Sprouts’ Comp-Store Sales Slow Due to Tight Produce Supply

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Phoenix, AZ — Tightness in produce categories early in the quarter limiting the store’s ability to promote caused Sprouts Farmers Market’s comp-store sales to drop in the first quarter of 2018, the company reported.

During a 1Q 2018 earnings call, the natural food grocer cited comparable store sales growth of 2.7%, a decline from two-year comparable store sales growth of 3.8%. This marks a slowdown for the company, which has reported two straight quarters of 4.6% comparable store sales increases. In a press release, Sprouts also cited slight deflation and a calendar shift that excluded the New Year’s holiday from results as contributing to the decline.

As of May 1, the store discontinued delivery service with Amazon Prime Now, after a nearly 2-year long relationship. The move is not surprising given Amazon’s aggressive plans to bring Prime delivery to Whole Foods Market customers.

Still, Sprouts was positive about its relatively new partnership with Instacart and is focused on making home delivery a priority as customers have come to expect it. The service is currently only available in 12 to 13 stores, with plans to expand in the future.  Said Amin Maredia, CEO of Sprouts, “We are now starting to increase our marketing efforts around it.  We wanted to make sure we had exceptional customer service in place.”

When asked how its partnership with Instacart would fare when compared to its previous relationship with Amazon, Maredia said, “We expect to grow the business bigger if not better.” He stressed it will not take two years to build, as it did with Amazon, given “muscle memory, and how its brand is resonating with customers.”

The CEO said Sprouts is making home delivery a priority over consumer options like Click and Collect, which would “cannabalize” in-store sales. When asked if customers would balk at paying shipping fees after Amazon Prime’s free shipping (it’s free for grocery purchases over $35), Maredia said Sprouts’ quality price points and consistency among in-store and online prices would offset that.

Sprouts is also evolving as a ready-to-eat, ready-to-cook market, and increasing its deli and seafood offerings.

Other highlights from the earnings report include:

  • Net sales of $1.3 billion; a 14% increase from the same period in 2017
  • Net income of $67 million; a 44% increase from the same period in 2017
  • Diluted earnings per share of $0.50; a 52% increase from the same period in 2017

The company continues to expand, and during the first quarter of 2018, opened nine new stores: three in Arizona, two in New Mexico and one each in California, North Carolina, Florida, and its first store in Maryland.

Four additional stores have been opened in the second quarter to date, resulting in a total of 298 stores in 16 states as of May 2018.  Said Maredia: “Our proven Sprouts business model delivered double-digit sales growth of 14%, strong new store productivity and solid EBITDA growth of 12% in the first quarter of the year.

“Our strong new store openings in both existing and new markets demonstrate our appeal to a broad base of consumers looking for healthy products at affordable prices,” he added. “Our strategic initiatives remain on track and are setting the foundation for future success.”

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