Sprouts Farmers Market at BofA Conference: Strategic Focus on Health and Innovation

On Tuesday, 11 March 2025, Sprouts Farmers Market (NASDAQ: SFM) presented at the BofA Securities Consumer and Retail Conference 2025. The company outlined its strategic focus on health-conscious consumers and innovation seekers, aiming to differentiate itself from traditional grocers. While expressing confidence in growth and efficiency, the leadership acknowledged challenges in capturing broader market upsides.

Key Takeaways

• Sprouts targets a $200 billion market segment focused on health enthusiasts.
• The company plans to expand into the Northeast and Midwest by 2027.
• A loyalty program is being tested in 30-35 stores, with a full rollout by year-end.
• Partnerships with Instacart, DoorDash, and Uber Eats aim to boost e-commerce.
• Sprouts is enhancing its store format and product assortment to maintain a competitive edge.

Financial Results

• Sprouts reported a price advantage in produce, with organic items making up over 50% of sales.
• E-commerce sales account for 14.5% of total sales, with Instacart baskets averaging $40, double the in-store average.
• The company aims for a low single-digit comparable store sales growth of 2% to 4%.
• Current customer wallet share stands at 13% to 14%.

Operational Updates

• Sprouts has revamped its store growth analytics since 2021, identifying over 1,200 potential store locations.
• The company focuses on local sourcing through a distribution center model, committing to long-term partnerships with growers.
• The loyalty program aims to provide personalized offers and is expected to drive sales from 2026 onward.
• Improved inventory management has led to reduced shrinkage.

Future Outlook

• Sprouts plans continued investment in talent and technology, focusing on new store growth.
• The company is cautious about macroeconomic impacts, expecting to be shielded from downside risks.
• Strategic investments are set to yield benefits from 2026, with a focus on distribution and data management.

Q&A Highlights

• The leadership emphasized the importance of scale in improving margins and efficiency.
• The loyalty program is seen as a key driver for future comparable sales growth.
• Sprouts acknowledged the challenge of not capturing the full upside of consumer trading-up trends.

Readers are encouraged to refer to the full transcript for a detailed account of the conference call.

Full transcript - BofA Securities Consumer and Retail Conference 2025:

Unidentified speaker: Elevator issue in the other building that’s slowing everything down. Hey. We are just so pleased to have Jack Sinclair, the CEO of Sprouts with us today, as well as Curtis Valentine, the CFO.

And Susanna Livingston is probably here somewhere in the audience. Sorry, I didn’t get a chance to say hi to you yet, if you are out there. Anyways, I mean, this Sprouts has had an impressive run of same store sales and guys had a really great quarter. It’s been a really tough market, but I’m going to I just want to start maybe just with Jack. Can you we know that Sprouts is not a typical grocery store.

You’ve said that before, I think you call it a speciality, I think is the word used. Could you just sort of talk about, you know, what makes Sprout so unique to just get us going here?

Jack Sinclair, CEO, Sprouts: Yep. I think the starting point for everything that we’re trying to do is our target customers, and we articulate that as health enthusiasts and innovation seekers. We split The U. S. Food and retail markets about $1,500,000,000,000 1 point 6 trillion dollars market.

We split it into six groups. We’re chasing after two groups that comprise $200,000,000,000 which actually from a strategy point of view, it means we’re not chasing after 1,300,000,000,000 one point four trillion dollars worth of marketplace. So the target our target customer is particularly interested in healthy eating, health enthusiasts, we call them. They’re very interested in what they eat, how they eat. They’re very discerning.

When you look at our customers, our target customers, they’ll pick up the product. If you watch them in the stores, they’ll pick up what’s happening in the on the labels. They’ll read the labels very discerning in that. And as we focus that the whole of our organization behind those target customers, We’ve reshaped our merchandising organization to constantly bring in differentiated products that play to the attribute based customer base that we have. Our marketing has switched from mass marketing paper flyers to very specific digital marketing, which is focused on individual customer needs.

And the supply chain, making sure that our fresh food distribution is short enough to make the freshness of the product the key for the customer. So as we look at our real estate, our supply chain, our merchandising, our marketing, we’re focusing entirely on those target customers, and everyone in the organization is geared behind that, and we’ve shaped the function of the functions behind that target customer base. And I think that’s been one of the things that’s helped us create this differentiated assortment so that when you go into our store, you won’t find many things in our store that you can find in other places. And that’s been one of the kind of strengths, I think, of why our customers have navigated towards that in a very specific way. We’ve put innovation centers into our stores where every thirty to forty days, you regenerate the products that are there.

