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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/03/22 Sprouts Farmers Market, Inc. 10-Q 7/03/22 73:8.8M Donnelley … Solutions/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 2.90M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 27K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 27K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 25K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 25K
11: R1 Document and Entity Information HTML 76K
12: R2 Consolidated Balance Sheets HTML 131K
13: R3 Consolidated Balance Sheets (Parenthetical) HTML 40K
14: R4 Consolidated Statements of Income (Unaudited) HTML 93K
15: R5 Consolidated Statements of Comprehensive Income HTML 50K
(Unaudited)
16: R6 Consolidated Statements of Comprehensive Income HTML 27K
(Unaudited) (Parenthetical)
17: R7 Consolidated Statements of Stockholders' Equity HTML 76K
(Unaudited)
18: R8 Consolidated Statements of Cash Flows (Unaudited) HTML 111K
19: R9 Basis of Presentation HTML 29K
20: R10 Summary of Significant Accounting Policies HTML 47K
21: R11 Fair Value Measurements HTML 98K
22: R12 Long-Term Debt and Finance Lease Liabilities HTML 90K
23: R13 Income Taxes HTML 32K
24: R14 Related Party Transactions HTML 26K
25: R15 Commitments and Contingencies HTML 30K
26: R16 Stockholders' Equity HTML 85K
27: R17 Net Income Per Share HTML 133K
28: R18 Derivative Financial Instruments HTML 76K
29: R19 Comprehensive Income HTML 57K
30: R20 Segments HTML 88K
31: R21 Share-Based Compensation HTML 167K
32: R22 Summary of Significant Accounting Policies HTML 59K
(Policies)
33: R23 Summary of Significant Accounting Policies HTML 37K
(Tables)
34: R24 Fair Value Measurements (Tables) HTML 92K
35: R25 Long-Term Debt and Finance Lease Liabilities HTML 62K
(Tables)
36: R26 Stockholders' Equity (Tables) HTML 76K
37: R27 Net Income Per Share (Tables) HTML 124K
38: R28 Derivative Financial Instruments (Tables) HTML 71K
39: R29 Comprehensive Income (Tables) HTML 55K
40: R30 Segments (Tables) HTML 82K
41: R31 Share-Based Compensation (Tables) HTML 155K
42: R32 Basis of Presentation - Additional Information HTML 25K
(Detail)
43: R33 Summary of Significant Accounting Policies - HTML 31K
Schedule of Estimated Breakage Revenue Recognized
(Detail)
44: R34 Summary of Significant Accounting Policies - HTML 39K
Additional Information (Detail)
45: R35 Fair Value Measurements - Schedule of Financial HTML 38K
Liabilities Measured at Fair Value on Recurring
Basis (Detail)
46: R36 Long-Term Debt and Finance Lease Liabilities - HTML 42K
Summary of Long-Term Debt and Finance Lease
Liabilities (Detail)
47: R37 Long-Term Debt and Finance Lease Liabilities - HTML 29K
Summary of Long-Term Debt and Finance Lease
Liabilities (Parenthetical) (Detail)
48: R38 Long-Term Debt and Finance Lease Liabilities - HTML 90K
Additional Information (Detail)
49: R39 Income Taxes - Additional Information (Detail) HTML 26K
50: R40 Related Party Transactions - Additional HTML 25K
Information (Detail)
51: R41 Commitments and Contingencies - Additional HTML 25K
Information (Detail)
52: R42 Stockholders' Equity - Additional Information HTML 39K
(Detail)
53: R43 Stockholders' Equity - Schedule of Common Stock HTML 39K
Share Repurchase Programs Authorized by Board of
Directors from Time to Time and Related Repurchase
Activity and Available Authorized (Detail)
54: R44 Stockholders' Equity - Schedule of Share HTML 30K
Repurchase Activity under Share Repurchase
Programs (Detail)
55: R45 Net Income Per Share - Summary of Reconciliation HTML 67K
of Numerators and Denominators of Basic and
Diluted Net Income Per Share (Detail)
56: R46 Net Income Per Share - Additional Information HTML 32K
(Detail)
57: R47 Derivative Financial Instruments - Additional HTML 40K
Information (Detail)
58: R48 Derivative Financial Instruments - Summary of Fair HTML 34K
Value of Derivative Instruments (Detail)
59: R49 Derivative Financial Instruments - Summary of HTML 26K
Losses of Derivative Instruments (Detail)
60: R50 Comprehensive Income - Changes In Accumulated HTML 45K
Other Comprehensive Income (Loss) (Details)
61: R51 Comprehensive Income - Changes In Accumulated HTML 30K
Other Comprehensive Income (Loss) (Parenthetical)
(Details)
62: R52 Segments - Additional Information (Detail) HTML 26K
63: R53 Segments - Summary of Disaggregation of Revenue HTML 41K
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64: R54 Share-Based Compensation - Summary of Stock-Based HTML 57K
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65: R55 Share-Based Compensation - Additional Information HTML 77K
(Detail)
66: R56 Share-Based Compensation - Summary of Share-Based HTML 25K
Compensation Expense in Selling, General and
Administrative Expenses (Detail)
67: R57 Share-Based Compensation - Summary of Outstanding HTML 33K
Share-Based Awards (Detail)
68: R58 Share-Based Compensation - Summary of Total HTML 39K
Unrecognized Compensation Expense and Remaining
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| 10-Q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
i ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i July 3, i 2022 /
or
i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: i 001-36029
i Sprouts Farmers Market, Inc.
(Exact name of registrant as specified in its charter)
i Delaware |
i 32-0331600 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
i 5455 East High Street, i Suite 111
i Phoenix, i Arizona i 85054
(Address of principal executive offices and zip code)
( i 480) i 814-8016
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class
|
Trading Symbol(s) |
Name of Each Exchange on Which Registered
|
i Common Stock, $0.001 par value |
i SFM |
i NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
i Large accelerated filer |
☒ |
Accelerated filer |
☐ |
|
|
|
|
Non-accelerated filer |
☐ |
Smaller reporting company |
i ☐ |
|
|
|
|
|
|
Emerging growth company |
i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i ☐ No ☒
As of August 1, 2022, the registrant had i 107,455,274 shares of common stock, $0.001 par value per share, outstanding.
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JULY 3, 2022
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the “Exchange Act”), including, but not limited to, statements regarding our expectations, beliefs, intentions, strategies, future operations, future financial position, future revenue, projected expenses, and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the fiscal year ended January 2, 2022, and our other filings with the Securities and Exchange Commission. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to the “Company,” “Sprouts,” “Sprouts Farmers Market,” “we,” “us” and “our” refer to Sprouts Farmers Market, Inc. and, where appropriate, its subsidiaries.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
|
|
|
|
|
||||
ASSETS |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
i 288,965 |
|
|
$ |
i 245,287 |
|
Accounts receivable, net |
|
|
i 13,260 |
|
|
|
i 21,574 |
|
Inventories |
|
|
i 292,862 |
|
|
|
i 265,387 |
|
Prepaid expenses and other current assets |
|
|
i 49,520 |
|
|
|
i 35,468 |
|
Total current assets |
|
|
i 644,607 |
|
|
|
i 567,716 |
|
Property and equipment, net of accumulated depreciation |
|
|
i 690,460 |
|
|
|
i 716,029 |
|
Operating lease assets, net |
|
|
i 1,083,183 |
|
|
|
i 1,072,019 |
|
Intangible assets, net of accumulated amortization |
|
|
i 184,960 |
|
|
|
i 184,960 |
|
Goodwill |
|
|
i 368,878 |
|
|
|
i 368,878 |
|
Other assets |
|
|
i 15,236 |
|
|
|
i 13,513 |
|
Total assets |
|
$ |
i 2,987,324 |
|
|
$ |
i 2,923,115 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
i 173,687 |
|
|
$ |
i 145,901 |
|
Accrued liabilities |
|
|
i 138,659 |
|
|
|
i 155,996 |
|
Accrued salaries and benefits |
|
|
i 48,222 |
|
|
|
i 58,743 |
|
Current portion of operating lease liabilities |
|
|
i 153,651 |
|
|
|
i 151,755 |
|
Current portion of finance lease liabilities |
|
|
i 1,130 |
|
|
|
i 1,078 |
|
Total current liabilities |
|
|
i 515,349 |
|
|
|
i 513,473 |
|
Long-term operating lease liabilities |
|
|
i 1,101,148 |
|
|
|
i 1,095,909 |
|
Long-term debt and finance lease liabilities |
|
|
i 259,219 |
|
|
|
i 259,656 |
|
Other long-term liabilities |
|
|
i 38,253 |
|
|
|
i 36,306 |
|
Deferred income tax liability |
|
|
i 59,665 |
|
|
|
i 57,895 |
|
Total liabilities |
|
|
i 1,973,634 |
|
|
|
i 1,963,239 |
|
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
||
Stockholders’ equity: |
|
|
|
|
|
|
||
Undesignated preferred stock; $ i i 0.001 / par
value; i i 10,000,000 / shares |
|
|
i — |
|
|
|
i — |
|
Common stock, $ i i 0.001 / par
value; i i 200,000,000 / shares authorized, |
|
|
i 108 |
|
|
|
i 111 |
|
Additional paid-in capital |
|
|
i 715,331 |
|
|
|
i 704,701 |
|
Accumulated other comprehensive income (loss) |
|
|
i 193 |
|
|
|
( i 3,758 |
) |
Retained earnings |
|
|
i 298,058 |
|
|
|
i 258,822 |
|
Total stockholders’ equity |
|
|
i 1,013,690 |
|
|
|
i 959,876 |
|
Total liabilities and stockholders’ equity |
|
$ |
i 2,987,324 |
|
|
$ |
i 2,923,115 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
Thirteen weeks ended |
|
|
Twenty-six weeks ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Net sales |
|
$ |
i 1,595,482 |
|
|
$ |
i 1,521,993 |
|
|
$ |
i 3,236,643 |
|
|
$ |
i 3,097,440 |
|
Cost of sales |
|
|
i 1,015,125 |
|
|
|
i 971,912 |
|
|
|
i 2,044,538 |
|
|
|
i 1,961,185 |
|
Gross profit |
|
|
i 580,357 |
|
|
|
i 550,081 |
|
|
|
i 1,192,105 |
|
|
|
i 1,136,255 |
|
Selling, general and administrative expenses |
|
|
i 462,110 |
|
|
|
i 436,420 |
|
|
|
i 922,020 |
|
|
|
i 876,082 |
|
Depreciation and amortization (exclusive |
|
|
i 31,244 |
|
|
|
i 30,430 |
|
|
|
i 63,064 |
|
|
|
i 61,659 |
|
Store closure and other costs, net |
|
|
i 493 |
|
|
|
( i 419 |
) |
|
|
i 870 |
|
|
|
i 1,629 |
|
Income from operations |
|
|
