Sprouts Farmers Market Files Q3 2024 10-Q

TL;DR

Sprouts Q3 10-Q is in! Check financials for latest performance.

AI Summary

Sprouts Farmers Market, Inc. filed its 10-Q for the period ending September 29, 2024. The company reported financial results for the third quarter of 2024, detailing its revenue, expenses, and net income. The filing also includes updates on the company's operational performance and strategic initiatives.

Why It Matters

This filing provides investors with a detailed look at Sprouts Farmers Market's financial health and operational performance during the third quarter of 2024, influencing investment decisions.

Risk Assessment

Risk Level: medium — As a publicly traded company in the retail grocery sector, Sprouts Farmers Market faces ongoing market competition, supply chain risks, and economic fluctuations that can impact its financial performance.

Key Numbers

• 2024-09-29 — Reporting Period End Date (Indicates the end of the fiscal quarter covered by the report.)
• 2024-10-30 — Filing Date (The date the 10-Q was officially submitted to the SEC.)

Key Players & Entities

• Sprouts Farmers Market, Inc. (company) — Filer of the 10-Q
• 20240929 (date) — End of the reporting period
• 20241030 (date) — Filing date

FAQ

Key Financial Figures

• $0.001 — nge on Which Registered Common Stock, $0.001 par value SFM Nasdaq Global Select Mark

Filing Documents

• sfm-20240929.htm (10-Q) — 959KB
• sfm-20240929xex311.htm (EX-31.1) — 9KB
• sfm-20240929xex312.htm (EX-31.2) — 10KB
• sfm-20240929xex321.htm (EX-32.1) — 5KB
• sfm-20240929xex322.htm (EX-32.2) — 5KB
• sfm-20240929_g1.jpg (GRAPHIC) — 25KB
• 0001575515-24-000172.txt ( ) — 4939KB
• sfm-20240929.xsd (EX-101.SCH) — 37KB
• sfm-20240929_cal.xml (EX-101.CAL) — 48KB
• sfm-20240929_def.xml (EX-101.DEF) — 161KB
• sfm-20240929_lab.xml (EX-101.LAB) — 485KB
• sfm-20240929_pre.xml (EX-101.PRE) — 335KB
• sfm-20240929_htm.xml (XML) — 518KB

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements. 4 Consolidated Balance Sheets as of September 29 , 2024 (unaudited) and December 31, 2023 4 Consolidated Statements of Income for the thirteen and thirty-nine weeks ended September 29 , 2024 and October 1, 2023 (unaudited) 5 Consolidated Statements of Stockholders' Equity for the thirteen and thirty- nine weeks ended September 29, 2024 and October 1, 2023 (unaudited) 6 Consolidated Statements of Cash Flows for the t hirty-nine weeks ended September 29 , 2024 and October 1 , 2023 (unaudited) 7

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) 8

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 20

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk. 32

Controls and Procedures

Item 4. Controls and Procedures. 32

- OTHER INFORMATION

PART II - OTHER INFORMATION

Legal Proceedings

Item 1. Legal Proceedings. 34

Risk Factors

Item 1A. Risk Factors. 34

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 34

Other Information

Item 5. Other Information. 35

Exhibits

Item 6. Exhibits. 35

Signatures

Signatures 36 Table of Contents

Forward-Looking Statements

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 December 31, 2023, 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 ref

