Sprouts Farmers Market (SFM) 1 Aug 192019 Q2 Earnings call transcript

Company Profile

Participants

Susannah Livingston	Investor Relations
Jack Sinclair	Chief Executive Officer
Chip Molloy	Interim Chief Financial Officer
Kelly Bania	BMO Capital Markets
Rupesh Parikh	Oppenheimer
Scott Mushkin	Wolfe Research
Chuck Cerankosky	Northcoast Research
Andrew Wolf	Loop Capital Markets
Ken Goldman	JPMorgan
Karen Short	Barclays
Chris Prykull	Goldman Sachs
Edward Kelly	Wells Fargo
Mark Carden	UBS
Chuck Grom	Gordon Haskett

Call transcript

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Operator

Good day ladies and gentlemen and welcome to the Sprouts Farmers Market Second 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 introduce your host for today's conference Ms. Livingston. Susannah begin. may you Ma'am

Susannah Livingston

you and everyone. good morning Thank

Board We join XXXX Sprouts you also have on Chip earnings Officer with Chief time to taken the Molloy, and on Officer; today. Jack the Chief are and are Sinclair, Interim Financial pleased call. Executive Member me our call second quarter

the the this call investors.sprouts.com. can The earnings quarter second website of our section XXXX results our accessed webcast through Investor release announcing our Relations of XX-Q and be at

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

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

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

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

hand Chip With it that, over a let to few to me words. say

Chip Molloy

Thank express Good kick want our at CEO. call as I our it are off thanks today. to and you, Sprouts for morning excited have Jack To we new to here Susannah. how joining everyone

extensive with of were an to through went for Sprouts passionate potential experience. the and proven very leader brand. beliefs process We their a significant pleased find applicants with search quality We industry the and the

chain, experience, combined of years set grocery infinite and his thinking with apart. innovative knowledge store and supply XX-plus Jack's merchandising, him of operations, humility

and my foods forward role as working our Sprouts and look culture about CFO to member Directors. Jack with of of healthy in purposes. Jack sustainable which align a is on spot Board passionate with We interim

role a of Nielsen transitioning to until today will of Jim senior as addition March In XXXX. be advisory

that leverage experience are over have and opportunity months, knowledge the next to will organic and of Jim's industry. natural the very several a Jack pleased We

to discuss it guidance year. words. return and results my our few capacity updated me Afterwards over to second Jack for let in that interim I will turn quarter CFO With to the say a

Jack Sinclair

to Thank have my you, Chip pleased with speak to first I'm all on with opportunity you the call Sprouts. earnings and good morning everyone. today

weeks been stores and dialogue across the past the lots spending I've time company. the members team Over few with of in

working excited years afar, a unique be middle admired of in the I've and business Sprouts is format my from United so In a States, to in the now. Sprouts I'm unique brand. the

have grow to food. because access can fresh, opportunity We we expand to healthy, and an affordable

healthy are so food lead concerns country be becoming this the across those families. feeding best of their Sprouts and Consumers provide about alternative. to a is serve is growth concerned here That brand. why healthy place the to and I'm to increasingly excited

to stakeholders. creating commitments I to and our the stores clear culture business. meeting culture our how and company believe our our improve believe I in culture all always believe in a with other. I to a our customer-centric improve understand transparency and and to accountability help in us within of of our and creating each customers listening

we will have opportunity develop how capability but and executive Sprouts. and front diversity a on grow answers build going we're Today in to all of to I growth this significant depth improve not do capitalize world-class and with the the team business, to as a

be that experience and will a the front of trends foods. both competition can I'm Sprouts that stay at by find and grocery the And customers is that all defined -- those be the winners. those future forefront. for headlines, are They customers where those food the that unique those outlets read And same The product many As differentiated grow in profitably. digitally. we the the in-store follow will healthy and retail, retail will create confident or fierce can bring be there even

across assortment well-worth a expand healthy product to opportunity tremendous had States. have with unique the We United brand a

evolve have great know effective. we but model be companies in opportunities significant do. on of to background work to business a have and scale, more my I efficient we We this foundation have Leaning to even

team our to working win strategies I many detail the strengths months build that with in new future. look to I offices share capitalize forward paths with out on on all near determine to in the and over to in you look or upon plan road you and of the forward our coming to more customers. meeting the

quarter I will now to back results and hand second Chip discuss gains. it to our

Chip Molloy

Thanks Jack.

driven increased were second X% was to transactions Net results. sales the period April billion, Comparable $X.X the quarter compared X.X% most in this better sales were our traffic. to May below turning down up reducing to month still comp but slightly. Now, and promote improve and to ability year. our store same last expectations. our drive year, Trends June, were availability, challenging by produce limited and

online private expanding Our online gross while new small current The total, to relatively reach our items a sales, in basket producing higher of increased a to and label less has higher also still promotional providing penetration customers. a XXX% convenient alternative while margin. items customers

Phoenix In further in has shop. test market addition, the click engage how and with we our they customers as expanded collect regardless of

XX% to double-digit label a private growth the revenue of item, our testament consumer adoption sales Product in company drive total the items in the brand. quarter. private our of second XX% More label baskets of continues which innovation reached for than contain

our transportation profit basis period primarily same distribution gross was million $XXX fully pricing the margin year. last quarter reflected XX.X% cost, now in gross increased with increased by to by slightly points second and the to due costs. X% higher This decreased to and retail rate compared product the XX and For

million $XXX to X% in year. increased last XX.X% period or the to same compared sales XX.X% of SG&A

basis interchange points. point accounting associated XX lease This new of SG&A adoption home impact reflects delivery the the stores, program. the new standard, XX deleveraged from with in basis fees the cost of increased Excluding investments primarily and our expansion increased

decreased XX the quarter, lease second the $XX $XX to including quarter basis impact and of EBITDA period of XXX depreciation EBITDA increase from second X% margin decreased the X.X% our compared million. accounting the in points XX% an to standard. cost points basis to same a amortization or For And increased last year. non-cash million sales,

the if second results by would reflected lease have accounting, the comparability, points. EBITDA same XX margin For basis decreased XXXX quarter

for the income $X.XX second $X.XX quarter compared period to last and year. same in earnings was $XX the share million diluted was per Net

