Q4 2023 Sprouts Farmers Market Inc Earnings Call

Susannah Livingston: Jack Sinclair, Chief Executive Officer, and Curtis Valentine, Chief Financial Officer, are with me today. The earnings release announcing our fourth quarter and full year 2023 results, the webcast of this call, and financial slides can be accessed through the investor relations section of our website at investors.sprouts.com. During this call, management may make certain forward-looking statements, including statements regarding our expectations for 2024 and beyond. These statements involve several risks and uncertainties that could cause results to differ materially from those described in the forward-looking statements.

The Chief Executive Officer, and Curtis Valentine, Chief Financial Officer, or with me today.

The earnings release announcing our fourth quarter and full year 2000 twenty-three results. The webcast of this call and financial slides can be accessed through the Investor Relations section of our website and investors that sprouts dotcom.

During this call management may make certain forward looking statements, including statements regarding our expectations for 2024 and beyond.

Statements involve several risks and uncertainties that could cause results to differ materially from those described in the forward looking statements.

Susannah Livingston: For more information, please refer to the risk factors discussed in our SEC filings and the commentary on forward-looking statements at the end of our earnings release. Our remarks today include references to non-GAAP measures. Please see the tables in our earnings release to reconcile our non-GAAP measures to the comparable GAAP figures. With that, I will hand it over to Jack. Thanks Susannah, and good afternoon.

For more information please refer to the risk factors discussed in our SEC filings in the commentary on forward looking statements at the end of our earnings release.

Ah remarks today include references to non-GAAP measures. Please see the tables and our earnings release to reconcile our non-GAAP measures to the comparable got figures with that let me hand, it over to Jack.

Jack: Nine Susanna good afternoon.

Jack Loudon Sinclair: As we review our year-end accomplishments, I am once again pleased with our performance and encouraged about our future. We grew sales 7% for the year while maintaining our stable margin, with a slight expansion in 2023. Moreover, our adjusted diluted earnings per share rose 19%, demonstrating attractive profit growth.

Jack: Review of <unk> accomplishments once again pleased with our performance and encouraged to go to a future.

Jack: <unk>, 7% for the year, while maintaining a stable Martin with a slight expansion in 2023.

Jack: Moreover are adjusted diluted earnings per share, 19% demonstrating upfront to appropriate goose.

Jack Loudon Sinclair: Our strategic approach and speciality positioning allows us to focus on a highly profitable slice of the 1.6 trillion foot at home space instead of competing with everyone for every customer. And we believe these results clearly indicate that this strategic shift is resonating with our target customers; we are becoming a leading speciality food retailer. We continue to focus on our target customers, striving to deliver more of what they want, a broad assortment of differentiated, healthy, fresh, high-quality products that are hard to find anywhere else. Approximately 15% of our assortment was new, including 400 new Sprouts brand products.

Jack: Strategic approach and speciality positioning I'll owe us to focus on a highly profitable slice of the 1.6 trillion food at home space and.

Jack: Instead of competing with everyone for every customer.

Jack: And we believe these results clearly indicate that the strategic shift is resonating with a target customers.

Jack: We are becoming a leading speciality food read too.

Jack: We continue to focus on our target customers striving to deliver more of what they want abroad assortment of differentiated healthy fresh high quality products that are hard to find anywhere else.

Jack: <unk> suddenly, 15% about assortment who's new including 400 <unk> products.

Jack Loudon Sinclair: We ended the year with the company's best customer service scores by focusing on the customer experience through better service and improving our in-stock. As part of expanding access to a differentiated assortment, we opened 13 new stores in our new smaller prototype, and we experienced good momentum, especially in Florida. We created capacity in the supply chain to support our long-term growth by establishing a new distribution center in Southern California, expanding our Texas, D.C., and adding ripening rooms to improve produce quality. None of this would be possible without our amazing team.

Jack: We ended the year with the company's best customer service scores by focusing on the customer experience through better service and improving our in stocks.

As part of expanding access to a differentiated assortment, we opened 30, new stores and a new smaller prototype and we experience skewed momentum, especially so in Florida.

Jack: We created capacity in the supply chain to support our long term growth by establishing a new distribution center in southern California, expanding out of Texas D C and adding ripening rooms to improve produce quality.

Jack: None of this would be possible without our amazing tea and.

Jack Loudon Sinclair: In 2023, we continued fostering a workplace culture that we believe will maintain a sustainable and profitable business for years to come. We enhanced our development programs for team members so that everyone can grow a great career at Sprouts. We created approximately 3,000 new jobs and promoted 20% of our 32,000 team members in 2023. I'm also pleased to announce another internal promotion to our executive leadership team. Dustin Hamilton has replaced Dan Sanders as our chief stores officer. He had been serving as our regional VP of California, delivering great results and building a team steeped in our values. Dan has decided to retire in March after eight years at Sprouts and many more years in the industry.

Jack: 2023, we continued fostering a workplace culture that we believe will maintain a sustainable and profitable business for years to come we enhanced our development programs for team members. So that everyone can grow a great career. It spreads were created created approximately 3000, new jobs and promoted.

Jack: Two per cent of our 30th 2000 team members in 2023.

Speaker Change: I'm also pleased to announce another internal promotion to our executive leadership team.

Speaker Change: Dustin Hamilton is replaced Dion Sanders as a cheap stores officer.

Speaker Change: Justin had been serving as our original V. P of California, delivering great results and building a team steeped in our values.

Speaker Change: Dawn has decided to retire in March after eight years of spreads and many more years in the industry I want to thank God for his lasting impact on spreads.

Jack Loudon Sinclair: I want to thank Dan for his lasting impact on Sprouts. In summary, our achievements in 2023 have positioned us well for the future, and we will continue working to unlock Sprout's full potential. I'll talk more about our journey in 2024 in a few moments. For now, I'll hand it over to Curtis to review our 2023 financial performance for the fourth quarter, the full year, and our 2024 outlook. Thank

Speaker Change: In summary, our achievements in 2023 are positioned as well for the future and we will continue working to unlock spreads to potential.

Speaker Change: I'll talk more about our journey in 2024 and a few moments.

Speaker Change: 100 over to <unk> to review 2023 financial performance in the fourth quarter, the full year 2024 that Luke <unk>.

Curtis: Thanks, Jack. And good afternoon, everyone. For the fourth quarter, total sales were $1.7 billion, up $122 million, or 8% from the same period last year. This increase was driven by comparable store sales growth of 3.3% and the addition of new stores. Traffic was positive both in store and online throughout the quarter. As expected, average unit retail and units per basket continue to stabilize sequentially. Our e-commerce sales grew approximately 17%, representing 12.4% of our total sales for the quarter.

Luke: Thanks, Jack and good afternoon, everyone.

Speaker Change: The fourth quarter total sales were $1.7 billion up $122 million or 8% from the same period last year. This.

Speaker Change: This increase was driven by comparable store sales growth of 3.3% and the addition of new stores.

Luke: Traffic was positive both in store and online throughout the quarter is expected average unit retails and units per basket continued to stabilize sequentially.

Luke: R E Commerce sales grew approximately 17% representing 12.4% of our total sales for the quarter.

Curtis: During the quarter, we also launched our partnership with Uber Eats to acquire new customers and expand their access to sprouts. Along with Instacart and DoorDash, we now have three e-commerce partnerships performing well, highlighting the appeal of our differentiated assortment. We continue to see strong performance in categories with the most differentiation, including grocery, dairy, frozen, and meat. Sprouts has experienced exceptional growth in attribute-driven categories within these departments, such as grass-fed beef and no-antibiotic-ever protein.

Luke: During the quarter. We also launched our partnership with you breeds to acquire new customers and expand their access to sprouts.

Luke: Along with Instacart in door Dash, we now have three e-commerce partnerships performing well highlighting the appeal of our differentiated assortment.

Luke: We continue to see strong performance in categories with the most differentiation, including grocery theory frozen meat.

Luke: Perhaps his experience exceptional growth and attribute driven categories within these departments, such as grass fed beef and no antibiotic ever proteins. These.

Curtis: These categories have gained popularity due to their superior quality and health benefits, making them a top choice for our customers who prioritize healthy eating. This was true during the holidays, with strong growth from the return of Sprouts brand seasonal favorites and our convenient attribute-based holiday meal bundle. Sprouts made up 21% of our total sales in the fourth quarter, as our unique products continue to appeal to our target customers.

Luke: These categories are gaining popularity due to their superior quality and health benefits, making them a top choice for our customers, who prioritize healthy eating.

Luke: This was true during the holidays with strong growth from the returns sprouts brands seasonal favorites and are convenient attribute based holiday meal bundles spry.

Luke: Sprouts brand made up 21% of our total sales in the fourth quarter as our unique products continue to appeal to our charter customers.

Curtis: Our fourth quarter gross margin was 36.5%, an increase of nearly 20 basis points from the same period last year. Favorable merchandise margins were partially offset by the expected pressure from our new and recently expanded distribution center. SG&A for the quarter totaled $513 million, an increase of $41 million or approximately 25 basis points of deleverage from the same period of the prior year. We continue to see pressure on wages and benefits. This was partially offset by a positive impact from holiday pay with New Year's Day shifting into fiscal 2024. Store closure and other costs totaled approximately $5 million for the quarter. This was primarily related to non-cash store asset impairments and ongoing occupancy costs from store closures. For the quarter, our earnings before interest and taxes were $69 million. Interest expense was $400,000, and our effective tax rate was 27%.

Luke: Our fourth quarter gross margin was 36.5% an increase of nearly 20 basis points from the same period last year.

Luke: Favorable merchandise margins were partially offset by the expected pressure from our new and recently expanded distribution centers.

Luke: SG&A for the quarter totaled $513 million, an increase of $41 million or approximately 25 basis points of deleverage from the same period of the prior year.

Luke: We continue to see pressure from wages and benefits.

Luke: This was partially offset by a positive impact from holiday period with the new year's day shifting into fiscal 2024.

Luke: Foreclosure and other costs totaled approximately 5 million for the quarter. This is primarily related to non-cash store asset impairments and ongoing occupancy costs from store closures.

Luke: For the quarter, our earnings before interest and taxes were <unk> $69 million interest.

Luke: Interest expense was $400000 and are effective tax rate was 27% net.

Curtis: Net income was $50 million, and diluted earnings per share were 49 cents, an increase of 17% from the same period last year. For the fiscal year 2023, total sales increased 7% to $6.8 billion, driven by comparable store sales growth of 3.4% and new stores. Comp sales for the full year were also supported by an increase in basket due to retail inflation and positive traffic, partially offset by a slight reduction in items in the basket. Our e-commerce sales grew 15%, which accounted for 12.2% of our total sales for the year. Our focus on innovation and assortment differentiation continues to resonate with our target customers and drive our sales. Attribute-driven products such as organic, grass-fed, vegan, and keto grew faster than the company average throughout the year.

