Sprouts Farmers Market, Inc. Reports Second Quarter 2014 Results

Sprouts Farmers Market, Inc. Reports Second Quarter 2014 Results

PHOENIX, Aug. 7, 2014 (GLOBE NEWSWIRE) -- Sprouts Farmers Market, Inc. (the
"Company") (Nasdaq:SFM) today reported results for its 13-week second quarter
ended June 29, 2014.

Second Quarter Highlights:

  *Net sales of $743.8 million; a 20% increase from the same period in 2013
  *Comparable store sales growth of 9.5% and two-year combined pro forma
    comparable store sales growth of 20.3%
  *Net income increased to $30.2 million with diluted earnings per share of
    $0.20
  *Adjusted net income increased 68% to $30.2 million; compared to $18.0
    million from the same period in 2013
  *Adjusted diluted earnings per share increased 43% to $0.20; compared to
    $0.14 from the same period in 2013
  *Adjusted EBITDA of $69.1 million; a 31% increase from adjusted EBITDA from
    the same period in 2013
  *Increased the Company's guidance for 2014

"We are very proud of our continuing strong sales growth during the quarter
and ability to leverage those sales into outstanding earnings improvement,"
said Doug Sanders, president and chief executive officer of Sprouts Farmers
Market. "These results give us confidence to increase our financial outlook
for the year. During the quarter, we opened our first store in the Southeast
with tremendous response from customers. The early positive reception
reinforces the broad appeal of our healthy, value-focused model and
demonstrates our ability to deliver on our growth strategy."

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. Where applicable, the numbers below are
first presented on a GAAP basis and then on an adjusted basis.

Second Quarter 2014 Financial Results

Net sales in the second quarter of 2014 were $743.8 million, or a 20% increase
compared to the same period in 2013. Net sales growth was driven by strong
performance in new stores opened, including the Company's first new store in
the Atlanta market, and a 9.5% increase in comparable store sales growth.

Gross profit for the quarter increased 20% to $224.0 million resulting in a
gross profit margin of 30.1% of sales, consistent with the same period in
2013. Leverage in occupancy, utilities and buying costs were offset by lower
merchandise margins from increased promotional activities and higher inflation
in certain categories.

Direct store expenses as a percentage of sales for the quarter decreased 60
basis points to 19.2% compared to the same period in 2013. This was primarily
due to leverage in labor and depreciation, and also a decrease in insurance
expense.

Selling, general and administrative expenses as a percentage of sales for the
quarter decreased 20 basis points to 3.1% compared to the same period in 2013.
This was primarily due to leverage in advertising.

Net income for the quarter was $30.2 million, or diluted earnings per share of
$0.20, up $17.7 million from the same period in 2013. Net income for the
second quarter of 2013 included a pre-tax loss on extinguishment of debt of
$8.2 million. Excluding adjustments for the quarter, adjusted net income
increased 68% to $30.2 million, compared to $18.0 million in the same period
in 2013, and adjusted EBITDA totaled $69.1 million, up $16.4 million, or 31%,
from the same period in 2013. These increases were driven by higher sales and
operating leverage. In addition, net income benefited from lower interest
expense due to a lower principal balance on our term loan and a decrease of
interest expense from our April 2013 refinancing. Adjusted diluted earnings
per share was $0.20, a 43% increase from adjusted diluted earnings per share
of $0.14 from the same period in 2013.

Fiscal Year-to-Date Financial Results

For the 26-week period ended June 29, 2014, net sales were $1.5 billion, or a
23% increase compared to the same period in 2013. Growth was driven by an
11.1% increase in comparable store sales growth and strong performance in new
stores opened. Net income was $63.9 million, up $33.3 million from the same
period in 2013. Net income year-to-date included $1.4 million pre-tax
secondary offering expenses; $0.3 million pre-tax store closure and exit
costs; and $1.0 million pre-tax loss on disposal of assets. Net income for
2013 included $1.7 million pre-tax store closure and exit costs, and a pre-tax
loss on extinguishment of debt of $8.2 million. Excluding these items,
adjusted net income increased 79% to $65.6 million compared to $36.5 million
in the same period in 2013.Adjusted EBITDA totaled $146.6 million, up $41.8
million or 40% from the same period in 2013. Adjusted diluted earnings per
share was $0.43, a 54% increase from adjusted diluted earnings per share of
$0.28 from the same period in 2013.