As a a reminder, the of lease standard accounting will net fiscal per expense for a result incremental quarter. or change share penny in $X.XX XXXX

and liquidity. the Shifting to balance sheet

$XXX to utilize million flow operating from unit We to initiatives. continued and year-to-date strong sales operations, growth our support our cash

primarily invested stores. million So in expenditures for $XX we've net new landlord reimbursements, of far, capital

two six with New and new quarter, second the stores new Jersey. Louisiana we During opened states, addition the of

lease planned, stores one resulting not and in was and renewed by store was we expired states one relocated, end. As XX quarter one in XXX

in million and and million both equivalents, the existing debt-to-EBITDA store vintages markets, share in available with our opportunity authorization believe credit net extend our a cash reach. our quarter million reflects repurchase recent open we $XXX continue under borrowed which and cash revolving Our the strong $XX We X.X. to million $XX $XXX new ratio to current on ended facility, of

quarter, and year-to-date the for $XXX repurchased total a million. million investment of $XX total During shares of investment we million X.X

turn to XXXX Now let me guidance.

remainder reflecting a of for year-to-date performance are expectation adjusting today, and our We the the guidance year. our

XX X% between essentially grow net XX.X% X% grow approximately to For basis be comps. tax be and year-over-year. to should the a to Earnings $X.XX Gross full approximately flat should we XX%. year, sales points with now XX share with rate per should down margins expect of SG&A $X.XX to approximately

XX to CapEx We continue open and landlord of expect $XXX on between track $XXX our to are be to million spend new reimbursements to net million stores.

not going In our store opportunity recent closing, Board captures we hiring is major Directors, That reach our encouraging, that believe recent passion path both extend a exciting. is Jack for team tremendous and customers creating and brand The members the a white-space front speaking with from opportunity have combined marketing trends is towards still we results. the a is for our believe done forward opportunity satisfied a be in of for and to said, of perspective are new of and our Sprouts. to just We us. there with step reversing a not but work there

that, like open would call Operator? up With we questions. for to the

Operator

from question Kelly And Instructions] Thank Bania Markets. you. Capital our [Operator first BMO comes from

open. line Your is

Kelly Bania

Jack aggressive it's that's of the what questions. months? your what used at the is for in I Do in produce actually more the point? several driving are you same having is what that assessment here. assessment this you is morning but options realize more attribute taking traffic weakness your and the this change good that the the Just and guess, customers? here, initial you losing to? curious early, what not market happened Are capabilities -- thanks of I a becoming and some the Is Hi, just Chip, lot comp and issue just your and assessment of to management past

Jack Sinclair

question. well-placed and deeper I this it's organic preface. that it's think you customer knowledge And been. at. days when meet in business as of I of of having for and in working eating The what in in league I fundamentals really of natural I in and foundation it they're think business in it. business the see as a question. ever foundation today is encouraging with this right understand has expertise the is this a is that wouldn't sector terms through as done we're that Kelly early different sector. people And a interest Since look the that And strong incredibly in and good segment healthy terms is at Thanks I the knowledge strong it's The terms foundation. of the that

there's comment the time, difficult clear that I for we exercising there have margins I of the more that margins, and a is few of of opportunity than aggressive has how -- to comp that comps the whether The and the in of the do foundation out that comp opportunity high-low has only not to a opportunity to over grow months. the that. in will a and that and grow think thing one I see of combination right to it front at on has it's for been few think managing on over from mix the we sync price. business don't we're made business EDLP an But build I is difference us is sales we're last months probably middle about I stabilize I environment same and promotional stabilize the balance number. this but see got are our foundation me think disruption out that price the last how in us, our

well. very the what in people I'm really the the the we very new a couple customers of mission passion stores encouraging passion behind the yesterday. stores to -- by of brand's It's of It's see as the encouraged opened about. and the the

and I ourselves over better if managing foundation we'll strong So this forward. I real think we in think few months, going there's a a be the next get position stronger

Kelly Bania

Can brand slow there's this just comment or release you of footprint. indication get about to commitment in may And your likelihood -- you of expanding the you stores, to back this of in any any want things kind give of a kind sync opening there the as that is pace its here?

Chip Molloy

it's Chip. and looking retailers about especially piece hard is have to and that that Kelly clear at it really those think their successful. We're lifespan, been you us,

really reach growing You going there's a expanding customer. look they're focused the in through that then after their on their a their life their They're really really they're and that. to square they're period different drive and try slow starts of and life footage. drive their lot margin period brands down they the earnings at where a And there's productivity where in expand and and to operating and

the growing the end like like would doing Depot Home -- that. be a In Home look today. a is job. crazy predecessor productivity, It's end. has job Five the great on Below other can Depot done really You and on good of is other

we've that do really both. tried is to very, And is do well look difficult. very to early Our both

what a in sitting we're with lot in so company here white with differentiated us. the experience a as front of differentiated of believe is model with we And space stores, product, a differentiated

going we in reevaluate if go look to how going this. and how can extend how and yes, don't the grow it's go we're how to and costs we market our much box slowing reach So, anything I direction. growth down the box we foresee to going fast the other are we how us to is, big at

Jack Sinclair

to more slightly And there's that Chip, operated. is an of them us probably reinforce think to looking the differently approach think do just there forward. slightly for slightly how opportunity store And concentrated at going growth a in opportunity opportunity to and an terms do them to I smaller geographic format, in this probably I we've approach

Operator

Thank you.

from comes question next Our Oppenheimer. from Rupesh Parikh

line Your is open.

