Investor Presentation Investor Presentation September 2013 September 2013 Exhibit 99.1 |
1 Forward-Looking Statements and Non-GAAP Forward-Looking Statements and Non-GAAP Financial Measures Financial Measures Certain statements in this presentation are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein (including, but not limited to, statements to the effect that Sprouts Farmers Market, Inc. (the “Company”)or its management "anticipates," "plans," "estimates," "expects," "believes," or the negative of these terms and other similar expressions) that are not statements of historical fact should be considered forward-looking statements. These statements involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this presentation. These risks and uncertainties include, without limitation, risks associated with the Company’s ability to successfully compete in its intensely competitive industry; the Company’s ability to successfully open new stores; the Company’s ability to manage its rapid 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; and other factors as set forth from time to time in the Company’s Securities and Exchange Commission filings. The Company intends these forward-looking statements to speak only as of the date of this presentation and does not undertake to update or revise them as more information becomes available, except as required by law. In addition to reporting financial results in accordance with GAAP, the Company has presented adjusted net income, adjusted diluted earnings per share and adjusted EBITDA. These measures are not in accordance with, or an alternative to GAAP. The Company's management believes that these presentations provide 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 as well as a component of incentive compensation. For the thirteen and twenty- six weeks ended July 1, 2012, these non-GAAP measures are presented on a pro forma basis as if the May 2012 business combination with Sunflower Farmers Market, Inc. (“Sunflower Transaction”) had occurred on the first day of the Company’s 2012 fiscal year. See the Appendix for unaudited supplemental pro forma condensed consolidated financial information. The Company defines adjusted net income as net income excluding store closure and exit costs, one-time costs associated with its April 2011 combination (the Henry’s Transaction) with Henry’s Holdings, LLC (“Henry’s”) and the Sunflower Transaction (collectively, the “Transactions”), gain and losses from disposal of assets, the loss on extinguishment of debt and the related tax impact of those adjustments. The Company defines adjusted diluted earnings per share as adjusted net income divided by the weighted average diluted shares outstanding. The Company defines EBITDA as net income before interest expense, provision for income tax, and depreciation and amortization, and defines adjusted EBITDA as EBITDA excluding store closure and exit costs, one-time costs associated with the Transactions, gains and losses from disposal of assets and the loss on extinguishment of debt. These 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, none of these non- GAAP measures should be considered as a measure of discretionary cash available to use to reinvest in growth of the Company’s business, or as a measure of cash that will be available to meet the Company’s obligations. Each of these non-GAAP measures has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. See the Appendix for reconciliation for these non-GAAP measure to the comparable GAAP measures. |
Introduction to Sprouts Introduction to Sprouts Doug Sanders – Doug Sanders – President & Chief Executive Officer President & Chief Executive Officer Amin Maredia – Amin Maredia – Chief Financial Officer Chief Financial Officer |
3 Why Sprouts is a Compelling Investment Why Sprouts is a Compelling Investment Authentic Natural and Organic Food Offering at Great Value Fast Growing Segment of the U.S. Supermarket Industry with Strong Macro Tailwinds Significant New Store Growth Opportunity Supported by Broad Demographic Appeal Proven and Replicable Store Model with Compelling Unit Economics Resilient Business Model Delivering Strong Financial Performance and Strong Comparable Store Sales Growth Passionate Management Team with Customer Focused Culture |
4 Selection Service Value Health Sprouts has a Differentiated Go-to-Market Sprouts has a Differentiated Go-to-Market Strategy Strategy An Engaged, Loyal Customer Base Leading to Strong Financial Performance and Significant New Unit Growth Opportunity Complete Natural & Organic Offering |