We launched 7,200 products last year. When you compare that, that’s a pretty remarkable number. It creates all its own inefficiencies and challenges, which we can work on. But that idea that there’s always something new plays to this and also always something new that’s health orientated is creating, I think, a bit of a momentum behind the customer trend.

Unidentified speaker: So, Jack, you’ve had this unbelievable response to to to what you’ve done with Sprouts and its same store sales have been amazing, but but same store sales like yours invite competition. Maybe help people like me understand why it’s been so hard for competition to really, do anything to to slow you guys down?

Jack Sinclair, CEO, Sprouts: Well, I I don’t think they particularly want to slow us down because at the end of the day, it would mean chasing after the 200,000,000,000 as opposed to the 1.4. If you focus all your energies on the 200,000,000,000, you would lose focus on the rest of the marketplace. And I think there’s little chance of someone wanting to launch 7,200 health enthusiast focused products when your target customer isn’t that target customer? Yeah. They’ve done some interesting things in that space, but nothing like to the sense the scale that we’re trying to do it at.

So I think the reality is I’m not sure it would come out the other end as a successful strategy, and we’re relatively small. We’re a small part of this target that we’re going at. It’s a smaller part. Why would you go after the small part rather than focusing on the big part? So I think that’s probably it’s not that they could if they wanted to.

I just don’t think it would be smart for them to do that.

Kendall: Got it. And, so you’ve said before or you talked earlier about how you’re going after kind of a narrower group within the traditional grocery market. And, I think we’ve heard you say before that Sprouts only needs crumbs at the table in order to grow your sales in a big way. So I was curious if you could talk a little more about that and maybe give us an idea of how often does an average shopper, come to Sprouts, how big is the basket, and where do you see more opportunity to drive growth with those existing customers?

Jack Sinclair, CEO, Sprouts: Our target customers we’re a complimentary shop for our target customers, and that’s the reality of it. We get 13 to 14% of their spend, and then some of it some of it in a lot of different trips, some of it in less trips, some of it online, some of it pick up, some of it delivered, but it’s a small share of that marketplace of that customer spend, and the opportunity for us is to understand that customer better and to grow that share of wallet. As we grow the share of wallet, that will come through a few more extra trips and have a little bit more within the basket if we do the right things within our stores. So what are the opportunities for us when a customer comes to the stores? We’re going to do a lot more sampling and initiative in terms of how do we drive the basket from the customer that’s in the store, a lot more investment in people in our vitamins and supplements department.

So the store experience is an important part of driving the basket. And in terms of driving the traffic, there’s a lot of work going on in terms of being much more precise in our marketing activity, much more we’ve reshaped our marketing team, and we’ve got some very talented people working in that department. They’re very focused on appropriate digital marketing, media spend, and a transformed kind of communication to our customers, just to remind them who we are and to bring new ideas to those customers within that marketing sphere, I think, is an important part of it. And as we evolve into next year and the year after, our loyalty invest our investment in loyalty is going to be a very important part. Customers who are health enthusiasts have got a very, there’s a lot of different things going on within our customer base, whether it’s I’ve been diagnosed with something and I need to change my diet, or I’m a grass I’m a grass fed meat guy, or I like vegans or vegetarians.

This dynamic of segmenting the segment that we have is going to open up a whole opportunity for us to just get a few more crumbs at the table to get this 14% to 18% transforms our numbers, and the the loyalty program is gonna be the important part of the 26, 20 seven initiatives as we work this one through.

Kendall: That’s helpful. And digging in more on differentiation, so around what percent of your assortment do you think can be found at other grocers? And then how internally does Sprouts approach the process of differentiation through, private brands and finding new smaller unknown brands that aren’t in other stores yet?

Jack Sinclair, CEO, Sprouts: Yeah. I think we we we changed the structure of merchandising a little bit, and we brought a foraging team in. So it’s kind of it’s quite a neat title, and it’s a job I would like actually to be the chief forager. The job, Kim Coffin, her name is she drives all the chasing after the differentiating the private brand team work into it. How do we go about that?

That group of people are constantly looking for new ideas. There was a big crowd over the Expo West last week, where there’s literally thousands of entrepreneurial brands from America’s a great place for bringing really entrepreneurial people who believe in the health space, and we get 46,000 applications every year onto our portal of ideas of things we’ve never seen before and no one else has ever seen before. The opportunity from that to source products that are differentiated, there’s no limit to it. The 7,200 that we added last year, we’ve had to choose that from 46,000 opportunities. We’re chasing around looking at the trends on social media, chasing around looking at all the exhibitions in both in The U.

S. And abroad. So the opportunity for us is how good are we at selecting within it. It’s not there’s not a limit to what we can get. So differentiated within our stores, when we see things in other places that we’re selling, we don’t really like that.

