Sprouts Farmers Market(SFM) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q2 2021, adjusted diluted earnings per share were $0.52, down from $0.59 in 2020, but up 73% compared to Q2 2019 [25] - Net sales decreased 7% to $1.5 billion, with comparable store sales down 10% year-over-year; however, on a two-year basis, net sales were up 7% compared to Q2 2019 [26] - Gross profit was $550 million, with a gross margin of 36.1%, a decrease of 115 basis points from Q2 2020, but up 330 basis points compared to Q2 2019 [34] - SG&A costs decreased by $52 million to $436 million, representing 28.7% of sales, leveraging 108 basis points compared to the same period last year [35] - Adjusted EBIT for the quarter was $84 million, down from $96 million in 2020, but up 63% compared to Q2 2019 [36] Business Line Data and Key Metrics Changes - Deli sales were strong, driven by increased demand for prepared meal solutions [29] - E-commerce sales accounted for 10.1% of total sales, with a significant increase of over 350% compared to Q2 2019 [30] - Organic produce sales reached 35% of department sales, one of the highest penetration rates in the industry [13] Market Data and Key Metrics Changes - The reopening of restaurants and travel contributed to a slowdown in sales during May and June [20] - The company noted that customer traffic remained stable but did not grow as expected, indicating a need for improved marketing strategies [44][46] Company Strategy and Development Direction - The company is focused on rolling out innovation centers in new and existing stores, showcasing new products and enhancing customer experience [10][11] - Plans to open three new format stores across the country this year, which are smaller but more efficient, costing 20% less to build [19] - The company aims for 10% unit growth in 2022, with a strong real estate pipeline despite potential delays in store openings due to supply chain issues [39][106] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term strategy despite current challenges, emphasizing the importance of targeting the right customer base [50][106] - The company is adjusting its marketing mix to drive traffic, focusing on targeted promotions and partnerships [22][46] - The outlook for 2021 has been revised, expecting net sales to decline low single digits compared to 2020, with comparable store sales down 5% to 7% [38] Other Important Information - The company repurchased approximately $87 million in stock by the end of Q2, maintaining a low debt position with a net debt to EBITDA ratio of nearly zero [37] - The company is conducting research to understand changing customer habits in a post-COVID environment [33] Q&A Session Summary Question: Concerns about topline performance and customer targeting - Management remains confident in their strategy, noting that while traffic has not grown, the basket size has held steady [44][46] Question: Performance in recent weeks and guidance for Q3 and Q4 - Management could not provide specific current performance metrics but acknowledged the uncertainty surrounding the return to office dynamics [54] Question: Differences in sales performance across regions - No significant differences were noted across different marketplaces, although starting sales levels vary [57][61] Question: Impact of promotions on traffic - Management believes aggressive promotions could drive traffic but may attract less profitable customers, which is not the desired outcome [70][72] Question: Store delays and future openings - Delays in store openings are tied to supply chain issues, but the company remains optimistic about its 2022 pipeline [74][106] Question: SG&A performance and expectations - SG&A came in as expected, with a flattish rate anticipated for the year [78] Question: Customer shopping habits and value perception - Management is conducting research to understand customer value perceptions, which have remained stable among target customers [87][90]