SFM - Earnings call transcript Q3 2017 | Sprouts Farmers Market, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Sprouts Farmers Markets Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time.

As a reminder, this conference is being recorded. to floor like Livingston. to now would hand over the Susannah I go ma'am. Please ahead,

Susannah Livingston

and Thank morning, good you, everyone.

earnings can the Chief pleased also time and Financial on XXXX Officer to are Chief call with the join Amin announcing Relations We you Brad Sprouts our XXXX quarter have Operating Officer; third are third XX-Q, Lukow, Nielsen, Officer; our on Jim sprouts.com. me Executive and taken and the call. release President Maredia, Chief website through the results, of webcast be section of call this our Investor today. The accessed our at earnings quarter

and certain future number a These risks this in management product materially statements and openings, growth, of During statements. cause could described uncertainties those differ including the expectations statements new-store to forward-looking forward-looking performance may actual guidance. and from regarding results our make involve expansion, call, that XXXX statements, and

in to on For with forward-looking more commentary our refer the and please statements the the earnings information, factors at the today. end our Commission, with issued Securities of filings Exchange along release discussed risk

In today addition, to references measures. our include non-GAAP remarks

For to figures, see release. the tables non-GAAP our please earnings a in GAAP our of the reconciliation measures

With XXXX, let For per Amin. XX% XXXX. share from same me third share the to diluted diluted hand over of ended the that, October of quarter in X, period earnings per it earnings $X.XX increased $X.XX in

Amin N. Maredia

thanks strategies shared are and morning, I'm for value for teams quarter. office to today. single during support our performance. and us the our to Sprouts our Good day. the driving proud and extremely our Susannah. health at report every calls everyone, of center, very drive you, distribution momentum regional store, Thank previous our customers we've The helping pleased joining We're continued call third

teens. quarter and for digits full-year in and the back we the increasing bringing the Given business, XXXX, EPS high-single EBITDA in continued guidance growth are strength performance Sprouts third our to

rose X.X% sales increase year, quarter, a of For to in prior the $X.X strong by the XXs%. over and productivity XX% third the growth or driven new-store sales billion, comp low

momentum is for across improvement stacked the momentum produce muted strong, while strong departments which comp quarter. very were all business Our by our third our non-perishable flat year. ended growing the quarter. was accelerated departments, of throughout Traffic of department Sales and now The was inflation two-year cannibalization and and season evidenced the in X.X%, from our positive continued, this strong a is product benefited remain strategic our business. members, include results an historical offering, in cost. tailwinds inside store, greater back of connecting and We investments priorities efficiency in points drive with our on basis points. and outside continue range to to investments that lower infrastructure our four and team XXX to the to technology innovative customers focused XXX drive These basis our and to provide and sequential

detail Let in briefly areas. of each these advancements me

First, focused taste, delighting products foundation we XX,XXX through than value, continue customers – remain health, of the more the and on our with differentiation. we

like to and broth, our holiday a gluten-free complete our range continues unique items unique fudge average, company focused holiday Sprouts' and price at in gingerbread These a to with offerings grow destination Sprouts specialty fourth the organic strengthens Sprouts' brownies. and better label. for loyalty exclusive the program, as such repeat deeper butter nearly penetration upcoming business to items continues XX% The revenue, well larger many from allows in strengthen the taste, driving label destination unique to private These of above seasonal be to holidays overall almond staples, position quarter. brand baskets, offerings and affordable us offering, Our on trips, as and brand. private

to These an program mix enhanced to In expanded stores by across existing sales where retrofit stores We with meaningfully in and the higher, offerings. Most new our new stores. driven particularly stores. our the pleased success, well we open in our country. boost is continue continue with XXX are deli new our customers very remain resonating and enhancements now is our deli deli addition, with in offering new-store productivity

The at second our area forefront is every members focus our driving of a more than team exceptional day XX,XXX continued in who experience on are stores. the customer

and differentiator our win service to foundational team customer in that members knowledgeable product Our is evolves invest leadership, customers. just knowledge, The continues professional over development. around one

seeing investments greater ready element, improvements a service is in of new-store members scores, number better for important the customer our team promotion, benefits team which our members growth. of member our We and an are in retention, through team given

Sprouts with ways. to customers connect continues meaningful our Third, in

engagement seen strong past customer over our on momentum the have digital platforms social in six our months. and We

team We enhance are web, very and about our convergence building leveraging progress the in-store unique of customer the and our pleased about brand. differentiated fresh XXXX the and model connected that platform relevance will and the early for very our launch each and a app excited new around customer. a is mobile, deliver personalization even Sprouts and Sprouts for more by experience I'm digital

in is us the stores, in investments productivity infrastructure to technology further manage costs. enabling Sprouts driving our Lastly,

the and Our management This system both already improve customer further place non-production productivity departments experience. production store for will departments in in labor be the will in tool implemented XXXX.

allowing insights, effectiveness improve intelligence promotional greater refine will our we into providing marketing business and team emergence and XXXX. we as analytics is deepen move to Our our

