Sprouts Farmers Market (SFM) 1 Aug 232023 Q2 Earnings call transcript

Thank you for standing by. And welcome to the Sprouts Farmers Market Second Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. to President host Treasurer. of like Susannah today's I'd Vice Livingston, Investor now introduce for your program, And Relations and go ahead. Please

Thank afternoon, good you everyone. and

time our We join Executive with Officer Chief call. taking me you Molloy, are Chief the Chip Officer pleased Jack Sinclair, Sprouts quarter second Financial on and XXXX today. earnings are to are

website be The at section call, and this the webcast earnings of Relations release announcing Investor slides investors@sprouts.com. our accessed can second of the quarter our XXXX results, through quarterly

this for These forward-looking uncertainties our several During the to may including statements, in statements. certain and described results forward-looking call make XXXX management differ statements regarding those materially that risks statements expectations could cause beyond. from and involve

factors the of filings discussed in For information, release. more our commentary the end forward-looking risk and statements our at earnings please refer the on SEC to

to include earnings to Please Our figures. release references reconcile the our the our to remarks non-GAAP non-GAAP measures tables GAAP in measures. today comparable see

hand Jack. let that, over me With it to

Susannah. Thanks, Farmers everyone. announce to Market. for pleased solid I'm quarter another Sprouts good And afternoon,

provide second growth Their service members per to and while growth sales X%, Sprouts a the speciality comparable establish XX% store as and total customer unique a share go online healthy X.X%, and experience, XX,XXX team differentiated retailer. in growth Our adjusted sales to delivered earnings efforts in-store superior of of of quarter. products continue to food

seeking a and new the on to profitably stores During and our full to new us path open enthusiasts the allowing expand at health quarter, opened we XX innovation year, are to least for six customers. reach

providing And These simultaneously a for our fresher growth those come. will Southern us distribution for expanded to to base, new, we markets in our also larger distribution California During while to DC. customer relocated center our the products years allow capacity bring centers Tex to we facility. quarter

financial performance I'd of closer at the for and who Chip, quarter remainder moment, our will our it the turn like look a provide a second outlook In to year. over to

to I service thank so, doing moments of his a for few Sprouts. Chip Before XX-plus want years to take to

have tremendous afternoon, to may our and seen a on a end retire Chip been asset you partnership. And As executive our has leadership our release of and of as valued personal Chip this at has board a member basis. team. decided in year. the enjoyed this I

to With Chip. turn over that, it I'll

Jack. afternoon, Thanks, And everyone. good

store X.X%. quarter, by was period of $X.X up same increase or second the We $XX or This stores in total traffic For million adding positive sales driven were X% comp for experienced of from sales XXXX. growth with comparable transactions new billion combined the proxy similar basket net number quarters, throughout retail inflation in the the basket. this a basket where quarter, slight was combined perspective. by from several decrease with increase The in the was year-over-year a increase to in offset a in increase partially the last items

moving of quarter, third the expected, slight we to year-over-year declines. are the beginning a into and inflation both As the unit price see tapering

total Our representing e-commerce XX% during of quarter, sales sales. the XX.X% our grew

brand awareness. trends continue density of show markets driven and increased new Our by encouraging to stores

Sprouts the on focus such front, categories these performing differentiation, bakery, strategic the with supporting to as product customer. the On the decision key our proteins, ones and important strongest departments remain to dairy grocery our further most

and Our as quality Sprouts. sales, XX% private seekers to Sprouts of label innovation or at total found grew XX% sales represented be and brand only uniqueness value

Turning to margin. gross

XX%. gross margin quarter was Second

$XXX shifts year. million. Category gross impact compared mix to was of special quarter and an basis Excluding of optimization XX.X%, the items, for contributed XX to the promotional accretion. last continued margin this approximately increase SG&A points adjusted total

fees. of increase adjusted increase SG&A addition in higher new from was primarily by million, XXXX. $XXX impact of e-commerce totaled million an driven the This period the Excluding $XX the stores items, special and of same

additional done last support Like invested been store rising for increases in information to program, retailers quarters, more processes have a technologies labor we've a and recently, many with job hours of engaging remarkable have the date, also bonus our over several costs. other the customer and while new labor More experiencing sampling those offsetting business's long-term To operations teams and experience. technology enhancing growth. the we

Examples the promotional self-checkouts management new Fresh implementation include efficient installation FIM or sequencing and of Item of more system tags. labor Management, and

Store $X quarter. approximately million the other for costs closures totaled and

sales for of depreciation of the depreciation While in exclusive and million quarter. included amortization, the was cost $XX

associated special prior the quarter, items, million. amortization the $XX depreciation store in with decision Excluding totaled closure adjusted our and

was taxes $XX our interest quarter expense the net per earnings were share earnings was income million, and interest million, million, diluted while For $X in before $X.XX. $XX was

interest of and the same Excluding quarter earnings before million of $X.XX, Adjusted income impact diluted were per increase adjusted in share to was XX% special items, the $XX was $XXX adjusted earnings taxes year. compared an million. prior net the in

remains Now and flow strong. robust let's and turn our which to balance sheet, cash

to and we our us and our convenience expenditures capital net in meal During the business, reimbursement. million allowed spent new in opening expanding center, $XX investment In first in distribution quarter, second a invest fixtures. generation center the distribution including cash of stores, six landlord foremost new total,

our million We million shares. also paid revolver and owners our returned by down repurchasing $XX $XX bank to of million X.X

outstanding million with equivalents, million our $XXX $XXX second $XXX revolver We $XX credit. of cash million cash quarter in million outstanding and of letters and on ended the

