Core Viewpoint - Sprouts Farmers (SFM) has shown significant stock performance recently, with a return of +23.1% over the past month, outperforming the Zacks S&P 500 composite's +5% and the Zacks Food - Natural Foods Products industry's +11.3% [2] Earnings Estimates - The expected earnings for Sprouts Farmers for the current quarter is $0.77 per share, reflecting a year-over-year increase of +8.5%, with a recent change of +6.7% in the Zacks Consensus Estimate [5] - The consensus earnings estimate for the current fiscal year is $3.11, indicating a year-over-year change of +9.5%, with a +5.6% change over the last 30 days [5] - For the next fiscal year, the consensus earnings estimate is $3.36, representing an +8% change from the previous year, with a +5.3% change recently [6] Revenue Growth - The consensus sales estimate for the current quarter is $1.82 billion, indicating a year-over-year change of +7.8% [10] - For the current and next fiscal years, the sales estimates are $7.39 billion and $7.97 billion, reflecting changes of +8% and +7.9%, respectively [10] Recent Performance - In the last reported quarter, Sprouts Farmers achieved revenues of $1.88 billion, a year-over-year increase of +8.7%, and an EPS of $1.12 compared to $0.98 a year ago [11] - The company has consistently beaten consensus EPS and revenue estimates over the last four quarters [12] Valuation - Sprouts Farmers is graded C in terms of valuation, indicating it is trading at par with its peers [17] - The Zacks Rank 1 (Strong Buy) suggests that the stock may outperform the broader market in the near term [7][18]

Financial Data and Key Metrics Changes - Total sales for the first quarter reached $1.9 billion, an increase of $150 million or 9% year-over-year, driven by a 4% growth in comparable store sales [19][21] - Diluted earnings per share grew by 14% compared to the adjusted diluted earnings per share from the same period last year, reaching $1.12 [17][21] - Gross margin improved to 38.3%, an increase of approximately 80 basis points from the prior year, primarily due to better fresh shrink performance and promotional optimization [28][21] Business Line Data and Key Metrics Changes - Sprouts brand growth outpaced total company performance, contributing 21% of total sales for the quarter [49] - E-commerce sales grew approximately 25%, representing 14% of total sales, aided by partnerships with Uber Eats and other online platforms [49][51] Market Data and Key Metrics Changes - The company opened seven new stores in the first quarter, ending with a total of 414 stores across 23 states [21][35] - The company expects to open approximately 35 new stores by the end of the year, with a robust pipeline of around 100 approved new stores [35][30] Company Strategy and Development Direction - The company aims to enhance its brand by focusing on customer engagement and personalized content, which is part of a multi-year strategy [33] - The company is committed to sustainability, with $3.3 billion of sales from products with social or environmental attributes in 2023 [34] - The focus remains on improving inventory management and supply chain efficiency to support growth and customer satisfaction [45][107] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's resilience and the effectiveness of their strategies, despite potential macroeconomic challenges [101][104] - The company anticipates total sales growth of 7% to 8% for the full year, with comparable sales expected to range from 2.5% to 3.5% [30][52] Other Important Information - The company returned $60 million to shareholders through share repurchases, with $148 million remaining under the current repurchase authorization [51] - The company is investing $15 million in 2024 to build a foundation for sustainable long-term earnings growth [50] Q&A Session Summary Question: What was the primary driver for the outperformance versus expectations? - Management indicated that the outperformance was due to a combination of positive traffic, stabilizing average unit retails, and overall business improvement [59] Question: How should we think about gross margin for the balance of the year? - Management expects gross margins to be up approximately 50 basis points for the year, driven by improved inventory management and promotional strategies [39][42] Question: Have you seen any uptick in prepared food sales? - Management noted that there has been some benefit from customers eating at home, contributing to strong performance in the prepared food category [67] Question: What are the expectations regarding the loyalty program? - The loyalty program is expected to provide benefits starting in 2025, with 2024 focused on learning and technology improvements [96][98] Question: How is the company managing inflation and customer behavior? - Management reported no major changes in customer behavior due to inflation, with a focus on maintaining value through private label products [123][125]

Financial Performance - For the thirteen weeks ended March 31, 2024, net sales were $1,883.8 million, a 8.7% increase from $1,733.3 million for the same period in 2023[72]. - Net sales for the thirteen weeks ended March 31, 2024, were $1.88 billion, an increase of $150.5 million or 9% compared to $1.73 billion for the same period in 2023[102]. - Net income increased by $37.9 million to $114.1 million for the thirteen weeks ended March 31, 2024, representing a 50% increase compared to $76.2 million for the same period in 2023[110]. - Basic net income per share increased to $1.13 for the thirteen weeks ended March 31, 2024, compared to $0.73 for the same period in 2023[68]. - Diluted earnings per share rose to $1.12, up 53% from $0.73 in the prior year, driven by higher net income and fewer diluted shares outstanding[111]. - Gross profit increased by $72.3 million or 11% to $722.3 