Rupesh Parikh

my for and morning questions. thanks Good taking

on just Kelly's So on following up store growth. question,

As in of store how What newer they and seeing want Jersey, newer are is some meeting for Just of New markets basis your performing? you you at stores? cetera. like Are Philadelphia, current your sense now your look expectations? those your a base to store et collectively Louisiana, openings get right

Chip Molloy

Yeah Rupesh. me in exceeding for our ways. are The many expectations. stores expectations We're

average we're on First on winners all one, -- some -- average our expect. year what we on stores but the had average average, of beating every not are real performance on of We of late. single

stores Mid-Atlantic very a very in positive the in early winning Some on. are of the way,

months that about XX, That said, ago. thought stores we're XX now we opening

way a to and at. So go in -- after the an something we after that go we're going productive lead in aggressive that times how and look that way it is do do

Jack Sinclair

very has new delivered all stores -- I strong And Rupesh, customer in of the our on in have don't reaction think -- been that. most

we think that so some I issue that of supply in growing stresses mature created itself there's how we're business for serving going how a gets working and in I real us the we've think to often have the that's our something and terms some created forward opportunity stores. into, chain that's strains

it doing moment, more customers' excitement around at format. we So while we're the efficiently are than the the retaining

Rupesh Parikh

next terms with Then have was there to I been this EPS maybe guess growth, back changes thinking any you'd place. also I algorithm that get there's lot out Obviously, that about year, -- there forward? a the earnings Great. in of think insight prior Is initial of double-digit going at taken Okay. earlier least so or thought how you're year. growth the

Chip Molloy

that that we had over march honestly, trying was that that years achieving the We this That years. a haven't have quite know two work a algorithm is to towards an company there couple really do quote I there ago. Rupesh. last and of been to

it put the of and definition into of not So to and sort jump it. a achieve there don't out insanity want it

how and to So this drop that going want couple next therefore we to the think we're of really what five investments hard next fast how takes strategizing to of really can years, what type at the we over grow, work about over the bottom months, line. three business we

and we'll keep have before to overall operating have our But and our very good what am in will grow a margin more can to how gross that margins end confident year a to there investment earnings company this position really growth -- figure I to that relates can But it it's therefore is much of we'll be. come be the that. and to to that the I really grow as we stable and think out speak do

Rupesh Parikh

of Great. luck. best Thank and you

Chip Molloy

Thanks.

Jack Sinclair

Thanks.

Operator

you. Thank

Our next Wolfe question from Scott from comes Research. Mushkin

Your line is open.

Scott Mushkin

for taking Thanks questions. guys. Hey, my

right is more -- on So kind the now. understanding this guess I just of operations just

the know I adviser get think company. to be trying of company kind to going and you said the to Jim's the to Jack's

who making business a in changes day-to-day like the the given organization? question my the is guess is I on So decisions

Chip Molloy

his in given a But where a really been incredibly that really and is start help that working great today. Yes, grow heart the literally. Jim Jim and and really needs to his Jim's That's at that. I'm for given all question. Jim. I he's to on Jim we he's has this in over years. I'll is Chip. life speaking and with time grateful everything to company focus to to the it hard mean it to have this given it board do Scott. soul This for so company been He's where

very Jack him fortunate excited some still at conversations help his to engaged had in have role. I months. to the be met him. several Jim new he's level But transition next with and I've for We're with

for good really that's the So made us. are collectively. But decisions now

our trying We are and to it coordinate really leadership myself between Jack, executive team.

meeting it are and weekly on making team. putting are together We're leadership table as decisions. executive We an all collectively the we

vote the the XX% got Jack's guy. chain-of-command a the I'm end of of at day.

way storming But work. right the to now, going that's we So are norming. it's

weekly -- team I'm decisions the leadership through meetings we're made during and that, by and productive. getting but very having there executive those the happen. our that getting meetings think we're week So encouraged are very it's the I we're after been conversations

Jack Sinclair

challenge sorry, my this in So Scott. --

Scott Mushkin

go No, ahead.

Jack Sinclair

that morale good Yes. is to of which middle and My is, sheer of how in the harness a challenge very to how which appropriately. question harness that the energy is one the company, strong and

and clarity a before, and us that had Jeff As going last the that is allow said, structure we're discipline -- all in I more over few we structure meeting than think disciplined maybe months. a is of changes consequence the the of But today putting much basis which and few the will was the weeks of allow effectively. that short-term think something to the on a the it of us control kind levers ago a have manage I much allows that's to that clearer structure and is than us business

Scott Mushkin

follow-up why it do just little My you that. sales think really to the the a comp how of that, very does can in why very, Appreciate how better. position how trajectory? you pop our about Yes. change that, how early and the head will Maybe it climate you really will so with goes get And competitive question seems trajectory? change comp for and Thanks. stuck and change to into kind Jack the climate a this but sales -- just wondering difficult and competitive it's

Jack Sinclair

Sure.

how way got can it we've the I'm the we the the those got of that you businesses -- model, head about And great on. about As well our a destiny pops are on into thing that mode think is strong very of a our dynamics. a and And imagine and lot competitive we we've as we Scott, be my which catching can one proposition to in have the terms our is unique go in in clear expertise areas format the own market business our hands. pretty

that honest a does, We in Sprouts, areas the when retains dynamics. particularly we've bulk the that strength got after whatever can people within Those have had anyone there are extent, whatever competitive it's coming always area, area. to look now produced, a the strong mode terms at the which I I great of that particularly reputation that -- in particularly in any other areas vitamin aren't think

think that the I we needs I of control for stories in be the allow what the own I not is doing. – other our control it guys in more course us to some tell and change this So people likely to what it here have about what us space about when I about our what will to brand, that they're and of this is hands liked coming really like to do the that opportunity chart to other at are own look they and have does

got So but our chart to pretty positioning and us I'm we're the both allow watching forward. It's we've course confident closely. own people days, early that the that feeling will going

Scott Mushkin

Hey, thanks taking it. questions. for my Appreciate

Jack Sinclair

Thanks, Scott.

