Sprouts Farmers Market, Inc. Reports First Quarter 2021 Results

Rhea-AI Summary

Sprouts Farmers Market reported Q1 2021 results showing a 4% decline in net sales to $1.6 billion and a net income of $83 million. Comparable store sales dropped 9.4%, attributed to last year's COVID-19 impacts. Despite this, gross profit increased to $586 million, with a margin of 37.2%, up 114 basis points from 2020. SG&A expenses rose by $3 million to 27.9% of sales. Sprouts ended the quarter with $256 million in cash and plans to open approximately 20 new stores this fiscal year, while maintaining an uncertain outlook due to ongoing pandemic effects.

Positive

• Gross profit increased to $586 million with a margin of 37.2%, up 114 basis points from 2020.
• Sprouts generated cash from operations of $105 million.
• Plans to open approximately 20 new stores in fiscal 2021.

Negative

• Net sales decreased by 4% compared to Q1 2020.
• Comparable store sales grew negatively by 9.4%, reflecting COVID-19 impacts.
• Net income decreased to $83 million from $92 million in the prior year.

PHOENIX, May 06, 2021 (GLOBE NEWSWIRE) -- Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week first quarter ended April 4, 2021.

First Quarter Highlights:

• Net sales of $1.6 billion; a 4% decrease from the same period in 2020
• Comparable store sales growth of -9.4% and two-year comparable store sales growth of 2.2%
• Net income and adjusted net income⁽¹⁾ of $83 million; compared to net income of $92 million and adjusted net income of $93 million from the same period in 2020
• Diluted and adjusted diluted earnings per share⁽¹⁾ of $0.70; compared to $0.78 diluted earnings per share and adjusted diluted earnings per share of $0.79 from the same period in 2020

“I am pleased with how Sprouts has navigated the current environment as we begin to cycle the onset of the COVID-19 impact from last year,” said Jack Sinclair, chief executive officer of Sprouts Farmers Market. “Sprouts achieved strong financial results in the first quarter, building on our successful strategic improvements from 2020, which enhanced our profitability to support our long-term growth. We continued to move our strategy forward with the opening of our sixth fresh distribution center, providing our customers with even more affordable, local and organic produce, rooted in Sprouts’ unique farmer’s market heritage. As we look forward, I am confident we will continue to enhance our position as a fast-growing health-focused specialty retailer.”

1 Adjusted net income and adjusted diluted earnings per share, non-GAAP financial measures, exclude the impact of certain special items. There were no such adjustments for the quarter ended April 4, 2021. See the “Non-GAAP Financial Measures” section of this release for additional information about these items.

First Quarter 2021 Financial Results

Net sales for the first quarter of 2021 were $1.6 billion, a 4% decrease compared to the same period in 2020. Net sales were driven by solid performance in new stores opened, offset by a decrease of 9.4% in comparable store sales due to the impact from the onset of COVID-19 during the first quarter of last year.

Gross profit for the quarter decreased 1.3% to $586 million, resulting in a gross profit margin of 37.2%, an increase of 114 basis points compared to the same period in 2020.This increase is attributed to sustainable strategic changes, including promotional activities and shrink initiatives.

Selling, general and administrative expenses for the quarter increased $3 million to $440 million, or 27.9% of sales, a deleverage of 141 basis points compared to the same period in 2020. This primarily reflects sales deleverage and increased ecommerce fees due to higher omni channel sales as more customer have continued to rely on home delivery and curbside pickup. This was partially offset by lower bonus expense due to COVID-19 in the prior year.         

Depreciation and amortization for the quarter decreased 0.7% to $31 million, or 2.0% of sales, an increase of 10 basis points compared to the same period in 2020.

Store closure and other costs, net for the quarter were $2 million compared to a credit of $1 million in the same period of 2020.

Net income for the quarter was $83 million and diluted earnings per share (“EPS”) was $0.70, compared with $92 million and $0.78, respectively, in 2020. Diluted EPS in 2020 included an estimated $0.22 benefit from the COVID-19 impact.