We try and find a way of not having that in our stores if we can. Probably about a 15% overlap or something like that would be the number. And that’s hopefully, we can make that go down if we can. And we also expect the fact that we’re regenerating our assortment all the time, 7,200 items coming in means something’s going out. So the things are going out.

If they’re selling well, they’re trying to do then move on to the bigger players in the market place, and we’re pretty comfortable with that. We know that’s going to happen. If we can get a year or eighteen months of of product that no one else has got, that’s enough for us, and then we move on and bring other things in.

Unidentified speaker: Well, I get this question all the time, which is in an environment where consumers are feeling, you know, kind of pressured, you know, there’s people looking for signs of trade down right now. What do you how do you guys not feel risk from that? Some of these items that you bring in, these 7,200 items are above market prices? And then related to that, can you remind us what areas of the store would be you’d say are below market

Jack Sinclair, CEO, Sprouts: priced? Well, we’re very I mean, there’s a lot to unpack in that question. But the reality of us are when you say below and we’re above market price, we’re not really with other people aren’t selling it. So our pricing on products that other people don’t sell is based on our elasticity. Does it sell, does it not sell?

So just on that side of it, produce is a very important price differentiator for us. That’s one way you can directly compare everybody selling produce, we can directly compare our pricing. So we’ve got a significant price advantage on the marketplace in fresh produce, and particularly in organic fresh produce. Produce is 20% of our sales, over 50% of our produce sales is organic. We’ve got a very much wider differentiation on organic pricing than we do on regular, conventional pricing and produce, and that’s something we’re doubling down on as we invest in it going forward.

There’s clearly different regional dynamics that we look at in terms of different markets having different prices. But by and large, we we have a price differentiator across the board on projects with everybody in the marketplace, wider in some places and narrow in others, And that’s something that’s an important part of the whole rationale, the whole DNA of Sprouts in the first place started off with a fruit stand in San Diego, and it was based on people who want to eat healthier and the pricing on produce is really important. So we’re kind of building on that DNA all the way through and it has been an important part of differentiation for us from a pricing point of view.

Curtis Valentine, CFO, Sprouts: Maybe just add on the consumer side of it, if they’re under pressure a bit, I mean, we do have some points of insulation there and that our customers skew is a little bit higher income. I think their first move will be away from kind of restaurant and food away from home and back into food at home. So the first wave of that is actually probably a bit of a tailwind for us. And then the other part is the dietary piece that Jack talks about. If you have a dairy allergy, if you’re a vegan, it really doesn’t matter what the price of ground beef is, you’re going to continue to shop your vegan products.

And the long tail we carry the choice that we offer there I think insulates us a little bit as well. It’s not particularly discretionary for those customers with those dietary needs.

Unidentified speaker: And then a topic that’s very important to me which is store growth, and we’re in you know, part of that is deciding where you’re gonna open new stores and and, and you can maybe why you’re not gonna open a new store in Westchester County anytime soon. We maybe

Jack Sinclair, CEO, Sprouts: we can go through that. You never know.

Unidentified speaker: But maybe, you know, review with us how you think about store store growth and new markets.

Curtis Valentine, CFO, Sprouts: We revamped that pretty substantially three years ago, four years ago, 2021 time frame. We we, revamped the analytics around it, got a third party platform that we partnered with to to kind of set the model right. We incorporated much more local expertise than operational expertise into the site selection process. And so we we know we have a map and there’s 1,200 plus pins including our open stores today, but there’s 1,200 plus pins in the map and we know where we wanna be. And then within that, it’s not just the three mile ring or the trade area, but it’s the actual cross street where we feel like we’ll do the best within that three mile ring.

And so we used to be, here’s your three mile ring and go find us what you could and what was available within that. Now the team is actually starting at the point that we wanna be at and working their way out to the next closest opportunity. And what the tool or the platform is doing is it’s helping us understand that the the interplay between where our customer is, where the competitor is, drive times, barriers within the trade area so that we can put ourselves in the best possible position to service that customer. So that’s been the shift that we’ve made and 2024 was really the first year where all of the openings were kind of approved within that new process, within that new model. And we’re really pleased with the results we saw last year where we’ve seen across the country new markets, older markets, really strong performance out of our new stores last year.

And we’re excited to see the twenty twenty five openings kind of add further proof points to the fact that we think we’re making some progress on the modeling and where to put stores. And then longer term, I think, you know, we’ll just continue to expand. The distribution piece is important to us. So we’ve got to time that right to get enough units in the pipeline so that we can create some scale and get to distribution so that we can get our fresh products to the store. But we’ll be opening up in all likelihood the Northeast and the Midwest, 27 and beyond to start looking for stores in those spaces.

