Sprouts Farmers Market, Inc. [SFM] Filings

10-Q 1 sfm-20220703.htm 10-Q 10-Q

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


☐	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

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.

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.

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.

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.


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.

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

Sprouts Farmers Market, Inc. [SFM] Filings
10-Q	[2022-08-03]
10-Q	[2022-05-04]
10-K	[2022-02-24]
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-Q	[2021-05-06]
10-K	[2021-02-25]
10-Q	[2020-10-28]
10-Q	[2020-07-29]
10-Q	[2020-05-05]
10-K	[2020-02-20]
10-Q	[2019-10-31]
10-Q	[2019-08-01]
10-Q	[2019-05-02]
10-K	[2019-02-21]
10-Q	[2018-11-01]
10-Q	[2018-08-02]
10-Q	[2018-05-03]
10-K	[2018-02-22]
10-Q	[2017-11-02]
10-Q	[2017-08-03]
10-Q	[2017-05-04]
10-K	[2017-02-23]
10-Q	[2016-11-03]
10-Q	[2016-08-04]
10-Q	[2016-05-05]
10-K	[2016-02-25]
10-Q	[2015-11-05]
10-Q	[2015-08-06]
10-Q	[2015-05-07]
S-1	[2015-03-04]
10-K	[2015-02-26]
10-Q	[2014-11-06]
10-Q	[2014-08-07]
10-Q	[2014-05-07]
S-1	[2014-03-17]
10-K	[2014-02-27]
10-Q	[2013-11-07]
S-1	[2013-11-07]
10-Q	[2013-08-23]
S-1	[2013-05-09]