Sprouts Farmers Market, Inc. Reports Fourth Quarter and Full Year 2019 Results

Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week fourth quarter and 52-week year ended December 29, 2019.

Fourth Quarter Highlights:

Net sales of $1.4 billion; an 8% increase from the same period in 2018
Comparable store sales growth of 1.5% and two-year comparable store sales growth of 3.8%
Net income of $32 million; compared to net income of $13 million and adjusted net income of $24 million from the same period in 2018
Diluted earnings per share of $0.27; compared to diluted earnings per share of $0.10 and adjusted diluted earnings per share of $0.19 from the same period in 2018

Fiscal Year 2019 Highlights:

Net sales of $5.6 billion; an 8% increase from 2018
Comparable store sales growth of 1.1% and two-year comparable store sales growth of 3.2%
Net income and adjusted net income of $150 million; compared to net income of $159 million and adjusted net income of $168 million in 2018
Diluted earnings and adjusted diluted earnings per share of $1.25; compared to diluted earnings per share of $1.22 and adjusted diluted earnings per share of $1.29 in 2018

“During the fourth quarter, I was encouraged by the Sprouts team’s dedication to driving same store sales growth, while we simultaneously delivered positive margins,” said Jack Sinclair, chief executive officer of Sprouts Farmers Market. “We remain engaged in developing a long-term strategy and are optimistic about the future of Sprouts rooted in a brand that is good for you, good for your family and good for the planet.”

2020 First Quarter and Full Year Outlook

The following provides information on our outlook for 2020, which does not factor in any strategic changes. In addition, the Company notes the fiscal year 2020 will be a 53-week year, with the extra week falling in the fourth quarter. We estimate the impact from the 53rd week to be approximately $120 million in sales, $9 million in income before income taxes, and $0.06 in diluted earnings per share:

		Full year 2020 Outlook
	Q1 2020 Outlook	(52-Week)
Net sales growth	5.5% to 6.5%	5.5% to 6.5%
Comparable store sales growth	0% to 1%	0% to 1%
Unit growth		Approximately 20
Diluted earnings per share	$0.45 to $0.47	$1.17 to $1.23
Earnings before taxes ("EBT") Growth		$187M to $197M
Effective tax rate		Approximately 26%
Capital expenditures (net of landlord reimbursements)		$120M to $130M

Fourth Quarter and Full Year 2019 Conference Call

We will hold a conference call at 3 p.m. Mountain Standard Time (5 p.m. Eastern Standard Time) on Thursday, February 20, 2020 during which Sprouts executives will further discuss our fourth quarter and fiscal year 2019 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: +1-408-337-0130
Conference ID: 9977410

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: 9977410.

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 and opportunities. 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 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. 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

About Sprouts Farmers Market Sprouts Farmers Market, Inc., one of the fastest-growing retailers in the country, has made healthy living accessible to shoppers for nearly two decades by offering affordable, fresh, natural and organic products. True to its farmers market heritage, Sprouts is known for pioneering its unique grocery model by offering a welcoming store layout featuring fresh produce at the center of the store, an expansive bulk foods section, and a vitamin department focused on overall wellness. Sprouts also offers a unique assortment of healthier products with special attributes, such as plant-based, gluten-free, keto-friendly, and grass-fed, to meet the growing and diverse needs of today’s consumer. Headquartered in Phoenix, Ariz., Sprouts employs more than 30,000 team members and operates over 340 stores in 22 states from coast to coast. Visit about.sprouts.com for more information.

