Sprouts Farmers Market at dbAccess Conference: Strategic Expansion Plans

On Wednesday, 04 June 2025, Sprouts Farmers Market (NASDAQ:SFM) presented its strategic initiatives at the 2025 dbAccess Global Consumer Conference. The company emphasized its focus on health-conscious consumers and innovation within the grocery sector. While Sprouts reported robust same-store sales growth, it acknowledged challenges in maintaining consumer confidence amidst economic uncertainties.

Key Takeaways

• Sprouts targets a $200 billion health-focused market within a $1.2 trillion grocery sector.
• The company plans to expand its store count from nearly 500 to 1,200-1,400 by 2027.
• A new loyalty program is set to launch in Q3, aiming to boost sales through personalization.
• Over 50% of produce sales are organic, reflecting a strong commitment to health-oriented products.
• Sprouts is enhancing its supply chain and store efficiency to drive growth and profitability.

Financial Results

• Sprouts has launched 7,500 new items, balancing innovation with product discontinuations.
• Digital sales baskets are double the size of in-store purchases via Instacart.
• The company aims for stable EBIT margins, leveraging strong comparable sales.

Operational Updates

• Focus on attribute-based products such as organic and gluten-free options.
• Sprouts’ foraging team sources innovative products from events and social media.
• The upcoming loyalty program will offer $2 for every $100 spent.
• Transition to self-distribution for fresh meat and seafood to improve freshness and profitability.
• Store size reduction from 32,000 to 23,000 square feet facilitates faster expansion.

Future Outlook

• Expansion into Midwest and Northeast markets, targeting cities like Chicago and New York by 2027.
• Continued investment in supply chain capacity to enhance margin leverage.
• Exploration of private brand and vitamin/supplement supply chain control.

Q&A Highlights

• Despite economic concerns, no significant shifts in consumer behavior have been observed.
• Commitment to long-term vendor relationships and support for organic agriculture.
• The loyalty program aims to utilize first-party data for a personalized customer experience.
• Digital growth is driven by a trusted brand reputation and diverse product assortment.

To learn more about Sprouts Farmers Market’s strategic plans and financial performance, please refer to the full transcript below.

Full transcript - 2025 dbAccess Global Consumer Conference:

Christina Katai, US Retail Analyst, Deutsche Bank: Good. Okay. There we go. So, yes, good morning, and I think we can kick off. So welcome to Sprouts’ fireside chat presentation today.

Thank you for joining us. My name is Christina Katai. I’m Deutsche Bank’s US retail analyst. It is my pleasure to have with us Rats Farmers market management team. So we have Jack Sinclair, the chief executive officer, and also Curtis Valentine, chief financial officer.

So for those that might not know, Sprouts is one of the largest natural organic grocers in The United States. They’re getting close to operating 500 stores, growing close to a 10% clip. So with that, I think we can kick it off. And, Jack, I wanted to start with you. Obviously, Sprouts has had an impressive run of same store sales.

You’ve expanded your profitability. You had really strong performance, including in your most recent first quarter period. So for those that are not as familiar with the Sprouts story, maybe if you could describe what differentiates Sprouts from the competition, and what you think really has been a critical element to your overall success.

Jack Sinclair, Chief Executive Officer, Sprouts: Yes, Christina. Thanks for that. And the very key part of our business and why we’ve been really, I think, creating some success over the last few years is being very focused on our target customer. We’ve been very intentional that we would focus on five years ago when we put the strategy together. There was a $200,000,000,000 market in what we described as health enthusiast and innovation seeker, and that is 200,000,000,000 of a 1.4 $1,200,000,000,000 marketplace.

So focusing in on 200,000,000,000 meant we had to not focus on a trillion dollars of business, and one of the things that’s been successful for us is shaping the individual shaping the business behind that target customer, increasingly trying to understand that target customer better and better. Our merchandising team has been focused on attribute based products that really do resonate with that target customer. So what products we’re putting in front of customers, whether it be keto, paleo, vegan, vegetarian, that whole draw all the dynamic organic, the whole dynamic has been about how do we create the right products for that customer base. Supply chain, we’ve spent a lot of time we focused a lot on building supply chain capability in terms of distribution centers within 250 miles of our stores. That allows us to get fresher product.

Fresher product resonates very well with and 20% of our sales are fresh produce because we’ve really doubled down on that freshness, and that resonates very well with that target customer as well. Real estate, putting stores in the right place because we understand that target customer and not putting stores in the wrong place, not trying to be all things to all men by building stores in every single corner of the country, but being very specific, and and we’re getting better at that in terms of putting stores in the right place, which is I think one of the reasons the new store program has been pretty successful as well. And marketing, being very intentional about who you’re speaking to and how you’re speaking to them, moving from 21,000,000 paper flyers to a % digital and multimedia approach to it, and that’s been a very significant change in terms of trying to attract. Taking promotion, this high low promotional context, which is such a predominance in the grocery sector in The United States, and unraveling that and being very careful to target those target customers, being specific to marketing, merchandising, supply chain. And I think that’s been a big part of why we’ve had some made some progress in the few years.