Luke: Net income was $50 million and diluted earnings per share were 49.

Luke: An increase of 17% from the same period last year.

Luke: For the fiscal year 2023, total sales increased 7% to $6.8 billion driven by comparable store sales growth of 3.4% in new stores comp.

Luke: <unk> sales for the full year. We're also supported by an increase in basket due to retail inflation and positive traffic <unk>.

Luke: Partially offset by a slight reduction of items in the basket.

Luke: E Commerce sales grew 15%, which accounted for 12.2% of our total sales for the year.

Luke: Our focus on innovation, an assortment differentiation continues to resonate with our target customers and drive our sales.

Luke: Attribute driven products such as organic grass fed vegan in Quito grew faster than the company average throughout the year.

Curtis: Gross margin, both on a gap basis and adjusted to exclude the impact of special items, was 36.9%, an increase of approximately 25 basis points compared to adjusted gross margin in the prior year. The year-over-year increase resulted from continued promotion, optimization, and category mix shift, slightly offset by pressure from higher distribution costs from our new and recently expanded warehouse. SG&A expenses for the year, both on a gap basis and adjusted to exclude the impact of special items, total $2 billion, an increase of $136 million, or approximately 15 basis points of deleverage on an adjusted basis.

Luke: Gross margin both on a gap basis and adjusted to exclude the impact of special items was $36, 9% an increase of approximately 25 basis points compared to adjusted gross margin in the prior year.

Luke: The year over year increase resulted from continued promotion optimization and category mix shifts slightly offset by pressure from higher distribution costs from our new and recently expanded warehouses.

Luke: SG&A expenses for the year, both on the gap basis, and adjusted to exclude the impact of special items totalled $2 billion, an increase of $136 million or approximately 15 basis points for deleverage on and adjusted basis.

Curtis: The increase in cost is mainly attributable to the opening of new stores and increased investment in team member wages, restructured store bonuses, and training. In addition, we experience higher e-commerce and credit card fees linked to higher sales. Labor efficiencies and contract savings partially offset this as the team continues to find ways to manage costs despite the challenging inflationary environment. For fiscal year 2023, store closures and other costs totaled $39 million, primarily related to the charges associated with the decision to close 11 stores earlier in the year. Excluding the impact of special items, store closures, and other costs were $11 million; depreciation and amortization, excluding depreci For the year, earnings before interest and taxes were $350 million, interest expense was $6.5 million, our effective tax rate was 25%, net income was $259 million, and diluted earnings per share were $2.50. Excluding the impact of special items, adjusted earnings before interest and taxes were $396 million, and adjusted net income was $293 million.

Luke: The increasing cost is mainly attributable to the opening of new stores and increased investments and team member wages restructured store bonuses and training.

Luke: In addition, we experienced higher e-commerce and credit card fees linked to higher sales.

Luke: Labour efficiencies in contracts savings, partially offset this is the team continued to find ways to manage costs. Despite the challenging inflationary environment.

Luke: For fiscal year, 2023 store closures and other costs totaled $39 million, primarily related to the charges associated with the decision to close 11 stores earlier in the year <unk>.

Luke: Excluding the impact of special items store closures and other costs were $11 million.

Luke: Depreciation and amortization, excluding depreciation included in the cost of sales was $132 million <unk>.

Luke: Excluding the impact of special items associated with the store closing decision, the adjusted depreciation and amortization totaled $126 million.

Luke: The year, our earnings before interest and taxes were $350 million interest expense was six $5 million or effective tax rate was 25%.

Luke: Net income was $259 million in.

Luke: And diluted earnings per share were $2.50.

Luke: Excluding the impact of special items adjusted earnings before interest and taxes were $396 million and.

Luke: And adjusted net income was $293 million.

Curtis: Adjusted diluted earnings per share were $2.84, an increase of 19% compared to the prior year. During the year, we opened 30 new stores, acquired two previously licensed stores, and closed 11 stores. All 30 2023 openings were our new smaller format stores. We ended the year with 407 stores across 23 states. Our financial performance has been underpinned by a strong and healthy balance sheet. We generated four hundred and sixty five million dollars in operating cash flow, which allowed us to invest two hundred and thirteen million dollars in capital expenditures, net of landlord reimbursement, to grow our business. With our robust cash flow, we also paid down $125 million of our bank revolver and returned $203 million to our owners by repurchasing 5.9 million shares. We ended the year with $202 million in cash and cash equivalents. 125 million outstanding on our 700 million revolver and 22 million outstanding letters of credit. Our diluted weighted average shares outstanding were down 5.3% compared to the last year.

Luke: Justin diluted earnings per share with $2.84, an increase of 19% compared to the prior year.

Luke: During the year, we opened 30, new stores acquired two previously license stores and closed 11 stores, all 32023 openings, where our new smaller format store. We ended the year with 470 stores across 23 states.

Luke: Our financial performance has been underpinned by a strong and healthy balance sheet, we generated $465 million operating cash flow, which allowed us to invest $213 million in capital expenditures net of landlord reimbursement to grow our business with.

Luke: With our robust cashflow, we also paid down $125 million of our bank revolver and returned $203 million to our owners by repurchasing five 9 million shares.

Luke: We ended the year with $202 million in cash and cash equivalents.

Luke: $125 million outstanding on our $700 million revolver and $22 million of outstanding letters of credit.

Luke: Are diluted weighted average shares outstanding were down five 3% compared to the last year.

Curtis: And we have $208 million remaining under our current share repurchase authorization. Since 2019, we have made significant improvements to our business operation. We changed our strategy, streamlined our store labor model, and implemented key systems to support our growth. We also increased compensation and added training hours for our store team members, a critical investment to create the differentiated store experience our target customers love. As a result, our gross margins have improved by 300 basis points, and our adjusted EBIT margins improved by approximately 190 basis points. Our four-year adjusted diluted earnings per share CAGR was 23 percent, and our adjusted EBIT per square foot increased by 59 percent, all in line with our strategic target.

Luke: And we have $208 million remaining under our current share repurchase authorization.

Luke: Since 2019, we have made significant improvements to our business operations.

Luke: It changed our strategy streamlined our store Labour model and implemented key systems to support our growth.

Luke: We also increased compensation, an avid training hours for our store team members are critical investment to create a differentiated store experience or target customers love.

Luke: As a result, our gross margins have improved by 300 basis points and are adjusted EBIT margins improved by approximately 190 basis points.

Luke: Our four year adjusted diluted earnings per share Kanger was 23% and are adjusted EBIT per square foot increased by 59% all in line with our strategic targets.

Luke: While we're pleased with our progress significant opportunities remain as.

Luke: As we look ahead to our expectations for 2024, we remained focused on delivering earnings growth, while investing to unlock our opportunities and drive sustainable growth for years to come.

Curtis: While we're pleased with our progress, significant opportunities remain. As we look ahead to our expectations for 2024, we remain focused on delivering earnings growth while investing to unlock our opportunities and drive sustainable growth for years to come. We are planning to invest approximately $15 million, primarily focused on the build-out of our loyalty program. We will also continue to invest in our technology and data foundation to improve our inventory management and scale our personalization capability. For the full year, we expect total sales growth to be 5.5 to 7.5% and comp sales in the range of 1.5 to 3.5%. We plan to open approximately 35 new stores, all in our current prototype. Adjusted earnings before interest and taxes are expected to be between $397 million and $412 million.

Luke: We are planning to invest approximately $15 million, primarily focused on the build out of our loyalty program.

Luke: We also continue to invest in our technology and data foundation to improve our inventory management and scale are personalization capabilities.

Luke: For the full year, we expect total sales growth to be five five to seven 5%.

Luke: And comp sales in the range of 1.5% to 3.5%.

Luke: We plan to open approximately 35, new stores all in our current prototype ajar.

Luke: Justin earnings before interest and taxes are expected to be between 397 and $412 million and.

Luke: And adjusted earnings per share are expected to be between $2.85 and $2.95, assuming no additional share repurchases.

Luke: Said, we do expect to continue to repurchase shares opportunistically.

Luke: We also expect our corporate tax rate to be approximately 26% during.

Luke: During the year, we expect capital expenditures net of landlord reimbursements to be between 225 and $245 million.

Luke: To add a bit more color, we expect gross margins to be up and as we continue to focus on initiatives to improve shrink and annualize the promotional optimization work from 2023.

Luke: On the cost front, we expect ongoing wage increases in our strategic investments to pressure SG&A, resulting in additional deleverage in 2024.

Curtis: And adjusted earnings per share are expected to be between $2.85 and $2.95, assuming no additional share repurchase. That said, we do expect to continue to repurchase shares on opportunities. We also expect our corporate tax rate to be approximately 26%. During the year, we expect capital expenditures net of landlord reimbursement to be between $225 and $245 million.

Luke: Most of our Capex spend will be for new stores with the remainder focused on technology enhancements merchandising initiatives and store refreshing maintenance.

Luke: For the first quarter of the year, we expect comp sales in the range of approximately 2.5% to 3.5%.

Luke: And adjusted earnings per share between 98 cents and one dollar and two are SG&A will face additional pressure in quarter, one due to strategic initiative investment and the timing shift of holiday pay for new year's day, which fell on the first day of fiscal 2024.

Curtis: To add a bit more color, we expect gross margins to be up as we continue to focus on initiatives to improve shrink and annualize the promotional optimization work in 2023. On the cost front, we expect ongoing wage increases and our strategic investments to pressure SG&A, resulting in additional de-leverage in 2024. Most of our CapEx spend will be for new stores, with the remainder focused on technology enhancements, merchandising initiatives, and store refresh and maintenance. For the first quarter of the year, we expect comp sales in the range of approximately 2.5% to 3.5% and adjusted earnings per share between $0.98 and $1.02. Our SG&A will face additional pressure in quarter one due to strategic initiative investment and the timing shift of holiday pay for New Year's Day, which fell on the first day of fiscal 2024. And with that, I'll turn it back to Jack.

Luke: And with that I'll turn it back to Jack.

Jack: Thanks Couches.

Jack: Initiatives for 2024 will continue to strengthen our foundation, while setting the table for sustainable long term growth. This year, we plan to drive even more innovation and spreads brand and across the store when more loyalty from a target customers strengthen and improve advantage supply chain develop our best and.

Luke: <unk> team across the business and build exceptional stores.

Luke: Our intent is to become a leading provider and attribute health driven categories, such as organic vegan grass fed and kiechl prioritizing winning and gaining market share in these differentiated categories to.

Luke: To achieve this are forging team is searching fought and wait for new health trends and working with niche vendors to find differentiated products such as low copy annual T. <unk> Ah Snackable mushroom chip.