Unit Growth and Development

As planned, Sprouts did not open any new stores in the first quarter of 2021, ending the quarter with a total of 362 stores in 23 states.

Leverage and Liquidity

Sprouts generated cash from operations of $105 million in the first quarter of 2021 and invested $9 million in capital expenditures net of landlord reimbursement, primarily for new stores. Sprouts ended the quarter with a $250 million balance on its revolving credit facility, $39 million of letters of credit outstanding under the facility, $256 million in cash and cash equivalents, and $297 million available under our current share repurchase authorization. Through April 4, 2021, we have repurchased 130,000 shares of common stock under this authorization for a total investment of $3 million.

Full Year 2021 Outlook

The impact that the COVID-19 pandemic will have on the U.S. economy and the company’s fiscal 2021 results is still uncertain. We have adjusted our fiscal 2021 outlook, reflecting our year-to-date performance and our expectations for the remainder of the year:

	Full-year 2021 Guidance
	52-week to 52-week
Net sales growth	Flat to up slightly
Unit growth	Approximately 20 new stores
Comparable store sales growth	Down low to mid-single digits
Adjusted EBIT	$305M to $325M
Adjusted diluted earnings per share	$1.87 to $2.00
Effective tax rate	Approximately 25%
Capital expenditures	$140M to $160M
(net of landlord reimbursements)

First Quarter 2021 Conference Call

Sprouts will hold a conference call at 2 p.m. Pacific Daylight Time (5 p.m. Eastern Daylight Time) on Thursday, May 6, 2021, during which Sprouts executives will further discuss first quarter 2021 financial results.

A webcast of the conference call will be available through Sprouts’ investor relations 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: 9758223
  

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: 9758223.

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 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 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 360 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
		April 4, 2021				March 29, 2020
Net sales		$	1,575,447			$	1,646,539
Cost of sales			989,273				1,052,707
Gross profit			586,174				593,832
Selling, general and administrative expenses			439,662				436,304
Depreciation and amortization (exclusive of depreciation included in cost of sales)			31,229				31,021
Store closure and other costs, net			2,048				(1,082	)
Income from operations			113,235				127,589
Interest expense, net			2,991				4,827
Income before income taxes			110,244				122,762
Income tax provision			27,196				30,952
Net income		$	83,048			$	91,810
Net income per share:
Basic		$	0.70			$	0.78
Diluted		$	0.70			$	0.78
Weighted average shares outstanding:
Basic			118,044				117,545
Diluted			118,607				117,748

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

		April 4, 2021				January 3, 2021
ASSETS
Current assets:
Cash and cash equivalents		$	256,019			$	169,697
Accounts receivable, net			14,488				14,815
Inventories			270,958				254,224
Prepaid expenses and other current assets			35,862				27,224
Total current assets			577,327				465,960
Property and equipment, net of accumulated depreciation			707,039				726,500
Operating lease assets, net			1,043,455				1,045,408
Intangible assets, net of accumulated amortization			184,960				184,960
Goodwill			368,878				368,878
Other assets			15,079				14,698
Total assets		$	2,896,738			$	2,806,404
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	160,596			$	139,337
Accrued liabilities			133,026				143,402
Accrued salaries and benefits			43,735				76,695
Accrued income tax			16,251				—
Current portion of operating lease liabilities			135,797				135,739
Current portion of finance lease liabilities			968				959
Total current liabilities			490,373				496,132
Long-term operating lease liabilities			1,072,897				1,069,535
Long-term debt and finance lease liabilities			260,287				260,459
Other long-term liabilities			45,481				40,912
Deferred income tax liability			60,830				58,073
Total liabilities			1,929,868				1,925,111
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, 118,194,576 shares issued and outstanding, April 4, 2021; 117,953,435 shares issued and outstanding, January 3, 2021			118				118
Additional paid-in capital			691,142				686,648
Accumulated other comprehensive income (loss)			(7,230	)			(8,474	)
Retained earnings			282,840				203,001
Total stockholders' equity			966,870				881,293
Total liabilities and stockholders' equity		$	2,896,738			$	2,806,404