We’re doing some market research and kind of building our plan so that we can get the scale somewhat quickly and limit some of the inefficiency of moving to new markets.

Jack Sinclair, CEO, Sprouts: And one of the things about the news about our new store, one of the we talked a little bit about differentiation on product. The format that we’ve got low profile, smaller stores resonates really well with customers. They like the fact that they can get in and out quickly. They like the fact there’s a sight line all the way through the store. So as well as where we’re building the stores, the stores that we’re actually building and evolving, we’re seeing really strong customer reaction to that.

And it’s part of the differentiation. The type of store that we have is as bigger differentiator as what we’ve got inside the store.

Curtis Valentine, CFO, Sprouts: The customer experience that goes with that too, just the fact that you can see everywhere, if you’ve got 15 or 20 team members in the store, you can see them, you can find them. If you need help, they’re there. We’re working really hard on on the service aspect of it so that they’re greeting and and helping the customers through the journey, but that’s a little bit different in our store because you can see across the whole thing and and find somebody quickly if you need to if you need help.

Kendall: So shifting gears a little bit, I’m sure everyone here has all heard about the challenges industry has been having in terms of eggs and supply challenges, pricing challenges. But interestingly, when you guys reported four q, I know you said that Sprouts didn’t have a lot of those problems just because of how the company sources differently and more locally than a lot of large grocers. So curious if you could walk us through just how sourcing looks different for Sprouts versus other larger peers and what the benefits of that model are.

Jack Sinclair, CEO, Sprouts: Well, specifically to eggs, Kendall, I think the starting point of it is if you don’t sell commodity style eggs, which is the high intensity production of eggs, All of our eggs are organic, pasture raised, free range, cage all the all the dynamics. So the when you have when you source those type of products, you have to give longer term commitments to the vendor base and the grower base. So our egg sourcing is working with a lot of smaller people who’ve given who we’ve given long term commitments to, and that stood us in good stead in the context of what has been a pretty scary environment around avian flu and the impact it’s having on the egg flocks across on chicken the egg flocks across the country. We’ve been protected a little bit by that and by having longer term commitments where we’ve committed to price over a longer period of time on particular attribute based product. That allows us, I think, to get more supply than we would have got otherwise.

Although it’s amazing, whenever we get any eggs into our store, I think every customer in The United States must have 1,000 eggs in their fridge because they get sold really quickly at the moment, supply constraints. So we’ve been pleased at how we’ve managed that. We haven’t put our prices up, which has given us a lot of credit from the customer. From a produce point of view, local sourcing is a really important part of our produce. We sell we’ve got DCs right across America, right across, we call it the smile of America where our DCs are.

And we’ve got local sourcing teams in each of those distribution centers. So our Colorado operation, there’s a short window where you’ve got to be really good at fresh produce in Colorado, but most of the year you don’t. So seasonally focused and locally focused, what we would do in those markets is give longer term two, three year commitments to farmers and growers who would allow them to invest in the facility, and we’ll guarantee to take the crop when it’s ready at the right time of year. So giving guarantees a longer term focus on local sourcing on produce, giving us the opportunity on categories where we’re differentiated in the space. It applies to grass fed beef a little bit in terms of working.

We don’t sell commodity chicken or commodity beef. We are operating in the space of trying to build long term relationships with vendors and bring in new and differentiated products that are no antibiotics or organic or free range and those kind of things. Having the differentiated assortment allows us to give a longer term commitment. Well, we need to give longer term commitment to get the consistency of supply in that. And that’s probably why we’re in we’ve been comfortable how we’ve been working through some of the challenges that have existed.

Kendall: Interesting. And as we think about the local sourcing and working with a lot of smaller suppliers, how should we think about that in context of Sprouts growing its store base and gaining more scale? Does it, in any sense, make the make that sourcing model more complicated, or does it create more opportunities as you

Jack Sinclair, CEO, Sprouts: as you Well, I think the fact that we’re so spread out is actually a good thing because it gives us access to a lot more local things. If you’re concentrated,

Unidentified speaker: you wouldn’t have the

Jack Sinclair, CEO, Sprouts: same opportunity to grow. One, we wouldn’t be able to grow the store base to the same extent. The fact that we’re going to different markets, if and when we get to the Midwest, which we’re talking about, we’ll have to rethink the whole thing as to how things work, but we’ll have a distribution center and we’ll work it all through. And that’s a whole new world for us as we go into new markets, which we wouldn’t have to do otherwise. There’s plenty of innovative product in terms of the core business in frozen dairy grocery for us to be able to get plenty of assortment and product that we need going forward.