Shifting efficiencies positions these also and fresh which and shrink. our sales, quarter, to XXX will the to are stores Sprouts states. better opened we item additional third in new stores will in improve and these new-store management very provide stores fourth with necessary. end we'll XX in-stock three we responsibly reduce tool, growth, We XXXX, quarter year, believe we eight ordering, launch to in in price new initiatives to harness as in drive cost opened Next the well-positioned invest will flexibility XXXX the and

for and XXXX, of entrance leases first store including sites our signed our recently XX XX for the the approved store beginning We years. our mid-Atlantic strong with with into Our pipeline Maryland. coming remains the in openings announced

team Washington, to additional states for In infrastructure country. states XXXX. approach of the position bring the three continuing to of in be our retail Sprouts our of footprint our and at and to the by end XX strategies healthy the total strive to working addition, our product, In XXXX, South are a member, customer We summary, in expanding customer one dynamic forefront. will and Carolina, best-performing brand in grocery with the Pennsylvania, engagement, also operators remain

members results hand-delivering Sprouts, and unfortunate culture for to represent our community hours engaged which impacted, stand. our extremely about members to over home guidance. California, speak departments team to unimaginable and three values and and to went we beyond I'm fellow who states. relief to Texas, efforts call stranded in customers team Before XXXX me it and to From I in natural team kindness who Brad, to which These want our support the were let vacation hand With members, donating and to of Brad the and of disasters over fire the to serve. actively many to led Florida, to the police stations. above supplies providing a engagement destruction. for touch financial Sprouts customer, a on I turn ride small proud acts all have that,

Bradley Lukow

XXXX. quarter some the then and for by discussing business Thank third you, for updated the Amin. of drivers guidance review our begin I'll

the leverage third sales margin the million, and the As management, up across sales, coupled our EBITDA sales first This XX Amin comp labor strongest of by were strong basket. X.X% mentioned, basis for growth and comp sales in the margins, quarter, points third improved XXXX, with improvement. merchandise a $XX of with quarter, traffic driven of resulted increase XX% since in XX% of X.X%, for of P&L, a quarter accelerating a

driving Let this the a solid performance. me factors discuss few of around

basis gross promotional year quarter, For costs. $XXX The increased fixed profit heightened increase the same the compared to points environment third was million, of rate the last XXXX. our to other to in leverage and XX% on the period quarter addition by to sales due in third XX.X%, in of to majority this cycling margin gross XX increased

expense last direct an of compared to quarter, sales, third $XXX XX% the basis XX increased XX.X% year. For of to store period same points to improvement million, the

drove quarter, the to the improved costs. increase corporate SG&A benefit fixed costs third on improved and compensation sales, with million increase higher for our Leverage of to other comps, a discipline offset to coupled to and the stores a prior last XX% an bonus due in reflects operating year. on the slight from focus Sprouts higher quarter. of Our basis versus period to in increased X.X% benefit XX continued points costs. to expenses operating performance same helped in $XX productivity the efficiencies, year, This compared

timing the prior of of in bonus this year. to deleverage expect quarter, some next compensation reverse to relating expense the the We

cost stores third to quarter, during affected expenses the $XXX,XXX, in states. the $X.XX, Net in were by net other last increase the same our well, per quarter, of hurricanes As the costs financial for and for store period year. increase or in from primarily statement $XX three are income share inventory third the closure was of These period $X.XX an loss incremental expenses. the other and quarter. XX% for included income line from related same was an quarter the was XX% in of XX The million, earnings XXXX. the Diluted

up continue to generate to and operating Now date $XXX flows year shifting to operations, million. sheet the XX% we solid balance from liquidity, cash to

invested We million also in new primarily $XXX stores. for landlord net of reimbursement, CapEx,

X.X for and of million our unit we have quarter times repurchase and $XXX quarter share on at through near and X.X share the Year-to-date cash repurchased X.X generation in of to available range ended X.X cash under with We the debt-to-EBITDA, authorization. current shares our million flow for million ended our common stock, remain repurchase returning cash shares $XX October us times through plan allowing million revolving During we million million to our times We program. shareholder million. returns and XX, self-fund to to growth through X.X net equivalents, $XXX credit ongoing capital million term, the in enhanced facility, the the borrowed repurchased shareholders. approximately $XXX $XXX quarter, $XX

turn increase ongoing to expected sales to XX%, the XX.X% guidance. quarter. me is the let Now, to to XXXX Net trends positive in growth attributed

expect seeing midpoint to our we to the X.X% range which to increasing continued the full-year are business, range. growth we at sales well, comp are of X%, land As the momentum roughly this and we in reflects

our lower compensation, for excess The the income in tax provision rate is benefits to related year. reflected tax share range growth in for a XX% XX.X% lower $X.XX, are tax of diluted $X.XX per This includes year. full EPS to earnings the change XX% rate tax to of stock-based standard to the effective recognition year. effective the primarily resulting accounting approximately the the for in to increasing the of of We due estimated for the

Lastly, additional be new-store will we our for to of the have consistent last openings guidance the items back on full new our during to stores quarter. deflation few our with for reimbursement. million, expect be slightly note XXXX to net August, approximately And A negative guidance; flat completing this previous XX CapEx similar in the $XXX we to landlord our opened expectations year, year, year.

to necessary relates investments to it strong and drive to traffic we competitive as price margins, As will our continue make position. maintain to

As Amin continue with where of pointed initiatives us margins many earlier, to and invest our flexibility enhance when the to and provide out strategic needed.

