SFM - Earnings call transcript Q3 2021 | Sprouts Farmers Market, Inc.

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Operator

Good day and thank you for standing by. Welcome to the Sprouts Farmers Markets Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. now today, hand of Susannah and would to conference Investor I Treasury. speaker your Livingston, Instructions] like the to over Relations [Operator Vice President ahead. go Please

Susannah Livingston

Thank you. afternoon, everyone. And good

to and quarter you today. release taken call quarter pleased of The slides earnings Sinclair, Molloy, earnings and Jack XXXX announcing be webcast accessed Executive call. on this investors.sprouts.com. are Chief are We Financial XXXX the time Officer, results, our can join the have quarterly the of third Officer, Chip third Relations Investor Chief our our Sprouts with me at website through section

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

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

Our remarks non-GAAP measures. to include references today

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

presentation third In also to for our third this quarter addition, include XXXX impacted quarter the by COVID-XX pandemic, results because certain were in of XXXX. comparisons the the of results will

comparison two As we of simple addition week fiscal a week shifted Because XXrd week, be comp periods. a reminder, XXXX, this ignoring to align will of years the first stack XXXX for account in each holidays one fiscal purposes. for of the the not better thereby week two back to

over that, needed. under investors.sprouts.com additional let found as more For be information me it hand Jack. can With to at reports

Jack Sinclair

of partner new first as a our join Board have everyone. Chip time. And to us and I'd Susannah. as the excited member start full of decision leadership our today good from welcoming team. by Financial our like after and him Directors years resign key made recently Thank nine I'm Officer. to afternoon, Chip, Chief to you,

financial outlook. few provide I'll then improved and elements details will results and key I Chip During today's updates on to of will a provide start then our with And strategy. relating call, activities quarter to highlights. our a review of return

right piece, it great are about progress moving We on making excited have real chain by new differentiated format piece our forward and strategy supply the estate's selections. and merchandise,

became ineffective the in we a retailers a traffic experienced all improvements impacted farmer's step on to our margins. interest However, message of of innovative positive Shortly, in our our expected two fell highlights did The for sharp brand that also virtually and additional this the messages market produce that in back periods. XXXX, clear efforts We unprofitable and of of stack a the many remember result we know quarter, the was quarters transformation. focused on best With expected, acquire margin back our thereafter, of as erosion, promotions and would catalyst fully aggressive slight see but pulled through decrease of an stakeholders. in began year all increasing which initial not a term this through long-term continued year. in in We not. marketing products, we delivering in promotions short the primarily a half drive middle And transactions you the third COVID of strategic to journey onslaught we're back, variety Taking mind, years and It major new ways. ahead. customers, a and journey pricing, as a the factor. and if experience in ever a to in recognizing, immediately was a

not pandemic. returned, transactions the of of points of lost our approximately in the and quarter second they our played the during COVID patterns significant XXXX, of is to one understand XX% height certainly most have Sprouts, customers a in shopping of For the changing we important to role that the date

resulted Additionally, are transactions record customers stuck promotions approach in to than in fewer prices a inflation, of make XXXX, our putting a is XX% encouraging changing that that third us is that they promotional in of loss up more with quarter basket paying What higher in of coupon units did via profits. their those and today pre-pandemic mix, clippers. resulting average combination

share our win higher quarter when offerings, in to XXXX. our grow with Our market, differentiated strategic to XXX% product the creating yet of and the target continues and awareness. provides prototype up provide compared marketing the also faster pricing financial and store that freshest approach updating to a while same impacts more our and the and resulting supply this includes and which per unique third everyday The experience, ability with the our direction, store, of produce, prototype, have year great to returns with brand customers product need chain density also our in a a sales in were a in refining building reinforced our that brand was unique X%, earnings period new up with COVID efficient smaller customers, in

who Before providing results and details to outlook. to I'd relating will activities, to review like our turn quarters it our more the Chip over financial

Chip Molloy

and Jack everyone. afternoon, good Thanks,

and flat level. improvement in a slight sales. be sales at to quarter of and X.X%, stack sales transactions totaled year. sales last two-year sequential month X.X%. billion the comp From We period were experienced XX% sales and our at stayed two-year perspective, the X% a store the comp increased down On was comp down an For that same to e-commerce appears and basis, both quarter, each compared $X.X third stabilizing comparable net penetration net relatively

all profit was elevated Third in market departments XX.X%. are height pandemic cost by not XXX was pass-through the inflation expectation quarter the all points approximately anniversary cost able during our continually and $XXX pricing. The increases. and was price the of and margin points, We to with was the of gross and profit of of balancing most line but in million decline retail gross gross levels which monitor basis driven

the points cost still response are to quarter margins cost year. when than COVID lower to last XXXX. The primarily incentive were million pandemic compensation marketing decreases Our of third of during period decrease $XXX more XXX attributed SG&A were a than same cost, $XX spent. compared the million, higher and basis

rate expense the before our $XX and Interest interest For quarter, adjusted XX%. third and million. our $X earnings effective was taxes million was was tax

to Our XXXX. up EPS X% was adjusted compared diluted $X.XX

As to quarter proposition. up Jack earlier, XXXX, more a EPS continue margin to as compared customer structure we the of third our XXX% to differentiated maintain was mentioned

