Sprouts Farmers Market(SFM) - 2023 Q4 - Annual Report

Financial Performance - Net sales for fiscal 2023 totaled $6.8 billion, a 7$173.3 million to $2.5 billion in fiscal 2023, with gross margin rising to 36.9$2.3 million to $258.9 million in 2023, a 1$0.11 to $2.50 in 2023, a 5$375.1 million[246] - Net sales for the year ended December 31, 2023, were $6,837,384 thousand, a 6.8$6,404,223 thousand in 2022[317] - Gross profit for 2023 was $2,521,841 thousand, up 7.4$2,348,564 thousand in 2022[317] - Net income for 2023 was $258,856 thousand, a slight decrease from$261,164 thousand in 2022[317] - Diluted net income per share for 2023 was $2.50, compared to$2.39 in 2022[317] Store Operations and Expansion - The company opened 30 new stores and closed 11 stores in fiscal 2023, ending the year with 407 stores across 23 states[230] - Approximately 80% of stores were within 250 miles of a distribution center as of December 31, 2023, following the opening of two fresh distribution centers in fiscal 2021 and other supply chain optimizations[219] - The company's total square footage at the end of fiscal 2023 was 11,322,798, with an average of 27,820 square feet per store[230] - The company operated 407 stores in 23 states as of December 31, 2023[328] - The company's long-term growth strategy includes targeting 'health enthusiasts' and 'selective shoppers', with a focus on omnichannel offerings and product innovation[219] - The company aims for approximately 10% annual unit growth through geographic expansion and new store placement in markets with growth potential[219] - The company's fresh distribution network is expected to drive efficiencies and support growth plans, with a goal of positioning fresh distribution centers within a 250-mile radius of stores[219] Expenses and Costs - Selling, general and administrative expenses increased by $144.8 million, or 8$2.0 billion in fiscal 2023, primarily due to new store openings and higher payroll costs[235] - Depreciation and amortization expense increased by $8.4 million to$131.9 million in 2023, a 7% increase from 2022, including $5.9 million in accelerated depreciation due to store closures[236] - Store closure and other costs, net surged by$28.3 million to $39.3 million in 2023, a 256$30.5 million in impairment losses from closing 11 underperforming stores[237] - Depreciation expense increased to $136.6 million in 2023 from$125.7 million in 2022[385] - Impairment expense significantly rose to $30.5 million in 2023 from$8.1 million in 2022[386] - Total net lease cost increased to $303.988 million in 2023 from$271.523 million in 2022[387] - Advertising expense, net of rebates, was $45.8 million in 2023, down from$49.2 million in 2022[370] Cash Flow and Capital Expenditures - Cash from operating activities increased by $93.7 million to$465.1 million in 2023, primarily due to higher net income and favorable working capital changes[250] - Cash used in investing activities rose by $114.3 million to$238.3 million in 2023, driven by increased store construction and equipment upgrades[253] - Capital expenditures are projected to be $225-$245 million in 2024, primarily for new stores, remodels, and maintenance[254] - Cash used in financing activities increased by $118.9 million to$318.0 million in 2023, mainly due to $203.5 million in share repurchases and$125.0 million in debt payments[255] - Cash flows from operating activities in 2023 were $465,068 thousand, a 25.2$371,329 thousand in 2022[326] - Cash and cash equivalents decreased from $293.2 million in January 1, 2023, to$201.8 million by December 31, 2023[315] - Cash and cash equivalents increased to $85,116 thousand as of December 31, 2023, compared to$77,665 thousand as of January 1, 2023[334] Debt and Financing - Net interest expense decreased by $2.6 million to$6.5 million in 2023, a 28% decline from 2022, driven by higher interest income and lower credit facility fees[238] - Long-term debt outstanding decreased from $250.0 million as of January 1, 2023, to$125.0 million as of December 31, 2023[256] - The company's share repurchase program authorized $600,000, with$391,619 already repurchased and $208,381 remaining as of December 31, 2023[257] - In 2023, the company repurchased 5,864,246 common shares at an average price of$35.00 per share, totaling $205,262[258] - The company can borrow up to$700.0 million under its Credit Agreement, with interest rates tied to net leverage ratio and sustainability metrics[259] - The Credit Agreement requires a maximum total net leverage ratio of 3.75 to 1.00 and a minimum interest coverage ratio of 3.00 to 1.00[262] - Estimated interest payments through March 25, 2027, are approximately $22.4 million, with$8.3 million expected in 2024 and $14.1 million thereafter[265] - Long-term debt under the$700 million Credit Agreement decreased to $125 million as of December 31, 2023, from$250 million in 2022[397] - The Company's total net leverage ratio must not exceed 3.75 to 1.00, and the minimum interest coverage ratio must not be less than 3.00 to 1.00, as per the Credit Agreement[410] - The Company was in compliance with all applicable covenants under the Credit Agreement as of December 31, 2023[411] Leases and Real Estate - Real estate obligations for leases executed but not yet commenced totaled $584.1 million as of December 31, 2023, with$4.8 million due in 2024[266] - The company's lease assets and liabilities are recognized based on the estimated