But I will say we we’ve got a million miles to go on top of this. We’re not far down the route where we need to get to.

Christina Katai, US Retail Analyst, Deutsche Bank: Okay. And just wanted to dig into on your target customer base that you’ve really narrowed down to help enthusiasts and innovation seekers. If you could just touch on what exactly are they looking for, how do you ensure that the assortment and the store experience really resonates with this demographic? And then secondly is just how do you see the right balance between small brands that are not widely distributed, the Sprouts branded products that you are increasingly having success with, and also more well recognized national brands?

Jack Sinclair, Chief Executive Officer, Sprouts: Yeah. Our our our customers are increasingly are are become they’re a little bit better educated and very discerning about the food that they buy. If you watch our customers in the stores, they walk around and they turn product over and read the labels at a level that I haven’t seen before in terms of the intentionality of what’s in the product and a real a real discernment about what they want to buy and what they want to see. And a lot of it is about product attributes that play to their particular dietary need, whether it be gluten free, whether it be the lactose intolerant, whether it be dynamics within the specific organic requirements. We’ve seen a big step up in our organic business.

What did we do to try and make sure we’re getting the right balance? We put together what is a foraging team, and that foraging team are balancing out, Christina, the difference between the private brand requirements that we have and the small brands that you you identify, which are very important to our lifeblood. Private brand has been we’ve we’ve changed the whole private brand approach rather than it being let’s bring a branded product equivalent in at a lower price and make a better margin. We kind of didn’t want any of that commodity thing in our business, and we created a private brand team who we recruited from some other places, some from The UK, and we’ve made some real progress on creating differentiated private brand product whether and every time you look at we’ve redesigned all of our private brands, and when you look at what’s on the labeling, it will call out the attribute that makes it different, and we’ve made some progress there. The small brands, the lifeblood, we launched seven and a half thousand items last year, which is extraordinary really in a business that’s got 20,000 in total.

So seven and a half thousand them in, seven and a half thousand out, but we’ve become the destination for small entrepreneurial. And The US is pretty strong in terms of bringing entrepreneurial differentiated products into the marketplace. We want to be the destination for that. We had 65,000 applications for products into our portal for products that could potentially come into our business. We only manage 7,005 of them.

So we’re and execution, that makes it more difficult than it would be for many other retailers, but it’s something that we think is really important to that target customer, have a very long tail of products with a lot of interesting, innovative, different attribute based products in the middle of it. So I think we’ve got a lot to do in this space, but I think we’re creating this destination for the small entrepreneurial guys to come to us first, and we’ve got much bigger presence than we ever had at Expo West and all the shows around the country as we try and balance this out going forward. But we want both. We want private brand, and we want the innovative entrepreneurial products.

Christina Katai, US Retail Analyst, Deutsche Bank: Great. And and then just touching touching further on this foraging team that you have created. Maybe if you could talk a little bit more about their specific approaches, how do they source products, and then maybe we could drill into how an average shopper comes to Sprouts, how have they been discovering you, maybe talk about basket dynamics, and then where do you see more opportunities to drive growth with this existing customer?

Jack Sinclair, Chief Executive Officer, Sprouts: Yeah. Well, the foraging team is a very it’s something we kind of we wanted to be this destination for new, innovative, differentiated products. So the team came together under someone who Kim Coffin, who’s on our ELT, she’s a senior leader in the business. She’s put the team together, and what do they do to try and find it? They go to, as I mentioned, Expo West.

They go to all the big shows around the country and internationally, so they spend a lot of time there. They have things called pitch slams, and in fact, I think there’s one going on today where 30 or 40 individual vendors will come into the office and pitch either virtually or in the office, pitch products to us, and there’s constant constantly we’re constantly evaluating those products, and so and and being very close to what’s happening in social media, what are the trends. We’ve seen something like CMOS, which has been an extraordinary success for us, started with us seeing it on social media. I’m not so that that whole context of being close to what’s happening nutrition wise, being close to what’s happening in terms of diet on the social media space, the team have worked very hard on that. So this combination, social media, visiting, going around a lot of very specific shows and and being very in tune with the the the ecosystem that exists around these products.

And we have to end up holding hands a little bit with some of these vendors who to to exaggerate to make the point, they started in the garage, and how do we work them so that they can come to the marketplace and be first with us. We’re kind of we feel as if we can be the starting point for a lot of very exciting young brands in the country, and we’re making progress with that. And so maybe you could talk a little bit, Curtis, about how the customer kinda basket works and dynamic in terms of where things are.

