Although Sprouts Farmers Market reported an increase in net sales for the second quarter of fiscal 2019, the company’s executives are not satisfied.
The opening of new Sprouts stores — the company has added 26 stores and expanded to four new states since Aug. 2, 2018 — spurred a 7% growth in net sales, the company reported Thursday. During the second quarter Sprouts opened six new stores with the addition of two new states, Louisiana and New Jersey, resulting in 326 stores in 21 states by quarter end.
But comparable-store sales grew just 0.1%, including a 170% increase in digital sales, said interim Chief Financial Officer Chip Molloy during this morning's earnings call.
The natural foods retailer has experienced turbulence at the top this year, with the departure of former CFO Brad Lukow and the medical leave of president and COO Jim Nielsen. Jack Sinclair was named CEO in June and Molloy named interim CFO at that time. In today’s call it was announced that Nielsen will transition to a senior advisory role until March 2020 so that Sinclair will be able to leverage his predecessor’s experience and knowledge of the natural and organic industry.
“In my years working in the United States, I’ve admired Sprouts from afar,” said Sinclair (left), who has worked in retail and grocery for more than 35 years. His experience includes eight years as the executive vice president of Walmart’s U.S. grocery division and 14 years with Safeway PLC in London, United Kingdom, overseeing operations, merchandising and marketing for more than 450 stores.
“Sprouts is a unique format and a unique brand. We have an opportunity to grow because we can expand access to fresh, healthy and affordable food,” he said. He plans to create a culture of transparency and accountability that focuses on listening to the stores and the customers to make improvements, he added.
“The future will be defined by those who follow the customers,” Sinclair said.
In the call, Molloy noted, “April was our most challenging month this year driven by limited produce availability reducing our ability to improve to promote and drive traffic. Trends were better in May and June but still below our expectations. Our online sales, while still relatively small, in total increased 170% expanding our reach to new customers while also providing a convenient alternative to current customers.”
Product innovation continues to drive Sprouts’ double-digit sales growth in private label items, which reached 14% of total company revenue in the second quarter. “More than 45% of our baskets contain a private label item, a testament to the consumer adoption of our brand,” said Molloy.
For the second quarter of 2019, Sprouts reported:
- Net sales of $1.4 billion, a 7% increase from 2018.
- Net income was $35 million, a decrease of 16.7% from 2018’s $42 million.
- Gross profit of $465 million, a 6% increase from a year ago.
- Gross profit margin of 32.8%, down 35 basis points or 0.35%.
Results for the first half of the year were mixed:
- Net sales of $2.8 billion, an 8.5% increase from 2018.
- Net income was $91.7 million, a 15.3% decrease from 2018’s $108.3 million.
- Gross profit of $949 million, a 7.5% increase from a year ago.
When asked why new stores are generating strong sales, but comparable-store sales decrease, Malloy said the company works very hard on finding new markets and focusing on grand openings. However, it needs to do more with creating marketing and branding plans for those same stores as they mature.
Sprouts has lowered its expected results for the remainder of 2019, with comparable-store sales continuing to be flat and net sales growth of 7%-8%, compared with the previously projected growth of 9%-10%.
Sinclair said he is optimistic about Sprouts’ future, even as grocery competition continues to increase.
“The control that we have will allow us to chart our own course. The other guys would have to change to beat us, and they’re not likely to do that,” he said. “I’m feeling pretty confident that we’ve got both the people and the positioning that will allow us to chart our own course going forward.”
This piece originally appeared on New Hope Network, a Supermarket News sister website.