US: Sprouts H1 earnings double on sales gains
By Katy Askew | 23 August 2013
- Sales up 48.4%
- Net income up 106%
- Cash-flow, low debt provide room to invest
Sprouts Farmers Market has booked an increase in earnings for the first half of the year, boosted by a near-50% increase in sales in the period.
The company said net sales totalled US$1.2bn in the six months to 1 July, a year-on-year increase of 48.4% from sales of $805.8m in the comparable period of last year. For the full-year Sprouts said it expects 19-21% revenue growth.
The grocer has driven top-line growth through space expansion and Sprouts said that in the year to date it has opened 17 new outlets. The company said it has the financial flexibility to deliver on its growth plans thanks to its strong cash-flow generation and a reduction in debt thanks to funds raised through its recent IPO.
Income was boosted by improved store margins and lower expenses elsewhere in the business. Net income rose 106% from $14.8m to $30.6m, while income from operations jumped from $41.8m to $80.1m.
For the full year, Sprouts said it anticipates net income of $44-47m and adjusted EBITDA of $180-$185m.
Sprouts Farmers Market, Inc. Reports Second Quarter 2013 Results
PHOENIX, Aug. 22, 2013 (GLOBE NEWSWIRE) -- Sprouts Farmers Market, Inc. (the "Company") (Nasdaq:SFM) today reported results for its 13 week second quarter ended June 30, 2013.
Second Quarter Highlights:
- Net sales of $622.4 million; a 45% increase from the same period in 2012
- Net sales increased 22% compared to pro forma net sales for the same period in 2012
- Pro forma comparable store sales growth of 10.8% and two year combined comparable store sales growth of 21.0%
- Diluted earnings per share of $0.10; a 100% increase from the same period in 2012
- Adjusted diluted earnings per share of $0.14
- Adjusted EBITDA of $52.7 million; a 27% increase from pro forma adjusted EBITDA in 2012
"We are pleased to report strong financial results in our initial quarterly release as a public company," said Doug Sanders, president and chief executive officer of Sprouts Farmers Market. "Our robust momentum continued into the second quarter resulting in strong top line performance with pro forma comparable store sales growth of 10.8%. New store sales continue to exceed our expectations as the SproutsFarmers Market brand continues to attract health-conscious customers focused on value, paving the way for future success."
In order to aid understanding of the Company's business performance, it has presented results in conformity with accounting principles generally accepted in the United States ("GAAP") and has also presented adjusted net income, adjusted diluted earnings per share and adjusted EBITDA, which are non-GAAP measures that are explained and reconciled to the comparable GAAP measures in the tables included in this release. In addition, in comparing its results to the comparable periods of 2012, the Company has presented 2012 financial results on a pro forma basis as if the May 2012 business combination with Sunflower Farmers Market, Inc. ("Sunflower Transaction") had occurred on the first day of the Company's 2012 fiscal year. Unaudited pro forma condensed consolidated statements of operations for the thirteen and twenty-six weeks ended July 1, 2012, giving effect to the Sunflower Transaction, are included in the tables in this release.
Second Quarter 2013 Financial Results
Net sales in the second quarter 2013 increased 45% to $622.4 million. Second quarter net sales growth was driven by the Sunflower Transaction, an increase in comparable store sales growth and new store openings. Net sales increased 22% compared to pro forma sales for the same period of 2012, driven by pro forma comparable store sales growth of 10.8% and strong performance in new stores opened. The pro forma comparable store sales growth increase resulted from a balanced rise in traffic and basket size and continued strong performance across departments.
For the quarter, gross profit increased 43% to $187.0 million resulting in a gross profit margin of 30.1% of sales, or a decrease of 30 basis points, from the same period in 2012. Gross profit increased 23% compared to pro forma gross profit in the same period in 2012, primarily driven by the increase in sales, and the gross profit margin increased by 10 basis points compared to the pro forma gross margin percentage for the same period in 2012. Increases in gross margin from the leverage in occupancy and buying costs were partially offset by produce inflation and lower margins in the vitamin department due to temporary product markdowns in connection with merchandise alignment acrossSprouts and former Henry's and Sunflower stores.