i 86,510 |
|
|
|
i 83,650 |
|
|
|
i 206,151 |
|
|
|
i 196,885 |
|
Interest expense, net |
|
|
i 2,658 |
|
|
|
i 2,938 |
|
|
|
i 5,697 |
|
|
|
i 5,929 |
|
Income before income taxes |
|
|
i 83,852 |
|
|
|
i 80,712 |
|
|
|
i 200,454 |
|
|
|
i 190,956 |
|
Income tax provision |
|
|
i 21,855 |
|
|
|
i 19,698 |
|
|
|
i 50,150 |
|
|
|
i 46,894 |
|
Net income |
|
$ |
i 61,997 |
|
|
$ |
i 61,014 |
|
|
$ |
i 150,304 |
|
|
$ |
i 144,062 |
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
i 0.57 |
|
|
$ |
i 0.52 |
|
|
$ |
i 1.37 |
|
|
$ |
i 1.22 |
|
Diluted |
|
$ |
i 0.57 |
|
|
$ |
i 0.52 |
|
|
$ |
i 1.36 |
|
|
$ |
i 1.22 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
i 109,067 |
|
|
|
i 117,246 |
|
|
|
i 109,985 |
|
|
|
i 117,645 |
|
Diluted |
|
|
i 109,619 |
|
|
|
i 117,831 |
|
|
|
i 110,762 |
|
|
|
i 118,265 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
|
|
Thirteen weeks ended |
|
|
Twenty-six weeks ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Net income |
|
$ |
i 61,997 |
|
|
$ |
i 61,014 |
|
|
$ |
i 150,304 |
|
|
$ |
i 144,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unrealized gains (losses) on cash flow |
|
|
i 2,248 |
|
|
|
i 1,981 |
|
|
|
i 5,834 |
|
|
|
i 4,295 |
|
Reclassification of net gains (losses) on |
|
|
( i 792 |
) |
|
|
( i 1,070 |
) |
|
|
( i 1,883 |
) |
|
|
( i 2,140 |
) |
Total other comprehensive income (loss) |
|
|
i 1,456 |
|
|
|
i 911 |
|
|
|
i 3,951 |
|
|
|
i 2,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive income |
|
$ |
i 63,453 |
|
|
$ |
i 61,925 |
|
|
$ |
i 154,255 |
|
|
$ |
i 146,217 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
For the thirteen and twenty-six weeks ended July 3, 2022 |
|
|
|
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Shares |
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
||||||
Balances at April 3, 2022 |
|
|
i 110,243,288 |
|
|
$ |
i 110 |
|
|
$ |
i 711,712 |
|
|
$ |
i 301,415 |
|
|
$ |
( i 1,263 |
) |
|
$ |
i 1,011,974 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 61,997 |
|
|
|
— |
|
|
|
i 61,997 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,456 |
|
|
|
i 1,456 |
|
Issuance of shares under stock plans |
|
|
i 122,060 |
|
|
|
— |
|
|
|
i 155 |
|
|
|
— |
|
|
|
— |
|
|
|
i 155 |
|
Repurchase and retirement of common stock |
|
|
( i 2,397,671 |
) |
|
|
( i 2 |
) |
|
|
— |
|
|
|
( i 65,354 |
) |
|
|
— |
|
|
|
( i 65,356 |
) |
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 3,464 |
|
|
|
— |
|
|
|
— |
|
|
|
i 3,464 |
|
Balances at July 3, 2022 |
|
|
i 107,967,677 |
|
|
$ |
i 108 |
|
|
$ |
i 715,331 |
|
|
$ |
i 298,058 |
|
|
$ |
i 193 |
|
|
$ |
i 1,013,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Shares |
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
||||||
Balances at January 2, 2022 |
|
|
i 111,114,374 |
|
|
$ |
i 111 |
|
|
$ |
i 704,701 |
|
|
$ |
i 258,822 |
|
|
$ |
( i 3,758 |
) |
|
$ |
i 959,876 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 150,304 |
|
|
|
— |
|
|
|
i 150,304 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 3,951 |
|
|
|
i 3,951 |
|
Issuance of shares under stock plans |
|
|
i 732,161 |
|
|
|
— |
|
|
|
i 2,710 |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,710 |
|
Repurchase and retirement of common stock |
|
|
( i 3,878,858 |
) |
|
|
( i 3 |
) |
|
|
— |
|
|
|
( i 111,068 |
) |
|
|
— |
|
|
|
( i 111,071 |
) |
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 7,920 |
|
|
|
— |
|
|
|
— |
|
|
|
i 7,920 |
|
Balances at July 3, 2022 |
|
|
i 107,967,677 |
|
|
$ |
i 108 |
|
|
$ |
i 715,331 |
|
|
$ |
i 298,058 |
|
|
$ |
i 193 |
|
|
$ |
i 1,013,690 |
|
The accompanying notes are an integral part of these consolidated financial statements.
7
For the thirteen and twenty-six weeks ended July 4, 2021 |
|
|
|
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Shares |
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
||||||
Balances at April 4, 2021 |
|
|
i 118,194,576 |
|
|
$ |
i 118 |
|
|
$ |
i 691,142 |
|
|
$ |
i 282,840 |
|
|
$ |
( i 7,230 |
) |
|
$ |
i 966,870 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 61,014 |
|
|
|
— |
|
|
|
i 61,014 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 911 |
|
|
|
i 911 |
|
Issuance of shares under stock plans |
|
|
i 136,905 |
|
|
|
— |
|
|
|
i 365 |
|
|
|
— |
|
|
|
— |
|
|
|
i 365 |
|
Repurchase and retirement of common stock |
|
|
( i 3,150,649 |
) |
|
|
( i 3 |
) |
|
|
— |
|
|
|
( i 84,272 |
) |
|
|
— |
|
|
|
( i 84,275 |
) |
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 4,238 |
|
|
|
— |
|
|
|
— |
|
|
|
i 4,238 |
|
Balances at July 4, 2021 |
|
|
i 115,180,832 |
|
|
$ |
i 115 |
|
|
$ |
i 695,745 |
|
|
$ |
i 259,582 |
|
|
$ |
( i 6,319 |
) |
|
$ |
i 949,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Shares |
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
||||||
Balances at January 3, 2021 |
|
|
i 117,953,435 |
|
|
$ |
i 118 |
|
|
$ |
i 686,648 |
|
|
$ |
i 203,001 |
|
|
$ |
( i 8,474 |
) |
|
$ |
i 881,293 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 144,062 |
|
|
|
— |
|
|
|
i 144,062 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,155 |
|
|
|
i 2,155 |
|
Issuance of shares under stock plans |
|
|
i 508,014 |
|
|
|
— |
|
|
|
i 1,246 |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,246 |
|
Repurchase and retirement of common stock |
|
|
( i 3,280,617 |
) |
|
|
( i 3 |
) |
|
|
— |
|
|
|
( i 87,481 |
) |
|
|
— |
|
|
|
( i 87,484 |
) |
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 7,851 |
|
|
|
— |
|
|
|
— |
|
|
|
i 7,851 |
|
Balances at July 4, 2021 |
|
|
i 115,180,832 |
|
|
$ |
i 115 |
|
|
$ |
i 695,745 |
|
|
$ |
i 259,582 |
|
|
$ |
( i 6,319 |
) |
|
$ |
i 949,123 |
|
The accompanying notes are an integral part of these consolidated financial statements.
8
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
|
|
Twenty-six weeks ended |
|
|||||
|
|
|
|
|
||||
Operating activities |
|
|
|
|
|
|
||
Net income |
|
$ |
i 150,304 |
|
|
$ |
i 144,062 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization expense |
|
|
i 64,856 |
|
|
|
i 63,152 |
|
Operating lease asset amortization |
|
|
i 57,360 |
|
|
|
i 52,631 |
|
Store closure and other costs, net |
|
|
i 171 |
|
|
|
i — |
|
Share-based compensation |
|
|
i 7,920 |
|
|
|
i 7,851 |
|
Deferred income taxes |
|
|
i 1,770 |
|
|
|
i 2,920 |
|
Other non-cash items |
|
|
i 324 |
|
|
|
i 740 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
i 11,389 |
|
|
|
i 14,685 |
|
Inventories |
|
|
( i 27,475 |
) |
|
|
( i 19,873 |
) |
Prepaid expenses and other current assets |
|
|
( i 12,851 |
) |
|
|
( i 13,679 |
) |
Other assets |
|
|
i 164 |
|
|
|
( i 4,363 |
) |
Accounts payable |
|
|
i 32,877 |
|
|
|
i 23,653 |
|
Accrued liabilities |
|
|
( i 318 |
) |
|
|
( i 8,416 |
) |
Accrued salaries and benefits |
|
|
( i 10,521 |
) |
|
|
( i 28,587 |
) |
Operating lease liabilities |
|
|
( i 65,502 |
) |
|
|
( i 58,131 |
) |
Other long-term liabilities |
|
|
( i 1,505 |
) |
|
|
i 660 |
|
Cash flows from operating activities |
|
|
i 208,963 |
|
|
|
i 177,305 |
|
Investing activities |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( i 53,098 |
) |
|
|
( i 39,421 |
) |
Cash flows used in investing activities |
|
|
( i 53,098 |
) |
|
|
( i 39,421 |
) |
Financing activities |
|
|
|
|
|
|
||
Payments on finance lease liabilities |
|
|
( i 385 |
) |
|
|
( i 333 |
) |
Payments of deferred financing costs |
|
|
( i 3,373 |
) |
|
|
i — |
|
Repurchase of common stock |
|
|
( i 111,071 |
) |
|
|
( i 87,484 |
) |
Proceeds from exercise of stock options |
|
|
i 2,710 |
|
|
|
i 1,246 |
|
Cash flows used in financing activities |
|
|
( i 112,119 |
) |
|
|
( i 86,571 |
) |
Increase in cash, cash equivalents, and restricted cash |
|
|
i 43,746 |
|
|
|
i 51,313 |
|
Cash, cash equivalents, and restricted cash at beginning of the period |
|
|
i 247,004 |
|
|
|
i 171,441 |
|
Cash, cash equivalents, and restricted cash at the end of the period |
|
$ |
i 290,750 |
|
|
$ |
i 222,754 |
|
|
|
|
|
|
|
|
||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
i 5,717 |
|
|
$ |
i 6,128 |
|
Cash paid for income taxes |
|
|
i 46,257 |
|
|
|
i 49,071 |
|
Leased assets obtained in exchange for new operating lease liabilities |
|
|
i 68,668 |
|
|
|
i 60,074 |
|
|
|
|
|
|
|
|
||
Supplemental disclosure of non-cash investing and financing activities |
|
|
|
|
|
|
||
Property and equipment in accounts payable and accrued liabilities |
|
$ |
i 10,934 |
|
|
$ |
i 11,771 |
|
The accompanying notes are an integral part of these consolidated financial statements.
9
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
Sprouts Farmers Market, Inc., a Delaware corporation, through its subsidiaries, operates as a healthy grocery store that offers a unique grocery experience featuring an open layout with fresh produce at the heart of the store. The Company continues to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. As of July 3, 2022, the Company operated i 378 stores in i 23 states. The “Company” is used to refer collectively to Sprouts Farmers Market, Inc. and unless the context otherwise requires, its subsidiaries.
The accompanying unaudited consolidated financial statements include the accounts of the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and are in the form prescribed by the Securities and Exchange Commission in instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company's financial position, results of operations and cash flows for the periods indicated. All material intercompany accounts and transactions have been eliminated in consolidation. Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The information included in these consolidated financial statements and notes thereto should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto for the fiscal year ended January 2, 2022 (“fiscal year 2021”) included in the Company’s Annual Report on Form 10-K, filed on February 24, 2022.
