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Section 1: 8-K (8-K)

sfm-8k_20200505.htm
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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 5, 2020

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))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

 

Trading Symbol(s)

Name of Each Exchange on Which Registered

 

Common Stock, $0.001 par value

SFM

NASDAQ Global Select Market

 

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 5, 2020, Sprouts Farmers Market, Inc. (the “Company”) issued a press release announcing its results of operations for its first fiscal quarter ended March 29, 2020. 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 7.01. Regulation FD Disclosure.

On May 5, 2020, the Company released a PowerPoint presentation (the “Presentation”) regarding the Company’s future strategy. This information may be amended or updated at any time and from time to time through another Current Report on Form 8-K, a later company filing or other means. A copy of the Presentation is furnished herewith as Exhibit 99.2 and is incorporated into this Item 7.01 by reference.

The information furnished in this Item 7.01, including Exhibit 99.2, 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 Company does not have, and expressly disclaims, any obligation to release publicly any updates or any changes in our expectations or any change in events, conditions, or circumstances on which any forward-looking statement in the Presentation is based.

The text of this Current Report on Form 8-K and the attached Presentation 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 5, 2020, entitled “Sprouts Farmers Market, Inc. Reports First Quarter 2020 Results and Second Quarter Update”

 

 

 

99.2

 

Sprouts Farmers Market, Inc. Presentation, dated May 5, 2020, entitled “Sprouts Strategy: 2020 and Beyond”

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 


 

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 5, 2020

 

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

                                 Diego Romero

 

(602) 682-1584

                                 (602) 682-3173

 

[email protected]

                                     [email protected]

 

 

Sprouts Farmers Market, Inc. Reports First Quarter 2020 Results and Second Quarter Update

Announces Initial Steps in Growth Strategy

PHOENIX, Ariz. – (Globe Newswire) – May 5, 2020 – Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week first quarter ended March 29, 2020, an update on second quarter results and outlined its strategy for profitable long-term growth.

First Quarter Highlights:

Net sales of $1.6 billion; a 16% increase from the same period in 2019

Comparable store sales growth of 10.6% and two-year comparable store sales growth of 12.0%

Net income of $92 million; compared to net income of $56 million from the same period in 2019

Adjusted net income(1) of $93 million; compared to $57 million from the same period in 2019

Diluted earnings per share of $0.78 and adjusted diluted earnings per share(1) of $0.79; compared to $0.46 diluted and adjusted diluted earnings per share from the same period in 2019

Positive impact from COVID-19 pandemic was estimated to be $0.22 of diluted earnings per share

“I am inspired by our hard-working and profoundly dedicated 32,000 team members who have served under the most difficult of circumstances to ensure our customers have healthy food to feed their families,” said Jack Sinclair, chief executive officer of Sprouts Farmers Market.  “During the first quarter, the COVID-19 crisis led to a significant increase in sales as consumers bought more food to consume at home. As we navigate these ever-changing circumstances, we remain steadfast and decisive, prioritizing team member and customer safety and remaining in-stock on fresh, healthy food for our communities, all the while not losing sight of our transformational strategy that will set us up for long-term success.”  

 

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.

 

First Quarter 2020 Financial Results

Net sales for the first quarter of 2020 were $1.6 billion, a 16% increase compared to the same period in 2019. Net sales growth was driven by a 10.6% increase in comparable store sales and solid performance in new stores opened. Due to the impact of the COVID-19 pandemic, demand increased dramatically during the latter part of the quarter. As a result, net sales were positively impacted by an estimated $146 million and comparable store sales by an estimated 9.6%.

Gross profit for the quarter increased 23% to $594 million, resulting in a gross profit margin of 36.1%, an increase of 180 basis points compared to the same period in 2019.  The positive leverage was driven by more balanced promotions during the first two months of the quarter, in addition to sales mix and shrink benefits during March due to customer stockpiling.