Jack Loudon Sinclair: Thanks, Curtis. Our initiatives for 2024 will continue to strengthen our foundation while setting the table for sustainable long-term growth. This year, we plan to drive even more innovation in Sprout's brand and across the store, win more loyalty from our target customers, strengthen and improve our advantaged supply chain, develop a best-in-class team across the business, and build exceptional stores. Our intent is to become a leading provider in attribute health-driven categories such as organic, vegan, grass-fed, and keto, prioritizing winning and gaining market share in these differentiated categories. To achieve this, our foraging team is searching far and wide for new health trends and working with niche vendors to find differentiated products such as low-caffeine InnoTea, Popadelics, a snackable mushroom chip, and Matcha bubble teadrop.

Luke: Chubb bubble tea drops.

Luke: Looking ahead, we will continue to launch a new strategy brands products expand our seasonal internet programs leverage our innovation centres in store and engage in more sampling to drive trial and basket. This focuses on a surprise brand continuing to deliver growth ahead of company performance.

Luke: And provide customers with products they value and trust.

Luke: In 2024, we have an opportunity to gain new health enthusiastic and increase our share of wallet among the existing customers.

Luke: We will continue to Prioritise store execution to provide great and stored experience unexceptional customer service while.

Luke: While maintaining an omnichannel approach to meet customers split up.

Luke: I'm <unk> excited about our plans to introduce the first situation, although new loyalty program. This summer we.

Jack Loudon Sinclair: Looking ahead, we will continue launching new Sprouts brands products, expand our seasonal in and out programs, leverage our innovation centers in store, and engage in more sampling to drive trial and basket. This focuses on our Sprouts brand continuing to deliver growth ahead of company performance and provide customers with products they value and enjoy. In 2024, we have an opportunity to gain new health enthusiasts and increase our share of wallet among existing customers. We will continue to prioritize store execution to provide a great in-store experience and exceptional customer service, while maintaining an omnichannel approach to meet customers wherever they are. I'm particularly excited about our plans to introduce the first iteration of our new loyalty program this summer. We see a big opportunity to grow share of wallet with our target customers by getting them to visit more often and add additional items to their basket. The program is designed to grow our identifiable customer base and gather valuable data on their preferences, enabling us to personalize the experience to their specific needs.

Luke: We see a big opportunity to grow shade of wallet with our target customers by getting them to visit more often and add additional items to the basket.

Luke: The program is designed to grow out identifiable customer base and gather valuable data on the preferences, enabling us to personalize the experience to their specific needs.

Luke: But also optimistic about how the data will potentially unlawful value across our business by deepening out and say, so and customers aiding spreads strands product development and proving customer acquisition and providing a new asset to utilize with our vendors to grow our mutual business.

Luke: We are investing to develop a long term value drive of a surprise.

Luke: 2024 will be dedicated to testing that concept listening to our customers feedback and establishing a program ready for full launch in 2025.

Luke: We've made significant progress in creating an advantage supply chain to support our future growth.

Luke: 2024, we will improve our installed by adding.

Luke: To a deli meat and basically departments.

Jack Loudon Sinclair: We're also optimistic about how the data will potentially unlock value across our business by deepening our insights on customers, aiding Sprouts Brands product development, improving customer acquisition, and providing a new asset to utilize with our vendors to grow our mutual business. We are investing to develop a long-term value driver for sprouts. 2024 will be dedicated to testing the concept, listening to our customers' feedback, and establishing a program ready for full launch in 2025.

Luke: We will also enhance our supply chain data on technology Foundation.

Luke: Over the last years, we've improved our systems for production planning computer assisted altering unproduced replenishment does not have an opportunity to connect the data and processes that rely on these systems to improve our overall forecasting and all doing.

Luke: This will enable a more disciplined inventory management process, allowing us to further leverage our supply chain in the future.

Luke: Our team is the most important part of our business and we have concentrated on building a best in class workplace culture and values over the past few years, both as always ongoing process. We have made significant improvements as a result of team member retention rate and polluted by more than 20%.

Jack Loudon Sinclair: We've made significant progress in creating an advantaged supply chain to support our future growth. In 2024, we will improve our in stocks by adding PICAO to our deli, meat, and bakery departments. We will also enhance our supply chain data and technology foundation. Over the last years, we've improved our systems for production planning, computer-assisted ordering, and produce replenishment. There is now an opportunity to connect the data and processes that rely on these systems to improve our overall forecasting and ordering. This will enable a more disciplined inventory management process, allowing us to further leverage our supply chain in the future. Our team is the most important part of our business.

Luke: In 2023, which has led to improved store performance and support continued store growth.

Luke: To provide more opportunities to our team while driving for results. We have restructured our store bonus plan prioritizing customer service be installed and plastic.

Luke: This year, our main focus is to develop our lead us for growth.

Luke: Improve our training to focus on talent development and create clear career path for leaders at all levels. This is critical for the G achieving our growth aspirations.

Jack Loudon Sinclair: And we have concentrated on building a best-in-class workplace, culture, and values over the past few years. While it is always an ongoing process, we have made significant improvements. As a result, our team member retention rate improved by more than 20% in 2023, which has led to improved store performance and supports our continued store growth. To provide more opportunities for our team while driving for results, we restructured our store bonus plan, prioritizing customer service, being in stock, and growing. This year, our main focus is to develop our leaders for growth.

Luke: We have blended fresh perspectives on external expertise with any channel promotions at the executive VP underact settle levels to create a deep bench to support our growth.

Luke: Team is coming together to execute us strategic priorities in support of stores on the customers.

Luke: Lastly, we will accelerate unit growth again in 2024, and the first quarter of this year, we have already opened for new stores and plan to open approximately 35 total for the year.

Luke: We have a robust pipeline of over 100 approved stores and nearly 70 executed leases.

Luke: Can continue to improve our site selection process to maintain a strong pipeline moving forward.

Jack Loudon Sinclair: We will improve training, focus on talent development, and create clear career paths for leaders at all levels. This is critical to achieving our growth aspirations. We have blended press perspectives and external expertise with internal promotions at the executive, VP, and director levels to create a deep bench to support our growth. Our team is coming together to execute our strategic priorities and support our stores and customers. Lastly, we will accelerate unit growth again in 2024. In the first quarter of this year, we opened four new stores and plan to open approximately 35 more total for the year.

Luke: In closing our main focus is executing our strategy to establish sprites has an exceptional speciality retailer with a differentiated better for you offering.

Luke: The results demonstrate to us to teach initiatives of paying off and I'm confident these principles will guide us to another successful year.

Luke: <unk> efforts are resonating well with our customers and our team is ready to face the many opportunities ahead.

Luke: Excited to share our progress as the unfolds.

Speaker Change: And with that I'd like to turn it over for questions.

Speaker Change: <unk>.

Speaker Change: And thank you as a reminder of ask a question. Please press star one on your telephone away for your name to be announced to withdraw your question. Please press star one one again.

Speaker Change: Please stand by we compile the Q&A roster and we do ask that you limit yourself to one question and one follow up again, we ask that you limit yourself to one question and one follow up one moment by our first question.

Operator: We have a robust pipeline of over 100 approved stores and nearly 70 executed leases, and we continue to improve our site selection process to maintain a strong pipeline moving forward. In closing, our main focus is executing our strategy to establish Sprouts as an exceptional specialty retailer with a differentiated better-for-you offering. Our results demonstrate that our strategic initiatives are paying off, and I'm confident these principles will guide us through another successful year. Our collected efforts are responding well with our customers, and our team is ready to face the many opportunities ahead. I'm excited to share our progress as we move forward. And with that, I'd like to turn it over to questions, operator. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1.

Speaker Change: And our first question comes from John <unk>.

John: Hi, I'm partners. Your line is now open.

John: Hey, So Jack I wanted to start with your writing assortment at the same time right, you're you're cutting a square footage.

John: Talk about the forging process and the plan of grabbing process.

John: Sort of sort of managing that in terms of taking out items that are that are not moving.

Speaker Change: Alrighty I I don't think you're going to more vertical with your space. So I was just kind of wanted one out or.

Speaker Change: How are you dealing with that.

Speaker Change: Yeah. It's a great question is right to the heart, how do we think about our business when we reduced the square footage from 32010% to 23000, we were very focused on losing not selling.

Speaker Change: Sailing space, but actually cutting back on non customer facing space, which allowed us to retain the <unk> that we had apart from in our vitamins and Harvard Department, which we took a few.

Speaker Change: In that department going forward with the <unk> team, we introduced on innovation center in our stores, which is allowing us to move really fast with items that foraging team are finding a mate.

Jack Loudon Sinclair: Please stand by while we compile the Q&A roster. And we do ask that you limit yourself to one question and one follow-up. Again, we ask that you limit yourself to one question and one follow-up. One moment for our first question. And our first question comes from John Heinbockel from Guggenheim Partners. Your line is now open. They said, Jack, I wanted to start with you're adding assortment, at the same time, right, you're cutting square footage. So maybe talk about the foraging process and the plantogramming process and sort of sort of managing that in terms of taking out items that are not moving.

Speaker Change: Put it into the stores and to the.

Speaker Change: Nation Center, so that extra skews to what we would have hard without the innovation Sanchez well then does gives us a couple of months to see whether the product sale had the customers react to that section I've been delighted the way the customers have interfaced with that it's creating this treasure hunting of new items coming in to the store customers looking at the items.

Speaker Change: Check and I'm really being cute.

Speaker Change: Q rating, everyone assortment from that and the disablement of our customers in that space is something that I think what we're doing is appealing to us so in terms of the <unk>.

Jack Loudon Sinclair: And, you know, is there any I don't think you're going to get more vertical with your space. So, you know, is it kind of, you know, one in, one out or, How are you dealing with that? Yeah, it's a great question. It goes right to the heart of how we think about our business. When we reduced the square footage from 32,000 down to 23,000, we were very focused on losing not selling space but actually cutting back on non-customer facing space, which allowed us to retain the skew count that we had, apart from in our vitamins and harvest department, where we took a few out in that department. Going forward with the foraging team, we introduced an innovation center in our stores, which is allowing us to move really fast with items that the for

Speaker Change: Sales happen or don't happen with on the innovation center the ones that are selling really well automatically flow into the into the amount into the original planograms other products fall by the wayside, but effectively what kinda what does that allow bev and increase <unk> because of the innovation Santa as they get put in and come out.

Speaker Change: The overall number there are products coming out so that we can fit them into the planet ground within the base fixture but.

Speaker Change: So that's kind of part of how we have been operating us and our business is all about broad assortment. It's really important that we don't compromise the assortment going forward and so we're always Kenneth trying to get more into the stores to be honest with you rather than less.

Jack Loudon Sinclair: And we put them into the stores, into the innovation center. So that extra skews to what we would have had without the innovation center. What that then does gives us a couple of months to see whether the products sell, how the customers react to that fix. And I've been delighted with the way the customers have interacted with that. It's creating this treasure hunt of new items coming into the store.