Curtis Valentine, Chief Financial Officer, Sprouts: And I think you asked kinda where they’re coming from, and they’re coming from everywhere. I think there’s a real health and wellness tailwind that’s sending customers our way, Christina, and so we see them coming through. Certainly, we believe they’re omnichannel, and so our our digital efforts, our in store efforts, really, it’s about providing more and more access to what we do. And so the two ways we’ll do that going forward, new store growth, just get to more communities where these target customers live and introduce them to Sprouts. Then the loyalty program, I think, as we as we get on that path and better understand who they are and what they care about and which part of this attribute ecosystem they’re engaging in, that’ll allow us to kinda deepen our engagement with them and and then get them to come in just a little bit more often or maybe add one more item of the basket will be how we’ll continue to to create growth.

Christina Katai, US Retail Analyst, Deutsche Bank: Great. And I just wanted to ask a more near term oriented question. It looks like Sprout doesn’t experience or experiences very little just from the volatile consumer confidence and the overall backdrop that we’re experiencing in The US. But for example, yesterday, we heard about higher income household trade in accelerating from a dollar store. Could you speak to what you are seeing regarding your current consumer behavior?

Have you seen any shifts over the last couple of weeks or even even months as well?

Jack Sinclair, Chief Executive Officer, Sprouts: Well, we’re clearly watching this very closely because there’s so much dialogue about consumer confidence and what’s happening, so you would have expected some things to have changed in our environment. The reality is we aren’t seeing any change whatsoever, which is quite surprising even in the last few weeks. Now whether that will stay, we’re kind of second guessing whether it will stay like that, and we’re we’re very clear that by region, by category, trading up, trading down, we’re not really seeing a significant change in the pattern of what’s happening in our business, and you would probably have expected it by now, Christina, to have seen something in that. I think our customer base is a little bit more resilient to what’s going on in the macro environment. I think you’ve got customers who are very health focused, and if you’re interested in your diet and you’re a vegan, you’ve got to eat.

You’re probably going to stay eating the things that you’re focused on in terms of our target customer, so I think that resilience comes, and that gives us a lot of confidence going forward that irrespective of what happens in this pretty significantly uncertain time that we’re gonna be able to cope and deal with the the changes as they come to us.

Curtis Valentine, Chief Financial Officer, Sprouts: And then just maybe add a couple of things. I think from a trade perspective, in or trade down in that higher income consumer, I mean, one of those trades would be out of food away from home and into food at home, right, which actually creates maybe a little bit of a tailwind as that first wave of activity happens. The second thing is to Jack’s point on following the diet and being more interested in health, that is sending people our way up and down the demographic scale. So you’ve got boomers who are really focused on longevity and and just living a little bit longer. You’ve got the younger generation, and I’m wearing an Oura ring here, and they’ve got wearables, and they’re keen on their heart rate and how well do they sleep.

And I know when I eat something lousy at late at night, as I did last night for dessert, I don’t sleep quite as good, and my ring tells me that. And so I think people are just very aware of what they put in their bodies, this food as medicine concept, and it’s sending more and more people, our way, every day. And and as Jack said five years ago, we expect more health enthusiasts five years from from now than there are today, and that’s played out. And we we say the same thing today. We’d expect more of our target customers tomorrow than we have today, and and I think those are the things that are driving people to us.

Christina Katai, US Retail Analyst, Deutsche Bank: No. That that makes sense. And I I would be one of those types of customers that is always actively tracking their sleep and making sure that that that is a high quality. Just in terms of categories or type of products, can you talk about what has been resonating the most with your customer, especially as we think about the potential for trade down or trade in activity to happen? And then have you seen any underlying shifts in buying patterns, and how do you think about rebuilding the basket going forward?

Jack Sinclair, Chief Executive Officer, Sprouts: Well, the reality is that the important attribute based products that we sell are the things that are working well for us. We’re seeing a real growth in organic. That’s been pretty dramatic for us. More than 50% of our produce sales are now organic, which is leading us to some really good long term relationships in the agriculture space. The whole diet trend around gluten free has been pretty significant for us, we’ve seen a pretty significant growth in keto for us, Protein, if you go around Expo West, everyone was talking about protein, and protein is getting added to the most weird and wonderful products in our categories.

So as you look, that’s probably a very significant trend how that’s evolving. What it’s translating into is we’re seeing strong performances in our dairy, frozen, grocery for all the same reasons, it’s all attribute based products across the different categories. You’re also seeing some interesting things happening in non alcohol, alcohol that’s non alcohol, which I know is a bit of a misnomer really, but we’re seeing some real success in that space, Nondaily daily, we’ve seen some real success in, but a lot of it’s driven by attributes, and that’s the progress that we’re seeing significantly across the different categories.

Christina Katai, US Retail Analyst, Deutsche Bank: Right. So you have obviously embarked on the strategy section. You’ve eliminated what you referred to as the coupon clippers that has resulted in a significant upgrade in household income. So do you think that your model post the strategy change just makes you maybe less vulnerable to the overall macro and overall price intensity of food retail? Then I wanted to touch on how you think about your pricing perception of Sprouts, in particular key departments across the store.