X. and the remodel relocation relocated format. new in we store remodeled store Both the X quarter are Shifting the sheet to During opened balance new X liquidity. stores, and and the the

the date, to in to continue cash We from generate $XX million operations. third reimbursements. $XXX invested million expenditures we quarter flow capital net of strong year through landlord

quarter on stock million During authorization. the ended $XXX million million equivalents million cash and and $XXX under current the our revolver repurchased with year, in $XXX of outstanding in and available of million $XXX cash we've $XX outstanding repurchase letters a also million approximately credit, $XXX share

the a with We net low continue to nearly EBITDA a a of to maintain debt debt quarter position and X. ratio low in

share $XXX $X.XX to million and $XX to quarter. to fourth are expected approximately for and turning billion billion our before comp earnings between and $XXX expected is be interest in X.XXX for per Now to sales between our the between to outlook $X.XX X% year the $XXX Total for X.XXX capital expenditures million expected be Adjusted is Earnings the of sales taxes updated outlook to and million. to X.X%. year be and down million.

and fourth the billion and $X.XX. total between per X% quarter, For be share X.XXX sales X.XX between earnings billion should Fourth to is between expected X%. and quarter comps be down and $X.XX

in for quarter to total X openings Lastly, difficulties supply to delays. including shift store next is expect openings X year of equipment third to new we in parties the open early new chain to X be relocation. now The due certain new expected XXXX securing XX store because and from fourth stores

first why Before Many and at now? full love joining to asked for providing its initial the company, healthy I of reasoning First purpose have the you reasonable living outlook prices. question foremost, XXXX, and my to turning discuss I its want or why people company our time. of this for options

set believe I been success. future stage is Second, the for

experience a should offerings product way. aggressively prototype reach We our allow while expand differentiated with unique that us creating and along the a new to customer have value shareholder

without corner digit more to those those owners. on amount producing taking a that but our turn that sales, continue our growth slowly and allow should stable -- produce we and EBIT I about comp consistently and surely Combining learn still will sufficient us of that low message while for the customers to margins. any that that cash store while cash maintaining relatively comp year a growth As high believe us, single remaining we significant growth, debt. tell don't should digit single grow love to to tell still to more returned with have each stores us single We sales on digit opportunity high know

know bit on impact approvals above which the said, total of I'd low What All growth we to now expectations. clear, It's the expected times to To approved of digit our to our executed openings equity With sites around growth X.X mean of to debt be from and the strong fourth open and That pressures COVID by are still lingering pipeline it new but restricted over zero, range of aftermath leases the XX to some position this flat. sales retail turn XXXX the mid-single of now approximately challenges as supported and for at that, also definitive a we'll essentially be current relatively a in EBITDA. be EBIT trading Jack. should will net prices. epidemic XXXX? be navigating with and approximately level, be supply developments. we're flat, early And year of to chains, continues of cost while this XX XX% very this quarter. like is in stores, the for backdrop to does current city inflationary and all Comps a

Jack Sinclair

Chip. Thanks,

me were looking better-for-you grocery this innovation the initiatives. about quarter, from highlighted Healthy items children. by are some our like jam free and merchandising items, boosted among in center of merchandising popular Let lunch to deli parents unique school options were business ongoing we school in more Bars innovation a and boxes displays. during vitamins, and our speak quarter, Nut the for Allergy Butter the Crunch and standpoint, the for strategic the current new seasonal highlights From and shopping back

in to performance in and our bar, based work. kids sales updated deli. As and the COVID in school sushi We Delta returning variant, immunity folks prepared our vitamin busy driving of meal return flu families and strong in solutions, to and more growth categories with the increases spread saw sandwiches

the the brands becoming products with seafood vendor with bars Bronner's through train program almond XXX line entry New launch to In and were are we Dr. category breaded Favorite exclusive turn, destination added nationwide plant-based a lunch first sprouts. moving Catch’s sprouts our and with For our San new campaigns. entrepreneurs did Find nut vendors just a and other launched our Good also monthly innovative held into chips. an keeping innovation few participants. the we summit over Joaquin innovative

interesting and brand have over organic set not based beating own transparency wines probiotic just and taste organical our department been we created These a along of our the time and have with driving In expectations. Italy, new included with products flatbread oat passions. people also well whipping best our the from the launched in sustainably plant in mentioned seller wines on in have of great, quarter products vitamin as milk, and exploring holidays, stories now pits its new also only ingredients kind part from third are are melt, companies for grapes cream deli attributes wood-fired unique like and XX with grown. exciting new program farmers wines we they of other market, sprouts a oat pizzas our plus the focused and reset vast department. but the the The wine home and We first

marketing. and promotions Moving on to

in getting remains target Earlier our especially with creating focus our short and more produce. communicating marketing, loyalty sales in commitment to customers more profitable adding our in in on year, we the Our prices growth, door great fell this customers.

message began address While third customers. by in quarter, it our imbalance was the value this effectively things. we present new our trying communicate We didn't to in store, to

Some some didn't. worked

store and is local, embedded visit. like messages. second For work, our produce and future our better utilizing We've draw improved Gum third pricing, regard these example, each new like Special fruits the worked this those and in attractive spikes share and and new after customers deliberate quarter our more even Drops Throughout our been leverage more messages. focused tropical investments month, differentiated the competitive call advantage making with highlighted our differentiation, in and We successful. to produce. these in media including Moon varieties more Drops varieties in branding events were very visits slightly our in to drove of or responded excitement than we on most grapes measured which produce, as of to owned we believe the organic action traffic

the broader more Sprouts value compelling, mass quarter, relevant customer. scale. more tests are like items we media these that During fourth strengths are many a of on And to doing continuing high we're core promoting on our perceived

of Sprouts broader our message store. and refine attract new campaign unaware customers those to brand to still differentiated continue we well, As

