Sprouts Farmers Market Earnings 2020-09-27

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

sfm-10q_20200927.htm

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 September 27, 2020

☐	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 October 26, 2020, the registrant had 117,950,276 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 SEPTEMBER 27, 2020

TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.		4

	Consolidated Balance Sheets as of September 27, 2020 (unaudited) and December 29, 2019	4

	Consolidated Statements of Income for the thirteen and thirty-nine weeks ended September 27, 2020 and September 29, 2019 (unaudited)	5

	Consolidated Statements of Comprehensive Income for the thirteen and thirty-nine weeks ended September 27, 2020 and September 29, 2019 (unaudited)	6

	Consolidated Statements of Stockholders’ Equity for the thirteen and thirty-nine weeks ended September 27, 2020 and September 29, 2019 (unaudited)	7

	Consolidated Statements of Cash Flows for the thirty-nine weeks ended September 27, 2020 and September 29, 2019 (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.		38

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.		39

Item 1A. Risk Factors.		39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		40

Item 6. Exhibits.		41

Signatures		42

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 December 29, 2019, 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)

	September 27, 2020			December 29, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	137,518		$	85,314
Accounts receivable, net		24,258			15,713
Inventories		257,255			275,979
Prepaid expenses and other current assets		18,948			10,833
Total current assets		437,979			387,839
Property and equipment, net of accumulated depreciation		735,670			741,508
Operating lease assets, net		1,040,329			1,028,436
Intangible assets, net of accumulated amortization		184,960			185,395
Goodwill		368,878			368,078
Other assets		14,407			11,727
Total assets	$	2,782,223		$	2,722,983
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	163,259		$	122,839
Accrued liabilities		138,996			136,482
Accrued salaries and benefits		72,155			48,579
Accrued income tax		4,089			2,005
Current portion of operating lease liabilities		130,088			106,153
Current portion of finance lease liabilities		994			754
Total current liabilities		509,581			416,812
Long-term operating lease liabilities		1,074,267			1,078,927
Long-term debt and finance lease liabilities		285,704			549,419
Other long-term liabilities		50,140			41,517
Deferred income tax liability		54,585			54,356
Total liabilities		1,974,277			2,141,031
Commitments and contingencies (Note 6)
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, 117,950,276 shares issued and outstanding, September 27, 2020; 117,543,668 shares issued and outstanding, December 29, 2019		117			117
Additional paid-in capital		682,709			670,966
Accumulated other comprehensive income (loss)		(9,484	)		(4,682	)
Retained earnings (Accumulated deficit)		134,604			(84,449	)
Total stockholders’ equity		807,946			581,952
Total liabilities and stockholders’ equity	$	2,782,223		$	2,722,983

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				Thirty-nine weeks ended
	September 27, 2020		September 29, 2019		September 27, 2020			September 29, 2019
Net sales	$	1,577,598	$	1,440,222	$	4,866,925		$	4,269,844
Cost of sales		992,829		963,497		3,075,665			2,843,989
Gross profit		584,769		476,725		1,791,260			1,425,855
Selling, general and administrative expenses		475,053		404,285		1,400,234			1,162,226
Depreciation and amortization (exclusive of depreciation included in cost of sales)		31,067		30,764		92,637			89,788
Store closure and other costs, net		268		2,119		(344	)		3,396
Income from operations		78,381		39,557		298,733			170,445
Interest expense, net		3,117		5,557		11,681			15,997
Income before income taxes		75,264		34,000		287,052			154,448
Income tax provision		15,023		7,740		67,999			36,453
Net income	$	60,241	$	26,260	$	219,053		$	117,995
Net income per share:
Basic	$	0.51	$	0.22	$	1.86		$	0.98
Diluted	$	0.51	$	0.22	$	1.85		$	0.98
Weighted average shares outstanding:
Basic		117,947		118,029		117,775			119,846
Diluted		118,450		118,174		118,157			120,227

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					Thirty-nine weeks ended
	September 27, 2020		September 29, 2019			September 27, 2020			September 29, 2019
Net income	$	60,241	$	26,260		$	219,053		$	117,995

Other comprehensive income/(loss), net of tax
Unrealized gain/(loss) on cash flow hedging activities, net of income tax of $261, ($365), ($1,661), and (2,341)		755		(1,056	)		(4,802	)		(6,769	)
Total other comprehensive income/(loss)		755		(1,056	)		(4,802	)		(6,769	)

Comprehensive income	$	60,996	$	25,204		$	214,251		$	111,226

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 thirty-nine weeks ended September 27, 2020

	Shares		Common Stock		Additional Paid In Capital		(Accumulated Deficit) Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balances at June 28, 2020		117,944,450	$	117	$	679,036	$	74,363		$	(10,239	)	$	743,277
Net income		—		—		—		60,241			—			60,241
Other comprehensive income/(loss)		—		—		—		—			755			755
Issuance of shares under stock plans		5,826		—		—		—			—			—
Share-based compensation		—		—		3,673		—			—			3,673
Balances at September 27, 2020		117,950,276	$	117	$	682,709	$	134,604		$	(9,484	)	$	807,946