present value of lease payments over the lease term, net of landlord allowances[352] - Variable lease payments, such as those for common area maintenance, property taxes, and insurance, are expensed as incurred and not included in the measurement of lease liabilities or assets[353] - The company uses an estimated incremental borrowing rate, derived from third-party information, to determine the present value of lease payments[354] - Most leases include renewal options that can extend the lease term from one to twenty years or more, with the exercise of these options at the company's discretion[355] - The company subleases certain real estate to third parties, with all subleases classified as operating leases and sublease income recognized on a straight-line basis[356] - Operating lease assets grew to $1.322 billion as of December 31, 2023, up from$1.106 billion at the start of the year[389] - Total lease liabilities stood at $1.535 billion as of December 31, 2023, compared to$1.290 billion at the beginning of the year[389] - Weighted average remaining lease term for operating leases increased to 10.0 years in 2023 from 9.4 years in 2022[389] - Weighted average discount rate for operating leases rose to 7.2% in 2023 from 7.1% in 2022[389] - Total lease liabilities as of December 31, 2023, amounted to $1.54 billion, with$1.53 billion for operating leases and $9.7 million for finance leases[390] Assets and Liabilities - Total assets increased from$3.07 billion in January 1, 2023, to $3.33 billion by December 31, 2023[315] - Long-term debt and finance lease liabilities decreased from$258.9 million in January 1, 2023, to $133.7 million by December 31, 2023[315] - Retained earnings increased from$320.0 million in January 1, 2023, to $373.6 million by December 31, 2023[315] - Operating lease assets increased from$1.11 billion in January 1, 2023, to $1.32 billion by December 31, 2023[315] - Accounts receivable increased from$16.1 million in January 1, 2023, to $30.3 million by December 31, 2023[315] - Total stockholders' equity at December 31, 2023, was$1,148,547 thousand, up from $1,046,462 thousand at the beginning of the year[323] - Restricted cash for defined benefit plan forfeitures and healthcare, general liability, and workers' compensation plan benefits was$2.1 million as of December 31, 2023, and $2.0 million as of January 1, 2023[335] - Goodwill and indefinite-lived intangible assets totaled$381.7 million and $208.1 million, respectively, with no impairment recorded in fiscal 2023[289] - Intangible assets increased by$23.1 million in 2023, primarily due to the addition of indefinite-lived reacquired rights, bringing the total to $208.1 million[391] - Goodwill increased by$12.9 million in 2023, reaching $381.7 million, driven by the acquisition of Ronald Cohn, Inc.[392] - Accrued liabilities totaled$164.9 million as of December 31, 2023, up from $151.3 million in 2022, with self-insurance reserves and other accrued liabilities being the primary contributors[394] - Accrued salaries and benefits rose to$74.8 million in 2023, compared to $61.6 million in 2022, with bonuses and payroll being the largest components[395] Impairment and Reserves - The company recorded an impairment loss of$30.5 million in 2023, including $27.8 million related to the closure of underperforming stores and$2.7 million related to the write-down of right-of-use assets and leasehold improvements[348] - Impairment losses in 2022 and 2021 were $8.1 million and$4.8 million, respectively, primarily related to the write-down of right-of-use assets and leasehold improvements[348] - The company's consolidated self-insurance reserve balance was $47.8 million as of December 31, 2023, primarily for workers' compensation and general liability[284] - The company's general liability and workers' compensation self-insurance reserves totaled$47.8 million as of December 31, 2023[309] Product Sales and Categories - Perishable products accounted for 57.3% of sales in 2023, down from 58.0% in 2022[331] - Non-perishable products made up 42.7% of sales in 2023, up from 42.0% in 2022[331] Share Repurchases and Equity - The company repurchased and retired 5,864,246 shares of common stock in 2023, including excise tax[323] - The company's share repurchase program authorized $600,000, with$391,619 already repurchased and $208,381 remaining as of December 31, 2023[257] - In 2023, the company repurchased 5,864,246 common shares at an average price of$35.00 per share, totaling $205,262[258] Supplier and Purchase Commitments - The company's largest supplier accounted for 47$28.6 million as of December 31, 2023, with $12.1 million due in 2024[267] Other Financial Metrics - The company's deferred tax assets realization depends on future earnings, and a valuation allowance may be required if future taxable income is insufficient[293] - A$125.0 million principal under the Credit Agreement as of December 31, 2023, results in a $1.25 million annual interest expense change per 100 basis point SOFR fluctuation[294] - The Company issued letters of credit totaling$21.5 million under the Letter of Credit Sub-Facility as of December 31, 2023, primarily to support insurance programs[400] - Gift card liability ending balance was $10.566 million as of December 31, 2023, compared to$10.906 million at the beginning of the year[365] - The company had no active derivative financial instruments as of December 31, 2023, or January 1, 2023[362]