SFM - Earnings call transcript Q1 2019 | Sprouts Farmers Market, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Sprouts Farmers Market First Quarter 2019 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 be given at that time. [Operator Instructions] And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to Susannah Livingston. ahead. go Please

Susannah Livingston

good and Thank morning, you everyone.

announcing earnings this also our pleased of to time are of Lukow, first co-CEO Officer quarter taken with earnings can the Sprouts our Relations section be accessed on website interim me is Financial Chief have XX-Q release join XXXX the investors.sprouts.com. and today. our The Investor and the our at webcast Brad call results, call We call. you through on first the XXXX quarter

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

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

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

earnings tables as to strategic that, review full non-GAAP provide it and figures, over first our Brad GAAP of measures on update an let as hand year initiatives now highlights quarter in the reconciliation the For guidance. to me see release. well to please our the With

Brad Lukow

joining morning, our you, thanks Thank Susannah. everyone, and call Good for today.

Jim return. Jim We to forward look taking I Officer, absence. President today. recovery and on a his Nielsen, will me of note Chief temporary speedy leave wish not I'd Before is begin, our and like call to the Operating Jim medical that interim co-CEO, a be we joining

driven produce had strong challenges the prior results. cough offsetting the store season year. same the frozen in up the $X.X compared quarter cycling to sales by to during availability year. billion, some deli, results Comparable quarter and meat, first grocery, were last cold we sales strong and and turning from that the Now increased X.X% Net period XX%

certain produce we to through conditions significant not were in items weather of able experienced retail causing predominantly that driven fully cost spikes For pricing. the the of periods cost we quarter, inflation pass by adverse in

the of started of into side late increases nonperishable of pass-through QX business, the that see some half to first cost we QX. the On we experienced and in the

While important increasingly, as our shop healthy Sprouts full a are an store. customers viewing produce grocery traffic driver, remains

opened the our stores, first in During quarter, stores new to states. XXX bringing we eight total XX

look for We new Less Living bringing states: this continue model Jersey Louisiana, Healthy to and forward unique to of two to New June. our

very our XXs, and resonating Our recent store in a growing store of the country. to markets, in new strength a existing open reflection that brand low strongly vintages resulting both continue the is new in productivity across

experience. in our customer with we upon our As out-of-store priorities process enhancing a a outlined our points in and technology in-store back strong reinforce and focus foundation of people, strategic differentiation February, building XXXX of and

few these Let me briefly of progress touch a initiatives. key on of the

experience We healthy and in customer build solutions our of trend, very meat This performing deli which our meal by is prices. continue at prototype and enhanced stores, strongly to new upon that evident are seafood. in products momentum particularly providing and great driven convenient, consumers and on with fresh are

stores will this quarter, second be the During in new format. prototype three new opened

continues a continue of our label and great, company our XX% quality today overall nearly We to comp Private private net taste are our for outpace brand great selection accounts made and that Sprouts sales significantly now expand products ingredients to with label growth. at revenue of and price.

and with drive trial, new to unique messaging We stable, engagement in-store, and year this further to customers. digital media will social loyalty among increased continue products trending and introduce our along

our enhance guest goals further to differentiate is one and to On engagement front, the key customer of experience. our continue

deeper customer insights offers. relevant personalize messaging, our to us guest We experiences content with and that are gaining allow will

lead will mutually a integrate experience that advocacy and greater to seamlessly to is of focus digital in-store loyalty, Our spend. share supportive and

we of in grow, reach as have a now delivery trusted, the guests, in customer addition, To impact. offer a busy consumers over our we digital further needs the continues are meet Sprouts we our market store In our for where in increasing first and delivery channels expanding in as lives. quarter to up to look reliable convenience XX% added presence. Home every their partner

We testing in markets. and offering number and click stores our of now have expanded in collect of a service six are this

customers regardless test to We are they to learn choose engaging with and to will we shop. of continue seamlessly ensure how our

on members, actionable process, timely, information I healthy are our team technology continue side, us the of office, provide by to this the We in with fresh integrate the of the planning complete with on operational quarter the guests item to production engagement, end and organic and the living and our support of the The we both rollout customer On implementation track third have allowing also journey. time, the remain brand we sales management our continued are space. at position production year. Also, finance and and the in-stock driving authority serving store resulting focused to in at is and recently right the store them who helping which streamline acknowledge in right sales. better drive Workday financial natural of implemented items Financials, will optimize incremental systems and that dedicated advocates system our throughout want the on to the network. their

we published have you our recently As annual Report. Sustainability seen, may

million we XX hunger and of We million facilities meals. cardboard. with pounds million deepened diverted and animal compost In made to recycled donated food we are environment XX commitment over banks, pounds past local the years. food of reduce feed XXXX, waste. of fight XX pleased with of that to our the We pounds few programs and the have food to progress equivalent the million XX We

