SFM - Earnings call transcript Q4 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 welcome to the Sprouts Farmers Market's fourth quarter and full-year 2017 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. And as a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Susannah Livingston, Investor Relations. ahead. go Please

Susannah Livingston

good and Thank morning, you, everyone.

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

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

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

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

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

XXXX, diluted as the quarter December same per ended For to share was XXXX. fourth $X.XX $X.XX in earnings XX, compared period the in

in full-year the XXXX. $X.XX of XXXX, to For we compared reported share diluted per $X.XX, earnings

that, $X.XX, Cuts hand and was in an was of from benefit million it share enactment diluted and increase earnings to Act $XX.X related the me non-cash With Jobs XX% Amin. of of XX%, per Tax over the fourth the earnings an XXXX. Excluding quarter to XXXX, increase let $X.XX, per diluted share full-year of

Amin N. Maredia

loved Good have for XXXX. truly continued our call we Susannah. the momentum by everyone, our Sprouts store customers. on laser in seen everyday team an joining XXXX. innovation, you, throughout at customer during our disruptive has out priorities our experiences healthy is This the members by thanks grocery enhancing year, morning, and performance evident overall both Thank evolved investments into today. and focus deflationary headlines solid and environment and an in in around drove Despite our product store, of Sprouts

For sales beginning flow XX%, new-store same share industry-leading. diluted of than both earnings and historical X.X%, operating higher productivity sales net and store of the averages, XXXX increase set and beating guidance all increased of the at year, cash per our XX%,

teams during Our leadership extremely team of and for passion center, our is our of their towards the regional, office year. and work store, hard and proud distribution health mission support their dedication

fourth the to led continue healthier Sales and on me and all Customer's strong another holiday interest quarter. quality with successful holiday very results. record touch full-year were across sales. in season across to grow, regions options quarter the Let store during and fourth which

for the destination is our due choice the and and as of the for muted holiday positioning and fourth ended part continued offering a accelerated in Our Inflation New Year a stronger in customers. from more shift. more refinement of end year holiday flat the the remains benefit Sprouts quarter, of Traffic to quarter. at remains

Our bottom-line factors. by were full-year successful key driven top-line results certain and

First, options XXX our more deli than which stores more are our year-over-year; our continued increase now program, increased continue growth in in customers our enhanced and XX% to penetration. grab-and-go in the deli private giving sales day label, throughout

well-deserved per in operations promotion year. company service and retention in the at scores gains, the technology are earning in hour by improvement including of dividends, team investments during customer Our our training sales all highest in-stock our members member position, improved productivity and team paying XX% our history, levels, evidenced team store member a

our marketing grassroot XXXX we're this in increase excited entries. to awareness, markets, and new front, our continue in leverage brand marketing to revamped the approach On efforts new particularly market

improved promotional from improvements. benefit decisions to and better including Finally, costs we analytics, continue

to through implementing, in efforts, facilities, these areas: to nutrient-rich customers agencies. zero-waste hunger where sustainability sent decision perfectly approaching cattle that food, XXXX. donated More loop started initiatives agencies waste. from threshold important on as remains Before it's to been longer which or they than becoming is have waste closing on million local landfills I to we relief we I not increasingly this back have our three is a by shift committed edible want but to XXX and their fit and successes farms feed. is shop. is diverted have relief major highlight XXXX, Sprouts over of since in been pounds condition, on in food several target focus field, that meals diversion Food food retail XXXX. We're Food for donated no is been compost and programs to the hunger have million XX and

would initiatives these practices, invite month. up sourcing be We and read gas you building to conservation, our build will energy and continue water on to areas responsibility website on and our first tapping sustainability next and greenhouse out on sustainable social such I which efficiency, reduction. our report, as

technology XXXX we In accelerate efficiencies our including product our to priorities, in want scale. and Let strategic team us investing innovation, in drive experiences, better customer turn cost we to efforts me XXXX, as our members' and success, position priorities. now investments engagement to to and continue

with lead we label continue Private and our First, the industry management. want innovation product category top trend-based to a remains to priority.

private past private in in the and has today. label XX% the into greater growth to mid-teens penetration seven near the label we mid-term XX% for revenue Our believe years, been grow from can or

particularly In customers we'll items expand store. Market. rooted our private Our Sprouts, under more around unique Sprouts introducing and of label, consumer be XXXX, Butcher continuing departments the Sprouts and The the label in taste, attributes health, taste, Shop trust, in excited areas to differentiation. Sprouts Deli, and about insights tremendous are showing from Fish We're in fresh Corner results Market also our offerings across sub-brands, our at private

brands branded trend a the through leader manufacturer partners with continued our our with to win-win smaller remain and work in approach to industry. continue also sales-focused We innovative engagement

Second, we outside and store. experiences to our strengthen the and customer want both to continue engagement in

for in-store preferences. expanding markets. awareness website and are and mobile delivery, in-store program in ago. experience and the app, grassroots We launched new and Phase to app building home including are customer website there today's testing mobile various our of weeks on improved our initiatives, several several We new store, drive tomorrow's our enhancements X Outside

them Our digital money time discover goals and inspire here when eat their deepen and healthier; shopping products; knowledge with health; are save clear: help customers to of new to Sprouts.