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the to experiencing Turning experience are whom chains, deal costs, is advantage operations, and smaller we’re This ongoing labor passing Though costs. most health retaining US members We're our said are in issues team we on shelf, new ensure That team by to to which access to fortunate higher to hard teams customer. members we're our through experiencing to with rewarded we and and immune team providing categories. base incentive vendors no great across transportation every manage stores in members a working applications outside organization. work our that of we rising big some addition offers have customers. plans are our throughout making buying – and a labor, at of supply to the fresh the focusing staffed are lower the the product one continue To supply keep to allows for pay, for our quickly. like others level on

pressures addition of year industry. DCs of we Colorado mitigating this in with the to side, new the the transportation strategic On the and opening change our to stores transportation and in closer our made some the closer of Colorado is to two cost they the experienced Florida wrapped new in DC Colorado not local our stores in local in growing also season from only all prevalent vendors helped source in life helped stores. The up. that regional bring costs, offering produce were the but state. just The ability to The

third will digits the Colorado greatly improved our customers. and never local produce reached in of penetration quarter, to that freshness before sales level double During the

we season, over off. high replicating Now have the to we that peak supported by featuring season kicking success and grower, local the marketing during November, meet excited Colorado. in be of store, in we're growing in XX is Florida the just plus growers Florida the had and local We're the items XXX expectations

with nearby marks quarter journey new in remodel third was format format share two significant I'm highlights. along store. are milestone and the a opening excited Phoenix relocation the site, a new other two California to Those to a Tustin, of some these The the One for our dates of stores. stores. was a our

though our go the is the days, pipe well. We and and of center centralized displayed changed solid Unique meet The it sales department. encouraging the and of would XX% all is frozen in model. in more grab also the store. protein highlight, expanded in new its to pre percent are flow. our foremost, format average. Sprouts, new Even expensive The early to first brightly project an give and stores and are in department presented format is Phoenix the deli the new frozen performance and Tustin bar format options, performing deli and items remains us experiencing elements performing confidence in location, deli we’re moving are smaller the the of Despite results company has as sales the the increase and store we and the has exceptionally remodel new not sales these significantly. First but relocation up size, in above

the the stores new it be Over more three XXXX months, open format and few next openings. platform our will will we for

approximately string from this The learn is smaller to footage rent operate efficiencies space build By to develop cash the SKU and proteins like in departments. our simplifying and to format reduce to by that XX% with or expense, continue other We like expensive and our simplicity most cost utilizing without less in to format. deli lower more comes new operate new and improved The of efficiently stores. taking the areas investment having our out count smaller the square will size significantly operational self-checkout. cost be build fixtures other reduce

least We at boxes expect to the all resulting in equal built be the improving sales to larger in past, returns. we

strategic transformation who have we the quarter I disappointed Sprouts the excited is supporting us. we updates I our our to emphasize the to In in with over to gardens totaling XX we're and which while and fresh, create Through XXX projects progressing of life. have dirty wrap And all the continuing access and our of a top well. service weekend support the back get grants will a get helped communities school and supporting local million, knowledge country. Healthy to by complete Communities I'm $X supports we're with up, to a Day we over this neighborhood foundation, XXX share volunteers healthier event have where years, resources to hands some Service, nutritious on the Spouts do, organization help work it work with children empowering National Foundation. across great communities the live the third the the we XXXX, is line, Before to non-profit food

well upon innovation this our from our Our journey measured is new centers, format our model our new centers, stores. distribution to new improve promotional approach underway Sprouts two and

profitable sustainable this questions. ability the strategy in company to We create to more are and long-term let's Operator? many up confident a At of the open time, to for years come.

Operator

RX Scott question from Capital. with Our first Mushkin comes

Your line is open.

Scott Mushkin

my thoughts also bit a taking And little thanks for of questions. for around XXXX. providing Thanks

next the So the around of forward into questions a as sales company kind into lot obviously, of I goes think, the quarter fourth performance year.

but So XXXX, I which margins can moving. quarter about kind of think investment you to that don't as market look I gross on then, And fourth we you line that think go needs side, us and kind traffic take be, of was grow, you much do the into was clearly there's where if as guys of the you kind will the said will have we a exact there wondering give doesn't thoughts what some the can this. like you and of we of be think think sales guidance, to to be think going get in how people of us through the idea EBIT lot flat the where margins guys

so, I And was why can can? you you wondering, if tell you you maybe think

Jack Sinclair

there chasing three need margins next we is our margin over margin, in tweaks business a of customers. that buckets But We comp the reshaped about the little moderate to about some do the over in some of let need get where be marketing XX the to to in couple then Fundamentally, And in from a year how in we that, I'll some going That’s sales next them get bounce that. of And about? that. bit we talk the be probably and position through in next years which that the stores how how by we Scott, hour whether the seen you and do with we've kind something the that how talked basket, transactions doing you may bit success we there's nice focus to been seen we've a invest is let the the to Chip large, to dialogue having. invest a need go That’s existing grow little we've we've that activities and the know, you where think are margins. in new grow and a with And Jeff back be bit and grow quarter forward. or the stage to where our that. drive we're Well, I'll and last how it. as comp sales it detail invest But marketing some in customers. we sales, of of job we've the of after dollars got

