Sprouts Farmers Market, Inc. Reports First Quarter 2021 Results

·13 min read

PHOENIX, May 06, 2021 (GLOBE NEWSWIRE) -- Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week first quarter ended April 4, 2021.

First Quarter Highlights:

  • Net sales of $1.6 billion; a 4% decrease from the same period in 2020

  • Comparable store sales growth of -9.4% and two-year comparable store sales growth of 2.2%

  • Net income and adjusted net income(1) of $83 million; compared to net income of $92 million and adjusted net income of $93 million from the same period in 2020

  • Diluted and adjusted diluted earnings per share(1) of $0.70; compared to $0.78 diluted earnings per share and adjusted diluted earnings per share of $0.79 from the same period in 2020

“I am pleased with how Sprouts has navigated the current environment as we begin to cycle the onset of the COVID-19 impact from last year,” said Jack Sinclair, chief executive officer of Sprouts Farmers Market. “Sprouts achieved strong financial results in the first quarter, building on our successful strategic improvements from 2020, which enhanced our profitability to support our long-term growth. We continued to move our strategy forward with the opening of our sixth fresh distribution center, providing our customers with even more affordable, local and organic produce, rooted in Sprouts’ unique farmer’s market heritage. As we look forward, I am confident we will continue to enhance our position as a fast-growing health-focused specialty retailer.”

1 Adjusted net income and adjusted diluted earnings per share, non-GAAP financial measures, exclude the impact of certain special items. There were no such adjustments for the quarter ended April 4, 2021. See the “Non-GAAP Financial Measures” section of this release for additional information about these items.

First Quarter 2021 Financial Results

Net sales for the first quarter of 2021 were $1.6 billion, a 4% decrease compared to the same period in 2020. Net sales were driven by solid performance in new stores opened, offset by a decrease of 9.4% in comparable store sales due to the impact from the onset of COVID-19 during the first quarter of last year.

Gross profit for the quarter decreased 1.3% to $586 million, resulting in a gross profit margin of 37.2%, an increase of 114 basis points compared to the same period in 2020.This increase is attributed to sustainable strategic changes, including promotional activities and shrink initiatives.

Selling, general and administrative expenses for the quarter increased $3 million to $440 million, or 27.9% of sales, a deleverage of 141 basis points compared to the same period in 2020. This primarily reflects sales deleverage and increased ecommerce fees due to higher omni channel sales as more customer have continued to rely on home delivery and curbside pickup. This was partially offset by lower bonus expense due to COVID-19 in the prior year.

Depreciation and amortization for the quarter decreased 0.7% to $31 million, or 2.0% of sales, an increase of 10 basis points compared to the same period in 2020.

Store closure and other costs, net for the quarter were $2 million compared to a credit of $1 million in the same period of 2020.

Net income for the quarter was $83 million and diluted earnings per share (“EPS”) was $0.70, compared with $92 million and $0.78, respectively, in 2020. Diluted EPS in 2020 included an estimated $0.22 benefit from the COVID-19 impact.

Unit Growth and Development

As planned, Sprouts did not open any new stores in the first quarter of 2021, ending the quarter with a total of 362 stores in 23 states.

Leverage and Liquidity

Sprouts generated cash from operations of $105 million in the first quarter of 2021 and invested $9 million in capital expenditures net of landlord reimbursement, primarily for new stores. Sprouts ended the quarter with a $250 million balance on its revolving credit facility, $39 million of letters of credit outstanding under the facility, $256 million in cash and cash equivalents, and $297 million available under our current share repurchase authorization. Through April 4, 2021, we have repurchased 130,000 shares of common stock under this authorization for a total investment of $3 million.

Full Year 2021 Outlook

The impact that the COVID-19 pandemic will have on the U.S. economy and the company’s fiscal 2021 results is still uncertain. We have adjusted our fiscal 2021 outlook, reflecting our year-to-date performance and our expectations for the remainder of the year:

Full-year 2021 Guidance

52-week to 52-week

Net sales growth

Flat to up slightly

Unit growth

Approximately 20 new stores

Comparable store sales growth

Down low to mid-single digits

Adjusted EBIT

$305M to $325M

Adjusted diluted earnings per share

$1.87 to $2.00

Effective tax rate

Approximately 25%

Capital expenditures

$140M to $160M

(net of landlord reimbursements)

First Quarter 2021 Conference Call

Sprouts will hold a conference call at 2 p.m. Pacific Daylight Time (5 p.m. Eastern Daylight Time) on Thursday, May 6, 2021, during which Sprouts executives will further discuss first quarter 2021 financial results.

A webcast of the conference call will be available through Sprouts’ investor relations webpage located at investors.sprouts.com. Participants should register on the website approximately 15 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: 9758223

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: 9758223.

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, risks associated with the impact of the COVID-19 pandemic; 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; 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 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

Sprouts is the place where goodness grows. 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 fastest growing retailers in the country, Sprouts employs approximately 35,000 team members and operates more than 360 stores in 23 states nationwide. To learn more about Sprouts, and the good it brings communities, visit about.sprouts.com.

