Sprouts Farmers Market, Inc. Reports Second Quarter 2013 Results

Sprouts Farmers Market, Inc. Reports Second Quarter 2013 Results

PHOENIX, Aug. 22, 2013 (GLOBE NEWSWIRE) -- Sprouts Farmers Market, Inc. (the
"Company") (Nasdaq:SFM) today reported results for its 13 week second quarter
ended June 30, 2013.

Second Quarter Highlights:

  *Net sales of $622.4 million; a 45% increase from the same period in 2012
  *Net sales increased 22% compared to pro forma net sales for the same
    period in 2012
  *Pro forma comparable store sales growth of 10.8% and two year combined
    comparable store sales growth of 21.0%
  *Diluted earnings per share of $0.10; a 100% increase from the same period
    in 2012
  *Adjusted diluted earnings per share of $0.14
  *Adjusted EBITDA of $52.7 million; a 27% increase from pro forma adjusted
    EBITDA in 2012

"We are pleased to report strong financial results in our initial quarterly
release as a public company," said Doug Sanders, president and chief executive
officer of Sprouts Farmers Market. "Our robust momentum continued into the
second quarter resulting in strong top line performance with pro forma
comparable store sales growth of 10.8%. New store sales continue to exceed our
expectations as the Sprouts Farmers Market brand continues to attract
health-conscious customers focused on value, paving the way for future
success."

^In order to aid understanding of the Company's business performance, it has
presented results in conformity with accounting principles generally accepted
in the United States ("GAAP") and has also presented adjusted net income,
adjusted diluted earnings per share and adjusted EBITDA, which are non-GAAP
measures that are explained and reconciled to the comparable GAAP measures in
the tables included in this release. In addition, in comparing its results to
the comparable periods of 2012, the Company has presented 2012 financial
results on a pro forma basis as if the May 2012 business combination with
Sunflower Farmers Market, Inc. ("Sunflower Transaction") had occurred on the
first day of the Company's 2012 fiscal year. Unaudited pro forma condensed
consolidated statements of operations for the thirteen and twenty-six weeks
ended July 1, 2012, giving effect to the Sunflower Transaction, are included
in the tables in this release.

Second Quarter 2013 Financial Results

Net sales in the second quarter 2013 increased 45% to $622.4 million. Second
quarter net sales growth was driven by the Sunflower Transaction, an increase
in comparable store sales growth and new store openings. Net sales increased
22% compared to pro forma sales for the same period of 2012, driven by pro
forma comparable store sales growth of 10.8% and strong performance in new
stores opened. The pro forma comparable store sales growth increase resulted
from a balanced rise in traffic and basket size and continued strong
performance across departments.

For the quarter, gross profit increased 43% to $187.0 million resulting in a
gross profit margin of 30.1% of sales, or a decrease of 30 basis points, from
the same period in 2012. Gross profit increased 23% compared to pro forma
gross profit in the same period in 2012, primarily driven by the increase in
sales, and the gross profit margin increased by 10 basis points compared to
the pro forma gross margin percentage for the same period in 2012. Increases
in gross margin from the leverage in occupancy and buying costs were partially
offset by produce inflation and lower margins in the vitamin department due to
temporary product markdowns in connection with merchandise alignment across
Sprouts and former Henry's and Sunflower stores.

Direct store expenses, as a percentage of sales, for the quarter decreased 90
basis points to 19.8%. Direct store expenses, as a percentage of sales,
decreased 50 basis points compared to pro forma direct store expenses in the
second quarter 2012, primarily due to leverage in labor cost and also
reflected a loss on disposal of assets primarily related to the sale-leaseback
of a store in 2012.