The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP.
The Company reports its results of operations on a 52- or 53-week fiscal calendar ending on the Sunday closest to December 31. The fiscal year ending January 1, 2023 (“fiscal year 2022”) and fiscal year 2021 are 52-week years. The Company reports its results of operations on a 13-week quarter, except for 53-week fiscal years (in which the fourth quarter has 14 weeks).
All dollar amounts are in thousands, unless otherwise noted.
/
10
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company’s performance obligations are satisfied upon the transfer of goods to the customer, which occurs at the point of sale, and payment from customers is also due at the time of sale. Proceeds from the sale of gift cards are recorded as a liability at the time of sale and recognized as sales when they are redeemed by the customer and the performance obligation is satisfied by the Company. The Company’s gift cards do not expire. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." i Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was not material in any period presented.
|
|
Balance at |
|
|
Gift Cards Issued During |
|
|
Revenue Recognized from |
|
|
Balance at |
|
||||
Gift card liability, net |
|
$ |
i 12,586 |
|
|
$ |
i 1,568 |
|
|
$ |
( i 4,554 |
) |
|
$ |
i 9,600 |
|
(1) net of estimated breakage
The Company does not have any material contract assets or receivables from contracts with customers, any revenue recognized in the current period from performance obligations satisfied in previous periods, or any remaining performance obligations as of July 3, 2022.
/Restricted Cash
Restricted cash relates to defined benefit plan forfeitures as well as healthcare, general liability and workers’ compensation restricted funds of approximately $ i 1.8 million and $ i 1.7 million as of July 3, 2022 and January 2, 2022, respectively. These balances are included in prepaid expenses and other current assets in the consolidated balance sheets.
/Recently Adopted Accounting Pronouncements
Reference Rate Reform
In March 2020 and January 2021, the FASB issued ASU no. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and ASU 2021-01, “Reference Rate Reform (Topic 848): Scope,” respectively. The amendments in these updates provide optional expedients and exceptions for a limited period of time to ease the potential burden in accounting for contracts, hedging relationships, and other transactions affected by reference rate reform. In the twenty-six weeks ended July 3, 2022, the Company adopted certain optional expedients provided under Topic 848 that permit its hedging relationships to continue without de-designation upon changes due to reference rate reform. The adoption of this guidance resulted in no material impact to the Company’s consolidated financial statements. See Note 10, “Derivative Financial Instruments” for more information on our hedging activities. The optional expedients and accounting relief in Topic 848 remain effective through December 31, 2022.
Recently Issued Accounting Pronouncements Not Yet Adopted
No other new accounting pronouncements issued or effective during the thirteen weeks ended July 3, 2022 had, or are expected to have, a material impact on the Company’s consolidated financial statements.
11
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Fair Value Measurements
The Company records its financial assets and liabilities in accordance with the framework for measuring fair value in accordance with GAAP. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:
Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in the valuation of derivative instruments, impairment analysis of goodwill, intangible assets and long-lived assets.
The following tables present the fair value hierarchy for the Company’s financial liabilities measured at fair value on a recurring basis as of July 3, 2022 and January 2, 2022:
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|||||
Long-term debt |
|
$ |
— |
|
|
$ |
i 250,000 |
|
|
$ |
— |
|
|
$ |
i 250,000 |
|
Total financial liabilities |
|
$ |
— |
|
|
$ |
i 250,000 |
|
|
$ |
— |
|
|
$ |
i 250,000 |
|
Interest rate swap asset |
|
$ |
— |
|
|
$ |
i 230 |
|
|
$ |
— |
|
|
$ |
i 230 |
|
Total assets |
|
$ |
— |
|
|
$ |
i 230 |
|
|
$ |
— |
|
|
$ |
i 230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|||||
Long-term debt |
|
$ |
— |
|
|
$ |
i 250,000 |
|
|
$ |
— |
|
|
$ |
i 250,000 |
|
Interest rate swap liability |
|
|
— |
|
|
|
i 5,107 |
|
|
|
— |
|
|
|
i 5,107 |
|
Total financial liabilities |
|
$ |
— |
|
|
$ |
i 255,107 |
|
|
$ |
— |
|
|
$ |
i 255,107 |
|
The Company’s interest rate swaps are considered Level 2 in the hierarchy and are valued using an income approach. Expected future cash flows are converted to a present value amount based on market expectations of the yield curve on floating interest rates, which is readily available on public markets.
The determination of fair values of certain tangible and intangible assets for purposes of the Company’s goodwill impairment evaluation as described above is based upon Level 3 inputs. The weighted average cost of capital is estimated using information from comparable companies and management’s judgment related to the risk associated with the operations of the stores.
Cash, cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, and accrued salaries and benefits approximate fair value because of the short maturity of those instruments. Based on comparable open market transactions, the fair value of the long-term debt approximated carrying value as of July 3, 2022 and January 2, 2022.
/12
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Long-Term Debt and Finance Lease Liabilities
A summary of long-term debt and finance lease liabilities is as follows:
|
|
|
|
|
|
As of |
|
|||||
Facility |
|
Maturity |
|
Interest Rate |
|
|
|
|
||||
Senior secured debt |
|
|
|
|
|
|
|
|
|
|
||
$ i 700.0 million Credit Agreement |
|
|
i Variable |
|
$ |
i 250,000 |
|
|
$ |
— |
|
|
Former Credit Facility |
|
|
i Variable |
|
|
— |
|
|
|
i 250,000 |
|
|
Finance lease liabilities |
|
Various |
|
n/a |
|
|
i 9,219 |
|
|
|
i 9,656 |
|
Long-term debt and finance lease liabilities |
|
|
|
|
|
$ |
i 259,219 |
|
|
$ |
i 259,656 |
|
New Credit Agreement
The Company’s subsidiary, Sprouts Farmers Markets Holdings, LLC (“Intermediate Holdings”), is the borrower under a credit agreement entered into on March 25, 2022 (the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility (the "Revolving Credit Facility") with an initial aggregate commitment of $ i 700.0 million. Amounts outstanding under the Credit Agreement may be increased from time to time in accordance with an expansion feature set forth in the Credit Agreement.
The Company capitalized debt issuance costs of $ i 3.4 million related to the Credit Agreement, which, combined with the remaining $ i 0.5 million debt issuance costs in respect of that certain amended and restated credit agreement entered into on March 27, 2018, by and among the Company, Intermediate Holdings, certain lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (the “Former Credit Facility”), which remained outstanding as of the time of Intermediate Holdings’ entry into the Credit Agreement, are being amortized on a straight-line basis to interest expense over the five-year term of the Credit Agreement.
The Credit Agreement provides for a $ i 70.0 million letter of credit sub-facility (the "Letter of Credit Sub-Facility") and a $ i 50.0 million swingline facility. Letters of credit issued under the Credit Agreement reduce the capacity of Intermediate Holdings to borrow under the Revolving Credit Facility. Letters of credit totaling $ i 24.8 million have been issued as of July 3, 2022 under the Letter of Credit Sub-Facility, primarily to support the Company’s insurance programs.
Guarantees
Obligations under the Credit Agreement are guaranteed by the Company and substantially all of its existing and future wholly-owned material domestic subsidiaries, and are secured by first-priority security interests in substantially all of the assets of the Company, Intermediate Holdings, and the subsidiary guarantors, including, without limitation, a pledge by the Company of its equity interest in Intermediate Holdings.
Interest and Fees
Loans under the Credit Agreement will initially bear interest, i at the Company's option, either at the Term SOFR (with a floor of 0.00%) plus a i 0.10% SOFR adjustment and i 1.00% per annum or base rate (with a floor of 0.00%) plus i 0.00% per annum. / The interest rate margins are subject to upward adjustments pursuant to a pricing grid based on the Company’s total net leverage ratio as set forth in the Credit Agreement and to upward or downward adjustments of up to i 0.05% based upon the achievement of certain diversity and sustainability-linked metric thresholds, as set forth in the Credit Agreement.
Under the terms of the Credit Agreement, the Company is obligated to pay a commitment fee on the available unused amount of the commitments, which commitment fee ranges between i 0.10% to i 0.225% per annum, pursuant to a pricing grid based on the Company’s total net leverage ratio. The commitment fees are subject to upward or downward adjustments of up to i 0.01% based upon the achievement of certain diversity and sustainability-linked metric thresholds, as set forth in the Credit Agreement.
13
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of July 3, 2022, loans outstanding under the Credit Agreement bore interest at Term SOFR (as defined in the Credit Agreement) plus a i 0.10% SOFR adjustment and i 1.00% per annum.
The effective interest rate on i 100% of outstanding debt under the Credit Agreement is fixed, reflecting the effects of floating to fixed interest rate swaps (see Note 10, “Derivative Financial Instruments”).
As of July 3, 2022, outstanding letters of credit issued under the Credit Agreement were subject to a participation fee of i 1.00% per annum and an issuance fee of i 0.125% per annum.
Payments and Borrowings
The Credit Agreement is scheduled to mature, and the commitments thereunder will terminate on i March 25, 2027, subject to extensions as set forth therein.
The Company may prepay loans and permanently reduce commitments under the Credit Agreement at any time in agreed-upon minimum principal amounts, without premium or penalty (except SOFR breakage costs, if applicable).
In connection with the execution of the Credit Agreement, the obligations as borrower under the Former Credit Facility were prepaid and terminated.
During the thirteen and twenty-six weeks ended July 3, 2022, the Company made i i i i no / / / additional borrowings or principal payments, resulting in total outstanding debt under the Credit Agreement of $ i 250.0 million as of July 3, 2022.
Covenants
The Credit Agreement contains financial, affirmative and negative covenants. The negative covenants include, among other things, limitations on the Company’s ability to:
Each of these covenants is subject to customary and other agreed-upon exceptions.
In addition, the Credit Agreement requires that the Company and its subsidiaries maintain a maximum total net leverage ratio not to exceed i 3.75 to 1.00, which ratio may be increased from time to time in connection with certain permitted acquisitions pursuant to conditions as set forth in the Credit Agreement, and a minimum interest coverage ratio not to be less than i 3.00 to 1.00. Each of these covenants is tested as of the last day of each fiscal quarter.
The Company was in compliance with all applicable covenants under the Credit Agreement as of July 3, 2022.
/14
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Income Taxes
The Company’s effective tax rate increased to i 26.1% for the thirteen weeks ended July 3, 2022, compared to i 24.4% for the thirteen weeks ended July 4, 2021.The increase in the effective tax rate is primarily due to a decrease in enhanced charitable contributions due to the expiration of CARES Act benefits as well as an increase of non-deductible executive compensation.
The Company’s effective tax rate increased to i 25.0% for the twenty-six weeks ended July 3, 2022, compared to i 24.6% for the twenty-six weeks ended July 4, 2021.The increase in the effective tax rate is primarily due to a decrease in enhanced charitable contributions due to the expiration of CARES Act benefits as well as an increase of non-deductible executive compensation, partially offset by an increase in benefit from share-based payment awards in the current year. The income tax effect resulting from excess tax benefits of share-based payment awards were $ i 1.6 million and $ i 0.2 million for the twenty-six weeks ended July 3, 2022 and July 4, 2021, respectively.