Jack Sinclair, Chief Executive Officer, Sprouts: Well, very specifically, as as as we’re not well, talk about pricing specifically, produce pricing is very important to us. We spend a lot of time. It’s the origins of the company. It’s the DNA of the company. It’s a bigger proportion of our business than anything else, So we spend a lot of time looking at produce pricing.

We have a very strong gap in organic produce pricing, and we spend a lot of time analyzing where we need to be against conventional grocers and against Whole Foods as we look at our produce pricing. Other categories, we don’t have the over we don’t have the direct comparison. Increasingly, we’ve been getting ourselves in a place where the assortment that we’re carrying is not does not appear in other places with the possible exception of Whole Foods. Across the rest of the marketplace, we’re not really carrying the same things as other as the other people. And the way we look at pricing is about elasticity.

If we put a product out there that’s got a fair value for the customer and no one else is selling it, the customer will buy it. If they don’t buy it, then maybe we’ve got the pricing wrong. So there’s a lot of micro pricing work being done in our organization to try and understand exactly where that needs to play out. And by and large, that the focus of our value proposition is we’re giving customers healthy products, differentiated products, innovative products, and they will respond to that. And they’ve responded pretty well, and we don’t see our price perception in the context of what is against other grocers.

We see it in the context of how does it work with our individual customers, and that’s the context of our pricing decision. It’s taken me a little while to get my mind around that as having been a grocer for a hundred years in every other place. The context of thinking about this in a different way reflects that we really love being different as a company, and thinking that through is how we navigate our way to thinking about our price perception.

Christina Katai, US Retail Analyst, Deutsche Bank: Great. And just just one more on on competition. You know, we’ve talked about consumers increasingly shifting to health and wellness. We’ve also been seeing some of your conventional competitors promote Sprouts like events or really launching differentiated OBM products. Can you talk about your confidence that Sprouts can maintain its differentiated position in the face of growing competition?

Certainly, when you’re forming so well ahead of the market, that is going to be drawing some attention to you. So how are you thinking about sustaining the

Jack Sinclair, Chief Executive Officer, Sprouts: I think it it gets back to your original question about what we’re trying to do, and that focus on a narrow customer segment allows us to be very focused on it. And remember what I spoke we said, there’s $1,400,000,000,000 that we don’t go after that the other guys, the main conventional guys certainly have to go after, and you can’t chase you can’t chase and they’re quite well on some of those products, but it’s not gonna do enough for them. They have to spend their energies chasing after the 1,400,000,000,000.0 that we’re not chasing after, so we can be very and if you we feel very confident that the way we think about a long tail of assortment is something other people won’t want to do. Not that they couldn’t do it, but they wouldn’t want to do it because they would lose a lot of their capabilities of selling high volume products in the $1,400,000,000,000 marketplace. We’re we only sell you know, you’d have to take Coca Cola out of your business to really focus.

We sell probiotic sodas. We don’t sell Coca Cola. To bring all those probiotic sodas into the business and take Coca Cola out would be frankly pretty silly for those guys to do that. So we think we’ve got an inherent strength in that, and they are doing fairly well with it because the customer’s evolving to it. But the reality is we’re in a position, I think, to be so narrow in our focus, and we’re relatively small still in the great scheme of things.

Our $8,000,000,000 doesn’t compare really with some of the other people you’re identifying in that conversation, Christina.

Christina Katai, US Retail Analyst, Deutsche Bank: Great. And I wanted to bring in Curtis a little bit more. Switching gears to gross margin, obviously, this has been another aspect of the Sprouts story over the last few years as you’ve really eliminated just broad based promotions. But you continue to find gross margin upsides even this year. You have many initiatives, including category management and supply chain enhancement.

So, Curtis, can you walk us through maybe where you see incremental opportunities, that you still see ahead? And then just overall philosophy of how much you wanna flow through versus how much you want to reinvest in the business.

Curtis Valentine, Chief Financial Officer, Sprouts: Yeah. Sure. Yeah. So we’re we’re still a fairly immature business. It’s it’s only been ten ten, twelve years since we went public, and we’re growing really fast.

And so we continue to find opportunities to just do things more effectively and efficiently, and we’re not reinventing the wheel here. These are tried and true kinda grocery and retail techniques, but inventory management has been the space in the last twelve to eighteen months that we’ve really, we’ve really seen gains. And so much lower shrink, more efficient in the 7,500 products that we’re taking in and out of our business every year. So from a markdown perspective, just getting sharper and using tools and data and process, to make better decisions in that space. And so these are kinda behind the scenes cost items that we’ve taken out.

It’s not an impact to the consumer at all. We haven’t been raising prices to get that margin. It’s been cost takeout and and and process efficiency in in how we work through, through the entire supply chain. And so those are things that have that we’ve, taken advantage of recently, but we’ll also have opportunities still to go because we’re not done yet as we continue to invest in replenishment and those types of capabilities. I think the other thing we think about, and it kinda goes to the last part of your question, is we’re gonna continue to reinvest in the business for the long term, you know, sustainable earnings growth and the health of the business in 2027 and beyond.

