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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended October 2, 2022

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission File Number: 001-36029

img143193682_0.jpg 

Sprouts Farmers Market, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

32-0331600

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

5455 East High Street, Suite 111

Phoenix, Arizona 85054

(Address of principal executive offices and zip code)

(480) 814-8016

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

Name of Each Exchange on Which Registered

 

Common Stock, $0.001 par value

SFM

NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of November 4, 2022, the registrant had 105,852,470 shares of common stock, $0.001 par value per share, outstanding.

 


 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED OCTOBER 2, 2022

TABLE OF CONTENTS

 

 

Page

PART I - FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements.

4

 

 

 

 

Consolidated Balance Sheets as of October 2, 2022 (unaudited) and January 2, 2022

4

 

 

 

 

Consolidated Statements of Income for the thirteen and thirty-nine weeks ended October 2, 2022 and October 3, 2021 (unaudited)

5

 

 

 

 

Consolidated Statements of Comprehensive Income for the thirteen and thirty-nine weeks ended October 2, 2022 and October 3, 2021 (unaudited)

6

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the thirteen and thirty-nine weeks ended October 2, 2022 and October 3, 2021 (unaudited)

7

 

 

 

 

Consolidated Statements of Cash Flows for the thirty-nine weeks ended October 2, 2022 and October 3, 2021 (unaudited)

9

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

10

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

23

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

37

 

 

Item 4. Controls and Procedures.

37

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings.

38

 

 

Item 1A. Risk Factors.

38

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

39

 

 

Item 6. Exhibits.

40

 

 

Signatures

41

 

 


Table of Contents

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the “Exchange Act”), including, but not limited to, statements regarding our expectations, beliefs, intentions, strategies, future operations, future financial position, future revenue, projected expenses, and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the fiscal year ended January 2, 2022, and our other filings with the Securities and Exchange Commission. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to the “Company,” “Sprouts,” “Sprouts Farmers Market,” “we,” “us” and “our” refer to Sprouts Farmers Market, Inc. and, where appropriate, its subsidiaries.

 

 

 


Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

 

 

October 2, 2022

 

 

January 2, 2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

316,042

 

 

$

245,287

 

Accounts receivable, net

 

 

11,455

 

 

 

21,574

 

Inventories

 

 

301,667

 

 

 

265,387

 

Prepaid expenses and other current assets

 

 

43,867

 

 

 

35,468

 

Total current assets

 

 

673,031

 

 

 

567,716

 

Property and equipment, net of accumulated depreciation

 

 

694,098

 

 

 

716,029

 

Operating lease assets, net

 

 

1,081,514

 

 

 

1,072,019

 

Intangible assets, net of accumulated amortization

 

 

184,960

 

 

 

184,960

 

Goodwill

 

 

368,878

 

 

 

368,878

 

Other assets

 

 

15,036

 

 

 

13,513

 

Total assets

 

$

3,017,517

 

 

$

2,923,115

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

166,968

 

 

$

145,901

 

Accrued liabilities

 

 

144,935

 

 

 

155,996

 

Accrued salaries and benefits

 

 

53,875

 

 

 

58,743

 

Current portion of operating lease liabilities

 

 

158,219

 

 

 

151,755

 

Current portion of finance lease liabilities

 

 

1,141

 

 

 

1,078

 

Total current liabilities

 

 

525,138

 

 

 

513,473

 

Long-term operating lease liabilities

 

 

1,095,154

 

 

 

1,095,909

 

Long-term debt and finance lease liabilities

 

 

258,992

 

 

 

259,656

 

Other long-term liabilities

 

 

38,486

 

 

 

36,306

 

Deferred income tax liability

 

 

58,919

 

 

 

57,895

 

Total liabilities

 

 

1,976,689

 

 

 

1,963,239

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Undesignated preferred stock; $0.001 par value; 10,000,000 shares
   authorized,
no shares issued and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized,
   
106,491,322 shares issued and outstanding, October 2, 2022;
   
111,114,374 shares issued and outstanding, January 2, 2022

 

 

106

 

 

 

