Sprouts Farmers Market, Inc. Reports Fourth Quarter and Full Year 2023 Results

Rhea-AI Summary

Sprouts Farmers Market (SFM) reports strong financial performance for Q4 and full year 2023 with net sales of $1.7 billion and $6.8 billion respectively. Comparable store sales grew by 3.3% in Q4 and 3.4% for the full year. Diluted earnings per share increased to $0.49 for Q4 and $2.50 for the full year. SFM opened 6 new stores in Q4 and a total of 30 new stores for the year.

Insights

Financial Analyst

The reported financial performance of Sprouts Farmers Market demonstrates a robust growth trajectory, with net sales witnessing an 8% year-over-year increase in the fourth quarter and a 7% increase for the full year of 2023. The expansion in comparable store sales by 3.3% for the quarter and 3.4% for the year indicates a healthy growth in the existing store base, which is a critical metric for retail businesses as it shows organic growth independent of new store openings.

The increase in diluted earnings per share (EPS) from $0.42 to $0.49 in the fourth quarter and a full-year rise from $2.39 to $2.50, reflects effective cost management and operational efficiency. The adjusted diluted EPS of $2.84, which excludes special items, provides a clearer picture of the company's operational performance, suggesting an even stronger profitability than reported by standard GAAP measures.

The opening of 30 new stores, along with the acquisition of 2, indicates an aggressive expansion strategy. However, the closure of 11 stores could raise questions about market saturation or underperforming locations. Investors should monitor how these new stores contribute to sales growth and whether they can maintain the positive traffic and customer engagement mentioned by the CEO.

Market Research Analyst

As a specialty grocer, Sprouts Farmers Market operates within a niche segment that caters to health-conscious consumers. The reported increase in customer engagement and positive traffic is indicative of a strong brand resonance in a competitive grocery market. The specialty segment is gaining traction as consumers increasingly seek out organic and natural food options, which Sprouts is capitalizing on.

The company's strategy to accelerate unit growth is timely, considering the rising demand in this sector. However, the retail food market is known for its thin margins and intense competition. The ability of Sprouts to sustain its growth amidst these market dynamics is crucial. The expansion strategy must be balanced with the risk of cannibalization and the operational challenges of managing a larger store footprint.

The reported financials suggest that Sprouts is successfully navigating these challenges so far. Still, it will be important to observe how the company's strategic initiatives, such as store openings and customer engagement efforts, continue to drive performance in a market that is constantly evolving with new players and consumer trends.

Economist

The performance of Sprouts Farmers Market can be seen as a microcosm of the broader economic environment. The company's success in increasing net sales and comparable store sales growth is occurring in a context where consumer spending habits are influenced by macroeconomic factors such as inflation, disposable income levels and health trends.

The positive growth figures suggest that Sprouts is effectively navigating economic headwinds that may be affecting discretionary spending. This could signal a robust consumer base that prioritizes spending on health-related goods even when faced with broader economic pressures. Additionally, the company's expansion reflects confidence in the economic climate and the potential for continued consumer spending in this segment.

The implications for stakeholders include the potential for sustained revenue growth and profitability if Sprouts continues to execute its strategy effectively. However, stakeholders should also consider potential economic downturns that could impact consumer spending patterns, particularly in the specialty foods market, which may be more sensitive to changes in disposable income.

PHOENIX--(BUSINESS WIRE)-- Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week fourth quarter and 52-week year ending December 31, 2023.

"Our fourth quarter performance demonstrates our continued strength as a leading specialty grocer," said Jack Sinclair, chief executive officer of Sprouts Farmers Market. "Our 2023 results exceeded our original expectations, with solid comparable sales each quarter, positive traffic, accelerating unit growth, and increasing customer engagement. I am confident our strategy and our passionate, dedicated team will continue to create shareholder value."

