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Section 1: 8-K (8-K)

sfm-8k_20190221.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) February 21, 2019

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 February 21, 2019, Sprouts Farmers Market, Inc. (the “Company”) issued a press release announcing its results of operations for its fourth fiscal quarter and fiscal year ended December 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 February 21, 2019, entitled “Sprouts Farmers Market, Inc. Reports Fourth Quarter and Full Year 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: February 21, 2019

 

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

 

(602) 682-1584

(602) 682-3173

[email protected]

[email protected]

SPROUTS FARMERS MARKET, INC. REPORTS FOURTH QUARTER AND FULL YEAR 2018 RESULTS

PHOENIX, Ariz. – (Globe Newswire) – February 21, 2019 – Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week fourth quarter and 52-week year ended December 30, 2018.  

Fourth Quarter Highlights:

Net sales of $1.3 billion; an 11% increase from the same period in 2017

Comparable store sales growth of 2.3% and two-year comparable store sales growth of 6.9%

Net income of $13 million, compared to $40 million from the same period in 2017

Adjusted net income(1) of $24 million; compared to $21 million from the same period in 2017

Diluted earnings per share of $0.10; compared to $0.29 from the same period in 2017

Adjusted diluted earnings per share(1) of $0.19; compared to $0.16 from the same period in 2017

Fiscal Year 2018 Highlights:

Net sales of $5.2 billion; a 12% increase from 2017

Comparable store sales growth of 2.1% and two-year comparable store sales growth of 5.0%

Net income of $159 million; compared to $158 million in 2017

Adjusted net income(1) of $168 million; compared to $140 million in 2017

Diluted earnings per share of $1.22; compared to $1.15 in 2017

Adjusted diluted earnings per share(1) of $1.29; compared to $1.01 in 2017

Repurchased 11.1 million common shares in fiscal 2018 for a total investment of $258 million

 

“Sprouts delivered 12% net sales growth for the year in a competitive and evolving industry, demonstrating the strength of our differentiated model and brand,” said Brad Lukow, interim co-chief executive officer and chief financial officer of Sprouts Farmers Market. “Through our solid operating cash flows, we continue to self-fund our store unit growth and strategic initiatives and in keeping with our capital structure strategy, returned more than $250 million to our shareholders through share repurchases in 2018.”  

“Our focus on health, value, selection and service continues to produce solid financial returns, supporting our ongoing expansion that allows Sprouts to reach new customers and markets, positioning us well for long-term growth,” said Jim Nielsen, interim co-chief executive officer, president and chief operating officer of Sprouts Farmers Market.  “We remain focused on building upon our strategic initiatives in people, systems and product innovation to drive continued enhancements to our experience, reinforcing Sprouts as a trusted brand for health and value.”

 

1

Adjusted net income and adjusted diluted earnings per share, non-GAAP financial measures, exclude the impact of certain special items.  See the “Non-GAAP Financial Measures” section of this release for additional information about these items.

 

 

 

 


 

Reclassification of Certain Income Statement Items

In the fourth quarter of fiscal 2018, we made a voluntary change to our consolidated statements of income presentation as follows:

 

Reclassified occupancy costs and buying costs from cost of sales to selling, general and administrative expenses (“SG&A”);

 

Reclassified depreciation and amortization (exclusive of depreciation related to supply chain which continues to be included in cost of sales) to a separate financial statement line item; and

 

Combined direct stores expense (“DSE”) and store pre-opening costs with SG&A.  

These reclassifications had no impact on sales, income from operations, net income or earnings per share.  We made this voluntary change in presentation because we believe that the exclusion of occupancy and buying costs from cost of sales provides a more meaningful presentation of our gross margin. The changes also enhance the comparability of our financial statements with those of many of our industry peers and align with how we internally manage and review costs and margin. These changes in presentation have been retrospectively applied to all periods presented in this earnings release. A table reflecting the effects of the reclassification is included at the end of this release. (see “Reclassification of Certain Income Statement Items”)

Fourth Quarter 2018 Financial Results

Net sales for the fourth quarter of 2018 were $1.3 billion, an 11% increase compared to the same period in 2017. Net sales growth was driven by a 2.3% increase in comparable store sales and strong performance in new stores opened.