Chip Molloy

quarter quarter, fourth be the Yes, fourth just to the be down down in is specific, Scott. It it year-over-year. was much third XX to margin In be -- think the the do I to going the but into going -- XX be gross towards for as flat for on early quarter, next suspect basis year. year. year-on-year, of as call won't first year-over-year next down I still points kind it aiming that quarter, it's in we're we'll first the

to the non-merchandise are as, the areas help margin, sort call pressures the, have of as going still drive line. On kind margin, margin measurably burning way do test lots in and some on in test well manages I'll and ability mitigate gross to within continue you inflationary the test that it, to of of the that opportunities aggressively of we're to that sales promote our some ways without margin a and there bottom to

Scott Mushkin

get guys. also the a question this as do people. a need from it's we Or enough that aggressive more people to then And in itself, the for versus bring of have kind you. do in? marketplace? to more to think pull do Thanks in draw lot people you And different. people them you I'll follow yield. Around up to differentiated of that And models kind Thank pull Sprouts understand those in is format

Jack Sinclair

of place whole produce down of in do that the and of Sprouts in terms store, a and proposition, that's reinforcing prominent part in what's think of us? the doubling I is that to a the Well, especially our of that the how the inside in got differentiate relative key we've on such specifics such terms that fact does store, to differentiator We format I what need competition a we're that that. about pricing a produce. doing bit in level that But for something think what's is the that talk probably us, actually respect. our better and

really that the of we vitamin people is department think What do in immunity centers add significant – of value. differentiator. there And fairly see before. bringing that part something the as products the especially which of the recent working differentiation. that these a the We I key worrying think of that's of about in course more a store, I world and COVID The the our health. changes over aspects was and done people have key we've lots innovation into that innovative post key department

innovation brand those brand in and going things that to private brands an will is ideal we should bigger again, I more, very very of you becoming are more provide how talk effectively. to and And differentiated talk for other a a clear something people but we you team the of that's about small Selling in. little to small the working it's I think Sprouts bringing about as your want the terms if differentiation. forward. started get that role lot think And I with sell destination well bit products can get in place is to are we does the do think don't as as a even play that,

level produce paleo assortment the again, and more we comes differentiation. in that around differentiation maybe the I to fixtures, need have in that think we when of of grocery about free occupy that, space, have innovation So increasingly a we our authority, do items, that keto, us think the but to diet assertively, we gluten bit brings I talk space kind or it we that have

doing pretty I store, think the work out your that's the in over them question be and are of clearly that doing question the we beyond. I to and the lot next I'll that we'll clearly, pull something that's message into telling -- we're something and think be enough, enough inherent quarter a is working

Operator

Thank you.

As follow-up. a that question one limit yourself ask one reminder, you to we please and

question Fishbein next Our from with Jefferies. Matt comes

Your open. line is

Matt Fishbein

from of related think that three know months pointed improvement. – relative look October it months couple as about here, to top-line you've I As previous to sequential the as I the past trajectory and How to relates to case the marketing spent? being you involved we a marketing with next those simply dollars? see of like is marketing tactics not dollars were dollars, dollars it explaining year Or going, where do Thanks. there the is marketing this enough did

Jack Sinclair

Let talk terms happening. comment and on Jack the traffic me been marketing the maybe about position what's can October of in and

produce in that we on COVID aggressive sending Specifically we that wrestling tactics very spend more do more is. customers our spend as spent got believe story some pricing of the that marketing amount marketing a the then learning I much is last out of money of aspect to aggressive promotions potential marketing us use customers to we're with to of some them ammunition right high tactical around when got around judicious what we're our well it of to last fundamentally some worked to the to right we it's resources make think lot XX% of produce a given we how lot was than that a our on goes these dollars, highly were We've low, the our it tactics. about in haven't. come the don't in paper it simply And second in dollars of comment not I that about than some from QX, we would to clearer sense. lot the enough, But my than remarks, then is know stronger where marketing. them cheaper our And – in XX% fore that key past, the differentiator do doing have. Sprouts little needs we've the if them effectively, and as – tell the we're bit have flyers. And I so we of about I And with taken customer the innovation maybe in us faster, what out. to The said and how – pandemic a on said otherwise. is pricing that wrestled certainly we're such a done we've require in And apparently and on of that. EDLP to have markets it. our buckets competition driving costs, we allowed as need on

getting I produce think without and by store behind the grow driving the putting been marketing. that We innovation the there can behind varietals business. grow in the things can we've in doing doing in of terms we basket the stores new

I how some customers we like some that transactions it's the in our bucket, we've who look have messaging marketing, is seen new think our past some in how to put terms to customers much I But top beyond do resources been And need forward. final that tactics, that in into going of we'll the get think customers? there's marketing with on traffic. money then existing not of And our how grow where aspects we success the we've maybe marketing dollars. spend we existing

Chip Molloy

Chip. is this Matt, And

year feel to we marketing there makes we factored the a November good minus feel provide by was minus end year guidance. and As about spend our to But minus comparison. difficult feel X. will guidance it information COVID been we as too. from good and then and bit going the we're which that that little was October the to but last in on a of it a quarter relates We November of it month, bit typically by front which that because December, to to pretty the relates that little -- for guidance resurgence in year, minus October guided X or the provide X over has and into be year December confident And in the more towards X good X.

