

 

 

$

1.12

 

 

$

0.86

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

126,855

 

 

 

134,320

 

 

 

129,572

 

 

 

136,063

 

Diluted

 

 

127,627

 

 

 

136,770

 

 

 

130,537

 

 

 

138,860

 


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

 

 

September 30, 2018

 

 

December 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,175

 

 

$

19,479

 

Accounts receivable, net

 

 

34,631

 

 

 

25,893

 

Inventories

 

 

253,045

 

 

 

229,542

 

Prepaid expenses and other current assets

 

 

37,523

 

 

 

24,593

 

Total current assets

 

 

342,374

 

 

 

299,507

 

Property and equipment, net of accumulated depreciation

 

 

773,348

 

 

 

713,031

 

Intangible assets, net of accumulated amortization

 

 

195,154

 

 

 

196,205

 

Goodwill

 

 

368,078

 

 

 

368,078

 

Other assets

 

 

16,010

 

 

 

4,782

 

Total assets

 

$

1,694,964

 

 

$

1,581,603

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

245,928

 

 

$

244,853

 

Accrued salaries and benefits

 

 

43,433

 

 

 

45,623

 

Current portion of capital and financing lease obligations

 

 

7,398

 

 

 

9,238

 

Total current liabilities

 

 

296,759

 

 

 

299,714

 

Long-term capital and financing lease obligations

 

 

120,670

 

 

 

125,489

 

Long-term debt

 

 

435,000

 

 

 

348,000

 

Other long-term liabilities

 

 

144,401

 

 

 

130,640

 

Deferred income tax liability

 

 

56,839

 

 

 

27,066

 

Total liabilities

 

 

1,053,669

 

 

 

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,

  127,603,836 shares issued and outstanding, September 30, 2018;

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

 

 

127

 

 

 

132

 

Additional paid-in capital

 

 

653,509

 

 

 

620,788

 

Accumulated other comprehensive income (loss)

 

 

4,567

 

 

 

(784

)

(Accumulated deficit) retained earnings

 

 

(16,908

)

 

 

30,558

 

Total stockholders' equity

 

 

641,295

 

 

 

650,694

 

Total liabilities and stockholders' equity

 

$

1,694,964

 

 

$

1,581,603

 


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

 

 

 

 

Thirty-nine Weeks Ended

 

 

 

September 30, 2018

 

 

October 1, 2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

145,833

 

 

$

118,741

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

81,959

 

 

 

70,875

 

Accretion of asset retirement obligation and closed store reserve

 

 

219

 

 

 

168

 

Amortization of financing fees and debt issuance costs

 

 

658

 

 

 

347

 

Loss on disposal of property and equipment

 

 

404

 

 

 

820

 

Equity-based compensation

 

 

11,673

 

 

 

10,325

 

Deferred income taxes

 

 

29,773

 

 

 

23,245

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(10,299

)

 

 

1,660

 

Inventories

 

 

(23,503

)

 

 

(17,752

)

Prepaid expenses and other current assets

 

 

(13,758

)

 

 

(3,734

)

Other assets

 

 

(3,945

)

 

 

(702

)

Accounts payable and other accrued liabilities

 

 

3,240

 

 

 

35,957

 

Accrued salaries and benefits

 

 

(2,130

)

 

 

8,360

 

Other long-term liabilities

 

 

15,342

 

 

 

10,659

 

Cash flows from operating activities

 

 

235,466

 

 

 

258,969

 

Cash flows used in investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(148,433

)

 

 

(158,459

)

Proceeds from sale of property and equipment

 

 

1

 

 

 

30

 

Cash flows used in investing activities

 

 

(148,432

)

 

 

(158,429

)

Cash flows used in financing activities

 

 

 

 

 

 

 

 

Proceeds from revolving credit facilities

 

 

180,000

 

 

 

134,000

 

Payments on revolving credit facilities

 

 

(93,000

)

 

 

(40,000

)

Payments on capital and financing lease obligations

 

 

(3,349

)

 

 

(3,053

)

Payments of deferred financing costs

 

 

(2,131

)

 

 

 

Cash from landlords related to capital and financing lease obligations

 

 

2,113

 

 

 

300

 

Repurchase of common stock

 

 

(193,307

)

 

 

(192,000

)

Proceeds from exercise of stock options

 

 

21,051

 

 

 

6,640

 

Other

 

 

(59

)

 

 

 

Cash flows used in financing activities

 

 

(88,682

)

 

 

(94,113

)

(Decrease) increase in cash, cash equivalents, and restricted cash

 

 

(1,648

)

 

 

6,427

 

Cash, cash equivalents and restricted cash at beginning of the period

 

 

19,479

 

 

 

12,465

 

Cash, cash equivalents and restricted cash at the end of the period

 

$

17,831

 

 

$

18,892

 


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 and net income excluding a one-time tax benefit(1) to net income for the thirteen and thirty-nine weeks ended September 30, 2018 and October 1, 2017:

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NON-GAAP MEASURE RECONCILIATION

(UNAUDITED)

(IN THOUSANDS)

 

 

 

Thirteen Weeks Ended

 

 

Thirty-nine Weeks Ended

 

 

 

September 30, 2018

 

 

October 1, 2017

 

 

September 30, 2018

 

 

October 1, 2017

 

Net income

 

$

37,500

 

 

$

31,486

 

 

$

145,833

 

 

$

118,741

 

Income tax provision

 

 

7,867

 

 

 

16,071

 

 

 

28,631

 

 

 

55,186

 

Interest expense, net

 

 

7,411

 

 

 

5,608

 

 

 

20,015

 

 

 

15,447

 

Earnings before interest and taxes (EBIT)

 

 

52,778

 

 

 

53,165

 

 

 

194,479

 

 

 

189,374

 

Depreciation, amortization and accretion

 

 

28,202

 

 

 

24,808

 

 

 

82,178

 

 

 

71,043

 

Earnings before interest, taxes, depreciation and

   amortization (EBITDA)

 

$

80,980

 

 

$

77,973

 

 

$

276,657

 

 

$

260,417

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

37,500

 

 

$

31,486

 

 

$

145,833

 

 

$

118,741

 

Plus:  One time tax benefit (1)

 

 

(2,573

)

 

 

-

 

 

 

(2,573

)

 

 

-

 

Net income excluding one time tax benefit

 

$

34,927

 

 

$

31,486

 

 

$

143,260

 

 

$

118,741

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share excluding one time tax benefit

 

$

0.27

 

 

$

0.23

 

 

$

1.10

 

 

$

0.86

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Weighted Average Shares Outstanding

 

 

127,627

 

 

 

136,770

 

 

 

130,537

 

 

 

138,860

 

 

(1)

During the quarter ended September 30, 2018 the company adopted a tax calculation method change for the accelerated deduction of certain items, resulting in a discrete tax benefit of $3 million that was recognized in the third quarter of 2018.

 

###

Source: Sprouts Farmers Market, Inc.

Phoenix, AZ

11/1/18

 

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