As controlling the environment spending to in consumer we of dynamic behaviors year, evaluate a continue we can on monitor remainder focus and for our control. and what expectations we the

full X% sales the in X% continue of of we For X%. to to to comp expect growth sales growth year the range and X%

to be quarter. quarter, deleverage acceleration in growth rising labor predominantly a gross slight and due and slightly to we will cost. timing expect of up shifts the mentioned bit SG&A a to The store mainly last more new deleverage due margins be We third

$X.XX additional to That continue to we repurchase $X.XX, interest We million are repurchases. be to and between do expected $XXX assumes per adjusted in shares expect million be no earnings between to adjusted earnings raising said and taxes $XXX opportunistically. before which and share share

all Jack mentioned which should of $XXX track and in million between opening to current we're in Capital this be reimbursements $XXX As our million. least net stores are on landlord his at expenditures, year, XX open of remarks, prototype. new

For adjusted per quarter, sales expect we and share $X.XX the third earnings $X.XX. between and digits low-single comp of

With that, me turn Jack? let it Jack, back to

Thanks, Chip.

performance We driven by the continue over by to years. be encouraged the to our changes date made we've past strategic few

connecting customer experience in-store more and supply potential growth differentiated and prototype, are we effectively current with and resonating with and continues online, to stronger customer surely are store customers. slowly our new with get Our core both segments, accelerating efficient, are our improving our products chain we more but

are As curate we appealing health I've many attributes retailer. speciality times, We to the mentioned food contain a products customer. enthusiast that

our diet are as beef and chicken grass-fed, For proteins, more attributes have sales of organic, vegan XX% and sales our in XX% XX% non-GMO. more than such example, grocery of specific of are sales than our

which our produce, over XX% consider a significant This in Even from organic. other sales many commodity, grocers. are a of difference is

are a produce our from of seekers locally private products finding innovation label trove to sourced treasure Our also brand. Sprouts

second quarter, grower the produce focused local the shared store. in region, in each and assortments In seasonal stories our we on

approximately from local XX% For are of sales produce farms. the our second quarter

growth a XX% Chip to this As be with continues year. brand for penetration driver mentioned, Sprouts us over

sampling, through e-commerce packaging. driven store redesigned the improvements merchandising have and and brand We active

we year health items focusing new Our of receive attributes. this awards, on year, honored and this many were team test including brand profiles has We to released over relevant XXX Sprouts Retailer vertex eliminating what the and healthy curated sell. for awards With and of we options alternatives, gold, our are several Year healthy and who silver are finding bronze guesswork products. the differentiated because

We successfully As added coupled improving We I we Colton, square DC DCs. these late mentioned the Southern Texas capabilities were during while earlier, to Texas our growth our and Colorado June. California XX% our supply DC opened and our and support new of larger and allow second doubled our with opened Florida, recently our produce approximately DC grew quality size and freshness. footage Fullerton quarter, in our expansions ripening our May in close XX%, expansions us we store to by outgrew DC in These the Arizona busy in DC that in chain. California improving

As for unit growth.

Our the year-to-date, to new to We second bringing cost-effective format prototype. stores XX in smaller, the in stores new continues out. roll opened most all new quarter, six us

with also executed XXX nearly year gain than in XXXX. starting our is towards leases, goal traction approved new growing, XX helping of stores growth per and more us pipeline Our unit XX%

store. Our for recent reach perform on as to focus continue awareness greater unique of marketing attribute-driven expected, vintages our great as in we out increasing our and highlighting store products both and locations,

to We omnichannel our work experience. continue on

scores for Sprouts program trial early off we mentioned, rolled of helps satisfaction that offerings, more goals. beyond have our improve just healthy and while support our and brand basket we're I enhanced out program the ground, products. seeing And is active service sampling unique As growth including our customer in-store a

growth shop.sprouts.com. Instacart with our pleased own Online. all three DoorDash, We're customer and of in the our and sales at channels,

enhanced several redesign last product and our and quarters, out e-commerce within site redesign a personalized including the customer the optimized menu functionality rolling shoppable shopping, and more create to Over relevant a search a significantly flyer. we've platforms, experience our

connecting effectively by our target now Almost a at be media more digital supported customers priority plans. spent top with driving shopping and aimed with is occasions customers, on Sprouts. more our of Communicating to XX% and continues data-driven for opportunity and

and is food Our evolving more freshness, communicate Find campaign the to from creative Your animations. use enticing to Healthy photography away move

plan designed journey. that to customer tandem on in is approach creative media focuses new each stage work the digital with our of Our

towards our As we thinking, future into program. relevant still phase we These as could a our test benefits. with and we significant customers know, all provide This learnings is a helping and and valuable efforts. and wants. better data linking the insights in the that individual needs journey build multi-year with provides We're are learn transactions guide more to robust believe loyalty personalization

a environment. do our said more progress has believe business retailer of the opportunities the macro capture In us. in we and of that establishing in we're healthy choice to work as to making challenging brand front our in growing speciality summary, That

