Sprouts Farmers Market third-quarter sales slump, but CEO optimistic about 2022 rebound
Sprouts Farmers Market overcame continued weakness in sales to generate better third quarter earnings, while tempering its sales outlook for the fourth quarter.
Sprouts said sales in its third quarter ended Oct. 3 fell 4% to $ 1.5 billion and same-store sales were down 5.4%, from an increase of 4 , 2% of the previous year. TThe company started the year forecasting a full-year comp drop in low to mid numbers, but when customer traffic did not rebound earlier this year, the forecast was narrowed down to a 5-to-1 drop. 7% at the end of the second trimester. Now the company expects a 7-7.5% full-year roster drop, including a 3-5% drop in the fourth quarter.
CEO Jack Sinclair attributed the sales challenges to a 25% drop in customer traffic in physical stores that began last year at the height of the pandemic and coincided with an effort to reduce unprofitable promotions. The company doesn’t want to go back to the days of promotions eroding margins and degrading the brand, but Sinclair said marketing changes are underway.
“WWe are focused on delivering a clear message that highlights our precise product pricing, innovative products, and farmers’ market experience to drive additional transactions in quarters and years to come, ”Sinclair said .Our goal remains to add profitable sales growth, attract more customers and further retain our target customers. Earlier this year, we failed to communicate our commitment to value pricing in our marketing, especially in products. “
Sprouts may be able to quickly pull certain levels of sales generation with mass market promotions to drive traffic, given that it has largely left the market in favor of targeted digital offerings. In addition, its comparisons with the previous period are increasingly easy. Fourth-quarter and full-year numbers are weak, as Sprouts’ comparisons to the year before are not as difficult as those faced by other grocers. For example, Sprouts recorded a gain of 3.7% in the fourth quarter of 2020 and a gain of 6.9% in a full year. These aren’t huge numbers, especially considering the benefits other retailers have seen from soaring inflation across all food categories.
Despite the sales challenges and modest forecasts, Sinclair focused on the fact that the third quarter numbers were an improvement over the second quarter where sales were down 7% and same-store sales were down 10%.
“Our sequential third-quarter sales improvement and strong earnings, combined with the early performance of our two newly designed stores, give us confidence that we are moving forward in the transformation of Sprouts, built on the long-standing foundation of ‘a farmers market,’ Sinclair mentioned.
The robust earnings mentioned by Sinclair involved a 6% gain in net income, which rose from $ 60.2 million to $ 63.8 million. The company noted that those numbers were significantly higher than in the third quarter of 2019, when net income was $ 26 million. Sinclair joined Sprouts as CEO in June 2019.
The improvement in profits was due to the control of expenses, with SG&A as a percentage of sales falling to 28.04% in the third quarter from 30.11% in the corresponding quarter of the previous year. Meanwhile, gross margins declined by a lesser amount from 37.07% to 35.76%
“This drop is due to the anniversary of high demand at the height of the pandemic and the balancing of cost and retail price inflation during the quarter,” the company said of the drop. of the gross margin. “Our effective promotions, attractive daily prices, improved shrinkage and our differentiated assortment continue to generate margins above our historical trends, contributing to an increase of 265 basis points compared to the third quarter of 2019.”
The company said that its reduction in selling and administrative expenses, “primarily reflects lower costs of responding to the COVID-19 pandemic, including incentive compensation over the previous year, as well as expenses. weaker marketing and e-commerce.
“Moving forward, while there is work to be done, we are supported by a solid history of unit growth, passionate team members, loyal customer base and our new differentiation, providing the ingredients long-term success as a specialty store destination. “
Regarding unit growth, Sprout confirmed that six of its 20 initial openings slated for this year will fall in 2022. The source of the delay, according to the company, is “continuing difficulties in obtaining necessary equipment from third parties due to supply chain delays complicated by the COVID-19 pandemic. The change will result in a wave of openings next year with between 25 and 30 units expected, according to CFO Chip Molloy.
Sprouts ended the third quarter with 366 stores in 23 states.
Based in Phoenix Cabbage, which employs approximately 35,000 associates, is No. 48 on the PG 100, Progressive Grocer’s 2021 list of leading food and consumable retailers in North America.