In with in on XXX% that grown seafood great XXXX, fisheries. managed procuring sustainable We are Sprouts' responsibly. frozen focused almost we innovative, and products sourced made seafood from are responsibly advancements fresh and sourcing now sourced of healthy

supported lifesaving Sprouts has contributed local and others. our programs Last change and goes children to programs prenatal upon look provided we Since million to positive mothers empower deliver wellness live building bringing sustainability Healthy of the that to XXXX, and food more Foundation lives. improving in year, nation's nutrition the nonprofit funding forward school partners beyond goal to critical to to that education nutrition at-risk initiatives XXX Communities than health health communities farming amongst wellness these $X We partners nonprofit healthier that health serve. we we and create Our the programs, the sell. and

to Now some first details quarter our review XXXX. and then of I'd results for our guidance like review

prices basis decreased by due last and the million quarter, to first inflation increased to sales our by the $XXX XX.X% period due compared to period the in points competitive were This XX.X% not deleverage cost to profit environment XX compared XX.X% product to X% SG&A was in For XX% increased or changes that in addition same fully the last year. same in to gross items million retail certain of to margin gross rate mix. to reflected in year. primarily $XXX

position. points predominantly for lower to Excluding the XX stock basis accounting from new and compensation the tax basis expenses leverage related members adoption last leverage lower team lease the of points. unemployment CEO year compared standard, reflects reflects California and impact the XX open This bonus to SG&A leveraged

These also to on store by openings for wage we related some reduced the In SG&A quarter. partially call, investments. addition, higher last were spend discussed that credits to our received spend we due offset delayed which our our rent

Adjusted quarter, same For $XX to increased and the period to amortization basis of year. sales, our of first non-cash the X.X% first in depreciation X% including increase last million costs lease the XX XX% the million an compared or adjusted quarter XX accounting increased EBITDA decreased EBITDA new and to for standard XXXX. from adopted impact the margin basis fiscal points $XXX points

$X.XX offset new by sales tax by and shares period was accounting a EBITDA share EBITDA quarter of the margin by would decrease have to earnings same per year. in share fewer first due lower Net the higher repurchase results million $XX diluted in was income compared cycling adoption and EPS rate and have XX lease for the the basis of is if would impact, to program. effective and lease increased XXXX comparability, same accounting driven the last XXXX first $X.XX For our standard, partially the primarily points. decreased reflected of X% quarter $X.XX outstanding The

of capital As the under the first in repurchase from net cash million and growth revolving of strong per $X.XX current And million of primarily operations a with investment benefit may common ended additional facility, our shares XX.X% initiatives. the balance of in expense of new substantially which X.X recall, to as and result for $X.XX and Quarter fiscal landlord equivalents, stores. $XX expenditures utilize shares XXXX $XXX will the our to million times. continued a the our $XXX debt-to-EBITDA net reduced a liquidity, options, our rate to date reimbursement a $XXX million we first pre-IPO support XXXX flow stock of returning first cash standard of million. in benefited lease X.X%, borrowed Shifting through shareholders an in million $X.XX April our operating authorizations to total the expiring for we a quarter ratio to credit compared exercise we during first you $XX the We capital repurchased capital rate XX, the to on quarter investment quarter invested strategy, net million a We $XXX share of accounting quarter available and per cash $XXX with year-to-date quarter. X.X share or XXXX. incremental quarter, million. allocation for repurchasing continue million change share Consistent $XXX unit as reminder, total in of have a tax effective sheet of from million our for sales tax X.X

me let Now XXXX to turn guidance.

the same. our of to earnings end per the EPS top $X.XX increasing remains $X.XX reflect range first are quarter share per share results. range We to from of end our $X.XX the The bottom stronger of

strong sales towards to to of we Reflecting lower the be end We between X% results, by year to growth and range expect be the in of year XX.X% new first comp driven growth store and the full expect growth sales quarter comp X.X% full X%. now range. sales net comps

We target stores. approximately new to open XX on are

a expect to of reimbursement, on spend to to few We rate be CapEx of approximately continue expect And the landlord a million, slightly additional $XXX note of the XXXX XX% our full normalized net items to guidance. we lower. or $XXX million in tax year range

more XXXX. We As the third be eight stores of for opened XXXX reminder, than pipeline with remaining majority the our QX the loaded open in to quarter. will a store in be plan backend to

expect transportation markets, new in costs partially first quarter pricing competitive environment and be slightly to in as the margins well by new associated offset gross as optimization. year-over-year, promotion stores and more results We down higher reflecting with improvements

XX to impact of year, points points We basis the related XX the for to the includes basis accounting basis full standards. deleverage lease expect new points SG&A to by XX which adoption the

capital allocation unchanged. Our priorities remain

in returning growth; the third, shareholders. unit our investments capital to First, and second, business;

we continue year of As performance past will with for excludes be to pleased expect strengthen and practices. operating share approximately the that times our financial continue closing, are debt-to-EBITDA our range consistent repurchases, investments X.X X.X with to In business. confident the we we our are ratio net this leases which in to are to making

Our strong growth call we'd us value and questions. up that, continued open shareholder productivity and well healthy new flow free the position like creation. cash to Operator? for for With store long-term

Operator

Oppenheimer. Instructions] Rupesh Parikh you. from comes of our [Operator And first question Thank

Your now line is open.

