Sprouts Farmers Market, Inc. (Nasdaq:SFM) today reported results
for the 13-week third quarter ended October 1, 2017.
Third Quarter Highlights:
- Net sales of $1.2 billion; a 16% increase from the same period
in 2016
- Comparable store sales growth of 4.6% and two-year comparable
store sales growth of 5.9%
- Net income of $31 million; a 32% increase from the same period
in 2016
- Diluted earnings per share of $0.23; a 44% increase from the
same period in 2016
- Increased full-year sales, comps and EPS guidance for 2017
“Sprouts is pleased to report strong top-line growth and
demonstrate our ability to leverage those sales into exceptional
earnings growth for the quarter. Sprouts’ hallmark of fresh,
healthy, affordable products continues to resonate with our
customers and positions us as a leader in the industry,” said Amin
Maredia, chief executive officer of Sprouts Farmers Market. “We’ll
continue to accelerate strategic priorities that will enhance our
business – from product assortment to the digital experience to
customer service. These, coupled with our technology investments to
drive efficiencies, will provide the flexibility to make future
investments where needed to ensure Sprouts is well-positioned for
the future.”
Third Quarter 2017 Financial Results
Net sales for the third quarter of 2017 were $1.2 billion, a 16%
increase compared to the same period in 2016. Net sales growth was
driven by a 4.6% increase in comparable store sales and strong
performance in new stores opened.
Gross profit for the quarter increased 19% to $346 million,
resulting in a gross profit margin of 28.7%, an increase of 60
basis points compared to the same period in 2016. This
improvement was primarily driven by cycling a heightened
promotional environment in the third quarter of 2016, in addition
to leverage from increased comparable store sales.
Direct store expense (“DSE”) for the quarter increased 15% to
$250 million, or 20.7% of sales, compared to 20.9% in the same
period in 2016. This leverage is primarily driven by improved
comparable store sales, as well as operating efficiencies,
partially offset by higher benefit costs.
Selling, general and administrative expenses (“SG&A”) for
the quarter increased 35% to $40 million, or 3.3% of sales,
compared to 2.9% in the same period in 2016. This primarily
reflects higher bonus expense due to improved performance and other
corporate costs versus the prior year.
Net income for the quarter was $31 million, a 32% increase
compared to net income for the same period in 2016. Diluted
earnings per share was $0.23, an increase of $0.07 or 44%, as
compared to diluted earnings per share of $0.16 for the same period
in 2016. This increase was driven by higher sales and margins,
fewer shares outstanding due to our repurchase program and a lower
effective tax rate.
Fiscal Year-to-Date Financial Results
For the 39-week period ended October 1, 2017, net sales were
$3.5 billion, a 15% increase compared to the same period in
2016. Growth was driven by a 2.4% increase in comparable
store sales and solid performance in new stores opened. Net
income was $119 million, an 11% increase compared to net income for
the same period in 2016. Diluted earnings per share was $0.86, an
increase of $0.15 or 21%, compared to diluted earnings per share of
$0.71 for the same period in 2016.
Growth and Development
During the third quarter of 2017, we opened 8 new stores: one
each in Arizona and Florida, and two each in California, Nevada and
Tennessee. Three additional stores have been opened in the
fourth quarter to date, resulting in a total of 32 new stores
opened year-to-date for a total of 285 stores in 15 states as of
November 2, 2017.
Leverage and Liquidity
We generated cash from operations of $259 million year-to-date
through October 1, 2017 and invested $151 million in capital
expenditures net of landlord reimbursement, primarily for new
stores. In addition, we repurchased 3.2 million shares of common
stock for a total investment of $72 million during the third
quarter. We ended the quarter with a $349 million balance on our
revolving credit facility, $25 million of letters of credit
outstanding under the facility, $19 million in cash and cash
equivalents, and $138 million available under our current share
repurchase authorization. Year-to-date through October 31,
2017, we have repurchased 9.1 million shares of common stock for a
total investment of $192 million.