approximately year, to increase being represents for our for XX performance, building average an in promotional deleverage basis due we This new points attributed improvement the footage guidance now half square range of the margins gross stores. XX basis environment and previous XXXX, an expect to margin prototypical result margins points from a the of from down to more competitive occupancy below be first our of growth the year. QX overall continued full-year to As XX in

sales, line, quarter. dynamic healthy slight financing be EBIT interest leases. year. line, we to expect for in we this SG&A fourth related We our capital percentage to On the and interest as pleased implies Below very competitive to to in remain to XX which shareholder creation. previous points SG&A to to allows on flat be expect and up that open by relatively flow similar approximately expect to to productivity, that, leverage deliver we line, full the Operator? like XX direct-store And DSEs With generation, position our de-lever basis industry, guidance, a we line performance. and conclusion, $XX the deleveraged expense in continue the expense strong are confident for the questions. with the cash solid call solid to the long-term our of in million, financial us including value we'd free In competing new-store

Operator

you. Thank

with Carden UBS. line first Our go from of Please comes ahead. the question Mark

Mark Carden

Good a morning, on taking guys. Thanks a my question. lot quarter. Congrats for nice

Amin N. Maredia

you. Thank

Mark Carden

the (XX:XX), mentioned talk any promotional that you seen planning environment? changes implementing the on you a investments aggressively on what fourth kinds it more you've in environments? of price or Could you're trend back you've of in any these price, more or targeted So, quarter. in competitors recent about more bit acting line seen historically Are less to has been a with inflation in

James Leroy Nielsen

Hey, Mark. This Nielsen. is Jim

QX, far against aggressive, bit was and QX. QX to in more As year-over-year in call, on the sequentially be a a environment promotional the to as project activity promotional little the relative up QX in last we it line, and QX as steady mentioned year but we would was basis,

pass start far pricing goes the some as – areas, far a goes, some margins are cost-based which as follow people to obviously in inflation is we key now up as well. shelf shelf as pricing just benefiting As the – through quick seeing

Mark Carden

second, be retail, for wages a legislation with pass states boosting helpful. especially continues across minimum locales. pressure theme really various cities That's beginning to that And and then to in wage calls

Given or footprint a sustain your the some at? years, comfortable guys headwinds where few you bit are store are see the more states, more aggressive with in of you heavily a to you're expecting overlaps next with

James Leroy Nielsen

to-date the Mark, far is And investments, we're to position we've Yeah, in in now in best of And out made our years, above two readiness position. wages, rate those wage. think are very minimum calls, we at years. as in seen as lowest in XX% in two right ourself I we competitive over the members called – last that wages our year's so put team position we've open as been a are operational we

to position So as great we look feel XXXX. we like forward we're a in

Mark Carden

Great. again. Thanks Congrats a lot.

Operator

Goldman you. Thank next of JPMorgan. question And from our comes line with the Ken

Kenneth B. Goldman

that modeling in all going that you're other thinking than unusual should of anything year as Just I'm detail are But good can the out, we of? see about? you comparisons the quarter-by-quarter any sense a obviously we trying and XXXX aware on yet. basis, to should sure about there's we particular want tailwinds talk year be to get there Hi, we a morning. next don't about think if headwinds, be seeing into

Amin N. Maredia

for the Yeah, Ken, good Thanks question. morning.

few think would pipeline is know, strengthen I think I in overall deli meat that and I think call seafood is things say food and had is significant unusual some the the continuing on to resonate would position into – next very items starting well. Private step thing to tailwinds our today. seafood side. label, the well as any are last good has see in don't the of some private food, that there The tailwinds innovation and we as provide changes you I continuing to seeing out. product as label, our we'll we're going deli It's years. our strong we're for year, as And

So, really we feel that. about good

of most add first with necessary. the or be in will as good invest experience – I feel that of price, first going in sometime new to room those of think the excited quarter, would necessary if started as say connection quarter. all effectiveness, as our in-flight those, audit tailwinds launch think important labor on are savings launch some that. out be just about management and we're We launch the I business our is, and QX. the second, project, intelligence and I think we've initiatives, either working about customer would and a are is customer will QX call I number and been system, that well that to platform projects and now as both some management And our different provide such customer our fresh our pretty of margin us project, to we those And have and experience out efficiency, into better to would driving

are those I the So, call three would out. things

Kenneth B. Goldman

about how I'll hesitant that. are Do anyway. that very of proximity had Or And and that way? at in you it follow-up it during Thank think decrease Were also I a you they affected? your were is regions competitors in biggest stores are but you to affected to take for my it. talk particular quarter. was highly-publicized know stab of doing, any appreciate your Obviously, really steady-as-she-goes? more that one I you price a then your particular any competitor

Bradley Lukow

Ken, quarter quarter. the across two-year comp, What and and on to it's it's markets Brad. throughout strong safe increase clearly I our the say sales think based in I comp would our performance of is, sequential saw all and the guidance regions very strength performance throughout say all our that we our updated

Amin N. Maredia

in thing feel good we departments regions, And all we're we're would seeing departments, all across I hitting regions. – and we're ways only that in the many across seeing on cylinders good to in performance performance is add addition like so,

about So, feel today. we're really positioned how good

James Leroy Nielsen

on I tell – ourselves three check think I times, and grocer price do always given that Ken, our competitor, against the within always retailers remember price it's those adding all but, in And, hate we us primary specialty a and market-share three we leaders, the that critical traditionally we geography, to be to has this which significant won't times, pricing that's geographies. advantage been our that's traditional particular over because