And that’s a little bit of how we’ve gotten some of those gains as well. A couple years ago, we invested in capacity in the supply chain. Right? And that allowed us to then come back and and as we add new stores, create leverage. Or as we look ahead to meat and seafood self distribution, right, it gives us the capacity and the room to go do those types of things that continue to drive gross margin, leverage.

And then lastly, we’ll have loyalty, which at the early stages as we’re in right now will be a bit of an investment for the points that we’ll give on the loyalty program. But as we take in that first party data and we get to know our customers at a deeper level should create opportunities, not only in gross but throughout our business, to go ahead and reshape our merchandising, our operations and service, our marketing, and how we serve those customers. We’ll get to go do that again with the benefit of first party data and the insights and the learnings that we’ve had the last five years. And so we’re pretty excited about the opportunity and the upside, But, again, we really we talk about stable more than bottom line. Stable EBIT margin is the commitment we’ve made, and then that becomes kind of the floor.

So as we go execute these programs, you know, one, if the comp momentum continues, then you’ll see a little bit of leverage drop to the bottom line from strong comps. But as we go execute these programs and we do it well, we outperform our business case, then you’ll see a little bit of flow through to the bottom line as well. And and because these are foundational elements we’re just making better, these are not onetime things that we’re doing. That just creates a new floor for for next year’s stable guidance. And so as we as we get gains, as we have the last few years, we’ll keep them, and we’ll just keep moving forward looking to stamp out more inefficiency in our business.

Christina Katai, US Retail Analyst, Deutsche Bank: Great. And you you touched on self distribution. Fresh and fresh meat and seafood is something that you’re undertaking this year. Can you talk about the expected benefits in terms of freshness, control, and then overall profitability to to the gross margin? And maybe later down the road, what are some potential other areas for soft distribution that you see in the business?

Curtis Valentine, Chief Financial Officer, Sprouts: I’m cover the benefits side? I’ll turn it over to you for the future. So, yeah, so on the benefits side, think you’ve got it. Right? So I think a little bit closer relationship with our suppliers.

We just like that direct connection to them to be able to work better together. Right out of the gates, we’ve got the fee that we’re paying for distribution, you know, historically, is the pool of funds, and then we’ve gotta pay for it ourselves in our own ecosystem. And so there’s just a little bit of arbitrage that’ll flow through the gross margin there, assuming that we execute really well, which is where we’re heads down and focused on this year is getting it getting it right so that we do capture that little bit of gross margin benefit. Beyond that, then we should see, you know, in the partnership with the vendors, better in stocks. Right?

So better allocations, better fill rates, getting the right product to the right stores with just one less complication in that dynamic. We can go direct to suppliers and and do that a little bit better, and that should result in some better sales force down the line as we as we have better in stocks. And then I’ll kinda let Jack talk about what this might lead to in the in the long Yeah.

Jack Sinclair, Chief Executive Officer, Sprouts: And specifically on the meat thing, I’m I’m anticipating when you become a specialist meat retailer, which we have become grass fed, no antibiotics, very conscious of the husbandry of the animals, we can work longer term programs with the vendor base, and that’s gonna be something that’s I think gonna help us instead. Instead as we grow scale, how do we think this through? As Curtis said, we we’ve invested in distribution capacity, which gives us optionality going forward, and we’ve got a number of areas as we go go grow geographically, we’re gonna have to build some more DCs as well. And we’ll build them with enough capacity, which will have some effect in the short term, but it will go have enough capacity going forward. So what are the areas that are gonna matter to us?

And private brands gonna be important to us. Sprouts brand’s gonna be important to us as we grow in scale. Should we find some way of becoming more more having more control of our destiny in that space? Probably. Our vitamins and supplements departments, which are really important to the differentiation of the company, grocers of pharmacies, we have vitamins and cell and supplements departments where you can give people advice as to how they can navigate their health journey and navigate the way they can look after themselves, and we’ve got people that are really important.

We probably haven’t got the supply chain behind it that I would like going forward. So areas like that, as we think about it, may may not be self distribution, it might be but those are the kind of categories as we grow that we’re gonna have to take a little bit more control of our own destiny so that we can free up our our business to look after customers more effectively, and that’s very much a big part of the the kind of supply chain investment. How do we create resource to make the world a better place for our customers when they come and interface with our team members?

Christina Katai, US Retail Analyst, Deutsche Bank: Great. And one other exciting aspect is you’re launching a loyalty program that’s gonna be rolled out starting in the third quarter. If you can talk about the overall road map to provide that tailored unique need for your customer, What kind of accomplish do you expect to gain from the program in order to keep it margin neutral? And any insights that you can share from your initial pilot program?