111

 

Additional paid-in capital

 

 

720,447

 

 

 

704,701

 

Accumulated other comprehensive income (loss)

 

 

498

 

 

 

(3,758

)

Retained earnings

 

 

319,777

 

 

 

258,822

 

Total stockholders’ equity

 

 

1,040,828

 

 

 

959,876

 

Total liabilities and stockholders’ equity

 

$

3,017,517

 

 

$

2,923,115

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

 

 

Thirteen weeks ended

 

 

Thirty-nine weeks ended

 

 

 

October 2, 2022

 

 

October 3, 2021

 

 

October 2, 2022

 

 

October 3, 2021

 

Net sales

 

$

1,591,026

 

 

$

1,509,633

 

 

$

4,827,669

 

 

$

4,607,073

 

Cost of sales

 

 

1,007,376

 

 

 

969,904

 

 

 

3,051,914

 

 

 

2,931,089

 

Gross profit

 

 

583,650

 

 

 

539,729

 

 

 

1,775,755

 

 

 

1,675,984

 

Selling, general and administrative expenses

 

 

460,834

 

 

 

423,416

 

 

 

1,382,854

 

 

 

1,299,498

 

Depreciation and amortization (exclusive
   of depreciation included in cost of
   sales)

 

 

30,313

 

 

 

30,377

 

 

 

93,377

 

 

 

92,036

 

Store closure and other costs, net

 

 

2,164

 

 

 

128

 

 

 

3,034

 

 

 

1,757

 

Income from operations

 

 

90,339

 

 

 

85,808

 

 

 

296,490

 

 

 

282,693

 

Interest expense, net

 

 

1,951

 

 

 

2,911

 

 

 

7,648

 

 

 

8,840

 

Income before income taxes

 

 

88,388

 

 

 

82,897

 

 

 

288,842

 

 

 

273,853

 

Income tax provision

 

 

22,648

 

 

 

19,030

 

 

 

72,798

 

 

 

65,924

 

Net income

 

$

65,740

 

 

$

63,867

 

 

$

216,044

 

 

$

207,929

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.61

 

 

$

0.56

 

 

$

1.98

 

 

$

1.78

 

Diluted

 

$

0.61

 

 

$

0.56

 

 

$

1.97

 

 

$

1.77

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

107,229

 

 

 

114,201

 

 

 

109,066

 

 

 

116,497

 

Diluted

 

 

108,095

 

 

 

114,818

 

 

 

109,888

 

 

 

117,252

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5


Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(IN THOUSANDS)

 

 

 

 

Thirteen weeks ended

 

 

Thirty-nine weeks ended

 

 

 

October 2, 2022

 

 

October 3, 2021

 

 

October 2, 2022

 

 

October 3, 2021

 

Net income

 

$

65,740

 

 

$

63,867

 

 

$

216,044

 

 

$

207,929

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on cash flow
   hedging activities, net of income tax of
    $
149, $707, $2,167 and $2,192

 

 

432

 

 

 

2,044

 

 

 

6,266

 

 

 

6,339

 

Reclassification of net gains (losses) on
   cash flow hedges to net income, net
   of income tax of ($
44), ($372), ($695) and ($1,112)

 

 

(127

)

 

 

(1,076

)

 

 

(2,010

)

 

 

(3,216

)

Total other comprehensive income (loss)

 

 

305

 

 

 

968

 

 

 

4,256

 

 

 

3,123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

66,045

 

 

$

64,835

 

 

$

220,300

 

 

$

211,052

 

 

The accompanying notes are an integral part of these consolidated financial statements.

