08/02/2023

Sprouts Farmers Market Sees Another Solid Quarter as It Continues to Focus on Differentiation

Grocer on track with long-term growth strategy as it achieves positive traffic, enhanced supply chain and product innovation

Marian Zboraj

Digital Editor

For the second quarter, approximately 90% of Sprouts' produce sales were from local farms.

Sprouts Farmers Market, Inc.’s efforts to establish itself as a go-to healthy specialty food retailer seems to be paying off after another solid quarter for the company. The grocer reported net sales totaling $1.7 billion for the 13-week second quarter ended July 2. This is a 6% increase from the same period in 2022. Comparable-store sales grew 3.2% while e-commerce sales rose 16%, representing 12.1% of total sales.

The company also experienced positive comp transactions or proxy for traffic throughout the quarter, combined with a net increase in basket.

CFO Chip Malloy, who will retire from the company at the end of the year, mentioned during Sprouts' earnings call that its strongest performing categories remain the ones with the most differentiation, such as grocery bakery, dairy and proteins. “Our private label or Sprouts brand sales grew 12% and represented 20% of total sales, as innovation seekers value uniqueness and quality only to be found at Sprouts,” he said.

CEO Jack Sinclair added, “We curate products that contain attributes appealing to the health enthusiast customer. For example, in proteins, more than 50% of our beef sales are grass-fed, more than 50% of our chicken sales are organic, and 90% of our grocery sales have specific diet attributes such as vegan and non-GMO.”

Sinclairwent on to say: “Even in produce, which many consider a commodity, over 40% of our sales are organic. This is a significant difference from other grocers.”

For the second quarter, approximately 90% of the grocer’s produce sales were from local farms.

Communicating and connecting with customers more effectively continues to be a top priority and opportunity for Sprouts. “Almost 80% of our media is now spent on digital aimed at driving more shopping occasions with our target customers, and supported by data-driven plans,” said Sinclair.

“As we all know, linking transactions with individual customers provides valuable data and better insights into the needs and wants,” he continued. “We're still in the test and learn phase with our personalization efforts. These learnings are helping to guide our thinking, as we build towards a more robust and relevant loyalty program. This is a multi-year journey that we believe could provide significant future benefits.”

Meanwhile, like many other retailers over the last several quarters, Sprouts has been experiencing rising labor costs. To help, the company has recently invested in a more engaging store bonus program and additional labor hours for sampling to support the business's long-term growth. “To date, our operations and information technology teams have done a remarkable job of offsetting those increases with new processes and technologies while enhancing the customer experience,” said Molloy.

Examples include the implementation of FIM or Fresh Item Management, and new labor management system installation of self-checkouts and more efficient sequencing promotional tags.

The company was also busy improving its supply chain in Q2 to support store growth. For instance, it opened a new larger Southern California distribution center in Fullerton and doubled the size of its Texas distribution center.

While it closed 10 stores during the quarter to focus on new smaller-concept stores, Sprouts did open six new stores, resulting in 391 stores in 23 states.

Sprouts is keeping up this growth for third quarter. It opened its Fort Myers, Fla., location on July 21, and also has the following store openings on tap:

8595 College Parkway, Orlando, Fla., Aug. 4
1720 South Nevada Ave., Colorado Springs, Colo., Aug. 4
4460 Hollywood Blvd., West Melbourne, Fla., Aug. 11
4571 66th St. N., Kenneth City, Fla., Aug. 18
37666 N. Gantzel Rd., Queen Creek, Ariz., Aug. 18
9831 Glades Rd., Boca Raton, Fla., Aug. 18
2150 E. Fowler Ave., Tampa, Fla., Aug. 25
1524 S. Riverside Ave., Rialto, Calif., Sept. 1
640 W Cuthbert Blvd., Haddon Township, N.J., Sept. 8
1201 Barbara Jordan Blvd., Austin, Texas, Sept. 22

Other highlights from Sprouts’ Q2 include diluted earnings per share of $0.65 and adjusted diluted earnings per share of $0.71, a 25% increase from last year.

Sprouts ended Q2 with $259 million in cash and cash equivalents and a $175 million balance on its $700 million revolving credit facility. The company repurchased 1.4 million shares of common stock for a total investment of $50 million.

Looking ahead, Sprouts' full-year 2023 outlook has an anticipated net sales growth of 5% to 6%, comparable store sales growth of 2% to 3%, an Adjusted EBIT of $378 million to $390 million and adjusted diluted earnings per share of $2.68 to $2.76. Sprouts also expects to open 30 new stores.

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