Rupesh Parikh

questions. morning Good for thanks and my taking

you out, start the the to full comps be – for expect year So, you full end just the lower to mentioned that of year. Brad, at

curious the end? lower just driving to So comps what's

Brad Lukow

our categories first of good regards sales produce talked restricted Yeah, promote, morning, ability in a to we produce with little issues therefore we on availability the that Reflecting that a at our quantities to to result. expected bit because get also saw ability had of the cost. we California. pretty the in reduced we lower what would've our quarter, to and Rupesh. We I'd hyperinflation reasonable number the in heavy products And some saw that as on a significant, really had that rains February call, produce call some in

reflective QX really the just of situation. it's So produce

some into availability a cold seen some well, early of negative produce QX, from which out impact As items. continued a had parts rains of some weather on the Mexico perspective number California and in of weather has we've in

Rupesh Parikh

be down sounds Okay, margin before now expecting it front, guidance was great. like the on you're your And to competitive flat, gross it then slightly.

So now competitive just seeing right standpoint? what you're curious a from

Brad Lukow

and in into competitive of late through a competition remains cost of year we Obviously, QX increases started on It's QX flowing increases. in suppliers from of starting pretty is squeeze. are the passed line relative term. you last lot last the hit there's through pent-up short shelf. by Yeah, see the But freight much with quarter. those when the environment. driven a a business What when on starting of a come the nonperishable first saw bit side half the of the the increases Typically, get because squeeze, through flow to a now those cost increases short to in they cost a of of through take shelf, we margin the short lot to

So be really current to gross we on from slightly the change deleveraged be flat expectation. that which would now as being our modest to just expecting full our February, for said year margin, in approximately

Rupesh Parikh

will I on. you. Thank great. Okay, it pass

Brad Lukow

You’re welcome.

Operator

Judah Suisse. Frommer Thank of Credit you. question And comes our next from

Your line now open. is

Judah Frommer

Are the well? the as you the And is more the category? on produce? that from would fully that on Hi, is competition gross in thanks to landscape to compete on providers the produce impact, mentioned. focused question. say and availability? drivers margin of going Is for taking there there pricing just the competitive as that that is seeing retail lower-cost largely a look Or in follow-up competition Maybe tied you non-produce you there

Brad Lukow

on a Yeah, front end the particularly nonperishable view, prices items say there's lot that competitive thereafter, competitive business, on of landscape type just I produce when and cost, reflected shortly of the side retail first But that came the the competitive thru see you fairly starting that the more would point overall through commodity half on others. pass-through remains we're markets to that ad I of are changes increases again, items. certain in typically think, an of page from the of with see than the cost offsetting quarter. get

Judah Frommer

sales. the Okay, and total great. kind to And just of going then the maybe gap comp to

they little you balance been looks give can but help being with productive You us forward? missed vintage historical historically. like you more productivity comps us the which the maybe banners, And due on can you of us a there. maybe fine, number consensus by going bit, help is than sales comp stores been total color Can the new and by any comps new telegraphing you've or to store have

Brad Lukow

Sure, you’re correct.

percentage have particular to year important from that meaningful about we our up of openings, markets. stores because new the that up which As any in the opening our in stores, new been XX in of continue last change new in Texas markets of the terrific up in year the stores in Historically, number of this expanding quarters, real are is of markets, opening store West. XX% opened we're of two talking will given our open, perspective stores in sort existing year, terms thirds markets. see for new is into, we a This new our

this year grand largest the new Some top history. markets company in of our opening week are in openings and the

Sprouts Farmers adoption happening very of the excited Market consumer the U.S. for what's brand we're the about So across

Operator

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

open. is now line Your

Michael Kessler

is Vinnie Thanks Kessler the question. guys. taking for here. Michael This actually on for Hi,

more So side. expenses just wanted actually to on ask the

solid So like it been you given looks making. control quarter pretty you guys investments expense had this have

we those wondering maybe just us cadence investments of what far this through much you're year? and at, to if what you can as be walk going to already point move left So maybe the like done, accomplished is you've the as look how where at as are through

Brad Lukow

Yeah, good morning.

