Sprouts Farmers Market, Inc. Q1 FY2025 earnings call

• Strong first quarter results with sales up 19% and diluted earnings per share at $1.81, a 62% increase. - Target market for health and wellness has grown to approximately $290 billion of the $1.6 trillion spent on food at home. - Launched new loyalty program, focusing on customer engagement. - Began self-distributing fresh meat and seafood through distribution centers for greater control over products. - Opened 3 new stores, ending the quarter with 443 stores across 24 states. - Marketing efforts drove traffic, with new brand campaign launched in January. - Supply chain investments to support self-distribution in various categories.

In the first quarter, total sales were $2.2 billion, up 353 million or 19% compared to the same period last year. Comparable store sales increased by 11.7%. Sprouts brand contributed 24% to total sales for the quarter. Sales were supported by strong performance in specialty attribute-driven products, with growth in categories like dairy, frozen, and vitamin departments.

• 2025 total sales growth expected to be 12% to 14% and comp sales in the range of 5.5% to 7.5%. - Plan to open at least 35 new stores. - Earnings before interest and taxes expected to be between $640 million and $660 million, and earnings per share between $4.94 and $5.10. - Second quarter comp sales expected to be in the range of approximately 6.5% to 8.5% and earnings per share between $1.19 and $1.23. - Anticipate continued EBIT margin expansion, with some moderation expected in the second half of the year.

• Macro environment uncertainties that could affect results. - Challenges associated with transitioning to self-distribution of fresh categories. - Potential impact of tariffs on the pace of unit growth and store building costs. - Uncertainty in consumer confidence and its potential impact on customer behavior.

Q: You guys had really nice gross margin expansion this quarter. How are you thinking through potential reinvestment?

A: We are investing in the business into things like loyalty, supply chain systems, IT, self-distribution, and talent engine. Growth will moderate as the year progresses but we'll look for ways to accelerate for long-term sustainable earnings growth.

Q: Any surprises in new store productivity?

A: New stores are performing really well. 2024's new stores came out strong and are continuing to perform well, with 2022 and 2023 vintages also comping well.

Q: Thoughts on cannibalization from new stores?

A: Cannibalization is around 100 to 150 basis points, depending on market, with a slight benefit when netting new store comps and cannibalization considered.