Sprouts Farmers Market Reports Third Quarter 202 Results

Sprouts Farmers Market, Inc. reported results for the 13-week third quarter ended Sept. 27, 2020.

Third Quarter Highlights:

Net sales of $1.6 billion; a 9.5 percent increase from the same period in 2019

Comparable store sales growth of 4.2 percent and two-year comparable store sales growth of 5.7 percent

Net income of $60 million and adjusted net income of $62 million; compared to net income and adjusted net income of $26 million from the same period in 2019

Diluted earnings per share of $0.51 and adjusted diluted earnings per share of $0.52; compared to $0.22 diluted and adjusted diluted earnings per share from the same period in 2019

“Sprouts continues to prioritize the wellbeing of our team members and customers through our safe store operations and the wholesome foods we offer,” said Jack Sinclair, CEO of Sprouts Farmers Market. “Our strong financial performance in the third quarter was driven by our curation of healthy offerings, coupled with ongoing strategic changes. With each passing quarter, the progression of our strategy strengthens our conviction in our long-term growth and our ability to provide exceptional returns for years to come.”

Adjusted net income and adjusted diluted earnings per share, non-GAAP financial measures, exclude the impact of certain special items. See the “Non-GAAP Financial Measures” section of this release for additional information about these items.

Third Quarter 2020 Financial Results

Net sales for the third quarter of 2020 were $1.6 billion, a 9.5 percent increase compared to the same period in 2019. Net sales growth was driven by continued demand from the Covid-19 pandemic, contributing to a 4.2 percent increase in comparable store sales and strong performance in new stores opened.

Gross profit for the quarter increased 23 percent to $585 million, resulting in a gross profit margin of 37.1 percent, an increase of 400 basis points compared to the same period in 2019. A number of sustainable strategic changes contributed to this increase, from promotional activities to shrink initiatives, partially accelerated by the Covid-19 landscape, as well as positive leverage from additional sales.

Selling, general and administrative expenses (SG&A) for the quarter increased $71 million to $475 million or 30 percent of sales, a deleverage of 200 basis points compared to the same period in 2019. Increased team member bonuses and store operational expenses from Covid-19 were approximately $34 million for the third quarter, driving the deleverage. Additionally, with our elevated ecommerce sales, we realized increased ecommerce fees, which were offset by other efficiencies and leveraging fixed costs on our higher sales.

Depreciation and amortization for the quarter increased 1 percent to $31 million, or 2 percent of sales, a decrease of 10 basis points compared to the same period in 2019.

Store closure and other costs, net for the quarter were $0.3 million compared to $2.1 million in the same period of 2019.

Net income for the quarter was $60 million and diluted earnings per share (EPS) was $0.51, compared with $26 million and $0.22, respectively, in 2019. Excluding the impact of special items, adjusted net income was $62 million and adjusted diluted EPS was $0.52; an increase of 136 percent from the same period in 2019 (see Non-GAAP Financial Measures).

Unit Growth and Development

During the third quarter of 2020, Sprouts opened six new stores, resulting in a total of 356 stores in 23 states as of Sept. 27, 2020.

Leverage and Liquidity

Sprouts generated cash from operations of $410 million year-to-date through Sept. 27, 2020 and invested $76 million in capital expenditures net of landlord reimbursements, primarily for new stores. After paying down $176 million of outstanding debt, Sprouts ended the quarter with $275 million in loans and $34 million of letters of credit outstanding under its revolving credit facility and $138 million in cash and cash equivalents.

Fourth Quarter 2020 and Full Year 2021 Outlook

As customers continue to consume much of their food at home due to the Covid-19 pandemic, grocery spend and ecommerce penetration have remained at elevated levels, as do additional company expenses. For the fourth quarter we expect our comparable store sales to be in the low single digits and inclusive of the 53rd week, adjusted diluted EPS to be between $0.36 to $0.40, which translates into a full-year adjusted diluted EPS range of $2.26 to $2.30, on a 53-week basis.

“We remain confident in executing our long-term unit growth plans, winning with our target customer, maintaining our strong balance sheet and delivering sustainable superior returns,” said Denise Paulonis, chief financial officer of Sprouts Farmers Market. “As we build out our 2021 plans, we are more focused than ever on maintaining the momentum we have captured in 2020, giving us confidence that our earnings before interest and taxes in 2021 will be in the range of $285 to $305 million.”

For more information, visit the company’s official press release.