Direct store expenses, as a percentage of sales, for the quarter decreased 90 basis points to 19.8%. Direct store expenses, as a percentage of sales, decreased 50 basis points compared to pro forma direct store expenses in the second quarter 2012, primarily due to leverage in labor cost and also reflected a loss on disposal of assets primarily related to the sale-leaseback of a store in 2012.
Net income was $12.5 million for the second quarter 2013, up $7.2 million from the same period in 2012, or an increase of 135%. Net income in the second quarter of 2013 included an $8.2 million pre-tax loss on extinguishment of debt and pre-tax store closure and exit costs of $0.9 million. Pro forma net income for the second quarter of 2012 included pre-tax acquisition and integration costs of $4.3 million; $1.3 million pre-tax loss on disposal of assets primarily related to the sale leaseback of a store; and pre-tax store closure and exit costs of $1.2 million. Excluding these items, adjusted net income increased 51% to $18.0 million compared to pro forma adjusted net income of $11.9 million in the same period in 2012. Adjusted EBITDA totaled $52.7 million, up $11.3 million, or 27%, from pro forma adjusted EBITDA for the same period in 2012. Adjusted diluted earnings per share was $0.14, a 56% increase from pro forma adjusted diluted earnings per share from the same period in 2012. This increase was attributable to improved business performance from higher comparable store sales and resulting operating leverage and performance of new stores opened.
Fiscal Year-to-Date Financial Results
For the 26-week period ended June 30, 2013, net sales increased 48% to $1.20 billion. Growth was driven by the Sunflower Transaction, an increase in comparable store sales, as well as new store openings. Net income was $30.6 million for the 26-week period ended June 30, 2013, up $15.7 million from the same period in 2012, or an increase of 106%. Net sales increased 19% compared to pro forma net sales for the same period of 2012. Adjusted EBITDA totaled $104.8 million, up $18.3 million or 21% from pro forma adjusted EBITDA in the same period of 2012.
Growth and Development
During second quarter 2013, the Company opened six new stores, four in California and one each in Oklahoma and Texas. An additional five stores have been opened in the third quarter to date bringing 2013 new store openings to 17, for a total of 165 stores in eight states as of Aug. 22, 2013. The Company expects to open two more stores in 2013, bringing total new stores in 2013 to 19.
Leverage, Liquidity and IPO
The Company generated cash from operations of $101.0 million year-to-date through June 30, 2013 and invested $51.7 million in capital expenditures, primarily for new stores. The Company ended the quarter with a principal balance on its term loan of $700.0 million, and had $65.6 million in cash and cash equivalents and $52.0 million available under its revolving credit facility.
On Aug. 6, 2013, the Company closed its initial public offering of 21.3 million shares of common stock, including approximately 2.8 million shares issued as a result of the exercise in full of the underwriters' option to purchase additional shares. The Company received net proceeds from the offering of $344.7 million, after deducting underwriting discounts and offering expenses, and paid down $340.0 million of outstanding indebtedness under its term loan facility. After this payment, the principal balance on the Company's existing term loan is $360.0 million.
"We are extremely pleased with overall business performance including our ability to continue to drive operating leverage from top line growth," said Amin Maredia, chief financial officer. "With strong operating cash flows and lower debt resulting from the use of IPO proceeds, we are extremely well positioned to execute on our growth plans."
The following provides information on the Company's current estimated 2013 results:
- 19% to 21% growth compared to pro forma net sales in 2012
- Pro forma comparable store sales growth of 8.5 to 9.0%
- Net Income of $44.0 million to $47.0 million
- Adjusted EBITDA of $180.0 million to $185.0 million
- Adjusted Net Income of $57 million to $60 million
- Adjusted diluted earnings per share of $0.41 to $0.43
- Capital expenditures of $70.0 million to $75.0 million, net of landlord reimbursements
- Based on the issuance of shares in the initial public offering, weighted average diluted shares outstanding are expected to be approximately 145 million, 153 million and 140 million for the third quarter, fourth quarter and full year 2013, respectively.
Original source: Sprouts Farmers Market
Companies: Sprouts Farmers Market
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