Speaker Change: Alright, maybe I should just wanted us and John.

Speaker Change: That was great and one one quick what on the loyalty program.

Speaker Change: So the 15 million I assume that I assume that's an operating at Opex item as opposed to capital.

Jack Loudon Sinclair: Customers are looking at the items, checking them out, and really curating their own assortment from that. And the discernment of our customers in that space is something that I think what we're doing there is appealing to us. So in terms of the planograms, as those sales happen or don't happen in the innovation center, the ones that are selling really well automatically flow into the original planograms, while other products fall by the wayside. But effectively, we've got a little bit of an increased skew count because of the innovation center. As they get put in and come out, the overall number, there are products coming out so that we can fit them into the planogram within the base fixture.

Speaker Change: Is there a cost beyond 24, that's kind of car lights to the 15, and then I assume for the for the business case.

Speaker Change: You thought about what the top line uplift would be probably not gonna tell us but.

Speaker Change: I don't know if you can size.

Speaker Change:

Speaker Change: Forget you're comfortable with the Roy.

Speaker Change: So the way with the $50 million and all about loyalty to some other things within that but all of that is about investing in the business for the future some infrastructure issues, some fundamental issues and and investment.

Speaker Change: And the loyalty program that we're working on them already excited about the benefits for that will flow through in 2025, we clearly do have the numbers are right the benefits of that and as you say, we're probably not going to share that with just a day [laughter].

Jack Loudon Sinclair: But that's kind of part of how we've been operating this. And our business is all about a broad assortment. It's really important that we don't compromise that assortment going forward. And so we're always kind of trying to get more into the stores, to be honest with you, rather than less. All right, maybe one question, John. Yeah, no, that was great.

Speaker Change: John It it has all the $50 million is opex.

Speaker Change: And is okay. So I have to go forward.

Speaker Change: We'll manage it in the plan into it as we go forward.

Speaker Change: Okay. Thank you.

Speaker Change: And thank you.

Speaker Change: And one moment Alright next question.

UBS: And our next question comes from my card and from UBS. Your line is now open.

Curtis: One quick one on the loyalty program. So the $15 million, I assume that's an operating, an OPEX item as opposed to capital. Is there a cost beyond $24 that kind of correlates to the $15? And then, I assume, for the business case, you thought about what the top line uplift would be. You're probably not going to tell us, but I don't know if you can size it to make you comfortable with the ROI.

Myocard (UBS): Good afternoon. Thanks, so much for taking my question. So to start you guys have now outgrown the broader census category for several consecutive quarters.

UBS: Stage are you still seeing much pressure from mainstream players addict or natural organic offerings does that largely played out at this point and then what else jumps out at you with respect your ability to really Buck the trend in gross sales faster than the overall channel.

Speaker Change: Well I think we've talked to law, but that's over the last few quarters. Mark is that we we tried to have such a differentiated assortment that what the other guys are doing a kinda, we we watch with interest but what we found is the hours are niche ship you like is something that we can really <unk>.

Curtis: So the $15 million isn't all about loyalty. There are some other things within that. But all of that is about investing in the business for the future, some infrastructure issues, some fundamental issues in investment tech, in IT, and the loyalty program that we're working on. We're very excited about it. The benefits of that will flow through in 2025. We clearly do have the numbers around the benefits of that. And as you say, we're probably not going to share that with you today. And John, it is all, the $15 million is OPEX. And as we go forward, yeah, we'll manage it and plan for it as we go forward. Okay, thank you.

Speaker Change: <unk> and be comfortable that we're we're leading the way in that niche as I said in our remarked sadly what's happening with the other guys is yes. They are bringing the key to thing and they are bringing the <unk>, but the account.

UBS: For the target customers that we have they simply can't have the breath of assortment to allow them to kind of be relevant to the customer and it's such a small proportion of the overall total it doesn't give the there's no real benefit.

Jack Loudon Sinclair: Thanks, John, and thanks. And one moment for our next question, and our next question comes from Mark Carden from UBS. Your line is now. Good afternoon.

UBS: Conventional guys to chase after those two large because it would mean compromising some of the planograms in compromising what they are able to do and that's how we we've observe this over the course of the last few quarters that is not something that we're seeing a certainly have been a dialogue and we watch it but it's not something that we are seeing is compromising out of <unk>.

Jack Loudon Sinclair: Thanks so much for taking my question. So, to start, you guys have now outgrown the broader census category for several consecutive quarters. At this stage, are you still seeing much pressure from mainstream players adding their natural organic offerings? Or has that largely played out at this point?

UBS: <unk> to be very relevant with a resort meant to our target customers.

Speaker Change: Got it that makes sense and then as a quick follow up how does your cough trend from month to month and what have you seen in one to you today.

Jack Loudon Sinclair: And then what else jumps out at you with respect to your ability to really buck the trend and grow sales faster than the overall channel? Well, I think we've talked a lot about this over the last few quarters, Marcus, that we try to have such a differentiated assortment that what the other guys are doing, we watch with interest. But what we've found is that our niche, if you like, is something that we can really manage and be comfortable that we're leading the way in that niche, as I said in our remarks earlier. What's happening with the other guys is, yes, they are bringing in the odd keto thing, they are bringing in the odd item, but they can't, for the target customers that we have, they simply can't have the breadth of And it's such a small proportion of the overall total, it doesn't give them the There's no real benefit for the conventional guys to chase after this too hard because it would mean compromising some of their planograms and compromising what they're able to do.

Speaker Change: Yeah comp transferred the four quarters pretty stable Mark and it's been a good solid performance no major ups and downs.

Speaker Change: And.

Speaker Change: Pleased with the business and where it's running.

Speaker Change: We're not going to talk about the intraquarter here, but it's certainly baked into our guidance.

Speaker Change: Great. Thanks, so much good luck as.

Speaker Change: Thanks, Mike Mark.

Speaker Change: And thank you.

Speaker Change: And one moment for our next question.

UBS: And our next question comes from Edward Kelly from Wells Fargo. Your line is now open.

Edward Kelly: Yeah, Hey, guys to Anthony on for Thanks for taking our questions. So just taking a step back on the comp guidance, you've got into 2.5% growth.

Edward Kelly: At the mid point, this year, which looks like.

Edward Kelly: It's actually about in line with where you started guidance last year.

Edward Kelly: Despite a less constructive inflation outlook I know, there's an idiosyncratic angle here.

Edward Kelly: And you're likely see some elasticity benefit but can you just talk.

Anthony: A little bit more about what's giving you confidence there as we think about the underlying drivers.

UBS: Yeah.

UBS: Just watching the business has been pretty solid for us pretty steady and so we're doing a nice job drive in traffic and you can expect that to continue we're seeing the units in the AUR stabilize sequentially as we expected.

UBS: Certainly as you pointed out the less tensity receiving units come back and stabilizers AUR comes down well.

Curtis: And that's how we've observed this over the course of the last few quarters, that it's not something that we're seeing, it's certainly been a dialogue, and we watch it, but it's not something that we're seeing as compromising our ability to be very relevant with our assortment to our target customers. Got it, that makes sense. And then, as a quick follow-up, how did your comp trend from month to month and what have you seen in 1Q today? Yeah, the comp trend for the fourth quarter is pretty stable, Mark. It's been a good, solid performance. There were no major ups and downs.

UBS: <unk> comes down from Disinflation.

UBS: So we're pretty pleased with where the business is run it and expect that we can continue that forward from a two year stack perspective, it's pretty steady to where we've been around in the last couple of quarters.

Speaker Change: Okay. That's helpful. And then just on the private brand growth I know that's been a strength for you guys. His last few quarters and beyond early but can you just give us your updated thoughts on where that could ultimately go.

Speaker Change: And as you think about new product launches or additional skews in the pipeline just how to think about growth in that category and 24.

Curtis: And, you know, we're pleased with the business and where it's running. You know, we're not going to talk about the intra-quarter here, but it's certainly baked into our guidance. Thanks so much. Thanks, Mark, and thank you. And one moment for our next question. And our next question comes from Edward Kelly from Wells Fargo. Your line is now open. Yeah, guys, it's Anthony on for Ed.

Speaker Change: Yeah, well, we're really pleased the way they the Spice brand has been evolving and developing over the last few quarters.

Speaker Change: The focus is very much about clinging to the attribute.

Speaker Change: The attribute the focus focus on our target customers have been pleased with how the seasonal programs come together, which has been a significant.

Speaker Change: Evolution and development for Us price brand business I've been pleased with the redesign the team of good in place, which I think is is working well for us and we see pretty significant growth when we redesign items and make them look the way our modem sprites brand looks like some comfortable with that so and then the focus in terms of what will happen.

Curtis: Thanks for taking our question. So just taking a step back on the comp guidance, you've got it at 2.5% growth at the midpoint this year, which looks like it's actually about in line with where you started guidance last year, despite a less constructive inflation outlook. I know there's an idiosyncratic angle here, and you likely see some elasticity benefit, but can you just talk a little bit more about what's giving you confidence there as we think about the underlying driver?

Speaker Change: With our surprise Bryan going forward, we we'll see we'll see a girl will continue to launch products. The focus of our business isn't about the percentage of sales that is surprise surprise the focus of our businesses, whether it'd be branded items are surprised branded items, how do we ensure that <unk>. So the products, we're bringing to the mark.

Curtis: Yeah, that, you know, we're just watching the business. It has been pretty solid for us, pretty steady. And so we're doing a nice job driving traffic, and you can expect that to continue. We're seeing the units and the AUR stabilize sequentially, as we expected. And certainly, as you pointed out, the elasticity, we're seeing the units come back and stabilize as the AUR comes down, well, the rate comes down

Speaker Change: Place would have been really pleased about on this price brand is I think is becoming.

Speaker Change: Right what is deep commoditized, we're becoming less commodity focused on the items. The sale. So the average <unk> differentiated and that's the focus of the team and they're doing a terrific job.

Curtis: So we're pretty pleased with where the business is running and expect that we can continue that forward. From a two-year stack perspective, it's pretty steady compared to where we've been running the last couple of quarters. Okay, that's helpful.

Speaker Change: Thanks.

Speaker Change: Thanks. Thanks.

Speaker Change: And thank you.

Speaker Change: And one moment our next question.

Speaker Change: And our next question comes from Lee Jordan from Goldman Sachs. Your line is now open.

Jack Loudon Sinclair: And then just on private brand growth, I know that's been a strength for you guys these last few quarters and beyond really, but can you just give us your updated thoughts on where that can ultimately go? And as you think about new product launches or additional SKUs in the pipeline, how do you think about growth in that category? Yeah, well, we're really pleased with how the Sprouts brand has been evolving and developing over the last few quarters. The focus is very much on playing to the attribute.