no pointed to the update, our out the SG&A guidance we for year. expectation As in there's change

did and in As of have of that quarter stock-based quarter food into the compensation result our continue Also, a of some first the expense reduction we our first remarks, the reverse quarter half had view. in California release from of we second pointed that the the out would the benefit back a we as in but later of year. benefit point the in

we wage well, the started the investment as As year. incremental should quarter, offsets the quarter that $XX beginning lapped the of one we first second million in at the the beginning last of at aware, everyone be

fresh the those points the we as all we're of actually strategic the in track February, That'll quarter. a that of quarter, out headwind management, now more cost the investment point beginning From across at we item was second in and XX that SaaS by on So to lap pointed quarter, got the end of third first deliver rollout on in view, of basis the so QX. through coming you've fresh rollout happen our and departments. of cost QX a

our QX, mentioned system ongoing and marketing strategic customer just loyalty connected with our QX as we that's – investments up Workday today, launched live. Financials have and to and we in we And digital we'll well have connection project. As

So expect still noncash points to related be basis which as lapping of expect change, the you and P&L, be the points to we last basis again, is to XX to points if park as increase – wages. we to impact year in that accounting basis primarily still strategic XX the well the hit lease investments XX deleveraged

Michael Kessler

then a just given you Great, guess as updates getting in you across as the that operate into little we kind seeing awesome. learnings Any side, little I helpful. more rollout kind delivery It’s XQ. of new follow-up where delivery, you're with of that the And XX% kind now entire any with a from markets quick on e-commerce here? very on up the moving – we're mentioned of results? the what in a more move guys maturity into

Brad Lukow

significant now late really markets. success quarter, this adoption. customer last all we had Southeast. that rolled home quarter, know, in was our And pretty tremendous we last out have rolling the across Sure, We're delivery in only of you out seeing it into

consistency around is on buy with how terms delivery, who I decisions our from to most home of the the making quality the resonating consumers of it's customers. product, is the really brand, sure with what gets is Sprouts matters about and delivered, in history think is based all fresh, from years make what and And brand. our ultimately, of the really of order the perspective what which

a weekly it's this year, home Basket of total sales. size the to see store. that in is going X.Xx our average of By of sales delivery. we continued be on So end the increase X.XX% to X%

over home is store focus continue. just consumer of the in quarter. XX% real going to the of there's will our first year-over-year up continued and be on so store, our And shift – purchasing in both we're from the out this That and delivery sales around

no is store, engage what focus to focus focused we it's entirely really how just of the longer to entire around Our where in that the the want wallet. digitally. And we're store, maximizing a store, and of out they on happens how us, consumer, in with engage with share

online. the store out home delivery larger us only being that we products As prices ordered in have to even from we not relative the not, really some home the of meaningfully is significantly though the are pointed orders margin stronger is the a online mix And much delivery our before, it's as mix below the about do same the we the of to that but convenience basket ad do consumer because factor store the penetration and of on competitors standpoint.

And service and to to have team Sprouts continuing customer rating on within home are our that overall, the resulting in think the delivery the I operators are the leading highest store Instacart Sprouts. making platform. So the in kudos team members certainly happen, it the operation

Michael Kessler

Got All so thanks right, it, great. much.

Brad Lukow

welcome. You’re

Operator

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

now line Your open. is

John Parke

but quarter, expectation for you the Good to is your $X.XX another earnings but morning. we beaten internal don't repurchase $X.XX Chuck. know the your of only seem that by seem year, kind then here $X.XX Street EPS of have raised you what end guess you for Parke have share guys yet mean add and actually $X.XX. This the obviously by I on John this done low to the of guidance was all I to

So flow kind for of through? to changed of kind that is of what more here else not

Brad Lukow

think we've end we've amount bottom an you if to bottom And previous $X.XX. well, bought do was math It’s I annualized shares of the is range just back, the impact guidance The clarify $X.XX. $X.XX. $X.XX. that increased range that I'll the of the Yeah, incremental on of by our the now

Operator

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

Scott Mushkin

taking there, he's before thoughts my And guys. are just Hey, prayers for get okay. Jim and I questions. hope with Thanks and our

of Second SG&A, number would if Brad, we but a at? those some And SG&As, thing of onetime? at them what we that or know as about I can put we those if you bit, could would I onetime look we as some is those – talked ask look could, better at it quantify little as

Brad Lukow

first looking he this would to some health care been of today. issues anxiously Jim is, time. all, have liked to at here so course, his he's have He's taking And of had Yeah, of that return. forward

making focused he everyone health is interruption. without on in priorities the and year for so our with And just the on company his any certainly executing sure deals

also release quarter. fourth were – because As in deficit bps are we Fed. because XX quarter XX stock-based payroll when year-over-year. be points, benefit in we the benefited items would the Scott, about tax food if their was benefit you reverse and Those the our California pointed the when nominal, in got remarks, out, year comp first a basis that quarter, think roughly earnings two The last took it position QX, winner was we in in the still the our paying the California food California about a with would QX, then of QX be, and would out and each first that

definitely came year, for that occupancy in our full than the of but is credits some we part So in first the rent it we quarter in little expected quarter. was The that bit timing a had earlier benefit anticipated. first in

points. basis told, all were those XX benefits So about

incremental that away basis because didn't beginning we lapped of our embedded until goes investment the was recall That QX of points. that. QX QX, in headwind in a Now in we XX lap wage because the numbers