Jack Sinclair, Chief Executive Officer, Sprouts: Well, I’ll let you build on it, Curtis. The the starting point of this is we’re really excited about our loyalty program. The reality of our customer base is such we have to understand the nuances of what I when we say health enthusiast innovation seeker, there’s a lot of nuance within it that we need to kind of understand even better than we have been, whether it be you’re a grass fed meats customer, you’re a vegan customer, you’re a keto part customer, you’re an organic customer. How do we understand that nuance more effectively so that we can communicate more effectively? Where we are at the moment, we’re in 35 stores.

Those 35 stores, we’ve been working very hard on the user experience around the loyalty program to make it much more customer to to take the friction out of the customer journey on that, and we’ve worked our way through that. It’s been expensive. It’s been a long journey, and we’re feeling we’ve got to the end of that journey now, and we’re ready now to roll it out. That journey now starts to roll out in July, and by the end of the year, we’ll be in all stores. What do we want customers to do as this rolls to all stores?

We want them to sign up. They’re signing up on the basis that they get points. They get $2 for every hundred, basically, the way it’ll work. And how did then from that, how do we get them to scan? We need them to sign up and scan, and that’s the basis of getting this thing kicked off.

From that data, what are we gonna do with it? Is it kind of exciting thing for our business right at the moment? And we draw ask we draw inspiration from people like Sephora and Ulta who I think are in the conference here today, and other people like REI, more so than we draw inspiration from the grocery schemes that we see around the world, all of which tend to be a little bit transactional, a little bit about here’s 10¢ off your gas or here’s some price for you that the other guy can’t get. We don’t wanna get into that space. What we do want to do is understand the customer, and the vision would be that when you open the app, it’s individual to you.

It makes it really clear that the personalization dynamic, so you feel special and feel something special. And we’ll build on that by creating ways to spend your points that go beyond just getting money off your of your off the register and how do you access different things. And the team are in the middle of that. It’s a really exciting phase of our evolution back to how we who we want to serve and how do we look after that customer. And that will help our purpose is to help people live and eat better.

We think this loyalty program is gonna help us do that in a very individual way. I don’t know if wanna Yeah.

Curtis Valentine, Chief Financial Officer, Sprouts: I think from a I think we expect it to be a little bit of a longer journey too, Christina. I mean, we have a lower frequency customer that comes through our doors, and so it’ll take us a little bit longer to gather all the data we’ll need to, to really, create and stimulate the demand in the ways that Jack’s talking about. And so we expect it to be incremental and and multiyear incremental to our comp. It should it should be a tailwind for the next several years that’ll help us deliver you know, sustain the momentum we’re on and deliver the the comps that we that we promise. And then I think it’ll evolve as well.

It’ll iterate from a experiential perspective. Right? We do wanna create that community feel to it, and so, we’ll we’ll be working on different ways to do that beyond just the points starting point that we’re using. But, certainly, you could you could get to our innovation is a big part of what we do, and so access to new products and unique products first. I think you could think about demonstrations around cooking and recipes and, you know, influencer led events and things like that and giving access to some of those things for the for the folks that are on our loyalty program.

I don’t know if that specifically would be it. I’ll leave that to the marketers, to to deal with, but but they’ll be coming up with great ideas like that and better ideas than that in all likelihood, and and that’ll create that kind of community feel that we’re after for for our target customer.

Christina Katai, US Retail Analyst, Deutsche Bank: Great. Well, I’m already signed up. I’m excited for this. You just have to open store nearby Manhattan for me to attend.

Jack Sinclair, Chief Executive Officer, Sprouts: But We’re getting our way.

Curtis Valentine, Chief Financial Officer, Sprouts: We’re getting I suspect we’ll get to that question here shortly, so but we’re on our way.

Christina Katai, US Retail Analyst, Deutsche Bank: So that’s a good segue for us to get to new store growth. Another big part of your story, Maybe just given your differentiated sourcing approach, if you could talk to us about how you see the long store long term store growth potential, where do you see the greatest white space opportunity ahead, And when do you expect the new store openings to start tilting more towards newer market as opposed to filling in existing markets or that fifty fifty balance that you’re currently achieving?

Curtis Valentine, Chief Financial Officer, Sprouts: Yeah. So 12 to 1,200 to 1,400. So 1,200 plus sites. And when we’ve got them kinda plotted out, as as you know, we’ve talked about our journey on the site selection process and the analytics that underpin that. And so we’ve got pins in the map across The US in about 1,400 different places, and we’ll be able to get there in in due course.

More specifically, we’ll get into the Midwest with kind of Chicago as the center point, and then we’ll get into the Northeast, kinda Greater New York, and into Boston. We’ve opened up those geography geographies after doing a little bit of consumer research to confirm that, you know, we’re ready to go with the right go to market in that space, but that’ll allow us to go a little bit faster and continue to accelerate our our unit growth as we head towards 10%. That’ll probably start in 2027, practically, as we as we start signing them off now. It’ll take a couple years to get those out of the ground. And and the shift of the business, it’s been interesting the last five years that really the 5050 has been kind of the East Coast.