Gross profit for the quarter increased 11% to $421 million, resulting in a gross profit margin of 33.2%, a decrease of 15 basis points compared to the same period in 2017.  This was primarily driven by promotional activity which slightly pressured margins, as well as rising distribution and transportation costs.

SG&A for the quarter increased 11% to $353 million, or 27.8% of sales, compared to 27.9% in the same period in 2017. This improvement primarily reflects lower workers compensation expenses and a payroll tax benefit for California team members, partially offset by planned wage investments and higher occupancy and advertising costs.

Depreciation and amortization for the quarter increased 11% to $28 million, or 2.2% of sales, flat compared to the same period in 2017. Store closure and other costs for the quarter increased to $12 million compared to $0.1 million in the same period in 2017, related to noncash charges of $8 million associated with the closure of two stores, as well as one-time severance costs of $4 million associated with the resignation of our former Chief Executive Officer (“CEO”).

Net income for the quarter was $13 million and diluted earnings per share was $0.10, compared with $40 million and $0.29, respectively, in 2017.  Adjusted net income was $24 million, a 16% increase compared to the same period in 2017, and adjusted diluted earnings per share was $0.19, an increase of $0.03 or 19%, as compared to the same period in 2017. The increase in adjusted earnings per share was driven by higher sales, a lower effective tax rate, excluding special items, of 26.3% compared to 33.5% in the same period last year, and fewer shares outstanding due to our repurchase program. (see “Non-GAAP Financial Measures”)

Fiscal Year 2018 Financial Results

Net sales for the fiscal year 2018 were $5.2 billion, a 12% increase compared to 2017.  Net sales growth was driven by a 2.1% increase in comparable store sales and strong performance in new stores opened.  

Gross profit for the year increased 12% to $1.7 billion, resulting in a gross profit margin of 33.6%, flat compared to 2017. This primarily reflects the benefit of our strategic initiatives and merchandising strategies offsetting the promotional environment.

SG&A for the year increased 13% to $1.4 billion, or 27.0% of sales, compared to 26.7% in 2017.  This deleverage primarily reflects our planned investments in team member wages and benefits, as well as increased occupancy and advertising costs.

 

 

 

 


 

Depreciation and amortization for the year increased 15% to $108 million, or 2.1% of sales, compared to 2.0% in 2017.  This primarily reflects higher square footage and capitalized costs associated with recent new store vintages. Store closure and other costs for the year increased to $12 million compared to $1 million in 2017, related to noncash charges of $8 million associated with the closure of two stores, as well as one-time severance costs of $4 million associated with the resignation of our former CEO.

Net income for the year was $159 million and diluted earnings per share was $1.22, compared with $158 million and $1.15 respectively, in 2017. Adjusted net income was $168 million, a 20% increase compared to 2017 and adjusted diluted earnings per share was $1.29, an increase of $0.28 or 28%, as compared to 2017. The increase in adjusted earnings per share was driven by higher sales and margins, a lower effective tax rate, excluding special items, of 19.2% compared to 32.0% in 2017, and fewer shares outstanding due to our repurchase program. (see “Non-GAAP Financial Measures”)

Growth and Development

During the fourth quarter of 2018, we opened 2 new stores, one each in Florida and Nevada. For fiscal 2018, we opened 30 new stores and closed two stores which resulted in a total of 313 stores in 19 states as of December 30, 2018.

Leverage and Liquidity

We generated cash from operations of $294 million in fiscal 2018 and invested $154 million in capital expenditures net of landlord reimbursement, primarily for new stores. In addition, we repurchased 11.1 million shares of common stock for a total investment of $258 million in fiscal 2018. We ended the year with a $453 million balance on our revolving credit facility, $27 million of letters of credit outstanding under the facility, $2 million in cash and cash equivalents, and $218 million available under our current share repurchase authorization.  Subsequent to the end of the year and through February 18, 2019, we have repurchased 850 thousand shares of common stock for a total investment of $20 million.

2019 Outlook

The following provides information on our guidance for 2019:

 

 

Full-Year 2019

Current Guidance

Net sales growth

9% to 10.5%

Unit growth

Approximately 28 stores

Comparable store sales growth

1.5% to 3.0%

Diluted earnings per share2

$1.16 to $1.24

Effective tax rate

Approximately 26%

Capital expenditures

$170M to $175M

(net of landlord reimbursements)

 

 

Footnotes

2   We expect adoption of the new lease accounting standards will result in net incremental noncash rent expense of approximately $7 million pre-tax (or approximately $0.04 decrease in diluted earnings per share) for 2019.

