Sprouts Farmers Market(SFM) - 2026 Q2 - Quarterly Report

PART I Financial Statements The company's financial statements for the period ended June 29, 2025, reflect strong growth in assets, net income, and cash flow, with notable share repurchase activity Consolidated Balance Sheets As of June 29, 2025, the company's balance sheet shows an increase in total assets to $3.78 billion and total liabilities to $2.43 billion, resulting in higher stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Account | June 29, 2025 | December 29, 2024 | | :--- | :--- | :--- | | Total current assets | $709,328 | $675,520 | | Total assets | $3,783,228 | $3,640,699 | | Total current liabilities | $720,987 | $679,968 | | Total liabilities | $2,426,728 | $2,318,806 | | Total stockholders' equity | $1,356,500 | $1,321,893 | Consolidated Statements of Income The company reported robust year-over-year growth in net sales and net income for both the second quarter and first half of 2025, significantly improving diluted EPS Q2 Performance Comparison (in thousands, except per share data) | Metric | Thirteen Weeks Ended June 29, 2025 | Thirteen Weeks Ended June 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $2,220,602 | $1,893,519 | +17.2% | | Gross Profit | $862,600 | $718,365 | +20.1% | | Income from Operations | $179,356 | $127,317 | +40.9% | | Net Income | $133,703 | $95,289 | +40.3% | | Diluted EPS | $1.35 | $0.94 | +43.6% | Year-to-Date Performance Comparison (in thousands, except per share data) | Metric | Twenty-six Weeks Ended June 29, 2025 | Twenty-six Weeks Ended June 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $4,457,038 | $3,777,327 | +18.0% | | Gross Profit | $1,748,963 | $1,440,678 | +21.4% | | Income from Operations | $405,688 | $275,583 | +47.2% | | Net Income | $313,729 | $209,389 | +49.8% | | Diluted EPS | $3.16 | $2.06 | +53.4% | Consolidated Statements of Stockholders' Equity Stockholders' equity increased for the twenty-six weeks ended June 29, 2025, primarily due to net income, partially offset by significant share repurchases - Key changes in stockholders' equity for the 26 weeks ended June 29, 2025 include: Net income of $313.7 million, share repurchases of $294.7 million, and share-based compensation of $14.4 million[17] Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased for the twenty-six weeks ended June 29, 2025, while cash was primarily used for investing in property and equipment and financing share repurchases Cash Flow Summary (in thousands) | Activity | Twenty-six weeks ended June 29, 2025 | Twenty-six weeks ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $410,337 | $311,295 | | Net cash used in investing activities | ($120,319) | ($108,925) | | Net cash used in financing activities | ($293,734) | ($226,765) | | Decrease in cash | ($3,716) | ($24,395) | Notes to Consolidated Financial Statements The notes detail the company's operations, significant legal proceedings, new lease agreements, and ongoing share repurchase program, providing context for the financial statements - As of June 29, 2025, the Company operated 455 stores in 24 states[23] - The company is involved in litigation with its former distributor, Harvest Sherwood Food Distributors, Inc., which filed for Chapter 11 bankruptcy, with potential loss currently unpredictable[64] - On April 24, 2025, the company executed a 10-year real estate lease for a new corporate headquarters and store, with total non-cancellable lease payments of $110.0 million, expected to commence in Q3 2026[65] - A $600 million share repurchase program was authorized on May 22, 2024, with $158.3 million remaining available as of June 29, 2025[67] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management's discussion highlights strong financial performance driven by strategic growth initiatives, improved margins, and robust liquidity, supported by a new credit facility and ongoing share repurchases Business Overview and Growth Strategy The company's growth strategy focuses on expanding its specialty retail presence through targeted customer engagement, market expansion, supply chain optimization, talent investment, and technology adoption - The company's long-term growth strategy focuses on: winning with target customers, market expansion with smaller stores aiming for 10% annual unit growth, creating an advantaged supply chain with 80% of stores within 250 miles of a distribution center, increasing customer engagement via data analytics, inspiring and engaging talent, and investing in technology for scalable growth[102] Results of Operations The company