5 Sprouts “Flips” Sprouts “Flips” the Conventional Grocery Store the Conventional Grocery Store Model Model Produce surrounded by a complete grocery offering Farmers market open store layout with low profile displays Convenient, small-box: 25-28k sq ft Comfortable, easy to shop environment Full grocery store |
6 Fresh Produce is at the Core of Sprouts’ Fresh Produce is at the Core of Sprouts’ Offering Offering Produce is a common denominator among customers Differentiated supply chain model delivers freshness, speed-to-market and value Produce sourced and distributed in-house Local sourcing, deep industry relationships Supply chain system scalable to support growth Limited CapEx requirements to establish new produce distribution centers Sprouts’ Produce is a Competitive Advantage Prices significantly below competitors drive trial and traffic |
7 Estimated 15+ Years of New Store Runway Estimated 15+ Years of New Store Runway New Mexico Texas Colorado Utah Arizona Nevada California 4 28 26 6 73 2 3 24 Existing Market Oklahoma Target Near Term New Market Kansas Georgia Florida Louisiana Missouri Arkansas Tennessee North Carolina South Carolina Alabama Mississippi Oregon Washington Potential U.S. Store Count¹ Proven Concept: 166 stores in eight states Strong performance across all markets, demographics and real estate venues Opened 18 stores year-to-date, 19 by end of September Note: Based on an assumed new store growth rate of 12% per year and research conducted by Buxton Company in 2012. |
8 Trial Transition Lifestyle Sprouts will Grow its Share of Consumers’ Sprouts will Grow its Share of Consumers’ “Food “Food Retail Wallet” Retail Wallet” Consumers Start with Produce Over Time Make Sprouts Their Primary Grocery Store Then Begin Shopping in an Increasing Number of Departments Over Time Increasing Average Basket Size and Gross Margin Sprouts Attracts Conventional Grocery Customers Seeking a Healthy, Natural Alternative for Less! |
9 Sprouts’ Sprouts’ Consistent Growth in Competitive Consistent Growth in Competitive Markets Markets Broad Appeal Makes Sprouts a Formidable Competitor 1 Not indicative of every store location. |
10 A Powerful, Long-term Growth Engine A Powerful, Long-term Growth Engine Compelling Store-Level Economics One of the Best White Space Opportunities in the Public Markets Leverage Infrastructure for Scale and Growth 10%+ Natural / Organic Sector Growth Consistent Store Performance Across Geographies and Vintages Comp Growth and Margin Expansion in Existing Stores High, balanced sales growth Margin expansion in existing stores Operating leverage from scale and infrastructure Deleverage capital structure Long Term Net Earnings Growth Target of 20%+ |
11 History of Organic Growth History of Organic Growth Balanced Sales Growth across Comparable Store Sales Growth and New Unit Openings 1 “Comparable store sales growth” refers to the percentage change in our comparable store sales as compared to the prior comparable period. Pro forma comparable store sales growth reflects comparable store sales growth calculated as if the Henry’s Transaction and the Sunflower Transaction had been consummated on the first day of fiscal 2007. Comparable store sales growth on a “two-year stacked basis” is computed by adding the pro forma comparable store sales growth of the period referenced and that of the same fiscal period ended twelve months prior. 2 Pro forma net sales reflect the net sales of our predecessor entity and Sunflower as if the Henry’s Transaction and Sunflower Transaction had been consummated on the first day of fiscal 2008. Pro Forma Net Sales² Pro Forma Comparable Store Sales Growth 1 |
12 Compelling New Store Level Economics Compelling New Store Level Economics 1 Includes store buildout (net of contributions from landlords), inventory (net of payables) and cash pre-opening expenses. Target New Store Economics Store Size 25-28k sq. ft. Net Cash Investment¹ $2.8M First Year Sales ~$10M -12M Initial Sales Growth 20-30% over 3-4 years Pre-Tax Cash-on-Cash Returns 35-40% within 3-4 years |
13 Strong Sales Momentum Continued into 2Q13 Strong Sales Momentum Continued into 2Q13 Pro Forma Net Sales² 1 For stores under our management 2 Pro forma net sales reflect the net sales of Sunflower as if the Sunflower Transaction had been consummated on the first day of fiscal 2012. 3 “Comparable store sales growth” refers to the percentage change in our comparable store sales as compared to the prior comparable period. Pro forma comparable store sales growth reflects comparable store sales growth calculated as if the Sunflower Transaction had been consummated on the first day of fiscal 2012. Comparable store sales growth on a “two-year stacked basis” is computed by adding the pro forma comparable store sales growth of the period referenced and that of the same fiscal period ended twelve months prior. Pro Forma Comparable Store Sales Growth³ Strong performance driven by continued pro forma comparable store sales growth of +10.8% Two year stack of 21.0% 25th consecutive quarter of positive comps 1 Balanced customer count and average ticket Strong comp sales across departments |