marketing, spending money anticipating we I than and know good from that little spending to think quarter next year. over test to it's more we for right money in set more we're we're And over last help off we’ll sequentially learn marketing spent QX a least did more continuing quarter year in year to us just test QX to bit to in year. at not also or the are QX year, then but

Matt Fishbein

inflation Thanks for just in up. you as know Thanks. specialty at for ways. -- how remind the that, usually sprouts my you experience in why know me to top to conventional I look same A there. all ’XX relative expect remind many just tailwind additional specifically, not color and line. That do Can makes you maybe us And way? grocers that tailwind total least cost impact And sense. ’XX? may that that to the you the know is grocers follow

Jack Sinclair

same sell Well, meat a specifically sell products a and other and think the a space. seeing that things the as talked inflationary in like of the of a of an the we're products in people small conventional I we that of about projects got volume proteins, when the on pressures. marketplace flowing bit little you're probably there's much lot the lot very line pressures. increase you've we seen don't the in of with through I lie Products of said light And seeing specific grocery market sell around of terms levels we've sort AUR around product, our a little of inflationary rest that that bit we lots light call across inflation sell the a last the

our the in that more and extent grocery in muted not chicken, our inflationary business. pressures meat, space. in fresh more in our salmon, in big our seen in that come our seeing the will future. something pork, our measured It's we're in we've and same in produce Maybe So in much

As able guess some pass you'll think seeing the increase protein to two the to in certainly the in I the in protein and is level out or as commodities, course the our in one into I it as on point of it's -- what's kind kind been you'll direction I down think good over our of see think areas from bit. we're that is your economy us, last we're versus that slows apart to opposite up comfortable And we're smoothing space. going it's weeks made certainly in start at of as a of most on passed you But XXXX, go smoothing. going few

Operator

with question Goldman Our from Ken next JPMorgan. comes

open. is line Your

Ken Goldman

little than are be. commentary to street what but You've already, the or they lower this margins to little your more was where given some A than know, expecting, flattish about I the wanted bit a bit to answers especially explore need XXXX. in you flat if comps already

wanted because So we're just the trying of back of would a of of the I or you number to away there? list headwinds of to some kind complete home. from numbers could back positive I elements of trend of parse a back if would from out macro kind what you uncertainty are hold that a here more hold positive just a get what to from

Chip Molloy

Chip. early is lot one in back this What the is and would a hold of as there's marketplace. uncertainty Ken, us

to better promotions, where then And we it's more. can to start pressures, learn and rather it's play more that spaces, forward something Where item? we what through dollars the secondary go? a that. that marking squeezed closer us just alluded prefer around profitably continue that to can going traffic or the does already way learn forward. how point, do higher. does and to It's or to see I'd in do the much out? while that into What But get can plan as As be at zero on getting inflationary that we to for does do as does our we then secondary you us this plan work shop with has going and something marketplace, to the Jack about tests cost that to our I'd As accordingly or we plan drive bet a tertiary tertiary learn we'll early lower, structure idea we’ll or something that's go these that's too for consumer?

Ken Goldman

margins then, same run sense for a because the so pretty the get about level did quarters, at the margin come each just I'm wanted but to XXX kind SG&A that's know we Are about obviously to be, exactly a last five trying I gross about, quarter. we're of the talk how your again, a think COVID. your that of not every down going get talked it's that a low want a or next to have to And you of sense you dollars being in you range high during number forward. a of more quarter, rate I going be going we ahead? kind should level

Chip Molloy

Yes, sure.

it, costs of in think or by driven reductions have year. year-over-year COVID as quarter, lot quarter you with had have we COVID if I at the a we predominantly we did last related SG&A the third second look

We are into that going beyond QX.

about forward. cost. we provided. we're forward going is It year-over-year The continue math not -- -- going into sort back going metrics SG&A to got this or we've outlook we're point going to based this got to go next -- we year, year, costs measure expected math, how guidance the going grow with of prudent forward. going next grow Our guys is the in to that but We're go backwards not QX. sure to other to going don't we on of just that it can And going that you what to in and to we're to guidance, we the be grow we're from monitor initial make

Operator

Carden Mark question next comes Our with UBS. from

open. Your line is

Mark Carden

taking Thanks my questions. a lot for

you had, coupon guys far are comp to your a legacy the mixes you on any just some format stores think go stores? are past You there's shedding you customer headwinds? a First, almost less and that of but we still today your to different respect the Thanks. how versus some clippers? that we ways to bit with then, seeing measure Are question new able profitable are

Chip Molloy

good very both Yes, questions, Mark.

XX% and been of implemented immediate probably Max pretty the come from the about terms little estimate but got the talked customer those XX%. static the about have consistent came since this aggressively in of think some kind then, static customers way of a that that have XX% strategy We the COVID some in promotional drifted COVID. customer, XX% First customers with drifted the in been COVID, more from the fairly well. has of environment aftermath an our relatively over customers of off, we've that's the we as and is all, change losing confusion course the while Since came it's then, of and we the of ago pretty

So that I go, flatten will it out. where will think

kind dilution I we're the of shouldn't now flattening position impact where it's quickly traffic. think out of where pretty you getting promotional and being that cause further see in the towards it's a

reopened. can get stores of kind the we that and the large, right into we've we're will new forward. and by Going go marketing as it execution We right. our believe go if our in we opposite two point flat direction that But at

I in and a bit target we're they're that basket. and junior our in some with board, spending customer little think encouragement the the a stores, not more their seeing just little base, more and us but bit putting across

got context right forward effect, now. that days We enough I've So we of into we're seeing that move a two some it's the to we trends kind early up to would but expect that case, as not them. broader because of And be but this. going there's data only really got back to

