Sprouts executives pleased with growth in e-commerce and store brands

Dive Brief:

Sprouts Farmers Market reported net sales of $1.3 billion for the fourth quarter of 2018, an 11% increase compared to the same period in 2017. The company said in a press release that growth was driven by a 2.3% increase in same store sales and strong performance at new stores.
The retailer reported an adjusted net income of $24 million for Q4. Adjusted earnings per share were 19 cents, driven by higher sales, a lower effective tax rate and fewer shares outstanding due to the company’s stock repurchase program.
For the entire fiscal year 2018, Sprouts reported net sales of $5.2 billion, a 12% growth compared to 2017. In 2019, Sprouts anticipates a net sales growth of 9 to 10.5% and full year same store sales growth of 1.5 to 3%, driven primarily by new store growth.

Dive Insight:

On the e-commerce front, Sprouts officials said they've begun trialing store pickup through Instacart at select stores. The service, which Instacart launched nationwide last year, complements Sprouts home delivery service through the e-commerce provider, now available at more than 200 of Sprouts' 313 locations.

During yesterday's earnings call, Nielsen said Sprouts will introduce a white-label platform in the second half of the fiscal year that plays up the retailers' branding and offers a more "unified" experience for shoppers.

"We'll also be able to get better content personalization offers to our customers and partner with our vendor community to put the right type of promotions out there in order to offset some of these costs," he said.

The company also reported significant growth in its private label products last year. Store brand sales grew 26% growth year over year and now comprise about 13% of the company’s total sales.

While Sprouts appears to have beat fourth-quarter earnings expectations, the company’s guidance for 2019 has fallen short with investors. Still, Sprouts leadership remains optimistic about last quarter’s earnings and the direction of the company in the coming year, despite an uncertain end to 2018.

The unexpected resignation of CEO Amin Maredia in December led to the largest one-day drop in stock prices in the company’s history. Since then, interim co-chief executive officers Brad Lukow and Jim Nielsen have stepped up to run the business. During Sprouts’ fourth-quarter earnings call, the pair reported that a search is still underway for a replacement CEO.

“In 2018 we continued to evolve and improve the Sprouts business model by focusing on the latest consumer and industry trends,” said Lukow on the earnings call. “Our focus on product innovation, guest experience and ongoing training and development of our team members continue to underpin the success and growth of the Sprouts brand across the country.”

Lukow reiterated Sprouts’ plans to open nearly 30 stores in 2019, with nine store openings anticipated in the second quarter when the state enters New Jersey, Louisiana and Virginia. According to Lukow, this year about 50% of new stores will be in existing markets and 50% will be opened in new markets, while historically about 70% of new stores were placed in existing markets and 30% opened in new ones.

In addition to store growth, Sprouts has continued to roll out store remodels and is focusing heavily on expanded deli departments and more convenient meals, with remodeling completed at half of Sprouts’ locations. These new locations offer customers elevated deli offerings such as a salad bar, prepared meals and freshly squeezed juice, Nielsen said on the earnings call.

In its earnings press release, Sprouts announced that it has voluntarily reclassified certain expenses on consolidated statements of income presentation to provide greater transparency and enhance comparability with industry peers.