Operator

Thank you.

Chuck next from Northcoast question comes from Research. Cerankosky Our

is open. line Your

Chuck Cerankosky

Similar can everyone. are costs income? morning, to the at was tell you food when food so it's difficult while retailing getting now, you're you consumers environment at saying to right discretionary expanded pass-through what Good higher looking think Scott us why

Jack Sinclair

Yeah.

question. again, think a it's I good

whereas about There's a bit and between the pricing able up high-low into reason retain I clear we've we've go prices And within forward. EDLP space inflation can't can't that going and as why reason with little the we're more got we much situation pricing. promotional not where the why volatility within manage be our think to having everyone cost really no more way bit I why our a to food and our comment pass-through of can't the those little we need but get mixed change. context ourselves have volatility to probably or carefully There's in world pricing margins price have of we world, food a fresh done had prices within probably the won't a worried a on we changes. we've too give, very in perspective we line place that up, else ourselves retail strategy, what down and can't EDLP

Chuck Cerankosky

the let's customers that Are to wallet food their you're you holding spending share look activity degree of when your in-store for saying measure you you best purchases? the you at say do think

Chip Molloy

Chip. is this Chuck,

segmentation just I into weeks. that of that of and one and gotten customer that think honestly last that's movement ability because in a something we the digging Jack time and just it's to couple our of is the question I and honestly quite haven't customer the the

Chuck Cerankosky

All right. Thank you.

Chip Molloy

Sure.

Operator

Thank you.

Wolf Andrew from Our Markets. next question comes Capital from Loop

open. is line Your

Andrew Wolf

Thank in mentioned ask wanted relation you. very prices Jack, to to I these words other on you of large view Sprouts. in your you kind scale which just

say we develop market, a pointing to the is well So, what relative scale real I'm e-commerce? really view let's in and complete in to particular landscape to your granted to were that fully Sprouts' on just agree Sprouts is digital changing positioned the and resources and

Jack Sinclair

and talk other back Yeah. the Well, to come digital I'll let's areas in terms about all what e-commerce. of and

forward XX think good That months I for said I fruition on in And significant remarks there's to opportunity some think comes through being we efficiency. over drive I – going efficiency work will about efficiency that next space. to and months that growth we think XX by our certainly chain more the in how the there's supply think the can business that in come build I done I about team. now in can scale very my

exactly very terms of the brand significant what getting I scale much think of this more that terms and telling marketing utilizing this in branding we're purpose stands stories about and for. the of there's in brand and opportunity to

to think both put market. think – the can place can in can strength create how are the real of some place to brand in I So and I terms in areas be go of resources those

an in business. there's well label, been opportunity it's the private getting think I

terms with and – about there's think with how opportunities approach further as in our efficiently. we And working I scale our think working private of evolve and we to in to going pricing forward. working label, think that opportunity grow and significant there's vendors I our scale promotional and

brings we and some how promotion think work bring in think that, to we scale label can terms pricing private benefit some focus activity branding, of I to. I chain supply So

something growing met it's work wants good about to – of very next we some And that experience the our moment. customer it certainly my right been work think scale meet system sir. I to customer With reality where good I way the we've numbers e-commerce at the be about customer you release and customer in been think done is I that be bit space, the regards in been in and the And who stuff few to that to and experiences the stores digital few met. done doing working encouraged will right tests we that as we've been And to the we've in and little this And we – that. absolute think the work I'm mean, into meet the the need the click-and-collect, scale think needs think talked if on that over we're I forward. in allows it hard question delivery early that have the get the the detail, people at on that going I answers a that's on I within resources think market. this in of hard to more but think your that have. the in I I that's from talked some by to that get months, in to have doing really and I approach we'll home has a so our far in of

Andrew Wolf

pricing well follow-up pretty – Sprouts or just to Scott's And with for well. of aren't their interesting that clear competitive a and environment. like It's I But in extent cannibalization and also some the everybody's assume also new company but yet think very Jack, strategy. it's lack you. asking on thank comps I reality sort with the that in self-inflicted so sounds it doing question it's think Well, is you unusual. just some still the there's is -- your of the stores

more the what you like strongly your thought being divergence comp opening it is a I'll why so a new there's in So of flat? between just how base would of -- the way such pretty frame general and stores sort

Jack Sinclair

think, talking operating we know I've to manage some that. competitive the So be captured I been dynamic about. careful questions don't now kind and believe where over got I it's in our just to across how own we've very that think -- I we're of Yes, the many. of and hands I watch do

There states to many one is does different Arizona change and Jersey dynamic grocery next. doing Texas and from the everyone we South operating the what dramatically are So market a market in. to and California to from pretty we're in

can us hands I look manage or competitive a think how But own is exercise, how we for forward. how in manage there's protects that in the that choose about us to cost think within of opportunity some we really at going to how we inflation pricing we terms our context. we and ultimately think strength deflation price have brand that I

just this this. our self-inflicted within believe and I to said, own reiterate hands -- So manage we do is what to

Chip Molloy

this new also productivity. have store really good do Chip. is I think that we And --

side we're hunts. That's early. and new able markets. markets very attracting I them is and stand to later a with and come opening who the we and we really the work and hard place It market throughout going see in don't It's plan think what always really that's hunts understand we also I'll a for. say for we marketing sign branding good are that says on that really helping being good attract we're really then brand customers new customers really the that encouraging a the grand those other to in this encouraging. back to plan new

with it's a and today. even the of today we natural should satisfaction kind square there job better need you're that do be And from when footage to the not comes comp there to our coming of maturation so the higher we're we stores that and -- building building a be that believe should

Andrew Wolf

were answers. Those you. Thank I appreciate it. clarifying

Operator

Thank you.

next Ken comes Goldman question from Our JPMorgan. from

is line Your open.