Net income was $12.5 million for the second quarter 2013, up $7.2 million from
the same period in 2012, or an increase of 135%. Net income in the second
quarter of 2013 included an $8.2 million pre-tax loss on extinguishment of
debt and pre-tax store closure and exit costs of $0.9 million. Pro forma net
income for the second quarter of 2012 included pre-tax acquisition and
integration costs of $4.3 million; $1.3 million pre-tax loss on disposal of
assets primarily related to the sale leaseback of a store; and pre-tax store
closure and exit costs of $1.2 million. Excluding these items, adjusted net
income increased 51% to $18.0 million compared to pro forma adjusted net
income of $11.9 million in the same period in 2012. Adjusted EBITDA totaled
$52.7 million, up $11.3 million, or 27%, from pro forma adjusted EBITDA for
the same period in 2012. Adjusted diluted earnings per share was $0.14, a 56%
increase from pro forma adjusted diluted earnings per share from the same
period in 2012. This increase was attributable to improved business
performance from higher comparable store sales and resulting operating
leverage and performance of new stores opened.

Fiscal Year-to-Date Financial Results

For the 26-week period ended June 30, 2013, net sales increased 48% to $1.20
billion. Growth was driven by the Sunflower Transaction, an increase in
comparable store sales, as well as new store openings. Net income was $30.6
million for the 26-week period ended June 30, 2013, up $15.7 million from the
same period in 2012, or an increase of 106%. Net sales increased 19% compared
to pro forma net sales for the same period of 2012. Adjusted EBITDA totaled
$104.8 million, up $18.3 million or 21% from pro forma adjusted EBITDA in the
same period of 2012.

Growth and Development

During second quarter 2013, the Company opened six new stores, four in
California and one each in Oklahoma and Texas. An additional five stores have
been opened in the third quarter to date bringing 2013 new store openings to
17, for a total of 165 stores in eight states as of Aug. 22, 2013. The Company
expects to open two more stores in 2013, bringing total new stores in 2013 to
19.

Leverage, Liquidity and IPO

The Company generated cash from operations of $101.0 million year-to-date
through June 30, 2013 and invested $51.7 million in capital expenditures,
primarily for new stores. The Company ended the quarter with a principal
balance on its term loan of $700.0 million, and had $65.6 million in cash and
cash equivalents and $52.0 million available under its revolving credit
facility.

On Aug. 6, 2013, the Company closed its initial public offering of 21.3
million shares of common stock, including approximately 2.8 million shares
issued as a result of the exercise in full of the underwriters' option to
purchase additional shares. The Company received net proceeds from the
offering of $344.7 million, after deducting underwriting discounts and
offering expenses, and paid down $340.0 million of outstanding indebtedness
under its term loan facility. After this payment, the principal balance on the
Company's existing term loan is $360.0 million.

"We are extremely pleased with overall business performance including our
ability to continue to drive operating leverage from top line growth," said
Amin Maredia, chief financial officer. "With strong operating cash flows and
lower debt resulting from the use of IPO proceeds, we are extremely well
positioned to execute on our growth plans."

Outlook

The following provides information on the Company's current estimated 2013
results:

  *19% to 21% growth compared to pro forma net sales in 2012
  *Pro forma comparable store sales growth of 8.5 to 9.0%
  *Net Income of $44.0 million to $47.0 million
  *Adjusted EBITDA of $180.0 million to $185.0 million
  *Adjusted Net Income of $57 million to $60 million
  *Adjusted diluted earnings per share of $0.41 to $0.43
  *Capital expenditures of $70.0 million to $75.0 million, net of landlord
    reimbursements
  *Based on the issuance of shares in the initial public offering, weighted
    average diluted shares outstanding are expected to be approximately 145
    million, 153 million and 140 million for the third quarter, fourth quarter
    and full year 2013, respectively.

^Adjusted diluted earnings per share and adjusted EBITDA guidance for the year
exclude the following pre-tax items: $8.2 million loss on extinguishment of
debt and $0.9 million of store closure and exit costs both recognized in the
first half of the year. Additionally they exclude $9.0 million loss on
extinguishment of debt related to the $340.0 million pay down of the Company's
term loan to be recorded in the third quarter of 2013.

Second Quarter Conference Call

The Company will hold a conference call at 2 p.m. Pacific Daylight Time (5
p.m. Eastern Daylight Time) on Thursday, Aug. 22, 2013, during which Sprouts'
executives will elaborate on the Company's second quarter 2013 financial
results.

