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

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PHOENIX, July 29, 2020 (GLOBE NEWSWIRE) -- Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week second quarter ended June 28, 2020 and an update on July results.

Second Quarter Highlights:

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

  • Comparable store sales growth of 9.1% and two-year comparable store sales growth of 9.2%

  • Net income of $67 million and adjusted net income(1) of $70 million; compared to net income and adjusted net income of $35 million from the same period in 2019

  • Diluted earnings per share of $0.57 and adjusted diluted earnings per share(1) of $0.59; compared to $0.30 diluted and adjusted diluted earnings per share from the same period in 2019

“I am proud of how our Sprouts team members have navigated these unprecedented circumstances we live in today. Our culture rooted in respect, inclusion and caring for one another has shone through in everything our team members do for our customers and for each other,” said Jack Sinclair, chief executive officer of Sprouts Farmers Market. “Our strong second quarter performance was driven by the strategic changes we have begun to implement across our business and the continued positive impact on demand from the COVID-19 pandemic. As we head into the second half of the year, our early strategic wins give me confidence in our long-term direction, and our team members’ dedication assures me we will continue to provide our communities and customers healthy food for their families.”
________________________________________________________________________________________

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.

Second Quarter 2020 Financial Results

Net sales for the second quarter of 2020 were $1.6 billion, a 16% increase compared to the same period in 2019. Net sales growth was driven by continued demand from the COVID-19 pandemic, contributing to a 9.1% increase in comparable store sales and strong performance in new stores opened.

Gross profit for the quarter increased 32% to $613 million, resulting in a gross profit margin of 37.3%, an increase of 450 basis points compared to the same period in 2019. The increase was driven by strategic changes in our promotional activities, partially accelerated by the COVID-19 environment, coupled with cycling deep promotions from the prior year, as well as outsized shrink improvement from operational efficiencies and positive leverage from additional sales.

Selling, general and administrative expenses (“SG&A”) for the quarter increased $106 million to $489 million, or 29.8% of sales, a deleverage of 270 basis points compared to the same period in 2019. Increased team member bonuses and higher store operational expenses predominately driven by COVID-19, as well as incremental ecommerce costs, were partially offset by lower marketing expense due to a shift from print to more digital spend. Increased costs from COVID-19 were approximately $47 million for the second quarter.

Depreciation and amortization for the quarter increased 3% to $31 million, or 1.9% of sales, a decrease of 20 basis points compared to the same period in 2019.

Store closure and other costs, net for the quarter were $0.5 million compared to $0.8 million in the same period of 2019.

Net income for the quarter was $67 million and diluted earnings per share (“EPS”) was $0.57, compared with $35 million and $0.30, respectively, in 2019. Excluding the impact of special items, adjusted net income was $70 million and adjusted diluted EPS was $0.59; an increase of 97% from the same period in 2019 (see “Non-GAAP Financial Measures”).

Unit Growth and Development

During the second quarter of 2020, Sprouts opened 6 new stores, resulting in a total of 350 stores in 23 states as of June 28, 2020.

Leverage and Liquidity

Sprouts generated cash from operations of $393 million year-to-date through June 28, 2020 and invested $48 million in capital expenditures net of landlord reimbursements, primarily for new stores. Sprouts ended the quarter with $451 million in loans and $34 million of letters of credit outstanding under its revolving credit facility, and $328 million in cash and cash equivalents. Subsequent to the end of the second quarter, we paid down $76 million of our revolving credit facility.

Update on Current Performance and 2020 Outlook

As customers continue to consume much of their food at home due to the COVID-19 pandemic, grocery spend and ecommerce penetration have remained at elevated levels. For the month of July, our comparable store sales are estimated to increase approximately 9% compared to the same period last year, and ecommerce sales are estimated to represent approximately 11% of our net sales.

“The trajectory of the COVID-19 situation remains uncertain, clouding the impact to the food retail industry over the coming quarters,” said Denise Paulonis, chief financial officer of Sprouts Farmers Market. “While our sales continue at elevated levels, so do additional costs associated with our team members and stores. Predicting specific outcomes remains difficult, and accordingly we are not stating a new outlook range. We remain confident in the financial strength of our business and our new long-term growth strategy presented last quarter.”

Second Quarter 2020 Conference Call

Sprouts will hold a conference call at 2 p.m. Pacific Daylight Time (5 p.m. Eastern Daylight Time) on Wednesday, July 29, 2020, during which Sprouts executives will further discuss second quarter 2020 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 15 minutes prior to the start of the webcast.

The conference call will be available via the following dial-in numbers:

  • U.S. Participants: 888-869-1189

  • International Participants: 706-643-5902

  • Conference ID: 9096884

Investors dialing by phone are encouraged to pre-register for the conference call using the following link: http://www.directeventreg.com/registration/event/9096884. Callers who pre-register will be given a phone number and unique PIN to bypass the live operator and gain immediate access to the call. Participants may pre-register at any time, including up to and after the call start time.

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: 9096884.

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 35,000 team members and operates more than 350 stores in 23 states from coast to coast. Visit about.sprouts.com for more information.