2017 Outlook
The following provides information on our guidance for 2017:
|
Full-Year 2017Current Guidance |
|
|
Full-Year 2017Prior Guidance |
Net sales growth |
14.5%
to 15% |
|
|
13% to
14% |
Unit
growth |
32 new
stores |
|
|
32 new
stores |
Comparable store sales growth |
2.5%
to 3.0% |
|
|
1.5%
to 2.0% |
Diluted earnings per
share |
$0.98
to $0.99(1) |
|
|
$0.88
to $0.92 |
Capital
expenditures |
Approximately $170M |
|
|
$155M
to $165M |
(net of landlord
reimbursements) |
|
|
|
|
|
|
|
|
|
(1) Guidance includes an estimated effective
tax rate of 32.5% for 2017. The lower effective tax rate is due to
the 2017 change in accounting standards related to the recognition
of excess tax benefits for stock-based compensation and the
associated effect of actual and estimated option exercises for the
year. |
Third Quarter 2017 Conference Call
We will hold a conference call at 7 a.m. Pacific Daylight Time
(10 a.m. Eastern Daylight Time) on Thursday, November 2, 2017,
during which Sprouts executives will further discuss our third
quarter 2017 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 10
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: 97150787
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: 97150787.
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 and future
investments and positioning. 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 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
rapid 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; 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. 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. specializes in fresh, natural and
organic products at prices that appeal to everyday grocery
shoppers. Based on the belief that healthy food should be
affordable, Sprouts’ welcoming environment and knowledgeable team
members continue to drive its growth. Sprouts offers a complete
shopping experience that includes an array of fresh produce in the
heart of the store, a deli with prepared entrees and side dishes,
The Butcher Shop, The Fish Market, an expansive vitamins and
supplements department and more. Headquartered in Phoenix, Arizona,
Sprouts employs more than 27,000 team members and operates more
than 280 stores in 15 states from coast to coast. For more
information, visit sprouts.com or @sproutsfm on Twitter.
SPROUTS FARMERS MARKET, INC. AND
SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF
OPERATIONS |
(UNAUDITED) |
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS) |
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
Thirteen Weeks Ended |
|
Thirty-nine Weeks Ended |
|
Thirty-nine Weeks Ended |
|
|
October 1, 2017 |
|
October 2, 2016 |
|
October 1,2017 |
|
October 2,2016 |
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,206,059 |
|
|
$ |
1,035,801 |
|
|
$ |
3,520,679 |
|
|
$ |
3,060,685 |
|
Cost of sales, buying
and occupancy |
|
|
859,650 |
|
|
|
744,288 |
|
|
|
2,494,998 |
|
|
|
2,156,857 |
|
Gross
profit |
|
|
346,409 |
|
|
|
291,513 |
|
|
|
1,025,681 |
|
|
|
903,828 |
|
Direct store
expenses |
|
|
250,191 |
|
|
|
216,932 |
|
|
|
715,336 |
|
|
|
617,817 |
|
Selling, general and
administrative expenses |
|
|
39,955 |
|
|
|
29,664 |
|
|
|
110,312 |
|
|
|
91,482 |
|
Store pre-opening
costs |
|
|
2,456 |
|
|
|
3,446 |
|
|
|
10,055 |
|
|
|
11,625 |
|
Store closure and other
costs |
|
|
803 |
|
|
|
24 |
|
|
|
992 |
|
|
|
159 |
|
Income
from operations |
|
|
53,004 |
|
|
|
41,447 |
|
|
|
188,986 |
|
|
|
182,745 |
|
Interest expense |
|
|
(5,609 |
) |
|
|
(3,723 |
) |