Kenneth B. Goldman

you very much. Thank

Operator

comes our Chris Mandeville And of from line with Jefferies. question the next

Christopher Mandeville

the QX, come in thanks just I'm taking comp, itself guide commentary could morning, EBIT the similar be actually X% around more so, really and based to Brad, can why deceleration see be X% speak potentially of momentum on margin going QX, around about more how good quarter, question. QX of – profile, basis. Hey, to like just quite for Then just a range little we should gross as probably importantly, you QX for versus potentially looking it sequential actual well and trying on year, the so, for square comp's your thinking a margins EBITDA the to margins? bit for the down compares my through or when we this implied a the on looks maybe guidance are the to on as

Bradley Lukow

Okay.

there. lot I'll questions of there's try So, them. a address to

First benefit is the did growing very in the in exist we would the a of strong of coming quarter, anticipate lapped we the ordinary now not which produce quarter and in robust have of like had all, in the third a that have third pretty the out that period. into traditionally a from reloads produce is strong the we I'd where to fourth benefit to seasonally season we remodels course fourth less beginning Also, quarter. point quarter, some

more prototypical for put QX. I think as suggests year, in in to merch fourth the I fourth, quarter. costs, quarter effectively regards or in positives pointed the our the opening anticipate be my would more we're comp expecting pointed see occupancy year for margins the for year. remarks, out, in the We'll the on that regards margin in we throughout with us stores the implies experienced to that will the we to relative gross quarter, updated come the X% that for some deleverage less comp the after guidance flat to relatively be around Also, line for of adjusting we overall the improvement QX to out continue to I fact the that third that those we in guidance range two with which, landing in mid-point the

Christopher Mandeville

to performance you was And tonnage versus And Thanks. lastly, to just manage In price actually flat offset QX? did your margins what did ability XX QX sequentially how out one there seeing the in expand any gross with is for parse how investments? Okay. there last the itself, progress basis points, then me.

Bradley Lukow

point out and to relates emotionally Yeah, last XX start if quarter would performance quarter on that and I looking fact the in were for so flat Things quarter. for we points year, lapping the third of we year, us the more time, of for the that last at a think, we intense much fourth of that you period be very merch did or less that was deep promotional look that the basis of most again, environment. the margins improvement to improve

James Leroy Nielsen

tonnage, was and contribution. that a got And did see with tonnage Or we increase QX sorry. we've QX, in regard all in to departments positive driven on – balance a it nice

Susannah Livingston

Next question.

Operator

you. Thank

next line Our comes the with of Rupesh Oppenheimer. Parikh question from

Erica Eiler

is this actually questions. Erica on Good for taking morning, Rupesh. Thanks Eiler for our

of with So, Whole overlap customer I on about some historically, you was Foods us you how of are the your customer thinking hoping could the based studies? remind

Amin N. Maredia

from thing a think historically we're one seen regional, positioned demographic what generally, I perspective, less would is where we've say. is I is we're

more I level. income, median second would more the demographic, median The probably the say age, broader we're thing in towards median is education

our median of XX% all would we say about area to demographic demographics, I would XX%. So, as of an XX% it, think to, of lean to

be or how to So, middle-class to we positioned demographic we're tend be more broader a them. would

Erica Eiler

Okay. Great. Thank you.

Operator

our line Thank next the Northcoast with comes Cerankosky you. Research. from Chuck question of And

Chuck Cerankosky

mix quarter, Congratulations. to morning, you. talked you you the of they mix increasing. overall, in And about Good we how about the at label in the that's prepared look quarter. products? private much everyone. I'd fresh categories sales were foods. like talk including Great Thank If a the private fresh bigger bit and sales, label, little little bit a

James Leroy Nielsen

double-digit XX% With Yeah, for Nielsen. regards top-line this quarter close fantastic to so, another range. and is comps in Chuck, to private (XX:XX) again label, us, Jim

So, great performance.

customer great who success, we're private XX% reported the from of item is non-perishable thing Speaking in freshness, experience, our our the some back customers it, balance to basket around with insight size it been higher But than enterprise. most more is we that and seeing see positive a can our And a it's side the regards the back for and has from to our came baskets private fresh specific and departments to private size label from fresh overall, better-for-you side the getting consumer a from the and we're label just in the which fantastic eating for ingredients, fascinating marks perspective basket the studies. label.

Chuck Cerankosky

X-X%? XX%, said You

James Leroy Nielsen

Yes.

Chuck Cerankosky

Sprouts whether how it's specifically that's around packaging the branded, the That's branded the signage much impressive. banner? in then foods, or of that is prepared And

Amin N. Maredia

now Sprouts, in continuing to talked about. at we're have Shop we Sprouts that, so, just Deli, ingredients, case evolve Sprouts' banner under expand the Corner Butcher Deli, The our Fish Market HMR to At as we're to Corner The the Market Market continuing Yeah, Sprouts, better-for-you Jim and

– really we our well starting well to think is as is our just And new evolve resonate home wraps, a more consistent sandwiches, the case well. X-food or our deli salads, introduced number today merchandising, meal and has positively I HMR (XX:XX) we're and talked as our in that. deli, which as (XX:XX), as of and stores, I wall in XX:XX, packaging impacting, as across size in remarks, has about excited lines and more pretty for in impacting relevant especially of paninis, much as attributed platform well it, my replacement And of case this And new-store we tripe well. productivities is which continue our Sprouts how X:XX. making (XX:XX) in are resonating some new proteins really that, prepared certainly about is, to to

Chuck Cerankosky

Thank you much. very

Operator

of our you. Thank line Stanley. Vincent with from Sinisi Morgan And next comes the question

