Sprouts Farmers Market, Inc. Q2 FY2025 earnings call

• Strategic initiatives: Leveraged developing innovative products, enhancing operations in stores and supply chain, and driving customer engagement through targeted service strategies and store locations. - Product innovation: The Sprouts brand plans to release over 350 new products this year, organic products account for nearly 1/3 of total sales and over 50% of produce sales, and there's growth in trending categories like no seed oils and high-protein items. - Supply chain: Building an advantaged supply chain with plans for self-distribution expansion, starting to in-source fresh meat and seafood in Orlando and continuing through Q2 2026. - Loyalty program: The Sprouts Reward loyalty program launched in Arizona, with plans to roll out by the end of October, and encouraging results from initial rollout. - Store growth: On track to open 35 locations this year, with a robust pipeline of over 130 approved locations. - Team investment: Developed a robust talent engine focusing on team member recruitment, development, and engagement, including programs like Fast Track and Assistant Store Manager University.

In the second quarter, total sales reached $2.2 billion, an increase of $327 million or 17% compared to the same period last year. Comparable store sales grew by 10.2%. E-commerce sales saw a 27% growth, accounting for approximately 15% of total sales for the quarter. The Sprouts brand contributed 24% to the total sales for the quarter. Gross margin was 38.8%, an increase of 91 basis points compared to the same period last year. SG&A for the quarter totaled $645 million, an increase of $89 million. Earnings before interest and taxes were $179 million. Net income was $134 million, and diluted earnings per share were $1.35, a 44% increase from the same period last year. 12 new stores were opened during the quarter, ending with 455 stores across 24 states.

• For 2025, total sales growth is expected to be 14.5% to 16%, and comp sales in the range of 7.5% to 9%. - Plan to open at least 35 new stores. - Earnings before interest and taxes are expected to be between $675 million and $690 million, and earnings per share between $5.20 and $5.32. - For the third quarter, comp sales are expected to be in the range of 6% to 8% and earnings per share between $1.12 and $1.16. - Anticipate continued EBIT margin expansion of approximately 40 to 50 basis points year-over-year.

• Market fluctuations: Forward-looking statements involve risks and uncertainties that could cause results to differ materially. - Supply chain disruptions: Discussed potential issues in the supply chain that could impact operations. - Competition: Mentioned competition as a factor that could affect performance.

Q: Leah Jordan from Goldman Sachs asked about the loyalty program, including what surprised and learnings from initial rollout.

A: Jack Sinclair said the loyalty program rollout is ongoing, encouraged by the number of sign-ups and execution, will be fully rolled out by the end of October, and will learn to evolve communication, merchandising, etc. based on the data.

Q: Edward Kelly from Wells Fargo asked about comp cadence, UNFI disruption, and gross margin impact of self-distribution.

A: Curtis Valentine said May-June had strong produce season and UNFI disruption as drivers, now back to the 15% 2-year stack, self-distribution transition will have long-term margin benefit but not immediate, and loyalty has cost accounted for in margin forecast.

Q: Mike Montani from Evercore ISI asked about UNFI impact on COGS and SG&A, and new store performance.

A: Curtis Valentine said UNFI disruption had minimal impact, new stores are performing well with 35 planned for the year, 12 opened in Q2, and cadence is 9 in Q3, 11 in Q4.

Q: Rupesh Parikh from Oppenheimer asked about inflation and consumer dynamics.

A: Curtis Valentine said inflation is tracking CPI, and the customer base is resilient.

Q: Robbie Ohmes from Bank of America asked about new product flow, competition, and organic pricing.

A: Jack Sinclair said focused on innovative products, watching competitors, and working on long-term organic pricing contracts with produce suppliers.

Q: Mark Carden from UBS asked about wage pressure from strikes and prepared food sales.

A: Jack Sinclair said pays above average in every market, and is working on prepared foods.

Q: Kelly Bania from BMO Capital Markets asked about loyalty program benefit timing and impact.

A: Curtis Valentine said expected to impact comps in 2026, will learn as rolled out, and expected to help frequency, traffic, basket, and retention.

Q: Scott Marks from Jefferies asked about protein products and store expansion freshness.

A: Jack Sinclair said focused on protein, and distribution centers with local sourcing to maintain freshness in new regions.

Q: Chuck Cerankosky from Northcoast Research asked about tax rate.

A: Curtis Valentine said the tax team works on opportunities but the rate has been consistent.

Q: Scott Mushkin from R5 Capital asked about Q4 comp and long-term comp.

A: Curtis Valentine said will watch 2-year stack, new stores vintage, and loyalty impact, currently sticking to the 15% consistent seen for several months.

Q: John Heinbockel from Guggenheim asked about wallet share and comp density.

A: Jack Sinclair said aiming to increase wallet share through attribute products, prepared foods, vitamins, etc., and working on efficient store space to manage density.