Investor Contact:

Media Contact:

Susannah Livingston

Diego Romero

(602) 682-1584

(602) 682-3173

susannahlivingston@sprouts.com

media@sprouts.com


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

Thirteen
Weeks Ended

Thirteen
Weeks Ended

April 4, 2021

March 29, 2020

Net sales

$

1,575,447

$

1,646,539

Cost of sales

989,273

1,052,707

Gross profit

586,174

593,832

Selling, general and administrative expenses

439,662

436,304

Depreciation and amortization (exclusive of depreciation included in cost of sales)

31,229

31,021

Store closure and other costs, net

2,048

(1,082

)

Income from operations

113,235

127,589

Interest expense, net

2,991

4,827

Income before income taxes

110,244

122,762

Income tax provision

27,196

30,952

Net income

$

83,048

$

91,810

Net income per share:

Basic

$

0.70

$

0.78

Diluted

$

0.70

$

0.78

Weighted average shares outstanding:

Basic

118,044

117,545

Diluted

118,607

117,748

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

April 4, 2021

January 3, 2021

ASSETS

Current assets:

Cash and cash equivalents

$

256,019

$

169,697

Accounts receivable, net

14,488

14,815

Inventories

270,958

254,224

Prepaid expenses and other current assets

35,862

27,224

Total current assets

577,327

465,960

Property and equipment, net of accumulated depreciation

707,039

726,500

Operating lease assets, net

1,043,455

1,045,408

Intangible assets, net of accumulated amortization

184,960

184,960

Goodwill

368,878

368,878

Other assets

15,079

14,698

Total assets

$

2,896,738

$

2,806,404

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

160,596

$

139,337

Accrued liabilities

133,026

143,402

Accrued salaries and benefits

43,735

76,695

Accrued income tax

16,251

Current portion of operating lease liabilities

135,797

135,739

Current portion of finance lease liabilities

968

959

Total current liabilities

490,373

496,132

Long-term operating lease liabilities

1,072,897

1,069,535

Long-term debt and finance lease liabilities

260,287

260,459

Other long-term liabilities

45,481

40,912

Deferred income tax liability

60,830

58,073

Total liabilities

1,929,868

1,925,111

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,
118,194,576 shares issued and outstanding, April 4, 2021;
117,953,435 shares issued and outstanding, January 3, 2021

118

118

Additional paid-in capital

691,142

686,648

Accumulated other comprehensive income (loss)

(7,230

)

(8,474

)

Retained earnings

282,840

203,001

Total stockholders' equity

966,870

881,293

Total liabilities and stockholders' equity

$

2,896,738

$

2,806,404


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

Thirteen
Weeks Ended

Thirteen
Weeks Ended

April 4, 2021

March 29, 2020

Cash flows from operating activities

Net income

$

83,048

$

91,810

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization expense

31,841

31,600

Operating lease asset amortization

25,816

23,137

Share-based compensation

3,613

2,400

Deferred income taxes

2,757

232

Other non-cash items

207

(768

)

Changes in operating assets and liabilities:

Accounts receivable

8,795

12,652

Inventories

(16,733

)

22,787

Prepaid expenses and other current assets

(7,747

)

(8,652

)

Other assets

(1,078

)

656

Accounts payable

27,004

80,669

Accrued liabilities

(10,568

)

16,492

Accrued salaries and benefits

(32,959

)

2,984

Accrued income tax

16,251

28,906

Operating lease liabilities

(28,719

)

(30,107

)

Other long-term liabilities

3,910

2,274

Cash flows from operating activities

105,438

277,072

Cash flows used in investing activities

Purchases of property and equipment

(16,605

)

(28,036

)

Cash flows used in investing activities

(16,605

)

(28,036

)

Cash flows used in financing activities

Payments on revolving credit facilities

(87,000

)

Payments on finance lease obligations

(163

)

(154

)

Repurchase of common stock

(3,209

)

Proceeds from exercise of stock options

881

Cash flows used in financing activities

(2,491

)

(87,154

)

Increase in cash, cash equivalents, and restricted cash

86,342

161,882

Cash, cash equivalents, and restricted cash at beginning of the period

171,441

86,785

Cash, cash equivalents, and restricted cash at the end of the period

$

257,783

$

248,667

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 EBIT, 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 EBIT, 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 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 adjusted EBITDA to net income for the thirteen weeks ended April 4, 2021 and March 29, 2020 and a reconciliation of EBIT, net income and diluted earnings per share to adjusted EBIT, adjusted net income and adjusted diluted earnings per share for the thirteen weeks ended April 4, 2021 and March 29, 2020:

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

Thirteen
Weeks Ended

Thirteen
Weeks Ended

April 4, 2021

March 29, 2020

Net income

$

83,048

$

91,810

Income tax provision

27,196

30,952

Interest expense, net

2,991

4,827

Earnings before interest and taxes (EBIT)

113,235

127,589

Special items:

Strategic initiatives (1)

1,200

Adjusted EBIT

113,235

128,789

Depreciation, amortization and accretion

31,841

31,600

Adjusted EBITDA

$

145,076

$

160,389

Net income

$

83,048

$

91,810

Special Items:

Strategic initiatives, net of tax (1)

892

Adjusted Net income

$

83,048

$

92,702

Diluted earnings per share

$

0.70

$

0.78

Adjusted diluted earnings per share

$

0.70

$

0.79

Diluted weighted average shares outstanding

118,607

117,748

(1) Includes professional fees related to strategic initiatives. After-tax impact includes the tax benefit on the pre-tax charge.

Source: Sprouts Farmers Market, Inc
Phoenix, AZ
5/6/21



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