 

Fourth Quarter 2018 Conference Call

We will hold a conference call at 8 a.m. Mountain Standard Time (10 a.m. Eastern Standard Time) on Thursday, February 21, 2019, during which Sprouts executives will further discuss our fourth quarter and fiscal year 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: 1398294

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: 1398294.

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, growth 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; the company’s ability to manage its transition to a new CEO; accounting standard changes including the new lease accounting guidance; 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 30,000 team members and operates in 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

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

 

 

 

Thirteen

Weeks Ended

 

 

Thirteen

Weeks Ended

 

 

Fifty-two

Weeks Ended

 

 

Fifty-two

Weeks Ended

 

 

 

December 30, 2018

 

 

December 31, 2017

 

 

December 30, 2018

 

 

December 31, 2017

 

Net sales

 

$

1,269,338

 

 

$

1,143,933

 

 

$

5,207,336

 

 

$

4,664,612

 

Cost of sales

 

 

848,369

 

 

 

762,816

 

 

 

3,459,861

 

 

 

3,097,582

 

Gross profit

 

 

420,969

 

 

 

381,117

 

 

 

1,747,475

 

 

 

1,567,030

 

Selling, general and administrative expenses

 

 

352,672

 

 

 

318,686

 

 

 

1,404,443

 

 

 

1,245,640

 

Depreciation and amortization (exclusive of depreciation included in cost of sales)

 

 

27,966

 

 

 

25,213

 

 

 

108,045

 

 

 

94,194

 

Store closure and other costs

 

 

11,579

 

 

 

134

 

 

 

12,076

 

 

 

1,126

 

Income from operations

 

 

28,752

 

 

 

37,084

 

 

 

222,911

 

 

 

226,070

 

Interest expense, net

 

 

(7,420

)

 

 

(5,730

)

 

 

(27,435

)

 

 

(21,177

)

Other income

 

 

-

 

 

 

237

 

 

 

320

 

 

 

625

 

Income before income taxes

 

 

21,332

 

 

 

31,591

 

 

 

195,796

 

 

 

205,518

 

Income tax (provision) benefit

 

 

(8,629

)

 

 

8,108

 

 

 

(37,260

)

 

 

(47,078

)

Net income

 

$

12,703

 

 

$

39,699

 

 

$

158,536

 

 

$

158,440

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.10

 

 

$

0.30

 

 

$

1.23

 

 

$

1.17

 

Diluted

 

$

0.10

 

 

$

0.29

 

 

$

1.22

 

 

$

1.15

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

126,574

 

 

 

132,408

 

 

 

128,827

 

 

 

135,169

 

Diluted

 

 

127,398

 

 

 

134,795

 

 

 

129,776

 

 

 

137,884

 

 

 

 

 

 


 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

 

 

 

December 30, 2018

 

 

December 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,588

 

 

$

19,479

 

Accounts receivable, net

 

 

40,564

 

 

 

25,893

 

Inventories

 

 

264,366

 

 

 

229,542

 

Prepaid expenses and other current assets

 

 

27,323

 

 

 

24,593

 

Total current assets

 

 

333,841

 

 

 

299,507

 

Property and equipment, net of accumulated depreciation

 

 

766,429

 

 

 

713,031

 

Intangible assets, net of accumulated amortization

 

 

194,803

 

 

 

196,205

 

Goodwill

 

 

368,078

 

 

 

368,078

 

Other assets

 

 

12,463

 

 

 

4,782

 

Total assets

 

$

1,675,614

 

 

$

1,581,603

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

253,969

 

 

$

244,853

 

Accrued salaries and benefits

 

 

48,603

 

 

 

45,623

 

Current portion of capital and financing lease obligations

 

 

7,428

 

 

 

9,238

 

Total current liabilities

 

 

310,000

 

 

 

299,714

 

Long-term capital and financing lease obligations

 

 

119,642

 

 

 

125,489

 

Long-term debt

 

 

453,000

 

 

 

348,000

 

Other long-term liabilities

 

 

153,377

 

 