Fourth Quarter Highlights:

• Net sales totaled $1.7 billion; an 8% increase from the same period in 2022
• Comparable store sales growth of 3.3%
• Diluted earnings per share of $0.49; compared to diluted earnings per share of $0.42 in the same period in 2022
• Opened 6 new stores

Full Year 2023 Highlights:

• Net sales totaled $6.8 billion; a 7% increase from 2022
• Comparable store sales growth of 3.4%
• Diluted earnings per share of $2.50; Adjusted diluted earnings per share of $2.84⁽¹⁾; compared to diluted earnings per share of $2.39 in 2022
• Opened 30 new stores, acquired 2 previously licensed stores, and closed 11 stores, resulting in 407 stores in 23 states as of December 31, 2023

______________________
⁽¹⁾ Adjusted diluted earnings per share, a non-GAAP financial measure, excludes the impact of certain special items. See the “Non-GAAP Financial Measures” section of this release for additional information about this item.

Leverage and Liquidity in 2023

• Ended the year with $202 million in cash and cash equivalents and a $125 million balance on its $700 million revolving credit facility
• Repurchased 5.9 million shares of common stock for a total investment of $203 million, excluding excise tax
• Generated cash from operations of $465 million and invested $213 million in capital expenditures, net of landlord reimbursement

First Quarter and Full Year 2024 Outlook

The following provides information on our first quarter 2024 outlook:

• Comparable store sales growth: 2.5% to 3.5%
• Adjusted diluted earnings per share: $0.98 to $1.02

The following provides information on our full year 2024 outlook:

• Net sales growth: 5.5% to 7.5%
• Comparable store sales growth: 1.5% to 3.5%
• Adjusted EBIT: $397 million to $412 million
• Adjusted diluted earnings per share: $2.85 to $2.95
• Unit growth: approximately 35 new stores
• Capital expenditures (net of landlord reimbursements): $225 million to $245 million

Fourth Quarter and Full Year 2023 Conference Call

Sprouts will hold a conference call at 5:00 p.m. Eastern Standard Time on Thursday, February 22, 2024, during which Sprouts executives will further discuss fourth quarter and full year 2023 financial results.

A webcast of the conference call will be available through Sprouts’ investor relations webpage, accessible via the following link. Participants should register on the website approximately ten minutes prior to the start of the webcast.

A webcast replay will be available at approximately 8:00 p.m. Eastern Standard Time on Thursday, February 22, 2024. This can be accessed with the following link.

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, 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; equipment supply disruptions; general economic conditions that impact consumer spending or result in competitive responses; accounting standard changes; the current inflationary environment and future potential inflationary and/or deflationary trends; 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

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 largest and fastest growing specialty retailers of fresh, natural and organic food in the United States, Sprouts employs approximately 32,000 team members and operates more than 400 stores in 23 states nationwide. To learn more about Sprouts, and the good it brings communities, visit about.sprouts.com.

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
		Thirteen Weeks Ended								Fifty-Two Weeks Ended
		December 31, 2023				January 1, 2023				December 31, 2023				January 1, 2023
Net sales		$	1,698,545			$	1,576,554			$	6,837,384			$	6,404,223
Cost of sales			1,078,172				1,003,745				4,315,543				4,055,659
Gross profit			620,373				572,809				2,521,841				2,348,564
Selling, general and administrative expenses			513,476				472,795				2,000,437				1,855,649
Depreciation and amortization (exclusive of depreciation included in cost of sales)			32,059				30,153				131,893				123,530
Store closure and other costs, net			5,400				7,991				39,280				11,025
Income from operations			69,438				61,870				350,231				358,360
Interest expense, net			433				1,399				6,491				9,047
Income before income taxes			69,005				60,471				343,740				349,313
Income tax provision			18,956				15,351				84,884				88,149
Net income		$	50,049			$	45,120			$	258,856			$	261,164
Net income per share:
Basic		$	0.49			$	0.43			$	2.53			$	2.41
Diluted		$	0.49			$	0.42			$	2.50			$	2.39
Weighted average shares outstanding:
Basic			101,383				105,730				102,479				108,232
Diluted			102,207				106,832				103,390				109,139