Operator

question next comes And our Paul Trussell from Bank. of Deutsche

now line open. Your is

Paul Trussell

Good morning.

season comps any for how understand we strong us thoughts and cycling updated mentioned. the XQ Maybe to maybe from think step a a about timing margins issues you help impact Easter back, taking a should better shift, impact of cold-flu produce as availability a issues. maybe year. just you’ve had Just in just ago, the kind the from And year on inflation few

Brad Lukow

flu in if season XXXX strongest was not recent from Cough-cold probably ever. Sure. memory the

area a the typically at because, had meaningful that the holiday healthier where the is So to pretty beginning business course, strongest of of vitamins of the effect whole people the season. after want year live

range So a the weather along. quarter. big get you a because availability the one the higher, be certainly, had inflation of cost to – in the on headwind that some and was pretty first got to veg in some meaningful And impact challenges because a you quality. the quality promote promote is were a, produce that get of when can’t product; our the items able the XX-plus b, lot And cost And ability cost the of if in to a pass always terms good increase. it’s of challenging to,

really by inflation an significant. standpoint, cost were overall headwinds and the first beef That inflation pretty were meat. driven From seeing on inflationary from where was are exports in QX. definitely produce we quarter. in So We

is we are through and herds that tight So second the supply continuing quarter. tight, anticipate

line inflationary. time, on a the X% expect to cost we’d our at point year be in of sight this basis So maybe full

Paul Trussell

sight fresh item spoke management come topic and as were it some a of And whether of from at technology double-digit then last or of – whether the line it. Got return delivery headwinds – quarter, was current made, investments all of second being kind that you kind initiatives about least your initiatives. your that of and a algorithm is of to approach And the in we XXXX. the half of big the conversation rollout

change one thought process? quarter got any in books, Just given we’ve that the more to

Brad Lukow

with certainly we all. at change we’ve to are infrastructure every to drive at continue of executed year And to do as and grow initiatives no We going sat do this back date management that pleased remain and intact efficiently. differentiation summer our what did these are with we us do plans and in customer need as our on what we how core deliver to we to really implement team to there’s point our scale systems No, all to a year. allow looked last strategic

We’re for extremely the critical management happy with out the us. fresh team that’s rolling item that’s

strategy early starting we’re digital the of the wins. the and loyalty. about going building to do We’re for customer out it’s see and really, to year, some work And the that balance our

take I engagement positions well the point to customer think from that a to view. next it level us of really

And why so obviously on. given roll And increase still growth. confident when year the that about roll that dollars some a double-digit to year we obviously, and think we’re we off beyond, EPS ones new this spending and and this XXXX we’re projects feeling significant that return that’s

Operator

of And question next Goldman our comes from Ken JPMorgan.

now Your line open. is

Ken Goldman

but CEO, your time. have And taking I on company of the And a company, process since is months five this Brad, to for been because medical any Amin to temporary well ask update we know leave a and do I leader. Jim hate COO. board’s if job please fixed the along more long this to a going I’m Jim’s It’s to, as it’s is pretty pretty much on in identifying personally lot that I used is? large pass sure leave, over you on a could when people operate and this little of up our that permanent three a wishes. a But just head just how right? not You’re CFO resigned. you’re time complete a keep doing without running wanted bandwidth

Brad Lukow

Ken. questions, for the Thanks

permanent you with the of searches First can to search, CEO, to months. know, regards as just these all, CEO typically nine take six

the in been short levels at he’s they’re we our business, been of running the the conclusion working close period end last with board with our him to And operations, and the years. actually for and almost and has pointed for highly hopefully we not-too-distant very are me. merch now team for the five two closely heads experience that grocery running year, team a the calls, in. been over up operations with with business. initiatives. in executing while of in his And out, He think we’ll the last couple side of for who and decades we’re us Dan I’ve got us months three senior years. And as we Dan The relationship. deep I four future. Sanders, And has well, As really for interim Jim’s know, of a in moving over strategic September has through of estate real of past and have The are reporting executing direct August, to in of bringing search years. last running solid is worked engaged. of And We as into for I point responsibilities planned the been and reports away, great you of share McGlinchey, took deep have who yes, in since estate SVPs back out, last very this as you November. haven’t now absolutely the on West. and about it. into development management are this experience part my in six year run have operations if real have and life the year, operations committee years five, something who some missed last together I’ve successful been I seasoned East the the about years relationship, the think Dave XX is But a Jim Look, we beat over – in in search, working

that company And never talent pretty enabling person. and of bench talent. great last the us has So the is attract the a approaching that now focused top company. been it’s months It over The $X and to been not company, is. has bringing billion in building we’re to XX-plus about the one important fact

as solid have other way. we’re but very Yes, continuing that a management to execute. So wouldn’t it we’re we’re we any team busy, feeling