 

130,640

 

Deferred income tax liability

 

 

50,399

 

 

 

27,066

 

Total liabilities

 

 

1,086,418

 

 

 

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,

   124,975,691 shares issued and outstanding, December 30, 2018;

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

 

 

124

 

 

 

132

 

Additional paid-in capital

 

 

657,140

 

 

 

620,788

 

Accumulated other comprehensive income (loss)

 

 

1,134

 

 

 

(784

)

(Accumulated deficit) retained earnings

 

 

(69,202

)

 

 

30,558

 

Total stockholders' equity

 

 

589,196

 

 

 

650,694

 

Total liabilities and stockholders' equity

 

$

1,675,614

 

 

$

1,581,603

 

 

 

 

 


 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

 

 

 

 

Fifty-two

Weeks Ended

 

 

Fifty-two

Weeks Ended

 

 

 

December 30, 2018

 

 

December 31, 2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

158,536

 

 

$

158,440

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

110,749

 

 

 

96,987

 

Amortization of financing fees and debt issuance costs

 

 

799

 

 

 

463

 

Loss on disposal of property and equipment

 

 

683

 

 

 

1,623

 

Store closure and other costs

 

 

4,115

 

 

 

 

Share-based compensation

 

 

14,512

 

 

 

14,221

 

Deferred income taxes

 

 

23,333

 

 

 

7,803

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,666

)

 

 

(4,920

)

Inventories

 

 

(34,824

)

 

 

(25,079

)

Prepaid expenses and other current assets

 

 

(2,908

)

 

 

(2,733

)

Other assets

 

 

(5,086

)

 

 

(114

)

Accounts payable and other accrued liabilities

 

 

4,366

 

 

 

39,244

 

Accrued salaries and benefits

 

 

3,039

 

 

 

12,764

 

Other long-term liabilities

 

 

24,731

 

 

 

10,868

 

Cash flows from operating activities

 

 

294,379

 

 

 

309,567

 

Cash flows used in investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(177,083

)

 

 

(198,624

)

Proceeds from sale of property and equipment

 

 

1

 

 

 

30

 

Cash flows used in investing activities

 

 

(177,082

)

 

 

(198,594

)

Cash flows used in financing activities

 

 

 

 

 

 

 

 

Proceeds from revolving credit facilities

 

 

233,000

 

 

 

153,000

 

Payments on revolving credit facilities

 

 

(128,000

)

 

 

(60,000

)

Payments on capital and financing lease obligations

 

 

(4,517

)

 

 

(4,192

)

Payments of deferred financing costs

 

 

(2,131

)

 

 

 

Cash from landlords related to capital and financing lease obligations

 

 

3,643

 

 

 

1,325

 

Repurchase of common stock

 

 

(258,307

)

 

 

(203,392

)

Proceeds from exercise of stock options

 

 

21,843

 

 

 

9,300

 

Other

 

 

(59

)

 

 

 

Cash flows used in financing activities

 

 

(134,528

)

 

 

(103,959

)

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

 

 

(17,231

)

 

 

7,014

 

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

 

$

2,248

 

 

$

19,479

 

 

 

 

 

 

 

 

 

 

 

 


 

Reclassification of Certain Income Statement Items

In the fourth quarter of fiscal 2018, we made a voluntary change to our consolidated statements of income presentation as follows:

 

Reclassified occupancy costs and buying costs from cost of sales to selling, general and administrative expenses (“SG&A”);

 

Reclassified depreciation and amortization (exclusive of depreciation related to supply chain which continues to be included in cost of sales) to a separate financial statement line item; and

 

Combined direct stores expense (“DSE”) and store pre-opening costs with SG&A.

 

These reclassifications had no impact on sales, income from operations, net income or earnings per share.  We made this voluntary change in presentation because we believe that the exclusion of occupancy and buying costs from cost of sales provides a more meaningful presentation of our gross margin. The changes also enhance the comparability of our financial statements with those of many of our industry peers and align with how we internally manage and review costs and margin. The following table shows these changes in presentation that have been retrospectively applied to all periods presented in this earnings release.