Ken Goldman

have Hi. you're guidance, really Two giving which do? Thank you questions just name expected many as yourself wishes to that all downside CEOs you're the reasonable comfortable from for outlook? you, reflection new and are very please of don't half signing maybe cushion true being than Jim a Jack your understandably his Is pass Or lot to along acknowledged some think you're but your people me. to sort back assume is I it lighter guidance, answers. and you the with best health. today of

Chip Molloy

Jack, So know Ken you addressed the take answer. to question I going to I'm that but

Ken Goldman

take why anybody. I'd That's

Chip Molloy

Well, somethings -- think there's quarter got the one in the we're to the starters and consider. For month so -- we bag into and month I slightly our are positive. a month comps

have foremost, our deliver First what's to what's understand terms business to signs our control, rigorously control what's and and that in working, what's going traffic, there within early Jack months find not do the are in the that seeking weeks are that margins and working, and what's been going some not what's drive on team some -- to happening comps, opportunities us we're really Jack and within the in building are and with stable help I drive happening not of a bottom-line.

in irresponsible that be expect to and in we any comp QX of it But we of near-term. half first changes for the believe the a comp quite X.X% or significant will communicate trends very honestly, delivered and there's and to going sort be a in us X.X% the year

it So what that's is. why the is guidance

Ken Goldman

Okay. Thank you for that.

Chip Molloy

Jack -- can I say Jack something you unless And add. else need really would that

hopefully -- question. your that think that answers I

Jack Sinclair

that's makes good that one. think so I a sense

Ken Goldman

No.

in very good forgive clear. was question sort for this very not at answer And want questions Thank so -- you then to of softening my that ask bluntness of tone the I'm the -- that. think I I here. making

Chip Molloy

that. Keep for

Ken Goldman

-- skeptical okay, I'm But yes.

anything that you wrong grow over really So because industry's you're that's I'm doing can because of tough. skeptical not just your margin the time gross true.

little how without and a -- margin have I'm Sprouts' today do it does you is talked stabilizing may the answer it. is competence? is your to about growing gross sure that over Again clear for on putting What you better so being I'm and You Because bit. it time. me it you can a yet What to your core maybe competitors. not spot and you in that its view? grow review than that not

wanted to have. I thank it be than So you again any but it's a for little answer blunter you

Chip Molloy

okay. alright, That's is Blunt Ken.

we're growing it's still product. going We As opportunity our believe to market That's conventional now -- a not is is it compete a there we right to have go what an But store. -- not now and there margins to gross margins. that do believe opportunity a grocery do saying saying differentiated we're have and and stabilize we're grow? we're grow experience not do Maybe. to that today because to differentiated relates do we stabilizing. We

leveraging forward. -- we that stabilize the And business your the so going conventionals margins. drive an And to business ability is our and have allowing business in we're and strengths and opposed as forward marching case, our to to in competing that there

Jack. over it turn to I'll So

Jack Sinclair

clearer. So at organization the in worked and of grocery over over few I I've in which where the is purpose as differentiation last company the sense and of in question not is the many been the -- countries within think heart a the years. your places morale I've many

the in think translate the customers then sense coming have -- trust it What you the of of do our that into The nature format selling Sprouts terms how that does format have? then unique. low-profile people that of other very creates for you're I into store? unique a what is in don't very is a low And So grocery. differentiation

as real you all frightened not you're cramp think When and can and in of as strength there's aspects full that. make your I you high don't store, to it store the make show it a

the produce I is market I nature in think all the unique. way puts the to front for it presents, in comes customer way, that way and in the think departmentally, a organic an Sprouts

and and product is unique the pricing So in the the pretty produce. presentation

bulk look category. you the at Then

But done broader unique about pretty grocers the bulk. at being of grocery packaging few people in have being things people's of the terms that -- there. it I core have well do placed I we're a format aspect with concern in think we're few the increasingly think concern world, the and Now of around and that

is of access to below the and again the strength needs of at The product a trekking they would very pricing department unique people goods is and advantage grocery core unique to that packaged for XX%, offer. what XX% as partner pay in allows vitamin supplement bring

the very and what team things So have unique I around those meat think are and and -- the the is the terms comp pretty dairy different in of well. done as three counters impressive

product think that format something build many the differential that capitalize business, people advantages forward I and that built to can on. built I that So advantages great Jim and advantages, and this pricing this going mold we and created there's on credit some can it's who that's in really people that other but business they've

Ken Goldman

you. Thank

Operator

you. Thank

Short comes question next from Our from Barclays. Karen

is open. line Your

Karen Short

couple And to you. Hi, A with thanks. look Jack, questions. welcome working forward of

the on guidance. the just end -- So guess quarter on I

negative comp and half. half turning the said you in in but know positive guidance terms it's implies I the negative In second the for July, of second possibly

to on think fact a adjustments a to take clarification will of do traffic the maybe that store that hit there? the pricing that comp potentially some need little Is do rebuild just across you you and a function eventually

Chip Molloy

thinking Karen, first X.X% of half was the negative Well half year a would implying comp back on negative pragmatically, the X.X%. when a imply

in talking points changes talking we're about about We're not fundamental basis So the business. here.