14 Converting Strong Sales Performance into Converting Strong Sales Performance into Robust Earnings Growth Robust Earnings Growth 1 See the Appendix to this presentation for a reconciliation of pro forma adjusted EBITDA to pro forma net income. 2 See the Appendix to this presentation for a reconciliation of pro forma adjusted net income to pro forma net income. |
15 Strong Balance Sheet and Liquidity Strong Balance Sheet and Liquidity Net Debt to Adjusted EBITDA of 2.5x (1) 1 Calculation is after taking into account a $340M pay down of Term Loan indebtedness with the proceeds from the IPO in August 2013. Net debt is inclusive of capital leases. $340M net proceeds from IPO (in August 2013) used to reduce existing indebtedness Ample liquidity going forward supported by $60M undrawn revolver Solid free cash flow generation with ability to self-fund organic growth YTD have generated $101M in cash from operations YTD $52M in capital expenditures Generate significant free cash flow after investing in new stores and infrastructure |
16 2013 Financial Targets 2013 Financial Targets Unit Growth 19 New Stores Comparable Store Sales Growth 8.5% - 9.0% Total Net Sales Growth 19% - 21% Adjusted EBITDA $180M - $185M Adjusted Net Income $57M - $60M Adjusted Diluted EPS $0.41 - $0.43 Capital Expenditures (net of Landlord reimbursements) $70M - $75M Note: see the Appendix to this presentation for a reconciliation of historic non-GAAP measures to GAAP measures. |
17 Long Term Financial Targets Long Term Financial Targets Unit Growth ~12% Comparable Store Sales Growth 6%+ Total Sales Growth ~15% EBIT Growth 17-20% Net Income Growth 20%+ |
Appendix: GAAP Reconciliations Appendix: GAAP Reconciliations and Pro Forma Information and Pro Forma Information |
19 Non-GAAP Non-GAAP (a) See “Unaudited Supplemental Pro Forma Condensed Consolidated Financial Information” for a reconciliation of proforma net income to net income for the thirteen and twenty-six weeks ended July 1, 2012. (b) Store closure and exit costs have been excluded from adjusted and pro forma adjusted EBITDA, and from adjusted and pro forma adjusted net income. In fiscal 2013 these costs included the costs related to the closure of a former Sunflower warehouse facility and adjustments to sublease assumptions on other properties. In fiscal 2012 these consist primarily of the costs to close a Sunflower administrative facility following the Sunflower Transaction. (c) Costs associated with acquisitions and integration represent the costs to integrate the combined businesses resulting from the Sunflower and Henry’s Transactions. These expenses include professional fees and severance, which the Company excludes from its pro forma adjusted EBITDA and pro forma adjusted net income to provide period-to-period comparability of the Company’s operating results because management believes these costs do not directly reflect the ongoing performance of its store operations. The Company does not expect to incur material expenses associated with integration of the Sunflower and Henry’s Transactions in fiscal 2013. (d) Gain/Loss on disposal of assets represents the gains and losses recorded in connection with the disposal of property and equipment. The Company excludes gains and losses on disposals of assets from its adjusted and proformaadjusted EBITDA andadjusted and pro forma adjusted net income to provide period- to-period comparability of its operating results because management believes these costs do not directly reflect the ongoing performance of its store operations. The loss recorded in fiscal 2012 primarily relates to the loss on the sale leaseback of a store property. (e) Pro forma adjusted and adjusted income tax provision for all periods presented represents the income tax provision and pro forma income tax provision plus the tax effect of the adjustments described in notes (b) through (e) above based on statutory tax rates for the period. For the thirteen weeks ended July 1, 2012, this amount was further adjusted to reflect a $0.6 million reduction in pro forma income tax provision for the effects of certain items related to the Sunflower Transaction. Of the