Fortunately, we talented and and well are have succeed a to grow. in place, positioned team

turn to to questions. like Chris over for it Operator? I'd that, With

JPMorgan. Ken from And question Instructions] our first [Operator comes Goldman line the of from

question, Your please.

or typically, Chip, successor is least case, Hi, pending terms a company will ask say curious, anything element about thank I make was that either should announced suddenness any it will congrats that's a just the we there. think announced, that when I the this take there's In a and assume in was nothing of just your if timing. wanted search retirement underway. on the of will retirement. of freezing search sure. I you. I know didn't at is indicative And or to place.

search it's suddenness a if all, is at step a Ken. we two underway. is all. not not didn't We been it And should it because express like absolutely, have The that, clear. No, is And underway. at

some at going about thinking On the been some Chip something that? time, about say Chip's thinking but on we've only for time, you're -- this been to

and here. a for been been and timing's I'm is it's to right. a And my great head ready pasture. just years. it's to in I've this here go run I'm XX-plus Yeah, -- playing a out been while And

couple I've Finally, to miserably failed tried I time. a other retire this times

to good go. I'm think I

during years. there an been XX You've interesting

So going on paid seems ask rational. congrats wanted be still to seems the we you. to certainly by been I from Clearly, to also tell be environment manufacturers. mostly competitive promoting the just there's the for can vendors, to what more

consider of bit for you're wanted case. would And of what it's guidance? the of agree year? how if that to might still, broader see your a little boundaries you for that What into the you a Just you that's sense the if within get factoring rational the rest

context dynamic different we're place. sell And Yeah, describe be doesn't we a changing describing that I how in seem that dramatically. you're a dynamic. are things competitive you the very right. of that's lot to certainly a Ken, different exactly what to And think the slightly of competitive would

on it. not watch in any we're carefully. watching And things that gives causes concern seeing space. pricing shape in that. good us cause that for very, produce we're that our So very of we're kind And We

thank so Great, you much.

Thanks, Ken.

comes next Leah Thank Goldman Jordan the line you. Sachs. One question question. of from our And our from moment next for

please. Your question,

on in Good afternoon. my just touch taking I question. Thank want volumes. you for to

sequentially, but still You they were said in that improving declines.

produce was how color store are decline? the back and or that's any last how talk improving And there. trends and year, the the from magnitude you we Just side, of that about fresh challenge total it's is can produce should think the to the just that's on coming overall then where

Yeah. Leah, Chip. this is

units within with earlier. per seeing we we're negative will the basket associated the the overall, get the honestly and that incident But of at last we stabilize year all there we less to benefit year, happened. to would and effect AUR it as beginning to So be year expected, expected expected would less top-line that the as progress, Ukraine start

from where the same you're starting to the it's and that late per just to to units, where third units the stabilized it And And just into thought sequentially. see under negative and as benefit to and beginning you're see beginning for you're out less happening see in -- stabilize, we quarter it beginning per see to to thing seeing AUR, quarter and to We're beginning it's less slightly get number it's units, hanging XX. we're basket. starting that's starting

on regarding have the And in an rate the volume through seen unit like that. fresh also terms side of Areas of of And we've the question, we Leah. inflation. a that's in the encouraging slowdown going seen meat, been change

how it's Again into inflation reduction illusion seeing is to described way we're in units terms XX the but Chip [ph] negative almost a down. eight And play bit the of little that's it inflation, forward. going not of of expecting the changing. months So a ago, going pace through, you're how in through slowing playing it,

But seeing in immediate like unit you're volatile change changes, some a that pretty where pricing the changes in in and categories pretty see you dramatic volume. avocados,

will we it watch So closely.

very our of a a as you business part --produce big in know. are We is

volatility So always that we been a watch and case. remains there's produce in not

Thank on The follow give. check the more to my a typically just up, is wanted on Okay, great. I XQ in you guide. than guys just vague low-single comp you. bit digit, And

maybe just the consumer, So outlook? you. uncertainty color disinflation function quarter-to-date wise there and curious the any more So seeing that you're color on as behavior is of anything maybe some a if well? different from Thank or

would we're a in that. going And solid how can range. through But that out. transpires it's we comes right feel I wider, feel quarter it three-ish. really the Yeah, a I singles little We how to fragile less versus little those it's it's be AUR one that how is, obviously about be it now, unit to say fundamentally and comfortable that

you. thank Okay,

Thank you.