Investor Contact:

Media Contact:

Susannah Livingston

Diego Romero

(602) 682-1584

(602) 682-3173

susannahlivingston@sprouts.com

media@sprouts.com


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Thirteen
Weeks Ended

Thirteen
Weeks Ended

Twenty-six
Weeks Ended

Twenty-six
Weeks Ended

June 28, 2020

June 30, 2019

June 28, 2020

June 30, 2019

Net sales

$

1,642,788

$

1,415,736

$

3,289,327

$

2,829,623

Cost of sales

1,030,129

950,954

2,082,836

1,880,492

Gross profit

612,659

464,782

1,206,491

949,131

Selling, general and administrative expenses

488,877

383,116

925,181

757,942

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

30,549

29,565

61,570

59,024

Store closure and other costs, net

470

769

(612

)

1,277

Income from operations

92,763

51,332

220,352

130,888

Interest expense, net

3,737

5,438

8,564

10,440

Income before income taxes

89,026

45,894

211,788

120,448

Income tax provision

22,024

10,551

52,976

28,713

Net income

$

67,002

$

35,343

$

158,812

$

91,735

Net income per share:

Basic

$

0.57

$

0.30

$

1.35

$

0.76

Diluted

$

0.57

$

0.30

$

1.35

$

0.76

Weighted average shares outstanding:

Basic

117,832

118,251

117,688

120,754

Diluted

118,189

118,436

117,977

121,231


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

June 28, 2020

December 29, 2019

ASSETS

Current assets:

Cash and cash equivalents

$

328,116

$

85,314

Accounts receivable, net

14,742

15,713

Inventories

255,352

275,979

Prepaid expenses and other current assets

14,648

10,833

Total current assets

612,858

387,839

Property and equipment, net of accumulated depreciation

740,075

741,508

Operating lease assets, net

1,041,702

1,028,436

Intangible assets, net of accumulated amortization

184,960

185,395

Goodwill

368,878

368,078

Other assets

14,716

11,727

Total assets

$

2,963,189

$

2,722,983

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

168,833

$

122,839

Accrued liabilities

155,531

136,482

Accrued salaries and benefits

75,837

48,579

Accrued income tax

49,237

2,005

Current portion of operating lease liabilities

122,404

106,153

Current portion of finance lease liabilities

914

754

Total current liabilities

572,756

416,812

Long-term operating lease liabilities

1,082,718

1,078,927

Long-term debt and finance lease liabilities

461,947

549,419

Other long-term liabilities

47,349

41,517

Deferred income tax liability

55,142

54,356

Total liabilities

2,219,912

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, 117,944,450 shares issued and outstanding, June 28, 2020; 117,543,668 shares issued and outstanding, December 29, 2019

117

117

Additional paid-in capital

679,036

670,966

Accumulated other comprehensive income (loss)

(10,239

)

(4,682

)

Retained earnings (Accumulated deficit)

74,363

(84,449

)

Total stockholders' equity

743,277

581,952

Total liabilities and stockholders' equity

$

2,963,189

$

2,722,983


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

Twenty-six
Weeks Ended

Twenty-six
Weeks Ended

June 28, 2020

June 30, 2019

Cash flows from operating activities

Net income

$

158,812

$

91,735

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

Depreciation and amortization expense

62,928

60,211

Operating lease asset amortization

47,074

40,477

Store closure and other costs, net

(321

)

824

Share-based compensation

6,727

4,191

Deferred income taxes

786

10,691

Other non-cash items

1,286

32

Changes in operating assets and liabilities:

Accounts receivable

14,423

20,378

Inventories

20,627

(5,096

)

Prepaid expenses and other current assets

(8,311

)

(9,644

)

Other assets

(1,879

)

(451

)

Accounts payable

46,554

59,989

Accrued liabilities

18,240

26,018

Accrued salaries and benefits

27,258

(6,288

)

Accrued income tax

47,231

-

Operating lease liabilities

(52,063

)

(40,297

)

Other long-term liabilities

3,976

(3,585

)

Cash flows from operating activities

393,348

249,185

Cash flows used in investing activities

Purchases of property and equipment

(64,571

)

(93,414

)

Cash flows used in investing activities

(64,571

)

(93,414

)

Cash flows used in financing activities

Proceeds from revolving credit facilities

122,860

Payments on revolving credit facilities

(87,000

)

(60,860

)

Payments on finance lease obligations

(311

)

(325

)

Repurchase of common stock

(163,310

)

Proceeds from exercise of stock options

1,343

4,118

Other

(319

)

Cash flows used in financing activities

(85,968

)

(97,836

)

Increase in cash, cash equivalents, and restricted cash

242,809

57,935

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

$

329,594

$

60,183

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 and twenty-six weeks ended June 28, 2020 and June 30, 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 and twenty-six weeks ended June 28, 2020 and June 30, 2019:


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NON-GAAP MEASURE RECONCILIATION
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Thirteen
Weeks Ended

Thirteen
Weeks Ended

Twenty-six
Weeks Ended

Twenty-six
Weeks Ended

June 28, 2020

June 30, 2019

June 28, 2020

June 30, 2019

Net income

$

67,002

$

35,343

$

158,812

$

91,735

Income tax provision

22,024

10,551

52,976

28,713

Interest expense, net

3,737

5,438

8,564

10,440

Earnings before interest and taxes (EBIT)

92,763

51,332

220,352

130,888

Special items:

Strategic initiatives (1)

3,417

4,617

Store closures (2)

508

Adjusted EBIT

96,180

51,332

224,969

131,396

Depreciation, amortization and accretion

31,181

30,139

62,781

60,211

Adjusted EBITDA

$

127,361

$

81,471

$

287,750

$

191,607

Net income

$

67,002

$

35,343

$

158,812

$

91,735

Special Items:

Strategic initiatives, net of tax (1)

2,539

3,431

Store closures, net of tax (2)

378

Adjusted Net income

$

69,541

$

35,343

$

162,243

$

92,113

Diluted earnings per share

$

0.57

$

0.30

$

1.35

$

0.76

Adjusted diluted earnings per share

$

0.59

$

0.30

$

1.38

$

0.76

Diluted weighted average shares outstanding

118,189

118,436

117,977

121,231

  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
7/29/20