to scan to build coupons. check later hundreds pricing our store we conventional between offer current announce will have And Instacart. based allows additional lists for This barcodes customer educational to resources thousands convenience our our plans Sprouts extend virtual to home this trade delivery of wider and addition product we major sales of announced also we given directly in our stores year. shopping Also, of mobile earlier products our of helping all operators. markets and users in incremental year drive intent on their compared can and Sprouts with recipes, to In area, and this partnership new which spacing launched promotion the

we This positions incremental opportunity, home requirement. and uniquely sector. a deleveraging Given our Sprouts in as this not delivery view

team Sprouts on new this store clear for speak and in invest members' customer to success, I a more our team training which is for create growth. will a pathways our member in experience continue career will we to minute. Third, deliver differentiated important

to implementing will significant enable and we be continue to efficiencies. drive Lastly, us scale technology to

system. During will rollouts gains our efficiency XXXX, early shrink, we will with complexity, operating fresh item technology needs reduce and management expect Department we XXXX. production better reduce management labor and implement our throughout in-stock, to and occur XXXX in drive integrate XXXX,

Lastly, new-store fourth and our new we business with growth, stores effectiveness in in teams. the work in quarter XX business opened facilitating decisions and three to advance faster our ending states. continues for enhancing Shifting merchandising intelligence stores, to XXXX promotional XXX better

sites and pipeline Maryland We're our coming next Mid-Atlantic XXXX, for entrance signed in this with about XX store starting the XX excited our month. remains years. first with the opening leases strong into For our year, approval

brand expanding for of a end by our states, and year. addition, will states total also Washington, footprint XX Carolina, Pennsylvania, of bring three additional In our South new healthy the to the

over Lastly, let topic the me few an tax widely discussed reform. past address important months,

training, have outcomes above. years, To and remain and on in our ensure we clear are labor, described invest improved benefits leadership I we innovation expanding in as company, seeing members maternity and team benefits, further for been we a position the focused right several a improving to investing in will we talent, leave. by and healthcare as As pay and attract such systems,

confidence approximately an gives the over that, further cover invest more to a The capabilities of from significant XXXX. million, build our long-term and strategy beyond. additional tax in in and minute. XXXX detail for our for to to strategically clear With financial investments savings, will and guidance. customers will XXXX call Brad or health, our service. continues Sprouts our incredible one-third response turn of me our be the summary, selection, this aligned cover will team results In $XX and value, in members differentiate to business, We me to Brad our let

Bradley Lukow

some including I'll drivers then reform. business and fourth the of for you, the guidance review Amin. tax Thank discussing impacts begin of quarter the full XXXX, by and for our year

continued sales XXXX, For we as exceeded the into our earnings to earnings. year, sales momentum solid build the business those effectively and expectations leveraged throughout and

and XXXX. our returned continued we to capital well, As in our structure, to refine significant shareholders capital

over net the we growth normalized fourth Similar last benefited XX% of the same New margins year, the last XXs. sales a of management basis XX due QX million, For EBITDA of merchandise Year's quarter $X.X comp and prior improved, The for $XX and to driven fourth labor of the XX the from impact points of during XX% the a improvement of XXXX. period low by over in new-store a basis margin billion, points X.X% X.X% to the holiday experienced sales up into resulting rate favorable And quarter. strong shift sales, calendar the quarter, productivity in year. comp were increase quarter, and by cannibalization a

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

compared sales to of of higher $XX rate stores. million, quarter, labor per of fourth of recorded increased same a cycling year. bonus quarter to points same share XXXX $XXX improvement fourth compared the X% was quarter this reflects as higher million XXXX, is the XX in to points deferred a SG&A addition primarily gross driven chairman to to lower was $XXX improvement same well in XX% period increase the to costs fourth This to an liabilities. the on tax increased and benefit was to In quarter of by the productivity with last increased cycling quarter. last basis the our the quarter, net primarily an $X.XX to a higher costs one-time income Direct profit XX.X% XX.X% gross to retirement of expense of as sales executive to due This we the increase in partially XX primarily due by majority For benefit non-cash in promotional basis expense. in $XX the for $XX.X in environment Net income fourth and the valuation our costs of the million leverage to fixed XX% XXXX to compared of year. period points This XXXX. continued million. our of tax basis other increased as and This period tax associated by depreciation. earnings XX million, was of to store deleverage expense comps. result for sales offset margin the heightened the for the reform, board's X.X% diluted The increased due

income earnings Excluding or diluted net of related XXXX. over reform, tax tax have have the increase an XX%, per would benefit $XX been of non-cash $X.XX an $X.XX, and million, share been increase would XX% to

compared billion XXXX. full-year XX% the sales a rate Gross to $X.X XXXX, $XXX points margin increased $XX of XX.X% last gross XX% XX totaled increased $XXX an million, points SG&A basis XX to XX% XX%. of of from $XXX to to decrease sales last increased $X.X sales. increase up to billion, resulting million, Direct in profit store net or of up year. of a EBITDA year. to an XX%, of XX XX.X%, basis million, X.X% points For million, basis grew to compared increase to expense And