One our of moment next question Guggenheim. from line John next And question. the our for from comes Heinbockel

please. question, Your

dive have the how curious you you wallet any think share? that they're terms today? Can just new base target the of of insight in And acquisition. Jack. of have in In growth group? on two how into to performing Hey, of wallet you do And terms the I'm customer overall segments? much households, you their relative

health had, the the natural thing got look and encouraging always Well, when innovation percentage seekers. wallet, both a which you've little we've the of I that The which at on market. we in kind of data growing of -- in are is which terms enthusiasts data space, and shares market the the very we terms that more to of products significantly have. of different our kind Share can traditional that and get encouragingly, good organic, within

coming And bricks we the in and coming market so digitally, and our that customers. e-commerce And seeing very encouraging in both we're little small to by and So on target in. continuing I'm business last differentiation, mortar. attract that's both traffic a data is can growth some share we appeal the while. encouraged share in traffic's that focus the from to those need

who's intent, creating omnichannel target the So the both, the the growing always balance we're But the far that customer got. those nice more assortment we're around customers, going with so data seeing suggests with strategy and a we're going target that since been of have which has that forward. this gotten pivoted that really so data get share we've data got we've we'll curated this And customer we base.

don't what loyalty opposed of I'm right, say that's So customers, getting think when wallet your have market you share customers' just program, curious, with you're share their individual food? XX% of percent know as but to a wallets? -- your do digit, of wallet XX% best or it high? you low-single in Is of or you right the I your that your not

us. got in and No, it's really why don't with We we moment number target that our that's I to front so long-term the the to we low. try has opportunity to We're have [indiscernible] moving much assortment will number. and direction. that's on plans. make share relatively going added big in say exact of I products that up on a share we're that, continue is the need conventional our and don't And of growth the where that on right going of low grocers. our the that all which along the what at next confident have, are have are. growth nature of said why differentiate get is a the We've than customers' assortment. to the the more of we're confidence not win years. conventional strategies We've of that's over we few basis at, with of that those And looking customers wallet the so And to fulfill the we're wallet,

think think? program, All than be then out you loyalty. probably XX you'll in right, you'll months just you longer, and But, have loyalty the lastly, something or a you and think it'll next when have there more do affinity

working and And up develop. going it. and want have very that. wake to it don't And day to hard one will have you're the exactly We're way on it evolve think I we

plays exactly year to next we position how And it our get then more we're will know with out. will certainly the data been figuring customers. process it And marketplace, that then customers of from that, and this from the are, we're where into exactly manifests our itself will we what on how do have in increasingly about getting We data one more one. we

Thank you.

John. Thanks,

question our Mark from Thank the of UBS. you. One moment for line our And next Carden comes from question. next

please. Your question,

Good on taking retirement. And for the thanks much so question. congratulations afternoon, the and Chip,

between gains. a about legacy like seeing you about near awareness. results your be market to newer seems markets more in much your and some want think store talked your a newer seeing runway in deviation it When that improving And or recognition share some there is a still of So from guys You are Are brand where you lot of markets? another you're comp. your base, perspective you in strong nice you markets, front?

on runway certainly the Well, markets. newer

kind up It the We takes and way focus in and to running position. bit of mid-Atlantic the to have very the set we and moving want in a the stores clear a get it. country little and longer do and Florida

bigger, though, critical out are how which And some numbers very two-year encouraging we're it of by in because it takes those Tampa. getting in where seeing that we've Florida, encouraged been Florida no this, of terms about some now terms I've bit like our been, longer. we're of stores kind suggests mass we little thought a business,

view, can market. you of a got very places around in market of base a the much critical get But It we we work where that plans mid-Atlantic need consolidating mass are from goes bit in of about that a the longer, terms marketing build we're of stores bit known. in do lot that to we in are so point effects store takes the the we've And talked known. it not a got on that to about marketing tighter faster place. we've And

we're well bit And we communication, little as go that forward. marketing as flexing a our on

have still Great. or algorithm And to you on year, would year. expect early. you're to still for return headwinds target you your to growth that store next impacted? this been update know But then reach on how any some thinking it's of remain track XX the you said little about unit bit your a I

on XX%. Mark. this will than on be a the So that couple Well, we're XX But number, in XXXX, and yes, comfortable year. for track maybe more

luck. good Thanks so and much

sights Mark. as We've on well, got the approved that

confidence a lot in we've got that. So of

again. Thanks Fantastic.

Thanks.

line Credit next And of question from you. Thank Short for question. our comes One next Suisse. our Karen from a moment

please. question, Your

much. for very Hey, echo my I And congratulations, retirement. Chip thanks

did things. ask I want two So to just

second Looking XQ, compared in at growth, you guess, divergence, versus there's half sales significant to EBIT I those the what numbers. growth did just in

about what what so specifically, the And would there's two specific parse on be wondering are for know components gross the number a second then delta. inflation So thinking you -- what margin those moving and you just could then, parts, tape for half? I And but SG&A. put if that out lot some of

Chip. is this Karen

First, it. congratulations. for the thanks I appreciate

second guidance As in quarter. nothing's it the even year since to relates last our really, half, changed and the

be quarter. details half, our enough see in because, are margins number suggest think we profitability back we -- same that the to are predominantly we're back generally gross one, in have of I the of think on deleverage, the going gave year. SG&A the margins kind I the gains to going wouldn't to going front, some third in specifically flat be And our to half the

couple. the about talked the third And of in timing bit there's quarter. little a that quarter a pieces last are One, that that of we

have the to time, piece. The through for through store going get year, thirdly, second teams we strain of more gets things the little store labor at start been transition is, a the as we as growth great, mitigate cost take increases. on those as bit to that the we We've to that and up put have our will really moment, mitigating job P&L. call, difficult done growth long a start great last a costs said he it as get, -- some we labor we a accelerate the did as that. this done lap a But we on for And everyone costs the

news good the labor on to stabilize. labor least the beginning front, the at said, That is are rates

next the of be works. strain. place of year, again, but won't to we'll But the stores growth, of that as midway year, you the math the little back in we stable for a difficult year are as it store And that going every how So half it's be a know start year. next bit year, next we'll number in ground that see accelerate

inflation? and Okay,

Inflation.