	Shares		Common Stock		Additional Paid In Capital		(Accumulated Deficit) Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balances at December 29, 2019		117,452,918	$	117	$	670,966	$	(84,449	)	$	(4,682	)	$	581,952
Net income								219,053						219,053
Other comprehensive loss		—		—		—		—			(4,802	)		(4,802	)
Issuance of shares under stock plans		497,358		—		1,343		—			—			1,343
Share-based compensation		—		—		10,400		—			—			10,400
Balances at September 27, 2020		117,950,276	$	117	$	682,709	$	134,604		$	(9,484	)	$	807,946

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 thirty-nine weeks ended September 29, 2019

	Shares			Common Stock			Additional Paid In Capital		(Accumulated Deficit) Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balances at June 30, 2019		118,022,271		$	118		$	665,454	$	(129,344	)	$	(4,579	)	$	531,649
Net income		—			—			—		26,260			—			26,260
Other comprehensive loss		—			—			—		—			(1,056	)		(1,056	)
Issuance of shares under stock plans		25,849			—			358		—			—			358
Repurchase and retirement of common stock		—			—			—		—			—			—
Share-based compensation		—			—			2,710		—			—			2,710
Balances at September 29, 2019		118,048,120		$	118		$	668,522	$	(103,084	)	$	(5,635	)	$	559,921

	Shares			Common Stock			Additional Paid In Capital		(Accumulated Deficit) Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balances at December 30, 2018		124,581,190		$	124		$	657,140	$	(69,202	)	$	1,134		$	589,196
Net income		—			—			—		117,995			—			117,995
Other comprehensive loss		—			—			—		—			(6,769	)		(6,769	)
Issuance of shares under stock plans		769,808			1			4,481		—			—			4,482
Repurchase and retirement of common stock		(7,302,878	)		(7	)		—		(163,303	)		—			(163,310	)
Share-based compensation		—			—			6,901		—			—			6,901
Impact of adoption of ASC 842 related to leases		—			—			—		11,426			—			11,426
Balances at September 29, 2019		118,048,120		$	118		$	668,522	$	(103,084	)	$	(5,635	)	$	559,921

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)

	Thirty-nine weeks ended
	September 27, 2020		September 29, 2019
Cash flows from operating activities
Net income	$	219,053	$

Price	19.23	EPS	1
Shares	120	P/E	20
MCap	2,312	P/FCF	7
Net Debt	-81	EBIT	154
TEV	2,231	TEV/EBIT	14
TTM 2019-09-29, in MM, except price, ratios

10-Q	2020-09-27	Filed 2020-10-28
10-Q	2020-06-28	Filed 2020-07-29
10-Q	2020-03-29	Filed 2020-05-05
10-K	2019-12-29	Filed 2020-02-20
10-Q	2019-09-29	Filed 2019-10-31
10-Q	2019-06-30	Filed 2019-08-01
10-Q	2019-03-31	Filed 2019-05-02
10-K	2018-12-30	Filed 2019-02-21
10-Q	2018-09-30	Filed 2018-11-01
10-Q	2018-07-01	Filed 2018-08-02
10-Q	2018-04-01	Filed 2018-05-03
10-K	2017-12-31	Filed 2018-02-22
10-Q	2017-10-01	Filed 2017-11-02
10-Q	2017-07-02	Filed 2017-08-03
10-Q	2017-04-02	Filed 2017-05-04
10-K	2017-01-01	Filed 2017-02-23
10-Q	2016-10-02	Filed 2016-11-03
10-Q	2016-07-03	Filed 2016-08-04
10-Q	2016-04-03	Filed 2016-05-05
10-K	2016-01-03	Filed 2016-02-25
10-Q	2015-09-27	Filed 2015-11-05
10-Q	2015-06-28	Filed 2015-08-06
10-Q	2015-03-29	Filed 2015-05-07
10-K	2014-12-28	Filed 2015-02-26
10-Q	2014-09-28	Filed 2014-11-06
10-Q	2014-06-29	Filed 2014-08-07
10-Q	2014-03-30	Filed 2014-05-07
10-K	2013-12-29	Filed 2014-02-27
10-Q	2013-09-29	Filed 2013-11-07
10-Q	2013-06-30	Filed 2013-08-23

8-K	2020-11-24
8-K	2020-10-28
8-K	2020-07-29
8-K	2020-05-05
8-K	2020-04-28
8-K	2020-02-25
8-K	2020-02-20
8-K	2020-02-20
8-K	2020-01-07
8-K	2019-11-18
8-K	2019-10-30
8-K	2019-08-23
8-K	2019-08-01
8-K	2019-08-01
8-K	2019-06-20
8-K	2019-05-13
8-K	2019-05-02
8-K	2019-04-30
8-K	2019-03-06
8-K	2019-02-26
8-K	2019-02-21
8-K	2018-12-20
8-K	2018-11-29
8-K	2018-11-05
8-K	2018-11-01
8-K	2018-08-06
8-K	2018-08-02
8-K	2018-07-18
8-K	2018-05-10
8-K	2018-05-03
8-K	2018-05-02
8-K	2018-03-27
8-K	2018-02-27
8-K	2018-02-22
8-K	2018-01-08

EX-31.1	sfm-ex311_9.htm
EX-31.2	sfm-ex312_7.htm
EX-32.1	sfm-ex321_8.htm
EX-32.2	sfm-ex322_6.htm

SFM 10Q Quarterly Report

Sprouts Farmers Market Earnings 2020-09-27