generate share tax been we $X.XX, earnings XX%. would or Excluding benefit cash diluted per flows to sheet XX% to million. the solid related have up operations, the the balance and to increase for Shifting an non-cash tax of operating $X.XX, continued year $XXX to liquidity, reform, from

these a to slightly as lower under million for This We XXXX cash balance allocation repurchased higher greater X.X new for to million year and share throughout at the we million. than total today, million strategy, net returning million And is X.X new of Many revolving prior with of guidance related and stock also end investment landlord million. related in capital authorization as on board to are new-store year-end used ended authorization. capital net repurchasing and X.X common moving $XXX payable through share directors current million February of year. stores. along announced to $XXX ahead our invested we previous with to continue times equivalents, the We $XXX capital to a a has compared million $XXX $XX authorization a of CapEx of repurchase our openings through of our cash December debt-to-EBITDA. $XXX $XXX expenditures total due the projects our of cash of shares ended reimbursement, XXXX of million and of shareholders with for credit XXXX. the approved Consistent $XXX XXXX, spend repurchase have borrowed schedule. million be quickly available for total million facility, our investment We a Year-to-date year primarily $XX shares new in XX, in

ongoing be XX.X%, In expected of rates, turn the Net to in fixed floating our addition, trends we to new to swap XX% on XX.X% attributed implemented mitigate And me approximately is for next XXXX now, and growth million, $XXX the growth. positive business debt store years. let rising five to or outstanding a guidance. sales to interest up to

full-year the range reflecting we X.X%, growth comp well, X.X% of momentum in expect be sales As business. to in to continued the

half the This first We to X.X%. expect XXXX comp translates X.X% X.X% to of comp of easier a a into the due compares. two-year to stronger in compared of range year comps two-year guidance

will an of rate reform, will improve and labor team These result members Amin in shelter increases, increase we a As stated member cover $XX team members earlier, in XXXX. tax premiums in investments other team as million invest additional benefits. our an from some medical

to of Additionally, ahead markets. certain increases in wages us future wage this allows invest rate stay in proactively minimum to

on our effective be we not to At XX% tax due depreciation will tax a act, also a company, this Sprouts time, U.S. going As full share positive taxpayer, earnings to in cash is to taxes to but approximately in reform deduction. net just for decline per higher the rate based the XX% forward. a expect tax

option have of the issued basis we year that or to XXX XX% the rate our of the be discussed, As tax and for most options reducing pre-IPO expected effect year roughly this were will will have expire and stock between XX% April of the points. benefit full-year in

resulting share We growth to for $X.XX be in range EPS to XX% of in per expect the $X.XX, full to XX% the year. earnings of diluted

will in to as if tax XXXX shareholders. from rate the benefit new the to any us expect eligible in cash the cash we invest $XX to full flow expensing will provide prior or of million capital our with reinvestment This addition, to more In flexibility by more projects. capital business needed tax our return act enhance approximately the

positive will be for be note to XXXX approximately lastly, Our reimbursement. $XXX expect of million, CapEx we XXXX. guidance, to net items open A in slightly additional approximately the to million inflation landlord XX full-year. few $XXX we new on will stores And the

deleverage traffic maintain to as deleverage slightly And to and it year-over-year gross our to price with primarily past practice, margins, necessary, As continue we competitive make will and consistent margins occupancy. to relates to expect we drive position. to related investments

points. this account in-stock The from enhance investment. us where by basis the reform support tax implementations providing to due deleverage remaining is and for margins flexibility to to investments to XX will with of in reduced XX XXXX DSE investments expect points to deleverage The the approximately basis through XX system our which improved and needed when future. position shrink, in invest We

and investments financing in to be expected due rate expense SG&A in we is to including related also to increase This EBIT as slightly of leases. first XXXX. been of projects. to expect and mentioned, million, the the options pre-IPO issued slight exercised the X.X due higher debt our a capital interest debt approximately regards EBITDA were interest quarter maintaining most that $XX to net approximately rate, have times. increases Below With to largely expect deleverage balances ratio also to We line, in strategic of related tax

high-single will of As in we digits, and the are a tax result, quarter expecting to remainder in XX%. be first the year rate range be the of XX% to the our

allocation As capital priorities capital our remain unchanged. for structure,

growth. unit First,

the business. capital in investments And third, returning shareholders. to Second,

shareholder to be ratio expect of of through in increase our conclusion, a solid We enhance exceeded allows our to X.X we and strategic net generation, X.X our creation. previous This maintain opportunistic This from we With times. repurchases, priorities call shareholder we'd share open to the store to repurchase intrinsic new expectations. times. pleased share us cash in the of approximately the like Operator? X.X us that, In our company is of unit range value while questions. ongoing remain view business financial debt-to-EBITDA productivity, X.X very flow value slight free for through our still that for flow our to are guidance when with cash our market drive program. As our to returns may up XXXX and model be to healthy long-term confident allowing solid disconnected performance and generation stock self-fund to growth

Operator

Andrew our you. Wolf Markets. question from first And comes Capital Thank of Loop

open. is line Your now

Andrew Wolf

have or you updates to wanted the for of you Prime with Instacart?. delivery. any business in Are you some entire shifted ask to still I state Now, Thanks. home just Amazon on partnership the