And to the at as year-over-year a be to call out. in by as digits year, to then perspective. quarter beginning the in that the the that seems of you'd migrated the you third-fourth year be sequentially starting then beginning through mid-single double play the digits, it So on year And was year-over-year. in front, going be of always inflation thought the our from

much. so thanks Okay,

from next Bank. moment question. Thank our the Krisztina from you. Deutsche for question comes Katai of next line And our One

Your question, please.

good as period. well. some congratulations have was question rising promotions I Hi, on the margin, want afternoon, the gross quarter. on which I add throughout I And to retirement second up follow Chip quite to despite my think, strong a in obviously the

I can you but promotional maybe and drive that private performance are you about other behind example, of better So there, mentioned drivers know leverage, of what see you're margin? to talk really Sprout-funded for like week gross sale some last the that to the the some offsets the promotions finding label items.

And then within traffic question this, at how that, managing you market just price and is like to for share as you. well, levels? how Thank gaps, exchange willing just Sprouts current and on margins your these view retain in

Jack Krisztina. talk then the gap. will about and Thanks, about the talk I'll margin

from higher see some We of than on faster within is expecting we driven margin overall didn't company, did as were categories. for both accretion. a perspective, then and partially growing margin some into our line. It by come So quarter, some our the the the the overperform mix, of businesses margin, a category-to-category categories. we we that And are within lower

Some of more faster organics will, than subcategories, you growing and then items the are if commoditized. are

So that's helping.

that's of sort we as little bit. transitory. or got behind a talked Also, bit it this ELP effectiveness, ourselves and five a six thirdly, promotional time, we've to then saw a about the probably than a And the got we on front. see less little We rising, ago, we're dislike, a bit teeny overperformed bit costs quarters little on as we promo ahead more continuing probably

think going year-over-year. rest into get count on more and the year, that stable, And going we margins really to we of wouldn't the forward. I more look the become where as So place that we'll for are

being and We're gaps good aggressive key we're business, managed. looking where So that where produce yeah, successful at in there. the margins our we've in particularly price play has been comfortable a comfortable are about we on role, where always And and price it very talked in at of the time we've our context to is produce. organic where lot way And a of we're Krisztina, a good And we shape. spend are. whole how continue that it's on shape, to gaps little and for been The us. continue bit be produce look we

pricing, will other portion not cheaper that foods. pricing, that equivalent look sell things other to of people on lot loose sell they commodity to a XX% bulk bulk a are win the able We're than The that control given all we purchasing The that very can I'm bulk pleased goods customers, control. items. where our the packaged about on they're praying volume on items for fact

forward. been important an that's So pricing our part mechanism of going

And look elasticity different assortment on lot and business, our frozen volume. the of maximize daily a price working what that such our is the our base grocery right pricing time business business, spend our sell a we to alike business opposed on as to gaps, out

on the to and And said, we made line it's progress as margin, working very So way through. we continue price [ph]. much in with how been some down watch we've our pricing our the all Chip

you generally, a just XX% again, on talk said up Thank in are of the DoorDash you impact the how the the And that. extended was on for strong he yet just grew thinking I think follow about as he Can which what once sustainability e-commerce, about to then sales? momentum you with partnership DoorDash store same you e-com that start And expansion? has lap your quarter. really

want to And said, The assortment. customer who where seem take navigating. our be I to us regard with as based are customers differentiated on want an omnichannel on curated us we we're our on focused assortment focused they Well, being they take very will retailer. to

between we're of two in of them. equal for is Kriztina and the -- encouraging in mortars traffic that it's And both between think it's growth I e-com us kind seeing our the two business. bricks and

we're a growth us. making with engage choose working as to the through. well more little the us. the performing we're little for to on our the Again, And them enhanced immediate a to with pleased And Instacart encouraged But partnership has of is they both DoorDash allowing DoorDash by how a it's looking want bit relative bit them. DoorDash. of business. and Instacart of are in that the And little customer both bit delivery both we're are terms business progress people and for with traffic faster

I of X% cart it's than would add DoorDash still is helping, [ph]. of but the less contribution

so that's of best much, luck. Thank you Okay, great. and

Thanks.