Right? The 50% nonestablished, a lot of Florida, little bit in the Southeast, up into the Mid Atlantic. That’s been our nonestablished 50. The performance we’ve seen has been really encouraging, and it gives us a lot of confidence to continue to go fast and that they’re they’re doing really well. They’re starting to open at higher levels.

They’re comping really strongly. It’s starting to resonate, really resonate with the target customer. And so those markets are almost graduating, into a a more established market, and so I I view the fifty fifty. It’ll kinda just stay the same. It’ll just be a little bit it’ll be the different markets.

It’ll be the Northeast and the Midwest that will become our our nonestablished markets where we’ll start with a little lower density and awareness, but those other markets will fold into a more established state and and and probably look a little bit more like your Texas, Colorado, Arizona, California type markets as we as we evolve going forward. So it should continue to have that split, which gives us a nice kinda cannibalization balance where we don’t see much in those new markets, and we we see a little bit in the existing markets as we infill. And so it’ll it’ll kinda play out similarly we expect over the next five years as the last five years just with different markets.

Jack Sinclair, Chief Executive Officer, Sprouts: I think that one of the things that’s quite interesting about the new stores is what’s happened to places in, like, Florida for awareness. And as we get what we’ve gone and awareness going from 30% to 75% in some of our markets down in Florida as we build the stores. Getting critical mass and getting enough stores quickly to make the awareness move fast is gonna be one of the big challenges for us in places like Chicago and Boston and up in the in the New York Metro Area. Those opportunities, and we’re we’re thinking very hard about how we can market and move a little bit faster so that this dynamic of new markets and old markets fuses into one, and we’re just able to open open stores everywhere, and a little bit of that is building awareness in advance, and we’re thinking very hard about that. We’re having some real thoughts with our marketing teams about how we can get ahead of some of the markets that we’re not in and maybe move a little bit faster with awareness, which will allow us to maybe get the stores opening, and you won’t have this difference between old stores new markets and old markets that we’ve traditionally talked about, and we’re working pretty hard about that.

The other thing I would say is the smaller stores is now much easier for us to execute than we have ever we’ve now got the cadence of building 23,000 square foot stores, which I don’t think we’ve talked about. We’ve gone from 32 to 23. We can launch these much more effectively, and we’re finding that that I think we can I think we’ll be able to do better in new markets than we traditionally have done?

Christina Katai, US Retail Analyst, Deutsche Bank: Great. And one interesting aspect of your business is your overall sourcing and then your increased focus on on local sourcing as well. But as we think about where the majority of your footprint sits and where you’ve been growing in areas like Florida and Texas, it really has been more or less concentrated in areas with stronger growing seasons or just overall closer to areas where more food generally is grown. So as you think about the expansion more into the Northeast and then followed by the Midwest, just how do you manage that expansion while maintaining that farmers market appeal of the overall Sprouts experience?

Jack Sinclair, Chief Executive Officer, Sprouts: Yeah. I think it’s a great question, and we’re thinking pretty hard about it. I think about market markets like Colorado. Each of our distribution center, we have local sourcing expertise building long term relationships, and a lot of it primarily links to our fresh produce business, which as we keep saying is so important to us. Colorado’s got a very short window because it snows a lot there, so you’ve got a short window, but you have to work really hard when it really matters to source it appropriately.

We’ll have to think about that a little bit in Chicago when we get to Chicago and building relationship with growers in Michigan and building relationship, which, again, Colorado is a good parallel to think about how you would do that. We’ll be building relationships so that you can source products locally, and we’ll work we’ll bring some partners on board who can help us with this in markets where we’re not known. But each distribution center will be sourcing locally and will be a sensitive one. At the moment, we’ve got a partner helping us in the Mid Atlantic, so Jersey Tomatoes being ahead of that kind of program, you wouldn’t have said that that would be a Sprouts expertise a few years ago, and we think we’re we’re working very hard. When the markets are there, we’ll be there to support the growers and give longer term commitments, two, three year commitments so that people will grow for us, encouraging them to grow organic, regenerative agriculture.

We’re working very hard locally, and each market is going to have its own dynamic. But we’ll do the same. People are eating a lot of fresh produce in Chicago, and when they get it, it’s as local that it will be as local as we can get it, and hopefully, we’ll be better than most, and we’ve certainly had a lot made a lot of progress in Florida. I was with the Florida agriculture people last week, and we’ve really doubled down on how we can work closely in the season when it matters. And so we’re confident about it.

It’s something that’s in our DNA, and it’s something that we’re working hard at.

Christina Katai, US Retail Analyst, Deutsche Bank: Right. And just wanted to switch the switch to digital where you have seen really strong growth over the last several years, not only with your original partner Instacart, but even with newer partners, DoorDash, Uber Eats, and then when you started to anniversary those additions as well. What has been such what has been contributing to this such strong growth? How do you think about digital growth from here, and maybe talk about what are some of the key differences in digital orders versus in store shopping habits? Yeah.