reported robust growth in net sales and comparable store sales for both the second quarter and first half of 2025, accompanied by significant gross margin expansion and increased net income Q2 2025 vs Q2 2024 Performance | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2.2B | $1.9B | +17% | | Comparable Store Sales Growth | 10.2% | 6.7% | +3.5 p.p. | | Gross Margin | 38.8% | 37.9% | +0.9 p.p. | | Net Income | $133.7M | $95.3M | +40% | | Diluted EPS | $1.35 | $0.94 | +44% | YTD 2025 vs YTD 2024 Performance | Metric | YTD 2025 | YTD 2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $4.5B | $3.8B | +18% | | Comparable Store Sales Growth | 10.9% | 5.4% | +5.5 p.p. | | Gross Margin | 39.2% | 38.1% | +1.1 p.p. | | Net Income | $313.7M | $209.4M | +50% | | Diluted EPS | $3.16 | $2.06 | +53% | Return on Invested Capital (ROIC) The company's Return on Invested Capital (ROIC) significantly improved for the four quarters ending June 29, 2025, reflecting enhanced capital allocation and profitability ROIC Calculation (Rolling Four Quarters Ended) | Metric | June 29, 2025 | June 30, 2024 | | :--- | :--- | :--- | | NOPAT, including operating leases | $570.8M | $411.6M | | Average invested capital, including operating leases | $3,207.2M | $3,014.3M | | ROIC, including operating leases | 17.8% | 13.7% | Liquidity and Capital Resources The company maintains a strong liquidity position, primarily funded by operating cash flow, with significant capital expenditures and share repurchases, further bolstered by a new revolving credit facility - Cash flow from operating activities increased by $99.0 million to $410.3 million for the first half of 2025, mainly due to higher net income[138] - Financing activities used $293.7 million, primarily consisting of $292.2 million for stock repurchases[143] - On July 25, 2025, the company entered into a new $600.0 million revolving credit facility maturing in 2030, which refinances and replaces the previous facility[56] - Expected capital expenditures for 2025 are projected to be in the range of $230 - $250 million[142] Quantitative and Qualitative Disclosures About Market Risk The company faces market risk from interest rate fluctuations on its variable-rate credit facility, though no outstanding borrowings existed as of June 29, 2025 - The company's credit agreement bears interest at a variable rate based on SOFR, exposing it to interest rate fluctuations[158] - As of June 29, 2025, the company had no outstanding borrowings under its Credit Agreement[158] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 29, 2025, with no material changes to internal controls over financial reporting during the quarter - Based on an evaluation as of June 29, 2025, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[160] - No changes in internal controls over financial reporting occurred during the quarter that materially affected, or were reasonably likely to materially affect, these controls[161] PART II Legal Proceedings The company is involved in various legal proceedings, including a notable dispute with a former distributor, with no expected material adverse effect on its financial condition - The company is party to various legal proceedings from the ordinary course of business[163] - Specific details on a significant legal proceeding with Harvest Sherwood are provided in Note 6 of the financial statements[164] Risk Factors 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 December 29, 2024 - 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 December 29, 2024[166] Issuer Purchases of Equity Securities During Q2 2025, the company repurchased 466,420 shares for $74.2 million under its $600 million authorization, with $158.3 million remaining for future repurchases Share Repurchases for Q2 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | March 31 - April 27, 2025 | 331,262 | $153.88 | | April 28 - May 25, 2025 | 78,720 | $167.29 | | May 26 - June 29, 2025 | 56,438 | $165.09 | | Total | 466,420 | N/A | - As of June 29, 2025, $158.3 million remained available for repurchase under the current plan, which expires on May 22, 2027[168] Other Information No directors or executive officers adopted or terminated a Rule 10b5-1 Trading Plan during the second quarter of 2025 - No directors or executive officers adopted or terminated a Rule 10b5-1 Trading Plan during the second quarter of 2025[169] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents, CEO and CFO certifications, and financial data in iXBRL format - Key exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and financial data in iXBRL format[170]