Amin N. Maredia

Good Andy. morning. Hi

Andrew Wolf

morning. Good

Amin N. Maredia

with to new we're on focused continuing markets is expand in Instacart. morning. What Good today

and markets, a of Texas, parts including and we've Colorado. handful So, of Phoenix California, opened up

goal in have our to so, and to of so, solid expand. home plan major we're we're to today markets building seeing is our by us feedback. in-store strong execution see customer year-end, And real we're continue according is seeing all and very you'll delivery What seeing

to comment Instacart think to our perspective markets. we there from continue So, at a perspective, can't with we'll to we for but look specifically the sure it so we're make we of grow look new I want from I it in partnership, customers, a at Amazon

Andrew Wolf

what aspect lot about just miles? And follow-on is I'd far area you the the is How is single expand, where to getting a ask where you're as should out the other Is Okay. say? you XX that why like of you usage, let's no experience it a matter expanding? in of live. that stores trade I convenient understand be to

Amin N. Maredia

Yeah.

Andrew Wolf

seeing? are So you what

Amin N. Maredia

Andy, compared we're home for conventionals before. traffic to us capture about I've learning to spacing talked that stores and delivery. our the is incremental helps this What between Sprouts the

is this stores us So gaps without through for it trade areas. because exciting in fills opening naturally

we view may seven-minute that, to customers And is others you this so most a of drive as are see And time. not shop opportunity the view grocery it your an in a business food because of cost coming within that as. burden what and generally,

you that drive do if XX can delivery out, in particularly home capture and have you when XX outside minutes a to – so radius. XX-minute store And go you of don't XX XX time X and minutes incrementality,

markets gap. that where we have we're good seeing success. So in

So answers that your question. hopefully

Andrew Wolf

to (XX:XX) much give closer-in I versus us is a able outside drive Are as are time? to you statistic coming Yeah. typical of how to you mean the able differentiate?

Amin N. Maredia

still this building this data that giving early home in still it. think so we're delivery, not because the we're is of days I market Yeah, specific

we fresh is to well-positioned think way we But customer company at as home that and on. fresh don't to be far what competitive talking are think out business giving we think incrementality. there for it that out we think to speed the be shifting moving the the not market want it's prepared starts that I side, want us is intelligence when want as moving at. delivery on so we about the a that that, And and too opportunity. the and But many as and capture lean U.S. that to about that the

as today And which a the so, or platform, that's web but incrementality good about to doing particular feel set now platform, up ready mobile there, not. app, launched And capture their our interesting only their doing to really web allows item customers also just We not that's what we're we new if things. to for Sprouts the opposed in store future. be exists we're wondering shop some at

each And our so inventory our store. it's for systems tied – it's tied to to for schematics

So the continues build to we're necessary the build pretty capabilities U.S. about this as continuing to excited all business in

Operator

Thank our William from of next question Blair. Ryan you. comes And Domyancic

is line now open. Your

Ryan J. Domyancic

you the point view Thanks. Good early morning, like Instacart I question. for both of and looked then can that reason major launch, differences versus what my a that's financial know between any it's in marketplace? And partnership like? point thanks and others taking an but early of of what any view looks in the operational highlight

Amin N. Maredia

neutral I in Sprouts, margin while it be our the and is that investing internally, think for that's and EBIT, a we key we we aggressive to goal. metric being continue EBIT business in see as EBITDA today to business, to building want to use in

so many cost. other burden have because of And the know cost a or incremental compression retailers I

that's we So it. think how about

as store And dollar-accretive we be build, incrementality. it that think captures to that sales so each will those

James Leroy Nielsen

thing that it's the that early from has are only really in feedback The again, Instacart Jim. service is component a this standpoint scores we're but highest of I the add, would Instacart Ryan, some Hey, getting rollout, the seen.

well the Instacart team's So at the with executed the as as extremely pleased level store partner. how

Operator

And from of you. Guggenheim next John Thank question comes Securities. our Heinbockel

now line open. is Your

John Heinbockel

for So maybe one one for Jim. Amin and

percent about space, over did how level five that to seen the you on you about then about right Jim, if come Amin, can the one you the of much you that the And greater retailers, are among that go think where the highest For reinvestment And tax of years, of assortment million, how percent right next But total if was assortment than do is your how the clearly do. think private does three million? ROI, you number? as $XX out we've and rate a $XX thing where think today? we total when an to think ROI that about does for where label of

Amin N. Maredia

I'll take John. it tax Hi thought We really Jim. it one as then to and pass the about learning.

driven retention. we've are teams in training very learning And In really we're our years three the benefits field know, have couple more clearly a and XX% and of to position, a years you and HR with better in-stock made just past And one give allowed labor and customer to drive retention. As better two, trained of organization year, our who service better that would meaningful team and shift kudos to have. we we've in in us ago metric investments has the I promote than made also well yielded organization. retention. will teams our tenure our the for company members scores,

