GlobeNewswire Inc | Oct 28, 2020 04:02PM EDT

October 28, 2020

PHOENIX, Oct. 28, 2020 (GLOBE NEWSWIRE) -- Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week third quarter ended September 27, 2020.

Third Quarter Highlights:

-- Net sales of $1.6 billion; a 9.5% increase from the same period in 2019 -- Comparable store sales growth of 4.2% and two-year comparable store sales growth of 5.7% -- Net income of $60 million and adjusted net income(1) 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(1) 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, chief executive officer 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.

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1Adjusted 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% 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% increase in comparable store sales and strong performance in new stores opened.

Gross profit for the quarter increased 23% to $585 million, resulting in a gross profit margin of 37.1%, 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 30.1% 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 1.0% to $31 million, or 2.0% 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% 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 September 27, 2020.

Leverage and Liquidity

Sprouts generated cash from operations of $410 million year-to-date through September 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.

Third Quarter 2020 Conference Call

Sprouts will hold a conference call at 2 p.m. Pacific Daylight Time (5 p.m. Eastern Daylight Time) on Wednesday, October 28, 2020, during which Sprouts executives will further discuss third quarter 2020 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 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: +1-408-337-0130 -- Conference ID: 5589871

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: 5589871.

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 companys guidance, 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 Companys ability to execute on its long-term strategy; the companys ability to successfully compete in its intensely competitive industry; the companys ability to successfully open new stores; the companys ability to manage its growth; the companys ability to maintain or improve its operating margins; the companys 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 companys Securities and Exchange Commission filings, including, without limitation, the companys 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 ProfileSprouts 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 acarefully curatedassortment 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-basedand 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 350stores in 23 states nationwide.To learn more about Sprouts, and the good it brings communities, visitabout.sprouts.com.

Investor Contact: Media Contact:Susannah Livingston Diego Romero(602) 682-1584 (602) 682-3173susannahlivingston@sprouts.com media@sprouts.com



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

Thirteen Thirteen Thirty-nine Thirty-nine Weeks Ended Weeks Ended Weeks Ended Weeks Ended September September September September 27, 2020 29, 2019 27, 2020 29, 2019Net sales $ 1,577,598 $ 1,440,222 $ 4,866,925 $ 4,269,844 Cost of sales 992,829 963,497 3,075,665 2,843,989 Gross profit 584,769 476,725 1,791,260 1,425,855 Selling,general and 475,053 404,285 1,400,234 1,162,226 administrativeexpensesDepreciationandamortization(exclusive of 31,067 30,764 92,637 89,788 depreciationincluded incost of sales)Store closureand other 268 2,119 (344 ) 3,396 costs, netIncome from 78,381 39,557 298,733 170,445 operationsInterest 3,117 5,557 11,681 15,997 expense, netIncome before 75,264 34,000 287,052 154,448 income taxesIncome tax 15,023 7,740 67,999 36,453 provisionNet income $ 60,241 $ 26,260 $ 219,053 $ 117,995 Net income per share:Basic $ 0.51 $ 0.22 $ 1.86 $ 0.98 Diluted $ 0.51 $ 0.22 $ 1.85 $ 0.98 Weightedaverage shares outstanding:Basic 117,947 118,029 117,775 119,846 Diluted 118,450 118,174 118,157 120,227

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

September27, December 2020 29, 2019ASSETS Current assets: Cash and cash equivalents $ 137,518 $ 85,314 Accounts receivable, net 24,258 15,713 Inventories 257,255 275,979 Prepaid expenses and other current assets 18,948 10,833 Total current assets 437,979 387,839 Property and equipment, net of accumulated 735,670 741,508 depreciationOperating lease assets, net 1,040,329 1,028,436 Intangible assets, net of accumulated 184,960 185,395 amortizationGoodwill 368,878 368,078 Other assets 14,407 11,727 Total assets $ 2,782,223 $ 2,722,983 LIABILITIES AND STOCKHOLDERS? EQUITY Current liabilities: Accounts payable $ 163,259 $ 122,839 Accrued liabilities 138,996 136,482 Accrued salaries and benefits 72,155 48,579 Accrued income tax 4,089 2,005 Current portion of operating lease 130,088 106,153 liabilitiesCurrent portion of finance lease liabilities 994 754 Total current liabilities 509,581 416,812 Long-term operating lease liabilities 1,074,267 1,078,927 Long-term debt and finance lease liabilities 285,704 549,419 Other long-term liabilities 50,140 41,517 Deferred income tax liability 54,585 54,356 Total liabilities 1,974,277 2,141,031 Commitments and contingencies (Note 6) Stockholders? equity: Undesignated preferred stock; $0.001 parvalue; 10,000,000 sharesauthorized, no ? ? shares issued and outstandingCommon stock, $0.001 par value; 200,000,000shares authorized, 117,950,276 shares issuedand outstanding, September 27, 2020; 117 117 117,543,668 shares issued and outstanding,December 29, 2019Additional paid-in capital 682,709 670,966 Accumulated other comprehensive income (loss) (9,484 ) (4,682 )Retained earnings (Accumulated deficit) 134,604 (84,449 )Total stockholders? equity 807,946 581,952 Total liabilities and stockholders? equity $ 2,782,223 $ 2,722,983