Selling, general and administrative expenses (“SG&A”) for the quarter increased 16% to $436 million, or 26.5% of sales, flat compared to the same period in 2019. SG&A included a pre-tax special item charge of $1.2 million for

 

 

 

 


professional fees related to our ongoing strategic initiatives. Leverage from increased sales related to the COVID-19 pandemic was largely offset by increased bonuses paid to team members as they serve the communities during this crisis, incremental ecommerce fees as more customers adopt digital solutions, as well as continued pressure from higher health care, labor and occupancy costs.

Depreciation and amortization for the quarter increased 5% to $31 million, or 1.9% of sales, a decrease of 20 basis points compared to the same period in 2019.

Store closure costs and other credits for the quarter were a credit of $1 million compared to a cost of $0.5 million in the same period of 2019 related to a true-up of a previous store closure charge.

Net income for the quarter was $92 million and diluted earnings per share (“EPS”) was $0.78, compared with $56 million and $0.46, respectively, in 2019.  Excluding the impact of special items, adjusted net income was $93 million and adjusted diluted EPS was $0.79; an increase of 72%, including an estimated $0.22 benefit from the COVID-19 impact (see “Non-GAAP Financial Measures”).

Unit Growth and Development

During the first quarter of 2020, Sprouts opened four new stores, resulting in a total of 344 stores in 23 states.

Leverage and Liquidity

Sprouts generated cash from operations of $277 million in the first quarter of 2020 and invested $17 million in capital expenditures net of landlord reimbursement, primarily for new stores.  Sprouts ended the quarter with a $451 million balance on its revolving credit facility, $34 million of letters of credit outstanding under the facility, and $247 million in cash and cash equivalents.  

COVID-19 Update

In recognition of its team members’ instrumental commitment to serving customers during this unprecedented time, Sprouts Farmers Market provided the following benefits:

 

Paid equivalent of $2 extra per hour for hours worked during the crisis in March through bonuses and pay adjustments, with more bonuses planned throughout the crisis.

 

Provided up to 14 days additional paid time off and job protection.

 

Provided eligible team members access to subsidized childcare benefits.

 

Created a COVID-19 relief fund to help our team members who face hardships due to this crisis.

 

Closed Easter Sunday with pay to give all 32,000 store team members time to rest and spend time with loved ones.

Additional measures were taken to safeguard our team members and customer wellbeing:

 

Increased cleaning and sanitation measures across the store.

 

Invested additional labor in stores to allow time for increased cleaning, additional required hand washing, and assisting customers with special needs.

 

Operated under modified store hours, closing at 8 p.m. during the month of April instead of 10 p.m., to allow team members time off to rest and refresh.

 

Implemented social distancing protocols inside and outside of the store.

 

Installed plexiglass register barriers at the register.

 

Providing gloves and masks to all team members and requiring this personal protective equipment on every shift.

 

Requiring team members to complete a health screen questionnaire prior to working.

Update on Current Performance and 2020 Outlook

We have been closely monitoring our results and certain trends we saw in the later part of the first quarter have continued into April. Elevated levels of grocery spend have continued as many consumers have increased their food at home spend. Social distancing has changed consumer behavior from customers consolidating trips and increasing use of ecommerce services. For the month of April, our comparable store sales increased 7.2%, compared to the same period last year notwithstanding the closure of all our stores on Easter Sunday, and ecommerce sales represented 13% of our

 

 

 

 


net sales.  While these increased sales, as well as our strategic initiatives around smarter promotions remain a benefit to operating margin, the timing of significant investments to enhance team members pay and benefits, and to implement additional safety and cleansing measures will weigh heavier in the second quarter compared to the first quarter.  Because of this, we do not believe we will sustain the same level of operating margin expansion experienced in the first quarter.

“The COVID-19 crisis has created a lack of visibility for the remainder of 2020 with many unknowns,” said Denise Paulonis, chief financial officer of Sprouts Farmers Market. “While April sales trended higher than average, we are making significant investments in pay, benefits and safety measures, as the health of our team members and customers is our number one priority. We remain uncertain as to when consumer behavior will return to normal or what may emerge as the ‘new normal’. This environment is making it difficult to predict specific outcomes, and accordingly we are not reaffirming or stating a new outlook range, however, we currently expect that we will be able to meet or exceed our previous annual outlook.”  