Mark Carden

of to where but relative smaller throughout everywhere, seen quarters trending stock normalized what relative in your you to advantage recent some more with challenges Obviously, stock really be your in working and about And are suppliers. environment? levels, how in then on talked to still like a you've Thanks. COVID you'd levels

Jack Sinclair

Yes, for we're challenges I normalized There's of think a certainly, get -- and when to going lot a environment. instock of to I don't know a lot us.

for issues count. a the of One got we've big we others SKU

it's in mitigates installs don't got are So think marginally around installed. QX within say customers it's warehouses one end assortment to but if you and for into and as about things opportunity much start distributors. our as a NF would better of a and transportation to got people that towards our at that also the through the have product, battle network into move our people our getting I and get a that the somewhat a I stock bad to maybe getting drivers about It's move trying so constant an thing is but try QX, moment, third-party analysis. and to

the at moment. a QX tough at still challenge So better, I of would it's marginally but say tougher the it getting start was

Operator

Bank. Deutsche Katai, Krisztina from comes question next Our

open. is line Your

Krisztina Katai

for know past produce did focused to to mixed the Thanks months have the that been your I for to with that I you you resonated your guess question. a and taking back go say wanted differentiated customer. action you test on doing ones call three that

go if maybe potential So translate and maybe terms did some here? from how of building share customer are some store you of a you forward the and little perspective traffic more in learning can what improve these loyalty to that could just engagement bit early

Jack Sinclair

terms well tasting the can we certainly through think They've grapes. there, come of in in often us, really Well, of differentiated when of varietals get and you that terms tastes, -- in for activities we and get we've QX, worked when flavors our I'll sake did to products produce and loyalty of go back we and sampling. we

we around progress I the our receipt have ones builder we in to encourages that a would as do One you new, they it of -- the into of and doing in more whether the And like where or whether focused more be be putting and the new we've it in innovation we excited bit, the doing things. we into of customers products, some kind where it customers and a you more and that more to come us get do sampling much that can end that kind been didn't if lot those we customers health anywhere then our experience have. drive about come the they certain completely when but transactions. to places for this us, days we're back lot some the And for for products, existing in in that's whether get believe the things can't everywhere, be in in Bounce stores. sampling and chips, a real it marketing, a terms us can around bringing in us. we've also get managed where Campaign drinks, future customers get be I we worked think QX that's sampling back And loyalty centers few store differentiated products frequent going did little products that a getting we Back later. made helped did And products else, loyalty of of get tasting to Testing testing

well. we on my as said we well it So didn't quite other products there's XX-hour mess that's wins in been ones worked losses with and in exercise. remarks for some that losses that specific for think some that well seemed I But hit did us work that sale work, And us. as has quite to and in and

trying of further how fairly and a do up space a loyalty, marketing, of industry do about build doing data getting we Going work we of are understand marketing, And including more on use using different the do to can terms a much few lot the lot who to people think information. we're be the going we forward and significant that forward people now. marketing in to which seems email And further use, sources numbers text giving on we're more in go, do that trend with the I telephone, in moment. lot our customer of how number as more us phone target we map a base a at how text on much might think information we we getting

of about is more loyalty the clearly of going information think and idea take cards marketing our that in can going it. we to text So And dialogue and that as it's a come out more email marketing how around forward we loyalty clear way. part

Krisztina Katai

comments some wanted made. And inflationary you on follow-up the of that I to

more in that much side departments you been able have change where prices rate has side. you're some is the inflation were How you're fresh seeing lot you said a more on resistance to the higher and quarter, third pass-through in to the manageable, seen change, but obviously perhaps of the much You grocery any customer more rapid?

Jack Sinclair

beef, of Protein just seen all been some let we meat some I'll on of Jeff -- in and we've And pass below trading we've the pork on too seen comment but increase -- not think have able fundamentally, So some of I resistance points resistance haven't we've we of pass it, the to seen end down that produce But at top cost in some some salmon. space. been pretty hasn't we've seen not significant well. to and it double-digit it to And able inflation -- within seen chicken, and the as space. the protein around we've space. much sold and and double-digit sorry, has an we've seen pricing cuts on price

in that we've is said seen be -- but pretty manageable would the the So resistance place some beef where the we be protein one would and where rest business of space. the as

Operator

comes question Fargo. Edward Wells from Our next Kelly,

is line Your open.

Edward Kelly

just it talk a Can you're pushed term or openings talked to sound growth. the the about high-single-digit there? the little that to of did XX% about what least talking comp continue longer Could talk you the bit. about And get and seeing you low-single-digit store sales, you back then, kind at we're maybe guidance when just store in like about not

Just kind of curious if there was some subtle there change as well.