A webcast of the conference call will be available through Sprouts' investor
webpage located at http://investors.sprouts.com. For those participating via
teleconference, the phone number for the call is 1-877-398-9481 (U.S.) or
1-408-337-0130 (international), and the passcode is 32202018. Participants are
encouraged to dial in 10 minutes early. A replay of the event will remain
available for two weeks and can be accessed by dialing 1-855-859-2056
(toll-free) or 1-404-537-3406 (international) and entering the confirmation
code: 32202018. An archive of the webcast will be available for one year at
http://investors.sprouts.com, under "Events and Presentations."

^Important Information Regarding Outlook

^There is no guarantee that Sprouts will achieve its projected financial
expectations for 2013, which are based on management estimates, currently
available information and assumptions that management believes to be
reasonable. Such forward-looking statements are inherently subject to
significant economic, competitive and other uncertainties and contingencies,
many of which are beyond the control of management. See "Forward-Looking
Statements" below.

^Forward-Looking Statements

^Certain statements in this press release are forward-looking as defined in
the Private Securities Litigation Reform Act of 1995. Any statements contained
herein (including, but not limited to, statements to the effect that Sprouts
Farmers Market or its management "anticipates," "plans," "estimates,"
"expects," "believes," or the negative of these terms and other similar
expressions) that are not statements of historical fact should be considered
forward-looking statements, including, without limitation, the Company's
belief that its brand continues to attract health conscious customers focused
on value, paving the way for future success; the Company's expectation for
2013 new store openings; the Company's belief that it is extremely well
positioned to execute on its growth plans; and the Company's expectations
regarding fiscal 2013 sales growth, pro forma comparable store sales growth,
net income, adjusted EBITDA, adjusted net income, adjusted diluted earnings
per share, capital expenditures, and weighted average diluted shares
outstanding. These statements involve certain risks and uncertainties that may
cause actual results to differ materially from expectations as of the date of
this release. These risks and uncertainties include, without limitation, risks
associated with the Company's ability to successfully compete in its intensely
competitive industry; the Company's ability to successfully open new stores;
the Company's ability to manage its rapid growth; the Company's ability to
maintain or improve its operating margins; the Company's ability to identify
and react to trends in consumer preferences; product supply disruptions;
general economic conditions; and other factors as set forth from time to time
in the Company's Securities and Exchange Commission filings. The Company
intends these forward-looking statements to speak only as of the time of this
release and does not undertake to update or revise them as more information
becomes available, except as required by law.

^Corporate Profile

^Sprouts Farmers Market, Inc. is a specialty retailer of natural and organic
foods at great prices. We offer a complete shopping experience that includes
fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat
and seafood, baked goods, dairy products, frozen foods, natural body care and
household items catering to consumers' growing interest in health and
wellness. Headquartered in Phoenix, Arizona, Sprouts Farmers Market employs
more than 13,000 team members and operates more than 160 stores in eight
states.

                                                     
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                
                                  Thirteen Weeks Ended Twenty-Six Weeks Ended
                                  June 30,   July 1,   June 30,    July 1,
                                   2013       2012      2013        2012
Net sales                          $622,367  $430,112 $ 1,196,061 $805,832
Cost of sales, buying and          435,340   299,381  835,114   558,314
occupancy
                                                                
Gross profit                       187,027   130,731  360,947    247,518
Direct store expenses              122,985   88,996   237,646   163,829
Selling, general and               20,728    22,584   37,452     39,671
administrative expenses
Store pre-opening costs            2,303     343      4,017      854
Store closure and exit costs       933       1,156    1,708      1,279
                                                                
Income from operations             40,078    17,652   80,124     41,885
Interest expense                   (11,391)  (8,365 ) (21,556)  (15,463)
Other income                       111       44       244        68
Loss on extinguishment of debt     (8,175)   —        (8,175)    —
                                                                
Income before income taxes         20,623    9,331    50,637    26,490
Income tax provision               (8,155)  (4,025)  (20,052)   (11,638)
                                                                