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

		Thirteen Weeks Ended				Thirteen Weeks Ended
		April 4, 2021				March 29, 2020
Cash flows from operating activities
Net income		$	83,048			$	91,810
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense			31,841				31,600
Operating lease asset amortization			25,816				23,137
Share-based compensation			3,613				2,400
Deferred income taxes			2,757				232
Other non-cash items			207				(768	)
Changes in operating assets and liabilities:
Accounts receivable			8,795				12,652
Inventories			(16,733	)			22,787
Prepaid expenses and other current assets			(7,747	)			(8,652	)
Other assets			(1,078	)			656
Accounts payable			27,004				80,669
Accrued liabilities			(10,568	)			16,492
Accrued salaries and benefits			(32,959	)			2,984
Accrued income tax			16,251				28,906
Operating lease liabilities			(28,719	)			(30,107	)
Other long-term liabilities			3,910				2,274
Cash flows from operating activities			105,438				277,072
Cash flows used in investing activities
Purchases of property and equipment			(16,605	)			(28,036	)
Cash flows used in investing activities			(16,605	)			(28,036	)
Cash flows used in financing activities
Payments on revolving credit facilities			—				(87,000	)
Payments on finance lease obligations			(163	)			(154	)
Repurchase of common stock			(3,209	)			—
Proceeds from exercise of stock options			881				—
Cash flows used in financing activities			(2,491	)			(87,154	)
Increase in cash, cash equivalents, and restricted cash			86,342				161,882
Cash, cash equivalents, and restricted cash at beginning of the period			171,441				86,785
Cash, cash equivalents, and restricted cash at the end of the period		$	257,783			$	248,667

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 they should not be considered 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 April 4, 2021 and March 29, 2020 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 April 4, 2021 and March 29, 2020:

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

		Thirteen Weeks Ended			Thirteen Weeks Ended
		April 4, 2021			March 29, 2020
Net income		$	83,048		$	91,810
Income tax provision			27,196			30,952
Interest expense, net			2,991			4,827
Earnings before interest and taxes (EBIT)			113,235			127,589
Special items:
Strategic initiatives (1)			—			1,200
Adjusted EBIT			113,235			128,789
Depreciation, amortization and accretion			31,841			31,600
Adjusted EBITDA		$	145,076		$	160,389
Net income		$	83,048		$	91,810
Special Items:
Strategic initiatives, net of tax (1)			—			892
Adjusted Net income		$	83,048		$	92,702
Diluted earnings per share		$	0.70		$	0.78
Adjusted diluted earnings per share		$	0.70		$	0.79
Diluted weighted average shares outstanding			118,607			117,748

⁽¹⁾ Includes professional fees related to strategic initiatives. After-tax impact includes the tax benefit on the pre-tax charge.

Source: Sprouts Farmers Market, Inc
Phoenix, AZ
5/6/21

 

FAQ

What were Sprouts Farmers Market's Q1 2021 sales figures?

Sprouts Farmers Market reported net sales of $1.6 billion for Q1 2021, a 4% decrease from the same period in 2020.

What is the net income reported by Sprouts in Q1 2021?

Sprouts Farmers Market reported a net income of $83 million in Q1 2021.

How did comparable store sales perform in Q1 2021 for SFM?

Comparable store sales for Sprouts Farmers Market decreased by 9.4% in Q1 2021.

What is the outlook for Sprouts Farmers Market in 2021?

Sprouts has adjusted its fiscal 2021 outlook, expecting flat to slight growth in net sales and plans for approximately 20 new store openings.

What cash position does Sprouts Farmers Market hold as of Q1 2021?

As of Q1 2021, Sprouts Farmers Market had $256 million in cash and cash equivalents.