Growth Strategy

Sprouts has identified initial steps of a long-term growth strategy, which focuses on the following areas that we believe will transform the company and drive profitable growth:

Win with target customers

Sprouts plans to refocus attention on its target customers, where there is ample opportunity to gain share within these customer segments.  The business can grow by leveraging existing strengths in a unique assortment of better-for-you, quality products and by expanding ecommerce capabilities to allow customers easy access to differentiated products through delivery or pickup.

Update format and expand in select markets

Future plans will deliver unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer’s market heritage Sprouts is known for. Sprouts’ geographic store expansion and new store placement will intersect where target customers live, in markets with growth potential and supply chain support, providing a long runway of at least 10% annual unit growth.

Create an advantaged fresh supply chain

Sprouts network of fresh distribution centers can drive efficiencies across the chain and support growth plans. To further deliver on fresh commitment and reputation, as well as to improve financial results, the company will aspire to position fresh distribution centers within a 250-mile radius of stores.

Refine brand and marketing approach

Sprouts can elevate its national brand recognition and positioning by telling its unique product innovation and differentiation story. Increased customer engagement through digital and social connections will drive additional sales growth and loyalty.

Deliver on financial targets and box economics

Sprouts will measure the success of this strategy against the following long-term targets:

 

New store cost to build reduced by approximately 20%

 

New store cash on cash returns of approximately 40%

 

10%+ unit growth annually

 

Low single-digit comps

 

Stable to expanding EBIT margins

 

Low double-digit earnings growth

While the current environment affects the precise timing of when these strategies will impact our results, I am confident all these initiatives will improve our store performance, drive efficiencies, establish a tremendous unit growth trajectory and accelerate our future earnings,” added Sinclair.

For additional materials related to the Strategy, please visit: http://investors.sprouts.com/file/Index?KeyFile=1001263330

First Quarter 2020 Conference Call

Sprouts will hold a conference call at 2 p.m. Pacific Daylight Time (5 p.m. Eastern Daylight Time) on Tuesday, May 5, 2020, during which Sprouts executives will further discuss first quarter 2020 financial results and long-term growth strategy.  

 

 

 

 


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 15 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: 1395554

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: 1395554.

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, opportunities and long-term strategy. 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 impact of the COVID-19 pandemic; the Company’s ability to execute on its long-term strategy; 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 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; accounting standard changes; 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 and Quarterly Reports on Form 10-Q. 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., one of the fastest-growing retailers in the country, has made healthy living accessible to shoppers for nearly two decades by offering affordable, fresh, natural and organic products. True to its farmers market heritage, Sprouts is known for pioneering its unique grocery model by offering a welcoming store layout featuring fresh produce at the center of the store, an expansive bulk foods section, and a vitamin department focused on overall wellness. Sprouts also offers a unique assortment of healthier products with special attributes, such as plant-based, gluten-free, keto-friendly, and grass-fed, to meet the growing and diverse needs of today’s consumer. Headquartered in Phoenix, Ariz., Sprouts employs more than 32,000 team members and operates over 340 stores in 23 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

 

 

Thirteen

Weeks Ended

 

 

 

 

March 29, 2020

 

 

March 31, 2019

 

 

Net sales

 

$

1,646,539

 

 

$

1,413,887

 

 

Cost of sales

 

 

1,052,707

 

 

 

929,538

 

 

Gross profit

 

 

593,832

 

 

 

484,349

 

 

Selling, general and administrative expenses

 

 

436,304

 

 

 

374,826

 

 

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

 

 

31,021

 

 

 

29,459

 

 

Store closure costs and other credits

 

 

(1,082

)

 

 

508

 

 

Income from operations

 

 

127,589

 

 

 

79,556

 

 

Interest expense, net

 