And be that years, workforce them something for came thought are we we which and model looked game, here. from to to two of ahead this three about as markets in coming our to do we how felt stay at about the continue great in what in to drive in continue to yet responsible wages reinvestment, getting about with us up two the entire is we should – our three the when ahead us keep think in develop to we what's allowed we thinking about coming So that tax that years? investing to be do we of So it next and forward? of minimum thought at terms two second next get of of What want we contexts. some to

team to fast, excited for very stores a about I'm and, on our set retention and grow. because to we open to new so continuing growing as frankly, So allowing industry-leading build, experienced get more we're – member

So and Jim. very we when that, to to how number thinking it. that pass fair it's feel members. at team it went that's I'll the we it With shareholders comes And on a

James Leroy Nielsen

good John, morning. Hey,

marketplace, sales in very they deliver the Looking the differentiated comps. private of the top team as alluded label, with to driving XX% to innovative at terms in and in obviously products continue which and we're Amin call double-digit line organizationally pleased there of what

it's balance as As the a hood, by in items being driven basket. as in you basket well look nice under growth also of the

So to new about out last the getting be that looking and XXXX more was in to five basis over plus we basket. XX%, the quarter XX.XX%. over basket, putting Penetration more over this up XXX in customers being We and putting XX%, next we're would year in penetration. the that would XX% points, three customers just project years, full anticipate

Operator

Concepcion Thank And you. our Citi. comes question from next Alvin of

line now Your is open.

Garrett Klumpar

away share those back actually versus are is And other business, investments that the benefit. the industry? in go go to seeing evidence you $XX for computed into Alvin. Wanted million tax our this to taking reform benefits your Thanks question. Garrett also wondering tax on benefit in additional being to Hey, for pricing will tax take the buybacks? wanted back do get your much on I'm net how of if the think you're

Amin N. Maredia

monitoring pricing markets. talked in great in what specifically stand about about our we determining $XX we talk don't price, $XX and I of that million million, the and from perspective of a and got where systems is, would we say But we've Currently experience remain investments. each price

otherwise. a very market-by-market. range from have necessary, we disciplined EPS our or So, our consider make to tax reform due if approach And others' investments, actions today range, to potential does need

Garrett Klumpar

are then computed that away from any that other in seeing reform Okay. And players? is benefit evidence being you the industry tax

Amin N. Maredia

plans, by is so, if was point seeing were strategic make course, I to so, not was really a clear of they're motivation in or whether Not evidence. driven an things investment, their to other their the it's somebody that, fungible money drive And, it or seen We've any driven today. it business at fungible, think that conversation. by tax

as and think we guidance ensure we that. is, is that thought incorporated wanted do our about about it the it to to in flexibility So, we

Operator

And Wolfe next you. Scott from Research. with Thank question Mushkin our comes

Your line is now open.

Scott A. Mushkin

for Hey thanks guys, taking my questions.

the So, the conservative, gains? I two-year any stacked was your X.X%. running year obviously to inflation seems you're little of comps, where thoughts was I thoughts X.X% think share a now? heard range bit wanted the market I given environment. It dive wondering it right but And just pretty to the commentary, on and any into I for

Bradley Lukow

Hey, Brad. Scott, it's

point are you contemplating a slightly for factors, and year, the XXXX. will out, that very at also for positive of at effectively number that inflation looking we accelerates expectation to our a two-year range relative we our when be As obviously including the are stack year, looking

quarter. I'll Also, benefit our of the we fourth out shift headwind that, be basis back fourth regards a outside and basis in as In out the we first in cannibalization running again, point the quarter points. calendar was versus of because range of remarks comp that think keep in obviously, we X.X%, point that we of as itself what were and out of top-end prior I end, benefit a to the our mind XX the in a with had normalized quarter, year in well prior the that year. reverse a pointed rate will the have the were to the XX we pointed ahead

to XXXX, so for to we And it expecting we're entire of XXXX. cannibalization about the think when year be flat

comp number that guidance. a So, those of our into are factored elements

Scott A. Mushkin

appreciate follow answers. to up the So – on I

around sales? the above about should if think to SG&A, your given that, we run you incremental were level, As margins were a margin, on investments on follow-up better frame how planned the that we you incremental if to going that

Bradley Lukow

year the with gross some expectations only I so, think to – are for margin occupancy costs. pretty you flat, deleverage slight our regards know if our

how productivity to year at, think as from so, we we to we're continues our labor some competitive every incremental is positioning us. a then price looking we much to make And appropriate price. benefit that a in about determination be we as productivity believe And reinvest talked wins, I market-by-market get

Operator

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

Your line is now open.

Chuck Cerankosky

Good label additions the and In think non-perishables? looking going morning. do at private product it, between fresh about forward, foods Jim, how you

James Leroy Nielsen

Yeah, little should probably John. it's a probably one for question, bit good deeper got I a have that

in from to last the over we're the of we've the So, those from you And areas. more side growth versus years in format, penetration close relativity that when three business. primary a non-perishable conventional seen create the non-perishables format our XX% been has

forward, primarily the what of then But looking less type as acceleration get so, have departments. of kind driven as in that to and decel coming a to as items. will before, going And mentioned mass. out fresh again as it be I some But And we're know, that to are we've items critical seeing innovation we're existing seen Sprouts. you of of is you unique items, SKUs

decline it's that growth. growth, unit in count So, able or to been offset SKU

close to So little And for forward, a non-perishable the penetration fresh on it's come bit side. the than create going overall disproportionate relativity, non-perishable looking the XX% the then again just more we're side to side.

