Sprouts Farmers Markets sees sales growth of 15% in fiscal 2020

Sprouts Farmers Market reported Thursday that net sales in Q4 and in fiscal year 2020 showed double-digit increases from a year earlier.

“As the calendar has turned and we reflect on the year, the events of 2020 have only made Sprouts stronger,” CEO Jack Sinclair said during an afternoon earnings call. “We generated a robust top line with sales up 15%, record earnings and operating cash flow of nearly $500 million — while absorbing costs associated with an increase in e-commerce sales, the opening of 22 new stores and the payment of record bonuses to frontline team members.”

The company’s move to digital advertising and focusing on the “core customers” — health enthusiasts or experience seekers — is paying off, he said.

“Our transaction and basket performance with our target customer are stronger than similar metrics for our non-target segments, particularly those coupon clippers,” he said. “While we are still early in our strategy execution, this reinforces our conviction of our focus on target customers that represent approximately $200 billion of food and beverage grocery sales.”

“We generated a robust top line with sales up 15%, record earnings and operating cash flow of nearly $500 million — while absorbing costs associated with an increase in e-commerce sales, the opening of 22 new stores and the payment of record bonuses to frontline team members.” —Jack Sinclair, CEO, Sprouts Farmers Markets

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Sinclair noted that 68% of Sprouts’ products have attributes that consumers seeks, such as keto, paleo, plant-based or organic. Organic accounts for 23% of Sprouts’ total sales, and sales of alternative meats such as Beyond Meat and Impossible Foods, and alternative dairy have increased 45%, Sinclair said.

The company also added more than 5,100 new items, both branded and private label, in 2020; these generated 35% of the retailer’s sales growth, he said.

“While there is much more to do to bring our brand promise to life, we are pleased with our progress in 2020. In particular, I am pleased with our strengthened leadership team, which is combining the best of the original Sprouts team with experienced executives brought in from the outside,” Sinclair said.

The fresh financials

In both the fourth quarter and fiscal year 2020 as a whole, Sprouts saw positive results in sales, net income and earnings per share. Fiscal 2020 ended on Jan. 3 and was 53 weeks long compared with 52 weeks in FY2019. The extra week was in the fourth quarter.

“This extra week added approximately $122 million to sales, $16 million to EBIT and $0.10 to diluted earnings per share,” Chief Financial Officer Denise Paulonis said during the call.

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“There are four key points I want to highlight today to reinforce the strength of Sprouts’ strategy. One, our top-line growth remains robust, fueled by new stores. Our new stores opened strong, with low cannibalization, and are taking market share where they open,” Paulonis said. “Two, our margin structure has structurally changed for the positive. Three, we have created a full omnichannel offering. And four, our cash generation remains top-notch, even outside the pandemic rush early in the year, fueling our ability to drive growth.”

E-commerce sales increased 340% for the year and 290% in Q4, compared with last year. That channel accounted for 11% of Sprouts’ Q4 sales, she said. Sales via shop.sprouts.com — a platform that allows the company to gather consumer data — made up nearly 15% of the company’s online sales.

“Our customers now have a full omnichannel choice to shop how they like in-store, pickup or home delivery. Trends show that this choice changes throughout the month. One week they shop our store and others they shop online, and our omnichannel ecosystem allows them this freedom of choice,” Paulonis said.

Q4 sales and net income stayed high:

• Net sales of $1.6 billion, a 17% increase from the same period in 2019.

• Comparable-store sales growth of 3.7% and two-year comparable store sales growth of 5.2%, both on a 13-week basis.

• Net income of $68 million, compared with $32 million from the same period in 2019.

• Adjusted net income of $70 million, an increase of 119% from the same period in 2019.

• Diluted earnings per share of $0.58, compared with $0.27 per share a year ago.

• Adjusted diluted earnings per share of $0.59, compared with $0.27 per share.

• Adjusted diluted earnings per share of $0.49, estimated on a 13-week basis, an 81% increase from the same period in 2019.

As Sinclair said, fiscal year 2020 generated record earnings for the company. The other financial results were also impressive:

• Net sales of $6.5 billion; a 15% increase from 2019.

• Comparable store sales growth of 6.9% and two-year comparable store sales growth of 8.0%, both on a 52-week basis.

• Net income of $287 million, compared with $150 million in FY2019.

• Adjusted net income of $294 million, a 96% from FY2019's $150 million.

• Diluted earnings per share of $2.43, compared with $1.25 from a year earlier.

• Adjusted diluted earnings per share of $2.49, compared with $1.25 from FY2019.

• Adjusted diluted earnings per share of $2.39, estimated on a 52-week basis, a 91% increase from 2019.

“The impact that the pandemic will have on the U.S. economy, food-at-home demand and consumer habits remain uncertain. Given this, the company is planning for fiscal 2021 based on a range of potential outcomes,” Paulonis said.

“Underpinning our assumptions are negative comps in the first and second quarter as we lap the height of COVID with an improving two-year comp sales stack each quarter. Adjusted EBIT is expected to be in the range of $295 million to $315 million, adjusted diluted earnings per share in the range of $1.78 to $1.91.”

Sprouts is still growing

As of Jan. 3, Sprouts had 362 stores in 23 states; the company opened 22 stores during 2020 and plans to open 20 stores this year.

“A handful of these stores will be in our new format,” said Sinclair. “And the majority will be built with a smaller footprint of 25,000 square feet less providing improved box economics as they grow. As we look through the year, we will remodel an existing store with parts of the new format early in the summer and our first ground-up new store format will open later in the summer in Phoenix.”

The company also will open two new distribution centers soon. A Colorado location is scheduled to open in March, while a Florida site will open in the summer.

“We’re also partnering with some young and expanding indoor and vertical growers to provide local micro greens and lattices, which provide farm-to-fork in hours not days,” Sinclair said. “With the addition of these two DCs, our fresh product network will increase to seven DCs. And the new DCs will include additional features such as ripening rooms to serve our stores with a fresher selection.”