The Company files income tax returns for federal purposes and in many states. The Company’s tax filings remain subject to examination by applicable tax authorities for a certain length of time, generally three years, following the tax year to which those filings relate. The Company’s U.S. federal income tax returns for the fiscal years ended December 31, 2017 and January 1, 2017, are currently under examination by the Internal Revenue Service.
/
6. Related Party Transactions
On May 24, 2022, the Company appointed a new member to its board of directors who is an executive officer of a company that is a supplier of nutrition bars and related products to the Company for resale. During the thirteen weeks ended July 3, 2022, the cost of sales recognized from this supplier was $ i 1.3 million.
/
7 i . Commitments and Contingencies
The Company is exposed to claims and litigation matters arising in the ordinary course of business and uses various methods to resolve these matters that are believed to best serve the interests of the Company’s stakeholders. The Company’s primary contingencies are associated with self-insurance obligations and litigation matters. Self-insurance liabilities require significant judgment and actual claim settlements and associated expenses may differ from the Company’s current provisions for loss.
Proposition 65 Coffee Action
On April 13, 2010, an organization named Council for Education and Research on Toxics (“CERT”) filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, against nearly i 80 defendants who manufacture, package, distribute or sell brewed coffee, including the Company. CERT alleged that the defendants failed to provide warnings for their coffee products of exposure to the chemical acrylamide as required under California Health and Safety Code section 25249.5, the California Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65. CERT seeks equitable relief, including providing warnings to consumers of coffee products, as well as civil penalties.
The Company, as part of a joint defense group, asserted multiple defenses against the lawsuit. On May 7, 2018, the trial court issued a ruling adverse to defendants on these defenses to liability. On October 1, 2019, before the court tried damages, remedies and attorneys' fees, California’s Office of Environmental Health Hazard Assessment adopted a regulation that exempted “Exposures to listed chemicals in coffee created by and inherent in the processes of roasting coffee beans or brewing coffee” from Proposition 65’s warning requirement. On August 25, 2020, the court granted the defense motion for summary judgment based on the regulation, and the case was dismissed.
15
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On November 20, 2020, CERT filed a notice of appeal to appeal the ruling on the defense motion for summary judgment. The case is fully briefed, with a decision expected in late 2022 or early 2023. At this stage of the proceedings, the Company is unable to predict or reasonably estimate any potential loss or effect on the Company or its operations. Accordingly, no loss contingency was recorded for this matter.
8 i . Stockholders’ Equity
Share Repurchases
On March 2, 2022, the Company's board of directors authorized a new $ i 600 million share repurchase program for its common stock. The new authorization replaced the Company's then-existing share repurchase authorization of $ i 300 million that was due to expire on March 3, 2024, of which $ i 99.8 million remained available upon its replacement. No further shares may be repurchased under the $ i 300 million authorization. i The following table outlines the common stock share repurchase programs authorized by the Company’s board of directors and the related repurchase activity and available authorization as of July 3, 2022.
Effective date |
|
Expiration date |
|
Amount |
|
|
Cost of |
|
|
Authorization |
|
|||
|
|
$ |
i 300,000 |
|
|
$ |
i 200,200 |
|
|
$ |
i — |
|
||
|
|
$ |
i 600,000 |
|
|
$ |
i 99,214 |
|
|
$ |
i 500,786 |
|
||
The shares under the Company’s repurchase programs may be purchased on a discretionary basis from time to time through the applicable expiration date, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. The board’s authorization of the share repurchase programs does not obligate the Company to acquire any particular amount of common stock, and the repurchase programs may be commenced, suspended, or discontinued at any time.
Share repurchase activity under the Company’s repurchase programs for the periods indicated was as follows (total cost in thousands):
|
|
Thirteen weeks ended |
|
|
|
Twenty-six weeks ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Number of common shares acquired |
|
|
i 2,397,671 |
|
|
|
i 3,150,649 |
|
|
|
|
i 3,878,858 |
|
|
|
i 3,280,617 |
|
Average price per common share acquired |
|
$ |
i 27.26 |
|
|
$ |
i 26.75 |
|
|
|
$ |
i 28.63 |
|
|
$ |
i 26.67 |
|
Total cost of common shares acquired |
|
$ |
i 65,356 |
|
|
$ |
i 84,275 |
|
|
|
$ |
i 111,071 |
|
|
$ |
i 87,484 |
|
Shares purchased under the Company’s repurchase programs were subsequently retired and the excess of the repurchase price over par value was charged to retained earnings.
Subsequent to July 3, 2022 and through August 1, 2022, the Company repurchased an additional i 0.5 million shares of common stock for $ i 14.1 million.
9. Net Income Per Share
The computation of basic net income per share is based on the number of weighted average shares outstanding during the period. The computation of diluted net income per share includes the dilutive effect of share equivalents consisting of incremental shares deemed outstanding from the assumed exercise of options, assumed vesting of restricted stock units (“RSUs”) and assumed vesting of performance share awards (“PSAs”). PSAs are included in the computation of diluted net income per share only to the extent that the underlying performance conditions are satisfied prior to the end of the reporting period or would be satisfied if the end of the reporting period were the end of the related performance period, and if the effect would be dilutive.
16
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A reconciliation of the numerators and denominators of the basic and diluted net income per share calculations is as follows (in thousands, except per share amounts):
|
|
Thirteen weeks ended |
|
|
|
Twenty-six weeks ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
i 61,997 |
|
|
$ |
i 61,014 |
|
|
|
$ |
i 150,304 |
|
|
$ |
i 144,062 |
|
Weighted average shares outstanding |
|
|
i 109,067 |
|
|
|
i 117,246 |
|
|
|
|
i 109,985 |
|
|
|
i 117,645 |
|
Basic net income per share |
|
$ |
i 0.57 |
|
|
$ |
i 0.52 |
|
|
|
$ |
i 1.37 |
|
|
$ |
i 1.22 |
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
i 61,997 |
|
|
$ |
i 61,014 |
|
|
|
$ |
i 150,304 |
|
|
$ |
i 144,062 |
|
Weighted average shares outstanding - |
|
|
i 109,067 |
|
|
|
i 117,246 |
|
|
|
|
i 109,985 |
|
|
|
i 117,645 |
|
Dilutive effect of share-based awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assumed exercise of options to purchase |
|
|
i 294 |
|
|
|
i 276 |
|
|
|
|
i 320 |
|
|
|
i 217 |
|
RSUs |
|
|
i 258 |
|
|
|
i 309 |
|
|
|
|
i 401 |
|
|
|
i 393 |
|
PSAs |
|
|
— |
|
|
|
— |
|
|
|
|
i 56 |
|
|
|
i 10 |
|
Weighted average shares and |
|
|
i 109,619 |
|
|
|
i 117,831 |
|
|
|
|
i 110,762 |
|
|
|
i 118,265 |
|
Diluted net income per share |
|
$ |
i 0.57 |
|
|
$ |
i 0.52 |
|
|
|
$ |
i 1.36 |
|
|
$ |
i 1.22 |
|
For the thirteen weeks ended July 3, 2022, the Company had i 0.6 million options, i 0.5 million RSUs, and i 0.5 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met. For the thirteen weeks ended July 4, 2021, the Company had i 0.5 million options, i 0.1 million RSUs, and i 0.5 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met.
For the twenty-six weeks ended July 3, 2022, the Company had i 0.5 million options, i 0.5 million RSUs, and i 0.5 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met. For the twenty-six weeks ended July 4, 2021, the Company had i 0.5 million options, i 0.1 million RSUs, and i 0.5 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met.
/
10 i . Derivative Financial Instruments
The Company entered into an interest rate swap agreement in December 2017 to manage its cash flow associated with variable interest rates. This forward contract has been designated and qualifies as a cash flow hedge, and its change in fair value is recorded as a component of other comprehensive income and reclassified into earnings in the same period or periods in which the forecasted transaction occurs. The forward contract initially consisted of i five cash flow hedges, of which i one was outstanding at July 3, 2022. To qualify as a hedge, the Company needs to formally document, designate and assess the effectiveness of the transactions that receive hedge accounting.
17
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The notional dollar amount of the i one outstanding swap was $ i i 250.0 / million at July 3, 2022 and January 2, 2022, under which the Company pays a fixed rate and receives a variable rate of interest (cash flow swap). The cash flow swap hedges the change in interest rates on debt related to fluctuations in interest rates and has a length of i one year, maturing in i 2022. This interest rate swap has been designated and qualifies as a cash flow hedge and has met the requirements to assume i zero ineffectiveness. The Company reviews the effectiveness of its hedging instruments on a quarterly basis. During the first quarter of 2022, the Company elected to apply certain hedge accounting optional expedients allowed under Topic 848. The expedients allow the Company to continue the method of assessing effectiveness as documented in the original hedge documentation and allows the reference rate on the hypothetical derivative to match the reference rate on the hedging instrument.
The counterparties to these derivative financial instruments are major financial institutions. The Company evaluates the credit ratings of the financial institutions and believes that credit risk is at an acceptable level. i The following table summarizes the fair value of the Company’s derivative instruments designated as hedging instruments:
|
|
As of |
|
|
As of |
|
||||||
|
|
Balance Sheet Location |
|
Fair Value |
|
|
Balance Sheet Location |
|
Fair Value |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Interest rate swaps |
|
Other current assets |
|
$ |
i 230 |
|
|
Other current assets |
|
$ |
— |
|
Interest rate swaps |
|
Accrued liabilities |
|
$ |
— |
|
|
Accrued liabilities |
|
$ |
i 5,107 |
|
The gain or loss on these derivative instruments is recognized in other comprehensive income, net of tax, with the portion related to current period interest payments reclassified to interest expense, net on the consolidated statements of income. i The following table summarizes these losses classified on the consolidated statements of income:
|
|
Thirteen weeks ended |
|
|
Twenty-six weeks ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Consolidated Statements of |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
$ |
i 1,066 |
|
|
$ |
i 1,440 |
|
|
$ |
i 2,534 |
|
|
$ |
i 2,880 |
|
18
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. Comprehensive Income
The following table presents the changes in accumulated other comprehensive income (loss) for the twenty-six weeks ended July 4, 2021 and July 3, 2022.
|
|
Cash Flow |
|
|
Balance at January 3, 2021 |
|
$ |
( i 8,474 |
) |
Other comprehensive income (loss), net of tax |
|
|
|
|
Unrealized gains on cash flow hedging activities, net of income tax of $ i 1,485 |
|
|
i 4,295 |
|
Reclassification of net losses on cash flow hedges to net income, net of income |
|
|
( i 2,140 |
) |
Total other comprehensive income (loss) |
|
|
i 2,155 |
|
Balance at July 4, 2021 |
|
$ |
( i 6,319 |
) |
|
|
|
|
|
Balance at January 2, 2022 |
|
$ |
( i 3,758 |
) |
Other comprehensive income (loss), net of tax |
|
|
|
|
Unrealized gains on cash flow hedging activities, net of income tax of $ i 2,018 |
|
|
i 5,834 |
|
Reclassification of net losses on cash flow hedges to net income, net of income |
|
|
( i 1,883 |
) |
Total other comprehensive income (loss) |
|
|
i 3,951 |
|
Balance at July 3, 2022 |
|
$ |
i 193 |
|
Amounts reclassified from accumulated other comprehensive income (loss) are included within interest expense, net on the consolidated statements of income.