Net income                         $12,468   $5,306   $30,585    $14,852
                                                                
Net income per share:                                            
Basic                              $0.10     $0.05    $0.24     $0.13
Diluted                            $0.10     $0.05    $0.24     $0.13
Weighted average shares                                          
outstanding:
Basic                              125,958   115,964  125,963    112,982
Diluted                            129,716   117,525  129,438    114,472
                                                                

                                      

                                                                
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                                                
                                                     June30,    December 30,
                                                      2013        2012
ASSETS                                                           
Current assets:                                                  
Cash and cash equivalents                             $65,628    $67,211
Accounts receivable, net                              9,974      8,415
Inventories                                           109,143    98,382
Prepaid expenses and other current assets             3,557      4,521
Deferred income tax asset                             14,080     24,592
                                                                
Total current assets                                  202,382    203,121
Property and equipment, net of accumulated            347,054    303,166
depreciation
Intangible assets, net of accumulated amortization    196,112    196,772
Goodwill                                              368,078    368,078
Other assets                                          11,089     9,521
Deferred income tax asset                             19,020     22,578
                                                                
Total assets                                          $1,143,735 $1,103,236
                                                                
LIABILITIES AND STOCKHOLDERS' EQUITY                             
Current liabilities:                                             
Accounts payable                                      $114,889   $82,721
Accrued salaries and benefits                         18,993     21,397
Other accrued liabilities                             22,622     27,561
Current portion of capital and financing lease        3,361      3,379
obligations
Current portion of long-term debt                     2,749      1,788
                                                                
Total current liabilities                             162,614    136,846
Long-term capital and financing lease obligations     115,493    104,260
Long-term debt                                        680,625    424,756
Other long-term liabilities                           56,556     50,619
                                                                
Total liabilities                                     1,015,288  716,481
                                                                
Commitments and contingencies                                    
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, 125,956,721 shares issued and             126        126
outstanding, June 30, 2013 and December30, 2012
Additional paid-in capital                            114,565    395,480
Retained earnings (accumulated deficit)               13,756     (8,851)
                                                                
Total stockholders' equity                            128,447    386,755
                                                                
Total liabilities and stockholders' equity            $1,143,735 $1,103,236
                                                                

                                      

                                                                          
SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES                                
CONSOLIDATED STATEMENTS OF CASH FLOWS                                        
(UNAUDITED)                                                                 
(IN THOUSANDS)                                                               
                                                                           
                                                     Twenty-Six Weeks Ended 
                                                     June 30,   July 1,     
                                                      2013       2012
Cash flows from operating activities                                       
Net income                                            $30,585   $14,852    
Adjustments to reconcile net income to net cash                            
provided by operating activities:
Depreciation and amortization expense                 22,639    15,416     
Accretion of asset retirement obligation              71        167        
Amortization of financing fees and debt issuance      1,479     1,169      
costs
Loss on disposal of property and equipment            8         1,226      
Gain on sale of intangible assets                     (19)      —          
Equity-based compensation                             2,665     1,659      
Non-cash loss on extinguishment of debt               7,976     —          
Deferred income taxes                                 17,074    9,930      
Changes in operating assets and liabilities:                               
Accounts receivable                                   (792)    (1,082)    
Inventories                                           (10,761 ) (5,062 )   
Prepaid expenses and other current assets             922       5,031     
Other assets                                          163       (4,333)   
Accounts payable                                      28,383    13,605     
Accrued salaries and benefits                         (2,404)  3,354      
Other accrued liabilities                             (3,541 )  767        
Other long-term liabilities                           6,503     5,432      
                                                                          
Net cash provided by operating activities             100,951   62,131     
                                                                          
Cash flows from investing activities                                       
Purchases of property and equipment                   (51,676)  (14,223 )  
Proceeds from disposal of property and equipment      2         9,079      
Proceeds from sale of intangible assets               172       —          
Acquisition, net of cash acquired                     —         (130,174) 
                                                                          
Net cash used in investing activities                 (51,502)  (135,318)  
                                                                          