And I’m not seeing that as a constraint, although we will have to think about the local aspect of this as we go to different markets.

Unidentified speaker: Jack, you guys are rolling out your first ever loyalty program. Yes. Maybe you could walk us through you know, the timing on that and and what what that can do for sprouts from here.

Jack Sinclair, CEO, Sprouts: Yeah. It’s it’s interesting. Customers who our customers that like sprouts really like sprouts, and we’ve had a lot of feedback from the customers to say, why have you not got a loyalty program? And that was part of the, kind of a stimulant. As we said earlier, we’ve got a small proportion of our customer’s wallet, so what are the opportunities for us to grow that?

The loyalty program, we’ve we’ve currently got in 30 stores or 35 stores. We’ve grown it gradually over the course of the last few months. That exercise we’ve been working on is to make sure that the investment that we’re doing creates a customer experience that’s seamless and works effectively. I’ve been surprised at the challenges that that has faced us as we’ve made over them. We made a load of progress on making a seamless experience for the customer.

And what we’ve been measuring is, are the customers signing up to the program in these 30 stores, and are they scanning? What we then do with this, we’ll talk about in a second, but specifically, we’re at 30 odd stores at the moment. By the end of the year, we’ll be in all stores. We think we’ve ironed out a number of the cracks, number of the challenges of making that work, and we feel we’re on the on the cusp now of something that’s gonna make a big difference to our comp sales going through ’26 and ’27. How will we do that?

We’re not gonna have a loyalty program that looks like get a bit of money off gas, or you can have a better price if you’ve got a card and you don’t have a card. We’re trying to build a program that creates real loyalty and an incremental sale from the customer. How are we going to do that? And that’s about understanding this dynamic of the customer. We do want to send information to vegans about grass fed beef.

And as we see the patterns, as people scan, we’ll see a lot of information. We’ll be able to navigate the vitamins and supplements. If you’re on a vitamins regimen, why did you not buy thirty days from now? So there’s lots of work we’re doing as we speak to understand how we navigate through the stimulant that we’re going to take from the data that we get. But we’re going to have enough data by the end of the year for us to really the limit’s going to be our imagination.

That’s how we can make this come alive. And we want the customers to feel a sense of kind of loyalty to sprouts and a loyalty to the brand, and we’ll be able to do lots of interesting things. Vegan meals for vegans, recipes, ideas, stimulate with entrepreneurs that have got products, bring people products that they’ve never had before, before the marketplace. We’re quite excited about what it can do for us and we’ll roll out next year. I don’t know if we can build on that a little bit.

Curtis Valentine, CFO, Sprouts: I think you got it. Yeah. Start the rollout in the middle of the year. We’ll be out in all markets, not counting on much of this year, but it should be, as Jack said, a comp driver for us for ’26 and beyond.

Jack Sinclair, CEO, Sprouts: Curtis has had to approve all the money over the last little while that we’ve been spending. So I tried to convince them it’s all gonna make sense.

Curtis Valentine, CFO, Sprouts: I’m getting excited for 2026 and beyond. It’s been a lot of lot of investment, a lot of spend for the last few years. So we’re we’re excited to get the other side and start delivering for the customer.

Unidentified speaker: Well, something you rolled out and it drove comps was you started doing e commerce more significantly, I think, many years ago. Well, not many, but years ago with, I think you guys started with Instacart. Right?

Jack Sinclair, CEO, Sprouts: Yep.

Unidentified speaker: Can you walk us through the Instacart to, I think, was it Uber Eats and then more recently, DoorDash and how you’ve thought about working with partners and what’s what’s that done for comps and

Jack Sinclair, CEO, Sprouts: Yeah.

Unidentified speaker: How does that impact margins also?

Curtis Valentine, CFO, Sprouts: Yes. So three really great partners. Did start with Instacart. The large majority of our business does come through Instacart. We’re a little different than the conventional grocer in that 80% or so of our mix is delivery, and it’ll probably be flipped.

It’d be about 80% pickup in most grocers. And so why is that? We think that one is once you’ve gotten to our store, the hard part is over. We’re not on every corner. We’re not as convenient as we build our footprint.

And so this becomes a nice, it provides access to the customer in a different way when they’re not willing to make a long drive to our store. So that’s been great. And then we’ve expanded over time. We’re happy that we didn’t go in and invest in our own infrastructure and ecosystem. We’ve got a lot of things that we’ve been working on the last few years from systems and technology to data to put new stores in the ground across the country and we wanted to stay focused on those things that were foundational to the business.