Vincent J. Sinisi

good Hey, morning, guys. and quarter. congrats very much, nice on a Thanks

Just XXXX. you then about are you of guys follow you for partnership? rollout? wanted can are us maybe we that on of very should the will some the And just much. that: up kind update give Amazon a be enhanced with about and the the kind process, to quick us you of – how where mentioned platform the coming just Thanks quick a think there, ask to a digital in sense you board Can just enhancements where about maybe in give

Amin N. Maredia

Yeah, to as we attribute-driven and our piece how better brand the Sprouts. create more I the platform, in to we the offers step of look can breadth take really at platform, enhancing personalized as well think can and our first uniqueness strength we the customer, the on to them offering for space content back content, as and well on health, need work, allow our as see and how see

interaction and So web start we're when going customer much and more changing to a how can shop to provider the more customer bringing in coming completely our they're knowledge platform with are the respect with in new mobile store.

to in going go we're So waves.

The to going to the is store. on that functionality to we're first then the content, product, and to make when really in the to going focus wave easier shopping add experience customer's product continue

of pause So Sprouts. customers in at that. our partnership, know I'll and delivery from kind of the love the terms And home that Amazon of speed convenience we

in in to We home eight option Sprouts. opportunities for for customers natural cities, more space home look we to continue organic the delivery delivery and products to give offer shop from fresh, and

So can't a the comment expand on to perspective, partnership we to but and partnership, states year. cities and of more want details to the coming from we know continue in I the

Vincent J. Sinisi

Okay. Great. lot, a Thanks Amin.

Operator

Thank you.

Our next Karen from with question comes the Barclays. Short line of

Karen Short

Hey, and had clarification then a one question. thanks. I

you us on then So the fourth? how and quarter, trended comp just And it's second to a And clarify, the color some just you how benefit? in can is was into in within exact clarification split? terms third the there give the then of the give overall, storm point on traffic traffic trending the can comp,

Bradley Lukow

the to that the Hi, there the impact indicated, was had losses. performance fourth quarter hit Karen. said, as was third sales. there regards of a were but mix previously stores was seeing we or in impact have zero, positive going the quarter EBITDA hurricane, strong to With only regards not in to the performance the into the nicely customer to a specific of provide And continuation basket. perspective. a QX, very pleased of We're count and we to-date. to only related The with with we're impacted, improved transaction quarter's XX to in sequentially negative, inventory and we're With from as customer-count $XXX,XXX growth Jim numbers, regards

Karen Short

Okay.

weeks, stages give the more some customer? I customer's being still the happens customer's some frame my does could customer in-store spend channel of omni several in way some to being is from bigger-picture for reference customer of online So an spends, particular it's know they any on you what I become well. early they but when last you, color go question spend what have a when on as that on an just retailers there's an what given guess,

Amin N. Maredia

Karen, question. Yeah, good

matter, trips. that customers, a to having see when their they're home they consolidate practical for think tend that they pay I delivery, to as

So what do bigger there we early see baskets. of we And in to the it that suggests data, us from the trips. is see data level some of consolidation is

that don't I delivery when XX%, true, is of XX% there's food. out believe, That's XX% eating higher reports but America end-state, XX%, baskets. doing home lot XX%, there everybody's not is in So home more delivery, a

nicely. from a think specialty our don't see we've areas. trade consolidation benefit like Sprouts otherwise for to What a extending people what compared lot in is who I a seen of So on. that retailers, shopping cannibalization trade it's is not of the there's a we And lot key, that's that a we're stores, added conventionals, frequent though, to the Costco, We area store. is trade may think extends going because area seeing Sprouts an make for the trip or for extended because our

So opportunity we it see going business a forward. great as

Karen Short

Thanks. Great.

Operator

Thank you.

next Markets. Our question the line comes Bania from of BMO with Kelly Capital

Kelly Ann Bania

questions. for good Thanks my Hi, morning. taking

first wanted year, you're half on gross of be kind fourth XQ some of cycling still the through and big because from for the expectation quarter the Just to year. message to last margin clarify next flattish, declines

cushion the produce of make some some some upside good investments? to fourth So there price really that quarter relative a expectation? was it to the is your Or here incremental just drove in quarter

Bradley Lukow

benefit margin benefit cycling of in in had quarter, it said as to to environment With a and I perspective sequentially But again, year comp third from nice produce, relative the promotional I the to improvement. that to rate, margin, think nice we the the very the fourth the that a a as so looking remodel last merch comp. relates deep strong the basis see drove equal very, very quarter, merch be fourth we Yeah, quarter were a in would improvement XX regards year-over-year we did year match on we and the points be again, last to in margin. definitely

Amin N. Maredia

Kelly, is Amin. This

year. up Let quarter I and come basis It was year, third in points question a this XX last it add down couple If me XX plus seems gross here. margin has put times. this context, like of

the basis benefits for it's the it that the you we And was two worth a years look some at combined. about So some And if two, year, XX were negative in XX year. fourth you last quarter had last XX. points adjustments of negative quarter combine if a

look So if they a basis, when basis, will relatively a we you – it consistent. relatively look on – two-year combined look at they on

any So if will. we're seeing, you additional point, at not this price investments,

As prudent, but always, we from going QX. be QX we will investments, to some for to this don't a quarter from price just as see backwards hold dollars