Ken Goldman

say. bus" helpful. I right. wanted they All the I as happens CEO. That what is a sort board people a long – I though, plan to company plan of like been permanent when very sort place, in just by doing state, been a why to a taken a of the wouldn’t for many just I call, to if cannot this a gets CEO backup it’s I’ve have recall on find don’t months like nine hit this have time. understand

of not time as it’s to company. like big me a a question really for a So it just long feels but very statement, a much

it So I’ll let go.

Brad Lukow

you. Thank

Operator

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

open. now is line Your

Robby Ohmes

get Hey, Are semi everything. low the adding you. totally I produce my because the that being question. remind shop does the the think to could delis how as little related right helpful base then Brad. into call, lack this, a changing bit you’re become how And Sprouts dependent Are the historically but adding work history? full its to and probably a of cheapest it Maybe detail grocery to contributing how driver stores with on which store, of comps referencing – little And that. new in the used becoming items in of supplies? – lot? – the to beginning for lighter more more this you more you’re now availability. how more versus go into the to us a But quarter lot not of markets Thanks at that you you you at shop? on I coming the you Are coming going a new place year, from as are can wasn’t produce. the comp how you a maybe the household little full the into end conversion around you town changing the strategy for new comp good a I traffic understand something know grocery of is keep it mentioned more that, deeper taking about Brad, being kind of for heavily a be and a going and

Brad Lukow

healthy. I as area that helpful. we’ve are And Robby. has years last say of really differentiation a over would With what are trends the business, been consumer on towards to that’s very aligning Thanks, the on point of real that offering the Sure. a of we’ve regards for X.X us. moving trend and focused with introduced items lot newer deli our

growth, customer deli experience recent you that We had X.X our first quarter, continue the for private growing taste. basis couple has of penetration. natural, It’s would and and see who about team seeing penetration ingredients clean And but built XX% that’s and now and about of different We’ve And to opportunity. been XXX And all be a level. strategy items at deep in fresh that’s salads go-to-market a our our difference grocery. product. fantastic at label over in good the we what different. area, the significantly has our And in store we’re the probably Sprouts resonating dairy I us, they out because significantly We still can And now the are enjoys organic, with XX%. exactly top in of XX% beautifully points fact protein Particularly our eat we’re been the penetration comping customers just is It’s the so And what the in the consumer on other larger that global label the fact, on growth. very And the at it can items we’re packaging. can offer what basket all our and and a adoption about that range about we all in overall creating taste that and can consistently. and offers. something pick And see sales get our sales with clean in at It’s are now, not any years convenient, merchandise and our basket. healthy and You more with go only deli private SKUs to the are digits come label within many consumer the organic, driving and our the ago, that the than consumer that growth that’s supermarket execute in fantastic size. offering that introducing more retailers baskets one sales in there’s chef really to trust not private of between up research in fantastic ingredients, XX% categories absolutely us. It’s XX-plus the and in the ingredient that’s continue ingredients are certainly and say Frozen is ingredients, prices. side, in year. that telling non-GMO, continued approaching about expanded are saying double better-for-you trend business out contained on and brought last size years growth. and is area, research set, particular, back huge is deli.

lot there. that we tailwinds – So a of see

and We’re is just And to store add theater has within bakery meat experience, positive, expectations. new We seafood. of stores, at and, fact, store eight stores service And on stores the back format particularly have new we that more have new six prototype island consumer customer exceeding incremental been open now. that in is five promising which incremental and our about that And comes well. introduced, sales XX% the been seeing XX% in fantastic. production be every around we seafood in a has to prototype, XX%, the deli now deli we’ve and margin in that year. proto which better new there there’ll that then and I we’re and store of It’s fact place, slightly all obviously with been we very this XXXX, received all a meat would the in this The from a total moved going at as rectangular the beyond within house. this feedback that see new

that a it’s we’re answer, but not natural around shop. specialty is fresh lot of about grocery grocer, organic this really just number know long bit giving So full a factors are us there’s a of the confidence I a a of

Operator

Our from Fargo. Wells next Kelly question comes Edward of

line is now open. Your

Edward Kelly

morning. good guys, my Hi, call. for Thanks taking

Brad Lukow

morning. Good

Edward Kelly

start doesn’t issue, in improvement of it, QX. but the like seen are trend mean we had out we flu tone on comps to far the you the call QX? I wanted shifts sound I April. Have any in into just so cycling in Easter on the

Just us with can help any you there? color

Brad Lukow

Yes.