I like working backdrop going manage we're to business And the the is it's take some still and -- how through said, to here time.

so buy front different minus and the lot. we're for does between in half we're end be significantly very it this others back that about the but day not some the my Maybe, to X.X% flexibility? range not may a a talking half going tight imply and us be difference -- in And a that half, second the it's in X.X% even of is, opinion a about to very, the so talking at us

Absolutely thoughtful so. the the it's also way to give business? Are comp? way that That's to Karen. Absolutely, in best differently? and negative at So Are we're methodical do a something to a if answer the drive I But we going you how we can we on we're looking for a satisfied going towards not. build improve really till future.

Jack Sinclair

what to be for is both this. around going And very to of days strategy that us the Karen, it's exactly actually shape early

in Chip's given what the think need place forward, I us think point So to set to stone the us going at we the to I right moment. opportunity be to do is for really

Karen Short

of Depot guess, the with companies Five stages at appreciate more looking things. And then just side life I picture, at their at and like obviously kind Below comments I of kind of the you And you'd the spectrum gravitate said to one end so bigger I Five Home of guess other. in to the

But big spot you to enough be you're and like really systems need nimble, that small I help things in but maybe understand that investing kind keep guess in a where enough you're of you're you can because me that. tough

investment surfacing you cycles So have over time. have going are just to that continue to

or mean because right on that can I'm I So seem you more not to you be a it easy for it's little as guess totally I growing Maybe is how going EBIT EBITDA XX%. analogy doesn't Five convinced to color that that EBITDA, the find balance? they're there grow

Chip Molloy

XXs tell the I can of you Karen the give XX XXXX's. use or in go-go went Five and days I Below, the Well when the would I that the cycle analogy this XX and in you that, others through 'XXs

that the, a using time the retailers and a look out a are I space know white them. I you different And around there of that but at few alters I can world. mean, there have it's am place, different

that one exciting one And it's I business is is what's this of think believe business them. this truly about them. We of

here I it's believing that … Jack think came

Jack Sinclair

…Yeah.

Chip Molloy

a That's into cost scenario. a …one of not -- simple Because of Below box. It's it to a very lot XX% get them. Five a pretty that Is difficult doing? is a they box. it's have year, like

lot It's look could could better -- And of curve a not the a better place it's is there it's not of not a there because for is a where us cost. complicated. different? risk, we a But -- can lot grow we little

and we has the the four a need that more need last grow a into is, there's, box could we and Why over understand. XX% up need three a build to do for to reasons gone we our to If faster. of work some is Well that, box that? could we on work to to but things we first. risk of less lot Absolutely, But dig expensively, that years cost could take box. really build we

any that today cost create just would if are try and off a same out whatsoever. the earnings and Because cost to would were blow sort to be you build legitimate you box have, start you absorb not basis, able to XX% be not of in we that to we correct that and going go absolutely your year, growth -- able

this a the it. that where that for in explain, patience, quarter look really, all we -- can balance. to next asking think where And brought up will the before end we by year we what next quarters right So two we're can take And trying that we're was of to like for find is the us. little over algorithm really

Karen Short

much. helpful. That's Thanks so

Operator

you. Thank

question next Prykull Goldman from Chris Sachs. Our from comes

Your line is open.

Chris Prykull

basis, sitting taking for to thinking morning about, looks are Good much over How trailing It guys. questions. term? Thank X.X%. so I wanted the about that around like XX-month ask just on long my you you're a operating margins.

of still years? of is couple bit it's premium in I but thoughts over do But And I there Sprouts versus industry. mean next a grocers. I maybe traditional that margins your your just color maybe what understand you different. little peers have the early, versus the of understand some are

Chip Molloy

the your put the place, a of all the other go of a going it than Well, may I about structure, while. going of to -- the in way sort I'm infrastructure talking previous for margins, as, and growing pace really down on pace, think when the operating the sometimes depends the at fast that then you're right? that's pieces margins not growth, and to direction So you're that store you're dissimilar question brick-and-mortar if operating having

then, opportunity productivity environment, gross in when down you're Hopefully growth. end, the flat. you're to margin real is that And margin model. it's And the on back the operating a going slowing

looking where those you're different business our to they small it's of and just It's the with competitors It's are, margins, really different model. model. of a strategy. the different that competitors a a it at stores. in goods a there It's different mix -- out As relates most it's

is what model. to we leveraging and who And as business we opposed that, different we of how sort compete -- and competing And we're in with, so think have it. ways, about many going ourselves should our allowed building that's to

this And and opposed as or that's grow, into to control. that about business becoming take What's shift, kind of the back great not. go something

Jack Sinclair

Yeah.

space. unique business to of the us of nature to think should grocery our kind a I to just, produce, do margin So to reinforce traditional superior the performance allow that, continue

on There work to absolutely reason margins forward. is building stabilizing gross But the going that one this we've no got can through scale. its for and that and get early we from forward, days efficiencies going

new going will launch forward. Chip's and to pace point, create downs we always at this which ups stores And in the some

Chris Prykull

Got If a two believe that was key levers or just will want hire sort one that's question of had to go then, I to one to we back three answered. to And previous helpful. comp it, to you reaccelerate growth. that

one What them? is unsuccessfully. happened well If the comps back change there. do you to go you of they price what story, Whole think be? all And Foods' price there'll know tried And to we

why So will be different? Sprouts

Jack Sinclair

it can having both effective being precision -- on and category we some by really I outset, this Well, market, a as pushed from between high-low, think that. manage stabilize down where more as at effectively getting to at as opposed how think of by and to double pricing by balancing the I we said, I margins EDLP point view mix to

we're a lot The second how what loan's on. think is will The is, the brand bringing a think life in fairly part And print. money this. customers. moving about this from We more new point I few, of way, of spend branding traditional approach this attract of we our I to think and on marketing I and effective stories and of

store where existing a space business, out opportunity our that white area place and differentiations with who both we've so into within in we that we're more shopping of within people effectively, messaging get two And within ourselves our around the base. are not of stores changing terms that's communicated I the massive the a the even the There's us. think got, catchment can there, opening

of combination promotion business, a a our business. and our over time that So and in brand think, hope will improvement significant the bringing I into underlying more effectively strong I managing see pricing