Lee Jordan: Thank you good afternoon, I first wanted to ask about Chris Martin and seeing if you could provide more detail on the drivers to the merch margin expansion that you saw in the fourth quarter and then you also mentioned that gross margin to be up in 24, just any color on the magnitude we should expect there are any.

Speaker Change: <unk> puts and takes that were you thinking about thank you.

Speaker Change: They are highly it's purpose.

Speaker Change: For Q4, yeah. The difference there we had shrink with a little bit challenged in Q3, and again ours is a little different it's more about the fresh than it is the broader retail trends, you're seeing around fast, but hasnt challenges in the third quarter as we spoke about last time and and the team has done a nice job, bringing that back in line and so.

Jack Loudon Sinclair: The attributes that focus on our target customers. I've been pleased with how the seasonal programs have come together, which has been a significant evolution and development for our Sprouts brand business. I've been pleased with the redesign that the team put in place, which I think is working well for us. And we see pretty significant growth when we redesign items and make them look the way our modern Sprouts brand looks. So I'm comfortable with that.

Speaker Change: That was really the difference from Q3 to queue for outside of that we are still experiencing the pressure from the expanded D. C's and the merch teams are doing a nice job managing a product margins.

Speaker Change: As we look ahead to 2024 expecting those things to continue as well I think from how much would expand in 24 I think we're probably looking at about 2025 basis points of of the gross margin expansion for 2024.

Jack Loudon Sinclair: And then the focus in terms of what will happen with our... Sprouts brand going forward. We will see it grow. We will continue to launch products. The focus of our business isn't about the percentage of sales that are Sprouts brand. The focus of our business is, whether it be branded items or Sprouts branded items, how do we ensure that we are differentiated in terms of the products we are bringing to the marketplace.

Speaker Change: Okay, great. Thank you.

Speaker Change: And then for my follow up I just wanted to ask about Labor you had mentioned you starting pressure. It there just any update on what you're seeing in the labor market overall, maybe some color on California's specifically would be helpful.

Jack Loudon Sinclair: What I have been really pleased about the Sprouts brand is that we are becoming, if the right word is decommoditized, less commodity focused on the items we sell so that everything that we are selling is differentiated. That is the focus of the team, and they are doing a terrific job.

Speaker Change: What are ways are thinking through mitigating cost pressures.

Speaker Change: Throughout the year.

Speaker Change: I'll, let conscience go through some numbers and a second player but in terms of how we think there's such an important group of people is obvious in terms of our team members and we've been working hard as we.

Jack Loudon Sinclair: , and thank you. And one moment for our next question. And our next question comes from Lee Jordan from Goldman Sachs. Your line is now. Thank you. Good afternoon.

Speaker Change: I identified in our remarks that we've changed the bonus program, which is giving people significant opportunities to add more than they would have done otherwise and were encouraged by the reaction to that as I said when you get less.

Curtis: I first wanted to ask about gross margin, seeing if you could provide more detail on the drivers of the merge margin expansion that you saw in the fourth quarter. And then you also mentioned that gross margin should be up in 24, so any color on the magnitude we should expect there, or any detail on puts and takes that you're thinking about. Hi Leigh, it's Curtis.

Speaker Change: When you when you don't have as much rotation.

Speaker Change: And the team member.

Speaker Change: Force actually saves a lotta money and builds up customer service as well so part of it is how do we retained people more effectively part of it is how do we do the bonus program and what specifics to California, with which clearly something we're watching most all of our people were north of the 20 dollar thing is so prevalent in the conversations are in California.

Curtis: For Q4, yeah, the difference there is that we had shrink was a little bit, you know, challenged in Q3. And again, ours is a little different. It's more about the fresh than it is the broader retail trends you're seeing around theft, but it had some challenges in the third quarter, as we spoke about last time. And the team did a nice job, you know, bringing that back in line. And so that was really the difference between Q3 and Q4.

Speaker Change: Yeah. So we're in good shape, there will get in strong applications. Most the applications for jobs in our company is a kind of all time high on the quality of the applications will get in his eye, we're very encouraged by as well. So we think we're in good shape, but that having said that does some numbers associated with what's happened to a chocolate covered.

Curtis: Outside of that, you know, we're still experiencing pressure from the expanded DCs, and the merge teams are doing a nice job managing the product margins. As we look ahead to 2024, you know, I think from how much it will expand in 24, I think we're probably looking at about 2025 basis points of gross margin expansion for 2024. Okay, great.

Speaker Change: Yeah. So we're certainly carrying some additional cost into the years it relates to the year over year.

Speaker Change: And you expect that to continue so we're planning into just slightly lesser mid mid single digits on the lower end of mid single digits for our year over year growth in wages.

Speaker Change: As it relates to kind of how do we mitigate while we're constantly looking really under every rock as it relates to SG&A are looking for ways to be more efficient.

Speaker Change: The team works really hard at it and we will continue to work hard at it and look for look for offsets in our business.

Jack Loudon Sinclair: And then for my follow-up, I just wanted to ask about labor. You mentioned you're still seeing pressure there. Just any update on what you're seeing in the labor market overall? Maybe some color on California specifically would be helpful.

Speaker Change: Great. Thank you.

Speaker Change: And data.

Speaker Change: And one moment for our next question.

Speaker Change: And our next question comes from British Parker.

British Parker: <unk> our company.

British Parker: Good afternoon. Thanks for taking my question also congrats on a nice corner. So just going back to your nearest or commentary sounds like Florida stores are doing really well, but if you look at your collective cloth in your store openings, just curious how they're performing any surprises thus far and then are they meeting your expectations from a from a ramp perspective.

Curtis: And what are ways you're thinking through of mitigating that cost pressure as you move throughout? I'll let Curtis go through some numbers in a second, Leah, but in terms of how we think, and it's such an important group of people, as obvious in terms of our team members, and we've been working hard as we identified in our remarks, that we've changed the bonus program, which has given people significant opportunities to earn more than they would have done otherwise, and we're encouraged by the reaction to that. As I said, when you get less, when you lose, when you don't have as much rotation in the team member workforce, it actually saves us a lot of money and builds up customer service as well, so part of it is how do we retain people more effectively, part of it is how we do the bonus program, and with specifics to California, with which clearly something we're watching, most, all of our people, we're north of the $20 thing that is so prevalent in the conversations around California, so we're in good shape there, we're getting strong applications, most the applications for jobs in our company is a kind of all-time high, and the quality of the applications we're getting is out, we're very encouraged by as well, so we think we're in good shape with that, having said that, there's some numbers associated with what's happened, which I'll let Curtis deal with.

Speaker Change: Yeah <unk>. Thanks.

Speaker Change: Where they are right in line with how we are expected to perform so the new stores were pleased with them we've talked about a little over the last few quarters no major deviations from the trends we're seeing their we're starting a little lower particularly in the places we have lower awareness and we're ramping faster that's really been the story in Florida, We're seeing really strong comps in Florida.

Speaker Change: Overall, they are performing as expected and we're seeing good results across the country.

Speaker Change: Great and they might follow up question and you know I I do.

Speaker Change: I'm not looking for explicit guidance for 2025, but if you look at the business you know I I know you're a longer term algorithm is for low double digit earnings growth clearly ever had unrelated to the loyalty program this year, but.

Speaker Change: Now in a position to get closer to L. O double digit earnings were open it in the coming years.

Speaker Change: Well, certainly we talked a lot and the script about sustainable long term growth and so that's our that's our goal as we move through 2024, we need to make some investments to keep the before progress we've got moving and to set us up for that in the long term.

Speaker Change: Certainly not guidance into 2024 here, yet as you mentioned, but but we are we are moving in that direction and and those investments are important piece of that.

Speaker Change: Yes, sadly to give guidance for 2025 refresh, but having said that we're fairly confident about our future and the investments that we're making this year will certainly help us in 2025.

Curtis: Yeah, so we're certainly, you know, carrying some additional cost into the year as it relates to the year-over-year, and we'll expect that to continue, so we're planning into just slightly less of mid-single digits on the lower end of mid-single digits for our year-over-year growth in wages, as it relates to kind of how do we mitigate, well, you know, we're constantly looking really under every rock as it relates to SG&A, looking for ways to be more efficient, the team works really hard at it, and we'll continue to work hard at it and look for, look for offsets in our business. Great, thank you, and basic.

Speaker Change: Great. Thank you.

Speaker Change: Thanks.

Speaker Change: And thank you.

Speaker Change: And one moment sorry next question.

Speaker Change: And our next question comes from Ken Goldman from J P. Morgan. Your line is now open.

Ken Goldman: Hi, Thank you I I didn't quite understand your response to the question about a.

Ken Goldman: $15 million in.

Ken Goldman: In Opex that you are spending this year and how you think about that it from an ongoing perspective. It could you just kind of repeat your answer clarified I just didn't know if that was something that continues after 2024 and maybe I misunderstood.

Curtis: And one moment for our next question. And then our next question comes. Good afternoon.

Speaker Change: And I'll clarify again, I think yeah $50 million in Opex here in 2024, and that's really to get the loyalty program Goin', along with some technology foundational investments so not expecting that level of investment to continue going forward.

Curtis: Thanks for taking my question. Also, congrats on a nice quarter. So just going back to your new store commentaries, it sounds like barter stores are doing really well. But as you look at your collective class of new store openings, just curious how they're performing, any surprises thus far, and then are they meeting your expectations from a ramp perspective? Yeah, hey, Rupesh, thanks.

Speaker Change: So just to build on again this is going to be a question you can't necessarily answer, but I'm just curious if a if we're wrong here just a building on.

Speaker Change: On the prior question there you have.

Speaker Change: Less than $15 million in terms of the investment for loyalty card in 25.

Curtis: Yeah, they're right in line with how we're expecting them to perform. So the new stores, we're pleased with them. We've talked about it a little over the last few quarters, no major deviations from the trends we're seeing there. We're starting a little lower, particularly in the places we have lower awareness, and we're ramping faster. That's really been the story in Florida.

Speaker Change: <unk> inflation, you've talked about getting less becoming less of a head with who knows where it is next year, but it's trending in that way you'll have the benefits from the loyalty card.

Speaker Change: Feels like you're setting up for an acceleration and maybe you'll have better cops as well because you have these new stores that are accelerating this year, maybe at a lower base that will help you with your comps next year. What are we missing in terms of you know there's a lot of Tailwinds, maybe as we think about 25.

Curtis: We're seeing really strong comps in Florida. Overall, they're performing as expected, and we're seeing good results across the country. Great

Curtis: And then my follow-up question, and again, I'm not looking for explicit guidance for 2025, but as you look at the business, I know your longer-term algorithm is for low double-digit earnings growth. Clearly, you have a headwind related to the loyalty program this year, but is this business now in the position to get closer to that low double-digit earnings growth in the coming years? Well, certainly we talked a lot, you know, in the script about sustainable long-term growth. And so you know, that's our goal as we move through 2024. We need to make some investments to keep the forward progress we've got moving and to set us up for that in the long term. Certainly not guiding into 2024 here yet, as you mentioned, but we are, we're moving in that direction.

