Sprouts Farmers Market, Inc. Reports Second Quarter 2024 Results

Rhea-AI Summary

Sprouts Farmers Market (Nasdaq: SFM) reported strong Q2 2024 results, with net sales reaching $1.9 billion, a 12% increase year-over-year. Comparable store sales grew 6.7%, and diluted earnings per share rose to $0.94 from $0.65 in Q2 2023. The company opened 5 new stores, bringing the total to 419 across 23 states.

Financial highlights include $177 million in cash, a new $600 million share buyback program, and $311 million generated from operations. For Q3 2024, SFM projects comparable store sales growth of 3.5% to 4.5%. The full-year 2024 outlook includes net sales growth of 9% to 10%, comparable store sales growth of 4% to 5%, and plans to open approximately 35 new stores.

Positive

• Net sales increased by 12% year-over-year to $1.9 billion
• Comparable store sales growth of 6.7%
• Diluted earnings per share rose to $0.94 from $0.65 in Q2 2023
• Opened 5 new stores, expanding to 419 locations
• Generated $311 million in cash from operations
• Authorized a new $600 million share buyback program
• Positive full-year outlook with projected net sales growth of 9% to 10%

Negative

• None.

Insights

Financial Analyst

Sprouts Farmers Market's Q2 2024 results showcase impressive growth and financial strength. The 12% increase in net sales to $1.9 billion and 6.7% comparable store sales growth indicate strong consumer demand for their healthy product offerings. This outperforms the average grocery sector growth, suggesting Sprouts is gaining market share.

The company's profitability has significantly improved, with diluted EPS jumping to $0.94 from $0.65 in Q2 2023, a 44.6% increase. This earnings growth outpaces revenue growth, indicating improved operational efficiency and margin expansion.

Sprouts' balance sheet remains robust, with $177 million in cash and zero balance on its credit facility. The $125 million voluntary pay down on the revolving credit facility demonstrates prudent financial management. The new $600 million share buyback program signals management's confidence in the company's future prospects and commitment to returning value to shareholders.

The full-year 2024 outlook is optimistic, with projected net sales growth of 9% to 10% and comparable store sales growth of 4% to 5%. This guidance suggests continued momentum in the second half of the year, albeit at a slightly slower pace than Q2.

Overall, Sprouts' financial performance and outlook paint a picture of a company executing well in a competitive market, with strong growth, improving profitability and a solid financial position.

Market Research Analyst

Sprouts Farmers Market's Q2 results reflect a broader trend in consumer behavior towards healthier eating habits and specialty grocery shopping. The 6.7% comparable store sales growth suggests that Sprouts' unique product assortment and in-store experience are resonating strongly with consumers, even in a high-inflation environment.

The company's expansion strategy, with 5 new stores opened in Q2 and plans for approximately 35 new stores in 2024, indicates confidence in the scalability of their business model. This growth trajectory aligns with the increasing demand for natural and organic products across diverse geographic markets.

Sprouts' performance also hints at a potential shift in grocery shopping patterns post-pandemic. While many traditional grocers have seen a normalization of sales growth, Sprouts' continued strong performance suggests that the health-focused, specialty grocery segment may be more resilient.

The company's outlook for Q3 and full-year 2024 points to sustained growth, albeit at a more moderate pace. This could indicate a stabilization of the post-pandemic grocery landscape, with Sprouts maintaining a strong position in its niche.

It's worth noting that Sprouts' success comes amid increasing competition in the healthy foods space, with both specialized retailers and traditional grocers expanding their organic and natural offerings. Sprouts' continued growth in this environment underscores the strength of its brand and business model in capturing and retaining health-conscious consumers.

PHOENIX--(BUSINESS WIRE)-- Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week second quarter ended June 30, 2024.

"Sprouts saw outstanding second quarter results, thanks to exceptional teamwork and strategic focus,” said Jack Sinclair, chief executive officer of Sprouts Farmers Market. “Customers are responding to our healthy product assortment and our unique in-store experience. We are excited about the opportunities ahead."

Second Quarter Highlights:

• Net sales totaled $1.9 billion; a 12% increase from the same period in 2023
• Comparable store sales growth of 6.7%
• Diluted earnings per share of $0.94; compared to diluted earnings per share of $0.65 and Adjusted diluted earnings per share of $0.71⁽¹⁾ in the same period in 2023
• Opened 5 new stores, resulting in 419 stores in 23 states as of June 30, 2024

(1)

Adjusted diluted earnings per share, a non-GAAP financial measure, excludes the impact of certain special items. For the second quarter ended June 30, 2024, there were no adjustments due to special items. See the “Non-GAAP Financial Measures” section of this release for additional information about this item.