Chip Molloy

number in term, we Well, the we're Chip. near is have -- seeing This one, great is a we what pipeline.

trying the permitting equipment. then on trying to get everyone model. great completed and anything. So that is around a that's -- for today sites The to they're the construction, go the through sourcing are country will for believe getting also -- we're we fit the challenge and construction to one we the build also Sprouts continuing challenges having we're find fit And of

be a half year, bit pretty of these QX of little back get -- XX% dominos year profile think a not becoming we new being stores growth loaded mature. deliver, the as fully to we is quote said, can get year. going Do a COVID impacts it's XXXX Yes, that's by to XXXX, we on now going a you how hopefully, going -- did get get depending effect back to the factor unit are right a to time in can growth? we of it's and that of the doing and loaded, new a some can very hopeful I not this don’t of have chain back of as All supply by did number how We on to see we challenging. into we're all or double-digit That we But next believe to these going to start challenges. we is unit become beyond. back unit

on the but you just and It for number. it Could and a XX%, to you you're kind higher? that doing very math, get that's XXXX-ish growth you go about we combine do to So, less than that going of now able be with think topline slightly to could how low beyond. single-digit, get that XX% you're be, it

Jack Sinclair

And what terms the lease need in good forward. is in the pipeline shape in of we going

crazy Just them once want able time terms the materials do. for direction, a the but of it's we're kind where it's get challenge be getting construction clear -- in permits Jeff just to everybody. the at open, to has a and real to the said, But and we changed about not going get XXXX to, that be pace to want we've which we can what data been and we it as of a been

Edward Kelly

P&L? what about you new ramp, like of look talk what the impacts and this you the consider profitability, can this next just for growth, to store of call year, of to then get mix markets how are newer them stores terms it store in going markets newer the to stores Florida, to in year opposed and that like then to takes seeing just let's And -- those going how it forward, and ramp newer how markets, long as -- are both existing the

Jack Sinclair

certainly. Yes,

in going as are forward beyond and new new of stores our of the All planned format. XXXX

stores the format. all So, they're smaller new

than is dramatically historically. different historically should Our have different be ramps and been not have they the that much expectation been average be unit than won't volume the they

think So, going about would that that's way the I it forward.

Chip Molloy

geography we're been get well consolidated concentration and of it spend as doing not stores a the in start and get consolidating that terms have to us has get known Florida with. in level a the it time exercise for marketing kind the different bit markets whether smaller within expectations from a little view, which we to an And clearly be try us interesting, more allows at as point where The we to Tampa. market allows of right And of, fact markets, us happens.

to done that were excited forward that's one place able and -- in we we to mass center build excited going some all of there ton key critical leases of we've is and Florida remain a how play conurbations a certainly, got to out. very So, the and about going be about distribution

Jack Sinclair

a sales add a matters. in perspective, It little established, is very us And from market matters to opening ramp opening the dampened established I profitability but perspective. it's an to would higher that a clear from volume bit volume that is is higher may it in the brand be that's it established in The is because density market matters and market.

get the believe Mid-Atlantic, as is markets Florida, markets So, we like the will into and a perspective we to get in emerging awareness really from that density it these really drive to get brand some new shareholder those critical value. volumes for us like

Operator

Fletcher from comes Our next question Instructions] with Bernstein. [Operator Brandon

Your line is open.

Brandon Fletcher

My question simple. is pretty

track I the we on think strategy sense makes and the differentiation.

to haven't is meaning that little maybe a but move, quite some there, other We comp, that's the of One much. of the perceive strategic comps the the as suffered grocers as service kind certainly differentiations and us of less have that they're been things better. of comp the the having may bit isn't a odd level

so which otherwise to that's go have kind on that is have may some what you us curious because kind had the a of gave to on been a is, think less less view? kind of coupon as a our puzzle hangs Kind let through And have the up you folks better. help battle, if but of of to in positive solve on the we've the of view that I color clippers, story little holding trying been little really comp-to-comp differentiation profitable a you we're bit weight

Jack Sinclair

a it's good think I point.

environment conventional comps I do as believe clear conventionals that the to five them through shopping has like those buy need it comps think the that of competing the time. And who the to helped from down to shops number that to you're the people look groceries consolidated to pandemic to. I I ours that when enable the two. five the gone have better that come at shop than of from their over consolidation COVID hold period grocers has two something of the probably has gone around

so benefit to may broader a think change to hard way. the and for struggled channels I channel some selling back can top marketplace, notch the bit and it's I bouncing the much on the channels mass the start on what's add bit mass back get of the other a course club the When with. little happened of the bouncing The beginning moment. numbers little that look marketplace. They're we at at in pretty

And get comps are can from position the our for difference. that target us need drive talking kind within a we our destiny, of single-digit simple kind we our customers. Jeff's modest get by dollars additional retailer. the complementary out what And But COVID to forward, grocers very irrespective comps of it's we get own a and been probably answer little low tend in there's and there the that I the wallet comps this a we other controlled are suffering we on to almost So about are of of share be world, your on not guys. that the focus environment our that there plenty being believe going to in that much bit we other to has to of question, own made right think do focus conventional to happens we too what people's that if like much right thing a we'll

Chip Molloy

haven't fact quarter in XX% that a but the think, inflation an tertiary the Jack we both add through encouraging putting those transactions when customers. is when third units think I customers need we and comments, then they we icing that a in of Brandon, but lost as also were is in paying opening on of about, they're some quarter well, of made mentioned, that's shop. inflation the basket, XX% it shop, their those basket mix they the of I the those can than drive idea you win. a challenge, those would in reasons. a because can left were XXXX the and I squeezing in XX% for come the than mean, they're significantly is those challenge, variety And more as back today and secondary more we certainly of is today it the It's second And well XXXX. can It's COVID who XXXX get And as maybe whatever, of higher as prices they get we back if we've cake