 

 

 

 


 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(IN THOUSANDS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirty-nine

Weeks Ended

September 30, 2018

 

 

Thirteen

Weeks Ended

September 30, 2018

 

 

Thirteen

Weeks Ended

July 1, 2018

 

 

Thirteen

Weeks Ended

April 1, 2018

 

As previously reported

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, buying and occupancy

 

 

 

 

 

$

2,788,167

 

 

$

946,742

 

 

$

941,281

 

 

$

900,144

 

Gross profit

 

 

 

 

 

 

1,149,831

 

 

 

382,367

 

 

 

380,412

 

 

 

387,052

 

Gross profit margin

 

 

 

 

 

 

29.2

%

 

 

28.8

%

 

 

28.8

%

 

 

30.1

%

Direct store expenses

 

 

 

 

 

 

816,933

 

 

 

281,365

 

 

 

272,973

 

 

 

262,595

 

Selling, general and administrative expenses

 

 

 

 

 

 

128,828

 

 

 

43,944

 

 

 

43,437

 

 

 

41,447

 

Store pre-opening costs

 

 

 

 

 

 

9,414

 

 

 

3,819

 

 

 

2,275

 

 

 

3,320

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As revised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

 

$

2,611,492

 

 

$

885,693

 

 

$

883,212

 

 

$

842,587

 

Gross profit

 

 

 

 

 

 

1,326,506

 

 

 

443,416

 

 

 

438,481

 

 

 

444,609

 

Gross profit margin

 

 

 

 

 

 

33.7

%

 

 

33.4

%

 

 

33.2

%

 

 

34.5

%

Direct store expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

 

 

 

 

1,051,771

 

 

 

362,584

 

 

 

350,413

 

 

 

338,774

 

Store pre-opening costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization (1)

 

 

 

 

 

 

80,079

 

 

 

27,593

 

 

 

26,341

 

 

 

26,145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fifty-two

Weeks Ended

December 31, 2017

 

 

Thirteen

Weeks Ended

December 31, 2017

 

 

Thirteen

Weeks Ended

October 1, 2017

 

 

Thirteen

Weeks Ended

July 2, 2017

 

 

Thirteen

Weeks Ended

April 2, 2017

 

As previously reported

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, buying and occupancy

 

$

3,314,487

 

 

$

819,489

 

 

$

859,650

 

 

$

841,989

 

 

$

793,359

 

Gross profit

 

 

1,350,125

 

 

 

324,444

 

 

 

346,409

 

 

 

341,986

 

 

 

337,286

 

Gross profit margin

 

 

28.9

%

 

 

28.4

%

 

 

28.7

%

 

 

28.9

%

 

 

29.8

%

Direct store expenses

 

 

962,894

 

 

 

247,558

 

 

 

250,191

 

 

 

236,087

 

 

 

229,058

 

Selling, general and administrative expenses

 

 

148,408

 

 

 

38,096

 

 

 

39,955

 

 

 

38,189

 

 

 

32,168

 

Store pre-opening costs

 

 

11,627

 

 

 

1,572

 

 

 

2,456

 

 

 

4,141

 

 

 

3,458

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As revised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

$

3,097,582

 

 

$

762,816

 

 

$

803,695

 

 

$

789,023

 

 

$

742,048

 

Gross profit

 

 

1,567,030

 

 

 

381,117

 

 

 

402,364

 

 

 

394,952

 

 

 

388,597

 

Gross profit margin

 

 

33.6

%

 

 

33.3

%

 

 

33.4

%

 

 

33.4

%

 

 

34.4

%

Direct store expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

1,245,640

 

 

 

318,686

 

 

 

324,443

 

 

 

308,479

 

 

 

294,032

 

Store pre-opening costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization (1)

 

 

94,194

 

 

 

25,213

 

 

 

24,114

 

 

 

22,904

 

 

 

21,963

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Exclusive of depreciation included in cost of sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

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, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share. These measures are not in accordance with, and are not intended as alternatives 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 these measures for reviewing the financial results of the company, and certain of these measures may be used as components of incentive compensation.

The company defines EBITDA as net income before interest expense, provision for income tax, and depreciation, amortization and accretion and adjusted EBITDA as EBITDA excluding the impact of special items. The company defines adjusted net income and adjusted diluted earnings per share by adjusting the applicable GAAP measure to remove the impact of special items.

