Sprouts Farmers Market cycles pandemic gains in fiscal 2021

Specialty grocer Sprouts Farmers Markets said it turned in better-than-expected results for its fiscal 2021 fourth quarter, which saw tough sales comparisons to pandemic-fueled demand and an extra week in previous fiscal year.

For the 13-week fourth quarter ended Jan. 2, net sales totaled $1.49 billion, down 7% from just over $1.6 billion in the 14-week quarter in fiscal 2020, mainly due to the $122 million in sales during the extra week, Sprouts reported yesterday after the market close. Backing out the extra week, net sales were up by $12 million, the Phoenix-based grocer said. On a two-year stack, net sales grew 9% for the quarter.

Comparable-store sales dipped 1.1% in the fourth quarter but were up 2.7% over two years.

"Going forward, creating more meaningful messaging about our customer proposition, densifying our store base in established markets and extending our reach to new customers in new markets will help us to continue to profitably grow," — Jack Sinclair, Sprouts CEO (Photo courtesy of Sprouts)

“We’re pleased to report that our results for the fourth quarter were better than we anticipated for both sales and earnings. And we're encouraged by the fact that our quarterly comp transactions turned positive,” CEO Jack Sinclair told analysts in a conference call on Thursday. “2021 was a year of meaningful accomplishments for the Sprouts team while, at the same time, we successfully navigated a very challenging retail environment.”

Related:Sprouts Farmers Market names Petco’s Nicholas Konat president, COO

Chief Financial Officer Lawrence Molloy noted the impact of inflation in the fourth quarter and changes in the shopping basket from last year’s COVID-driven sales surge.

“Average retail prices were up primarily due to inflationary cost pressures passed on to the consumer, while our units per basket were down as we continued to cycle the larger baskets that occurred during the first 12 months of the pandemic,” Molloy explained in the call. “Encouraging is the fact that our units per basket for the quarter were still higher than they were during the same period in 2019 even with higher prices. E-commerce sales were 10.4% of total sales, settling to what appears to be a relatively stable run rate.”

For the fiscal 2021 full year, net sales came in at $6.1 billion, a 6% decrease from $6.47 billion a year earlier, again reflecting the cycling COVID demand and the 53rd week in 2020. Excluding the extra week, sales declined 4%. Over two years, net sales were up 8%.

“For fiscal year 2021, total sales declined 4% to $6.1 billion,” Molloy said. “The 6.7% decrease in comparable-store sales growth was primarily from cycling the demand from the COVID pandemic in 2020.” On a two-year stack, comp-store sales edged up 0.4% for fiscal 2021.

Related:Sprouts Farmers Market’s new DC to serve 33 Florida stores by year-end

Sprouts finished fiscal 2021 with 374 stores in 23 states, compared with 362 stores a year ago.

“During the year, we opened 12 new stores, remodeled one and relocated one, of which four were in our smaller store format, and are encouraged with their initial results,” Sinclair said. “We made significant progress towards filling our pipeline of future store openings, opened two new distribution centers, launched over 5,700 new products and issued a fulsome ESG report, which resulted in a AAA rating from MSCI, just to name a few. I’m excited about the platform we're building and where we can take it in 2022 and beyond.

“Going forward, creating more meaningful messaging about our customer proposition, densifying our store base in established markets and extending our reach to new customers in new markets will help us to continue to profitably grow,” he added.

Sprouts plans to open 15 to 20 new stores in fiscal 2022 after opening 12 in fiscal 2021.

Sinclair also cited the addition of Nicholas Konat as president and chief operating officer. Plans call for Konat, a former Petco and Target executive, to join the company effective March 21.

“I’m looking forward to Nick’s leadership in the areas of marketing, merchandising and operations,” commented Sinclair. “Nick brings a wealth of experience in these areas, with deep, deep retail knowledge from industry-leading companies such as Target and Petco.”

At the bottom line, Sprouts posted fiscal 2021 fourth-quarter net income of $36.2 million, or 32 cents per diluted share, compared with $68.4 million, or 58 cents per diluted share, a year ago. Adjusted earnings per share (diluted) were 32 cents versus 59 cents in the prior-year period.

Fiscal 2021 net earnings totaled $244.2 million, or $2.10 per diluted share, compared with $287.5 million, or $2.43 per diluted share, in fiscal 2020. SpartanNash reported full-year adjusted diluted EPS of $2.10 versus $2.40 in 2020. The company noted that the extra week in 2020 included 10 cents in EPS.

Analysts, on average, had projected adjusted EPS of 30 cents (in a range of 27 cents to 35 cents) for the fiscal 2021 fourth quarter and of $2.07 (in a range of $1.94 to $2.13) for the full year.

“For 2022, we expect total sales growth between 4% and 6%, with comparable store sales growth of 0% to 2%. We now expect to open 15 to 20 new stores, less than our previous communication of 25 to 30 and our strategic goal of 10% growth per year, due to the ongoing permitting and supply chain challenges associated with sourcing materials and equipment,” Molloy told analysts. “Several of our new stores in 2022 were scheduled to open in December and are now shifting to the first quarter of 2023. Our real estate team continues to work diligently, building a quality pipeline of new locations. And we believe by 2023, we can be closer to our 10% goal. Today, we have more than 80 approved sites and more than 50 signed leases in the pipeline.”

Looking ahead, Sprouts also forecasts fiscal 2022 adjusted EPS (diluted) of $2.14 to $2.24. Wall Street’s consensus estimate, prior to Sprouts’ earnings report, was for 2022 adjusted EPS of $2.08, with projections ranging from $1.74 to $2.23.

“As for new stores, our unit growth story remains one of the best out there for retail,” Sinclair added. “Though our growth in 2022 is less than 10%, our pipeline remains very strong with more than 80 stores to be opened in the next few years. As [Molloy] pointed out, once the supply chain and city approval process right-size from the pandemic, we expect to be back on track to our high-growth model.”