 

4,827

 

 

 

5,002

 

 

Income before income taxes

 

 

122,762

 

 

 

74,554

 

 

Income tax provision

 

 

30,952

 

 

 

18,162

 

 

Net income

 

$

91,810

 

 

$

56,392

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.78

 

 

$

0.46

 

 

Diluted

 

$

0.78

 

 

$

0.46

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

117,545

 

 

 

123,258

 

 

Diluted

 

 

117,748

 

 

 

123,926

 

 

 

 

 

 


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

 

 

 

March 29, 2020

 

 

December 29, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

247,101

 

 

$

85,314

 

Accounts receivable, net

 

 

12,411

 

 

 

15,713

 

Inventories

 

 

253,191

 

 

 

275,979

 

Prepaid expenses and other current assets

 

 

18,079

 

 

 

10,833

 

Total current assets

 

 

530,782

 

 

 

387,839

 

Property and equipment, net of accumulated depreciation

 

 

734,504

 

 

 

741,508

 

Operating lease assets, net

 

 

1,024,510

 

 

 

1,028,436

 

Intangible assets, net of accumulated amortization

 

 

185,350

 

 

 

185,395

 

Goodwill

 

 

368,078

 

 

 

368,078

 

Other assets

 

 

11,976

 

 

 

11,727

 

Total assets

 

$

2,855,200

 

 

$

2,722,983

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

200,762

 

 

$

122,839

 

Accrued liabilities

 

 

153,365

 

 

 

136,482

 

Accrued salaries and benefits

 

 

51,563

 

 

 

48,579

 

Accrued income tax

 

 

30,911

 

 

 

2,005

 

Current portion of operating lease liabilities

 

 

109,961

 

 

 

106,153

 

Current portion of finance lease liabilities

 

 

833

 

 

 

754

 

Total current liabilities

 

 

547,395

 

 

 

416,812

 

Long-term operating lease liabilities

 

 

1,074,318

 

 

 

1,078,927

 

Long-term debt and finance lease liabilities

 

 

462,185

 

 

 

549,419

 

Other long-term liabilities

 

 

45,993

 

 

 

41,517

 

Deferred income tax liability

 

 

54,587

 

 

 

54,356

 

Total liabilities

 

 

2,184,478

 

 

 

2,141,031

 

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,

   117,786,608 shares issued and outstanding, March 29, 2020;

   117,543,668 shares issued and outstanding, December 29, 2019

 

 

117

 

 

 

117

 

Additional paid-in capital

 

 

673,366

 

 

 

670,966

 

Accumulated other comprehensive income (loss)

 

 

(10,122

)

 

 

(4,682

)

Retained earnings (Accumulated deficit)

 

 

7,361

 

 

 

(84,449

)

Total stockholders' equity

 

 

670,722

 

 

 

581,952

 

Total liabilities and stockholders' equity

 

$

2,855,200

 

 

$

2,722,983

 

 

 

 

 

 

 


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

 

 

 

 

 

Thirteen

Weeks Ended

 

 

Thirteen

Weeks Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

91,810

 

 

$

56,392

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

31,600

 

 

 

30,073

 

Operating lease asset amortization

 

 

23,137

 

 

 

20,653

 

Store closure costs and other credits

 

 

-

 

 

 

710

 

Share-based compensation

 

 

2,400

 

 

 

2,450

 

Deferred income taxes

 

 

232

 

 

 

6,217

 

Other non-cash items

 

 

(768

)

 

 

(30

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

12,652

 

 

 

3,247

 

Inventories

 

 

22,787

 

 

 

6,500

 

Prepaid expenses and other current assets

 

 

(8,652

)

 

 

(744

)

Other assets

 

 

656

 

 

 

(1,086

)

Accounts payable

 

 

80,669

 

 

 

(5,531

)

Accrued liabilities

 

 

16,492

 

 

 

13,840

 

Accrued salaries and benefits

 

 

2,984

 

 

 

(9,634

)

Accrued income tax

 

 