Thank you. line One moment Montani comes for next of And Evercore Michael our the next question. question from ISI. from our

please. question, Your

you Hey, congratulations question. if on, first to as the and additional share on to, the drove color if size then it Also ask Was provide trends good taking color And well. want more transaction evening. front some the additional, there. counts? off, Thanks transaction could, comps geographic could intra-quarter this also, could extend quarter? I trends, for or what you I anything there's Chip if

Thanks again. This Chip. is

as relates from quarter, to pretty was So a really it the period-of-period, stable was a it quarter. it

positive unit single So the seen. and slightly transactions every we comp up. little a And had to again, from we benefit we've period saw inflation saw decline of AUR bit quarter what we throughout similar

late AUR you quarter, in As we the the unit of to and started the tapering both see got that decline.

of kind a comp. that's So of but the a the mix mix of transactions

a we pretty to you stores, comps, of mix see a it's some like -- really -- higher from been the But generally stable and of our little there geographies. I of -- mix Florida feel newer geography we extra the it mid-Atlantic bit good. As will across again, a where that have get relates we say we getting wise, we're comp.

And those couple have Examples one very markets for Those we Louisiana, onesie-twosie they're in we in store bit us, far density. places have been have a little markets, challenge pretty little have a that of where those we just a Oklahoma. away.

enough sort just because onesies-twosies. We Those as brand not performing have are -- they're we don't well, just have just of density.

as densify our want story out to that plays markets. the of why we So to

quarter, accelerated store guide wage up could I has then terms would start you what you. to the basically, Wanted the see if haven't deceleration And then, comps been to at you're in the of guess but growth point get a come looking potentially follow to it and was any the SG&A the need see on seen seeing. inflation Got just given what front. or you in And yet. natural leverage there low-single order digit leverage the could to from I

the address I'll part. first

we're when we're -- this growing be year. growing to at So where XX% place a going when we're

operating margins if You stable, your gross need flat. really are generally to do keep margin your

point long puts on and leverage So annual-to-annual. Any the have you long given be that three able need a that over takes. the could to -- comp do haul you some to quarter,

call have again? do of little quarter, And a talked about which that. need about. second be outside question three comp we of to to was the in third able But to bit the take We you what that a

I digit guide, midpoint wanted of low-single the speakers] kind call see, just to to [multiple

earlier Yeah. are we a little quarter. in We're quarter a than last were little the

to going or solid feel we good the mean, two tracking front three I or -- what's than it three quarter the feel we no to about We year, comp, we But said first, a what were a call. about in we the a for us, three feel essentially said or tracking be for we as two last said We were comp three. guide. we relates different year. So the it's of to were two

three we to are just half. one the a here in we're quite for And that. that's tracking -- we're And the back for back So half.

we that's So be. we'll where think

you. Thank

our next question. moment One for you. Thank

of question next Parikh line comes the from Rupesh from Our Oppenheimer.

question, Your please.

Good afternoon. question. And Thanks Chip, retirement. also taking pending for my your on congrats

that traffic, back year-to-date. So want and traffic go is I in to the to positive as just

So at to just say? has traffic initiatives in-stores, positive key continue you that what you your driving as that been look do think curious, you in

Yeah.

trying think, to we've is increase I what both the store. customer Rupesh, engagement, been in-store and do our

department, way to things, engaging we're looking advice, being store, but lot The supplements customers into more. much be a and certain being been so programs customers customers, whether the trying of it'd to got up our on and vitamins And of customers. what able it'd dietary engage been whether in-store as in of they're our team So talk substantially. space warmed doing, the come be engage. and be with to to COVID we've pretty in to for the able Sampling guide

our the the of innovative a category and stores, sampling Sprouts. XX that we're that snacks to And this unique quarter table lot to in features we've doing items. the And completely initiatives. got fact and type We've XX lot drinks are success I and in think a those many category that on of of which so every seeing items innovation new got

as and sure been So a making providing engaging the with checkout in service thing, a that sampling has customer well. store, the big we're cleaner faster

them scores there's significantly. of which store, very the but ahead the and bonus by very that the part that measure measure get expected we we're customer of not program, are bonus be. service service we We So pleased to we where know encouraging the as a customer we numbers get,

inside lot on a store. there's the going So

make made website, whether access navigate can with to ways made we've pictures the e-commerce the product, directly to finding us, put we're on we've where but our be easier some purchase product. some into more people people app, the store experience it to We've go, we've the our immediately made got to progress the progress on through of when lot we for website. it unable Outside a a lot on progress,

work Sprout this umbrella engagement. principle lot experience get have of would a other that a you stores. So that's into make the comes the when come superior customer team operating to whole in just experience store The been of and under grocery you to doing the try and

just maybe question. then one And follow up

just consumer, whether the down versus guys different last consumer you what trade anything saw shifts in seeing behavior, So quarter? on any or you are

items People they the slightly bit. bit little less continues trend our buying a a as And that there's down cheaper think People little bit through of types of a down across store. trade I little of trade the buying slightly in marketplace. things. go There's business.

dietary-based whether and often customer tend what is or [indiscernible] trade there's buy. they yeah, that's who a are unique to base or based, what our as we've But our it down. be that's bit to of their So keto or paleo stick little diet to in our assortment, buy said, stores

a around little trade may They bit.

we're of hasn't QX changes behavior lot dramatically seeing the QX. a So to dynamic. changed not And that in

Great, thank it you. along. pass I'll

Thank you.

question. One question our from of the our Bania you. comes from Markets. Thank line BMO And next moment Kelly for Capital next

question please. Your

your to a bit back congrats we little hoping Hi, could Chip, go as and I on good was retirement. well to you evening the gross margin.