really it's conventional the to segment. So close

Amin N. Maredia

last on about But is the the and years Shops the thing pretty a we're fresh up consistency and side done see of Butcher with job Market of I that quality those those fantastic Sprouts team Fish are And the The Market starting and and one add starting to acceleration areas. brand And Deli terms in The operational at Jim's excited two merchandising in good would brand customers Sprouts resonate our brand. authority really building the to fresh. and at have team Corner marketing Sprouts and we're

trends to we're go deeper So consumer are of know investing movement we all see keep there continuing we'll fresh good food. more part as and there today which wanting and

Operator

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

open. Your line is now

Kenneth B. Goldman

of Hi. us you think year. of a in little bit little Good us broad – I less you a understand department expect you help Can Just around the store, sort us bit inflationary, one. be by a talked departments will walk Can morning. help inflation us in? about which quick help department? level, One vague which this more you

James Leroy Nielsen

improvements to year. the Jim. is QX in a called keep as numbers fairly out around on degree, well. Part the as dairy and of for is be anticipate starting back that The we'll inflationary try in But and and slightly lesser becomes primary this flat so XXXX some produce cycling bit difficult. full Yeah, slight year, numbers the that we'd meats more improvement in Brad it fiscal flat little a be QX drivers with will half high. and number of I'll inflationary to

Kenneth B. Goldman

my along down obviously Thank a they're your talking costs, to general Conference a and passing some quick manufacturers in lot inflation at here the about years all freight a – lot of are than And the environment where along you is Then past customers. in in food Florida presenting, Sprouts is in willingness costs? you. of them. It's their of it CAGNY pass little of cost freight to follow-up logistics obviously been bit tighter Can one talk about a competitive retail. has I'm in

that not And retailers maybe passing some on. been talking have about

to of we for perspective inflationary All need something sort to a it's our to not from problem likely is It's time, consumers." pass it Just this how say, know are real no, of vendors. what? our do you say Or sorry? curious right, "You you on that some Sprouts' something more

James Leroy Nielsen

to we cost competitive So we looking our us in the reflected third-party we'd so back into certainly the anticipate pricing pass follow that slight to. always trickling guidance probably to the But as distribution, talk of strategy, those increases then those. of you see half allows second that going again Atlantic some year. the landscape gave – at We'll we're the in about our starting quarter and was guys through all today. And cost

Operator

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

now is line Your open.

Shane Higgins

Hi, morning. guys, good

for the if Just the gross could quarter. on question some I get color a margin

said you was basis points. think XX I it

how versus leverage to Just a that occupancy much of breakdown of get margin? in merchandise terms was

Bradley Lukow

the the margin. So most in of increase was quarter merch

offset in quarter, were than In was promotional cycling activity increase that occupancy some QX. by was little of in deleverage merch XXX% fourth in competitive fact, a we prior more partially the and year the margin,

Shane Higgins

gross higher? to Can get elements you to think XXXX? of need occupancy you comp be that do guys understand to trying Just that the X.X% in a and bit leverage about or on how

Bradley Lukow

context of XXXX, some the box the range occupancy the some still depending in square our increases seeing on for And the of Yeah. seeing rate average. we're market. footage than In average deleverage we're system-wide because guidance is our higher

XXXX. comp deleverage for So guidance in within again, that occupancy slight range

Operator

comes Thank of Short you. Barclays. And next Karen from our question

now Your is open. line

Karen Short

you said, Brad. on quick just a follow-up Actually, what Thanks.

the us you this So, in on contributing, give why can the of a boxes sense getting what's year what terms or deleverage the occupancy? size of you're is

Bradley Lukow

So, I think things. two it's

a as If one rent period XX% through in cap and bit growth, gotten the the locations. years, unit last at of out Karen, little you gotten – great to a over year gone growth, five the over has we've rates continued marketplace or five is look years, inch for slowly XX% up have last more competitive

is slight about thinks deleverage that we stronger. look that at overall least about, the And of think new-stores each portfolio, or the what IRR a but to and I occupancy, only the we and leverage And ROIC when the is in of we're we're think vintages team not at so, that seeing. deleverage approving the But recent there's that get that, the key effect. the continues

extent up So, but boxes. to not what the for us in occupancy is other, some is important is IRR ROIC to controllable and new what's and doing

Karen Short

helpful. Okay, that's

second. So, I actually just to for wanted gears switch a

So, as fairly called you benefit these But from looking maybe of XXXX, investments I in P&L at specifically think, you XXXX. DSE, some the investments like of that XXXX, to going away what the have, growth that looks it obviously back items you've look all that components EBITDA benefits should when I meaningful out, terms the from. you'll technology some go investments the into are shrink one to the explained and we the implied of headwinds for of so, is can and

terms return longer-term or So to a EBITDA is algorithm optimistic? be still it little of too think is might more to fair your to able that growth that in rate, XXXX you

