10-Q 1 sfm-20220703.htm 10-Q 10-Q
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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 July 3, 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

img143170619_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 August 1, 2022, the registrant had 107,455,274 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 JULY 3, 2022

TABLE OF CONTENTS

 

 

Page

PART I - FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements.

4

 

 

 

 

Consolidated Balance Sheets as of July 3, 2022 (unaudited) and January 2, 2022

4

 

 

 

 

Consolidated Statements of Income for the thirteen and twenty-six weeks ended July 3, 2022 and July 4, 2021 (unaudited)

5

 

 

 

 

Consolidated Statements of Comprehensive Income for the thirteen and twenty-six weeks ended July 3, 2022 and July 4, 2021 (unaudited)

6

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the thirteen and twenty-six weeks ended July 3, 2022 and July 4, 2021 (unaudited)

7

 

 

 

 

Consolidated Statements of Cash Flows for the twenty-six weeks ended July 3, 2022 and July 4, 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

 

 


 

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.

 

 

 


 

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)

 

 

 

July 3, 2022

 

 

January 2, 2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

288,965

 

 

$

245,287

 

Accounts receivable, net

 

 

13,260

 

 

 

21,574

 

Inventories

 

 

292,862

 

 

 

265,387

 

Prepaid expenses and other current assets

 

 

49,520

 

 

 

35,468

 

Total current assets

 

 

644,607

 

 

 

567,716

 

Property and equipment, net of accumulated depreciation

 

 

690,460

 

 

 

716,029

 

Operating lease assets, net

 

 

1,083,183

 

 

 

1,072,019

 

Intangible assets, net of accumulated amortization

 

 

184,960

 

 

 

184,960

 

Goodwill

 

 

368,878

 

 

 

368,878

 

Other assets

 

 

15,236

 

 

 

13,513

 

Total assets

 

$

2,987,324

 

 

$

2,923,115

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

173,687

 

 

$

145,901

 

Accrued liabilities

 

 

138,659

 

 

 

155,996

 

Accrued salaries and benefits

 

 

48,222

 

 

 

58,743

 

Current portion of operating lease liabilities

 

 

153,651

 

 

 

151,755

 

Current portion of finance lease liabilities

 

 

1,130

 

 

 

1,078

 

Total current liabilities

 

 

515,349

 

 

 

513,473

 

Long-term operating lease liabilities

 

 

1,101,148

 

 

 

1,095,909

 

Long-term debt and finance lease liabilities

 

 

259,219

 

 

 

259,656

 

Other long-term liabilities

 

 

38,253

 

 

 

36,306

 

Deferred income tax liability

 

 

59,665

 

 

 

57,895

 

Total liabilities

 

 

1,973,634

 

 

 

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,
   
107,967,677 shares issued and outstanding, July 3, 2022;
   
111,114,374 shares issued and outstanding, January 2, 2022

 

 

108

 

 

 

111

 

Additional paid-in capital

 

 

715,331

 

 

 

704,701

 

Accumulated other comprehensive income (loss)

 

 

193

 

 

 

(3,758

)

Retained earnings

 

 

298,058

 

 

 

258,822

 

Total stockholders’ equity

 

 

1,013,690

 

 

 

959,876

 

Total liabilities and stockholders’ equity

 

$

2,987,324

 

 

$

2,923,115

 

 

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

4


 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

 

 

Thirteen weeks ended

 

 

Twenty-six weeks ended

 

 

 

July 3, 2022

 

 

July 4, 2021

 

 

July 3, 2022

 

 

July 4, 2021

 

Net sales

 

$

1,595,482

 

 

$

1,521,993

 

 

$

3,236,643

 

 

$

3,097,440

 

Cost of sales

 

 

1,015,125

 

 

 

971,912

 

 

 

2,044,538

 

 

 

1,961,185

 

Gross profit

 

 

580,357

 

 

 

550,081

 

 

 

1,192,105

 

 

 

1,136,255

 

Selling, general and administrative expenses

 

 

462,110

 

 

 

436,420

 

 

 

922,020

 

 

 

876,082

 

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

 

 

31,244

 

 

 

30,430

 

 

 

63,064

 

 

 

61,659

 

Store closure and other costs, net

 

 

493

 

 

 

(419

)

 

 

870

 

 

 

1,629

 

Income from operations

 

 

86,510

 

 

 

83,650

 

 

 

206,151

 

 

 

196,885

 

Interest expense, net

 

 

2,658

 

 

 

2,938

 

 

 

5,697

 

 

 

5,929

 

Income before income taxes

 

 

83,852

 

 

 

80,712

 

 

 

200,454

 

 

 

190,956

 

Income tax provision

 

 

21,855

 

 

 

19,698

 

 

 

50,150

 

 

 

46,894

 

Net income

 

$

61,997

 

 

$

61,014

 

 

$

150,304

 

 

$

144,062

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.57

 

 

$

0.52

 

 

$

1.37

 

 

$

1.22

 

Diluted

 

$

0.57

 

 

$

0.52

 

 

$

1.36

 

 

$

1.22

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

109,067

 

 

 

117,246

 

 

 

109,985

 

 

 

117,645

 

Diluted

 

 

109,619

 

 

 

117,831

 

 

 

110,762

 

 

 

118,265

 

 

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

5


 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(IN THOUSANDS)

 

 

 

 

Thirteen weeks ended

 

 

Twenty-six weeks ended

 

 

 

July 3, 2022

 

 