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
		December 31, 2023				January 1, 2023
ASSETS
Current assets:
Cash and cash equivalents		$	201,794			$	293,233
Accounts receivable, net			30,313				16,108
Inventories			323,198				310,545
Prepaid expenses and other current assets			48,467				53,918
Total current assets			603,772				673,804
Property and equipment, net of accumulated depreciation			798,707				722,241
Operating lease assets, net			1,322,854				1,106,524
Intangible assets			208,060				184,960
Goodwill			381,741				368,878
Other assets			12,294				13,973
Total assets		$	3,327,428			$	3,070,380
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	179,927			$	172,904
Accrued liabilities			164,887				151,306
Accrued salaries and benefits			74,752				61,574
Current portion of operating lease liabilities			126,271				135,584
Current portion of finance lease liabilities			1,032				1,012
Total current liabilities			546,869				522,380
Long-term operating lease liabilities			1,399,676				1,145,173
Long-term debt and finance lease liabilities			133,685				258,902
Other long-term liabilities			36,270				36,340
Deferred income tax liability			62,381				61,123
Total liabilities			2,178,881				2,023,918
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, 101,211,984 shares issued and outstanding, December 31, 2023; 105,072,756 shares issued and outstanding, January 1, 2023			101				105
Additional paid-in capital			774,834				726,345
Retained earnings			373,612				320,012
Total stockholders' equity			1,148,547				1,046,462
Total liabilities and stockholders' equity		$	3,327,428			$	3,070,380

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
		Fifty-Two Weeks Ended
		December 31, 2023				January 1, 2023
Operating activities
Net income		$	258,856			$	261,164
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense			137,811				127,067
Operating lease asset amortization			127,208				117,315
Impairment of assets			30,549				8,066
Share-based compensation			18,898				16,603
Deferred income taxes			(4,915	)			3,228
Other non-cash items			1,086				672
Changes in operating assets and liabilities, net of effects from acquisition:
Accounts receivable			3,173				13,381
Inventories			(10,857	)			(45,158	)
Prepaid expenses and other current assets			2,210				(18,467	)
Other assets			3,482				2,039
Accounts payable			12,215				13,362
Accrued liabilities			11,746				5,416
Accrued salaries and benefits			12,880				2,831
Operating lease liabilities			(138,795	)			(132,889	)
Other long-term liabilities			(479	)			(3,301	)
Cash flows from operating activities			465,068				371,329
Investing activities
Purchases of property and equipment			(225,310	)			(124,010	)
Payments for acquisition, net of cash acquired			(13,032	)			—
Cash flows used in investing activities			(238,342	)			(124,010	)
Financing activities
Proceeds from revolving credit facilities			—				62,500
Payments on revolving credit facilities			(125,000	)			(62,500	)
Payments on finance lease liabilities			(1,006	)			(819	)
Payments of deferred financing costs			—				(3,373	)
Repurchase of common stock			(203,496	)			(199,980	)
Proceeds from exercise of stock options			11,454				5,041
Cash flows used in financing activities			(318,048	)			(199,131	)
(Decrease)/Increase in cash, cash equivalents, and restricted cash			(91,322	)			48,188
Cash, cash equivalents, and restricted cash at beginning of the period			295,192				247,004
Cash, cash equivalents, and restricted cash at the end of the period		$	203,870			$	295,192

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 Adjusted gross margin, Adjusted EBITDA, Adjusted EBIT, 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. Adjusted gross margin, Adjusted EBITDA, Adjusted EBIT and Adjusted diluted earnings per share exclude the impact of certain specified special items. The Company has begun reporting these adjusted measures to provide additional information with respect to the impact of store closure costs and certain other items during the thirteen and fifty-two weeks ended December 31, 2023. There were no such material adjustments during the thirteen and fifty-two weeks ended January 1, 2023.