Bradley Lukow

in so number exactly some increases the rate benefit wage That's minimum markets mentioned, a and us. we our full have the $XX context as Amin for putting taxpayer, we of around beginning luxury Brad. of XXXX. of Again, a starting a And XXXX, we're domestic knew it's the tax million additional around thinking. Karen, reform that were coming

moved and wanted we retailers some our wage competitive rates extremely And have maintain on position. to other

a investment incrementally made XXXX. partial we've in So

if adjusted be came of think investment growth. much we'd pretty that of out I double-digit for that levels EBITDA you've reform, at incremental tax customary

in when shrink out, accretion from expect we look in into at through XXXX you And so out see to significant time as XXXX, point implementations point to the expectation the benefit and reduction. our business, primarily, systems we and that full meaningful margin this is

beyond, think we do based And out we'd again, and would to so looking to tax increase reform, back mid-double-digit at our growth I look see, significant cash in free in move of the be generation, growth. flow very that XXXX partially algorithm on and EPS

James Leroy Nielsen

good of about the doing we us so not improve some It's management should really I'd is to system, is component thing deal only of components ability there. give there of high-level add service. some systems where providing a the it service in inside the while our Karen, we're big to going shrink other production be are

should position Our improve. in-stock

So both sales from of the on about promo deal those more tailwinds perspective. it's And will have management, optimization.

benefit, not our how but high-level optimize do gross So and slight a promotions. consumer only potentially a margin you within our relevance really, to give sales

Amin N. Maredia

Karen, this add to one thing is Amin. I here. want more just

to, of the inside and than and has and probably of at that of the at you and at company Brad just productivity two the XXXX about today and tax algorithm. XXXX, the would talked and step are, maintained step and the out algorithm. alluded back profitable we look feel And this XXXX- if of of we the store outside what to I the back and ability the drive the store I investment, of as look really how back that deflationary and business confident overall period is the of business a looking around you new here, to years algorithm business, trends stores outside have I laid step even If the ago direction when take health new more

Operator

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

open. now is line Your

John Parke

you Parke John provide Instacart partnership? Good an on morning. Can on for the actually read early is This Chuck.

Amin N. Maredia

and to. as feedback alluded I some think in but we customer earlier, four solid markets. in execution great markets, very good We're short is we've the answered this We're Jim a in-store start. in had seeing of

job service other seeing the and highest done and customer of the comparatively customer So of ratings to Instacart an many is the partnerships, team's executing overall expecting. the awesome delivering what we're

John Parke

to has new Got the those it. the and platform reception and how launch And you been just new targeted provide customer initiatives? the can update then marketing an on digital of

Amin N. Maredia

– important to it. early almost we driving what first not our on see really to, brought they're is to people again just to really so shop do broadly, knowledge businesses bring then reports then the because store – we're they before down there it get what inspiration day for Sprouts But this when the more unique excited because I've site our think easy seen is store. in many to the to which of one our the where also it's I bring desire make we're customers, is convenient our and our to customers, healthier and and for can health eating were

launch. just technology and got our phase with phase to that continue a health. the We've plans three to some to exciting connect around first two was this So customer

the opening now me up and months hearing connected keep launched from I it consumer around think will XX we've probably easier word You'll can use the make seeing things when But be and about before think it that our a and seeing just the we're technologies some health for good start of to insights customer. we six there. I

James Leroy Nielsen

the I to, people thing Amin is more seeing we as time think are site. alluded spend only you on look what at the

curious very customers. have We

this built of out we knowing how content, this it's critical so enhanced sourced. our products' as was attributes, in And terms

bit So we're onto dwell as or people the time a go today. seeing little website app more out mobile the

Operator

Kirk Bill of from comes question Capital next our And you. Markets. RBC Thank

now Your is open. line

William Kirk

XXXX percentage Good private bit the decreasing. showed of With a those Does than deli guess a sales increasing that initiatives, morning. non-perishables surprised to as the year? I and contribution that. is the label XX-K, mean it I'm In growth perishables larger deli in by

James Leroy Nielsen

got the success And as that bit the the in put non-perishable department. to of as about the XX% resilience pressure on that around to inside we the optimistic generate excited produce also we tailwinds side but average we cycle, a said, about bit on the But some the had put non-perishable that deflationary categories a But non-perishable so on they've heavy tailwind more look there. business, of we're double-digit a the our had The be continue perishable non-perishable the side experience line initiatives deli the on side. creating of be And experiencing little produce continue higher retail, very attribute-based on strong before, a the growth, growth stuff very forward, we the that's had we some of tailwind. as growth comp mentioned side, then can all obviously with to top market. side we

Amin N. Maredia

is to thing the was only non-perishables non-perishables I which today one question, that a your the deli, mix specifically business. at said much what deli of about perishables if would is business overall add our or total to The when to Jim smaller you think look non-perishables than piece you of

get non-perishable growth it's good department. the the So business than overall a in even though you of deli, still piece much smaller

William Kirk

Okay, that's for it me.