July 4, 2021

 

 

July 3, 2022

 

 

July 4, 2021

 

Net income

 

$

61,997

 

 

$

61,014

 

 

$

150,304

 

 

$

144,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on cash flow
   hedging activities, net of income tax of
    $
778, $685, $2,018 and $1,485

 

 

2,248

 

 

 

1,981

 

 

 

5,834

 

 

 

4,295

 

Reclassification of net gains (losses) on
   cash flow hedges to net income, net
   of income tax of ($
274), ($370), ($651) and ($740)

 

 

(792

)

 

 

(1,070

)

 

 

(1,883

)

 

 

(2,140

)

Total other comprehensive income (loss)

 

 

1,456

 

 

 

911

 

 

 

3,951

 

 

 

2,155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

63,453

 

 

$

61,925

 

 

$

154,255

 

 

$

146,217

 

 

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

6


 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

 

For the thirteen and twenty-six weeks ended July 3, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Common
Stock

 

 

Additional
Paid In
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Stockholders’
Equity

 

Balances at April 3, 2022

 

 

110,243,288

 

 

$

110

 

 

$

711,712

 

 

$

301,415

 

 

$

(1,263

)

 

$

1,011,974

 

Net income

 

 

 

 

 

 

 

 

 

 

 

61,997

 

 

 

 

 

 

61,997

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,456

 

 

 

1,456

 

Issuance of shares under stock plans

 

 

122,060

 

 

 

 

 

 

155

 

 

 

 

 

 

 

 

 

155

 

Repurchase and retirement of common stock

 

 

(2,397,671

)

 

 

(2

)

 

 

 

 

 

(65,354

)

 

 

 

 

 

(65,356

)

Share-based compensation

 

 

 

 

 

 

 

 

3,464

 

 

 

 

 

 

 

 

 

3,464

 

Balances at July 3, 2022

 

 

107,967,677

 

 

$

108

 

 

$

715,331

 

 

$

298,058

 

 

$

193

 

 

$

1,013,690

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

150,304

 

 

 

 

 

 

150,304

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,951

 

 

 

3,951

 

Issuance of shares under stock plans

 

 

732,161

 

 

 

 

 

 

2,710

 

 

 

 

 

 

 

 

 

2,710

 

Repurchase and retirement of common stock

 

 

(3,878,858

)

 

 

(3

)

 

 

 

 

 

(111,068

)

 

 

 

 

 

(111,071

)

Share-based compensation

 

 

 

 

 

 

 

 

7,920

 

 

 

 

 

 

 

 

 

7,920

 

Balances at July 3, 2022

 

 

107,967,677

 

 

$

108

 

 

$

715,331

 

 

$

298,058

 

 

$

193

 

 

$

1,013,690

 

 

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

7


 

 

 

For the thirteen and twenty-six weeks ended July 4, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Common
Stock

 

 

Additional
Paid In
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Stockholders’
Equity

 

Balances at April 4, 2021

 

 

118,194,576

 

 

$

118

 

 

$

691,142

 

 

$

282,840

 

 

$

(7,230

)

 

$

966,870

 

Net income

 

 

 

 

 

 

 

 

 

 

 

61,014

 

 

 

 

 

 

61,014

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

911

 

 

 

911

 

Issuance of shares under stock plans

 

 

136,905

 

 

 

 

 

 

365

 

 

 

 

 

 

 

 

 

365

 

Repurchase and retirement of common stock

 

 

(3,150,649

)

 

 

(3

)

 

 

 

 

 

(84,272

)

 

 

 

 

 

(84,275

)

Share-based compensation

 

 

 

 

 

 

 

 

4,238

 

 

 

 

 

 

 

 

 

4,238

 

Balances at July 4, 2021

 

 

115,180,832

 

 

$

115

 

 

$

695,745

 

 

$

259,582

 

 

$

(6,319

)

 

$

949,123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

144,062

 

 

 

 

 

 

144,062

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,155

 

 

 

2,155

 

Issuance of shares under stock plans

 

 

508,014

 

 

 

 

 

 

1,246

 

 

 

 

 

 

 

 

 

1,246

 

Repurchase and retirement of common stock

 

 

(3,280,617

)

 

 

(3

)

 

 

 

 

 

(87,481

)

 

 

 

 

 

(87,484

)

Share-based compensation

 

 

 

 

 

 

 

 

7,851

 

 

 

 

 

 

 

 

 

7,851

 

Balances at July 4, 2021

 

 

115,180,832

 

 

$

115

 

 

$

695,745

 

 

$

259,582

 

 

$

(6,319

)

 

$

949,123

 

 

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

8


 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

 

 

 

Twenty-six weeks ended

 

 

 

July 3, 2022

 

 

July 4, 2021

 

Operating activities

 

 

 

 

 

 

Net income

 

$

150,304

 

 

$

144,062

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization expense

 

 

64,856

 

 

 

63,152

 

Operating lease asset amortization

 

 

57,360

 

 

 

52,631

 

Store closure and other costs, net

 

 

171

 

 

 

 

Share-based compensation

 

 

7,920

 

 

 

7,851

 

Deferred income taxes

 

 

1,770

 

 

 

2,920

 

Other non-cash items

 

 

324

 

 

 

740

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

11,389

 

 

 

14,685

 

Inventories

 

 

(27,475

)

 

 

(19,873

)

Prepaid expenses and other current assets

 

 

(12,851

)

 

 

(13,679

)

Other assets