heard I the expecting correctly, you you think second Chip, flat said you're half. if in I

on about that supporting guess for given grocers, talking are talk there, means various where think year-over-year obviously other you I you the I And you and a Shrink. more Maybe are maybe factors basis, can mentioned, especially you lot second to just but buckets us me self-checkout. are, that I'm of Shrink, just if And a as out that. correct on about retailers I you half. the the other can update on think rolling wrong flat

flat year-over-year a to Kelly, mean I relates mortgages, from perspective. it so as did

darn QX pretty year-over-year a Jack is relates perspective. both address. QX, it in and expecting we're be So to to stable from to Shrink, as And going

from not dynamic the challenges the I and the on crime as dynamic being hearing other that's because when retail sell products so lot principally, the amount things organized on but going Yeah, are in take think as on the that people across sell we're that of we same from extent, the lot quite to easy you're industry retailers, a retail, stuff not so differentiated, niche, a of seeing there's and us. of to that

things vitamins that stores of and like couple that. and on a watching we're have supplements do We

that you're So hearing we're about not seeing other definitely the from people. dynamic

the fresh to all we store? work to our about and are right is sure strength in We hard parlance, amount putting making continue foods, the at which

feeling of helping Perpetual as at across now we're in our the trying the rolling us a well. make the the But PICAO, chain, progress are Computer-Assisted And into we've we and Inventory product replenishment with that there. time. new and right we calls some hitting right centers talked distribution we're our well we've as got the on work made get to in to programs as that And amount our we've We've make that of out some make to Ordering, progress time. systems that. And right progress sure these often about can made store these progress stores some the on lot on do

work the do on systems, Shrink. to our But

I think different Shrink it's Kelly. a to dynamic we've under control. got retailers, And other

heard I share vitamins And and think think just doing? color that mix haven't you category -- supplements a how talked helpful. is But in That's on category? the you that shift. And I I any product don't about in about can particular, favorable trends just

customers to that. people they and post-COVID immunity. well, in, We're of supplements that one Cold season and when for makes the Yeah, we're encouraged lot encouraged and and we're pleased are that. flu we're There's a difference The a upsides lot guidance our [indiscernible] advice and very products we've other, clearly one works how from that seeing quarter buying department. been come or the teams working as But certainly to And way of a providing next. by. and with in it, underlying underlying vitamins our to that.

the comp, comp than company related this was overindexed better comp. to It so company a

And comes of moment the from question. our line Ohmes next Bank One for you. from Thank America. Robbie of our question next

for you of similar whether give you to achieved ways XXXX EBIT think XXXX? and about keep when thoughts hitting the on the Hey, margin thanks and just listen question in gross And gross labor stores us new is sort P&L, in ranges on Chip, can the the for taking can my the My margin versus -- any retirement. to when congrats what question. I then we you've the and margin

Robbie. Yeah,

thank the congrats. for First, you

close beginning which think to operating have year. just dilutive SG&A But work I do this next multiyear is There to As mentioned, margins SG&A being line. We constantly Obviously, and like may quarters flat, still we're to have flat. to to year. the margins about early on try we think just going -- keep it's work a be the means a there's bit the little the from plan. third to work. our front, on about quarter we goal year, we'll continue about to think is -- next our have And gross to to

those the opportunities think at least ensure do we're I ways find de-levering the leverage around line. that or are not SG&A to to But teams rallied on to

think -- are a I after. gets there's to that. teams just time, go ready opportunities over but It's it to the go harder still So little do

Terrific. helpful. Thanks. That's really

from next moment And North question. question for next our Research. comes of One Chuck from you. our the line Cerankosky Thank

please. Your question

could the migrate you as headed customers your strong outlook Can obviously branded economy either guys of me on It's they And or everyone. one cost in do keep and inflation with rate to please been back growth on label seeing evening, your Good the you growth product? is it -- merchandise? you're that think and buying very normalizes. you then stay do where the of you give comment private

with space Sprouts would our me product of your way private terms it. our of differentiated We're start, brand is is let the was are operate Chuck, second it to operating doesn't very and grocery -- that make that space. where the have in in part across sure we a Well, that in not has the context, trying commodity brand putting everything to a behind traditional we're -- which

continue brand, that to XX% now food So in place our that in Sprouts continue put team a differentiated our at we believe find brand. find innovation very growth fit the progress health to else will target that of really made we've just that's and this the and over the as space which anywhere is I'm in products have. doing can't but under of market that. on products the a encouraged ton that We're nice Sprouts you seeker enthusiast not we bringing the customers, for job

So almost economy I'm to irrespective the of I encouraged continue how grows. grow will and that, think for it

will mix business, Sprouts brand strong of our going forward. our as be think a I a mix, as

through, of it's How base, that about cost brand? for reason, impact again, exactly. are say cost of I the some think having our commodities very commodity to the plays playing -- into Sprouts same and been prices. difficult the side there in we're on how Sprouts brand terms volatility is has In much the

sign, Chip on -- the into going think to how happen have cost country. terms materials does rain I going what's of knock raw products the that prices talked for earlier across processed about and in with effect

can. this But we're buying bit manage on the side the certainly focused be able are the a making and -- at price we'll we very uncertain. these confident of to sure can I product we most pretty little that's that team are think we effective products

to that. for luck And you. Chip, you good Thank

Thanks, Chuck.