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


	Thirteen weeks ended				Fifty-two weeks ended
	December 29, 2019		December 30, 2018		December 29, 2019		December 30, 2018
Net sales	$	1,364,991	$	1,269,338	$	5,634,835	$	5,207,336
Cost of sales		896,028		848,369		3,740,017		3,459,861
Gross profit		468,963		420,969		1,894,818		1,747,475
Selling, general and administrative expenses		387,481		352,672		1,549,707		1,404,443
Depreciation and amortization (exclusive of depreciation included in cost of sales)		30,703		27,966		120,491		108,045
Store closure and other costs		3,864		11,579		7,260		12,076
Income from operations		46,915		28,752		217,360		222,911
Interest expense, net		5,195		7,420		21,192		27,435
Other income		—		—		—		320
Income before income taxes		41,720		21,332		196,168		195,796
Income tax provision		10,086		8,629		46,539		37,260
Net income	$	31,634	$	12,703	$	149,629	$	158,536
Net income per share:
Basic	$	0.27	$	0.10	$	1.25	$	1.23
Diluted	$	0.27	$	0.10	$	1.25	$	1.22
Weighted average shares outstanding:
Basic		117,934		126,574		119,368		128,827
Diluted		118,219		127,398		119,742		129,776

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


	December 29, 2019			December 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	85,314		$	1,588
Accounts receivable, net		15,713			40,564
Inventories		275,979			264,366
Prepaid expenses and other current assets		10,833			27,323
Total current assets		387,839			333,841
Property and equipment, net of accumulated depreciation		741,508			766,429
Operating lease assets		1,028,436			—
Intangible assets, net of accumulated amortization		185,395			194,803
Goodwill		368,078			368,078
Other assets		11,727			12,463
Total assets	$	2,722,983		$	1,675,614
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	261,326		$	253,969
Accrued salaries and benefits		48,579			48,603
Current portion of capital and financing lease obligations		—			7,428
Current portion of operating lease liabilities		106,153			—
Current portion of finance lease liabilities		754			—
Total current liabilities		416,812			310,000
Long-term capital and financing lease obligations		—			119,642
Long-term operating lease liabilities		1,078,927			—
Long-term debt and finance lease liabilities		549,419			453,000
Other long-term liabilities		41,517			153,377
Deferred income tax liability		54,356			50,399
Total liabilities		2,141,031			1,086,418
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, 117,543,668 shares issued and outstanding, December 29, 2019; 124,975,691 shares issued and outstanding, December 30, 2018		117			124
Additional paid-in capital		670,966			657,140
Accumulated other comprehensive (loss) income		(4,682	)		1,134
Accumulated deficit		(84,449	)		(69,202	)
Total stockholders' equity		581,952			589,196
Total liabilities and stockholders' equity	$	2,722,983		$	1,675,614

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)


	Fifty-two weeks ended
	December 29, 2019			December 30, 2018
Cash flows from operating activities
Net income	$	149,629		$	158,536
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		122,804			110,749
Operating lease asset amortization		81,842			—
Store closure and other costs		4,113			4,115
Share-based compensation		8,949			14,512
Deferred income taxes		(216	)		23,333
Other non-cash items		4,136			1,482
Changes in operating assets and liabilities:
Accounts receivable		36,062			(7,666	)
Inventories		(11,612	)		(34,824	)
Prepaid expenses and other current assets		19,208			(2,908	)
Other assets		(1,275	)		(5,086	)
Accounts payable and other accrued liabilities		28,699			4,366
Accrued salaries and benefits		295			3,039
Operating lease liabilities		(88,002	)		—
Other long-term liabilities		578			24,731
Cash flows from operating activities		355,210			294,379
Cash flows used in investing activities
Purchases of property and equipment		(183,232	)		(177,082	)
Cash flows used in investing activities		(183,232	)		(177,082	)
Cash flows used in financing activities
Proceeds from revolving credit facilities		265,405			233,000
Payments on revolving credit facilities		(180,405	)		(128,000	)
Payments on capital and financing lease obligations		—			(4,517	)
Payments on finance lease obligations		(690	)		—
Payments of deferred financing costs		—			(2,131	)
Cash from landlords related to capital and financing lease obligations		—			3,643
Repurchase of common stock		(176,310	)		(258,307	)
Proceeds from exercise of stock options		4,878			21,843
Other		(319	)		(59	)
Cash flows used in financing activities		(87,441	)		(134,528	)
Increase / (Decrease) in cash, cash equivalents, and restricted cash		84,537			(17,231	)
Cash, cash equivalents, and restricted cash at beginning of the period		2,248			19,479
Cash, cash equivalents, and restricted cash at the end of the period	$	86,785		$	2,248

