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Sprouts Farmers Market, Inc. Reports Third Quarter 2020 Results

Sprouts Farmers Market
·15 min read

PHOENIX, Oct. 28, 2020 (GLOBE NEWSWIRE) -- Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week third quarter ended September 27, 2020.

Third Quarter Highlights:

  • Net sales of $1.6 billion; a 9.5% increase from the same period in 2019

  • Comparable store sales growth of 4.2% and two-year comparable store sales growth of 5.7%

  • Net income of $60 million and adjusted net income(1) of $62 million; compared to net income and adjusted net income of $26 million from the same period in 2019

  • Diluted earnings per share of $0.51 and adjusted diluted earnings per share(1) of $0.52; compared to $0.22 diluted and adjusted diluted earnings per share from the same period in 2019

“Sprouts continues to prioritize the wellbeing of our team members and customers through our safe store operations and the wholesome foods we offer,” said Jack Sinclair, chief executive officer of Sprouts Farmers Market. “Our strong financial performance in the third quarter was driven by our curation of healthy offerings, coupled with ongoing strategic changes. With each passing quarter, the progression of our strategy strengthens our conviction in our long-term growth and our ability to provide exceptional returns for years to come.”

________________________________________________________________________________________

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.

Third Quarter 2020 Financial Results

Net sales for the third quarter of 2020 were $1.6 billion, a 9.5% increase compared to the same period in 2019. Net sales growth was driven by continued demand from the COVID-19 pandemic, contributing to a 4.2% increase in comparable store sales and strong performance in new stores opened.

Gross profit for the quarter increased 23% to $585 million, resulting in a gross profit margin of 37.1%, an increase of 400 basis points compared to the same period in 2019. A number of sustainable strategic changes contributed to this increase, from promotional activities to shrink initiatives, partially accelerated by the COVID-19 landscape, as well as positive leverage from additional sales.

Selling, general and administrative expenses (“SG&A”) for the quarter increased $71 million to $475 million, or 30.1% of sales, a deleverage of 200 basis points compared to the same period in 2019. Increased team member bonuses and store operational expenses from COVID-19 were approximately $34 million for the third quarter, driving the deleverage. Additionally, with our elevated ecommerce sales, we realized increased ecommerce fees, which were offset by other efficiencies and leveraging fixed costs on our higher sales.

Depreciation and amortization for the quarter increased 1.0% to $31 million, or 2.0% of sales, a decrease of 10 basis points compared to the same period in 2019.

Store closure and other costs, net for the quarter were $0.3 million compared to $2.1 million in the same period of 2019.

Net income for the quarter was $60 million and diluted earnings per share (“EPS”) was $0.51, compared with $26 million and $0.22, respectively, in 2019. Excluding the impact of special items, adjusted net income was $62 million and adjusted diluted EPS was $0.52; an increase of 136% from the same period in 2019 (see “Non-GAAP Financial Measures”).

Unit Growth and Development

During the third quarter of 2020, Sprouts opened six new stores, resulting in a total of 356 stores in 23 states as of September 27, 2020.

Leverage and Liquidity

Sprouts generated cash from operations of $410 million year-to-date through September 27, 2020 and invested $76 million in capital expenditures net of landlord reimbursements, primarily for new stores. After paying down $176 million of outstanding debt, Sprouts ended the quarter with $275 million in loans and $34 million of letters of credit outstanding under its revolving credit facility, and $138 million in cash and cash equivalents.

Fourth Quarter 2020 and Full Year 2021 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, as do additional company expenses. For the fourth quarter we expect our comparable store sales to be in the low single digits and inclusive of the 53rd week, adjusted diluted EPS to be between $0.36 to $0.40, which translates into a full-year adjusted diluted EPS range of $2.26 to $2.30, on a 53-week basis.

“We remain confident in executing our long-term unit growth plans, winning with our target customer, maintaining our strong balance sheet and delivering sustainable superior returns,” said Denise Paulonis, chief financial officer of Sprouts Farmers Market. “As we build out our 2021 plans, we are more focused than ever on maintaining the momentum we have captured in 2020, giving us confidence that our earnings before interest and taxes in 2021 will be in the range of $285 to $305 million.”

Third 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, October 28, 2020, during which Sprouts executives will further discuss third 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: 877-398-9481

  • International Participants: +1-408-337-0130

  • Conference ID: 5589871

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: 5589871.

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 is the place where goodness grows. True to its farm-stand heritage, Sprouts offers a unique grocery experience featuring an open layout with fresh produce at the heart of the store. Sprouts inspires wellness naturally with a carefully curated assortment of better-for-you products paired with purpose-driven people. The healthy grocer continues to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. Headquartered in Phoenix, and one of the fastest growing retailers in the country, Sprouts employs approximately 35,000 team members and operates more than 350 stores in 23 states nationwide. To learn more about Sprouts, and the good it brings communities, visit about.sprouts.com.

