ICR Xchange January 2014 Exhibit 99.1 |
Forward-Looking Statements and Non- Forward-Looking Statements and Non- GAAP Financial Measures GAAP Financial Measures 1 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. In addition, in comparing its results to the comparable periods of 2012, the Company has presented 2012 financial results 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 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. |
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Sprouts at a Glance High-growth, value-oriented natural and organic food retailer Broad consumer appeal One of the largest natural and organic retailers Significant momentum Significant white space opportunity 3 |
Benefitting from Long-Term Macro Trends Strong Market Opportunity 1 Supported by Strong Macro Tailwinds Sprouts is Outpacing Relevant Segments 2 Sprouts growing at 7x U.S. Supermarkets 2008-2012 CAGR: 2.4% 6.1% 8.6% 10.3% 17.1% U.S. Supermarkets Vitamins & Supplements Natural & Organic Value Health & Wellness Greater focus on preventative health Childhood obesity Specialty diets (e.g., gluten-free) Value Increasingly cost-conscious consumers Persistent shift in shopping behaviors Sprouts makes healthy choices affordable ¹ Source: Nutrition Business Journal. ² Chart data represents the multiple of average annual U.S. Grocery sales growth (“CAGR”) from 2008 through 2012 for each respective category or entity. Value segment defined as dollar stores (Dollar General, Dollar Tree, Family Dollar). Source: Progressive Grocer (U.S. Supermarket Industry), Nutrition Business Journal (Vitamins & Supplements; Natural & Organic), and company filings (Value). 4 $600B U.S. Supermarket Industry Natural & Organic Sales Projected to Grow by 9% Annually Through 2020 |
Sprouts has a Differentiated Go-to-Market Strategy Complete Natural & Organic Offering 5 HEALTH SELECTION VALUE SERVICE An Engaged, Loyal Customer Base Leading to Strong Financial Performance and Significant New Unit Growth Opportunity |
Sprouts “Flips” the Conventional Grocery Store Model Produce surrounded by a complete grocery offering Differentiated assortment of high- quality, healthy alternatives Farmers market inspired, open store layout with low profile displays Convenient, small-box: 25 – 28k sq. ft. Comfortable, easy to shop environment Full grocery store 6 |
Sprouts Targets the Conventional Supermarket Customer Middle income and up Educated Wide spectrum of demographic and ethnic makeups Wanting to eat healthier Looking for value Broad Customer Demographics “Natural / lifestyle” markets and more “traditional” states Densely populated, urban areas as well as smaller metropolitan markets Successful Across Markets Sprouts Proves That Eating Healthy Can Be Affordable. 7 |
Reaching a Broad Base of Consumers in Both Traditional and Digital Mediums More than 10 million weekly circulars Reinforces value offering 25+ annual department promotions¹, which drive transition to increased basket size and higher margin Digital platform for relevance today and tomorrow ¹ Represents planned promotions at each store during FY 2013. 8 |
Sprouts Grows its Share of Consumers’ “Food Retail Wallet” Consumers Start with High Quality Produce 9 Increasing Average Basket Size and Gross Margin Over Time TRIAL TRANSITION LIFESTYLE Then Shop an Increasing Number of Departments Over Time Make Sprouts Their Primary Grocery Store |
Estimated 15+ Years of New Store Growth Potential U.S. Store Count¹ 1 Based on an assumed new store growth rate of 12% per year and research conducted by Buxton Company in 2012. Proven Concept: 167 stores in eight states Strong performance across all markets, demographics and real estate venues Opened 19 stores in 2013 with a target of 12% unit growth going forward Demographics allow for deep penetration in markets New Mexico Texas Colorado Utah Arizona Nevada California 4 29 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 10 |
Business & Financial Performance 11 |
A Powerful Long-Term Growth Engine High, balanced sales growth Margin expansion in existing stores Operating leverage from scale and infrastructure Deleverage capital structure 12 Long-Term Net Earnings Growth Target of 20%+ |
Compelling Unit Economics ¹ Includes store build-out (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 $2.8 million First Year Sales ~$10 – $12 million Initial Sales Growth 20-30% over 3 – 4 years 13 Pre-Tax Cash-on-Cash Returns 35%-40% within 3-4 years |
History of Organic Growth Pro Forma Comparable Store Sales Growth 2 Pro Forma Net Sales 1 ¹ Pro forma net sales reflect the net sales of our predecessor entity and Sunflower as if the Henry’s Transaction and Sunflower Transaction had been consummated on the first day of fiscal 2008. 2 “Comparable store sales growth” refers to the percentage change in our comparable store sales as compared to the prior comparable period. Pro forma comparable store sales growth reflects comparable store sales growth calculated as if the Henry’s Transaction and the Sunflower Transaction had been consummated on the first day of fiscal 2007. Comparable store sales growth on a “two-year stacked basis” is computed by adding the pro forma comparable store sales growth of the period referenced and that of the same fiscal period ended twelve months prior. Balanced Sales Growth Across Comparable Store Sales Growth and New Store Openings 14 ($ in mm) |
2013 Growth Guidance Unit Growth 19 New Stores Comparable Store Sales Growth 9.0% - 9.5% Total Sales Growth 20% - 21% Adjusted EBITDA Growth 28% - 31% 15 |
Long-Term Financial Targets Unit Growth ~12% Comparable Store Sales Growth 6%+ Total Sales Growth ~15% EBIT Growth 17 – 20% Net Income Growth 20%+ 16 |
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 Team with a Customer-Focused Culture 17 Significantly lower prices 9% CAGR to $98B in 2020 1,200 potential stores (7.2x current base) Target 35 – 40% cash-on- cash returns 20% 2-year comps |
Appendix: Supplemental Materials 18 |
Non-GAAP Reconciliation 19 (a) See “Unaudited Supplemental Pro Forma Condensed Consolidated Financial Information” for a reconciliation of pro forma net income to net income for the thirteen and thirty-nine weeks ended September 30, 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 pro forma adjusted EBITDA and adjusted 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 thirty-nine weeks ended September 30, 2012, this amount was further adjusted to reflect a $1.8 million reduction in pro forma income tax provision for the effects of certain items related to the Sunflower Transaction. Of the adjustment, $2.2 million relates to the tax effects of $3.3 million and $2.9 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. |
Pro Forma Reconciliation 20 SPROUTS FARMERS MARKET, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS For the Thirteen Weeks Ended September 30, 2012 (in thousands, except per share amounts) |
Pro Forma Reconciliation 21 SPROUTS FARMERS MARKET, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS For the Thirty-nine Weeks Ended September 30, 2012 (in thousands, except per share amounts) |
Pro Forma Reconciliation 22 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 thirty-nine weeks ended September 30, 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. |