Kelly Ann Bania

This ask you. about helpful. is just thank to also then wanted click-and-collect. Great, very And

that, if not? wondering in Kroger investing You have and considering, that something or just and Sprouts heavily why why that's pretty Walmart and is and others

Amin N. Maredia

and a retailer Yeah. we've from put great And that's other a insight, the on question. learned and what focused, benefit we've data somebody area, combined home and We of of of and for consumer from opportunities extends from that. priorities from we've data all like board, delivery always seen the our trade data is lot positive Sprouts,

percentage well, parking when and up very customers certainly that high but that – focus into that they to to on execute SLAs fairly comes in will click-and-collect Sprouts We get from lot, know the can So our a executed and the and quickly, that find conditions of of home might goal still it the there Sprouts in-stock be and Sprouts believe well. some beneficial. somebody standpoint, customer's out we get is

we're or served frankly, it, us executing and we'll really having XX from and as we but of seven well well, has found and what prioritizing, other. company, picking separated priorities, robust instead test ones us a five them So

to won't some to it point So likely signal. and timing, the the I we're we'll know for test look as comment but at we test customer it.

Kelly Ann Bania

you. Thank

Operator

Bienvenu question Ben our Stephens. of the from And you. with line next comes Thank

Daniel Imbro

our Daniel good for Imbro morning, for question. this Ben. Thanks taking on Yeah, is

you guys So, have in with been acquisitions past. opportunistic the

the popping up to Given the kind are the of coming unit into XXXX? facing quarters opportunities you headwinds seeing potentially augment and growth more over industry, acquisition

Amin N. Maredia

M&A happening to has starting specific in been in this speak to industry to this the I won't past point but see We M&A think time, at three is, years. we five what are and for

retailers, assets are increased getting out. or split are see struggling, assets of However, regional number We're starting to away. not with going seeing of some what some retailers we're is bought who bankruptcies an

that's to that and more going to industry trend dollars think a So, to back think that's do benefit we which well. which bring the going as we market, the that's Sprouts,

too or Sprouts, this but interesting we're at always In nothing particularly announced terms point. looking, of

Daniel Imbro

congratulations. Thanks, and

Operator

you. Thank

Our of Susquehanna. next with Basanta Renato from question comes the line

Renato Basanta

a Good sense then give again, And translating you question, that's how give morning, us inflation terms in by a of could guys. us pricing, I of guess maybe by just better into my first little are more in color department? bit what you department? seeing

James Leroy Nielsen

is this Jim Nielsen. Renato, Yeah,

into with being projections on specifics to QX drove a specific on this was within was then berries, the cherries We quarter. produce Just details, called out meat QX, side, areas. down step-back slightly light and but did flat. call. flat, was quarter, by too call, some broad offset And QX bulk in hate QX deflation to on get so and had and some tropical deflationary, the which going so line I in and items in primarily call deflation, many the to we my cherries, dairy, and out the then back that quick Brad QX it the driven the some

negative. we would a forward, too data flat a Looking you being today we tell basis. we year flat that still year-over-year from in the specific, ending anticipate expect that QX to the to front us be Not to perspective of meat, produce only I on have get flat-to-slightly with broad would would and

Renato Basanta

follow-up. so, populated can you and a of think play? that the Is store the incrementality into then from? I a the bit increase does gaining to of how reach that are vis-a-vis guess share does both mix? competitor the growth? that, delivery? suburban just Thanks. you you suburban of it areas, do just in how a in store environment an model, little density, Amin, And How Thanks. right. can context of know, been view talk model particularly play you a sort about you've All ecommerce You Is today, more denser where And, it type conventional? specialty, related home sparsely of what ecommerce

Amin N. Maredia

market I new say this, think markets into share except think to We the share when walk we comes market pinpoint, primarily that hard and standpoint, see weaker a go we I particularly from from operators. to it's stores. the

and see we're respect sets in on impact more the marketplace to I Before located that to actually really store tend after, – – With apart. actually or two, and our miles we Sprouts three networks, weaker area. competitors delivery two not opening up because the home placement, think every in trade well for

from the of lot the you town, I stores the three, I center of to the you interesting cities four well. We a and four is, versus suburban two, as And call and And edges same programs, model, prepared we amount in And and ground spots. it to more stores and what it you the of centers – also drive as home to stands our high it call we're it cannibalization on areas, a in opening Sprouts can our of what's historically we've middle, without times those of as on be works our today urban time, so, urban sits delivery. is in increase and urban which towards to in semi-urban as in and less tend work some stores, rent long except putting as distance the us have to-go patch environments work pretty stores done. of go open and suburban we have more think the actually and not town the cover home a deli delivery lot in fresh in paying center deliver with a allows similar, –

So, – going I we're to feel we time. benefit think us – that's like over we're

James Leroy Nielsen

see grocery fast-casual the good giving would competitive us advantage are add restaurants. than fast-casual, And over I in is because better home price-points retail the only that a is delivery the from space thing just the would you

the as to starts fast-casual business erode. the of side growing anticipate could industry you potentially the So,

Renato Basanta

Helpful. Thank you.