Cash flows from financing activities                                       
Borrowings on line of credit                          —         3,000      
Payments on line of credit                            —         (3,000 )   
Borrowings on term loan, net of financing costs       688,127   97,247     
Payments on term loan                                 (405,100) (1,550)    
Borrowings on Sr. Subordinated Notes                  —         35,000     
Payments on Sr. Subordinated Notes                    (35,000)  —          
Payments on capital lease obligations                 (243 )    (206 )     
Payments on financing lease obligations               (1,398 )  (1,104 )   
Payments of deferred financing costs                  (1,370)   (401 )     
Payments of deferred IPO costs                        (970)     —          
Cash from landlord related to financing lease         881       527        
obligations
Payment to stockholders and option holders            (295,921) —          
Repurchase of shares                                  (113)     —          
Proceeds from the issuance of shares                  75        5,000      
                                                                          
Net cash provided by (used in) financing activities   (51,032)  134,513    
                                                                          
Net (decrease) increase in cash and cash equivalents  (1,583)   61,326     
Cash and cash equivalents at beginning of the period  67,211    14,542     
                                                                          
Cash and cash equivalents at the end of the period    $65,628   $75,868    
                                                                          

^Unaudited Supplemental Pro Forma Condensed Consolidated Financial Information

^In May 2012, the Company acquired Sunflower Farmers Market, Inc.
("Sunflower"), which operated 37 Sunflower Farmers Market stores, in a
transaction referred to as the "Sunflower Transaction." The effects of the
Sunflower Transaction have a material effect on the comparability of the
Company's results of operations. The Company has therefore supplemented the
comparative discussion of its results of operations for the thirteen and
twenty-six weeks ended June 30, 2013 with comparisons to the results for the
thirteen and twenty-six weeks ended July 1, 2012 on a pro forma basis giving
effect to the Sunflower Transaction as if it had occurred on the first day of
fiscal 2012. Set forth below are unaudited pro forma condensed consolidated
statements of operations for the thirteen and twenty-six weeks ended July 1,
2012.

                                                               
SPROUTS FARMERS MARKET, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Thirteen Weeks Ended July 1, 2012
(in thousands, except per share amounts)
                                                              
                                    Pro Forma Adjustments for   
               Historical              Sunflower
               Sprouts    Historical   Fiscal       Sunflower      Pro Forma for
              Farmers    Sunflower(1) Period       Transaction(2) Sunflower
               Market,                 Alignment(2)                Transaction(2)
               Inc.(1)
                                                              
Net sales      $430,112 $79,837     $(1,472 )   $—            $508,477
Cost of sales,
buying and     299,381  56,513      (1,011)     926           355,809
occupancy
                                                              
Gross profit   130,731  23,324      (461 )      (926)         152,668
                                                              
Direct store   88,996   14,772      (287)       (277)         103,204
expenses
Selling,
general and    22,584   7,181       (90)        (6,855 )      22,820
administrative
expenses
Store
pre-opening    343      1,171       (14 )       —             1,500
costs
Store closure
and exit       1,156    22          —          —             1,178
costs
                                                              
Income from    17,652   178         (70)        6,206         23,966
operations
Interest       (8,365)  (677)       14        (1,186 )      (10,214)
expense
Other income   44       62          (1 )        —             105
                                                              
Income before  9,331    (437)       (57)        5,020         13,857
income taxes
Income tax
(provision)    (4,025)   (730 )      14         (1,958)        (6,699)
benefit
                                                              
Net income     $5,306   $(1,167)    $(43)       $3,062        $7,158
                                                              
Per Share                                                      
Information:
Net            $0.05                                          $0.06
income—basic
Net            $0.05                                          $0.06
income—diluted
                                                              
Weighted
Average                                                        
Shares:
Basic          115,964                                        125,334
Diluted        117,525                                        126,896

                                      

                                                               
SPROUTS FARMERS MARKET, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Twenty-Six Weeks Ended July1, 2012
(in thousands, except per share amounts)
                                                              