million, with a gross margin of 38.3%, up from 37.5% in the prior year[104]. - Comparable store sales growth was 4.0% for the thirteen weeks ended March 31, 2024, compared to 3.1% for the same period in 2023[103]. Debt and Financing - As of March 31, 2024, the Company had total outstanding debt of $125.0 million under its Credit Agreement, unchanged from December 31, 2023[52]. - The Company’s long-term debt and finance lease liabilities totaled $133.375 million as of March 31, 2024, compared to $133.685 million as of December 31, 2023[41]. - The Company maintained compliance with all covenants under the Credit Agreement as of March 31, 2024, including a maximum total net leverage ratio of 3.75 to 1.00[56]. - The Company issued letters of credit totaling $21.3 million under its Credit Agreement as of March 31, 2024, primarily to support its insurance programs[44]. - The Company capitalized debt issuance costs of $3.4 million related to its Credit Agreement, which are being amortized over the five-year term[43]. - As of March 31, 2024, the principal outstanding under the Credit Agreement is $125.0 million, with each 100 basis point change in SOFR resulting in a $1.25 million annual change in interest expense[141]. - Total interest expense, net decreased to $0.8 million, a 63% reduction from $2.2 million in the previous year, primarily due to lower average debt outstanding[108]. Cash Flow and Capital Expenditures - Cash flows from operating activities increased by $39.9 million to $219.7 million, attributed to favorable changes in working capital and higher net income adjusted for non-cash items[121]. - Cash flows used in investing activities were $51.2 million, down from $60.1 million in the prior year, reflecting reduced capital expenditures[123]. - Cash flows used in financing activities decreased to $58.0 million from $118.1 million, primarily due to lower stock repurchases[125]. - The company expects capital expenditures to be in the range of $225 - $245 million for 2024, primarily for new stores and remodels[124]. Shareholder Activities - The company repurchased 957,780 shares at an average price of $63.04, totaling $60.4 million during the thirteen weeks ended March 31, 2024[65]. - As of March 31, 2024, the company had $148.4 million remaining under its $600 million share repurchase authorization[62]. - The company repurchased an additional 0.3 million shares for $21.5 million subsequent to March 31, 2024[66]. Tax and Accounting - The Company reported an effective tax rate of 22.6% for the thirteen weeks ended March 31, 2024, down from 23.3% for the same period in 2023, primarily due to increased excess tax benefits from share-based payment awards amounting to $4.5 million[57]. - The effective tax rate decreased to 22.6% from 23.3% year-over-year, mainly due to an increase in excess tax benefits associated with share-based payment awards[109]. - There have been no substantial changes to critical accounting estimates during the thirteen weeks ended March 31, 2024[138]. - The company bases its critical accounting estimates on historical experience and reasonable assumptions, which may differ from actual results[137]. Operational Highlights - The Company recognized revenue from gift cards of $2.532 million during the thirteen weeks ended March 31, 2024, with an ending gift card liability balance of $9.200 million[29]. - The Company’s performance obligations are satisfied at the point of sale, with gift card breakage revenue recognized over time based on actual redemptions, which was not material in any period presented[30]. - The company has one operating segment focused on healthy grocery stores, with a product mix of perishable and non-perishable items[71]. - Perishable products accounted for 56.8% of total net sales, while non-perishable products made up 43.2%[72]. - The company closed 11 underperforming stores in 2023, resulting in a charge of $27.8 million related to impairment losses[90]. - The acquisition of Ronald Cohn, Inc. was completed on March 20, 2023, for a total consideration of $31.1 million, including $18.1 million in common shares and $13.0 million in cash[91]. - The company opened 7 new stores during the thirteen weeks ended March 31, 2024, bringing the total store count to 414[102]. - The company aims for approximately 10% annual unit growth through geographic store expansion and new store placements[99]. - Approximately 80% of the company's stores were within a 250-mile radius of a distribution center as of March 31, 2024[99]. Market Conditions - Inflation and deflation in food prices may periodically affect sales, gross profit, and gross margin, with potential impacts from reduced consumer spending[134]. - The company does not expect inflation or deflation to materially impact its long-term business strategy despite periodic effects on sales and cash flows[135]. - Food inflation and deflation are influenced by various factors, including competitors' pricing strategies[135]. - The company’s pricing and marketing strategies will determine whether to pass on inflation or deflation effects to customers[135]. - The impact of inflation and deflation on profitability is largely dependent on competitive market conditions[134]. - The company continues to monitor market risks related to long-term debt and finance lease liabilities[141].

Exhibit 99.1 Investor Contact: Media Contact: Susannah Livingston media@sprouts.com (602) 682-1584 susannahlivingston@sprouts.com Sprouts Farmers Market, Inc. Reports First Quarter 2024 Results PHOENIX, Ariz. – (Business Wire) – May 1, 2024 – Sprouts Farmers Market, Inc. (Nasdaq: SFM) today reported results for the 13-week first quarter ended March 31, 2024. "We were pleased with our impressive financial results this quarter, with strength in comparable store sales, traffic, and ecommerce," said Jack Sincla ...

