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Sprouts Farmers Market Encouraged by Continued Momentum

Natural grocer sees positive customer traffic growth in Q1
Marian Zboraj, Progressive Grocer
Sprouts Farmers Market
Sprouts opened seven new stores in its first quarter, resulting in 414 stores in 23 states.

Specialty retailer Sprouts Farmers Market, Inc. delivered impressive financial results for its first quarter ended March 31. Sales grew by 9%, with comparable-store sales increasing 4% and diluted earnings per share jumping 14%, compared with adjusted diluted earnings per share in the same period last year.

Q1 sales came in at $1.9 billion for the company, up $150 million from the same period last year. This increase was driven by comparable-store sales growth of 4% and the addition of new stores. 

"Our business continues to be resilient. Our comp performance highlights [that] the categories with the most differentiation, such as grocery, dairy, frozen and meat, continue to attract our target customers and drive our results,” said CFO Curtis Valentine during the company's earnings call. 

“Our team is dedicated to finding innovative and distinctive products with attributes such as organic, gluten-free, grass-fed or vegan that set us apart from others,” added CEO Jack Sinclair. “The success of our foraging program has continued as sales on our innovation center continue to grow, and we believe we have become the destination for exciting entrepreneurial food companies to introduce their unique products to the marketplace.” Sprouts' branded innovation centers are dedicated sections focused on a rotating selection of trending products and new-to-Sprouts brands.

Brand growth also continued to outpace total company performance, contributing 21% of total sales for the quarter. E-commerce sales grew approximately 25%, representing 14% of total sales. 

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In regard to store growth, the organic grocer opened seven new stores, ending the quarter with 414 locations across 23 states. It's on track to open approximately 35 stores by the end of the year. In June, it will introduce two new stores in Philadelphia, and one in Cliffwood, N.J. 

The new store builds will continue to be based on Sprouts’ smaller-format design concept, measuring approximately 23,000 square feet and featuring an open layout, a community feel and produce at the heart of the market. 

Meanwhile, the company's gross margin in Q1 was 38.3%, an increase of approximately 80 basis points. “This improvement was primarily due to a significant turnaround in our fresh shrink performance, driven by our continued focus on inventory management,” said Valentine. “We also continue to see year-over-year margin improvement due to promotional optimization efforts carrying over from 2023.”

SG&A for the recent quarter totaled $540 million, an increase of $57 million, or approximately 80 basis points of deleverage, compared with adjusted SG&A from the same period of the prior year. As anticipated, the first quarter was affected by approximately $4 million in holiday pay, with New Year's Day falling in the first day of fiscal 2024.

Q1 earnings before interest and taxes were $148 million, interest expense was approximately $1 million, and effective tax rate was 23%.

Net income was $114 million and diluted earnings per share were $1.12, an increase of 14% compared with adjusted diluted earnings per share from the same period of the prior year. 

“Last quarter, we shared our plan to invest $15 million in 2024 to build a foundation for sustainable long-term earnings growth, and we are on track with approximately $2 million spend in the first quarter,” said Valentine. 

Looking ahead, the company’s full-year outlook consists of total sales growth of between 7% and 8% and comp sales in the range of 2.5%-3.5%. Adjusted earnings before interest and taxes are expected to be between $415 million and $425 million, and adjusted earnings per share are anticipated to be between $3.05 and $3.13, assuming no additional share repurchases.

Phoenix-based Sprouts Farmers Market employs approximately 32,000 associates and operates more than 400 stores in 23 states nationwide. The company is No. 51 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America.

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