Brandon Fletcher

sense. a that lot Yes, makes of

would that idea and trip as have you if two So of little to when because add three, message beautifully the a comp to a right, bit extra not flowing you so the of and you magic go from going be that eventually back five through to the you The get P&L. customers those back then to five. will then we're through reason

you And so that think about I way. that makes as it And think us. long guys as sense to

it understand we well. think I

Operator

with Our Parikh next Rupesh from question Oppenheimer. comes

open. Your is line

Rupesh Parikh

my Thanks taking questions. for

related allocation. capital just two questions, So

your guess how some in of CapEx just for you So next going store share pace aggressive. related quarters I'm just at And year. not percent least anything sales then how new about buyback? of changes think share the the you curious just I also necessarily as given of does hasn't approach to a growth, I know in forward? of terms in change recent trades, that today been given guys widget multiple prices the where

Chip Molloy

Hi, Rupesh.

to As it CapEx. relates

think but number I X a Denise I X.X provided said what honestly haven't year. We think to about a

Jack Sinclair

the year. it's of sales which And go should We'll Yes, it it that of lot for X% then as year a probably but leaves give out obviously you excess specifics call about perspective. a be for a business. next cash, cap of X% more coming from

to you to going our allocation, evaluate we're continue options. capital Our know,

some year back our it going buy. know, to by know, of will opportunistically you owners We'll continue to of piece We want you we we're money we'll play just, form a to that end. give in fashion to

Rupesh Parikh

follow one just up maybe question. gray, Great. Okay.

of thing So backdrop? in leverage to in you at beyond you current if you SGNA, cost going do same think type the comp look point you you leverage what know, of what SG&A, type do forward XXXX FY know, like, need and

Chip Molloy

question depends it years, that everyone Well has but managing for that's you're and what XX on a asks year-over-year. always

So right now for next year.

is get in we're going growth going and maybe to call our or manage that to to somewhere you that expectation six on it we're X% try not know and in at earnings going five least growth, number. X% there Our to growth it SGA that

much really needed to three as So if SG&A margins leverage want are if your you retailer any to two think pretty consistently stable. you I comp

Operator

Barclays. Our next Karen question Short with comes from

Your line is open.

Karen Short

next little with much. then me questions that couple comp how will in the respect give think I've that clearly very I you of versus color terms had cons. just traffic the Because And a basket Thanks maybe know from on to up. that. I don't versus you and year be a inflation? Can I another follow composition you. just heard

Jack Sinclair

actually we it. haven't said Karen, Well,

did’ – Let's you hear that.

Chip Molloy

a How many We away to said, that's heard early get traffic Yes, probably to our least too so are high at lifetime [indiscernible] it's for there have that back right us XXXX really about Gets it? want it. like and really thinking are now, we to neutral.

neutral. And And now. see so that, right got it's that to back don't to traffic think to if right quite I you get back you about now. neutral

with the will in especially sure comping, when be per think I where I'm number you're you're basket increase. units I think we'll so of EUR some that basket not get looking will don't at the the units inflation.

you a comps can there'll comp. down that? Can get traffic think get get than next kind positive, we have positive and math can year. then going, if to I did you do be we'll flat and of we traffic better we If zero-ish

Jack Sinclair

in we if So is from are stores, our and comp both Roger transactions drive. be basket, to AUR behind the our there'll Both going units for - will drive existing part to people said things which grow that our things the one it earlier of comp that right customers. basket get be three going

to There'll new marketing bucket from is the reason new because growing campaign. an a products new time, because And then all Because coming products, customers third do developed, us in basis. varietals, fresh that innovation come on often the effective your be foods people the sampling. with customers is more come that. So center coming there's the there's something new that the

or of would in All thought our That flat up forward. terms going be pretty number of to should a having transactions add transactions that aspiration.

Karen Short

in us just, about looks Okay. Jack And obviously you this on growth waterfall. company, and seeing of you you're as comp and terms we when waterfall, or you can to then, now comp Because can your everyone what just are normal obviously talked the again, know times, we're a remind in you specifically. not but

Chip Molloy

Yes.

Karen Short

obviously all comps don't that your in stores, share And reflect at alone new gaining you're existing. let even

on thoughts update little maybe that. So on color and a your

Chip Molloy

the waterfall’s AUR units ticket, transactions, call per units and should definitely Your

Karen Short

open No certain open ramp you and a on mature percent comp just percent -- they as in or stores right they

Chip Molloy

we If the ramp to get

Karen Short

Therefore, yes.

Chip Molloy

square get we're a Yes we're getting footage doing of footage, if ramp. If growth. XX% we comp square to out the one-ish XX% a probably growth, on that

year, be So footage going I around think to we're square growth. next we're not X%

get So on a than little now. we one bit might less

Karen Short

the you impacted. just actually there issue stores volumes time, at so of was to that. much higher some negatively cycling opened By an were have wanted in I in do helpful volume but may clarify been because where it That's I you stores a certain point think higher

Chip Molloy

promotion, more back lot more with kind to terms We a back open certainly to to aggression time stores of in of get investment. pin used took

you're what in probably of alluding our that's think I So to previous kind dialogues.

Operator

over back Jack now like closing for I'd you. the remarks Thank call Sinclair to next

Jack Sinclair

Thanks our to and forward venture the much. continue so Thanks alive. We everybody, whole for come we dialogue appreciate look the to this and in your helping really very make Yes. much, taking company time. interest ever exciting

Operator

for This participating. concludes today's conference call. Thank you

disconnect. may now You

Sprouts Farmers Market (SFM) 5 Nov 212021 Q3 Earnings call transcript