Financial Performance - Net sales increased by 8%[6] - Comparable store sales increased by 33%[7] - EPS(Earnings Per Share) growth increased by 17%[8] - Adjusted diluted EPS for the full year was $284[14] - Cash generation from operations reached $465 million[14] - Share repurchases amounted to $203 million[14] Growth & Expansion - Opened 30 new stores in the new format[5] - E-commerce grew to 122% of sales and added DoorDash to expand access to Sprouts[5] Strategic Initiatives - Sprouts Brand sales grew 13% in 2023 and added 400 new items[5] - Added Uber Eats to the Omnichannel offering to expand access to Sprouts[12] Future Outlook - Expects to open approximately 35 new stores in 2024[31] - Projects adjusted diluted earnings per share (EPS) of $285 to $295 for 2024[31]

Financial Data and Key Metrics Changes - Total sales for Q4 2023 were $1.7 billion, an increase of $122 million or 8% from the same period last year, driven by comparable store sales growth of 3.3% and the addition of new stores [62][73] - Gross margin for Q4 was 36.5%, an increase of nearly 20 basis points from the same period last year, with favorable merchandise margins partially offset by pressure from new distribution centers [72][55] - For fiscal year 2023, total sales increased 7% to $6.8 billion, with adjusted diluted earnings per share rising 19% to $2.84 [73][82] Business Line Data and Key Metrics Changes - The Sprouts brand accounted for 21% of total sales in Q4, with strong performance in attribute-driven categories such as organic, grass-fed, vegan, and keto products [71][55] - E-commerce sales grew approximately 17% in Q4, representing 12.4% of total sales, supported by partnerships with Uber Eats, Instacart, and DoorDash [71][62] Market Data and Key Metrics Changes - The company opened 30 new stores in 2023, all in a new smaller format, and plans to open approximately 35 new stores in 2024 [75][22] - The company experienced positive traffic both in-store and online throughout Q4, with average unit retails and units per basket stabilizing [62][71] Company Strategy and Development Direction - The company aims to establish itself as a leading specialty retailer with a differentiated better-for-you offering, focusing on health-driven categories [23][79] - The company is investing approximately $15 million in 2024 to build out its loyalty program and improve technology and data foundations [77][135] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying drivers of growth despite a less constructive inflation outlook, with expectations for total sales growth of 5.5% to 7.5% in 2024 [3][77] - The company anticipates continued pressure on SG&A expenses due to strategic investments and wage inflation, but expects to manage costs effectively [74][103] Other Important Information - The company generated $465 million in operating cash flow in 2023, allowing for significant capital expenditures and share repurchases [75][57] - The company has a robust pipeline of over 100 approved stores and nearly 70 executed leases, indicating strong future growth potential [22][50] Q&A Session Summary Question: Can you discuss the confidence behind the comp guidance? - Management noted that the guidance of 2.5% growth at the midpoint is in line with last year's expectations, despite inflation concerns, and highlighted elasticity benefits [3] Question: Are you seeing pressure from mainstream players in the organic offerings? - Management indicated that while competitors are adding organic items, their differentiated assortment allows them to maintain relevance with target customers [10][12] Question: How did comp trends perform month to month? - Comp trends were stable throughout Q4, with solid performance and no major fluctuations [13] Question: What are the expectations for private brand growth? - Management expressed optimism about the Sprouts brand's evolution and its focus on attributes that resonate with target customers [18] Question: Can you clarify the $15 million OpEx investment? - Management confirmed that the $15 million is primarily for the loyalty program and technology investments, not expected to continue at that level beyond 2024 [135][112]

Financial Performance - Net sales for fiscal 2023 totaled $6.8 billion, a 7% increase compared to fiscal 2022, driven by a 3.4% increase in comparable store sales and new store openings[233] - Comparable store sales growth was 3.4% in fiscal 2023, up from 2.2% in fiscal 2022, contributing approximately 95% of total sales[233] - Gross profit increased by $173.3 million to $2.5 billion in fiscal 2023, with gross margin rising to 36.9% from 36.7% in fiscal 2022[234] - Net income decreased slightly by $2.3 million to $258.9 million in 2023, a 1% decline from 2022, despite higher net sales and favorable margins[240] - Diluted earnings per share increased by $0.11 to $2.50 in 2023, a 5% rise from 2022, due to share repurchases reducing diluted shares outstanding by 5.7 million[241] - ROIC improved to 12.9% in 2023 from 12.4% in 2022, driven by higher net operating profit after tax (NOPAT) of $375.1 million[246] - Net sales for the year ended December 31, 2023, were $6,837,384 thousand, a 6.8% increase from $6,404,223 thousand in 2022[317] - Gross profit for 2023 was $2,521,841 thousand, up 7.4% from $2,348,564 thousand in 2022[317] - Net income for 2023 was $258,856 thousand, a slight decrease from $261,164 thousand in 2022[317] - Diluted net income per share for 2023 was $2.50, compared to $2.39 