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) September 29, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 309,668 $ 201,794 Accounts receivable, net 25,073 30,313 Inventories 329,472 323,198 Prepaid expenses and other current assets 29,384 48,467 Total current assets 693,597 603,772 Property and equipment, net of accumulated depreciation 851,443 798,707 Operating lease assets, net 1,437,280 1,322,854 Intangible assets 208,060 208,060 Goodwill 381,750 381,741 Other assets 13,407 12,294 Total assets $ 3,585,537 $ 3,327,428 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 198,246 $ 179,927 Accrued liabilities 206,153 164,887 Accrued salaries and benefits 81,528 74,752 Accrued income tax 1,392 — Current portion of operating lease liabilities 127,558 126,271 Current portion of finance lease liabilities 1,147 1,032 Total current liabilities 616,024 546,869 Long-term operating lease liabilities 1,517,192 1,399,676 Long-term debt and finance lease liabilities 7,731 133,685 Other long-term liabilities 37,560 36,270 Deferred income tax liability 63,538 62,381 Total liabilities 2,242,045 2,178,881 Commitments and contingencies (Note 6) Stockholders' equity: Undesignated preferred stock; $ 0.001 par value; 10,000,000 shares authorized, no shares issued and outstanding — — Common stock, $ 0.001 par value; 200,000,000 shares authorized, 100,039,217 shares issued and outstanding, September 29, 2024; 101,211,984 shares issued and outstanding, December 31, 2023 100 101 Additional paid-in capital 799,487 774,834 Retained earnings 543,905 373,612 Total stockholders' equity 1,343,492 1,148,547 Total liabilities and stockholders' equity $ 3,585,537 $ 3,327,428 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation Sprouts Farmers Market, Inc., a Delaware corporation, through its subsidiaries, offers a unique specialty 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 September 29, 2024, the Company operated 428 stores in 23 states. For convenience, the "Company" is used to refer collectively to Sprouts Farmers Market, Inc. and unless the context otherwise requires, its subsidiaries. The Company's store operations are conducted by 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was not material in any period presented. A summary of the activity and balances in the gift card liability, net is as follows: Thirty-nine weeks ended September 29, 2024 October 1, 2023 Beginning Balance $ 10,566 $ 10,906 Gift cards issued during the period but not redeemed (1) 1,899 1,926 Revenue recognized from beginning liability ( 3,825 ) ( 4,139 ) Ending Balance $ 8,640 $ 8,693 (1) net of estimated breakage The nature of goods the Company transfers to customers at the point of sale are inventories, consisting of merchandise purchased for resale. 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, any contract performance obligations, or any material costs to obtain or fulfill a contract as of September 29, 2024. Restricted Cash Restricted cash relates to the Company's defined benefit plan forfeitures and the Company's healthcare, general liability and workers' compensation plan benefits of $ 2.1 million as of September 29, 2024 and December 31, 2023. These balances are included in prepaid expenses and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Income Taxes – Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU no. 2023-09, "Income Taxes (Topic 740) Improvements to Income Tax Disclosures." The amendments in this update enhance a public entity's annual income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance will be effective for the Company for its fiscal year 2025. Early adoption is permitted, and the guidance should be applied prospectively, with an option to apply it retrospectively. The Company expects this update to impact its income tax disclosures but does not anticipate that this update will impact its results of operations, cash flows or financial condition. No other new accounting pronouncements issued or effective during the thirteen weeks ended September 29, 2024 had, or are expected to have, a material impact on the Company's consolidated financial statements. 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 impairment analysis of goodwill, intangible assets and long-lived assets. The Company did no t have any financial liabilities measured at fair val

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 September 29, 2024 December 31, 2023 Senior secured debt $ 700.0 million Credit Agreement March 25, 2027 Variable $ — $ 125,000 Finance lease liabilities Various n/a 7,731 8,685 Long-term debt and finance lease liabilities $ 7,731 $ 133,685 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 $ 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 $ 3.4 million related to the Credit Agreement, which, combined with the remaining $ 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, were recorded to prepaid expenses and other current assets and other assets in the consolidated balance sheets and 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 $ 70.0 million letter of credit sub-facility (the "Letter of Credit Sub-Facility") and a $ 50.0 million swingline facility. Letters of credit issued under the Credit Agreement reduce the capacity of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 0.10 % to 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 0.01 % based upon the achievement of certain diversity and sustainability-linked metric thresholds, as set forth in the Credit Agreement. As of September 29, 2024, loans outstanding under the Credit Agreement bore interest at Term SOFR (as defined in the Credit Agreement) plus a 0.10 % SOFR adjustment and 0.95 % per annum. The Company had no loans outstanding under the Credit Agreement as of September 29, 2024. As of September 29, 2024, outstanding letters of credit issued under the Credit Agreement were subject to a participation fee of 0.95 % per annum and an issuance fee of 0.125 % per annum. Payments and Borrowings The Credit Agreement is scheduled to mature, and the commitments thereunder will terminate on 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 Company's obligations under the Former Credit Facility were prepaid and terminated. During the thirteen and thirty-nine weeks ended September 29, 2024, the Company made no additional borrowings and made principal payments of $ 125.0 million, resulting in no outstanding debt under the Credit Agreement as of September 29, 2024. During 2023, the Company made no additional borrowings and made principal payments of $ 125.0 million, resulting in total outstanding debt under the Credit Agreement of $ 125.0 million as of

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