Sprouts Farmers Market to close 11 ‘underperforming’ stores

Sprouts Farmers Market is closing 11 underperforming stores during the first half of the year, the health-focused grocer announced Thursday while reporting its fourth quarter and full-year earnings.

The locations of the stores slated for closure were not detailed, but all on the chopping block are about 30% larger than the grocer’s current prototype and “generate negative four-wall cash flow,” Sprouts CFO Lawrence “Chip” Molloy told analysts.

Sprouts had considered closing the stores in early 2020, as its strategy shifted to a smaller footprint, but realized the timing was not right.

“We consciously decided not to close those stores as the pandemic struck, so our communities would have access to fresh, healthy groceries,” Molloy noted.

Sprouts said it doesn’t intend to re-open in new locations in the cities in which it is closing.

“You won’t see direct replacements coming in those geographies going forward because they’re probably in the wrong place,” CEO Jack Sinclair said. “As we’ve looked at the store portfolio, the strategy playing out really made us take a very hard look at those stores that are a little bit bigger. The lovely stores that were built by the previous team … and in certain locations, we picked the wrong locations.”

No further large-scale store closures are planned, executives said.

On a net level, though, Sprouts remains firmly in growth mode. The retailer plans to open 30 new stores this year.

Sprouts’ stock price surged more than 12% Thursday on solid Q4 and full-year earnings news.

For the fourth quarter, Sprouts’ net sales totaled $1.6 billion, up 6% from the year-ago period. For the fiscal year, net sales were $6.4 billion, a 5% jump from the year before.

Same-store sales increased 2.9% during the fourth quarter and 2.2% for the year.

The grocer opened 16 new stores in 2022, seven during the fourth quarter, for a total of 386 stores in 23 states.

Sprouts offered some optimistic predictions for 2023, while admitting that the near-term economic environment is difficult to forecast. For full-year 2023, Sprouts said it expects net sales growth of 4% to 6% and same-store sales growth in the low single digits. For the first quarter, Sprouts anticipates a same-store sales increase of 1.5% to 2%.

Sprouts, which partnered with DoorDash during the fourth quarter, said its e-commerce sales grew 16.5% during the period and now represent 11.4% of total sales.

The grocer was founded on the strength of its produce selection but has recently noted increased demand for its deli department—a trend that continued in Q4.

Sprouts also noted some significant investments in its supply chain. It is relocating its Southern California distribution center to a larger facility in the second quarter. It is also expanding a distribution center in Texas and adding produce ripening rooms to its Arizona, Texas and Southern California facilities.

“In addition to supporting our growing capacity needs, the facility’s location will reduce the miles traveled to our stores and is in a more-robust labor market,” Molloy said.

More than 85% of Sprouts stores are within 250 miles of its distribution channels, up 20% from 2019.

Closing the 11 underperforming stores and building the new distribution center will costs sprouts about $40 million to $50 million pre-tax, the grocer said.