28,906

 

 

 

10,510

 

Operating lease liabilities

 

 

(30,107

)

 

 

(20,632

)

Other long-term liabilities

 

 

2,274

 

 

 

(330

)

Cash flows from operating activities

 

 

277,072

 

 

 

112,605

 

Cash flows used in investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(28,036

)

 

 

(30,142

)

Cash flows used in investing activities

 

 

(28,036

)

 

 

(30,142

)

Cash flows used in financing activities

 

 

 

 

 

 

 

 

Proceeds from revolving credit facilities

 

 

 

 

 

89,734

 

Payments on revolving credit facilities

 

 

(87,000

)

 

 

(42,734

)

Payments on finance lease obligations

 

 

(154

)

 

 

(186

)

Repurchase of common stock

 

 

 

 

 

(111,885

)

Proceeds from exercise of stock options

 

 

 

 

 

1,661

 

Other

 

 

 

 

 

(319

)

Cash flows used in financing activities

 

 

(87,154

)

 

 

(63,729

)

Increase in cash, cash equivalents, and restricted cash

 

 

161,882

 

 

 

18,734

 

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

 

 

86,785

 

 

 

2,248

 

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

 

$

248,667

 

 

$

20,982

 

 

 

 

 

 


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 EBIT, 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 EBIT, 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 adjusted EBITDA to net income for the thirteen weeks ended March 29, 2020 and March 31, 2019 and a reconciliation of EBIT, net income and diluted earnings per share to adjusted EBIT, adjusted net income and adjusted diluted earnings per share for the thirteen weeks ended March 29, 2020 and March 31, 2019:

 

 

 

 


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NON-GAAP MEASURE RECONCILIATION

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

 

 

 

Thirteen

Weeks Ended

 

 

 

 

Thirteen

Weeks Ended

 

 

 

 

March 29, 2020

 

 

 

 

March 31, 2019

 

 

Net income

 

$

91,810

 

 

 

 

$

56,392

 

 

Income tax provision

 

 

30,952

 

 

 

 

 

18,162

 

 

Interest expense, net

 

 

4,827

 

 

 

 

 

5,002

 

 

Earnings before interest and taxes (EBIT)

 

 

127,589

 

 

 

 

 

79,556

 

 

Special items:

 

 

 

 

 

 

 

 

 

 

 

Strategic initiatives (1)

 

 

1,200

 

 

 

 

 

 

 

Store closures (2)

 

 

 

 

 

 

 

508

 

 

Adjusted EBIT

 

 

128,789

 

 

 

 

 

80,064

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

31,600

 

 

 

 

 

30,073

 

 

Adjusted EBITDA

 

$

160,389

 

 

 

 

$

110,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

91,810

 

 

 

 

$

56,392

 

 

Special Items:

 

 

 

 

 

 

 

 

 

 

 

Strategic initiatives, net of tax (1)

 

 

892

 

 

 

 

 

 

 

Store closures, net of tax (2)

 

 

 

 

 

 

 

377

 

 

Adjusted Net income

 

$

92,702

 

 

 

 

$

56,769

 

 

Diluted earnings per share

 

$

0.78

 

 

 

 

$

0.46

 

 

Adjusted diluted earnings per share

 

$

0.79

 

 

 

 

$

0.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

 

117,748

 

 

 

 

 

123,926

 

 

 

(1)

Includes professional fees related to our ongoing strategic initiatives. After-tax impact includes the tax benefit on the pre-tax charge.

(2)

Includes the direct costs associated with store closures and relocation.  After-tax impact includes the tax benefit on the pre-tax charge.

 

 

 

###

 

Source: Sprouts Farmers Market, Inc.