                                    Pro Forma Adjustments for   
               Historical              Sunflower
               Sprouts    Historical   Fiscal       Sunflower      Pro Forma for
              Farmers    Sunflower(1) Period       Transaction(2) Sunflower
               Market,                 Alignment(2)                Transaction(2)
               Inc.(1)
                                                              
Net sales      $805,832 $197,611    $(1,472 )   $—            $1,001,971
Cost of sales,
buying and     558,314  138,879     (1,011)     637           696,819
occupancy
                                                              
Gross profit   247,518  58,732      (461 )      (637)         305,152
                                                              
Direct store   163,829  35,956      (287)       (199)         199,299
expenses
Selling,
general and    39,671   13,384      (90)        (7,676)        45,289
administrative
expenses
Store
pre-opening    854      2,451       (14 )       —             3,291
costs
Store closure
and exit       1,279     59          —          —             1,338
costs
                                                              
Income from    41,885   6,882       (70)        7,238         55,935
operations.
Interest       (15,463)  (2,018)     14        (3,055 )      (20,522)
expense
Other income   68       87          (1 )        —             154
                                                              
Income before  26,490   4,951      (57)        4,183         35,567
income taxes
Income tax
(provision)    (11,638)  (2,796)     14         (1,632)        (16,052)
benefit
                                                              
Net income     $14,852  $2,155      $(43)       $2,551        $19,515
                                                              
Per Share                                                      
Information:
Net            $0.13                                          $0.16
income—basic
Net            $0.13                                          $0.15
income—diluted
                                                              
Weighted
Average                                                        
Shares:
Basic          112,982                                        125,147
Diluted        114,472                                        126,665
                                                              

^SPROUTS FARMERS MARKET, INC.

^NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

^1. Basis of Presentation and Description of Transactions

^Effective May29, 2012, the Company acquired all of the outstanding common
and preferred stock of Sunflower in the Sunflower Transaction, a transaction
accounted for as a business combination, which was financed through the
issuance of debt and 14.9 million shares of common stock.

^The historical Sprouts Farmers Market, Inc. results of operations for the
thirteen and twenty-six weeks ended July 1, 2012 are derived from its
unaudited consolidated financial statements for the periods then ended. The
historical Sunflower results of operations for the period January1, 2012 to
May28, 2012, were derived from the Sunflower pre-combination unaudited
financial statements. Certain amounts from the Sunflower pre-combination
unaudited financial statements have been reclassified to conform to the
Company's presentation.

^2. Pro Forma for Sunflower Transaction

^The historical results of operations have been adjusted to give pro forma
effect to events that are (i)directly attributable to the Sunflower
Transaction, (ii)factually supportable and (iii)expected to have a
continuing impact on the combined results, as if the Sunflower Transaction
occurred on the first day of fiscal 2012 (referred to as "Pro Forma
Adjustments for Sunflower Transaction"). Below is a description of the types
of adjustments represented in the Sunflower Fiscal Period Alignment and
Sunflower Transaction Adjustments columns.

^Sunflower Fiscal Period Alignment - Sunflower's fiscal 2012 commenced one day
earlier than the Company's fiscal 2012. Pro forma adjustments for Sunflower
Fiscal Period Alignment reflect the pro forma impact of deducting one day from
the historical Sunflower results of operations.

^Cost of Sales, Buying and Occupancy – Adjustments attributable to the
application of acquisition accounting including straight-line rent adjustments
and adjustments to the amortization of favorable lease intangible assets and
unfavorable lease liabilities.

^Direct Store Expenses – Adjustments to historical Sunflower depreciation
related to changes in value and estimated useful lives of property plant and
equipment.

^Selling, General and Administrative Expenses – Adjustments related to
Sunflower Transaction fees recorded by both Sprouts and Sunflower, accelerated
share-based compensation recorded by Sunflower, adjustments to depreciation
related to changes in value and estimated useful lives of property, plant and
equipment and amortization of the Sunflower trade name.

^Interest Expense – Adjustments related to the reversal of historical
Sunflower interest expense, incremental interest expense related to the
proceeds from additional term loan and senior subordinated notes that were
used to effectuate the transaction and interest related to Sunflower capital
and financing lease obligations.