adjustment, $1.0 million relates to the tax effects of $0.7 million and $2.2 million of non-deductible transaction costs incurred by the Company and Sunflower, respectively, based on statutory tax rates for the period. This adjustment was partially offset by a $0.4 million adjustment related to tax benefits from Sunflower stock option exercises. For the twenty-six weeks ended July 1, 2012, this amount was further adjusted to reflect a $1.6 million reduction in pro forma income tax provision for the effects of certain items related to the Sunflower Transaction. Of the adjustment, $2.0 million relates to the tax effects of $2.5 million and $2.0 million of non-deductible transaction costs incurred by the Company and Sunflower, respectively, based on statutory tax rates for the period. This adjustment was partially offset by a $0.4 million adjustment related to tax benefits from Sunflower stock option exercises. The Company has excluded these items from its pro forma adjusted income tax provision because management believes they do not directly reflect the ongoing performance of its store operations and are not reflective of its ongoing income tax provision. Sprouts Farmers Market, Inc. and Subsidiaries Non-GAAP Measure Reconciliation (In thousands) (Unaudited) June 30, 2013 July 1, 2012 June 30, 2013 July 1, 2012 Actual Pro Forma for Sunflower Transaction Actual Pro Forma for Sunflower Transaction Net income (a) 12,468 $ 7,158 $ 30,585 $ 19,515 $ Income tax provision 8,155 6,699 20,052 16,052 Net income before income taxes 20,623 13,857 50,637 35,567 Store closure and exit costs (b) 933 1,178 1,708 1,338 Costs associated with acquisitions and integration (c) - 4,346 (16) 7,371 Gain/(loss) on disposal of assets (d) (2) 1,269 6 1,386 Loss on extinguishment of debt 8,175 - 8,175 - Adjusted income tax provision ( e) (11,756) (8,746) (23,962) (18,408) Adjusted net income 17,973 11,904 36,548 27,254 Interest expense, net 11,390 10,214 21,550 20,522 Adjusted income tax provision ( e) 11,756 8,746 23,962 18,408 Adjusted earnings before interest and taxes (EBIT) 41,119 30,864 82,060 66,184 Depreciation, amortization and accretion 11,598 10,515 22,710 20,249 Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) 52,717 $ 41,379 $ 104,770 $ 86,433 $ Adjusted Net Income Per Share Net income per share - basic 0.10 $ 0.06 $ 0.24 $ 0.16 $ Per share impact of net income adjustments 0.04 $ 0.03 $ 0.05 $ 0.06 $ Adjusted net income per share -basic 0.14 $ 0.09 $ 0.29 $ 0.22 $ Net income per share - diluted 0.10 $ 0.06 $ 0.24 $ 0.15 $ Per share impact of net income adjustments 0.04 $ 0.03 $ 0.04 $ 0.07 $ Adjusted net income per share -diluted 0.14 $ 0.09 $ 0.28 $ 0.22 $ Thirteen weeks ended Twenty-six weeks ended |
20 Pro forma Reconciliation Pro forma Reconciliation SPROUTS FARMERS MARKET, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS For the Thirteen Weeks Ended July 1, 2012 (in thousands, except per share amounts) Historical Sprouts Farmers Market, Inc.(1) Historical Sunflower(1) Pro Forma Adjustments for Pro Forma for Sunflower Transaction(2) Sunflower Fiscal Period Alignment(2) Sunflower Transaction(2) Net sales......................... $ 430,112 $ 79,837 $ (1,472) $ — $ 508,477 Cost of sales, buying and occupancy 299,381 56,513 (1,011) 926 355,809 Gross profit............. 130,731 23,324 (461) (926) 152,668 Direct store expenses.................. 88,996 14,772 (287) (277) 103,204 Selling, general and administrative expenses 22,584 7,181 (90) (6,855) 22,820 Store pre-opening costs........................ 343 1,171 (14) — 1,500 Store closure and exit costs 1,156 22 — — 1,178 Income from operations 17,652 178 (70) 6,206 23,966 Interest expense .............. (8,365) (677) 14 (1,186) (10,214) Other income.................. 44 62 (1) — 105 Income before income taxes................ 9,331 (437) (57) 5,020 13,857 Income tax (provision) benefit (4,025) (730) 14 (1,958) (6,699) Net income.............. $ 5,306 $ (1,167) $ (43) $ 3,062 $ 7,158 Per Share Information: Net income—basic.......... $ 0.05 $ 0.06 Net income—diluted....... $ 0.05 $ 0.06 Weighted Average Shares: Basic............................... 115,964 125,334 Diluted............................ 117,525 126,896 |