So we found great partners and Instacart was fantastic and is fantastic. And then we added DoorDash, as you said, two years ago and we added Uber Eats last December. And so all three partners have been great for us. All three partners are growing really well. There we’re growing faster than our in store business, which I think just speaks to this omnichannel customer that we have and that there’s a low share of wallet and this is a share of wallet extension for them.

As far as economics go, it’s same as in store pricing. What we find pretty remarkable is that’s the same basket mix as we have in store. And so with our fresh penetration particularly in produce, you would assume or expect maybe that to be a little bit lower online, but it speaks to the trust that our customer has with us as it relates to fresh product that they’re willing to buy the same amount of fresh product online as they do in store. And then from a margin mix perspective, it’s effectively the same as well. So the sales mix is the same and the margins generally play out about the same as a brick and mortar basket.

So we see particularly from Instacart a higher basket. Our in store basket is about $40 and the Instacart delivery basket will be a little over double that. So it’s a broader, more full shop. So we have dollar, penny profit, it’s a better outcome for us and then we pay the fee to Instacart or the third party provider to pick, pack and deliver and that hits in our SG and A and provides a little bit of pressure there while all the benefits land in sales and margin that you’ve seen as our comps accelerated the last few years.

Jack Sinclair, CEO, Sprouts: And in terms of how that’s going to evolve, we’ve gone from two percent to 14.5% of our sales is how that will evolve or grow will be determined by the customer. We’re pretty relaxed about the nature of how this grows. I think it will grow a little bit over the next five years or so, but maybe not at the same rate that it’s grown in the last little while.

Kendall: So you’ve talked recently about how Sprouts has seen a lot of success with social media and influencer marketing. Curious if you could walk us through that approach, you know, which platforms you’re leveraging, and is it predominantly younger customers that you’re getting the response from there, or is it broader?

Jack Sinclair, CEO, Sprouts: I think it’s fairly broad, although we are seeing a slight reduction in our customer. The age of our customer base has gone down a couple of years. We start from a little bit of higher age group than most. It’s coming down largely because of the influence of a number of the activity that we’re putting in on social media. We’ve been pretty excited by some of the response, even when we do sponsorships, the response that we’ve got from social media behind the sponsorship, celebrities that have got involved in our business, and influencers have got involved in our business.

A number of celebrities showing a lot of interest in the health enthusiast product, So they’re bringing us ideas. You know, the people we have in our offices talking to us, it’s pretty interesting about the kind of the dynamic of what they’re bringing to us. Tom Holland’s got this new non alcohol beer that’s just been launched that’s creating a lot of noise in the marketplace. You’ve got Once Upon a Farm with Jennifer Garner. That’s been a big driver for us.

So using some of that and sometimes that’s been working really well for us in terms of driving demand. CMOS, there was a TikTok video on CMOS and literally by midday we were out of stock as people responded to those kind of initiatives. We’re using across the board a number of different platforms. We’ve been pretty successful in all of them. We are seeing a slight reduction in the age of our customer base.

And I think to me, it’s just about part of this innovation and differentiation that we create this dynamism behind it. We launched smoothies in a few stores and now everybody’s talking about, we created some smoothie stores and a number of stores. That that’s gone viral almost before we’re ready for it in terms of execution. So it’s been, it’s been an interesting time for us.

Kendall: It’s really interesting. And shifting over to margins, I know you’ve had to remind us that, as a smaller and relatively younger company than a lot of larger grocery peers, you still have a lot of self help opportunities on margin. I’m curious if you could just remind us what, the biggest opportunities are going forward.

Curtis Valentine, CFO, Sprouts: Yeah, Joanne. Yeah. I’d cover that. Yeah. So I think we’ve made some really good progress last year in the growth, particularly with inventory management, whether that was it was a lot of shrink last year, and we kind of got to some of those inefficiencies quicker than maybe we even thought we could at the beginning of the year.

There’s still more room to go there as we mature our processes, as we get a little bit smarter with data, getting you know, the right order and the right forecast into the right store at the right time, to keep the shelves full and then to not shrink it. I think there’s still room to go there and the teams continue to find opportunities as we improve the process and the systems and the data. I think with Jack mentioned 7,200 new items every year. There’s a lot of inefficiency in that. So how quickly do you take a mark?

How deep is that first mark? How deep is the second mark? You know, those are those are things that we’re learning and we’re getting smarter at every year. And so that was a piece of the story last year that will continue to be an opportunity for us as we continue to innovate. We’ll have to figure out the loyalty points part of it, right.