Curtis Valentine, Chief Financial Officer, Sprouts: Sure. Well, I think for us, it starts with the assortment always. So it’s that differentiated attribute based assortment. If you’re going online to get groceries, if you’re going for Coca Cola, you’ve got a thousand options. If you’re looking for something in the long tail of keto, you don’t have that many options.

And so I think that’s what our customer is seeking our assortment out online. That’s why you’ve seen the growth you’ve seen in our business, which gives us a lot of confidence that it is different and it is unique because of the way that the customer responds digitally. I think secondarily, we have, you know, growing up as a as a fresh foods retailer and particularly with fresh produce, we’ve got an inherent kind of brand trust in what we do that you’ll find the best and the freshest product produce at at Sprouts. And so our online mix for produce is the same as it is for a brick and mortar transaction in store, which just again reinforces that they they trust that if you’re gonna have somebody pick your apple for you, it better be somebody that you trust that you know will do it well and will have the freshest product. And so that’s what we see is the assortment and the and the mix of departments is roughly the same online as it is in store.

The basket size is a little bit different. You know, it’s about two x on an Instacart delivery order, what it is brick and mortar. And then Uber Eats and DoorDash is a little bit more of the convenience shop and a little bit more milk, eggs, bread, kinda what’s for dinner tonight. So a slightly different mix for them, but still really strong baskets. They’re in the same range as our as our brick and mortar in store basket, kind of in that low to mid forties range.

And so, yeah, all three partners have been excellent partners. They get on great with the stores. They take great care of the customers. They pick great fresh produce for the customer, and we’d expect that to continue to grow. For us, it’s a convenience play and an access play for our target customer.

Our brick and mortar trade area would be about ten minutes drive time, for most of the customers. The ecomm trade area allows us to expand to about thirty minutes drive time. So if you live twenty five minutes away from Sprouts and have a fifty minute round trip, maybe you have a new baby at home and you’re not willing to make that fifty minute round trip, but you love what Sprouts does, well, now you’ve got another option. So that was the idea around Instacart, Uber, DoorDash. It’s a different pool of customers that just provides access and a bit of convenience that we that we can’t provide with our brick and mortar footprint.

They now have that online. And so, I think the assortment continues to be different. We continue to have that opportunity to access the customer in different ways. We’ll allow them to choose. The penetration will be what it’ll be based on how the customer chooses to interact with us, but we expect it to continue to grow in the in the next five years.

Christina Katai, US Retail Analyst, Deutsche Bank: Right. And maybe thirty second rapid fire to to round this out, Curtis. Just capital allocation priorities, balance between, store growth, share repurchases, any potential for m and a opportunities.

Curtis Valentine, Chief Financial Officer, Sprouts: Yeah. We always invest in the business first. And so the things that are driving EBIT in our business today are the things that we’re gonna continue to invest in. So store growth, supply chain, loyalty personalization, innovation, team and technology, that’s our first priority. Our 3% to three and a half percent of sales guidance kinda allows us to do all the things that that we’ve got the bandwidth to do in that space and feel good about, driving returns on.

Outside of that, we’ve paid down the debt. We’re really toggling between interest income and share repurchase. So when the price is a little bit lower, we buy a few more shares. When the price is a little bit higher, we’ll we’ll learn a little bit on the interest, and there’s just a math equation there. And so we’ll always take the excess free cash flow and return it to the shareholder in the most efficient way possible.

On the m and a side, we we we look and things come along, and and we’ll always look. But, practically, you know, it’s important for us that it’s gotta fit our target customer. It’s gotta accelerate our strategy. It has to make sense financially, and then we’ve gotta be able to execute it and have the bandwidth to do it in such a way that it doesn’t impact the core business, which is really going right now. And so when you think about a a short list of of potential players there, there might not even be a list to think about.

And so we’re pretty heads down.

Jack Sinclair, Chief Executive Officer, Sprouts: We’ve got plenty to do while we’re doing it.

Curtis Valentine, Chief Financial Officer, Sprouts: We’re pretty heads down and pretty focused

Jack Sinclair, Chief Executive Officer, Sprouts: on the organic thinking at the moment.

Curtis Valentine, Chief Financial Officer, Sprouts: Correct.

Christina Katai, US Retail Analyst, Deutsche Bank: K. Great. Well, I think that rounds us out out for time. So thank you so much, Jack and Curtis, for a great presentation. This has been a very enjoyable conversation.

So thank you again, everyone, for attending. Thank This will conclude our fireside chat.

Jack Sinclair, Chief Executive Officer, Sprouts: Thank you, and good

Curtis Valentine, Chief Financial Officer, Sprouts: luck. Good luck, Christina. Good to see you. We’ll see you again soon.

Christina Katai, US Retail Analyst, Deutsche Bank: Thank you.

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