Leverage and Liquidity in Second Quarter 2024

• Ended the quarter with $177 million in cash and cash equivalents and zero balance on its $700 million revolving credit facility after a $125 million voluntary pay down
• Authorized a new $600 million share buyback program and repurchased 640 thousand shares of common stock for a total investment of $44 million, excluding excise tax
• Generated cash from operations of $311 million and invested $89 million in capital expenditures, net of landlord reimbursement, year-to-date thru June 30, 2024

Third Quarter and Full-Year 2024 Outlook

The following provides information on our third quarter 2024 outlook:

• Comparable store sales growth: 3.5% to 4.5%
• Adjusted diluted earnings per share: $0.71 to $0.75

The following provides information on our full-year 2024 outlook:

• Net sales growth: 9% to 10%
• Comparable store sales growth: 4% to 5%
• Adjusted EBIT: $445 million to $455 million
• Adjusted diluted earnings per share: $3.29 to $3.37
• Unit growth: Approximately 35 new stores
• Capital expenditures (net of landlord reimbursements): $225 million to $245 million

Second Quarter 2024 Conference Call

Sprouts will hold a conference call at 5:00 p.m. Eastern Time on Monday, July 29, 2024, during which Sprouts executives will further discuss second quarter 2024 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 Time on July 29, 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 415 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
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
		Thirteen weeks ended							Twenty-six weeks ended
		June 30, 2024				July 2, 2023			June 30, 2024			July 2, 2023
Net sales		$	1,893,519			$	1,692,247		$	3,777,327		$	3,425,557
Cost of sales			1,175,154				1,066,275			2,336,649			2,149,523
Gross profit			718,365				625,972			1,440,678			1,276,034
Selling, general and administrative expenses			556,367				497,965			1,096,138			984,160
Depreciation and amortization (exclusive of depreciation included in cost of sales)			31,489				33,964			63,721			68,032
Store closure and other costs, net			3,192				2,427			5,236			30,704
Income from operations			127,317				91,616			275,583			193,138
Interest (income) expense, net			(139	)			2,140			679			4,360
Income before income taxes			127,456				89,476			274,904			188,778
Income tax provision			32,167				22,142			65,515			45,284
Net income		$	95,289			$	67,334		$	209,389		$	143,494
Net income per share:
Basic		$	0.95			$	0.65		$	2.08		$	1.39
Diluted		$	0.94			$	0.65		$	2.06		$	1.38
Weighted average shares outstanding:
Basic			100,460				102,824			100,765			103,326
Diluted			101,196				103,514			101,647			104,240

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
		June 30, 2024			December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents		$	177,321		$	201,794
Accounts receivable, net			31,381			30,313
Inventories			325,578			323,198
Prepaid expenses and other current assets			33,771			48,467
Total current assets			568,051			603,772
Property and equipment, net of accumulated depreciation			836,010			798,707
Operating lease assets, net			1,402,161			1,322,854
Intangible assets			208,060			208,060
Goodwill			381,750			381,741
Other assets			14,487			12,294
Total assets		$	3,410,519		$	3,327,428
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	158,773		$	179,927
Accrued liabilities			193,814			164,887
Accrued salaries and benefits			69,656			74,752
Current portion of operating lease liabilities			126,395			126,271
Current portion of finance lease liabilities			1,119			1,032
Total current liabilities			549,757			546,869
Long-term operating lease liabilities			1,482,797			1,399,676
Long-term debt and finance lease liabilities			8,057			133,685
Other long-term liabilities			38,661			36,270
Deferred income tax liability			61,972			62,381
Total liabilities			2,141,244			2,178,881
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, 100,214,345 shares issued and outstanding, June 30, 2024; 101,211,984 shares issued and outstanding, December 31, 2023			100			101
Additional paid-in capital			791,364			774,834
Retained earnings			477,811			373,612
Total stockholders’ equity			1,269,275			1,148,547
Total liabilities and stockholders’ equity		$	3,410,519		$	3,327,428

