Traffic, Tonnage Drive Q3 Sales for Sprouts

Sprouts Farmers Market posted sales gains of 10% and comparable-store sales of 1.5% in its fiscal third quarter as traffic and tonnage gains helped to overcome deflationary produce prices.

Overall sales of $1.3 billion met Wall Street expectations, while earnings of 27 cents per share were a penny above estimates. Net earnings for the period ending Sept. 30 totaled $38 million, a 19% increase from the same period in 2017.

Amin Maredia, CEO of the Phoenix-based retailer, said the company benefited in the quarter from “robust” productivity from 12 new stores, including the company’s first in the states of Washington and Pennsylvania, and realized benefits of ongoing efforts to meet shopper appetite for innovation with stores that have “drastically” improved merchandising.

“Kudos to our team for continuing to evolve with the customer,” Maredia said in a conference call discussing the results with analysts. “It’s across the store. It’s quality in produce and quality in meat and seafood. It’s made-in-house, ready-to-eat, heat and cook items; a wide selection and unique products in grocery and frozen; and service-led [health and beauty] departments.

“We feel we're better positioned than we’ve ever been, especially when it comes to authentic health and fresh, prepared and convenient. … We’re continuing to do what we’re great at, and our customers continue to respond to it.”

Officials said deflation was more pronounced in the third quarter than the “just over 1%” deflation they tracked during the second quarter, triggered primarily by falling prices for produce and poultry. Sprouts experienced some inflation in other areas of the store, Maredia said, and was passing those increases along in a “consistent but competitive” environment. Officials said they are anticipating deflation would remain around the same levels in the current fourth quarter.

Gross profit for the quarter increased 10% to $382 million, resulting in a gross profit margin of 28.8%, an increase of five basis points compared to the same period in 2017. This leverage was primarily driven by higher merchandise margins partially offset by higher occupancy costs.