Operator

And question Gordon Thank of from line the next Haskett. Chuck with our you. comes Grom

Chuck Grom

Good morning. Thanks.

store Just the you couple to? then stores, you Florida? new-store stores. once also in been us the performances And what you you strong. opportunity? ones as long-term on do Can think productivity in the the quick then lift enhanced far? deli just thus remind very a was see on particularly in And the XXX comp that the what's where again And Southeast, on could offering Ultimately how grow

Amin N. Maredia

questions. of number A

with and take start new-store we'll others. the the me productivity Let then

So, there's I I new-store think the think factors. multiple on productivity,

stores, we've overall better. stores, larger As of in pool getting better our and is data our gotten XXX

process better. So, is our site collection

the ever. store. up a better training engagement is even a when than and Sprouts, the construction is delivering before seen certainly to the our our Florida, opened know especially store store. lastly, doing And Our a grassroots team we customers step in really change, new operations community we great quality we've and of of our entered markets job ahead And where in marketing program really front

options on deli takes to to oriented things these those with see store So, day selection, you helping a and it's new a of a they it longer in we have know customer those day that one. you and When operations, site store combination date for shift being new-store the one, get have the all the time, new-store And customers the the that can attract a XX:XX, deli, productivity. productivity don't options of X:XX. The opening tell data, customer the when first in is walks those they for the all community, new Sprouts – seeing. into from comment the are last we're

it this of in new stores sort we'll our but to say So, we're going as – the And of go. as – flattening about year-end it. next far we'll to or see continue to as on methodical on productive, so, most roll stores, new to not to backwards how the talk going returns flattening, until many continue call continue portfolio offering have when roll-out are I year, being we'll we'll in do out we basis a

let So, I'll three think long I answer, covered I cover Jim all pieces. but to just – wanted I add.

James Leroy Nielsen

deli the terms Chuck, XXX the on of was part in out on called Yeah, just script. only the

next Again, just number, our XX% roughly based that that's projected XX% elements performance. upside over our some – roughly deli XX% stores. stores closer the to potential there's to our we would at of would of three So, years be on have of of total the population in We it.

Chuck Grom

Thanks. guys. luck, Good Helpful. Okay.

Operator

Citi. the go from of comes Alvin question sir. line next Concepcion ahead, our And you. Thank Please with

Alvin Caezar Concepcion

for Thanks my taking Great. question.

intelligence costs of those some program there margins benefits really? asking, see You guys some tools is management, about the expand we like next be or next are I'm initiatives? to incremental what talked labor year, reduce from investment offsetting many shrink, year, for should it business Should the

Bradley Lukow

incremental Brad. It's opportunities engaged us enhancing store, regards sales through we're the that automation in speak shrink, we very Thanks, performance Alvin. at excited We're driving to with these before new that improving tools. are about as

it any a determination opportunity we create to and believe maintain of perspective be I necessary that a benefits ensure very to it think we strong us, diligent in absolutely that for portion much, the competitive how the reinvest our value will when, we'll margin is those of is in on and where proposition market.

Alvin Caezar Concepcion

you. Thank

Bradley Lukow

You're welcome.

Operator

Thank you. with And Higgins line of our Deutsche Shane the question from Bank. next comes

Shane Higgins

Hey, questions. good thanks morning, for the taking

lever-point X%? down as closer on a I an gain maybe historically, you to know to out that opportunity have other your X.X% efficiencies, to somewhere was you continue roll believe little the see labor and Just guys to guys X%. to do comp scheduling. said guys bring you it I bit,

Bradley Lukow

we opportunity these think but to lever. XXXX, the have some in an we full-year definitely We'll get systems XXXX. which throughout benefit reduce real implementing be as a XXXX, benefit point see we'll we I Yeah, so into at

Shane Higgins

of And driving see that on and comp as Brad, efficiencies opportunity terms that point? lever in do biggest you improving the

Bradley Lukow

excited the in rolling updated of total about driving larger connected wallet be We of and very loyalty, do, share web of the stronger mobile out applications that we're terms but terms company. the program we'll also incrementality, customer for in

Amin N. Maredia

program where especially customer day about and the the having sales, out when the tools, the all we is throughout shelves, department, through in-stock thing is better our products fresh and management as think super experience. is The would mention in of well other shrink the proper in stocks, is management better yet low improved for customer think, position on seeing I fresh a opportunities item I only the as on important

So I think help fresh the that program to and both margins. sales going is on item management

Shane Higgins

driving talk I pretty about helping Amin, per that you improvements notice that, coming what and in your have expect to a continue? did some do those down And follow-up, that, of as that levels and you trends actually, kind have just nicely. that store Okay. you been initiatives is Can place inventory shrink? to how And the are of

Amin N. Maredia

to Yeah, it, management I'll develop item the need the those the early it tool store stores deploy in that processes on, system, to fresh call of some some we in I fresh the tool for management when processes think that of learnings and specing quickly. in the those systems, to the FIM adopt those that so we're starting put can is place, item

the store, our significant that opportunities couple better, in as team departments. automated of more order members benefits been in-stock have we fresh a we on item as think the better in allow of I a so to certainly And next into way position, these the we've implementing do to over having shrink that's overall, as years in management get processes system and really and in-stock. fresh some better our into pretty company ordering,

Shane Higgins

Great, thanks.