/
12. Segments
The Company has i one reportable and i one operating segment, healthy grocery stores.
In accordance with ASC 606, the following table represents a disaggregation of revenue for the thirteen and twenty-six weeks ended July 3, 2022 and July 4, 2021.
|
|
Thirteen weeks ended |
|
|||||||||||||
|
|
|
|
|
||||||||||||
Perishables |
|
$ |
i 936,273 |
|
|
|
i 58.7 |
% |
|
$ |
i 889,684 |
|
|
|
i 58.5 |
% |
Non-Perishables |
|
|
i 659,209 |
|
|
|
i 41.3 |
% |
|
|
i 632,309 |
|
|
|
i 41.5 |
% |
Net Sales |
|
$ |
i 1,595,482 |
|
|
|
i 100.0 |
% |
|
$ |
i 1,521,993 |
|
|
|
i 100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Twenty-six weeks ended |
|
|||||||||||||
|
|
|
|
|
||||||||||||
Perishables |
|
$ |
i 1,888,360 |
|
|
|
i 58.3 |
% |
|
$ |
i 1,800,652 |
|
|
|
i 58.1 |
% |
Non-Perishables |
|
|
i 1,348,283 |
|
|
|
i 41.7 |
% |
|
|
i 1,296,788 |
|
|
|
i 41.9 |
% |
Net Sales |
|
$ |
i 3,236,643 |
|
|
|
i 100.0 |
% |
|
$ |
i 3,097,440 |
|
|
|
i 100.0 |
% |
The Company categorizes the varieties of products it sells as perishable and non-perishable. Perishable product categories include produce, meat and meat alternatives, seafood, deli, bakery, floral and dairy and dairy alternatives. Non-perishable product categories include grocery, vitamins and supplements, bulk items, frozen foods, beer and wine, and natural health and body care.
/
19
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13. Share-Based Compensation
2022 Incentive Plan
In March 2022, the Company’s board of directors adopted the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (the “2022 Incentive Plan”), which became effective May 25, 2022, upon approval by the Company’s stockholders. The 2022 Incentive Plan provides team members of the Company, certain consultants and advisors who perform services for the Company, and non-employee members of the Company's board of directors with the opportunity to receive grants of equity awards, including stock options, RSUs, PSAs, and other stock-based awards. The 2022 Incentive Plan replaced the 2013 Incentive Plan (as described below).
Awards Granted under the 2022 Incentive Plan
During the twenty-six weeks ended July 3, 2022, the Company granted the following share-based compensation awards under the 2022 Incentive Plan:
Grant Date |
|
RSUs |
|
|
PSAs |
|
|
Options |
|
|||
|
|
i 58,057 |
|
|
|
i — |
|
|
|
i — |
|
|
Total |
|
|
i 58,057 |
|
|
|
i — |
|
|
|
i — |
|
Weighted-average grant date fair value |
|
$ |
i 27.01 |
|
|
$ |
i — |
|
|
$ |
i — |
|
Weighted-average exercise price |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
The aggregate number of shares of common stock that may be issued to team members and directors under the 2022 Incentive Plan may not exceed i 6,600,000, subject to the following adjustments. If any awards granted under the 2022 Incentive Plan, terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested or paid in shares, the shares will again be available for purposes of the 2022 Incentive Plan. In addition, the number of shares subject to outstanding awards under the Sprouts Farmers Market, Inc. 2013 Incentive Plan (the “2013 Incentive Plan”) that terminate, expire, are paid in cash, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid in shares under the 2013 Incentive Plan after the effective date of the 2022 Incentive Plan will be available for issuance under the 2022 Incentive Plan. As of July 3, 2022, there were i 58,057 stock awards outstanding and i 6,621,093 shares remaining available for issuance under the 2022 Incentive Plan.
2013 Incentive Plan
Prior to the adoption of the 2022 Incentive Plan, the 2013 Incentive Plan served as the umbrella plan for the Company’s share-based and cash-based incentive compensation programs for its directors, officers and other team members. Upon adoption of the 2022 Incentive Plan on May 25, 2022, no further awards will be granted under the 2013 Incentive Plan, but awards outstanding under the 2013 Incentive Plan will remain outstanding in accordance with their terms and the terms of the 2013 Incentive Plan.
Awards Granted under the 2013 Incentive Plan
During the twenty-six weeks ended July 3, 2022, the Company granted the following share-based compensation awards under the 2013 Incentive Plan:
Grant Date |
|
RSUs |
|
|
PSAs |
|
|
Options |
|
|||
|
|
i 370,177 |
|
|
|
i 147,846 |
|
|
|
i 211,352 |
|
|
|
|
i 104,913 |
|
|
|
i 14,260 |
|
|
|
i 20,270 |
|
|
Total |
|
|
i 475,090 |
|
|
|
i 162,106 |
|
|
|
i 231,622 |
|
Weighted-average grant date fair value |
|
$ |
i 31.60 |
|
|
$ |
i 31.52 |
|
|
$ |
i 10.58 |
|
Weighted-average exercise price |
|
|
i — |
|
|
|
i — |
|
|
$ |
i 31.52 |
|
20
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
/
Stock Options
The Company uses the Black-Scholes option pricing model to estimate the fair value of options at grant date. Options vest in accordance with the terms set forth in the grant letter.
Time-based options vest annually over a period of i three years.
RSUs
The fair value of RSUs is based on the closing price of the Company’s common stock on the grant date. RSUs generally vest annually over a period of two or i three years from the grant date.
PSAs
PSAs granted in 2018 were subject to the Company achieving certain earnings before interest and taxes (“EBIT”) performance targets for the 2020 fiscal year. i The criteria was based on a range of performance targets in which grantees may earn i 0% to i 200% of the base number of awards granted. / The performance conditions with respect to fiscal year 2020 EBIT were deemed to have been met, and the PSAs vested at the maximum pay out level on the third anniversary of the grant date (March 2021). There were i no outstanding 2018 PSAs as of July 3, 2022.
PSAs granted in 2019 are subject to the Company achieving certain EBIT performance targets for the 2021 fiscal year. i The criteria is based on a range of performance targets in which grantees may earn i 0% to i 200% of the base number of awards granted. / The performance conditions with respect to fiscal year 2021 EBIT were deemed to have been met, and the PSAs vested at the maximum pay out level on the third anniversary of the grant date (March 2022). During the twenty-six weeks ended July 3, 2022, i 208,172 of the 2019 PSAs vested. There were i no outstanding 2019 PSAs as of July 3, 2022.
PSAs granted in 2020 are subject to the Company achieving certain earnings before taxes (“EBT”) performance targets for the 2022 fiscal year. i The criteria is based on a range of performance targets in which grantees may earn i 0% to i 200% of the base number of awards granted. / If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2023).
PSAs granted in 2021 are subject to the Company achieving certain EBIT performance targets for the 2023 fiscal year. i The criteria is based on a range of performance targets in which grantees may earn i 0% to i 200% of the base number of awards granted. / If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2024).
PSAs granted in 2022 are subject to the Company achieving certain EBIT performance targets for the 2024 fiscal year. i The criteria is based on a range of performance targets in which grantees may earn i 0% to i 200% of the base number of awards granted. / If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2025).
Share-based Compensation Expense
The Company presents share-based compensation expense in selling, general and administrative expenses on the Company’s consolidated statements of income. The amount recognized was as follows:
|
|
Thirteen weeks ended |
|
|
Twenty-six weeks ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Share-based compensation expense |
|
$ |
i 3,464 |
|
|
$ |
i 4,238 |
|
|
$ |
i 7,920 |
|
|
$ |
i 7,851 |
|
21
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following share-based awards were outstanding as of July 3, 2022 and July 4, 2021:
|
|
As of |
|
|||||
|
|
|
|
|
||||
|
|
(in thousands) |
|
|||||
Options |
|
|
|
|
|
|
||
Vested |
|
|
i 370 |
|
|
|
i 281 |
|
Unvested |
|
|
i 1,053 |
|
|
|
i 1,273 |
|
RSUs |
|
|
i 993 |
|
|
|
i 840 |
|
PSAs |
|
|
i 460 |
|
|
|
i 471 |
|
As of July 3, 2022, total unrecognized compensation expense and remaining weighted average recognition period related to outstanding share-based awards was as follows:
|
|
Unrecognized |
|
|
Remaining |
|
||
Options |
|
$ |
i 4,548 |
|
|
|
i 1.3 |
|
RSUs |
|
|
i 22,084 |
|
|
|
i 1.9 |
|
PSAs |
|
|
i 5,601 |
|
|
|
i 1.7 |
|
Total unrecognized compensation expense at July 3, 2022 |
|
$ |
i 32,233 |
|
|
|
|
|
During the twenty-six weeks ended July 3, 2022 and July 4, 2021, the Company received $ i 2.7 million and $ i 1.2 million, respectively, in cash proceeds from the exercise of options.
/22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the 2021 fiscal year, filed on February 24, 2022 (“Form 10-K”) with the Securities and Exchange Commission. All dollar amounts included below are in thousands, unless otherwise noted.
Business Overview
Sprouts Farmers Market offers a unique grocery experience featuring an open layout with fresh produce at the heart of the store. Sprouts inspires wellness naturally with a carefully curated assortment of better-for-you products paired with purpose-driven people. We continue to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. Headquartered in Phoenix with 378 stores in 23 states as of July 3, 2022, we are one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States.
Our Heritage
In 2002, we opened the first Sprouts Farmers Market store in Chandler, Arizona. From our founding in 2002, we have grown rapidly, significantly increasing our sales, store count and profitability, including successfully rebranding 43 Henry’s Farmers Market and 39 Sunflower Farmers Market stores added in 2011 and 2012, respectively, through acquisitions to the Sprouts banner. These three businesses all trace their lineage back to Henry’s Farmers Market and were built with similar store formats and operations including a strong emphasis on value, produce and service in smaller, convenient locations.
23
Outlook
In 2020, we announced our new long-term growth strategy that we believe will transform our company and drive profitable growth. We are executing on this strategy, focusing on the following areas:
Recent Developments – COVID-19
Our operations have generally stabilized since the onset of the COVID-19 pandemic. However, we continue to experience varying levels of inflation and encounter obstacles sourcing in certain categories resulting from product supply disruptions complicated by the pandemic. In addition, due to continued difficulties in obtaining necessary equipment from third parties and inflationary pressures due to supply chain delays complicated by the COVID-19 pandemic, we have experienced and may continue to experience increased costs and delays in our planned new store openings. See “Risk Factors—The coronavirus (COVID-19) pandemic has disrupted our business and could negatively impact our financial condition.” in our Form 10-K for additional information.