Growth and Development

During the second quarter of 2014, the Company opened six new stores – two in
Nevada, and one each in Arizona, California, Colorado and Georgia.Five
additional stores, including the Company's second store in Atlanta, have been
opened in the third quarter to date, bringing 2014 new store openings to 15
for a total of 182 stores in ten states as of August 7, 2014.The Company
expects to open a total of 24 stores during 2014.

Leverage and Liquidity

The Company generated cash from operations of $137.9 million year-to-date
through June 29, 2014 and invested $57.8 million in capital expenditures,
primarily for new stores. The Company ended the quarter with a principal
balance on its term loan of $314.8 million, $184.3 million in cash and cash
equivalents and $52.6 million available under its revolving credit facility. 

2014 Outlook

The following provides updated information on the Company's guidance for 2014:

                                                         Q3 2014
                                                         Guidance
Comparable store sales growth                             8.5% to 9.5%
Two-year combined pro forma comparable store sales growth 18.5% to 19.5%

                                                          
                                          Full-year 2014   Full-year 2014
                                          Current Guidance Prior Guidance
Net sales growth                           19% to 20%       18% to 20%
Unit growth                                24 new stores    23 to 24 new sores
Comparable store sales growth             8.5% to 9.5%     8.5% to 9.5%
Adjusted EBITDA growth                     25% to 27%       23% to 25%
Adjusted net income growth                 45% plus         40% plus
Adjusted diluted earnings per share ^(1)   $0.65 to $0.67   $0.63 to $0.65
Adjusted diluted earnings per share growth 35% to 40%       31% to 35%
^(1)
Capital expenditures                      $110M to $120M   $110M to $120M
(net of landlord reimbursements)                          

The Company's adjusted diluted earnings per share, adjusted net income and
adjusted EBITDA guidance for the year do not include charges and costs which
are expected to be similar to those charges and costs excluded from adjusted
diluted earnings per share, adjusted net income and adjusted EBITDA in prior
periods. Please see the explanation and reconciliation of these non-GAAP
measures to the comparable GAAP measures for the thirteen weeks ended June 29,
2014 and June 30, 2013 in the tables included below.

^(1) Based on a weighted average share count of approximately 154 million
shares for 2014.

Second Quarter 2014 Conference Call

The Company will hold a conference call at 2 p.m. Pacific Daylight Time (5
p.m. Eastern Daylight Time) on Thursday, August 7, 2014, during which Sprouts'
executives will further discuss the Company's second quarter 2014 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 70930427.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: 70930427. 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, which are based on management estimates, currently available
information and assumptions that management believes to be reasonable. These
expectations 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 that are not statements of historical fact (including, but not limited
to, statements to the effect that Sprouts Farmers Market or its management
"anticipates," "plans," "estimates," "expects," or "believes," or the negative
of these terms and other similar expressions) should be considered
forward-looking statements, including, without limitation, statements to the
effect that the Company believes that the early positive reception to its
expansion reinforces the broad appeal of the Company's healthy, value-focused
model and demonstrates its ability to deliver on its growth strategy, the
Company's expected new store openings and the Company's guidance and outlook
for 2014. 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 healthy grocery store offering fresh,
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. Recently named one of the top five
supermarket chains by Consumer Reports and headquartered in Phoenix, Arizona,
Sprouts employs more than 17,000 team members and operates more than 180
stores in ten states. For more information, visit www.sprouts.com or
@sproutsfm on Twitter.

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 29, 2014 June 30, 2013 June 29, 2014 June 30, 2013
                                                             
Net sales              $743,810    $622,367    $1,466,416  $1,196,061
Cost of sales, buying  519,762      435,340      1,018,509    835,114
and occupancy
Gross profit           224,048      187,027      447,907      360,947
Direct store expenses  143,155      122,985      281,386      237,646
Selling, general and
administrative         23,100       20,728       45,579       37,452
expenses
Store pre-opening      2,420        2,303        3,367        4,017
costs
Store closure and exit (200)        933          333          1,708
costs
Income from operations 55,573       40,078       117,242      80,124
                                                             
Interest expense       (6,520)      (11,391)     (12,987)     (21,556)
Other income           100          111          196          244
Loss on extinguishment -            (8,175)      -            (8,175)
of debt
Income before income   49,153       20,623       104,451      50,637
taxes
Income tax provision   (19,002)     (8,155)      (40,567)     (20,052)
Net income             $30,151     $12,468     $63,884     $30,585
Net income per share:                                         
Basic                  $0.20       $0.10       $0.43       $0.24
Diluted                $0.20       $0.10       $0.42       $0.24
Weighted average                                              
shares outstanding:
Basic                  149,681      125,958      148,720      125,963
Diluted                154,039      129,716      153,670      129,438