That’s a bit of an investment in the short term. But as we build that customer data and we understand our customers better, we believe that will unlock opportunities for us in the longer term from a margin perspective. And then scale provides opportunities for us both in the SG and A and in the gross margin as we continue to do things more efficiently. We fill our warehouses, our partners fill their warehouses and the empty space they have now be it on a truck or in a warehouse, there’s efficiency to be gained there. The growth drives that and then that allows us to then reinvest in further growth and drive further efficiency and so it becomes a bit of a virtuous cycle and we’re working really hard to collaborate with our suppliers so we can both kind of take advantage of that scale on that growth together.

Unidentified speaker: There’s, two questions I think Kendall and I get all the time. So I’m going to assume that, Curtis, you get these all the time. You came off this great quarter. Same store sales were amazing. How do you answer the question, well, the two questions, but the first one is, what is the right sustainable same store sales run rate for Sprouts because it’s been double digit more recently?

Yep. How long can it stay double digit and does it go back? Does it go double digit then back to zero to two or what, you know, like regular grocer or how should we think about that?

Jack Sinclair, CEO, Sprouts: I’ll let Curtis answer that question. Yeah.

Unidentified speaker: And then I have

Jack Sinclair, CEO, Sprouts: a We’re very ambitious and we’re a small share of wallet.

Curtis Valentine, CFO, Sprouts: Yeah. Yeah. It’s a big it’s a big opportunity pool as we’ve talked about. So $8,500,000,000 probably somewhere in there this year at the midpoint of our guide against $200,000,000,000 that we’re chasing. So there’s plenty of room for us to grow.

We talk about the two to four low single digit comp as the algorithm comp. And I really think about that in terms of every quarter, every year, no matter what the compare is, no matter what the environment is, we feel pretty confident we can deliver that. Clearly, last year, we were ahead of that curve. As the business accelerated, we’re not going to slow that down. We’re happy to drive those higher comps.

And we’re certainly in our four walls and in our stores we’re working really hard to drive that better outcome all the time. I think what we’re intrigued about this year is to see, okay, when we get up against an eight plus in Q3 and an 11.5 in Q4, How do we lap that comp? Is it going to be higher than the 2% to 4%? And we’re just in a little bit of a wait and see mode. Certainly, we’re putting the effort into things like loyalty and personalization, store experience, inventory management, the things we’ve been working on the last few years, all designed to drive a better outcome more sustainably in the long term.

So this will be an interesting year for us as we get some of those things rolled out and in place and we start to lap those bigger comps whether that can be a bigger number in the future and we get a chance every quarter to update everybody and tell you how we’re doing progress wise, but we’re certainly going to try to drive it to something better.

Unidentified speaker: And then the other one is obviously a grocery store is not allowed to have a gross margin that’s as high as yours and not anywhere near yours.

Jack Sinclair, CEO, Sprouts: Yeah.

Unidentified speaker: You know, why why can it stay there? Yeah. Why can it get better?

Curtis Valentine, CFO, Sprouts: Well, I’m a I’m a numbers nerd, and so you can have some some fun with math, after the fireside here. And and think about the conventional grocer and the things that they sell and where they drive their business to look at their front page ad. It’s Cheerios, Coke, Lay’s potato chip, Ties, Bounty paper towel Tide, Bounty paper towels. They’ve got 30%, forty % of their business on these single digit margin high volume items. So they’re just on throughput and supply chain efficiency and moving as much as they can.

We don’t sell any of that. And so our business has none of that. If you do the math on where their gross margins are, assuming 30% or 40% of their business is at 5%, well, their margins have to be a lot higher around the rest of the store. And so that’s just where we operate. We operate in the rest of that space and the uniqueness, the innovation as Jack mentioned earlier, there is no market for most of what we sell.

We kind of set the market and then the customer votes every day on whether we set it at the right place and so we can continue to do those things as long as we stay innovative. We’ve got our levers to pull as far as the opportunities to still drive a better gross margin and that will fuel the investments we need to make in the business to kind of do that over the longer term as well. And so that would be for me, I think it’s margin as a choice in our four walls because of the unique products we sell. And, we’ve driven that over the last few years and we intend to keep the inefficiencies that we found and continue to drive it going forward.

Jack Sinclair, CEO, Sprouts: We like to say that we’re not a grocer.

Curtis Valentine, CFO, Sprouts: Yeah. Specialty food retailer as Jack says.

Unidentified speaker: Can we say specialty?

Jack Sinclair, CEO, Sprouts: No, it’s fine. Specialty. Specialty.

Unidentified speaker: Let me pause and see if there’s any questions in the audience out there. None? I got one. Oh, we have one. Sorry.

You go.

Kendall: Right.