|
|
(15,447 |
) |
|
|
(10,985 |
) |
Other income |
|
|
162 |
|
|
|
135 |
|
|
|
388 |
|
|
|
326 |
|
Income
before income taxes |
|
|
47,557 |
|
|
|
37,859 |
|
|
|
173,927 |
|
|
|
172,086 |
|
Income tax
provision |
|
|
(16,071 |
) |
|
|
(13,974 |
) |
|
|
(55,186 |
) |
|
|
(64,785 |
) |
Net
income |
|
$ |
31,486 |
|
|
$ |
23,885 |
|
|
$ |
118,741 |
|
|
$ |
107,301 |
|
Net income per
share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.23 |
|
|
$ |
0.16 |
|
|
$ |
0.87 |
|
|
$ |
0.72 |
|
Diluted |
|
$ |
0.23 |
|
|
$ |
0.16 |
|
|
$ |
0.86 |
|
|
$ |
0.71 |
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
134,320 |
|
|
|
147,743 |
|
|
|
136,063 |
|
|
|
149,202 |
|
Diluted |
|
|
136,770 |
|
|
|
150,024 |
|
|
|
138,860 |
|
|
|
151,568 |
|
SPROUTS FARMERS MARKET, INC. AND
SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS) |
|
|
|
October 1, 2017 |
|
January 1, 2017 |
ASSETS |
|
(Unaudited) |
|
|
Current assets: |
|
|
|
|
Cash and
cash equivalents |
|
$ |
18,892 |
|
$ |
12,465 |
Accounts
receivable, net |
|
|
23,231 |
|
|
25,228 |
Inventories |
|
|
222,216 |
|
|
204,464 |
Prepaid
expenses and other current assets |
|
|
25,594 |
|
|
21,869 |
Total current
assets |
|
|
289,933 |
|
|
264,026 |
Property and equipment,
net of accumulated depreciation |
|
|
690,763 |
|
|
604,660 |
Intangible assets, net
of accumulated amortization |
|
|
196,556 |
|
|
197,608 |
Goodwill |
|
|
368,078 |
|
|
368,078 |
Other assets |
|
|
5,886 |
|
|
5,521 |
Total assets |
|
$ |
1,551,216 |
|
$ |
1,439,893 |
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts
payable |
|
$ |
179,482 |
|
$ |
157,550 |
Accrued
salaries and benefits |
|
|
41,219 |
|
|
32,859 |
Other
accrued liabilities |
|
|
60,683 |
|
|
56,376 |
Current
portion of capital and financing lease obligations |
|
|
8,776 |
|
|
12,370 |
Total current
liabilities |
|
|
290,160 |
|
|
259,155 |
Long-term capital and
financing lease obligations |
|
|
126,806 |
|
|
117,366 |
Long-term debt |
|
|
349,000 |
|
|
255,000 |
Other long-term
liabilities |
|
|
126,127 |
|
|
116,200 |
Deferred income tax
liability |
|
|
42,508 |
|
|
19,263 |
Total
liabilities |
|
|
934,601 |
|
|
766,984 |
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, 133,070,570
and 140,256,313 shares issued and outstanding, October 1, 2017 and
January 1, 2017, respectively |
|
|
133 |
|
|
140 |
Additional paid-in capital |
|
|
614,232 |
|
|
597,269 |
Retained
earnings |
|
|
2,250 |
|
|
75,500 |
Total stockholders'
equity |
|
|
616,615 |
|
|
672,909 |
Total liabilities and stockholders' equity |
|
$ |
1,551,216 |
|
$ |
1,439,893 |
SPROUTS FARMERS MARKET, INC. AND
SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(UNAUDITED) |
(IN THOUSANDS) |
|
Thirty-nineWeeks Ended |
|
Thirty-nineWeeks Ended |
|
October 1, 2017 |
|
October 2, 2016 |
Cash flows from
operating activities |
|
|
|
|
$ |
118,741 |
|
|
$ |
107,301 |
|
Adjustments to
reconcile net income to net cash provided by operating
activities: |
|
|
|
Depreciation and amortization expense |
|
70,875 |
|
|
|
59,997 |
|
Accretion
of asset retirement obligation and closed store reserve |
|
168 |
|
|
|
237 |
|
Amortization of financing fees and debt issuance costs |
|
347 |
|
|
|
347 |
|
Loss on
disposal of property and equipment |
|
820 |
|
|
|
226 |
|
Equity-based compensation |
|
10,325 |
|
|
|
10,322 |
|
Deferred
income taxes |
|
23,245 |
|
|
|
20,119 |
|
Changes
in operating assets and liabilities: |
|
|
|
Accounts
receivable |
|
1,660 |
|
|
|
(1,336 |
) |
Inventories |
|
(17,752 |
) |
|
|
(29,784 |
) |
Prepaid