in 2022[317] Store Operations and Expansion - The company opened 30 new stores and closed 11 stores in fiscal 2023, ending the year with 407 stores across 23 states[230] - Approximately 80% of stores were within 250 miles of a distribution center as of December 31, 2023, following the opening of two fresh distribution centers in fiscal 2021 and other supply chain optimizations[219] - The company's total square footage at the end of fiscal 2023 was 11,322,798, with an average of 27,820 square feet per store[230] - The company operated 407 stores in 23 states as of December 31, 2023[328] - The company's long-term growth strategy includes targeting 'health enthusiasts' and 'selective shoppers', with a focus on omnichannel offerings and product innovation[219] - The company aims for approximately 10% annual unit growth through geographic expansion and new store placement in markets with growth potential[219] - The company's fresh distribution network is expected to drive efficiencies and support growth plans, with a goal of positioning fresh distribution centers within a 250-mile radius of stores[219] Expenses and Costs - Selling, general and administrative expenses increased by $144.8 million, or 8%, to $2.0 billion in fiscal 2023, primarily due to new store openings and higher payroll costs[235] - Depreciation and amortization expense increased by $8.4 million to $131.9 million in 2023, a 7% increase from 2022, including $5.9 million in accelerated depreciation due to store closures[236] - Store closure and other costs, net surged by $28.3 million to $39.3 million in 2023, a 256% increase from 2022, primarily due to $30.5 million in impairment losses from closing 11 underperforming stores[237] - Depreciation expense increased to $136.6 million in 2023 from $125.7 million in 2022[385] - Impairment expense significantly rose to $30.5 million in 2023 from $8.1 million in 2022[386] - Total net lease cost increased to $303.988 million in 2023 from $271.523 million in 2022[387] - Advertising expense, net of rebates, was $45.8 million in 2023, down from $49.2 million in 2022[370] Cash Flow and Capital Expenditures - Cash from operating activities increased by $93.7 million to $465.1 million in 2023, primarily due to higher net income and favorable working capital changes[250] - Cash used in investing activities rose by $114.3 million to $238.3 million in 2023, driven by increased store construction and equipment upgrades[253] - Capital expenditures are projected to be $225-$245 million in 2024, primarily for new stores, remodels, and maintenance[254] - Cash used in financing activities increased by $118.9 million to $318.0 million in 2023, mainly due to $203.5 million in share repurchases and $125.0 million in debt payments[255] - Cash flows from operating activities in 2023 were $465,068 thousand, a 25.2% increase from $371,329 thousand in 2022[326] - Cash and cash equivalents decreased from $293.2 million in January 1, 2023, to $201.8 million by December 31, 2023[315] - Cash and cash equivalents increased to $85,116 thousand as of December 31, 2023, compared to $77,665 thousand as of January 1, 2023[334] Debt and Financing - Net interest expense decreased by $2.6 million to $6.5 million in 2023, a 28% decline from 2022, driven by higher interest income and lower credit facility fees[238] - Long-term debt outstanding decreased from $250.0 million as of January 1, 2023, to $125.0 million as of December 31, 2023[256] - The company's share repurchase program authorized $600,000, with $391,619 already repurchased and $208,381 remaining as of December 31, 2023[257] - In 2023, the company repurchased 5,864,246 common shares at an average price of $35.00 per share, totaling $205,262[258] - The company can borrow up to $700.0 million under its Credit Agreement, with interest rates tied to net leverage ratio and sustainability metrics[259] - The Credit Agreement requires a maximum total net leverage ratio of 3.75 to 1.00 and a minimum interest coverage ratio of 3.00 to 1.00[262] - Estimated interest payments through March 25, 2027, are approximately $22.4 million, with $8.3 million expected in 2024 and $14.1 million thereafter[265] - Long-term debt under the $700 million Credit Agreement decreased to $125 million as of December 31, 2023, from $250 million in 2022[397] - The Company's total net leverage ratio must not exceed 3.75 to 1.00, and the minimum interest coverage ratio must not be less than 3.00 to 1.00, as per the Credit Agreement[410] - The Company was in compliance with all applicable covenants under the Credit Agreement as of December 31, 2023[411] Leases and Real Estate - Real estate obligations for leases executed but not yet commenced totaled $584.1 million as of December 31, 2023, with $4.8 million due in 2024[266] - The company's lease assets and liabilities are recognized based on the estimated present value of lease payments over the lease term, net of landlord allowances[352] - Variable lease payments, such as those for common area maintenance, property taxes, and insurance, are expensed as incurred and not included in the measurement of lease liabilities or assets[353] - The company uses an estimated incremental borrowing rate, derived from third-party information, to determine the present value of lease payments[354] - Most leases include renewal options that can extend the lease term from one to twenty years or more, with the exercise of these options at the company's discretion[355] - The company