out we on As have of continued earlier on of produce our challenges the still hurt out pointed Mexico are California of we rains the call, in weather availability. because in cold combination our some and the supply – seeing availability

last in the year. as and to crop cherries compared that to helpful that more offsetting setting view up be In fruit the summer much to our a summer, the for quarter particular, year, season into months. terms very this solid be will in of Now be later so better look to a is

Edward Kelly

down mean point should number of I there, kind especially environment. I’m or think me, like inflation if take just despite we the end to the I year like get that of of point, the range, X% have at and the sort question now assuming low have it’s like the by – to fair? about about talking now X% half, of for produce that? I point, my I you mean guess, don’t kind mean know, comping it this we’re seem too. for back in I we don’t more if so of full is year. than, a so this at for half this a I of for back So think we And kind now in How other guidance to you order normal that to here, being kind is is comp at lower that

Brad Lukow

Yes.

to Number difficult our the couple of produce gave in with of so beginning things. context a the just happens one, season. growing project at from we average of original the an inflation/deflation So the year guidance, range six-week a given it’s broad what

When comp produce the of the the that well, in the promote lower our resulted and of year, first So quarter beginning traffic the in availability our look we range. drive challenge the at impacted in which the for previous towards continuation, X.X%, the in going we year. second obviously we’re some then in the ability quarter aiming and to we’re out of February, first about we that quarter. a and midpoint midpoint the with availability in full to be out and store slight had And with below specifically out of had called into range the X.X%

slightly low between the somewhere of in So and range the higher. end

the cost as As it be not and can compression that some that inflation it’s on has as specific relates and inflation comments, our so immediately to obviously top passed well margin. line through, all

two. or next to quarter out just how the going so And that’s over play at we’re looking

increases. now that but in into we see that’s quarter As more of But through slightly those most nonperishable I pass to shelf lion’s on share headwind starting second the out point a did to starting the side, pricing. quarter, come through are the the cost and people was first in

Operator

And UBS. question of Carden our from comes next Mark

open. is line now Your

Mark Carden

for Good taking morning. all questions. my Thanks

So the more you then this historically a the know of where building organic you larger it’s there’ve bit your pressure getting competition faced lot around? a not of but any time coming is headlines guys Foods, have have different, price. one if competition that I been from? more said Whole competitors core questions, customer’s of natural on your on some earlier aggressive about And

Brad Lukow

stores our price different High where not And demographic any look have moves. center. we to and moves I Thanks, previous back comment Mark. say destination of don’t reside Middle our would in one though our core our an over is core customer Yes, meaningfully regardless specifically department when seen closer customers also, pricing we on while current America. Street still is price changes given competitor, a – basket as any we lower. And we and it’s trends Sure. standpoint we locate from to overall And opposed much

expanding in the terms we industry. what I pointed percent two those with for good is in as different as competitors years. any are regardless space natural, area still really sweet are a the in see that fresh fresh line an and customers, anchored in next of we’re what doing. of space there we’re XX% being – of And question, shop store trend and going. with top organic all and on over customers we our grow – There’s is categories not a where the projected X-plus we’re in and and everyone out out on very across of their focused on question, changes the for seeing more more the of couple really the reasons, much previous the of we’re So us no mean, natural on to news I sell focus that’s is being

market. competitive is it look, So

business, the and of it’s a balance. and front offset to they seen balanced But but passed freight in to nonperishable you fact heat a see bit market. across markets cycle on not to typically some tend by related various starting being We that’s increased that increases have page on the through board, to side so the shelf, the cost on are ads get market of

Mark Carden

to And on the Great. should the weather? the And in side in year’s in tightness simply we produce then impactful compare be aggregate? this of consider the first due perishable this something how is quarter to last first normal do business, Was quarter? just to

Brad Lukow

shoulder It more able the of to Yes. the a time that year. can have tie-ups U.S. And significant items most in was quarter more at from being impactful predict February And pointed past, challenges, of out if seasons, are year, November in borders. of much the the because through we’ve you of you to number the this offshore outside component a the first produce of of be will, are as challenging from sort including sourced

side difficult the I and looking in through of So as time predict of time think fruit of that on better we business out, a pointed to here, try season the it’s summer But the the like more produce. as a certainly in growing year. months period

Operator

next our comes Jefferies. question Mandeville Chris And of from

now is line Your open.