21 Pro forma Reconciliation Pro forma Reconciliation SPROUTS FARMERS MARKET, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS For the Twenty-Six Weeks Ended July 1, 2012 (in thousands, except per share amounts) Historical Sprouts Farmers Market, Inc.(1) Historical Sunflower(1) Pro Forma Adjustments for Pro Forma for Sunflower Transaction(2) Sunflower Fiscal Period Alignment(2) Sunflower Transaction(2) Net sales......................... $ 805,832 $ 197,611 $ (1,472) $ — $ 1,001,971 Cost of sales, buying and occupancy 558,314 138,879 (1,011) 637 696,819 Gross profit............. 247,518 58,732 (461) (637) 305,152 Direct store expenses.................. 163,829 35,956 (287) (199) 199,299 Selling, general and administrative expenses 39,671 13,384 (90) (7,676) 45,289 Store pre-opening costs........................ 854 2,451 (14) — 3,291 Store closure and exit costs 1,279 59 — — 1,338 Income from operations 41,885 6,882 (70) 7,238 55,935 Interest expense .............. (15,463) (2,018) 14 (3,055) (20,522) Other income.................. 68 87 (1) — 154 Income before income taxes................ 26,490 4,951 (57) 4,183 35,567 Income tax (provision) benefit (11,638) (2,796) 14 (1,632) (16,052) Net income.............. $ 14,852 $ 2,155 $ (43) $ 2,551 $ 19,515 Per Share Information: Net income—basic.......... $ 0.13 $ 0.16 Net income—diluted....... $ 0.13 $ 0.15 Weighted Average Shares: Basic............................... 112,982 125,147 Diluted............................ 114,472 126,665 |
22 Pro forma Reconciliation Pro forma Reconciliation SPROUTS FARMERS MARKET, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION 1. Basis of Presentation and Description of Transactions * * * Effective May 29, 2012, the Company acquired all of the outstanding common and preferred stock of Sunflower in the Sunflower Transaction, a transaction accounted for as a business combination, which was financed through the issuance of debt and 14.9 million shares of common stock. * * * The historical Sprouts Farmers Market, Inc. results of operations for the thirteen and twenty-six weeks ended July 1, 2012 are derived from its unaudited consolidated financial statements for the periods then ended. The historical Sunflower results of operations for the period January 1, 2012 to May 28, 2012, were derived from the Sunflower pre-combination unaudited financial statements. Certain amounts from the Sunflower pre-combination unaudited financial statements have been reclassified to conform to the Company’s presentation. 2. Pro Forma for Sunflower Transaction * * * The historical results of operations have been adjusted to give pro forma effect to events that are (i) directly attributable to the Sunflower Transaction, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results, as if the Sunflower Transaction occurred on the first day of fiscal 2012 (referred to as “Pro Forma Adjustments for Sunflower Transaction”). Below is a description of the types of adjustments represented in the Sunflower Fiscal Period Alignment and Sunflower Transaction Adjustments columns. * * * Sunflower Fiscal Period Alignment - Sunflower’s fiscal 2012 commenced one day earlier than the Company’s fiscal 2012. Pro forma adjustments for Sunflower Fiscal Period Alignment reflect the pro forma impact of deducting one day from the historical Sunflower results of operations. * * * Cost of Sales, Buying and Occupancy – Adjustments attributable to the application of acquisition accounting including straight-line rent adjustments and adjustments to the amortization of favorable lease intangible assets and unfavorable lease liabilities. * * * Direct Store Expenses – Adjustments to historical Sunflower depreciation related to changes in value and estimated useful lives of property plant and equipment. * * * Selling, General and Administrative Expenses – Adjustments related to Sunflower Transaction fees recorded by both Sprouts and Sunflower, accelerated share- based compensation recorded by Sunflower, adjustments to depreciation related to changes in value and estimated useful lives of property, plant and equipment and amortization of the Sunflower trade name. * * * Interest Expense – Adjustments related to the reversal of historical Sunflower interest expense, incremental interest expense related to the proceeds from additional term loan and senior subordinated notes that were used to effectuate the transaction and interest related to Sunflower capital and financing lease obligations. * * * Income Tax Provision – Adjustment to the income tax provision for the items listed above. * * * Net income per share – Net income per share has been adjusted to reflect those items listed above and the change in weighted average shares outstanding – basic and diluted as described below. * * * Weighted average shares outstanding – basic and diluted – The weighted average shares outstanding basic and diluted have been adjusted for the effect of the additional shares issued in the Sunflower Transaction. |
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