24
Results of Operations for Thirteen Weeks Ended July 3, 2022 and July 4, 2021
The following tables set forth our unaudited results of operations and other operating data for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. All dollar amounts are in thousands, unless otherwise noted.
|
|
Thirteen weeks ended |
|
|||||
|
|
|
|
|
||||
Unaudited Quarterly Consolidated Statement of Income Data: |
|
|
|
|
|
|
||
Net sales |
|
$ |
1,595,482 |
|
|
$ |
1,521,993 |
|
Cost of sales |
|
|
1,015,125 |
|
|
|
971,912 |
|
Gross profit |
|
|
580,357 |
|
|
|
550,081 |
|
Selling, general and administrative expenses |
|
|
462,110 |
|
|
|
436,420 |
|
Depreciation and amortization (exclusive of depreciation included |
|
|
31,244 |
|
|
|
30,430 |
|
Store closure and other costs, net |
|
|
493 |
|
|
|
(419 |
) |
Income from operations |
|
|
86,510 |
|
|
|
83,650 |
|
Interest expense, net |
|
|
2,658 |
|
|
|
2,938 |
|
Income before income taxes |
|
|
83,852 |
|
|
|
80,712 |
|
Income tax provision |
|
|
21,855 |
|
|
|
19,698 |
|
Net income |
|
$ |
61,997 |
|
|
$ |
61,014 |
|
|
|
|
|
|
|
|
||
Weighted average shares outstanding - basic |
|
|
109,067 |
|
|
|
117,246 |
|
Diluted effect of equity-based awards |
|
|
552 |
|
|
|
585 |
|
Weighted average shares and equivalent shares outstanding |
|
|
109,619 |
|
|
|
117,831 |
|
Diluted net income per share |
|
$ |
0.57 |
|
|
$ |
0.52 |
|
|
|
Thirteen weeks ended |
|
|||||
|
|
|
|
|
||||
Other Operating Data: |
|
|
|
|
|
|
||
Comparable store sales growth |
|
|
2.0 |
% |
|
|
(10.0 |
)% |
Stores at beginning of period |
|
|
379 |
|
|
|
362 |
|
Closed |
|
|
(3 |
) |
|
|
— |
|
Opened |
|
|
2 |
|
|
|
1 |
|
Stores at end of period |
|
|
378 |
|
|
|
363 |
|
Comparison of Thirteen Weeks Ended July 3, 2022 to Thirteen Weeks Ended
Net sales
|
|
Thirteen weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Net sales |
|
$ |
1,595,482 |
|
|
$ |
1,521,993 |
|
|
$ |
73,489 |
|
|
|
5 |
% |
Comparable store sales growth |
|
|
2.0 |
% |
|
|
(10.0 |
)% |
|
|
|
|
|
|
||
Net sales during the thirteen weeks ended July 3, 2022 totaled $1.6 billion, an increase of $73.5 million, or 5%, compared to the thirteen weeks ended July 4, 2021. The sales increase was driven by sales from new stores opened in the last twelve months and a 2.0% increase in comparable store sales. Comparable stores contributed approximately 97% of total sales for the thirteen weeks ended July 3, 2022 and approximately 96% for the thirteen weeks ended July 4, 2021.
25
Cost of sales and gross profit
|
|
Thirteen weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Net sales |
|
$ |
1,595,482 |
|
|
$ |
1,521,993 |
|
|
$ |
73,489 |
|
|
|
5 |
% |
Cost of sales |
|
|
1,015,125 |
|
|
|
971,912 |
|
|
|
43,213 |
|
|
|
4 |
% |
Gross profit |
|
|
580,357 |
|
|
|
550,081 |
|
|
|
30,276 |
|
|
|
6 |
% |
Gross margin |
|
|
36.4 |
% |
|
|
36.1 |
% |
|
|
0.3 |
% |
|
|
|
|
Gross profit totaled $580.4 million during the thirteen weeks ended July 3, 2022, an increase of $30.3 million, or 6%, compared to the thirteen weeks ended July 4, 2021, driven by increased sales volume. Gross margin increased by 0.3% to 36.4% for the thirteen weeks ended July 3, 2022, compared to 36.1% for the thirteen weeks ended July 4, 2021, primarily driven by improved shrink.
Selling, general and administrative expenses
|
|
Thirteen weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Selling, general and administrative |
|
$ |
462,110 |
|
|
$ |
436,420 |
|
|
$ |
25,690 |
|
|
|
6 |
% |
Percentage of net sales |
|
|
29.0 |
% |
|
|
28.7 |
% |
|
|
0.3 |
% |
|
|
|
|
Selling, general and administrative expenses increased $25.7 million, or 6%, compared to the thirteen weeks ended July 4, 2021. The increase is primarily due to new stores opened since the comparable period in the prior year and higher store costs impacted by inflation, as well as higher credit card fees and ecommerce costs resulting from an increase in ecommerce sales compared to the prior year quarter.
Depreciation and amortization
|
|
Thirteen weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Depreciation and amortization |
|
$ |
31,244 |
|
|
$ |
30,430 |
|
|
$ |
814 |
|
|
|
3 |
% |
Percentage of net sales |
|
|
2.0 |
% |
|
|
2.0 |
% |
|
|
0.0 |
% |
|
|
|
|
Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $31.2 million for the thirteen weeks ended July 3, 2022 compared to $30.4 million for the thirteen weeks ended July 4, 2021. Depreciation and amortization primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment.
26
Store closure and other costs, net
|
|
Thirteen weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Store closure and other costs, net |
|
$ |
493 |
|
|
$ |
(419 |
) |
|
$ |
912 |
|
|
|
218 |
% |
Percentage of net sales |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
Store closure and other costs, net increased $0.9 million to $0.5 million for the thirteen weeks ended July 3, 2022 compared to a credit of $0.4 million for the thirteen weeks ended July 4, 2021. Store closure and other costs, net in the current year primarily related to ongoing activity associated with our closed store locations. Store closure and other costs, net in the prior year period was primarily related to an insurance recovery received in the second quarter of 2021 relating to a fire at one of our stores in the first quarter of 2021.
Interest expense, net
|
|
Thirteen weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Long-term debt |
|
$ |
1,345 |
|
|
$ |
1,160 |
|
|
$ |
185 |
|
|
|
16 |
% |
Capital and financing leases |
|
|
215 |
|
|
|
228 |
|
|
|
(13 |
) |
|
|
(6 |
)% |
Deferred financing costs |
|
|
193 |
|
|
|
141 |
|
|
|
52 |
|
|
|
37 |
% |
Interest rate hedge and other |
|
|
905 |
|
|
|
1,409 |
|
|
|
(504 |
) |
|
|
(36 |
)% |
Total interest expense, net |
|
$ |
2,658 |
|
|
$ |
2,938 |
|
|
$ |
(280 |
) |
|
|
(10 |
)% |
Interest expense, net decreased slightly to $2.7 million for the thirteen weeks ended July 3, 2022 compared to $2.9 million for the thirteen weeks ended July 4, 2021 primarily due to higher interest income and lower credit facility fees. See Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements.
Income tax provision
Income tax provision differed from the amounts computed by applying the U.S. federal income tax rate to pretax income as a result of the following:
|
|
Thirteen weeks ended |
|
|
|||||
|
|
|
|
|
|
||||
Federal statutory rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
|
Change in income taxes resulting from: |
|
|
|
|
|
|
|
||
State income taxes, net of federal benefit |
|
|
4.9 |
% |
|
|
4.7 |
% |
|
Enhanced charitable contributions |
|
|
(1.0 |
)% |
|
|
(1.2 |
)% |
|
Federal credits |
|
|
(0.4 |
)% |
|
|
(0.4 |
)% |
|
Share-based payment awards |
|
|
(0.1 |
)% |
|
|
(0.1 |
)% |
|
Other, net |
|
|
1.7 |
% |
|
|
0.4 |
% |
|
Effective tax rate |
|
|
26.1 |
% |
|
|
24.4 |
% |
|
The effective tax rate increased to 26.1% for the thirteen weeks ended July 3, 2022 from 24.4% for the thirteen weeks ended July 4, 2021. The increase in the effective tax rate was primarily due to an increase of non-deductible executive compensation as well as a decrease in enhanced charitable contributions due to the expiration of CARES Act benefits.
27
Net income
|
|
Thirteen weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Net income |
|
$ |
61,997 |
|
|
$ |
61,014 |
|
|
$ |
983 |
|
|
|
2 |
% |
Percentage of net sales |
|
|
3.9 |
% |
|
|
4.0 |
% |
|
|
(0.1 |
)% |
|
|
|
|
Net income increased $1.0 million primarily due to increased sales and gross profit, partially offset by higher selling, general and administrative expenses for the reasons discussed above.
Diluted earnings per share
|
|
Thirteen weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Diluted earnings per share |
|
$ |
0.57 |
|
|
$ |
0.52 |
|
|
$ |
0.05 |
|
|
|
10 |
% |
Diluted weighted average shares |
|
|
109,619 |
|
|
|
117,831 |
|
|
|
(8,212 |
) |
|
|
|
|
The increase in diluted earnings per share of $0.05 was driven by higher net income in addition to fewer diluted shares outstanding compared to the prior year, due primarily to the share repurchase program.
28
Results of Operations for Twenty-six Weeks Ended July 3, 2022 and July 4, 2021
The following tables set forth our unaudited results of operations and other operating data for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. All dollar amounts are in thousands, unless otherwise noted.
Comparison of Twenty-six Weeks Ended July 3, 2022 to Twenty-six Weeks Ended
|
|
Twenty-six weeks ended |
|
|||||
|
|
|
|
|
||||
Unaudited Quarterly Consolidated Statement of Income Data: |
|
|
|
|
|
|
||
Net sales |
|
$ |
3,236,643 |
|
|
$ |
3,097,440 |
|
Cost of sales |
|
|
2,044,538 |
|
|
|
1,961,185 |
|
Gross profit |
|
|
1,192,105 |
|
|
|
1,136,255 |
|
Selling, general and administrative expenses |
|
|
922,020 |
|
|
|
876,082 |
|
Depreciation and amortization (exclusive of depreciation included |
|
|
63,064 |
|
|
|
61,659 |
|
Store closure and other costs, net |
|
|
870 |
|
|
|
1,629 |
|
Income from operations |
|
|
206,151 |
|
|
|
196,885 |
|
Interest expense, net |
|
|
5,697 |
|
|
|
5,929 |
|
Income before income taxes |
|
|
200,454 |
|
|
|
190,956 |
|
Income tax provision |
|
|
50,150 |
|
|
|
46,894 |
|
Net income |
|
$ |
150,304 |
|
|
$ |
144,062 |
|
|
|
|
|
|
|
|
||
Weighted average shares outstanding - basic |
|
|
109,985 |
|
|
|
117,645 |
|
Diluted effect of equity-based awards |
|
|
777 |
|
|
|
620 |
|
Weighted average shares and equivalent shares outstanding |
|
|
110,762 |
|
|
|
118,265 |
|
Diluted net income per share |
|
$ |
1.36 |
|
|
$ |
1.22 |
|
|
|
Twenty-six weeks ended |
|
|||||
|
|
|
|
|
||||
Other Operating Data: |
|
|
|
|
|
|
||
Comparable store sales growth |
|
|
1.8 |
% |
|
|
(9.7 |
)% |
Stores at beginning of period |
|
|
374 |
|
|
|
362 |
|
Closed |
|
|
(4 |
) |
|
|
— |
|
Opened |
|
|
8 |
|
|
|
1 |
|
Stores at end of period |
|
|
378 |
|
|
363 |
|
|
29
Net Sales
|
|
Twenty-six weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Net sales |
|
$ |
3,236,643 |
|
|
$ |
3,097,440 |
|
|
$ |
139,203 |
|
|
|
4 |
% |
Comparable store sales growth |
|
|
1.8 |
% |
|
|
(9.7 |
)% |
|
|
|
|
|
|
||
Net sales during the twenty-six weeks ended July 3, 2022 totaled $3.2 billion, an increase of $139.2 million, or 4%, over the same period of the prior fiscal year. The sales increase was primarily due to a 1.8% increase in comparable store sales as well as sales from new stores opened in the last twelve months. Comparable stores contributed approximately 98% of total sales for the twenty-six weeks ended July 3, 2022 and approximately 96% for the twenty-six weeks ended July 4, 2021.