subleases certain real estate to third parties, with all subleases classified as operating leases and sublease income recognized on a straight-line basis[356] - Operating lease assets grew to $1.322 billion as of December 31, 2023, up from $1.106 billion at the start of the year[389] - Total lease liabilities stood at $1.535 billion as of December 31, 2023, compared to $1.290 billion at the beginning of the year[389] - Weighted average remaining lease term for operating leases increased to 10.0 years in 2023 from 9.4 years in 2022[389] - Weighted average discount rate for operating leases rose to 7.2% in 2023 from 7.1% in 2022[389] - Total lease liabilities as of December 31, 2023, amounted to $1.54 billion, with $1.53 billion for operating leases and $9.7 million for finance leases[390] Assets and Liabilities - Total assets increased from $3.07 billion in January 1, 2023, to $3.33 billion by December 31, 2023[315] - Long-term debt and finance lease liabilities decreased from $258.9 million in January 1, 2023, to $133.7 million by December 31, 2023[315] - Retained earnings increased from $320.0 million in January 1, 2023, to $373.6 million by December 31, 2023[315] - Operating lease assets increased from $1.11 billion in January 1, 2023, to $1.32 billion by December 31, 2023[315] - Accounts receivable increased from $16.1 million in January 1, 2023, to $30.3 million by December 31, 2023[315] - Total stockholders' equity at December 31, 2023, was $1,148,547 thousand, up from $1,046,462 thousand at the beginning of the year[323] - Restricted cash for defined benefit plan forfeitures and healthcare, general liability, and workers' compensation plan benefits was $2.1 million as of December 31, 2023, and $2.0 million as of January 1, 2023[335] - Goodwill and indefinite-lived intangible assets totaled $381.7 million and $208.1 million, respectively, with no impairment recorded in fiscal 2023[289] - Intangible assets increased by $23.1 million in 2023, primarily due to the addition of indefinite-lived reacquired rights, bringing the total to $208.1 million[391] - Goodwill increased by $12.9 million in 2023, reaching $381.7 million, driven by the acquisition of Ronald Cohn, Inc.[392] - Accrued liabilities totaled $164.9 million as of December 31, 2023, up from $151.3 million in 2022, with self-insurance reserves and other accrued liabilities being the primary contributors[394] - Accrued salaries and benefits rose to $74.8 million in 2023, compared to $61.6 million in 2022, with bonuses and payroll being the largest components[395] Impairment and Reserves - The company recorded an impairment loss of $30.5 million in 2023, including $27.8 million related to the closure of underperforming stores and $2.7 million related to the write-down of right-of-use assets and leasehold improvements[348] - Impairment losses in 2022 and 2021 were $8.1 million and $4.8 million, respectively, primarily related to the write-down of right-of-use assets and leasehold improvements[348] - The company's consolidated self-insurance reserve balance was $47.8 million as of December 31, 2023, primarily for workers' compensation and general liability[284] - The company's general liability and workers' compensation self-insurance reserves totaled $47.8 million as of December 31, 2023[309] Product Sales and Categories - Perishable products accounted for 57.3% of sales in 2023, down from 58.0% in 2022[331] - Non-perishable products made up 42.7% of sales in 2023, up from 42.0% in 2022[331] Share Repurchases and Equity - The company repurchased and retired 5,864,246 shares of common stock in 2023, including excise tax[323] - The company's share repurchase program authorized $600,000, with $391,619 already repurchased and $208,381 remaining as of December 31, 2023[257] - In 2023, the company repurchased 5,864,246 common shares at an average price of $35.00 per share, totaling $205,262[258] Supplier and Purchase Commitments - The company's largest supplier accounted for 47% of total purchases in 2023, up from 45% in 2022[368] - Purchase commitments under noncancelable contracts totaled $28.6 million as of December 31, 2023, with $12.1 million due in 2024[267] Other Financial Metrics - The company's deferred tax assets realization depends on future earnings, and a valuation allowance may be required if future taxable income is insufficient[293] - A $125.0 million principal under the Credit Agreement as of December 31, 2023, results in a $1.25 million annual interest expense change per 100 basis point SOFR fluctuation[294] - The Company issued letters of credit totaling $21.5 million under the Letter of Credit Sub-Facility as of December 31, 2023, primarily to support insurance programs[400] - Gift card liability ending balance was $10.566 million as of December 31, 2023, compared to $10.906 million at the beginning of the year[365] - The company had no active derivative financial instruments as of December 31, 2023, or January 1, 2023[362]

Exhibit 99.1 • Net sales totaled $1.7 billion; an 8% increase from the same period in 2022 • Comparable store sales growth of 3.3% • Diluted earnings per share of $0.49; compared to diluted earnings per share of $0.42 in the same period in 2022 • Opened 6 new stores Investor Contact: Media Contact: Susannah Livingston media@sprouts.com (602) 682-1584 susannahlivingston@sprouts.com Sprouts Farmers Market, Inc. Reports Fourth Quarter and Full Year 2023 Results PHOENIX, Ariz. – (Business Wire) – February 22, 2 ...