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 income before income taxes (adjusted EBT), 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 EBT, 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 EBITDA and adjusted EBITDA to net income for the thirteen and fifty-two weeks ended December 29, 2019 and December 30, 2018 and a reconciliation of EBT, net income and diluted earnings per share to adjusted EBT, adjusted net income and adjusted diluted earnings per share for the thirteen and fifty-two weeks ended December 29, 2019 and December 30, 2018:

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


	Thirteen weeks ended				Fifty-two weeks ended
	December 29, 2019		December 30, 2018		December 29, 2019		December 30, 2018
Net income	$	31,634	$	12,703	$	149,629	$	158,536
Income tax provision (1)		10,086		8,629		46,539		37,260
Income before income taxes (Earnings before taxes "EBT")		41,720		21,332		196,168		195,796
Special Items:
Executive Compensation (2)		—		3,618		508		3,618
Store closures (3)		—		7,961		—		7,961
Total Special Items - pre-tax		—		11,579		508		11,579
Adjusted EBT	$	41,720	$	32,911	$	196,676	$	207,375
Net income	$	31,634	$	12,703	$	149,629	$	158,536
Income tax provision (1)		10,086		8,629		46,539		37,260
Interest expense, net		5,195		7,420		21,192		27,435
Earnings before interest and taxes (EBIT)		46,915		28,752		217,360		223,231
Depreciation, amortization and accretion		31,258		28,571		122,804		110,749
Earnings before interest, taxes, depreciation and amortization (EBITDA)	$	78,173	$	57,323	$	340,164	$	333,980
Special Items:
Executive Compensation (2)		—		3,618		508		3,618
Store closures (3)		—		7,961		—		7,961
Total Special Items - pre-tax		—		11,579		508		11,579
Adjusted EBITDA	$	78,173	$	68,902	$	340,672	$	345,559
Net income	$	31,634	$	12,703	$	149,629	$	158,536
Special Items:
Executive compensation, net of tax (2)		—		5,652		—		5,652
Store closures, net of tax (3)		—		5,921		377		5,921
Adjusted Net income before one-time tax benefit		31,634		24,276		150,006		170,109
Income tax benefit related to Tax Act and other one-time tax benefits (4)		—		—		—		(2,573	)
Adjusted Net income	$	31,634	$	24,276	$	150,006	$	167,536
Diluted earnings per share	$	0.27	$	0.10	$	1.25	$	1.22
Adjusted diluted earnings per share	$	0.27	$	0.19	$	1.25	$	1.29
Diluted weighted average shares outstanding		118,219		127,398		119,742		129,776

Income tax provision includes approximately a $12 million (or $0.10 per diluted share) benefit during the fifty-two weeks ended December 30, 2018 in excess federal and state tax for share based compensation primarily associated with the exercise of expiring pre-IPO options.
During the thirteen and fifty-two weeks ended December 30, 2018, the Company recorded one-time pre-tax compensation charges of $4 million associated with the resignation of the former CEO. The after-tax impact includes incremental tax expense associated with certain nondeductible executive compensation costs.
During the thirteen and fifty-two weeks ended December 30, 2018, in connection with the closure to two stores, the Company recorded one-time non-cash pre-tax charges of $8 million primarily related to the estimated fair value of the lease termination obligations and asset impairments. After-tax impact includes the tax benefit on the pre-tax charge.
During the fifty-two weeks ended December 30, 2018, the Company adopted a tax calculation method change for the accelerated deduction of certain items, resulting in a discrete tax benefit of $3 million.

Source: Sprouts Farmers Market, Inc.Phoenix, AZ2/20/2020