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
		Twenty-six weeks ended
		June 30, 2024				July 2, 2023
Operating activities
Net income		$	209,389			$	143,494
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense			67,756				70,013
Operating lease asset amortization			65,489				62,331
Impairment of assets			—				27,845
Share-based compensation			13,266				9,461
Deferred income taxes			(396	)			(5,953	)
Other non-cash items			2,189				254
Changes in operating assets and liabilities, net of effects from acquisition:
Accounts receivable			18,746				8,390
Inventories			(2,380	)			(7,665	)
Prepaid expenses and other current assets			13,947				9,915
Other assets			(125	)			3,205
Accounts payable			(12,914	)			3,374
Accrued liabilities			24,081				41,733
Accrued salaries and benefits			(5,095	)			(2,561	)
Operating lease liabilities			(83,952	)			(68,986	)
Other long-term liabilities			1,294				(69	)
Cash flows from operating activities			311,295				294,781
Investing activities
Purchases of property and equipment			(108,925	)			(98,683	)
Payments for acquisition, net of cash acquired			—				(13,042	)
Cash flows used in investing activities			(108,925	)			(111,725	)
Financing activities
Payments on revolving credit facilities			(125,000	)			(75,000	)
Payments on finance lease liabilities			(542	)			(482	)
Repurchase of common stock			(104,488	)			(148,346	)
Proceeds from exercise of stock options			3,265				7,238
Cash flows used in financing activities			(226,765	)			(216,590	)
Decrease in cash, cash equivalents, and restricted cash			(24,395	)			(33,534	)
Cash, cash equivalents, and restricted cash at beginning of the period			203,870				295,192
Cash, cash equivalents, and restricted cash at the end of the period		$	179,475			$	261,658

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 reported these adjusted measures to provide additional information with respect to the impact of store closure costs and certain other items during the thirteen and twenty-six weeks ended July 2, 2023. There were no such material adjustments during the thirteen and twenty-six weeks ended June 30, 2024.

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 twenty-six weeks ended June 30, 2024 and July 2, 2023:

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NON-GAAP MEASURE RECONCILIATION
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
		Thirteen weeks ended								Twenty-six weeks ended
		June 30, 2024				July 2, 2023				June 30, 2024				July 2, 2023
Gross profit		$	718,365			$	625,972			$	1,440,678			$	1,276,034
Special items (1)			—				1,653				—				1,653
Adjusted gross profit		$	718,365			$	627,625			$	1,440,678			$	1,277,687
Gross margin			37.9	%			37.0	%			38.1	%			37.3	%
Adjusted gross margin			37.9	%			37.1	%			38.1	%			37.3	%
Net income		$	95,289			$	67,334			$	209,389			$	143,494
Income tax provision			32,167				22,142				65,515				45,284
Interest (income) expense, net			(139	)			2,140				679				4,360
Earnings before interest and taxes (EBIT)			127,317				91,616				275,583				193,138
Special items (2)			—				8,115				—				43,642
Adjusted EBIT			127,317				99,731				275,583				236,780
Depreciation, amortization and accretion, adjusted for special items			33,234				33,221				67,756				64,134
Adjusted EBITDA		$	160,551			$	132,952			$	343,339			$	300,914
Net income		$	95,289			$	67,334			$	209,389			$	143,494
Special items, net of tax (2)			—				5,971				—				32,492
Adjusted net income		$	95,289			$	73,305			$	209,389			$	175,986
Diluted earnings per share		$	0.94			$	0.65			$	2.06			$	1.38
Adjusted diluted earnings per share		$	0.94			$	0.71			$	2.06			$	1.69
Diluted weighted average shares outstanding			101,196				103,514				101,647				104,240

(1)		For the thirteen and twenty-six weeks ended June 30, 2024, there were no special items. For the thirteen and twenty-six weeks ended July 2, 2023, special items included approximately $2 million in Cost of sales related to store closures and our supply chain transition.
(2)		For the thirteen and twenty-six weeks ended June 30, 2024, there were no special items. For the thirteen weeks ended July 2, 2023, special items included approximately $4 million in Selling, general and administrative expenses related to store closures, our supply chain transition and acquisition related costs, $2 million in Depreciation and amortization (exclusive of depreciation in cost of sales) for accelerated depreciation in connection with store closures and $2 million in Cost of sales related to store closures and our supply chain transition. For the twenty-six weeks ended July 2, 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, $8 million in Selling, general and administrative expenses related to store closures, our supply chain transition and acquisition related costs, and $2 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/20240729776581/en/

Investor Contact:

Susannah Livingston

(602) 682-1584

susannahlivingston@sprouts.com

Media Contact:

media@sprouts.com

Source: Sprouts Farmers Market

FAQ

What was Sprouts Farmers Market's (SFM) net sales growth in Q2 2024?

Sprouts Farmers Market (SFM) reported a 12% increase in net sales, totaling $1.9 billion for Q2 2024 compared to the same period in 2023.

How many new stores did Sprouts Farmers Market (SFM) open in Q2 2024?

Sprouts Farmers Market (SFM) opened 5 new stores during Q2 2024, bringing their total store count to 419 across 23 states as of June 30, 2024.

What is Sprouts Farmers Market's (SFM) comparable store sales growth forecast for Q3 2024?

Sprouts Farmers Market (SFM) projects comparable store sales growth of 3.5% to 4.5% for Q3 2024.

What is Sprouts Farmers Market's (SFM) full-year 2024 outlook for net sales growth?

Sprouts Farmers Market (SFM) forecasts full-year 2024 net sales growth of 9% to 10%.