Sprouts Farmers Market’s Small-Format Strategy Pays Off Big

Sprouts Farmers Market's shift to smaller store concepts seems to be paying off, as evident in its third quarter earnings. The specialty retailer reported that its Q3 net sales totaled $1.7 billion, a 7.6% increase from the same period in 2022. 

“Its increase was driven by comparable store sales growth of 3.9%, and the addition of new stores,” said Lawrence “Chip” Molloy, Sprouts' CFO, during the company’s earnings call.

The healthy grocer opened 10 new stores in Q3, resulting in a total of 401 stores in 23 states as of Oct. 1. Each new store adheres to Sprouts’ smaller-format design concept, featuring an approximate 23,000-square-foot footprint, and a bright and airy farmers market experience with an open layout, community feel, and produce at the heart of the market. 

The quarter’s successful performance was also supported by Sprouts' better-for-you private brand sales, which grew 14% and represented 20.5% of total sales, during the quarter.

Additionally, Sprouts’ e-commerce sales grew 16%, representing 12.1% of its total sales.

"We are pleased to report another solid quarter at Sprouts, with continued increases in both traffic and comparable store sales," said Jack Sinclair, Sprouts CEO. "Our results signal the alignment of our 31,000 team members across merchandising, marketing, supply chain and operational initiatives – propelling our strategy forward."

Although the grocer is closing its Georgia distribution center, Sinclair said the company is optimizing its Florida distribution center network for more scale and ensuring freshness with a new partner in the northeast. 

Sprouts also recently opened a new 337,000-square-foot distribution center in the Southern California city of Fullerton. The facility will support deliveries to nearly 100 Sprouts locations within a 250-mile radius and will be able to support future growth in the region.

In other big news for the grocer, Sprouts is developing a loyalty plan to further engage its customers. 

“Our initial research told us our customers strongly desire a program from Sprouts,” said Sinclair. “They want a program that helps them live and eat better while driving our innovation and differentiation for them to explore.”

The company is currently in the midst of developing a loyalty program and is expecting to release a summer pilot next year.

Other Q3 highlights include a diluted earnings per share of $0.64 and adjusted diluted earnings per share of $0.65. Diluted earnings per share last year was $0.61. The company ended the quarter with $252 million in cash and cash equivalents and a $150 million balance on its $700 million revolving credit facility.

Looking ahead, Sprouts expects comparable store sales growth of approximately 3% for the fourth quarter. Adjusted diluted earnings per share is expected to be $0.42 to $0.46.

The specialty grocer’s full-year 2023 outlook includes:

• Net sales growth: 6.5% to 7%
• Comparable store sales growth: approximately 3%
• Adjusted EBIT: $387 million to $393 million
• Adjusted diluted earnings per share: $2.77 to $2.81
• Capital expenditures (net of landlord reimbursements): $190 million to $210 million

“Our pipeline remains strong with nearly 100 approved stores, 60 executed leases and the expected opening of approximately 35 stores in 2024, with close to 70% in the back half,” said Sinclair.

Meanwhile, Sprouts also announced that SVP of Finance Curtis Valentine will succeed Molloy as CFO when he retires at end of 2023. 

Phoenix-based Sprouts Farmers Market employs approximately 31,000 associates and operates over 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.