Chris Mandeville

out-of-stocks? bit you some mentioned Hey, there or management And a there think good from seeing are I had improvement markets question earlier morning fresh one you’re early the terms been me. wins. can anything how in quantify system? in that item shrink in Is rolled the the associates out, has Brad, already call where in taking you of today’s little

Brad Lukow

Yes. Chris. Thanks,

We’re implementing system. the actually

greatest bakery out how late rolling department fundamental new augment order sort was learning year. convince the And our meat that trust team To seeing to of deli. we’re system. With that think members this need the was to aha of with to challenge actually stick in and rely and that last I because I to parts training but is really habit quantities. biggest we in and we’re how production the in year, by is system, when learning success long-standing the biggest making challenge needed program system, well, of And that determine everyone that by works. geography better. rolling you it the we and identified you, of it terms is, out and not But We’re the this be honest it much in the greater to most I system the and on to now think use how

One it And optimize of how item you’re two sequencing, fresh is to go sales. ways in at out. so management terms there’s you rolling can

back the the sales, set we’ve implemented store, the sales So you and and to that on seeing second to at increasing and is for shrink I wins and And can back not seeing in were taken, situation overall, pull improve the we’re of sales quantities to where so sales identify at production optimize have look And items as computer-assisted right first The to positions. better wall go it the we’re can produce, nice enhance table. relates ordering our productivity optimize back we stores. levels the of approaches much getting you And think, then certain you in-stock SKU optimize areas shrink. on leaving once the like right

items some planning of in production most which cheese, now we’ve and chicken the the meaningful on Some ordering. the deli, productivity. rotisserie of And got meats and the step-up the in we’ve seen probably is hanging area in the sales computer-assisted now deli,

and pleased very and how we’ve and training the we’re according with it’s sticking. rollout to So plan going the retooled it’s

Operator

Karen next Our question Barclays. of from Short comes

is line Your open. now

Karen Short

me. from clarifications of couple a Just

not an explanation to your that the given for ask context like clarify increased. So retail has mean as be maybe cost X% in I level. I us comp obviously, you’ve the of given will increased. inflation at And the looking And inflation have you can but But because, full comp inflation why, just think guidance what you’ve guidance guidance you obviously year? been

Brad Lukow

you a in the we’ve on in Yes, morning, pass increased that can’t significant quarter Karen. anytime good of produce. of the important challenges, Certainly, you first that number through. commodity situation on saw the focus with extent have And seen inflation competitive marketplace fresh availability we to items, a

between that’s items. second first those our part of has on And and the year. inflation cost for difference see significant you quarter, pretty continued full because into a retail view really the that comp on driven So sales the

Karen Short

that on bit guess kind gotten like remains you’re gotten the then maybe competitive has aggressive. it And indicate I’m to worse? more maybe of it that? just saying general, but landscape I in totally Okay. clear. Can it hasn’t you clarify not competitive does a you it Because still sound Are just little trying

Brad Lukow

Yes.

than gotten certain in has front it of markets, meaningful increases frankly, on QX any willing absorbed from the think be that, half some before it’s right more everyone through cost through extent seems aggressive being page I first less late to to everyone’s ad. to But now by pass-throughs. aggressiveness more quite QX pass as offset

So between on-shelf it’s bifurcation on-ad. a versus bit of a

Operator

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

now is open. Your line

John Heinbockel

then think get be, you and where the not, if to dial X.X maybe can going X% you to mature X% they’re if you fair? at that expense to kind that forward, possible fresh on is the stores, X%. So at management, years down right, or third we’re much? your the level XXX that Brad, below. think home probably And think that Not you leverage this delivery look X%, the out just X%? you And leverage thinking bit bps expenses, if looking to it quarter, and can a I’m to to as really trajectory about X% move last part you would then fair think about which is item – comping X% need about to And when maybe it of then is

Brad Lukow

stores the they performing terms are cannibalization. are John. of stores EBITDA, the the store identical also strongest that Thanks, Look, share taking the the lion’s are in of that

And business the ex So performing suggested. the stronger you cannibalization, of than health add they’re when we always on look the an cannibalization basis. at back you

changed engage. it And standpoint, number customer wanting to that’s identical which to to and need and From really, our digital of they on point slightly if engage we’re points our roughly around company as the again, more however in total of guidance a that. basis stores, XXXX, lower the do than want a with to basis, full with strategy our that’s is regards home relates to wage has entire about approach at loyalty wherever coming as all is Really related quarter entire from we leverage so share XX the the of investment we the stores incremental the on leverage the level first holistic SG&A lapping this building how that line. with significantly we’re terms But And only strategic out margin to growth we the comp leverage really one. of a regards year e-comm think deleverage as on the And to of leverage It’s initiatives delivery, sales line. executing through the X%. not gross the well year XX lion’s and strategy. how

Operator

for session closing for the And comments. that over Brad concludes I’d like conference to our to back turn question-and-answer Lukow today.

Brad Lukow

forward a with everyone you. you Thank to in weeks we seeing call of you for like and the to number just to We to look come. joining us thank on today, the speaking

Operator

Everyone, and day. you Ladies today’s conclude the program in gentlemen, you does great a thank all and may This for participating have disconnect. conference.

Sprouts Farmers Market (SFM) 2 May 192019 Q1 Earnings call transcript