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 adjusted EBITDA to net income for the thirteen and fifty-two weeks ended December 30, 2018 and December 31, 2017 and a reconciliation of net income and diluted earnings per share to adjusted net income and adjusted diluted earnings per share for the thirteen and fifty-two weeks ended December 30, 2018 and December 31, 2017:


 

 

 

 


 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NON-GAAP MEASURE RECONCILIATION

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

 

 

 

Thirteen

Weeks Ended

 

 

Thirteen

Weeks Ended

 

 

Fifty-two

Weeks Ended

 

 

Fifty-two

Weeks Ended

 

 

 

December 30, 2018

 

 

December 31, 2017

 

 

December 30, 2018

 

 

December 31, 2017

 

Net income

 

$

12,703

 

 

$

39,699

 

 

$

158,536

 

 

$

158,440

 

Income tax provision (benefit) (1)

 

 

8,629

 

 

 

(8,108

)

 

 

37,260

 

 

 

47,078

 

Interest expense, net

 

 

7,420

 

 

 

5,729

 

 

 

27,435

 

 

 

21,176

 

Earnings before interest and taxes (EBIT)

 

 

28,752

 

 

 

37,320

 

 

 

223,231

 

 

 

226,694

 

Depreciation, amortization and accretion

 

 

28,571

 

 

 

25,944

 

 

 

110,749

 

 

 

96,987

 

Earnings before interest, taxes, depreciation and

   amortization (EBITDA)

 

$

57,323

 

 

$

63,264

 

 

$

333,980

 

 

$

323,681

 

Special Items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive compensation (2)

 

$

3,618

 

 

$

 

 

$

3,618

 

 

$

 

Store closures (3)

 

 

7,961

 

 

 

 

 

 

7,961

 

 

 

 

Total Special Items - pre-tax

 

 

11,579

 

 

 

 

 

 

11,579

 

 

 

 

Adjusted EBITDA

 

$

68,902

 

 

$

63,264

 

 

$

345,559

 

 

$

323,681

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

12,703

 

 

$

39,699

 

 

$

158,536

 

 

$

158,440

 

Special Items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive compensation, net of tax (2)

 

 

5,652

 

 

 

 

 

 

5,652

 

 

 

 

Store closures, net of tax (3)

 

 

5,921

 

 

 

 

 

 

5,921

 

 

 

 

Adjusted Net income before one-time tax benefits

 

$

24,276

 

 

$

39,699

 

 

$

170,109

 

 

$

158,440

 

Income tax benefit related to Tax Act and other one-time tax benefits (4)

 

 

 

 

 

(18,692

)

 

 

(2,573

)

 

 

(18,692

)

Adjusted Net income

 

$

24,276

 

 

$

21,007

 

 

$

167,536

 

 

$

139,748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.10

 

 

$

0.29

 

 

$

1.22

 

 

$

1.15

 

Adjusted diluted earnings per share

 

$

0.19

 

 

$

0.16

 

 

$

1.29

 

 

$

1.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

 

127,398

 

 

 

134,795

 

 

 

129,776

 

 

 

137,884

 

 

(1)

Income tax provision (benefit) includes approximately $12 million (or $0.10 per diluted share) during the fifty-two weeks ended December 30, 2018 and $10 million (or $0.07 per diluted share) during the fifty-two weeks ended December 31, 2017, in excess federal and state tax benefits for share-based compensation primarily associated with the exercise of expiring pre-IPO options.

 

(2)

During the thirteen and fifty-two weeks ended December 30, 2018, the company recorded one-time pre-tax compensation charges of $4 million associated with the resignation of the former CEO. The after-tax impact includes incremental tax expense associated with certain nondeductible executive compensation costs.

 

(3)

During the thirteen and fifty-two weeks ended December 30, 2018, in connection with the closure of two stores, the company recorded one-time non-cash pre-tax charges of $8 million primarily related to the estimated fair value of the lease termination obligations and asset impairments. After-tax impact includes the tax benefit on the pre-tax charge.

 

(4)

During the fifty-two weeks ended December 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. During the thirteen and fifty-two weeks ended December 31, 2017, the company recorded a one-time benefit associated with the adoption of the 2017 Tax Cuts and Jobs Act.

 

 

###

 

Source: Sprouts Farmers Market, Inc.

Phoenix, AZ

2/21/19

 

 

 

 

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