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Sprouts Farmers Market, Inc. Reports First Quarter 2016 Results

First Quarter Highlights:

  • Net sales of $993.2 million; a 16% increase from the same period in 2015
  • Comparable store sales growth of 4.8% and two-year comparable store sales growth of 9.5%
  • Net income of $46.2 million and diluted earnings per share of $0.30
  • Net Income increased 20% from adjusted net income in the same period in 2015
  • Diluted earnings per share increased 20% from adjusted diluted earnings per share the same period in 2015

"Our first quarter results reflect our customers' continued strong engagement with the Sprouts brand, and the appeal of our fresh, natural and organic products at affordable prices," said Amin Maredia, chief executive officer of Sprouts Farmers Market. "Despite a near zero inflationary environment, our team delivered another solid quarter of comparable store sales growth and robust earnings improvement. We continue to further product innovation, enhance the customer experience, develop our team members and invest in infrastructure and technology, which position Sprouts for continued growth."

In order to aid in understanding the company's business performance, it has presented results in conformity with accounting principles generally accepted in the United States ("GAAP") and has also presented certain non-GAAP measures which are explained and reconciled to the GAAP measures in the tables included in this release. For 2016 and 2015, the company has presented EBITDA and adjusted EBITDA, respectively. In addition, for 2015, the company has presented adjusted net income and adjusted earnings per share. In each case, an "adjusted" measure excludes the after-tax impact of disposal of assets, store closure and exit costs, and secondary offering expenses. For the first quarter of 2016, such adjustments would be immaterial. Accordingly, the company has presented net income, earnings per share and EBITDA for the first quarter of 2016 without adjustment and has provided comparisons of such measures to the corresponding adjusted measures from the first quarter of 2015. Where applicable, results are first presented on a GAAP basis and then on an adjusted basis.

First Quarter 2016 Financial Results

Net sales for the first quarter of 2016 were $993.2 million, a 16% increase compared to the same period in 2015. Net sales growth was driven by a 4.8% increase in comparable store sales and solid performance in new stores opened.

Gross profit for the quarter increased 19% to $306.5 million, resulting in a gross profit margin of 30.9%, an increase of 80 basis points compared to the same period in 2015. This increase reflects higher margins in certain categories primarily due to deflation and more normalized promotions compared to the prior year.

Direct store expense ("DSE") as a percentage of sales for the quarter increased 50 basis points to 19.5% compared to the same period in 2015. This was primarily due to higher payroll expense from planned wage increases and increased training costs, partially offset by timing of the New Year's holiday payroll.

Selling, general and administrative expenses ("SG&A") as a percentage of sales for the quarter increased 30 basis points to 3.1%, compared to the same period in 2015. This was primarily driven by higher stock compensation costs due to executive changes and higher corporate overhead as we continue to build out infrastructure to support our growth.

Net income for the quarter was $46.2 million, or diluted earnings per share of $0.30, up $8.7 million from $37.5 million, or diluted earnings per share of $0.24 for the same period in 2015. Excluding the after-tax impact of the loss on disposal of assets, the store closure and exit costs and secondary offering expenses in the first quarter of 2015, net income for the quarter increased 20%, compared to adjusted net income of $38.6 million for the same period in 2015. Diluted earnings per share increased 20%, compared to adjusted diluted earnings per share of $0.25 for the same period in 2015. These increases were driven by higher sales and margins, the benefit from lower interest expense due to a voluntary pay-down on our revolving credit facility and a more favorable interest rate resulting from our April 2015 refinancing, and a lower effective tax rate.

Growth and Development

During the first quarter of 2016, we opened 11 new stores: one each in Missouri, Tennessee and Texas; two each in Colorado and Georgia; and four in California. Three additional stores have been opened in the second quarter to date, resulting in a total of 231 stores in 13 states as of May 5, 2016.

Leverage and Liquidity

We generated cash from operations of $97.9 million for the first quarter of 2016 and invested $31.9 million in capital expenditures net of landlord reimbursement, primarily for new stores. In addition, we purchased $59.3 million of common stock under our $150 million share repurchase program. We ended the quarter with a $160.0 million balance on our revolving credit facility, $1.7 million of letters of credit outstanding under the facility, and $145.7 million in cash and cash equivalents.

2016 Outlook

We have adjusted our 2016 net sales growth, primarily due to a lower inflationary environment and timing of new store openings, and confirm our other targets including comparable store sales growth and diluted earnings per share. The following provides information on our guidance for 2016:

Q2 2016
Guidance
Comparable store sales growth 4.0% to 5.0%
Full-Year 2016 Guidance
52-week to 52-week 53-week to 52-week
Net sales growth 17% to 19% 15% to 17%
Unit growth 36 new stores 36 new stores
Comparable store sales growth [(1)] 4% to 6% 4% to 6%
EBITDA growth [(2)] 12% to 14% 9% to 11%
Diluted earnings per share [(2), (3)] $0.96 to $0.98 $0.96 to $0.98
Capital expenditures $145M to $155M $145M to $155M
(net of landlord reimbursements)

Please see the explanation and reconciliation of EBITDA, adjusted EBITDA and adjusted earnings per share to the comparable GAAP measures for the 13 weeks ended April 3, 2016 and March 29, 2015 in the tables included below.

(1) Comparable store sales growth is on an equal 52-week to 52-week basis.
(2) Compared to adjusted measures in 2015.
(3) Based on a weighted average share count of approximately 154 million shares for...


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