Financial Data and Key Metrics - Total sales for Q3 2023 were $1.7 billion, up 8% YoY, driven by a 3.9% comp store sales growth and new store openings [25] - Adjusted EPS grew 7% YoY to $0.65, with adjusted EBIT of $90 million and adjusted net income of $67 million [102] - Gross margin was 36.5%, down 10 bps YoY due to pressure from new and expanded warehouses in California and Texas [122] - SG&A increased by $41 million YoY, driven by new store openings, wage increases, and labor investments in the Store Sampling program [122] - E-commerce sales grew 16% YoY, representing 12.1% of total sales, up from 2% in 2019 [138][11] Business Line Performance - Sprouts brand sales grew 14% YoY, representing 20.5% of total sales, driven by new meals, snacks, beverages, and seasonal items [121][104] - Produce distribution centers in Arizona, Texas, and California improved sales and margins in avocados and bananas [26] - The company is one of the fastest-growing retailers of grass-fed beef, with over 50% of beef sales coming from this category [10] - Frozen category expanded with new product releases, and sampling initiatives drove customer engagement [10] Market Performance - Traffic trends remained positive across both brick-and-mortar and e-commerce channels, with consistent growth across established and less established markets [53][150] - The company saw strong performance in categories like meat, grocery, dairy, and frozen, with particular strength in attribute-based products such as plant-based, grass-fed, and gluten-free items [121][78] - Inflation in Q3 was on the high end of the low to mid-single-digit range, but it has been coming down [2][75] Strategic Direction and Industry Competition - The company is focused on assortment differentiation, customer service, and creating an exciting in-store environment [13] - Sprouts is leveraging its unique product mix, including bulk items, vitamins, supplements, and a high proportion of produce, to differentiate itself from traditional grocers [3] - The company is investing in digital communication and personalization to engage target customers more effectively [63][127] - Sprouts is expanding its omni-channel strategy, with a focus on integrating e-commerce and in-store experiences [60][165] Management Commentary on Operating Environment and Future Outlook - Management expects wage pressures to continue into next year but is focused on finding efficiencies to deliver meaningful results [1] - The company is confident in its ability to manage gross margins around flat levels, despite some near-term pressure from distribution center expansions [21][18] - For Q4 2023, the company expects comp sales growth of approximately 3% and adjusted EPS between $0.42 and $0.46 [125] - The company plans to open approximately 35 new stores in 2024, with a strong pipeline of approved sites and executed leases [103][146] Other Important Information - The company is developing a loyalty program, with a pilot expected to launch in summer 2024, aimed at increasing customer engagement and personalization [106][172] - Sprouts has invested nearly $400 million in team members since 2019, resulting in improved retention and enhanced store experiences [106] - The company is closing its Georgia distribution center and optimizing its Florida DC network to improve scale and freshness [26] Q&A Session Summary Question: How is the competitive environment in produce, and are competitors discounting irrationally? - The company has not seen any irrational discounting in the produce category, and the market remains stable [131] Question: What is the outlook for gross margins in Q4 and 2024? - Gross margins are expected to be flattish in Q4, with some pressure from distribution center expansions, but the company is confident in managing margins around flat levels in 2024 [18][21] Question: How is the company managing wage pressures and SG&A growth? - Wage pressures are expected to continue, but the company is focused on finding efficiencies to offset these costs [1][45] Question: What is the impact of the DoorDash and Instacart partnerships on digital growth? - The partnerships have added value in understanding customer behavior and driving e-commerce growth, which now represents 12% of total sales [9][60] Question: What is the company's strategy for new store productivity and growth? - New stores are performing in line with proformas, and the company is confident in its ability to deliver shareholder value through its store growth strategy [19][35] Question: How is the company addressing inflation and unit trends? - Inflation is stabilizing, and unit trends are improving, particularly in produce, dairy, and frozen categories [75][147] Question: What is the company's approach to market share and margin prioritization? - The company focuses on growing share of wallet with its target customers rather than competing on price or promotions [39][80]

