Phoenix, Arizona-based Sprouts Farmers Market has reported results for the 13-week second quarter ended June 28, and an update on July results.
Second quarter highlights include:
- Net sales of $1.6 billion; a 16 percent increase from the same period in 2019;
- Comparable store sales growth of 9.1 percent and two-year comparable store sales growth of 9.2 percent;
- Net income of $67 million and adjusted net income of $70 million; compared to net income and adjusted net income of $35 million from the same period in 2019; and
- Diluted earnings per share of $0.57 and adjusted diluted earnings per share of $0.59; compared to $0.30 diluted and adjusted diluted earnings per share from the same period in 2019
“I am proud of how our Sprouts team members have navigated these unprecedented circumstances we live in today. Our culture rooted in respect, inclusion and caring for one another has shone through in everything our team members do for our customers and for each other,” said Jack Sinclair, CEO of Sprouts Farmers Market. “Our strong second quarter performance was driven by the strategic changes we have begun to implement across our business and the continued positive impact on demand from the COVID-19 pandemic. As we head into the second half of the year, our early strategic wins give me confidence in our long-term direction, and our team members’ dedication assures me we will continue to provide our communities and customers healthy food for their families.”
Q2 2020 financial results
Net sales for the second quarter of 2020 were $1.6 billion, a 16 percent increase compared to the same period in 2019. Net sales growth was driven by continued demand from the COVID-19 pandemic, contributing to a 9.1 percent increase in comparable store sales and strong performance in new stores opened.
Gross profit for the quarter increased 32 percent to $613 million, resulting in a gross profit margin of 37.3 percent, an increase of 450 basis points compared to the same period in 2019. The increase was driven by strategic changes in promotional activities, partially accelerated by the COVID-19 environment, coupled with cycling deep promotions from the prior year, as well as outsized shrink improvement from operational efficiencies and positive leverage from additional sales.
Selling, general and administrative expenses for the quarter increased $106 million to $489 million, or 29.8 percent of sales, a deleverage of 270 basis points compared to the same period in 2019. Increased team member bonuses and higher store operational expenses predominately driven by COVID-19, as well as incremental ecommerce costs, were partially offset by lower marketing expense due to a shift from print to more digital spend. Increased costs from COVID-19 were approximately $47 million for the second quarter.
Depreciation and amortization for the quarter increased 3 percent to $31 million, or 1.9 percent of sales, a decrease of 20 basis points compared to the same period in 2019.
Store closure and other costs, net for the quarter were $0.5 million compared to $0.8 million in the same period of 2019.
Net income for the quarter was $67 million and diluted earnings per share was $0.57, compared with $35 million and $0.30, respectively, in 2019. Excluding the impact of special items, adjusted net income was $70 million and adjusted diluted EPS was $0.59; an increase of 97 percent from the same period in 2019 (see “Non-GAAP Financial Measures”).
Unit growth and development
During the second quarter of 2020, Sprouts opened six new stores, resulting in a total of 350 stores in 23 states as of June 28.
Leverage and liquidity
Sprouts generated cash from operations of $393 million year-to-date through June 28, 2020, and invested $48 million in capital expenditures net of landlord reimbursements, primarily for new stores. Sprouts ended the quarter with $451 million in loans and $34 million of letters of credit outstanding under its revolving credit facility, and $328 million in cash and cash equivalents. Subsequent to the end of the second quarter, it paid down $76 million of its revolving credit facility.
Update on current performance 2020 outlook
As customers continue to consume much of their food at home due to the COVID-19 pandemic, grocery spend and e-commerce penetration have remained at elevated levels. For the month of July, comparable store sales are estimated to increase approximately 9 percent compared to the same period last year, and e-commerce sales are estimated to represent approximately 11 percent of our net sales.
“The trajectory of the COVID-19 situation remains uncertain, clouding the impact to the food retail industry over the coming quarters,” said Denise Paulonis, CFO of Sprouts Farmers Market. “While our sales continue at elevated levels, so do additional costs associated with our team members and stores. Predicting specific outcomes remains difficult, and accordingly we are not stating a new outlook range. We remain confident in the financial strength of our business and our new long-term growth strategy presented last quarter.”
Sprouts employs more than 35,000 team members and operates more than 350 stores in 23 states from coast to coast.