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                                    June 29,     December 29,
                                                     2014        2013
ASSETS                                                           
Current assets:                                                  
Cash and cash equivalents                            $184,273   $77,652
Accounts receivable, net                             11,283      9,524
Inventories                                          134,655     118,256
Prepaid expenses and other current assets            2,523       8,049
Deferred income tax asset                            8,038       18,146
Total current assets                                 340,772     231,627
Property and equipment, net of accumulated           399,328     348,830
depreciation
Intangible assets, net of accumulated amortization   194,821     195,467
Goodwill                                             368,078     368,078
Deferred income tax asset                            14,349      15,267
Other assets                                         13,580      13,135
Total assets                                         $1,330,928 $1,172,404
                                                                
LIABILITIES AND STOCKHOLDERS' EQUITY                             
Accounts payable                                     $159,267   $111,159
Accrued salaries and benefits                        23,146      22,287
Other accrued liabilities                            33,552      32,958
Current portion of capital and financing lease       5,097       3,395
obligations
Current portion of long-term debt                    5,837       5,822
Total current liabilities                            226,899     175,621
Long-term capital and financing lease obligations    119,130     116,177
Long-term debt                                       302,495     305,418
Other long-term liabilities                          70,754      61,417
Total liabilities                                    719,278     658,633
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, 149,743,668 and 147,616,560 shares       149         147
issued and outstanding, June 29, 2014 and December
29, 2013, respectively
Additional paid-in capital                           513,120     479,127
Retained earnings                                    98,381      34,497
Total stockholders' equity                           611,650     513,771
Total liabilities and stockholders' equity           $1,330,928 $1,172,404


SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                                  Twenty-Six Weeks Ended
                                                  June 29, 2014 June 30, 2013
Cash flows from operating activities                            
Net income                                         $63,884     $30,585
Adjustments to reconcile net income to net cash                 
provided by operating activities:
Depreciation and amortization expense              26,071       22,639
Accretion of asset retirement obligation           83           71
Amortization of financing fees and debt issuance   785          1,479
costs
Loss on disposal of property and equipment         994          8
Gain on sale of intangible assets                  -            (19)
Equity-based compensation                          2,995        2,665
Non-cash loss on extinguishment of debt            -            7,976
Deferred income taxes                              11,025       14,070
Changes in operating assets and liabilities:                    
Accounts receivable                                (1,860)      (792)
Inventories                                        (16,399)     (10,761)
Prepaid expenses and other current assets          5,524        922
Other assets                                       (636)        163
Accounts payable                                   34,012       28,383
Accrued salaries and benefits                      859          (2,404)
Other accrued liabilities                          594          (4,939)
Other long-term liabilities                        9,958        6,503
Net cash provided by operating activities          137,889      96,549
                                                               
Cash flows from investing activities                            
Purchases of property and equipment                (57,793)     (51,676)
Proceeds from sale of intangible assets            -            172
Proceeds from sale of property and equipment       115          2
Net cash used in investing activities              (57,678)     (51,502)
                                                               
Cash flows from financing activities                            
Borrowings on term loan, net of financing costs    -            688,127
Payments on term loan                              (3,500)      (405,100)
Payments on senior subordinated notes              -            (35,000)
Payments on capital lease obligations              (244)        (243)
Payments on financing lease obligations            (1,423)      (1,398)
Payments on deferred financing costs               -            (1,370)
Payments on prepaid IPO costs                      -            (970)
Cash from landlords related to financing lease     577          881
obligations
Payment to stockholders and optionholders          -            (295,921)
Excess tax benefit for exercise of stock options   26,214       4,402
and antidilution payment to optionholders
Repurchase of shares                               -            (113)
Proceeds from the exercise of stock options        4,786        75
Net cash provided by (used in) financing           26,410       (46,630)
activities
Net increase (decrease) in cash and cash           106,621      (1,583)
equivalents
Cash and cash equivalents at beginning of the      77,652       67,211
period
Cash and cash equivalents at the end of the period $184,273    $65,628

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, the
Company has presented adjusted net income, adjusted earnings per share and
adjusted EBITDA. These measures are not in accordance with, and are not
intended as 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, and
they are a component of incentive compensation. 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 (the "Henry's
Transaction") and its acquisition of Sunflower Farmers Market, Inc. (the
"Sunflower Transaction," and together with the Henry's Transaction, the
"Transactions"), gain and losses from disposal of assets and the loss of
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, gains and losses from disposal of
assets and the loss on extinguishment of debt.