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

Thirty-nine Thirty-nine Weeks Ended Weeks Ended September September 27, 2020 29, 2019Cash flows from operating activities Net income $ 219,053 $ 117,995 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization expense 94,748 91,546 Operating lease asset amortization 71,765 62,251 Store closure and other costs, net (321 ) 850 Share-based compensation 10,400 6,901 Deferred income taxes 228 (245 )Other non-cash items 1,996 (2,873 )Changes in operating assets and liabilities: Accounts receivable 7,372 28,978 Inventories 18,724 (21,348 )Prepaid expenses and other current assets (8,937 ) (2,379 )Other assets (2,575 ) (762 )Accounts payable 45,806 63,947 Accrued liabilities (7 ) 32,963 Accrued salaries and benefits 23,577 (4,054 )Accrued income tax 2,083 3,764 Operating lease liabilities (79,602 ) (52,209 )Other long-term liabilities 5,954 (2,013 ) Cash flows from operating activities 410,264 323,312 Cash flows used in investing activities Purchases of property and equipment (95,874 ) (146,480 ) Cash flows used in investing activities (95,874 ) (146,480 )Cash flows used in financing activities Proceeds from revolving credit facilities ? 187,405 Payments on revolving credit facilities (263,000 ) (125,405 )Payments on finance lease obligations (474 ) (536 )Repurchase of common stock ? (163,310 )Proceeds from exercise of stock options 1,343 4,483 Other ? (320 ) Cash flows used in financing activities (262,131 ) (97,683 ) Increase in cash, cash equivalents, and 52,259 79,149 restricted cashCash, cash equivalents, and restricted cash at 86,785 2,248 beginning of the periodCash, cash equivalents, and restricted cash at $ 139,044 $ 81,397 the end of the period

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 companys business, or as a measure of cash that will be available to meet the companys 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 companys results as reported under GAAP.

The following table shows a reconciliation of adjusted EBITDA to net income for the thirteen and thirty-nine weeks ended September 27, 2020 and September 29, 2019 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 and thirty-nine weeks ended September 27, 2020 and September 29, 2019:

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

Thirteen Thirteen Thirty-nine Thirty-nine Weeks Weeks Weeks Ended Weeks Ended Ended Ended September September September September 27, 2020 29, 2019 27, 2020 29, 2019Net income $ 60,241 $ 26,260 $ 219,053 $ 117,995 Income tax 15,023 7,740 67,999 36,453 provisionInterest 3,117 5,557 11,681 15,997 expense, netEarningsbefore 78,381 39,557 298,733 170,445 interest andtaxes (EBIT)Special items:Strategicinitiatives^ 2,416 ? 7,033 ? (1)Store ? ? ? 508 closures^ (2)Adjusted EBIT 80,797 39,557 305,766 170,953 Depreciation,amortization 31,647 31,335 94,428 91,546 and accretionAdjusted $ 112,444 $ 70,892 $ 400,194 $ 262,499 EBITDA Net income $ 60,241 $ 26,260 $ 219,053 $ 117,995 Special Items:Strategicinitiatives, 1,795 ? 5,226 ? net of tax^(1)Storeclosures, net ? ? ? 377 of tax^ (2)Adjusted Net $ 62,036 $ 26,260 $ 224,279 $ 118,372 incomeDilutedearnings per $ 0.51 $ 0.22 $ 1.85 $ 0.98 shareAdjusteddiluted $ 0.52 $ 0.22 $ 1.90 $ 0.98 earnings pershare Dilutedweightedaverage 118,450 118,174 118,157 120,227 sharesoutstanding

(1) Includes professional fees related to our ongoing strategic initiatives. After-tax impact includes the tax benefit on the pre-tax charge.(2) Includes the direct costs associated with store closures and relocation. After-tax impact includes the tax benefit on the pre-tax charge.

Source: Sprouts Farmers Market, Inc.Phoenix, AZ10/28/20