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

Thirty-nine
Weeks Ended

Thirty-nine
Weeks Ended

September 27, 2020

September 29, 2019

September 27, 2020

September 29, 2019

Net sales

$

1,577,598

$

1,440,222

$

4,866,925

$

4,269,844

Cost of sales

992,829

963,497

3,075,665

2,843,989

Gross profit

584,769

476,725

1,791,260

1,425,855

Selling, general and administrative expenses

475,053

404,285

1,400,234

1,162,226

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

31,067

30,764

92,637

89,788

Store closure and other costs, net

268

2,119

(344

)

3,396

Income from operations

78,381

39,557

298,733

170,445

Interest expense, net

3,117

5,557

11,681

15,997

Income before income taxes

75,264

34,000

287,052

154,448

Income tax provision

15,023

7,740

67,999

36,453

Net income

$

60,241

$

26,260

$

219,053

$

117,995

Net income per share:

Basic

$

0.51

$

0.22

$

1.86

$

0.98

Diluted

$

0.51

$

0.22

$

1.85

$

0.98

Weighted average shares outstanding:

Basic

117,947

118,029

117,775

119,846

Diluted

118,450

118,174

118,157

120,227


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


September 27,
2020

December 29,
2019

ASSETS

Current assets:

Cash and cash equivalents

$

137,518

$

85,314

Accounts receivable, net

24,258

15,713

Inventories

257,255

275,979

Prepaid expenses and other current assets

18,948

10,833

Total current assets

437,979

387,839

Property and equipment, net of accumulated depreciation

735,670

741,508

Operating lease assets, net

1,040,329

1,028,436

Intangible assets, net of accumulated amortization

184,960

185,395

Goodwill

368,878

368,078

Other assets

14,407

11,727

Total assets

$

2,782,223

$

2,722,983

LIABILITIES AND STOCKHOLDERS EQUITY

Current liabilities:

Accounts payable

$

163,259

$

122,839

Accrued liabilities

138,996

136,482

Accrued salaries and benefits

72,155

48,579

Accrued income tax

4,089

2,005

Current portion of operating lease liabilities

130,088

106,153

Current portion of finance lease liabilities

994

754

Total current liabilities

509,581

416,812

Long-term operating lease liabilities

1,074,267

1,078,927

Long-term debt and finance lease liabilities

285,704

549,419

Other long-term liabilities

50,140

41,517

Deferred income tax liability

54,585

54,356

Total liabilities

1,974,277

2,141,031

Commitments and contingencies (Note 6)

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, 117,950,276 shares issued and outstanding, September 27, 2020;
117,543,668 shares issued and outstanding, December 29, 2019

117

117

Additional paid-in capital

682,709

670,966

Accumulated other comprehensive income (loss)

(9,484

)

(4,682

)

Retained earnings (Accumulated deficit)

134,604

(84,449

)

Total stockholders’ equity

807,946

581,952

Total liabilities and stockholders’ equity

$

2,782,223

$

2,722,983


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


Thirty-nine
Weeks Ended

Thirty-nine
Weeks Ended

September 27, 2020

September 29, 2019

Cash flows from operating activities

Net income

$

219,053

$

117,995

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

Depreciation and amortization expense

94,748

91,546

Operating lease asset amortization

71,765

62,251

Store closure and other costs, net

(321

)

850

Share-based compensation

10,400

6,901

Deferred income taxes

228

(245

)

Other non-cash items

1,996

(2,873

)

Changes in operating assets and liabilities:

Accounts receivable

7,372

28,978

Inventories

18,724

(21,348

)

Prepaid expenses and other current assets

(8,937

)

(2,379

)

Other assets

(2,575

)

(762

)

Accounts payable

45,806

63,947

Accrued liabilities

(7

)

32,963

Accrued salaries and benefits

23,577

(4,054

)

Accrued income tax

2,083

3,764

Operating lease liabilities

(79,602

)

(52,209

)

Other long-term liabilities

5,954

(2,013

)

Cash flows from operating activities

410,264

323,312

Cash flows used in investing activities

Purchases of property and equipment

(95,874

)

(146,480

)

Cash flows used in investing activities

(95,874

)

(146,480

)

Cash flows used in financing activities

Proceeds from revolving credit facilities

187,405

Payments on revolving credit facilities

(263,000

)

(125,405

)

Payments on finance lease obligations

(474

)

(536

)

Repurchase of common stock

(163,310

)

Proceeds from exercise of stock options

1,343

4,483

Other

(320

)

Cash flows used in financing activities

(262,131

)

(97,683

)

Increase in cash, cash equivalents, and restricted cash

52,259

79,149

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

$

139,044

$

81,397

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 thirty-nine weeks ended September 27, 2020 and September 29, 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 thirty-nine weeks ended September 27, 2020 and September 29, 2019:

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


Thirteen
Weeks Ended

Thirteen
Weeks Ended

Thirty-nine
Weeks Ended

Thirty-nine
Weeks Ended

September 27, 2020

September 29, 2019

September 27, 2020

September 29, 2019

Net income

$

60,241

$

26,260

$

219,053

$

117,995

Income tax provision

15,023

7,740

67,999

36,453

Interest expense, net

3,117

5,557

11,681

15,997

Earnings before interest and taxes (EBIT)

78,381

39,557

298,733

170,445

Special items:

Strategic initiatives (1)

2,416

7,033

Store closures (2)

508

Adjusted EBIT

80,797

39,557

305,766

170,953

Depreciation, amortization and accretion

31,647

31,335

94,428

91,546

Adjusted EBITDA

$

112,444

$

70,892

$

400,194

$

262,499

Net income

$

60,241

$

26,260

$

219,053

$

117,995

Special Items:

Strategic initiatives, net of tax (1)

1,795

5,226

Store closures, net of tax (2)

377

Adjusted Net income

$

62,036

$

26,260

$

224,279

$

118,372

Diluted earnings per share

$

0.51

$

0.22

$

1.85

$

0.98

Adjusted diluted earnings per share

$

0.52

$

0.22

$

1.90

$

0.98

Diluted weighted average shares outstanding

118,450

118,174

118,157

120,227

(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
10/28/20