^Income Tax Provision – Adjustment to the income tax provision for the items
listed above.

^Net income per share – Net income per share has been adjusted to reflect
those items listed above and the change in weighted average shares outstanding
– basic and diluted as described below.

^Weighted average shares outstanding – basic and diluted – The weighted
average shares outstanding basic and diluted have been adjusted for the effect
of the additional shares issued in the Sunflower Transaction.

^Non-GAAP Financial Measures

^In addition to reporting financial results in accordance with GAAP, the
Company has presented adjusted net income, adjusted diluted earnings per share
and adjusted EBITDA. These measures are not in accordance with, or an
alternative to GAAP. The Company's management believes that these
presentations provide useful information to management, analysts and investors
regarding certain additional financial and business trends relating to its
results of operations and financial condition. In addition, management uses
these measures for reviewing the financial results of the Company as well as a
component of incentive compensation. For the thirteen and twenty-six weeks
ended July 1, 2012, these non-GAAP measures are presented pro forma for the
Sunflower Transaction. See "Unaudited Supplemental Pro Forma Condensed
Consolidated Financial Information." The Company defines adjusted net income
as net income excluding store closure and exit costs, one-time costs
associated with its combination with Henry's Holdings, LLC ("Henry's") and the
Sunflower Transaction (the "Transactions"), gain and losses from disposal of
assets and the loss on extinguishment of debt. The Company defines adjusted
diluted earnings per share as adjusted net income divided by the weighted
average diluted shares outstanding. The Company defines EBITDA as net income
before interest expense, provision for income tax, and depreciation and
amortization, and defines adjusted EBITDA as EBITDA excluding store closure
and exit costs, one-time costs associated with the Transactions, and losses
from disposal of assets.

^These non-GAAP measures are intended to provide additional information only
and do not have any standard meanings prescribed by GAAP. Use of these terms
may differ from similar measures reported by other companies. Because of their
limitations, none of these non-GAAP measures should be considered as a measure
of discretionary cash available to use to reinvest in growth of the Company's
business, or as a measure of cash that will be available to meet the Company's
obligations. Each of these non-GAAP measures has its limitations as an
analytical tool, and you should not consider them in isolation or as a
substitute for analysis of the Company's results as reported under GAAP.

^The following table shows a reconciliation of adjusted and pro forma adjusted
net income, and adjusted and pro forma adjusted EBITDA to net income for the
thirteen and twenty-six weeks ended June 30, 2013 and pro forma net income for
the thirteen and twenty-six weeks ended July1, 2012:

                                                           
Sprouts Farmers Market, Inc. and Subsidiaries
Non-GAAP Measure Reconciliation
(In thousands)
(Unaudited)
                                                           
                     Thirteen weeks ended         Twenty-six weeks ended
                     June 30,    July 1,          June 30,    July 1,
                      2013        2012             2013        2012
                                  Pro Forma for                Pro Forma for
                     Actual      Sunflower        Actual      Sunflower
                                  Transaction                  Transaction
                                                           
Net income (a)        $12,468   $7,158         $30,585   $19,515
Income tax provision  8,155      6,699           20,052     16,052
Net income before     20,623     13,857          50,637     35,567
income taxes
Store closure and     933        1,178           1,708      1,338
exit costs (b)
Costs associated with
acquisitions and      --         4,346           (16)       7,371
integration (c)
Gain/(loss) on
disposal of assets    (2)        1,269           6          1,386
(d)
Loss on
extinguishment of     8,175      --              8,175      --
debt
Adjusted income tax   (11,756)   (8,746)         (23,962)   (18,408)
provision ( e)
Adjusted net income   17,973     11,904          36,548     27,254
Interest expense, net 11,390     10,214          21,550     20,522
Adjusted income tax   11,756     8,746           23,962     18,408
provision ( e)
Adjusted earnings
before interest and   41,119     30,864          82,060     66,184
taxes (EBIT)
Depreciation,
amortization and      11,598     10,515          22,710     20,249
accretion
Adjusted earnings
before interest,
taxes, depreciation   $52,717   $41,379        $104,770  $86,433
and amortization
(EBITDA)
                                                           