next Edward for moment the One from next our question. And line of you. comes Thank Fargo. our Kelly from question Wells

question Your please.

mid-single about inflation Good I question. about drivers if so, heard digits inflation, that that thought you again, say clarify one guys. of Congrats Karen's I just can in on the to you And want in you the follow-up of the I expect the half that. afternoon. a Hi, ask level? year. to wanted I be talk to Chip. back

Yeah.

of year-over-year, they the going out to just that how play as that's drivers already play today. in it's And be the prices out. are that would So place

Okay. I this And with that increased is engagements like heard talk promotional a that engagement. it your instance, then makes certain about how follow-up know I to want some dynamic the And look of promotional marketplace a customers for to be stores may in intensity growing, growing, engagement things level. strategy. related versus We've is e-mail, intensity a might promotional be don't just attached as dialed it and to you don't like is but know in through

We can --

your Yeah, not just up. suggest intensity picking kind is of is strategy obviously, curious that does Because evolving? margin how your

be So clearly, seems it might like it engagement.

to right of better We then certainly. as right engagement getting not We're we'll effect that become we e-mails from data increasingly sending get the at the customers much our better and personalized. more at get better we're -- diluting getting people the so are

have People the dietary needs. who to offer. our us customer nature got being personalized of rely particular on nature of -- very The does proposition in the our the

lot Let's communicating some communicate be to offers we don't of them. me in customer we've we've a want term, vegan got metrasped and that got the and to

and kind the intensity. the of but we've of promotions intention a intention more driving more investing more are more So probably have accurate getting is promotions, in got as We lot of promotion no business do you're us. what in precise a of precise terms it in business margin making for about a of how we sure of seeing being targeted, our dialogue ton

you. Thank Great.

Thanks.

moment final Capital. our line question from for you. question our from comes Thank the today RX Scott for today. final And for Mushkin of One

please. question Your

And miss questions. guys. Chip, Hey, to all Thanks my for going we're you. taking I think

be a to for So going -- yet little longer. but bit not because you're around

I will.

first question to you were is my guys housekeeping. close. know going said I you more So

your And like bunch XX do those new next? we think in should this do how said It the you How what's move year? forward? -- openings at expectation we openings a second year. of we looks And this were think how quarter. net net I as stores we for about look

about and close will we will to XX we this Well, it, year, think if you least have at XX. open

So I'm XX finance guys. just there, math doing -- a the that's

of answer. I had that's So that XX question I can a plus -- net get some

So net we bit generally, there be one of there Is did two growth, beyond. a we're this little leases closures that XXXX end we growth XX% then there be And But be? up next we or should any year, the off year, year. expire, from net unit XX-ish XX% more shouldn't think year. a next at might or looking as we like and as this might targeting

for Okay. clarification. That's Thanks it.

this of path comp, to in of the about get So earnings I then think maybe next forward. kind think out it's it's kind we touched on the and the glide is in been of going come but more around in of bit, a Thinking your year little question, my I little as I just progress is to wanted of middle range X.X%. a

I year, acceleration seems the Or big thinking a growth wrong? it just like could am earnings next more muted? about Without things be

think gross our think it, top that in -- if margins to singles would and and call keep towards top I if line flat trying on it with to line, we're about X-ish would we're be, drive Well, a plus trying our line. then comp, which you high SG&A we grow

get an you singles in earnings gives the margin and that's buyback. That growth XX-ish. to you operating So flat high pre-share

a Can really we probably our peers more gross than lot stable. of I confidence we margin think that? do that keep have of can your some we

with confidence differentiated we ton a have keep of how We market, that. base, customer we like our can there go to differentiated feel product, we

we basis, As it store right to growth. are the cost accelerating yes, now, relates

manage cost thing been beginning been So is Labor growth we the have labor through decelerate. The that's us hitting to other has good to news, that. cost.

want think set So costs to we think, aligned and a really it manage in that. our an and I as and I know here we that manage I better team them I control. earlier, going place have knows be year, we we'll And but under can building that keep aligned that store into align next sounds said and oversimplified,

always for opportunities. looking we're So

place confidence that the been -- more it's we'll be had planning. have to place we'll the do able last office we made We to of new over store of corporate our invest We've add the in part just like the stores. We've over to be that a financial systems, has. people. had We managing invested grow nearly need in invested and it, to planning, to a in it of couple we're I to there's We point that. the board. all not to board. does support to can where where And years, able getting lot across merch had at in getting investments labor to in begin we We're about we leverage a put

Thank All for you question. right, the great. taking

question-and-answer of program program. the conclude to I'd hand does session further This remarks. any back you. Sinclair to Thank today's the like Jack for

as his attention. on and very And Take said, he's Scott for months all he's of attention. retirement. to working year. your end congratulations and again questions Chip, again your But thanks work few until the just Thanks for to forward not next care. the because much, everyone, going Thanks more bit look the the through do got And together. to we a

in Thank for does the you, ladies participation and gentlemen, your program. conference. today's This conclude

now may disconnect. day. Good You