PHOENIX, AZ - We in produce know, Mother Nature always keeps you on your toes, and Sprouts Farmers Markets, which does around 23% of its total sales out of the fresh produce department, is not immune. The retailer released its Fourth Quarter and Full Year 2018 Results this week, with Co-Chief Executive Officers Brad Lukow and Jim Nielsen taking to a conference call to explain the full report to investors. During that call, Lukow and Nielsen both noted that tight fresh produce markets related to weather in Mexico and California led to inflated prices for the department. In order to combat those costs for future quarters, Sprouts said it will implement a new fresh item management program in 2019.
“What we are seeing today is California [and] Mexico having some challenges...That is nothing new to us,” said Nielsen, who is also the company’s President and Chief Operating Officer, according to a transcript on Seeking Alpha. “Some of the produce inflation you're seeing is...just tight markets related to weather. And so those don't go up 1%, 2%, 3%—some of those will go up 40%.”
Nielsen added that tight product has made it so Sprouts could not promote key produce items over the last quarter. In an effort to combat inflation in produce costs moving forward, Sprouts announced that it will implement a fresh item management program designed to assist fresh departments with production planning and order management.
“Fresh item management will allow us to optimize sales answering through an improved in stock position, which will deliver a more consistent experience for our customers each and every day,” Nielsen explained. “The vast majority of expense associated with this system implementation is training, with most expected to be completed by the end of the third quarter, resulting in higher expected training costs in 2018.”
Sprouts also mentioned that it plans to open approximately 28 new stores in 2019, keeping in line with the retailer’s plan to open around 30 stores per year.
As far as the rest of Sprout’s Fourth Quarter and Full Year 2018 Results, Sprouts reported double digit sales growth in the fourth quarter and the full year in the face of stiff competition and the aforementioned challenges.
“Sprouts delivered 12% net sales growth for the year in a competitive and evolving industry, demonstrating the strength of our differentiated model and brand,” said Brad Lukow, who is also the company’s Chief Financial Officer, in a press release. “Through our solid operating cash flows, we continue to self-fund our store unit growth and strategic initiatives and, in keeping with our capital structure strategy, returned more than $250 million to our shareholders through share repurchases in 2018.”
Below are a few additional highlights from Sprouts’ results:
Fourth Quarter Highlights
- Net sales of $1.3 billion; an 11% increase from the same period in 2017
- Comparable store sales growth of 2.3% and two-year comparable store sales growth of 6.9%
- Net income of $13 million, compared to $40 million from the same period in 2017
- Adjusted net income(1) of $24 million; compared to $21 million from the same period in 2017
- Diluted earnings per share of $0.10; compared to $0.29 from the same period in 2017
- Adjusted diluted earnings per share of $0.19; compared to $0.16 from the same period in 2017
Fiscal Year 2018 Highlights
- Net sales of $5.2 billion; a 12% increase from 2017
- Comparable store sales growth of 2.1% and two-year comparable store sales growth of 5.0%
- Net income of $159 million; compared to $158 million in 2017
- Adjusted net income of $168 million; compared to $140 million in 2017
- Diluted earnings per share of $1.22; compared to $1.15 in 2017
- Adjusted diluted earnings per share of $1.29; compared to $1.01 in 2017
- Repurchased 11.1 million common shares in fiscal 2018 for a total investment of $258 million
AndNowUKnow will continue to report on Sprouts as the retailer implements its fresh item management program, so stay tuned for updates.