Operator

Thank you. Rupesh And Parikh next comes from our of question Oppenheimer.

now open. Your line is

Rupesh Parikh

thanks and morning, for Good taking my question.

think I So on a clarification just reform. tax

is to So and the a be understand bottom additional the flow-through then wages. business combination better just the two-thirds. hoping thirds, for So other other it in going of investments like And one-third the reinvested to sounds two to is line? that

Bradley Lukow

it's Brad. Rupesh, Yeah,

pointed DSE, the $XX and or is EPS. basically we through as to out, rest So flows the third, invested a through million, in down

and, is year our those infrastructure pointed of projects fresh CapEx in $XXX stores we We'll on out item deal XX a we're focused about $XXX range. open million course, key on management. to and As million the spending management executing

Rupesh Parikh

follow-up Okay. question. Great. quick And then a

through, passed on in environment, competitive the so has As the look with have based being what you expectations at you've been you so far, seen? at look your been you far as – line inflation it

Amin N. Maredia

with temporary, be business, in categories consumer part we've some and uptick important overall clearing to in overall the said, itself. And there's health but protein, so, both which we our that happy promotional couple and health part a see key very think points can items, which the an inside I huge of slight those a produce we're demands of seeing strong. the is attribute our activity business challenges quarter business, a seen visibility first little of a the we're just pretty and continue the in on is trends with I bit think not of of but of that think I

James Leroy Nielsen

shift PPI look would only X.X% thing some perspective, at I side, veg well from a the cases on passing the PPI weighted I And fix basket. being it's inflationary January, in out, XX% as there's guys been big a CPI, you call that's as and in a fruit in as specially, CPI think other through,

looks CPI. So, a different bit our than basket little

promotion, And those would inflationary kind of opportunities some movement. therefore, of highly categories down the present and don't for slow

that look of overall, better you good, CPI. But of challenges it the the rate wouldn't that and fruits the on Amin half different so, back produce are that of at are forward, guys the alluded some things pass as through we and earlier side and of to And the look supply good quarter. some and things on some at see the getting

Operator

Kelly Edward Fargo. And you. next Wells Thank our comes of from question

line Your now open. is

Edward J. Kelly

X%, we how time Could good here and landscape like period were hi. deflationary that. maybe time? outlook the hypercompetitive getting the back competitive relative forward something norm? new back take step back X% solid the and as over going you've comp to morning, comp a job now think XXXX, to Prior the done guys. Yeah, the about business we the possible really environment, profile a company of comp over are for about we we of where the should longer-term Is Or Good new think that, landscape, it's that But of stores the contribution to a just growth been? story at about and we business? to to a from period think in you a as good

Amin N. Maredia

framework there, Yeah. I'm sort to on mid-term seeing X% about, think on and of businesses, That's to as guidance, it's two the the think way and X% the intended inflation comment we today. what about a long-term at to zero be inflation zero framework today we're we're to business a at of our going closer or based of how we make inflation. is out we think we business, and X%, not to everything the X% seeing X% at based

XX-store vintages there a giving and comps, little number. into tailwinds it's bit, with even good the though the is coming inflation, is; on but still obviously traffic; a growth, muted the it components the into depending that's benefit of So, are recent -- where

we think how business how about we think – that's So, about managing that's internally. the

Edward J. Kelly

Okay. And then just follow-up, a Amin. quick

view You're the attractive point see market this there, the moving maybe it mid-Atlantic, you market just Can and and at you little the why bit you how a as for an talk northeast. Sprouts? about into

Amin N. Maredia

what I a and see a and the the an Any range time stores customers and range a mean, trend-driven, experience into reinvestment in when number where of, it's want the business, operations wide lack operators I or think are dollars Yeah. variability excite of today, we of for we have range see of where those us. us. being conventional market not of exciting wide the spent they customer-driven,

how productivity. stores reacting, in we'll our response some our So, new-store of leading customer seen the some to great recent see we've but start higher markets

lot so, of population think think, a I Philly, be there. based And a so, – pretty And is are dense it us. Baltimore, those – D.C., it market markets, components, could we on attractive for these

James Leroy Nielsen

great another in what to see we think we're the going a I seen has is differentiated what highly do. like one no tail model, Mid-Atlantic are anything we and

service. around has the a proposition service, put anchored that a we So base nothing assortment, been knowledgeable and different level together of value all layout the

about perform. optimistic and very So the Mid-Atlantic how we'll

Operator

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

line now open. is Your

Robby Ohmes

first ask taking Hey year of could in for merchandise guys, half the saw against the half the you just first us of year? I thanks question. are this the in maybe Maybe my you see upside quarter? what terms of opportunity strength to like or just about us for wanted – Thanks. through remind you comparisons promotional what the guide or fourth against in margin

Bradley Lukow

pointed on the slightly our for we swings competitive of don't this point, At Obviously, we don't only it'll point the at see full-year. quarters. in as in between see we think time, but lot I any swings. happens significant Yeah, what a environment, depend guidance, the out deleverage this in

Robby Ohmes

it. Thanks much. Got very

Bradley Lukow

welcome. You're

Operator

to for Thank over you. I'll our closing That conclude session. turn remarks. back question-and-answer does Amin it

Amin N. Maredia

story. for you We the the calling in weeks. and person to in listening coming many and in Thank of the you. meeting Sprouts' look to forward listening to Thanks, call everyone,

Operator

in conclude and today's gentlemen, program. for This participating the Ladies does you thank conference.

You day. have great disconnect. may Everyone, all a

Sprouts Farmers Market (SFM) 22 Feb 182017 Q4 Earnings call transcript