Speaker Change: It would be wrong to think about that is kind of an accelerant year for you, even though it's way too early to really be specific.

Speaker Change: Although I think you said it with your last <unk> I think it is a little bit early for us to get.

Speaker Change: Very volume <unk>, we certainly believe the understanding our customers more and navigating our way through trying to drive.

Speaker Change: <unk> the largest share of wallet of our target customers will provide growth for us in the future and that sat in the why we're investing this money. This year with the premise that is going to come in terms of chop Lane in 2025 on beyond and as part of an ongoing process of how do we understand our customers better.

Curtis: And those investments are an important piece of that. Yeah, it's valid to give guidance for 2025, Rupesh, but having said that, we're very confident about our future, and the investments we're making this year will certainly help us in 2025. Great, thank you. Bye, and thank you.

Speaker Change: We are going to be a really great speciality groza, we've got to understand that customer even better than we do at the moment and that's the key work behind it and we'll learn a lot. This year from the work that we're putting in in terms of what it will be able to do and as we get towards the end of 2024, I think will be more able to.

Speaker Change: Conversation about what is actually going to mean photos and 25 and 26.

Speaker Change: Thank you.

Speaker Change: Thanks.

Speaker Change: Thank you.

Curtis: And one moment for our next question. And our next question comes from Ken Goldman from J.P. Morgan. Your line is now open.

Speaker Change: And one moment for our next question.

Speaker Change: And our next question comes from Scott Moskin from our five capital. Your line is now open.

Curtis: Hi, thank you. I didn't quite understand your response to the question about the $15 million in OPEX that you're spending this year and how you think about that from an ongoing perspective. Could you just kind of repeat your answer or clarify it? I just didn't know if that was something that continued after 2024, and maybe I just misunderstood.

Scott Mushkin: Hey, guys. Thanks for taking my question and it's kind of along the same lines can and repression we're talking about.

Scott Mushkin: Kind of looking out at the kind of medium and longer term algorithm on growth here.

Scott Mushkin: Especially with the new this new store builds it's hard for me to kind of understand how you wouldn't normalized carpet at least 4%.

Speaker Change: If the base stores are are growing decently and with all the new stores coming in and trying to talk me out of that like why why wouldn't that be the case.

Curtis: And I'll clarify, Ken, I think, yeah, 15 million in OPEX here in 2024. And that's really to get the loyalty program going along with some foundational technology investments. So not expecting that level of investment to continue going forward. So just to build on again, this is going to be a question you can't necessarily answer, but I'm just curious if we're wrong here. Just to build on on the prior question there, you have less than $15 million in terms of the investment for the loyalty card in 2025.

Speaker Change: Well I don't Scott I don't think we'll talk you out of that I mean, certainly we aspire to drive that type of comp as we as we look ahead again along resolved from 2025 in 2006.

Speaker Change: Some pressure on the consumer at the moment and we've got to execute we've got to deliver on the things that we're putting them in what we're investing in and and do a good job here in 2024, but we are certainly angling to drive a sustainable com for 2025 and beyond.

Speaker Change: And.

Speaker Change: You guys have you're happy with your new stores.

Speaker Change: Seamless maturation process going there and you're and you're seeing that come through but if you take a step back and now that you're getting a lot of the smaller box.

Jack Loudon Sinclair: Wage inflation, you've talked about getting less, becoming less of a headwind, who knows where it will be next year, trending in that way? You'll have the benefits of the loyalty card. It just feels like you're setting up for an acceleration, and maybe you have better comps as well because you have these new stores that are opening this year. Maybe, at a lower base, that'll help you with your comps next year. What are we missing in terms of, you know, there's a lot of tailwinds maybe as we think about 25. But it would be wrong to think about that as kind of an accelerant year for you, even though it's way too early to really be specific.

Speaker Change: Formats in the ground like what's.

Speaker Change: What's working better than maybe you thought and maybe what's a little worse than what what are you going to tweak.

Speaker Change: Yeah, I've been really pleased with frozen foods, which is something we talked about it a lot when we introduced a new format that performing really well and I'm very pleased with a space that we invested in that I'm very pleased with meals homework doing with prepared meals and we put a lot of emphasis on that intern new format stores are not spoiling through well.

Speaker Change: We're encouraged but as I said earlier with our innovation centre in terms of what I was doing for our stores. So there's kind of two or three high points and at one of the areas that we invested in the agent been a strong maybe as the the plant based meat investment plant based daily is doing very well on a daily business is doing well, but plant based meat was a big trend and that's probably not come.

Jack Loudon Sinclair: Well, I think you said it with your last remarks there; I think it is a little bit early for us to get very buoyant about it. We certainly believe that understanding our customers better and navigating our way through trying to drive a larger share of the wallet of our target customers will provide growth for us in the future. And that's certainly why we're investing this money this year with the premise that it's going to come in terms of top line growth in 2025 and beyond. And it's part of an ongoing process of how do we understand our customers better? If we're going to be a really great specialty grocer, we've got to understand that customer even better than we do at the moment. And that's the key work behind it.

Speaker Change: Through as well as we would have liked it to do but overall in total is coming through the way we'd like it I like the fact that we've got meet at front of the store in terms of what I was doing to drive center a plate. So I think by and large the things that we put in place.

Speaker Change: I've worked pretty well.

Speaker Change: Alright, guys. Thanks I appreciate you taking my question. Thank thank.

Speaker Change: Thank you thanks <unk>.

Speaker Change: Thank you.

Speaker Change: And one moment for our next question.

Speaker Change: And our next question comes from Mike Metonymy from ethical ISI. Your line is now open.

Mike Metonymy: Hey, good afternoon, thanks for taking the question.

Jack Loudon Sinclair: And we'll learn a lot this year from the work that we're putting in terms of what it will be able to do. And as we get towards the end of 2024, I think we'll be more able to have a conversation about what it's actually going to mean for us in 2025 and 2026. Thank you.

Mike Metonymy: I was just hoping to unpack a little bit for the quarter and then in the guidance for the full year. If you could just unpack a little bit what you saw in terms of traffic and how you're thinking about the traffic would that be up next year and then also in terms of inflation.

Mike Metonymy: Is that kind of 2% to 3% in the fourth quarter and and how much of that do you have bacon to the guide for the comp.

Jack Loudon Sinclair: Thanks, and thank you. And one moment for our next question. And our next question comes from Scott at R5 Capital.

Speaker Change: Yeah, So I'll take it from the fourth quarter.

Jack Loudon Sinclair: Your line is now open. Hey guys, thanks for taking my question. And it's kind of along the same lines of what Ken and Rupesh were talking about. You know, kind of looking out at the kind of medium and longer-term algorithm for growth here, store builds, it's hard for me to kind of understand how you wouldn't normalize a comp at at least 4%. If the base stores are growing decently and with all the new stores coming in, and just try to talk me out of that. Why wouldn't that be the case? Well, I don't, Scott. I don't think we'll talk you out of that.

Speaker Change: Yes up positive traffic again in the fourth quarter really the shape of it didn't change materially from the third quarter other than AUR in unit stabilizing a bit.

Speaker Change: R. As us just a little slightly higher than than what you're describing there Mike in the fourth quarter as we look ahead to 2004.

Speaker Change: It'll be a slight positive traffic again, we.

Speaker Change: We are expecting inflation and AUR to be slightly up and then we'll have a slightly lower units.

Speaker Change: All set there were expected units to flatten out as everything kind of normalizes stabilizes. Finally, hopefully in 2024, we said that a coupla years running now and not all the way the area, but pretty close and that's what we're expecting for 2024.

Speaker Change: Thank you and good luck.

Speaker Change: Thanks, Mike.

Speaker Change: And thank you.

Speaker Change: And one moment our next question.

Speaker Change: And our next question comes from Bill Kirk from Roth M. Can your line is now open.

Jack Loudon Sinclair: I mean, certainly, we aspire to drive that type of comp as we look ahead, although again, a long ways off in 2025 and 26. You know, some pressure on the consumer at the moment, and we've got to execute, we've got to deliver on the things that we're putting in and what we're investing in, and do a good job here in 2024. But, you know, we're certainly angling to drive sustainable comp for 2025 and beyond. And you guys said you're happy with your new stores. I assume there's a maturation process going on there, and you're, and you're seeing that come through.

Bill Kirk: Hey, good afternoon.

Bill Kirk: I think you've lap, adding door dash as an incremental e-commerce partner. So if for Q E Commerce was up 17% year over year.

Jack Loudon Sinclair: Guess, what happens to that growth right now that the partners are mostly the same year over year.

Bill Kirk: Well, we brought in another partner so we've got we've got the.

Bill Kirk: <unk> come in.

Jack Loudon Sinclair: Then remember that put him and we brought over a very recently in to the business of that law that allowed to while I'm very encouraged about is how the omnichannel process that we're going through and it's really encouraging that when we get the kind of growth that we're getting in and he calm environment because customers wouldn't be navigating.

Jack Loudon Sinclair: But if you take a step back and now that you're getting a lot of the smaller box, format's in the ground, like, you know, what's working better than maybe you thought and maybe what's a little worse and what are you going to tweak? Yeah, I've been really pleased with frozen foods, which is something we talked about a lot when we introduced the new format. That's performing really well, and I'm very pleased with the space that we invested in it. I'm very pleased with the meals, how we're doing with prepared meals.

Jack Loudon Sinclair: To our assortment if there wasn't something differentiated in it and the fact that we're <unk>.

Jack Loudon Sinclair: We're doing so well in income gives me a lot of encouragement about your work.

Speaker Change: That the matching in the <unk> in terms of bringing products to the marketplace in terms of going forward.

Speaker Change: L B, what it will be the customer is going to take us where they want to take us we're giving them. The option that can do door dash that can do it for AIDS and <unk> have been great partners photos as well. So we're very very pleased with the partnerships with all three of the E. Com providers. So going forward it will be what they are going to be but within the guidance that.

Jack Loudon Sinclair: And we've put a lot of emphasis on that in our new format stores, and that's going well. We're encouraged, as I said earlier, with our innovation center in terms of what that's doing for our stores. So there are kind of two or three high points in it.

Jack Loudon Sinclair: <unk> revenue on it's spelled as being billed the timing of it's pretty close right. I think we launched over about one year after door dash in order to ask ramped up throughout the year and so they'll continue to contribute to the comp not to the same degree clearly as last year, but ubers basically launched right. One year later, so those two things should kind of neutral.

Jack Loudon Sinclair: One of the areas that we invested in that hasn't been as strong, maybe, is the plant-based meat investment. Plant-based dairy is doing very well, and our dairy business is doing well. But plant-based meat was a big trend, and that's probably not come through as well as we would have liked it to do.