                                                           
Adjusted Net Income                                         
Per Share
                                                           
Net income per share  $0.10     $0.06          $0.24     $0.16
- basic
Per share impact of
net income            $0.04     $0.03          $0.05     $0.06
adjustments
Adjusted net income   $0.14     $0.09          $0.29     $0.22
per share - basic
                                                           
Net income per share  $0.10     $0.06          $0.24     $0.15
- diluted
Per share impact of
net income            $0.04     $0.03          $0.04     $0.07
adjustments
Adjusted net income   $0.14     $0.09          $0.28     $0.22
per share - diluted
                                                           
^(a) See "Unaudited Supplemental Pro Forma Condensed Consolidated Financial
Information" for a reconciliation of pro forma net income to net income for
the thirteen and twenty-six weeks ended July 1, 2012.
^(b) Store closure and exit costs have been excluded from adjusted and pro
forma adjusted EBITDA, and from adjusted and pro forma adjusted net income. In
fiscal 2013 these costs included the costs related to the closure of a former
Sunflower warehouse facility and adjustments to sublease assumptions on other
properties.In fiscal 2012 these consist primarily of the costs to close a
Sunflower administrative facility following the Sunflower Transaction.
^(c) Costs associated with acquisitions and integration represent the costs to
integrate the combined businesses resulting from the Sunflower and Henry's
Transactions. These expenses include professional fees and severance, which
the Company excludes from its pro forma adjusted EBITDA and pro forma adjusted
net income to provide period-to-period comparability of the Company's
operating results because management believes these costs do not directly
reflect the ongoing performance of its store operations.The Company does not
expect to incur material expenses associated with integration of the Sunflower
and Henry's Transactions in fiscal 2013.
^(d) Gain/Loss on disposal of assets represents the gains and losses recorded
in connection with the disposal of property and equipment.The Company
excludes gains and losses on disposals of assets from its adjusted and pro
forma adjusted EBITDA and adjusted and pro forma adjusted net income to
provide period-to-period comparability of its operating results because
management believes these costs do not directly reflect the ongoing
performance of its store operations. The loss recorded in fiscal 2012
primarily relates to the loss on the sale leaseback of a store property.
^(e) Pro forma adjusted and adjusted income tax provision for all periods
presented represents the income tax provision and pro forma income tax
provision plus the tax effect of the adjustments described in notes
(b)through (e)above based on statutory tax rates for the period. For the
thirteen weeks ended July 1, 2012, this amount was further adjusted to reflect
a $0.6 million reduction in pro forma income tax provision for the effects of
certain items related to the Sunflower Transaction. Of the adjustment, $1.0
million relates to the tax effects of $0.7 million and $2.2million of
non-deductible transaction costs incurred by the Company and Sunflower,
respectively, based on statutory tax rates for the period. This adjustment was
partially offset by a $0.4 million adjustment related to tax benefits from
Sunflower stock option exercises. For the twenty-six weeks ended July 1, 2012,
this amount was further adjusted to reflect a $1.6 million reduction in pro
forma income tax provision for the effects of certain items related to the
Sunflower Transaction. Of the adjustment, $2.0 million relates to the tax
effects of $2.5 million and $2.0million of non-deductible transaction costs
incurred by the Company and Sunflower, respectively, based on statutory tax
rates for the period. This adjustment was partially offset by a $0.4 million
adjustment related to tax benefits from Sunflower stock option exercises. The
Company has excluded these items from its pro forma adjusted income tax
provision because management believes they do not directly reflect the ongoing
performance of its store operations and are not reflective of its ongoing
income tax provision.
                                                           

CONTACT: Investor Contact:
         Susannah Livingston
         (602) 682-1584
         susannahlivingston@sprouts.com
        
         Media Contact:
         Kim Rockley
         (602) 682-3173
         kimrockley@sprouts.com

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