6


Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

 

For the thirteen and thirty-nine weeks ended October 2, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Common
Stock

 

 

Additional
Paid In
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Stockholders’
Equity

 

Balances at July 3, 2022

 

 

107,967,677

 

 

$

108

 

 

$

715,331

 

 

$

298,058

 

 

$

193

 

 

$

1,013,690

 

Net income

 

 

 

 

 

 

 

 

 

 

 

65,740

 

 

 

 

 

 

65,740

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

305

 

 

 

305

 

Issuance of shares under stock plans

 

 

81,841

 

 

 

 

 

 

1,364

 

 

 

 

 

 

 

 

 

1,364

 

Repurchase and retirement of common stock

 

 

(1,558,196

)

 

 

(2

)

 

 

 

 

 

(44,021

)

 

 

 

 

 

(44,023

)

Share-based compensation

 

 

 

 

 

 

 

 

3,752

 

 

 

 

 

 

 

 

 

3,752

 

Balances at October 2, 2022

 

 

106,491,322

 

 

$

106

 

 

$

720,447

 

 

$

319,777

 

 

$

498

 

 

$

1,040,828

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Common
Stock

 

 

Additional
Paid In
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Stockholders’
Equity

 

Balances at January 2, 2022

 

 

111,114,374

 

 

$

111

 

 

$

704,701

 

 

$

258,822

 

 

$

(3,758

)

 

$

959,876

 

Net income

 

 

 

 

 

 

 

 

 

 

 

216,044

 

 

 

 

 

 

216,044

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,256

 

 

 

4,256

 

Issuance of shares under stock plans

 

 

814,002

 

 

 

 

 

 

4,074

 

 

 

 

 

 

 

 

 

4,074

 

Repurchase and retirement of common stock

 

 

(5,437,054

)

 

 

(5

)

 

 

 

 

 

(155,089

)

 

 

 

 

 

(155,094

)

Share-based compensation

 

 

 

 

 

 

 

 

11,672

 

 

 

 

 

 

 

 

 

11,672

 

Balances at October 2, 2022

 

 

106,491,322

 

 

$

106

 

 

$

720,447

 

 

$

319,777

 

 

$

498

 

 

$

1,040,828

 

 

The accompanying notes are an integral part of these consolidated financial statements.

7


Table of Contents

 

 

For the thirteen and thirty-nine weeks ended October 3, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Common
Stock

 

 

Additional
Paid In
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Stockholders’
Equity

 

Balances at July 4, 2021

 

 

115,180,832

 

 

$

115

 

 

$

695,745

 

 

$

259,582

 

 

$

(6,319

)

 

$

949,123

 

Net income

 

 

 

 

 

 

 

 

 

 

 

63,867

 

 

 

 

 

 

63,867

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

968

 

 

 

968

 

Issuance of shares under stock plans

 

 

54,007

 

 

 

 

 

 

672

 

 

 

 

 

 

 

 

 

672

 

Repurchase and retirement of common stock

 

 

(2,079,420

)

 

 

(2

)

 

 

 

 

 

(49,998

)

 

 

 

 

 

(50,000

)

Share-based compensation

 

 

 

 

 

 

 

 

3,453

 

 

 

 

 

 

 

 

 

3,453

 

Balances at October 3, 2021

 

 

113,155,419

 

 

$

113

 

 

$

699,870

 

 

$

273,451

 

 

$

(5,351

)

 

$

968,083

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Common
Stock

 

 

Additional
Paid In
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Stockholders’
Equity

 

Balances at January 3, 2021

 

 

117,953,435

 

 

$

118

 

 

$

686,648

 

 

$

203,001

 

 

$

(8,474

)

 

$

881,293

 

Net income

 

 

 

 

 

 

 

 

 

 

 

207,929

 

 

 

 

 

 

207,929

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,123

 

 

 

3,123

 

Issuance of shares under stock plans

 

 

562,021

 

 

 

 

 

 

1,918

 

 

 

 

 

 

 

 

 

1,918

 

Repurchase and retirement of common stock

 

 

(5,360,037

)

 

 

(5

)

 

 

 

 

 

(137,479

)

 

 

 

 

 

(137,484

)

Share-based compensation

 

 

 

 

 

 

 

 

11,304

 

 

 

 

 

 

 

 

 

11,304

 

Balances at October 3, 2021

 

 

113,155,419

 

 

$

113

 

 

$

699,870

 

 

$

273,451

 

 

$

(5,351

)

 

$

968,083

 

 

The accompanying notes are an integral part of these consolidated financial statements.

8


Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)