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited consolidated financial statements for the thirteen and thirty-nine weeks ended October 1, 2023, covering balance sheets, income, and cash flows, along with detailed notes on key activities [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of October 1, 2023, total assets increased to **$3.29 billion** from **$3.07 billion**, driven by operating lease assets and property, with total liabilities rising to **$2.18 billion** and stockholders' equity reaching **$1.12 billion** Balance Sheet Summary (in thousands) | Account | October 1, 2023 | January 1, 2023 | | :--- | :--- | :--- | | **Total Current Assets** | $620,551 | $673,804 | | **Total Assets** | $3,290,508 | $3,070,380 | | **Total Current Liabilities** | $541,545 | $522,380 | | **Total Liabilities** | $2,175,499 | $2,023,918 | | **Total Stockholders' Equity** | $1,115,009 | $1,046,462 | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Net sales increased to **$1.71 billion** in Q3 and **$5.14 billion** YTD, but higher SG&A and store closure costs led to a slight decrease in Q3 net income and a 3.3% decline YTD to **$208.8 million** Income Statement - Thirteen Weeks Ended (in thousands) | Metric | October 1, 2023 | October 2, 2022 | | :--- | :--- | :--- | | Net Sales | $1,713,282 | $1,591,026 | | Gross Profit | $625,434 | $583,650 | | Income from Operations | $87,655 | $90,339 | | Net Income | $65,313 | $65,740 | | Diluted EPS | $0.64 | $0.61 | Income Statement - Thirty-nine Weeks Ended (in thousands) | Metric | October 1, 2023 | October 2, 2022 | | :--- | :--- | :--- | | Net Sales | $5,138,839 | $4,827,669 | | Gross Profit | $1,901,468 | $1,775,755 | | Store closure and other costs, net | $33,880 | $3,034 | | Income from Operations | $280,793 | $296,490 | | Net Income | $208,807 | $216,044 | | Diluted EPS | $2.01 | $1.97 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased to **$409.0 million** YTD, while cash used in investing activities rose to **$178.0 million** and financing activities increased to **$272.3 million** due to debt repayments and share repurchases Cash Flow Summary - Thirty-nine Weeks Ended (in thousands) | Activity | October 1, 2023 | October 2, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $409,025 | $306,790 | | Net cash used in investing activities | ($178,048) | ($80,749) | | Net cash used in financing activities | ($272,320) | ($154,993) | | (Decrease)/Increase in cash | ($41,343) | $71,048 | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail significant accounting policies and events, including the **$31.1 million** acquisition of Ronald Cohn, Inc., **11** store closures with a **$27.8 million** impairment, and **$182.0 million** in share repurchases YTD - On March 20, 2023, the company acquired Ronald Cohn, Inc., which owned two stores operating under the 'Sprouts Farmers Market' name, for **$18.1 million** in stock and **$13.0 million** in cash[108](index=108&type=chunk) - In 2023, the company closed **11** underperforming stores, resulting in a **$27.8 million** impairment charge for leasehold improvements and right-of-use assets[106](index=106&type=chunk) Share Repurchase Activity (YTD) | Period | Shares Acquired | Total Cost (in thousands) | | :--- | :--- | :--- | | Thirty-nine weeks ended Oct 1, 2023 | 5,307,759 | $181,974 | | Thirty-nine weeks ended Oct 2, 2022 | 5,437,054 | $155,094 | - Total assets increased to **$3.29 billion** as of October 1, 2023, from **$3.07 billion** as of January 1, 2023, primarily due to increases in operating lease assets and property and equipment[11](index=11&type=chunk) - Net cash provided by operating activities for the thirty-nine weeks ended October 1, 2023, was **$409.0 million**, a significant increase from **$306.8 million** in the prior-year period[24](index=24&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses Q3 2023 performance, highlighting an **8%** net sales increase driven by new stores and comparable sales growth, strategic initiatives, and operational results, noting impacts from higher SG&A and store closure costs on net income, while maintaining strong liquidity [Business Overview and Strategy](index=23&type=section&id=Business%20Overview%20and%20Strategy) Sprouts operates **401** stores in **23** states as a specialty retailer of fresh, natural, and organic food, with a strategy focused on target customers, smaller store formats, supply chain optimization, data analytics, and talent investment - As of October 1, 2023, the company operated **401** stores in **23** states[114](index=114&type=chunk) - Strategic pillars include: winning with target customers, updating store formats, creating an advantaged fresh supply chain, refining brand and marketing, and engaging talent[118](index=118&type=chunk)[121](index=121&type=chunk) - The company has opened **36** stores in its new, smaller format and aims for approximately **10%** annual unit growth starting in 2024[118](index=118&type=chunk) [Results of Operations (Q3 2023 vs Q3 2022)](index=25&type=section&id=Results%20of%20Operations%20for%20Thirteen%20Weeks%20Ended%20October%201%2C%202023) Q3 2023 net sales grew **8%** to **$1.7 billion** with **3.9%** comparable store sales growth, but higher SG&A and distribution costs led to a slight gross margin decrease and flat net income of **$65.3 million**, while diluted EPS rose to **$0.64** Q3 Performance Summary | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,713.3M | $1,591.0M | +8% | | Comparable Store Sales Growth | 3.9% | 2.4% | +1.5 p.p. | | Gross Margin | 36.5% | 36.7% | -0.2 p.p. | | SG&A as % of Sales | 29.3% | 29.0% | +0.3 p.p. | | Diluted EPS | $0.64 | $0.61 | +5% | [Results of Operations (YTD 2023 vs YTD 2022)](index=28&type=section&id=Results%20of%20Operations%20for%20Thirty-nine%20Weeks%20Ended%20October%201%2C%202023) YTD 2023 net sales increased **6%** to **$5.1 billion** with **3.4%** comparable store sales growth and improved gross margin, but a surge in store closure costs to **$33.9 million** led to a **3%** decrease in net income to **$208.8 million** YTD Performance Summary | Metric | YTD 2023 | YTD 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $5,138.8M | $4,827.7M | +6% | | Comparable