expenses and other current assets |
|
(3,734 |
) |
|
|
(1,212 |
) |
Other
assets |
|
(702 |
) |
|
|
(1,480 |
) |
Accounts
payable |
|
31,669 |
|
|
|
24,050 |
|
Accrued
salaries and benefits |
|
8,360 |
|
|
|
(4,959 |
) |
Other
accrued liabilities and income taxes payable |
|
4,288 |
|
|
|
(2,762 |
) |
Other
long-term liabilities |
|
10,659 |
|
|
|
14,971 |
|
Cash
flows from operating activities |
|
258,969 |
|
|
|
196,037 |
|
|
|
|
|
Cash
flows used in investing activities |
|
|
|
Purchases of property
and equipment |
|
(158,459 |
) |
|
|
(142,571 |
) |
Proceeds from sale of
property and equipment |
|
30 |
|
|
|
662 |
|
Purchase of leasehold
interests |
|
- |
|
|
|
(491 |
) |
Cash
flows used in investing activities |
|
(158,429 |
) |
|
|
(142,400 |
) |
|
|
|
|
Cash
flows used in financing activities |
|
|
|
Proceeds from revolving
credit facility |
|
134,000 |
|
|
|
45,000 |
|
Payments on revolving
credit facility |
|
(40,000 |
) |
|
|
- |
|
Payments on capital and
financing lease obligations |
|
(3,053 |
) |
|
|
(3,144 |
) |
Cash from landlord
related to financing lease obligations |
|
300 |
|
|
|
- |
|
Repurchase of common
stock |
|
(192,000 |
) |
|
|
(187,836 |
) |
Proceeds from exercise
of stock options |
|
6,640 |
|
|
|
2,616 |
|
Excess tax benefit for
exercise of stock options |
|
- |
|
|
|
3,948 |
|
Cash
flows used in financing activities |
|
(94,113 |
) |
|
|
(139,416 |
) |
Increase
/ (Decrease) in cash and cash equivalents |
|
6,427 |
|
|
|
(85,779 |
) |
Cash and cash
equivalents at beginning of the period |
|
12,465 |
|
|
|
136,069 |
|
Cash and cash
equivalents at the end of the period |
$ |
18,892 |
|
|
$ |
50,290 |
|
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with
accounting principles generally accepted in the United States
(“GAAP”), the company has referenced EBITDA. This measure is not in
accordance with, and is not intended as an alternative 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 this measure for reviewing the financial results of
the company and as a component of incentive compensation. The
company defines EBITDA as net income before interest expense,
provision for income tax, and depreciation, amortization and
accretion.
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 EBITDA to net
income for the thirteen and thirty-nine weeks ended October 1, 2017
and October 2, 2016:
SPROUTS FARMERS MARKET, INC. AND
SUBSIDIARIES |
NON-GAAP MEASURE RECONCILIATION |
(UNAUDITED) |
(IN THOUSANDS) |
|
|
|
|
|
|
|
|
|
|
|
|
ThirteenWeeks Ended |
|
Thirteen Weeks Ended |
|
Thirty-nineWeeks Ended |
|
Thirty-nineWeeks Ended |
|
|
|
October 1, 2017 |
|
October 2,2016 |
|
October 1,2017 |
|
October 2,2016 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
31,486 |
|
$ |
23,885 |
|
$ |
118,741 |
|
$ |
107,301 |
|
Income tax
provision |
|
|
16,071 |
|
|
13,974 |
|
|
55,186 |
|
|
64,785 |
|
Interest expense,
net |
|
|
5,608 |
|
|
3,723 |
|
|
15,447 |
|
|
10,985 |
|
Earnings before
interest and taxes (EBIT) |
|
|
53,165 |
|
|
41,582 |
|
|
189,374 |
|
|
183,071 |
|
Depreciation,
amortization and accretion |
|
|
24,808 |
|
|
21,245 |
|
|
71,043 |
|
|
60,234 |
|
Earnings before
interest, taxes, depreciation and amortization (EBITDA) |
|
$ |
77,973 |
|
$ |
62,827 |
|
$ |
260,417 |
|
$ |
243,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
Contact: |
Media
Contact: |
|
Susannah
Livingston |
Donna Egan |
|
(602) 682-1584 |
(602) 682-3152 |
|
susannahlivingston@sprouts.com |
media@sprouts.com |
|
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