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 (i) Adjusted gross margin to gross margin, (ii) Adjusted EBITDA and Adjusted EBIT to net income and (iii) Adjusted diluted earnings per share to diluted earnings per share, in each case, for the thirteen and fifty-two weeks ended December 31, 2023 and January 1, 2023:

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NON-GAAP MEASURE RECONCILIATION
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
		Thirteen Weeks Ended								Fifty-Two Weeks Ended
		December 31, 2023				January 1, 2023				December 31, 2023				January 1, 2023
Gross profit		$	620,373			$	572,809			$	2,521,841			$	2,348,564
Special items (1)			—				—				2,955				—
Adjusted gross profit		$	620,373			$	572,809			$	2,524,796			$	2,348,564
Gross margin			36.5	%			36.3	%			36.9	%			36.7	%
Adjusted gross margin			36.5	%			36.3	%			36.9	%			36.7	%
Net income		$	50,049			$	45,120			$	258,856			$	261,164
Income tax provision			18,956				15,351				84,884				88,149
Interest expense, net			433				1,399				6,491				9,047
Earnings before interest and taxes (EBIT)			69,438				61,870				350,231				358,360
Special items (2)			—				—				46,034				—
Adjusted EBIT			69,438				61,870				396,265				358,360
Depreciation, amortization and accretion, adjusted for special items			34,144				31,010				131,933				127,067
Adjusted EBITDA		$	103,582			$	92,880			$	528,198			$	485,427
Net income		$	50,049			$	45,120			$	258,856			$	261,164
Special items, net of tax (2)			—				—				34,272				—
Adjusted net income		$	50,049			$	45,120			$	293,128			$	261,164
Diluted earnings per share		$	0.49			$	0.42			$	2.50			$	2.39
Adjusted diluted earnings per share		$	0.49			$	0.42			$	2.84			$	2.39
Diluted weighted average shares outstanding			102,207				106,832				103,390				109,139
(1) For the fifty-two weeks ended December 31, 2023, special items included approximately $3 million in Cost of sales related to store closures and our supply chain transition.
(2) For the fifty-two weeks ended December 31, 2023, special items included approximately $28 million in Store Closure and other costs, net primarily related to impairment charges and $6 million in Depreciation and amortization (exclusive of depreciation in cost of sales) for accelerated depreciation in connection with store closures, $9 million in Selling, general and administrative expenses related to store closures, our supply chain transition and acquisition related costs, and $3 million in Cost of sales related to store closures and our supply chain transition. After-tax impact included the tax benefit on the pre-tax charge.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240222910337/en/

Investor Contact:

Susannah Livingston

(602) 682-1584

susannahlivingston@sprouts.com

Media Contact:

media@sprouts.com

Source: Sprouts Farmers Market

FAQ

What were Sprouts Farmers Market's (SFM) net sales for the 13-week fourth quarter of 2023?

Sprouts Farmers Market reported net sales of $1.7 billion for the 13-week fourth quarter of 2023.

How much did Sprouts Farmers Market's (SFM) comparable store sales grow in Q4 2023?

Sprouts Farmers Market's comparable store sales grew by 3.3% in Q4 2023.

What was Sprouts Farmers Market's (SFM) diluted earnings per share for Q4 2023?

Sprouts Farmers Market reported diluted earnings per share of $0.49 for Q4 2023.

How many new stores did Sprouts Farmers Market (SFM) open in Q4 2023?

Sprouts Farmers Market opened 6 new stores in Q4 2023.

What were Sprouts Farmers Market's (SFM) net sales for the full year ending December 31, 2023?

Sprouts Farmers Market reported net sales of $6.8 billion for the full year ending December 31, 2023.

How many new stores did Sprouts Farmers Market (SFM) open in the full year 2023?

Sprouts Farmers Market opened 30 new stores in the full year 2023.

What was Sprouts Farmers Market's (SFM) diluted earnings per share for the full year 2023?

Sprouts Farmers Market reported diluted earnings per share of $2.50 for the full year 2023.