Phoenix, AZ

5/5/20

 

 

 

 

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Section 3: EX-99.2 (EX-99.2)

sfm-ex992_118.pptx.htm

Slide 1

Sprouts Strategy 2020 and Beyond Exhibit 99.2 [COMPANY LOGO]

Slide 2

Forward-Looking Statements Certain statements in this presentation are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein (including, but not limited to, statements to the effect that Sprouts Farmers Market, Inc. (the “Company”) or its management "anticipates," "plans," "estimates," "expects," "believes," or the negative of these terms and other similar expressions) that are not statements of historical fact should be considered forward-looking statements, including, without limitation, statements regarding the Company’s guidance, outlook, financial targets, 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 presentation. These risks and uncertainties include, without limitation, risks associated with the COVID-19 pandemic; the Company’s ability to execute on its long-term strategy; 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 comparable store sales and operating margins; the Company’s ability to identify and react to trends in consumer preferences; product supply disruptions; general economic conditions; accounting standard changes; and other factors as set forth from time to time in the Company’s Securities and Exchange Commission filings. The Company intends these forward-looking statements to speak only as of the date of this presentation and does not undertake to update or revise them as more information becomes available, except as required by law. Non-GAAP Financial Measures This presentation refers to EBITDA Margin, EBIT Margin and ROIC, each of which is a Non-GAAP Financial Measure. These measures are not prepared in accordance with, and are not intended as alternatives to, generally accepted accounting principles in the United States, or GAAP. The Company's management believes that such measures provide 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 EBIT, as net income before interest expense and provision for income tax, and adjusted EBIT as EBIT, excluding the impact of special items. EBITDA Margin and EBIT Margin reflect such measures divided by net sales for the applicable period. The Company defines ROIC as net operating profit after tax (“NOPAT”), including the effect of capitalized operating leases, divided by average invested capital. 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.

Slide 3

STRATEGY We want to recognize our team members for their continued dedication through the COVID-19 health crisis. By helping millions of customers in our stores each week, they truly are everyday heroes. Their efforts support our long-term vision of building a brand that is good for you, good for your family, and good for the planet. - Jack Sinclair, CEO FRESH GOOD-FOR-YOU GROCERIES

Slide 4

SPROUTS STRATEGY Win with Target Customer Identified through research to have tremendous opportunity Refine Brand and Marketing Approach Elevate national recognition and top of mind awareness Update Format and Expand in Select Markets Smaller stores with higher returns where our core customers live Create an Advantaged Fresh Supply Chain Drive efficiencies across our network of fresh distribution centers Deliver on our Financial Targets and Box Economics Drive 10+% unit growth and low double-digit earnings growth, while expanding ROIC

Slide 5

Target Customers looking for: Healthy and organic options Better for you, quality products Innovative and differentiated products Great store experience Support in living a healthier lifestyle Ample Opportunity to Gain Market Share, as Sprouts Serves Only a Small Portion of these Target Customers Today New customer segmentation research yielded a deeper understanding of Sprouts’ Target Customer

Slide 6

Consumers Spend $1.2T on Food at Home 3% Share Increase of the Target Customer would Double Sales Sprouts’ Share Today Tremendous Opportunity to Gain Share in Winning Target Customer Segment [PIE CHART] Sprouts Targets Customers Sprouts Share Today Halo Customers All Other

Slide 7

Meeting Customer Needs with Grocery Delivery and Pickup Home Delivery in All Major Markets Grocery Pickup Expanding to All Stores

Slide 8

Elevate national brand recognition and top of mind awareness Tell the story around differentiation and innovation Build more capability around digital and social connections Establish a truly differentiated private label Focus more on good value every day and meaningful promotions Brand and Marketing

Slide 9

Meaningful Promotions – We Will Continue to Bring Good Value Everyday to our Customers Promotional mix down Promotional margins up [COUPON GRAPHIC]

Slide 10

Deliver a Unique, Friendly Experience with Healthy, Innovative Products in a Smaller Box with Higher Returns Format to Stay True to our Fresh-focused Farmer’s Market Heritage Prioritize Categories For Growth Potential Continue to Offer all Categories 21K-25K Small Market Layout square foot box From… To… 30K Enhanced Layout square foot box