Operator

comes Mushkin of Scott with question Research. next the from line Wolfe Our

Scott A. Mushkin

guys. questions. for taking Thanks Hey, my

So question and question, I've a housekeeping a question. then got

then you question And competitive up seen other you the be the spending. the Thyme, lagged And you obviously soon, Fresh is wondering start people my of is question And just and farmers' know from and this So the think obviously, guys I environment. has into but turnaround made and course the bringing and you're up what with year. the performance think on comments hear store And Luckys ramping are their Whole Lidl, have like into team bumping going then Foods, together, markets competition, going Foods about and to Fresh Amazon the also growth. now Amazon them. Whole bumping to you guys of fear CapEx housekeeping is my guided was what year, that? for driving was just the just I question have I equity and I kind we

assets get some takes but So just competitive to these environment Obviously there's about you closed. – a wondering some Amin, usually it – made I see know, closures. been few, forever you the of some like comments as

competitive So fear a there's I of around the think environment. lot

you I to address So that. wanted

questions. my are So two those

Bradley Lukow

The timing of new just timing about Scott. opening the increase of as all. Sure, relative spoke some question, with related to construction I'll additional we projects work early, call. is upfront in stores of well XXXX some just to to as housekeeping clear first strategic that, on that up the CapEx the slight our in store regards

Amin N. Maredia

reports some management, competitive on labor Yeah, intrusion on competition, of intrusions the systems, question and monitor that actually systems we fresh And alluded management around that particularly deal and we and BI, item very, and to. very closely. systems the management your

XXXX early XXXX, come seen the report, going impact We – intrusion actually have XX at to continuing intrusion which to report. good down down, continue early, report, has intrusion we've the past an number been – because intrusion Sprouts an we visibility to an flat months. believe looking into And over come to we relatively see today, XX And early don't call, see better openings, months that have the visibility XXXX so gets of of and is don't getting we kind that out. competition looking, early worse. year-over-year, We in from any

of I XX states opportunities We'll we're XX a And having us in we flex think next cycle. a four-year balanced very a see year. lot different any allows having approach, states in to regions where in the greatest balanced two, also openings in given three, today. be on

Foods growth. spoke visibility, can't Whole bumping there's of years of there, comment today. three two, good and you plans about of I next flexibility competitors we there's their our lot know a not to about, the for feel the So, lot Don't other on direction the and bumping of there pipeline not pretty And growth you speak today. a but made. of

how operates. I well know operate. know Sprouts well how they we They think

the situation So we there. feel pretty good about

James Leroy Nielsen

just add-on. Scott, quick a Hey,

competitive new-store and to relates how positioned, and competitors But, of early some at Amin also of obviously, we has we done, drive as we've as number it's definitely is very our marketplace. we're for at that units to putting time. see those competitive strong within the flat, here said, a those and improving relatively it market together intrusion competitive come terms position our team what a look retailers competitors we're but done growth, in be new-store the really into distance of growth as nice the as going mindful that we're In are grow. And as job so, of the intrusion, we indications get responsible plans looking certain

Scott A. Mushkin

that to them So, fears maybe to least then years, couple – good the materializing, what and don't that the happens? have Is say, of at after it's you safe that, maybe a are summary? see we'll see next

Amin N. Maredia

that who in tends well are And the and of, the through Certainly have that business. somebody prices negative doing multiple going think also work. they And Yeah, to we're as from as discipline for industry. seeing doing today. in fears or know are is pretty gets significantly think sort people that And or a more deep what I those of running the well is people some feel responsible irresponsible been seeing that's retailers aren't bring I upside-down be period may one we're dissipating, are from managing the lot when pricing. in we and down we're deflation fairly the be but starts time, traffic, been to around summer, retailers doesn't XXXX, short-lived traffic, negative proven people

Scott A. Mushkin

Really right. guys. Thanks, All Perfect. comments. your appreciate all

Operator

Bank our Thank comes you. of Ohmes line Merrill America Lynch. Robby from question next of with And the

Robert Ohmes

quick thanks Maybe taking just on question. follow-up a Oh, my that. for

at seeing the for independents, more Thanks. on you us I it guys seeing? conventionals, You some us more or color little maybe discounters pass-through. the are on little – did seeing large mention Can earlier, deep a discounters is a or give about or it think, cost you're what just – you

James Leroy Nielsen

said, within come have, to to geography looking and shelf, a – to the just opposed going just be the And speak the just have And up, more very can triangulate promotional people come Yeah. market prices to have costs we as fiscally But at XXXX reminder, that. to XXXX. continues We've we started little up. only as environment started as bit the we're seen late leader stable, each very responsible you it's and in share aggressive. I'm to a acting

Robert Ohmes

there? recently egg maybe on most prices one just color follow-up: what any seeing – And you're just

James Leroy Nielsen

of the seen Yeah, we relative CPI conventional little that's what the different. squeeze side, definitely But there's side and and not depth of short eggs. PPI cost go that's Obviously, That's to breadth bit the bit up sell. we've there. the a on a a

outlook fairly So relates been basis. cost and to flat eggs, as it neutral fairly a neutral, it's specialty the on is

Robert Ohmes

Terrific, so thanks much.

James Leroy Nielsen

Yep.

Operator

I'd today. floor question-and-answer session any the Thank you. Amin closing to for turn back our over And for that concludes to comments. like

Amin N. Maredia

you hopefully working, joining early looking about strategies for to year everybody, – the be – call soon. are and thank, to forward today, many to Thank you. talk to the want I – of you and tend the into they We'll continuing clearly, the momentum about we speak we talk see in XXXX. we're

Operator

Thank and gentlemen, you in have the program, thank This you. conclude disconnect. for does day. today's a you conference. Ladies and now Everyone great your may participation

Sprouts Farmers Market (SFM) 2 Nov 172017 Q3 Earnings call transcript