Chris Prykull

one in. Great. And just last then, sneak if one I can

in down they're from in-store mean quarter are of cannibalization total the math what's you quarter, so, I of If digital be thinking the think we X% does about that I update said that last digital sales that terms in X%? up about? that comps sales? should is mean, And XXX% the sales. running were

Chip Molloy

a we're almost core back at but honesty, big means. ramp, going a So been But when week do gone the going where is right point at to negative. a almost When quite, that's $X you math. what your doing and backward you're you're it's that haven't there. X.X% and million doing -- a -- not we're I we're a digital, comp it's math -- mean, to your and just slightly doing I comp, growing X.X% clearly comp be

So that is true.

that have I back -- it Okay. And at as As and the it was right? it's all. think caller, was do as relates to don't relates what to Chris? I'd being you're next it, All question math. next then, that go saying, I to think right, part there, the as negative final material

Operator

comes from question Kelly Fargo. next Our Wells Edward from

line Your is open.

Edward Kelly

business just the Jack. Yes. and morning welcome wanted think had much to actually ask sort of you about need to I Hi, to Good where about time guys. and you've go. how

the margin not clear that hear raise the new the differentiation, about and today slow. growth call questions the competitive returns. seemingly comp, do whether position, will in loud I But the the So, you on that, idea store around the confidence financial results

to understand that, is to keep still give guess you've seen confidence should the be all reason stores right, just and you I way that you that that past? you have your as of growing end day, I want in enough, seen I'm you far? I so kind that's the to the at curious confidence have narrative, of the narrative. the how much Jack, the

Jack Sinclair

Yes.

been it's as I fundamentally, lot stores early question confident spent this the wouldn't a builds I got numbers, the a feel terms time a I've spent because of in few with I of I'm it whole I've as look as the and through. weeks conversation here in do. you one and over lot -- having maybe good and days it's I've of is, that I that think, time team at as think think confidence, I But when preface here with I you you the have today

for and that the But confidence little that me are gives it have thing to that. love when is I so strong, business is, the I that real the so you customers lot brand, they of harness people, a gives a unique the store And a there. inside the can and the we need when so confidence foundation that other customers of the me talk passion different, -- think

the marketing we'll that, we And and I, that. And in get the traditional a real differentiation grocer this if more and the can across being get forward, been brand confident more going I really get experience country, of that real the point right. in leading a I our view, do from branding and mediation we've our of articulation or a opportunity I believe that, of think there's very huge chance

this their customers is model, looking a really gives look families little task And a I is family. grocers effectively much I be We something whys just benefits have of terms for positioning after and lot after for the that business to more Most that different. customers us so reality do and believe healthy the trying better about bit could can in are telling the trend their confidence. so think of get this healthy-for-less me strength the are and eating and we that of the wherefores that the story of

is some numbers to and to business the of that confidence of have to I that be the lot going question, into should much to a be the certainly better. that take point, performance time get but all putting Now underlying could

Edward Kelly

be. expectation I would to us the a question, related it's as in amount -- be bottom And given a seemed know quantitatively you not investment prior to to would needs the margin was it just strategy fair ask really management that, from to just an there -- expect the and that to XXXX bit. that I think for -- of change us company where to qualitatively, And but that the you this fair understand help could Jack,

around any the XXXX margin, of we be higher? just of the we terms mean, could see before it and should goes in think cadence I help and So that how lower or stabilizes about it or whether thoughts

Jack Sinclair

little if just the just I'd clarifying maybe couple bits so. a you middle appreciate around in question, don't bits the caught got I it that cut just maybe margin got and the you of -- of middle that again? Can you in of the call, mind, out in middle of it, it there it. ask of question. I bit

Edward Kelly

it XXXX margin it and around for to Yes. accelerate And does that, to seem investment you there to stabilize? but just The to want question was needs how I us to that had whether really know, really just that given talk you like made. an you fair some hold can about qualitatively seem management, around just and prior be there margins here needs stabilization I doesn't that don't from is can before think, assumption investment, for quantify

Jack Sinclair

right. you're Well, again, I think

could why from forward clarify to not. now, I over effective of margins The view, that point that qualitative diluting We're passing more good in don't but we to forward. gross no the can't timing see next growing we a should on right a margin this that a or that be is position believe at know food don't inflationary I stable happen. going exactly a five margin stable So to have costs, from reason cost a -- person. of three years. be There's the so going to

Chip Molloy

top talking it would on growth other to amount depend have made line line needs sort if go we new when the leverage a that see But some that's infrastructure don't will infrastructure of be investments accelerating and operating of tremendous same amount you're all, trajectory outside the about in of growth I don't amount hopefully against down how a the really ongoing of chain that or and of any of and store determine I the some of there. sort investments we the lot of investments muted And the IT nothing and supply you past will I say else have see infrastructure, to that pace as needs relates of the stores in and we of… in same pace going then to new investments at

Edward Kelly

helpful. Great. That's Thanks guys.

Chip Molloy

Yeah.

Operator

you. Thank

next from comes from question Carden Our Mark UBS.

is open. line Your

Mark Carden

Good a of questions. Thanks lot my morning. taking

question on another you for So guys scale.

player regional your in national store lessons is enough tougher really an produce getting running specifically issues a As a more that any into their you effective can you promote retailer, it of base. I how being really drop from different, to mix you there? priced Thanks. avoid grow from is find And Walmart's produce. do more to supply any attractively across opportunities experience growers bit then on from Jack can you heavily know there but is And

Jack Sinclair

Great.