Cost of sales and gross profit
|
|
Twenty-six weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Net sales |
|
$ |
3,236,643 |
|
|
$ |
3,097,440 |
|
|
$ |
139,203 |
|
|
|
4 |
% |
Cost of sales |
|
|
2,044,538 |
|
|
|
1,961,185 |
|
|
|
83,353 |
|
|
|
4 |
% |
Gross profit |
|
|
1,192,105 |
|
|
|
1,136,255 |
|
|
|
55,850 |
|
|
|
5 |
% |
Gross margin |
|
|
36.8 |
% |
|
|
36.7 |
% |
|
|
0.1 |
% |
|
|
|
|
Gross profit totaled $1.2 billion during the twenty-six weeks ended July 3, 2022, an increase of $55.9 million, or 5%, compared to the twenty-six weeks ended July 4, 2021 driven by increased sales volume. Strategic initiatives contributed to the increase in gross margin to 36.8% for the twenty-six weeks ended July 3, 2022 compared to 36.7% for the twenty-six weeks ended July 4, 2021.
Selling, general and administrative expenses
|
|
Twenty-six weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Selling, general and administrative expenses |
|
$ |
922,020 |
|
|
$ |
876,082 |
|
|
$ |
45,938 |
|
|
|
5 |
% |
Percentage of net sales |
|
|
28.5 |
% |
|
|
28.3 |
% |
|
|
0.2 |
% |
|
|
|
|
Selling, general and administrative expenses increased $45.9 million, or 5%, compared to the twenty-six weeks ended July 4, 2021. The increase was primarily driven by new stores opened since the prior year period. In addition, inflationary conditions driving increases in costs including payroll, utilities and supplies as well as higher credit card fees in the current year contributed to the increase.
30
Depreciation and amortization
|
|
Twenty-six weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Depreciation and amortization |
|
$ |
63,064 |
|
|
$ |
61,659 |
|
|
$ |
1,405 |
|
|
|
2 |
% |
Percentage of net sales |
|
|
1.9 |
% |
|
|
2.0 |
% |
|
|
(0.1 |
)% |
|
|
|
|
Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $63.1 million for the twenty-six weeks ended July 3, 2022 compared to $61.7 million for the twenty-six weeks ended July 4, 2021. Depreciation and amortization expenses (exclusive of depreciation included in cost of sales) primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment.
Store closure and other costs, net
|
|
Twenty-six weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Store closure and other costs, net |
|
$ |
870 |
|
|
$ |
1,629 |
|
|
$ |
(759 |
) |
|
|
(47 |
)% |
Percentage of net sales |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
(0.1 |
)% |
|
|
|
|
Store closure and other costs, net decreased $0.8 million to $0.9 million, compared to $1.6 million for the twenty-six weeks ended July 4, 2021. Store closure and other costs, net during the twenty-six weeks ended July 3, 2022 primarily related to costs associated with the closing of four stores year-to-date. Store closure and other costs, net during the twenty-six weeks ended July 4, 2021 was driven by inventory loss and additional expenses, net of insurance recovery, related to the impact of winter storms at several of our stores and a fire at one of our stores during the twenty-six weeks ended July 4, 2021.
Interest expense, net
|
|
Twenty-six weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Long-term debt |
|
$ |
2,499 |
|
|
$ |
2,341 |
|
|
$ |
158 |
|
|
|
7 |
% |
Capital and financing leases |
|
|
437 |
|
|
|
463 |
|
|
|
(26 |
) |
|
|
(6 |
)% |
Deferred financing costs |
|
|
416 |
|
|
|
282 |
|
|
|
134 |
|
|
|
48 |
% |
Interest rate hedge and other |
|
|
2,345 |
|
|
|
2,843 |
|
|
|
(498 |
) |
|
|
(18 |
)% |
Total interest expense, net |
|
$ |
5,697 |
|
|
$ |
5,929 |
|
|
$ |
(232 |
) |
|
|
(4 |
)% |
Interest expense, net decreased to $5.7 million for the twenty-six weeks ended July 3, 2022 compared to $5.9 million for twenty-six weeks ended July 4, 2021 primarily due to higher interest income and lower credit facility fees. See Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements.
31
Income tax provision
Income tax provision differed from the amounts computed by applying the U.S. federal income tax rate to pretax income as a result of the following:
|
|
Twenty-six weeks ended |
|
|||||
|
|
|
|
|
||||
Federal statutory rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
Decrease in income taxes resulting from: |
|
|
|
|
|
|
||
State income taxes, net of federal benefit |
|
|
4.9 |
% |
|
|
4.8 |
% |
Enhanced charitable contributions |
|
|
(1.0 |
)% |
|
|
(1.2 |
)% |
Federal Credits |
|
|
(0.4 |
)% |
|
|
(0.4 |
)% |
Share-based payment awards |
|
|
(0.8 |
)% |
|
|
(0.1 |
)% |
Other, net |
|
|
1.3 |
% |
|
|
0.5 |
% |
Effective tax rate |
|
|
25.0 |
% |
|
|
24.6 |
% |
The effective tax rate increased to 25.0% for the twenty-six weeks ended July 3, 2022 from 24.6% in the same period last year. The increase in the effective tax rate is primarily due to an increase of non-deductible executive compensation as well as a decrease in enhanced charitable contributions due to the expiration of CARES Act benefits, partially offset by an increase in benefit from share-based payment awards in the current year.
Net income
|
|
Twenty-six weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Net income |
|
$ |
150,304 |
|
|
$ |
144,062 |
|
|
$ |
6,242 |
|
|
|
4 |
% |
Percentage of net sales |
|
|
4.6 |
% |
|
|
4.7 |
% |
|
|
(0.1 |
)% |
|
|
|
|
Net income increased $6.2 million primarily due to increased net sales and gross profit, partially offset by higher selling, general and administrative expenses and a higher effective tax rate.
Diluted earnings per share
|
|
Twenty-six weeks ended |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Change |
|
|
% Change |
|
||||||
Diluted earnings per share |
|
$ |
1.36 |
|
|
$ |
1.22 |
|
|
$ |
0.14 |
|
|
|
11 |
% |
Diluted weighted average shares |
|
|
110,762 |
|
|
|
118,265 |
|
|
|
(7,503 |
) |
|
|
|
|
The increase in diluted earnings per share of $0.14 was driven by higher net income, in addition to fewer diluted shares outstanding compared to the prior year, due primarily to the share repurchase program.
32
Return on Invested Capital
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, we provide information regarding Return on Invested Capital (referred to as “ROIC”) as additional information about our operating results. ROIC is a non-GAAP financial measure and should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. ROIC is an important measure used by management to evaluate our investment returns on capital and provides a meaningful measure of the effectiveness of our capital allocation over time.
We define ROIC as net operating profit after tax (referred to as “NOPAT”), including the effect of capitalized operating leases, divided by average invested capital. Operating lease interest represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as a finance lease (capital lease prior to adoption of ASC 842). The assumed ownership and associated interest expense are calculated using the discount rate for each lease as recorded as a component of rent expense within selling, general and administrative expenses. Invested capital reflects a trailing twelve-month average.
As numerous methods exist for calculating ROIC, our method may differ from methods used by other companies to calculate their ROIC. It is important to understand the methods and the differences in those methods used by other companies to calculate their ROIC before comparing our ROIC to that of other companies.
Our calculation of ROIC for the fiscal periods indicated was as follows:
|
|
Rolling Four Quarters Ended |
|
|||||
|
|
|
|
July 4, 2021 (1) |
|
|||
|
|
(dollars in thousands) |
|
|||||
Net Income (2) |
|
$ |
250,399 |
|
|
$ |
272,700 |
|
Special items, net of tax (3), (4) |
|
|
— |
|
|
|
3,134 |
|
Interest expense, net of tax (4) |
|
|
8,639 |
|
|
|
9,304 |
|
Net operating profit after tax (NOPAT) |
|
$ |
259,038 |
|
|
$ |
285,138 |
|
|
|
|
|
|
|
|
||
Total rent expense, net of tax (4) |
|
|
152,902 |
|
|
|
151,041 |
|
Estimated depreciation on operating leases, net of tax (4) |
|
|
(90,084 |
) |
|
|
(84,411 |
) |
Estimated interest on operating leases, net of tax (4), (5) |
|
|
62,818 |
|
|
|
66,630 |
|
NOPAT, including effect of operating leases |
|
$ |
321,856 |
|
|
$ |
351,768 |
|
|
|
|
|
|
|
|
||
Average working capital |
|
|
238,717 |
|
|
|
153,098 |
|
Average property and equipment |
|
|
704,101 |
|
|
|
722,570 |
|
Average other assets |
|
|
569,054 |
|
|
|
568,964 |
|
Average other liabilities |
|
|
(99,049 |
) |
|
|
(103,198 |
) |
Average invested capital |
|
$ |
1,412,823 |
|
|
$ |
1,341,434 |
|
|
|
|
|
|
|
|
||
Average operating leases (6) |
|
|
1,242,722 |
|
|
|
1,208,682 |
|
Average invested capital, including operating leases |
|
$ |
2,655,545 |
|
|
$ |
2,550,116 |
|
|
|
|
|
|
|
|
||
ROIC, including operating leases |
|
|
12.1 |
% |
|
|
13.8 |
% |
33
Liquidity and Capital Resources
The following table sets forth the major sources and uses of cash for each of the periods set forth below, as well as our cash, cash equivalents and restricted cash at the end of each period (in thousands):
|
|
Twenty-six weeks ended |
|
|||||
|
|
|
|
|
||||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
290,750 |
|
|
$ |
222,754 |
|
Cash flows from operating activities |
|
$ |
208,963 |
|
|
$ |
177,305 |
|
Cash flows used in investing activities |
|
$ |
(53,098 |
) |
|
$ |
(39,421 |
) |
Cash flows used in financing activities |
|
$ |
(112,119 |
) |
|
$ |
(86,571 |
) |
We have generally financed our operations principally through cash generated from operations and borrowings under our credit facilities. Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures primarily for opening new stores, remodels and maintenance, repurchases of our common stock and debt service. Our principal contractual obligations and commitments consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities. Our operating and finance leases for the rental of land, buildings, and for rental of facilities and equipment expire or become subject to renewal clauses at various dates through 2040. We believe that our existing cash, cash equivalents and restricted cash, and cash anticipated to be generated from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors, including new store openings, remodel and maintenance capital expenditures at existing stores, store initiatives and other corporate capital expenditures and activities. Our cash, cash equivalents and restricted cash position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within days from the related sale.