Jack Loudon Sinclair: The lines themselves.

Jack Loudon Sinclair: But overall, in total, it's coming through the way we'd like it. I like the fact we've got meat in the front of the store in terms of what that's doing to drive the center of the plate. So I think, by and large, the things that we put in place have worked pretty well. All right, guys.

Speaker Change: Okay Awesome, and then as a follow up.

Jack Loudon Sinclair: It seems to me like.

Jack Loudon Sinclair: Input prices are a bit more deflationary that maybe your produce prices on the shelf first I guess is that fair and then if it is is that that is that dynamic in place as a way to refine our customer base toward more profitable households, or would it be more of a like a temporary <unk>.

Jack Loudon Sinclair: Thanks. I appreciate you taking my question. Thanks, Scott. Thank you, and thank you.

Jack Loudon Sinclair: And one moment for our next question. And our next question comes from Mike Montani from Evercore ISI. Your line is now open. Hey, good afternoon.

Speaker Change: <unk> Y dynamic and the two would eventually match.

Speaker Change: While as we've talked a lot about and projects, there's a lot of volatility in pricing and it's difficult to kind of be very definitive about exactly what's happened from one week to the next number remained one year to the next on that produce business has been very we've been really pleased with organic produce and that that's something that we can we kind of wound.

Curtis: Thanks for taking the question. I was just hoping to unpack a little bit about the quarter and then the guidance for the full year. If you could just unpack a little bit what you saw in terms of traffic, you know, and how you're thinking about the traffic, would that be up next year? And then also, in terms of inflation, you know, is that kind of two to 3% in the fourth quarter? And how much of that do you have baked into the guide for the Yeah, so I'll take it from the fourth quarter. Yeah, I saw positive traffic again in the fourth quarter. Really, the shape of it didn't change materially from the third quarter other than AUR and units stabilizing a bit. AUR is just a little slightly higher than what you were describing there, Mike, in the fourth quarter.

Curtis: Mix that we have on organic of our total project business is very different Joe you would see in a conventional grosser or even in Walmart or club channel, we're seeing a really strong organic business and that's where pricing. We think we've got really good long term relationships with the vendor base and inorganic produce <unk> strong place to <unk>.

Speaker Change: Manage the ups and downs effectively in terms of what happens to the volatility of prices.

Curtis: I'm not sure if I'm answering your question, but set me organic produce and the differentiation of price that we have an organic projects. We think stands as in good stead going forward and we're doing a lot of work to improve the quality and freshness of approaches both in terms of investment in physical distribution and investment in our systems and our replenishment systems and.

Curtis: As we look ahead to 24, it'll be slight positive traffic again. We are expecting inflation and AUR to be slightly higher, and then we'll have slightly lower units as the offset there. We're expecting units to flatten out as everything kind of normalizes and stabilizes. Finally, hopefully, in 2024, we said that a couple years running now and not all the way there yet, but pretty close.

Curtis: Forecasting systems to make sure that we get even better incentives impressions for our customers.

Curtis: So again.

Speaker Change: Probably too volatile for us to give a definitive answer to your question there.

Curtis: And that's what we're expecting for 2024. Thank you and good luck. Thanks, Mike, and thanks. And one moment for our next question. And our next question comes from Bill, and Roth MKM. Your line is now open. Hey, good afternoon.

Curtis: Just add bill we're going to look just a bit different because of that organic mix than than everybody else and so that will play a part in that too.

Speaker Change: Okay very helpful. Thank you guys.

Bill: Thanks. Thanks.

Bill: Thank you.

Bill: And one moment Alright next question.

Bill: And our next question comes from Kendall prescribed <unk> from Bank of America at your line is now open.

Jack Loudon Sinclair: So I think you've lain adding DoorDash as an incremental e-commerce partner. So if 4Q e-commerce was up 17% year over year, I guess what happens to that growth rate now that the partners are mostly the same? Well, we've brought in another partner. So there's we've got to kind of we've got the Uber Eats has come in just so little. I didn't remember that for a

Bill: Hi, Thanks for taking my question congrats on a great corner.

Speaker Change: My question was gently.

Jack Loudon Sinclair: <unk> about 40 cents and what you're seeing.

Jack Loudon Sinclair: Enter store and I guess, what you would expect heading to <unk> is there anything come suppliers, but they're pushing back on price at all.

Jack Loudon Sinclair: <unk>.

Jack Loudon Sinclair: And I think I assume when you say Senator store you mean in the non perishables, which is different but I think certainly refreshes the more the more volatile pieces, Jack just alluded to and so as we think about the non perishables I think that's a little bit more in line with what the macro.

Jack Loudon Sinclair: We brought Uber Eats very recently into the business, so that'll add to it. What I'm very encouraged about is the omni-channel process that we're going through. And it's really encouraging that we get the kind of growth that we're getting in an e-com environment because customers wouldn't be navigating their way to our assortment if there wasn't something differentiated in it. And the fact that we're doing so well in e-com gives me a lot of encouragement about the work that the merchants and the foraging team are doing in terms of bringing products to the marketplace. In terms of going forward, it'll be what it'll be. The customer's gonna take us where they want to take us. We're giving them now the option.

Jack Loudon Sinclair: Newsprint who's on that and our fresh business tends to be more volatile piece.

Jack Loudon Sinclair: As I mentioned earlier.

Jack Loudon Sinclair: On the higher end of low single digits is what we're experiencing currently or in queue for an <unk>.

Jack Loudon Sinclair: Watch that stabilize here in 2024.

Jack Loudon Sinclair: The remains of volatility in commodity pricing I think if you look at things like cocoa and sugar and people without seeing that those prices are going up dramatically and I think that will float maybe flowed through other commodities are going in the opposite direction, but sent me. The one difference with our business in center store, which is again, it's not really.

Jack Loudon Sinclair: They can do DoorDash, they can do Uber Eats, and Instacart have been great partners for us as well. So we're very, very pleased with the partnerships we have with all three of the e-commerce providers. So going forward, it'll be what it's going to be, but it's within the guidance that Curtis talked about, and he wanted to build on that. Yeah, I just think, Bill, the timing of it's pretty close, right?

Curtis: I think we launched Uber about one year after DoorDash, and DoorDash ramped up throughout the year. And so they'll continue to contribute to the competition, not to the same degree clearly as last year, but Uber's basically launched right one year later. So those two things should kind of neutralize themselves.

Jack Loudon Sinclair: Pricey expression center store, but wait for.

Curtis: <unk> non perishable business, we have got a lot of differentiation in what we sell and it's very unlikely that a lot of the drivers for commodities are hitting the big C. P. G items being sold in conventional while effect is one way or the other we've kind of managed to navigate our way through that with a b.

Jack Loudon Sinclair: And then as a follow-up, it seems to me like produce input prices are a bit more deflationary than maybe... your produce prices on the shelf, first I guess is that and then if it is, that is that dynamic. Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com/policies. Well, as we've talked a lot about in produce, there's a lot of volatility in pricing, and it's difficult to kind of be very definitive about exactly what's happened from one week to the next, never mind one year to the next on that. Our produce business has been very successful; we've been really pleased with organic produce. And that's something that we can; we kind of own the mix that we have an organic in our total produce business is very different from how you would see in a conventional grocer or even in Walmart or Club Channel.

Jack Loudon Sinclair: Dramatically affected by some of those swings and Roundabouts.

Speaker Change: Got it that's really helpful.

Jack Loudon Sinclair: And then as a follow up.

Jack Loudon Sinclair: Could you remind me at 30 faxed or in your opening next year.

Jack Loudon Sinclair: Focus is between new and existing market.

Jack Loudon Sinclair: Oh, it's about 50 50 about half and kind of existing established markets and then have on really the east coast in Florida in the mid Atlantic is.

Jack Loudon Sinclair: <unk>.

Jack Loudon Sinclair: We've opened for this year <unk>.

Jack Loudon Sinclair: When I think about it if we go just opened a really nice store, which are very pleased with and cutting Los Angeles, when Gus really nice store in Miami, So what kind of opening stores all over the country at the moment in Maryland, So it's actually quite exciting to see his building this price brand from sea to Shining Sea.

Curtis: We're seeing a really strong organic business, and that's where pricing, we think we've got really good long-term relationships with the vendor base and inorganic produce. And I think we're in a strong place to kind of manage the ups and downs effectively in terms of what happens to the volatility of prices. I'm not sure if I'm answering your question, but certainly organic produce and the differentiation of price that we have in organic produce stands us in good stead going forward. We're doing a lot of work to improve the quality and freshness of our produce, both in terms of investment in physical distribution and investment in our systems and our replenishment systems and our forecasting systems to make sure that we get even better in terms of freshness for our customers. So again, it's probably too volatile for us to give a definitive kind of answer to your question there. And I just add, Bill, we're gonna look just a bit different because of that organic mix than everybody else. And so that'll play a part in that too. That's very helpful. Thanks. Thanks.

Speaker Change: I think the only other note candle on the new stores for this year, they're they're going to be back half loaded.

Curtis: About two thirds of them open the second half of the year.

Speaker Change: Alright, thanks for the help.

Speaker Change: Thank you Sir.

Speaker Change: And thank you.

Curtis: And one moment our next question.

Curtis: And our last question confirm Christina archetype from Deutsche Bank. Your line is now open.

Speaker Change: Hi, Good afternoon, Uhm I wanted to ask about the customer strategy you have a lot more insights into purchasing patterns can you even did a year ago. So I was wondering if you could quantify maybe how data is helping you and driving increased traffic a customer frequency and then just how do you think about the opportunity, especially as you are gearing up for.

Curtis: Loyalty program lunch.

Speaker Change: Well, we're still still fairly immature in that space right, we talk about kind of low double digits of identifiable customers in.

Speaker Change: Hi, Hi, double digits call at 19% of our transactions that we can identify so we've got a long ways to go there were really excited for the opportunity with with loyalty and getting a test out there in the middle of the year, but we've got a long ways to go on our ability to do that I think the teams done some early work some good work around some personalization.

Curtis: And thank you. And one moment for our next question. And our next question comes from Kendall Toscano from Bank of America. Your line is now open.

Curtis: Hi, thanks for taking my question. Congratulations on a great quarter. My question was just basically about inflation and what you're seeing in center store and, I guess, what you'd expect heading to 2024. Is there anything from suppliers that they're pushing back on price at all? And I think I assume when you say center store, you mean in the non-perishables, which is different for us. But I think certainly fresh is the more volatile piece, as Jack just alluded to.

Curtis: Testing done some vitamins retargeting and things like that we've gone after organic and natural beauty.

Curtis: Within segments of our customers and so.

Curtis: This year and part of the investment and loyalty about getting the foundation and the data foundation right to be able to really do that at scale and so we will be working hard on that this year and we're excited for what that could do 471.