Slide 11

Lower Cost to Build Reduce Non-Selling Space Decreased Occupancy Cost Reduce Operating Cost Sales Remain Flat Strong Returns & Ability to Accelerate Growth Smaller Store Benefits

Slide 12

Site selection intersecting: Target customers Growth potential Supply chain Expansion Markets Drive growth in existing markets with support of Distribution Centers California & Texas – More opportunity to fill in where we are strong Build out Mid-Atlantic and Florida 300-400 New Stores in Expansion Markets – Minimum 10% Unit Growth Existing DCs [MAP OF STORES]

Slide 13

Deliver on Fresh Commitment Distribution Centers (DC) are located within 500 or more miles of the stores 5 DC serving 345 stores (Atlanta serving southern Florida) Multiple deliveries to the stores daily Current Future Aspire DC to be within 250 miles of the majority of stores Additional Florida & Colorado DCs in 2020/2021 Mid-Atlantic DC 2021/2022 Leverage existing DC space to reduce overall costs; cross-docking more products Drive efficiencies and simplicity in store & DC replenishment process Create an Advantaged Fresh Supply Chain

Slide 14

STRATEGY Sprouts’ strong and resilient cash generation will enable our strategy to come to life, support the long-term, profitable growth of the business, and provide meaningful career opportunities for current and future team members - Denise Paulonis, CFO

Slide 15

Low Double-Digit Earnings Growth and Expansion of ROIC Financial Targets Cost to Build Reduced & Attractive New Store Economics 10% unit growth or more Low single digit comps Stable to Expanding EBIT Margins

Slide 16

Reduction in Sq Ft Reduction in Fixtures ~ 20% reduction in square feet ~ 20% reduction in capital dollars Cash Investment $3.2M blended prototype including CapEx (less TI), IT and other opening costs Other Opening Costs Reduction in inventory & pre-opening expenses Reduction in Target Cost to Build

Slide 17

Sales EBITDA Margins 20% to 25% sales growth in 4 years $16M - $18M annual Sales per Box in year 4 Blended 8% EBITDA Margins in year 4 Cash on Cash Return ~40% by year 4, continues to grow in year 5 Cash Investment $3.2M average new store build including CapEx, Inventory and Pre-opening expenses New Store Four Wall Box Target Economics

Slide 18

Unit growth (1) Annual Unit Growth Target of 10% or More Long Runway of Organic Growth 2019 actual unit growth, 2020 projected unit growth, 2021 and beyond represent a range of potential growth 340 360 2019 2020 2021 2022 2023 2024 2025 [BAR CHART]

Slide 19

Low Single Digit Comps Target Key Comp Drivers Low Single Digit Comps Brand and marketing Innovative, differentiated products Ecommerce Better new store ramp with smarter promotional approach

Slide 20

Stable to Expanding EBIT Margins Stable to Expanding EBIT Margins All Stores New Stores Smarter Promotions Improved Buying Supply Chain Optimization Labor Productivity Improving Shrink Headwinds from Labor & Benefit Costs Headwinds from ecommerce Reduction in Cost to Build (Improved DA) Lower Rents driven by Smaller Boxes Less Efficient Operations during Maturity ramp-up

Slide 21

Invest in store unit growth (self funded) Invest in sales initiatives Invest in Brand Return excess cash/pay down debt NET CASH PROVIDED by OPERATIONS ($ in mm) Leveraging Strong Cash Generation [BAR CHART] $240 $254 $310 $294 $355 2015 2016 2017 2018 2019

Slide 22

Capital Expense Driven by New Store Growth Capex Spend as % of Sales ($ in mm) [BAR CHART] 4.0% 3.0% 2.8 % ~2.0% ~2.5% to 3.5% 2017 2018 2019 2020 2021 + New Stores Sales Initiatives & Infrastructure Maintenance

Slide 23

Low Double-Digit Earnings Growth and Expansion of ROIC Financial Targets Cost to Build Reduced & Attractive New Store Economics 10% unit growth or more Low single digit comps Stable to Expanding EBIT Margins

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