So, of I spent which is terms have I in looking last produce a think the that at over something level. lot of time sourcing,

distribution and centers things we've team. in have the sourcing got centers that distribution of our five is One own those produce we that

we're And the can and because pretty country think maybe different and of places the with across growers on placed can to the we been growing in expertise. build seasons I effectively source impressed advantage is have through And by different of because in markets I've expanding working knowledge that guys got in we They new well that these the good, effectively. we're that team opportunity opportunities that exist that that pretty expertise terms take stores then the of repertoire in that. we of grow the open as the operating so locally

States challenges things the get optimal people on You we the going produce customer identified it work reality of too in growing is buying a United challenge that about to can something which chain to and lot we that the talked the is source earlier, right. supply over is links in United the -- which Are do that's are we're But States. that. the of in I get to terms of all condition, can the not we it, far that with one distributing but

that can't So think are there's the well states, to I team all effectively. we over pretty why effectively no produce and do reason source placed the

to similar this very there one Walmart did I much you're we distribution. all working supply Walmart, to think to and of trying of Walmart's at terms and I'm regards things through get aware chain in the strength drawing was With base. pretty of that closer when more I

learn from that. can lessons I think there's some we

Operator

Thank you.

Our from from next Christopher Jefferies. question comes Mandeville

line that open. Your check is mute. your is not on Please line

next move onto we'll our caller. And

from Haskett. Our Grom next caller Chuck Gordon comes from

open. line Your is

Chuck Grom

Jack Hey, good morning. And congrats new on well the position deserved.

Jack Sinclair

Thank you.

Chuck Grom

understand unpack weaker the stores keep to to trying the trying doing I'm and comping to if being down difference both between that $X just and just I dynamics to from that digital considering say your the versus Chip now suggests your comp two older the point focus about waterfall changing just really on probably in is here the store one to we're points. million revenue

changed versus say So quarters to the past years dynamics has or which performing as four five the can us just help stores the changed? the older just let's couple past over look not waterfall well? of Has

Chip Molloy

right? of when that from limb but we that of I both, -- off have what to have been a all I the pieces. my years, been kind X.X% don't I gotten So shows a here is heard go it's front last in seen me or on -- of down might near the -- you've couple comp it's

negative. one not or course your new now the I'm coming but are yes negative old is stores your the part about working not of when stores negative core if slightly of -- vintages' So course stores thing's they're performing, encouraging stores talking core here the are aren't negative,

seeing is argue still on -- new I but we but the seeing manage the are we're way the would ramp is that stores, it. some have of stores, wanted that in We a ramp what we not new

a shows sides that on works you all and comp. it's both the of a equation when X.X% mix So, got your

both. on do to work have we So,

into lot and then be a on can that how the of a done end you drive about At a comp, work stores. is how way. that that heard there in day, the traffic, you the You've made of well. lot then you And really of believe comments how I core new the storefront can more today do can turn Jack's profitable to as

and in trajectory the and money positive there, much take new stores, to I XX stores done front new but invest way, a to months in is very estate needs of think in of way. to that course of of cost in stores, the the concentration be future sort change how the juicing that incentive analysis all with work in Where we amount of meaningful new to end. the there's new we put see size for a the a There stores, that opportunity real of stores, beginning going change new purposes the tremendous that's XX to up that

Jack Sinclair

regarding - And the physical the around stores. Chuck just from in digital question the a and sales

offer, that's two things. is gets way the it put buy look have that the at got see And how have right would way them delivered, we'll sure to I about increasingly a buy wants think to to we in digitally we customer and customer if Increasingly, making to to that to or still the philosophically I appropriately. it's way of the Sprouts customer buy, the the brand. as we the upsetting I chooses we where but find the if it meet wants access together standard. the or

overall So comp that matters. the

Chip Molloy

Yeah.

was It it's now the And the mind I to the someone part of again. asked cannibalization, earlier, coming digital because was forgot. that

to those That's What's are us cannibalization course, at, customers. being of encouraging doing so. with digital portion not the they're are cannibalized. really the is digitally that part There shopping world. large to be look what's the in piece are new going So, customers of that there's

new touching We're customers.

having to that that at customers you there New pretty our really if never brand partner our it's look stores, tell the digital in been side, delivered and and amazing don't are in brand our stores. ever our how been to they you having talk to our it without would new they're attracted know and customers on

equation. So that's digital the positive side of the

Chuck Grom

said I to say Okay. sync. the follow-up. gotten something Jack, time my in of out that of versus has EDLP And mix just is you Sprouts haven't long high-low a heard the

that? recent relatively take you could for you long just to flush in that So, if a maybe it'll us guess think do fix and out how I phenomenon you

Jack Sinclair

Hey, a not. or phenomenon I it's don't been recent whether relatively know

today background and combination - But But doing disrupt I terms have careful of making much You you we how at very create dig in And going I'm manage the base what and bottom we in -- too how to investing combination things take Hopefully, be of really you're of customer. be understand working a pricing changes. won't to get how long out. the prices, into actually the on. that. to at that got business both, to with forward, too investing think in what the of that's got those the in to we'll it what understand to them the that with promotion plays look we need looking you’re certainly, your those can't to combined value for you increasingly the independently you’re

Operator

you. session over back question-and-answer Jack to that does like turn call conference. the for Thank the closing I And conclude any will Sinclair to today's now for remarks.

Jack Sinclair

Yeah.

to your the thanks for thanks and It So and today. much be attention for future forward business part in look for and today your your I much being very really here very interest time company, much great this too. our is very all updates. thanks of to

thanks. So,

Operator

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

a disconnect. day. may have all You wonderful Everyone

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