Store Sales Growth | 3.4% | 2.0% | +1.4 p.p. | | Gross Margin | 37.0% | 36.8% | +0.2 p.p. | | Store closure costs, net | $33.9M | $3.0M | +1017% | | Net Income | $208.8M | $216.0M | -3% | | Diluted EPS | $2.01 | $1.97 | +2% | [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily from operations, generating **$409.0 million** YTD, with cash used for **$178.0 million** in capital expenditures and **$272.3 million** in financing activities, including **$100.0 million** debt repayment and **$180.4 million** share repurchases - Cash flows from operating activities increased to **$409.0 million** YTD, up from **$306.8 million** in the prior year period[151](index=151&type=chunk)[152](index=152&type=chunk) - Financing activities used **$272.3 million** YTD, primarily for **$180.4 million** in stock repurchases and **$100.0 million** in payments on the Credit Agreement[156](index=156&type=chunk) - As of October 1, 2023, **$231.5 million** remained available under the **$600 million** share repurchase program authorized through December 31, 2024[160](index=160&type=chunk) - The company's long-term growth strategy focuses on winning with target customers, updating store formats, creating an advantaged fresh supply chain, refining marketing, and engaging talent[118](index=118&type=chunk)[121](index=121&type=chunk) - In the first 39 weeks of 2023, the company opened **24** new stores, acquired **2**, and closed **11** underperforming stores, ending the period with **401** stores[134](index=134&type=chunk) - Return on Invested Capital (ROIC), a non-GAAP measure, including operating leases, increased to **12.9%** for the rolling four quarters ended October 1, 2023, up from **12.0%** in the prior year period[149](index=149&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company's primary market risk is interest rate fluctuations on its variable-rate Credit Agreement, where a **100 basis point** change in SOFR would alter annual interest expense by **$1.5 million** on **$150.0 million** outstanding debt - The company is exposed to interest rate risk from its variable-rate Credit Agreement tied to SOFR[173](index=173&type=chunk) - A **1% (100 basis point)** change in SOFR would result in a **$1.5 million** annual change in interest expense based on the **$150.0 million** outstanding debt as of October 1, 2023[173](index=173&type=chunk) [Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and procedures were effective as of October 1, 2023, with no material changes to internal controls over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of October 1, 2023[176](index=176&type=chunk) - There were no changes in internal controls over financial reporting during the third quarter of 2023 that materially affected, or were reasonably likely to materially affect, these controls[177](index=177&type=chunk) [PART II - OTHER INFORMATION](index=37&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings.) The company is involved in ordinary course legal proceedings, with the Proposition 65 Coffee Action lawsuit concluded in its favor in February 2023, and no expected material adverse effects from current cases - The company is party to legal proceedings arising in the ordinary course of business, which have not resulted in material losses to date[179](index=179&type=chunk) - The long-running Proposition 65 Coffee Action lawsuit was concluded in February 2023 when the Supreme Court of the State of California denied the plaintiff's petition for review, affirming a lower court's decision in favor of the defendants[69](index=69&type=chunk) [Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors.) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended January 1, 2023 - There have been no material changes to the Risk Factors described in the company's Annual Report on Form 10-K for the fiscal year ended January 1, 2023[182](index=182&type=chunk) [Issuer Purchases of Equity Securities](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) During Q3 2023, the company repurchased **831,416** shares for approximately **$32.1 million** under its **$600 million** program, with **$231.5 million** remaining available as of October 1, 2023 Share Repurchases in Q3 2023 | Period | Total Shares Purchased | Average Price Paid | Total Cost | | :--- | :--- | :--- | :--- | | July 3 - July 30, 2023 | 176,918 | $37.17 | ~$6.6M | | July 31 - Aug 27, 2023 | 265,699 | $38.02 | ~$10.1M | | Aug 28 - Oct 1, 2023 | 388,799 | $39.59 | ~$15.4M | | **Total** | **831,416** | **-** | **~$32.1M** | - The current **$600 million** share repurchase program is effective through December 31, 2024. As of October 1, 2023, **$231,462,000** remained available for repurchase[184](index=184&type=chunk) [Other Information](index=38&type=section&id=Item%205.%20Other%20Information.) On August 11, 2023, CFO Lawrence Molloy adopted a Rule 10b5-1 trading plan for the sale of up to **108,568** shares of common stock, with no other such plans adopted or terminated by executives during the quarter - On August 11, 2023, CFO Lawrence Molloy adopted a Rule 10b5-1 trading plan for the sale of up to **108,568** shares of common stock[185](index=185&type=chunk) [Exhibits](index=39&type=section&id=Item%206.%20Exhibits.) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications required by Sarbanes-Oxley Sections 302 and 906, and Inline XBRL data files - Filed exhibits include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906[188](index=188&type=chunk) - The filing includes Inline XBRL documents for financial data tagging[188](index=188&type=chunk)