Unidentified speaker: Well, thank you. Is it fair to say that the investment spend on technology and the loyalty program are in kind of, you know, back half of this year, it starts to be reap the rewards of that, and most of the investment spend going forward is towards new store growth? Or what are kind of some projects you see on the pipeline that might replace some of that investment?

Curtis Valentine, CFO, Sprouts: Yeah. We kind of we we kinda got the base right last year with the $15,000,000 spend last year, and and the returns that we’re getting on the things we’re investing in, things like inventory management, landing, and shrink, we’re really happy with the level of returns. And so we’re thinking about it more in terms of that’s just now in our baseline. And so there’s investments to be made in the business and we’ll continue to invest at a similar level. As we get beyond loyalty, which is a big part of our investment this year, we’re doing a lot of work on our technology foundation.

A master data management in our data and analytics is a place that we can continue to drive and maybe catch up a little bit. And so that’ll be some of the investment there. We’ll continue to invest in the supply chain as we expand our footprint. We’re going to need to add VCs as we go. And then the new stores will be a huge part of our capital investment as we go forward.

So we’re going to continue to invest in talent as well as we open new stores. Again, we want a different experience in the store. We want our Sprouties, as we call them, to really be excited to be at work and taking care of the customer. They’re passionate about the products we sell and the things that we’re doing. And that that you just can’t hire that, you know, any old, person off the street.

And so we’re really focused on developing talent in our existing stores so that we can see new stores with with sprouties who know who we are and what we’re about and then they can go out and find the right talent in the local market and develop them as well. So a lot of investment in our talent engine as we call it along with some of the systems and foundational investments that we’re making.

Kendall: Another question. We only have a few minutes left. But just curious, we mentioned before how right now or the past few years, we’ve been in an environment where consumers have been feeling pressured and more so trading down, if anything. So curious if we did have some kind of rebound and you had consumers with more discretionary income to spend and, maybe back to trading up into their grocery purchases. What do you think the impact would look like for Sprouts?

Jack Sinclair, CEO, Sprouts: Yeah. I think the the macro environment, I think we’re shielded and protected on the downside, and I’m not sure we’ll get as much of the upside when that plays through. I think the reality for us is we have this target customer, the ones who are interested in what they eat and how they eat, the discernment that they have about diet. I think there’s going to be more people, irrespective of the macro climate for the customer, there’s going to be more people in five years’ time interested in this space. I kind of just there’s just a general trend to be more interested in the food that we’re eating and where the food come from, the provenance of the food.

And that we’re well placed to take advantage of that almost in whatever context that the market, clearly if the things are a bit better on the top line, things on the macro environment, things will be a little bit easier for us. But going forward, we kind of try and think to ourselves as almost whatever happens that we can if we take control of our own destiny, that we’ve got the opportunity to be successful in good times and bad in the macro environment. That’s how we think about it.

Unidentified speaker: How many sprouties or Swifties?

Jack Sinclair, CEO, Sprouts: Swifties. Maybe we should link the two. I like that idea. I’m not sure we can get Taylor Swift to backers, but we’ll see.

Unidentified speaker: The, can you just talk a little more about your own brands philosophy? Because it’s it’s interesting. Right? You you you want brands that they recognize that are not necessarily they’re not CPG brands, but they might not be brands that are yours?

Jack Sinclair, CEO, Sprouts: Yes. We’ve got a combination of our Sprouts brand team and we’ve reinvented the team. We’ve brought a number of talent brought a new talented team together. They’re launching a lot of products. We’ve gone to 23% of our sales as Sprouts brand.

What we’re not trying to do is drive margin from Sprouts brand. Margins on Sprouts brand are in line with the rest of the marketplace, a little bit higher in some and little bit lower in others, but it’s in line with the rest of our sales product. What we’re trying to do with that is to bring products that are differentiated. We got rid of a number of commodity style products in private brand and try to bring in differentiation. So whatever we sell, there’ll be an attribute that differentiates the product within the marketplace, and it’s all focused on attributes and we have a lot of success on that.

We’re really encouraged by the progress that we’re making on our private brand team. And the principle behind it is it becomes a destination for customers that they can’t get anywhere else in line with the other brands that aren’t the the names that are being brought in. We we’re not a branded company, but we sell a lot of brands that are new and differentiated, and those are the things that kind of work in well within our environment. And we’re pretty relaxed about whether Sprouts brand goes to 30 or goes to 20, as long as we’ve got differentiation, whether it be branded goods or private brand, that’s the key to the proposition.

Unidentified speaker: Are we out of time or we’re out of time, sorry. All right. I want to thank Jack and Curtis for a great presentation. This is really great.

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