Speaker Change: Thank you for that and I was just wondering if you could give up I think what color in terms of what your actual mature stores are doing from the <unk> perspective, you, obviously have a waterfall benefit.

Curtis: And so as we think about the non-perishables, I think that's a little bit more in line with what the macro newsprint is on that, and our fresh business tends to be the more volatile piece. As I mentioned earlier, we're on the higher end of those single digits is what we're experiencing in Q4. And we'll watch that stabilize here in 2024. And there remains volatility in commodity pricing. I think if you look at things like cocoa and sugar, and people are saying that those prices are going up pretty dramatically. And I think that will maybe flow through to other commodities going in the opposite direction. But certainly, the one difference with our business in the center store, which is, again, it's not really a sprouts expression center store, but for our non-perishable business, we have got a lot of differentiation in what we sell. And it's very unlikely that a lot of the drivers for commodities that are hitting the big CPG items being sold in conventional will affect us one way or the other. We've kind of managed to navigate our way through that without being dramatically affected by some of those swings on the roundabout. I got it.

Curtis: But I'm just wondering how many short stories are campaigning versus the newer ones and if there's any update on the waterfall benefit that we should keep in mind for the next couple of years. Thank you.

Speaker Change: Yeah, no problem. So again, we've talked a lot good momentum and the newer markets and strong comps, especially in those places where we're not as established may start a little lower than we've seen a really strong comps. So it's it's contributing to our comp for sure and the mature stores are comping, well, we won't get into specifics per se I think.

Curtis: The only other thing to think about is just the newer stores again at a little bit lower volume as they start now as impactful on the comp base is the mature stores.

Curtis: So that will impact that kind of spread between the new and the comp stores or the mature stores.

Speaker Change: And thank you.

Speaker Change: And one moment by next question.

Kelly: And our next question comes from Kelly been near from BMO Capital Markets. Your line is now open.

Speaker Change: Hi, Thanks for taking my question.

Speaker Change: Wanted to go back to the discussion of gross margin I believe here.

Jack Loudon Sinclair: That's really helpful. And then, as a follow-up, just could you remind me of the 35 stores you're opening next year, and what the focus is between new and existing markets? I can know it's about 50-50, about half in kind of existing established markets and then half on really the East Coast, in Florida, and the mid Atlantic are the drivers there. We've opened four this year. When I think about it, we've just opened a really nice store, which we're very pleased with, in Cudahy, Los Angeles. We've got a really nice store in Miami.

Jack Loudon Sinclair: Longterm plan, there was kind of for a flattish gross margin.

Jack Loudon Sinclair: You can clearly see some opportunity to take that up this year, but I was just curious if you could talk about if anything has changed longterm D C more opportunity to continue to take that up.

Speaker Change: And maybe can you just help us understand.

Jack Loudon Sinclair: The opportunity I think you called out shrink and promotional Optimisation, maybe you could just elaborate on the factors driving that this year and maybe longterm.

Jack Loudon Sinclair: So we're kind of opening stores all over the country at the moment, Maryland, and so it's actually quite exciting to see us building the Sprouts brand from sea to shining sea. I think the only other note, Kendall, on the new stores for this year, they're going to be back-loaded; about two-thirds of them will open in the second half of the year. Thanks for the help.

Jack Loudon Sinclair: Sir.

Speaker Change: Well long term I think we're still thinking about it is stable from holding our margins steady I think what we've got going on a little bit right. Now is really just a little bit of a shrink story. So we had a rough second half from the shrink perspective ops teams in a really nice job <unk> Q for kind of getting that back in line.

Jack Loudon Sinclair: So we feel like there'll be some opportunity, particularly in the second half as we lap those numbers next year on the shrink line. So that'd be a driver of it and then we do merchants have done a nice job. So we continue to optimize promotions and manage the mix of the business and and that will have just a little bit of carryover from what's been working for us in 2023.

Curtis: Thanks, and thank you. And one moment for our next question. And our next question comes from Christina Alcatay from Deutsche Bank. Your line is now open. Hi, good afternoon.

Curtis: I wanted to ask about the customer strategy. You have a lot more insights into overall purchasing patterns than you even did a year ago. So wondering if you could quantify maybe how data is helping you to drive increased traffic or customer frequency? And just how do you think about the uplift opportunity, especially as you're gearing up for the loyalty program launch? Well, we're still, you know, still fairly immature in that space, right?

Christina Alcatay: And the first half of the year.

Curtis: I think the last piece is that the supply chain pressure, we've experienced in the second half from the expanded square footage will lap that through the first half of the year and then that pressure will ease as we get into the second half.

Speaker Change: Can I just also follow up on on the guidance range.

Curtis: It's a pretty narrow kind of range.

Curtis: For the full year I was just curious if you can kind of talk about the <unk> and the take I mean at the low end of the campaign does that really.

Curtis: We talk about kind of low double digits of identifiable customers and, you know, high, high double digits, call it 19% of our transactions that we can identify. So we've got a long ways to go there. We're really excited for the opportunity with loyalty and getting a test out there in the middle of the year. But we've, we've got a long way to go on our ability to do that. I think the team's done some early work, some good work around some personalization testing. We've done some vitamin retargeting and things like that.

Curtis: Can you still get to flat earnings on that kind of comp maybe just help us think about higher.

Curtis: Plan to manage that.

Curtis: Yeah, I think again, we will have to we had a little bit of gross margin expansion. We will have to work hard on the cost side as we've mentioned and look for opportunities to offset some of the pressures were experiencing does get harder obviously that goes towards the low end of the range is you're you're starting to deleverage against some of the fixed costs, but.

Curtis: We've gone after organic and attributes within segments of our customers. And so, you know, this year and part of the investment and loyalty about getting the foundation and the data foundation right to be able to really do that at scale. And so we'll be working hard on that this year. And we're excited about what that could do for us down the line.

Curtis: We feel we feel comfortable with the the guidance and the range is we have out there and being able to deliver.

Speaker Change: Thank you.

Curtis: And.

Curtis: And thank you and I'm showing no further questions I would now like to turn the call back over to Jackson Claire for closing remarks.

Curtis: Yeah. Thanks, everyone for spending some time with US. This afternoon. We appreciate your interest in our company and really fun.

Curtis: And I was just wondering if you could give a bit more color in terms of what your actual mature stores are doing from a comp perspective. You obviously have a waterfall benefit. But just wondering how mature stores are comping versus the newer ones and if there's any update on the waterfall benefit that we should keep in mind for the next couple of years. Thank you. Yeah, no problem.

Curtis: Two.

Speaker Change: Bringing you up to date through the year as our business evolves thanks ever so much.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

Curtis: Mmm.

Speaker Change: [music] [music].

Curtis: So again, we've talked a lot about good momentum in the newer markets and strong comps, especially in those places where we're not as established. They start a little lower, and we're seeing really strong comps. So it's contributing to our comp for sure. And the mature stores are comping well; won't get into specifics per se. I think the only other thing to think about is just the newer stores, again, at a little bit lower volume as they start, not as impactful on the comp base as the mature stores. So that'll impact that kind of spread between the new and the comp stores or the mature stores, and thank you. And one moment for our next question, and our next question comes from Kelly Bania from BMO Capital Markets. The line is now open.

Curtis: Hi, thanks for taking our question. Wanted to go back to the discussion of gross margin. I believe your long-term plan there was kind of for a slottish gross margin, but you clearly see some opportunity to take that up this year.

Curtis: Mmm.

Curtis: [music].

Curtis: But I was just curious if you could talk about if anything has changed long term. Do you see more opportunity to continue to take that up? And maybe you could just help us understand?

Curtis: The opportunity, I think you called out shrink and promotional optimization, maybe you could just elaborate on the factors driving that this year and maybe long term. Sure. Well, long term, I think we're still thinking about it as stable and holding our margins steady. I think what we've got going on a little bit right now is really just a little bit of a shrink story. So we had a rough second half from a shrink perspective.

Curtis: The Ops team has done a really nice job late in Q4 kind of getting that back in line. And so we feel like there'll be some opportunity, particularly in the second half, as we lap those numbers next year on the shrink line. So that'll be a driver of it.

Curtis: And then we do, and merchants have done a nice job. So we continue to optimize promotions and manage the mix of the business. And that'll have just a little bit of carryover from what's been working for us in 2023 in the first half of the year.

Curtis: I think the last piece is that the supply chain pressure we've experienced in the second half from the expanded square footage, we'll lap that through the first half of the year, and then that pressure will ease as we get into the second half. Can I just also follow up on the guidance range? It's a pretty narrow kind of range for the full year. I was just curious if you could kind of talk about the puts and the takes. I mean, at the low end of the comp range, is that really? Can you still get to flat earnings on that kind of comp?

Curtis: Mmm.

Speaker Change: [music], Okay [music].

Curtis: Maybe just help us think about how you plan to manage that. Yeah, I think, you know, again, we'll have to do a little bit of gross margin expansion, we'll have to work hard on the cost side, as we've mentioned, and look for opportunities to offset some of the pressures we're experiencing. It does get harder, obviously, as it goes towards the low end of the range, as you're starting to leverage against some of the fixed costs.

Curtis: But, you know, we feel comfortable with the guidance and the ranges we have out there and being able to deliver. Thank you, and Thank you. And I'm showing no further questions. I would now like to turn the call back over to Jack Sinclair for closing remarks. Yeah, thanks, everyone, for spending some time with us this afternoon. We appreciate your interest in our company, and we look forward to bringing you up to date over the years as our business evolves. Thanks ever so much.

Curtis: Mmm.

Speaker Change: [music] okay.

Jack Loudon Sinclair: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: BANIA, Karen Short, Christopher Mandeville, Rupesh Parikh, Shane Higgins, Kenneth Goldman, Ken Goldman, Thomas Palmer, John Heinbockel, Scott Molloy, Sprouts Farmers Market Inc BANIA, Karen Short, Christopher Mandeville, Rupesh Parikh, Shane Higgins, Kenneth Goldman, Ken Goldman, Thomas Palmer, John Heinbockel, Scott Molloy, Sprouts Farmers Market Inc BANIA, Karen Short, Christopher Mandeville, Rupesh Parikh, Shane Higgins, Kenneth Goldman, Thomas Palmer, John Heinbockel, Scott Molloy, Sprouts Farmers Market Inc BANIA, Karen Short, Christopher Mandeville, Rupesh Parikh, Shane Higgins, Kenneth Goldman, Thomas Palmer, John Heinbockel, Scott Molloy, Sprouts Farmers Market Inc, This is a production of the U.S. Department of Agriculture and the U.S. Department of Agriculture. This is a production of the U.S. Department of Agriculture. This is a production of the U.S. Department of Agriculture. This is a production of the U.S. Department of Agriculture. Thanks for watching! Copyright © 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent.

Operator: Okay.

Operator: [music].