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 net income and adjusted
EBITDA to net income, and adjusted earnings per share to net income per share,
for the thirteen and twenty-six weeks ended June 29, 2014 and net income for
the thirteen and twenty-six weeks ended June 30, 2013:

                          Thirteen Weeks Ended    Twenty-Six Weeks Ended
                          June 29, 2014 June 30,  June 29, 2014 June 30, 2013
                                         2013
                                                             
Net income                 $30,151     $12,468 $63,884     $30,585
Income tax provision       19,002       8,155    40,567       20,052
Net income before income   49,153       20,623   104,451      50,637
taxes
Store closure and exit     (200)        933      333          1,708
costs (a)
Costs associated with
acquisitions and           -            -        -            (16)
integration
Loss/(gain) on disposal of 267          (2)      994          6
assets (b)
Secondary offering
expenses including         42           -        1,446        -
employment taxes on
options exercises (c)
Loss on extinguishment of  -            8,175    -            8,175
debt (d)
Adjusted income tax        (19,044)     (11,756) (41,644)     (23,962)
provision (e)
Adjusted net income        30,218       17,973   65,580       36,548
Interest expense, net      6,520        11,390   12,987       21,550
Adjusted income tax        19,044       11,756   41,644       23,962
provision (e)
Adjusted earnings before   55,782       41,119   120,211      82,060
interest and taxes (EBIT)
Depreciation, amortization 13,322       11,598   26,357       22,710
and accretion
Adjusted earnings before
interest, taxes,           $69,104     $52,717 $146,568    $104,770
depreciation and
amortization (EBITDA)
                                                             
                                                             
Adjusted Net Income Per                                       
Share
                                                             
Net income per share -     $0.20       $0.10   $0.43       $0.24
basic
Per share impact of net    $-          $0.04   $0.01       $0.05
income adjustments
Adjusted net income per    $0.20       $0.14   $0.44       $0.29
share - basic
                                                             
Net income per share -     $0.20       $0.10   $0.42       $0.24
diluted
Per share impact of net    $-          $0.04   $0.01       $0.04
income adjustments
Adjusted net income per    $0.20       $0.14   $0.43       $0.28
share - diluted

(a) Store closure and exit costs have been excluded from adjusted EBITDA, and
from adjusted net income. For the thirteen weeks ended June 29, 2014 these
costs included the benefit of a write-off of a liability related to our former
warehouse and ongoing expenses related to prior closures.For the twenty-six
weeks ended June 29, 2014, these costs included relocation of one store, the
benefit of the write-off of a liability related to our former warehouse and
ongoing expenses related to prior closures. For the thirteen and twenty-six
weeks ended June 30, 2013 these consist primarily of the costs to close a
former Sunflower warehouse following the Sunflower Transaction and adjustments
to sublease estimates for stores and facilities already closed.

(b)Loss/(gain) on disposal of assets represents the gains and losses recorded
in connection with the disposal of property and equipment.The Company
excludes losses on disposals of assets from its adjusted EBITDA and 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.

(c)Secondary offering expenses including employment taxes on options
exercises represents expenses the Company incurred in its secondary public
offerings and employment taxes paid by the Company in connection with options
exercised in those offerings. The Company has excluded these items from its
adjusted EBITDA and adjusted net income to provide period-to-period
comparability of its operating results because management believes these costs
do not directly reflect the performance of its store operations.

(d)Loss on extinguishment of debt represents expenses the Company recorded in
connection with its April 2013 refinancing including write-off of deferred
financing costs and original issue discounts associated with former credit
agreement. The Company has excluded this item from its adjusted EBITDA and
adjusted net income to provide period-to-period comparability of its operating
results because management believes these costs do not directly reflect the
performance of its store operations.

(e)Adjusted income tax provision for all periods presented represents the
income tax provision plus the tax effect of the adjustments described in notes
(a)through (d)above based on statutory tax rates for the period. The Company
has excluded these items from its 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:
         Donna Egan
         (602) 682-3152
         donnaegan@sprouts.com

Sprouts Farmers Market Logo
 
Press spacebar to pause and continue. Press esc to stop.