Operating Activities
Cash flows from operating activities increased $31.7 million to $209.0 million for the twenty-six weeks ended July 3, 2022 compared to $177.3 million for the twenty-six weeks ended July 4, 2021. The increase in cash flows from operating activities was primarily a result of changes in working capital.
Cash flows used in operating activities from changes in working capital were $6.9 million in the twenty-six weeks ended July 3, 2022 compared to $32.2 million in the twenty-six weeks ended July 4, 2021. The decrease was primarily driven by the higher prior year payout of COVID related incentive compensation amounts earned in 2020.
Investing Activities
Cash flows used in investing activities consist primarily of capital expenditures in new stores, including leasehold improvements and store equipment, capital expenditures to maintain the appearance of our stores, sales enhancing initiatives and other corporate investments. Cash flows used in investing activities were $53.1 million and $39.4 million, for the twenty-six weeks ended July 3, 2022 and July 4, 2021, respectively.
34
We expect capital expenditures to be in the range of $130 - $150 million in 2022, including expenditures incurred to date, net of estimated landlord tenant improvement allowances, primarily to fund investments in new stores, remodels, maintenance capital expenditures and corporate capital expenditures. We expect to fund our capital expenditures with cash on hand and cash generated from operating activities.
Financing Activities
Cash flows used in financing activities were $112.1 million for the twenty-six weeks ended July 3, 2022 compared to $86.6 million for the twenty-six weeks ended July 4, 2021. During the twenty-six weeks ended July 3, 2022, cash flows used in financing activities primarily consisted of $111.1 million for stock repurchases and $3.4 million in debt issuance costs in connection with our Credit Agreement, partially offset by $2.7 million in proceeds from the exercise of stock options.
During the twenty-six weeks ended July 4, 2021, cash flows used in financing activities primarily consisted of $87.5 million for stock repurchases.
Long-Term Debt and Credit Facilities
Long-term debt outstanding was $250.0 million as of July 3, 2022 and January 2, 2022.
See Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements for a description of our new Credit Agreement and our Former Credit Facility (each as defined therein).
Share Repurchase Program
Our board of directors from time to time authorizes share repurchase programs for our common stock. The following table outlines the share repurchase programs authorized by our board, and the related repurchase activity and available authorization as of July 3, 2022.
Effective date |
|
Expiration date |
|
Amount |
|
|
Cost of |
|
|
Authorization |
|
|||
|
|
$ |
300,000 |
|
|
$ |
200,200 |
|
|
$ |
— |
|
||
|
|
$ |
600,000 |
|
|
$ |
99,214 |
|
|
$ |
500,786 |
|
||
The shares under our current repurchase program may be purchased on a discretionary basis from time to time through the applicable expiration date, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. Our board’s authorization of the share repurchase program does not obligate our Company to acquire any particular amount of common stock, and the repurchase program may be commenced, suspended, or discontinued at any time.
Share repurchase activity under our repurchase program for the periods indicated was as follows (total cost in thousands):
|
|
Thirteen weeks ended |
|
|
|
Twenty-six weeks ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Number of common shares acquired |
|
|
2,397,671 |
|
|
|
3,150,649 |
|
|
|
|
3,878,858 |
|
|
|
3,280,617 |
|
Average price per common share acquired |
|
$ |
27.26 |
|
|
$ |
26.75 |
|
|
|
$ |
28.63 |
|
|
$ |
26.67 |
|
Total cost of common shares acquired |
|
$ |
65,356 |
|
|
$ |
84,275 |
|
|
|
$ |
111,071 |
|
|
$ |
87,484 |
|
Shares purchased under our repurchase programs were subsequently retired and the excess of the repurchase price over par value was charged to retained earnings.
Subsequent to July 3, 2022 and through August 1, 2022, we repurchased an additional 0.5 million shares of common stock for $14.1 million.
35
Contractual Obligations
Our principal contractual obligations and commitments arising in the normal course of business consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities. Except as otherwise disclosed in Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements, there have been no material changes outside the normal course of business as of July 3, 2022 in our contractual obligations and commitments from those reported in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022.
The future amount and timing of interest payments are expected to vary with the outstanding amounts and then prevailing contractual interest rates, net of interest rate swaps. Interest payments through the March 25, 2027 maturity date of our Credit Agreement based on the outstanding amounts as of July 3, 2022 and interest rates in effect at the time of this filing, are estimated to be approximately $52.5 million, with $11.2 million payable within 12 months.
Impact of Inflation and Deflation
Inflation and deflation in the prices of food and other products we sell may periodically affect our sales, gross profit and gross margin. Food inflation, when combined with reduced consumer spending, could also reduce sales, gross profit margins and comparable store sales. Inflationary pressures on compensation, utilities, commodities, equipment and supplies may also impact our profitability. Food deflation across multiple categories, particularly in produce, could reduce sales growth and earnings if our competitors react by lowering their retail pricing and expanding their promotional activities, which can lead to retail deflation higher than cost deflation that could reduce our sales, gross profit margins and comparable store sales. The short-term impact of inflation and deflation is largely dependent on whether or not the effects are passed through to our customers, which is subject to competitive market conditions.
Food inflation and deflation is affected by a variety of factors and our determination of whether to pass on the effects of inflation or deflation to our customers is made in conjunction with our overall pricing and marketing strategies, as well as our competitors’ responses. Although we may experience periodic effects on sales, gross profit, gross margins and cash flows as a result of changing prices, including most recently from inflationary pressures due primarily to supply chain disruptions complicated by the COVID-19 pandemic, we do not expect the effect of inflation or deflation to have a material impact on our ability to execute our long-term business strategy.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, cash flow and related disclosure of contingent assets and liabilities. Our critical accounting estimates include inventories, lease assumptions, self-insurance reserves, goodwill and intangible assets, impairment of long-lived assets, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.
There have been no substantial changes to these estimates, or the policies related to them during the thirteen and twenty-six weeks ended July 3, 2022. For a full discussion of these estimates and policies, see “Critical Accounting Estimates” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 2, 2022.
Recently Issued Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies” to our accompanying unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.
36
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As described in Note 4, “Long-Term Debt and Finance Lease Liabilities” to our unaudited consolidated financial statements located elsewhere in this Quarterly Report on Form 10-Q, our Credit Agreement bears interest at a rate based in part on SOFR. Accordingly, we could be exposed to fluctuations in interest rates. Based solely on the $250.0 million principal outstanding under our Credit Agreement as of July 3, 2022, each hundred basis point change in SOFR would result in a change in interest expense by $2.5 million annually. We entered into an interest rate swap agreement in December 2017 to manage our cash flow associated with variable interest rates. The notional dollar amount of the one outstanding swap at July 3, 2022 and January 2, 2022 was $250.0 million under which we pay a fixed rate and received a variable rate of interest (cash flow swap). Taking into account the interest rate swap, based on the $250.0 million principal outstanding under our Credit Agreement as of July 3, 2022, each hundred basis point change in SOFR would result in no change in interest expense annually.
This sensitivity analysis assumes our mix of financial instruments and all other variables will remain constant in future periods. These assumptions are made in order to facilitate the analysis and are not necessarily indicative of our future intentions.
We do not enter into derivative financial instruments for trading purposes (see Note 10, “Derivative Financial Instruments” of our unaudited consolidated financial statements).
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures under the Exchange Act as of July 3, 2022, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
During the quarterly period ended July 3, 2022, there were no changes in our internal controls over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
37
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time we are a party to legal proceedings, including matters involving personnel and employment issues, product liability, personal injury, intellectual property and other proceedings arising in the ordinary course of business, which have not resulted in any material losses to date. Although management does not expect that the outcome in these proceedings will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, we could incur judgments or enter into settlements of claims that could materially impact our results.
See Note 7, “Commitments and Contingencies” to our unaudited consolidated financial statements for information regarding certain legal proceedings in which we are involved.
Item 1A. Risk Factors.
Certain factors may have a material adverse effect on our business, financial condition and results of operations. You should carefully consider the risks and uncertainties referenced below, together with all of the other information in this Quarterly Report on Form 10-Q, including our consolidated financial statements and related notes. Any of those risks could materially and adversely affect our business, operating results, financial condition, or prospects and cause the value of our common stock to decline, which could cause you to lose all or part of your investment.
There have been no material changes to the Risk Factors described under “Part I – Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022.
38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table provides information about our share repurchase activity during the thirteen weeks ended July 3, 2022.
Period (1) |
|
Total number |
|
|
Average |
|
|
Total number |
|
|
Approximate |
|
||||
|
|
586,753 |
|
|
$ |
32.38 |
|
|
|
586,753 |
|
|
$ |
547,142,000 |
|
|
|
|
1,007,730 |
|
|
$ |
25.22 |
|
|
|
1,007,730 |
|
|
$ |
521,728,000 |
|
|
|
|
803,188 |
|
|
$ |
26.07 |
|
|
|
803,188 |
|
|
$ |
500,786,000 |
|
|
39
Item 6. Exhibits.
Exhibit Number |
|
Description |
|
|
|
10.1 |
|
Letter Agreement, dated May 25, 2022, by and between Sprouts Farmers Market and Gil Phipps (1) |
|
|
|
10.2 |
|
Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (1) |
|
|
|
10.3 |
|
|
|
|
|
10.4 |
|
|
|
|
|
10.5 |
|
|
|
|
|
10.6 |
|
|
|
|
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
SPROUTS FARMERS MARKET, INC. |
|
|
|
Date: August 3, 2022 |
By: |
|
|
Name: |
|
|
Title: |
Chief Financial Officer |
|
|
(Principal Financial Officer) |
41
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 3/25/27 | ||||
| 12/31/24 | ||||
| 3/3/24 | ||||
| 3/27/23 | ||||
| 1/1/23 | ||||
| 12/31/22 | ||||
| Filed on: | 8/3/22 | 8-K | ||
| 8/1/22 | ||||
| For Period end: | 7/3/22 | |||
| 6/7/22 | 4, S-8 | |||
| 5/30/22 | ||||
| 5/29/22 | ||||
| 5/27/22 | 8-K | |||
| 5/25/22 | DEF 14A | |||
| 5/24/22 | 3, 8-K | |||
| 5/2/22 | ||||
| 5/1/22 | ||||
| 4/4/22 | ||||
| 4/3/22 | 10-Q | |||
| 3/25/22 | 8-K | |||
| 3/21/22 | 3, 4 | |||
| 3/15/22 | 4 | |||
| 3/2/22 | 8-K | |||
| 2/24/22 | 10-K, 8-K | |||
| 1/2/22 | 10-K | |||
| 7/4/21 | 10-Q | |||
| 4/4/21 | 10-Q | |||
| 3/3/21 | 8-K | |||
| 1/3/21 | 10-K | |||
| 11/20/20 | ||||
| 8/25/20 | ||||
| 10/1/19 | ||||
| 5/7/18 | ||||
| 3/27/18 | 8-K | |||
| 12/31/17 | 10-K | |||
| 1/1/17 | 10-K | |||
| 4/13/10 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 5/27/22 Sprouts Farmers Market, Inc. 8-K:5,9 5/24/22 16:1M Donnelley … Solutions/FA |