Q1 2024 Sprouts Farmers Market Inc Earnings Call

May 1, 2024

Okay.

Speaker Change: Good day and thank you for standing by welcome to the first quarter 2024 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Operator: Good day, and thank you for standing by. Welcome to the first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. At that time, you will hear an automated message advising that your hand is raised.

Speaker Change: At that time, you will hear an automated message advising that your hand is raised to withdraw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Susannah Livingston, Vice President of Investor Relations and Treasurer. Please begin.

Operator: To withdraw your question, please press star one one again. Please be advised that today's conference is being held. I would now like to hand the conference over to Susannah Livingston, Vice President of Investor Relations and Treasurer. Thank you and good afternoon, everyone.

Speaker Change: Okay.

Susannah Livingston: We are pleased you are joining Sprouts on our first quarter 2024 earnings call. Jack Sinclair, Chief Executive Officer, and Curtis Valentine, Chief Financial Officer, are with me today. The earnings release announcing our first quarter 2024 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 statement.

Susannah Livingston: Thank you and good afternoon, everyone. We are pleased you're joining sprouts on our first quarter 2024 earnings call, Jack Sinclair, Chief Executive Officer, and Curtis Valentine Chief Financial Officer are with me today.

Speaker Change: The earnings release announcing our first quarter 2024 results.

Susannah Livingston: Cast of this call and financial slides can be accessed through the Investor Relations section of our website at investors that sprouts Dot com.

Susannah Livingston: This call management may make certain forward looking statements, including statements regarding our expectations for 2024 and beyond.

Susannah Livingston: These statements involve several risks and uncertainties that could cause results to differ materially.

Susannah Livingston: 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.

Susannah Livingston: For 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.

Susannah Livingston: 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 let me hand, it over to Jack.

Jack L. Sinclair: Thanks, Suzanne and good afternoon, everyone I want to start by thanking our 32000 hard working team members, who work together to create a great experience for our customers, which in turn delivered impressive financial results.

Jack L. Sinclair: Thanks, Susannah, and good afternoon, everyone. I want to start by thanking our 32,000 hardworking team members who worked together to create a great experience for our customers, which in turn delivered impressive financial results. Our sales have grown by 9%, with comparable store sales growing by 4%, and diluted earnings per share growing by 14% compared to adjusted diluted earnings per share in the same period last year. These positive results reflect the effectiveness of our strategy and the exceptional execution by our team. It has been a strong start to the year, and we're encouraged by the continued momentum in our business. Our entire approach across the business remains centred around our target customers.

Jack L. Sinclair: Our sales have grown by 9% with comparable store sales growing by 4% and diluted earnings per share growing by 14% compared to adjusted diluted earnings per share in the same period last year.

Jack L. Sinclair: These positive results reflect the effectiveness of our strategy and the exceptional execution by our team there has been a strong start to the year and we're encouraged by the continued momentum in our business.

Jack L. Sinclair: Our entire approach across the business remains centered around our target customer we.

Jack L. Sinclair: We've aligned our merchandising, marketing, operations, new store design, and supply chain strategies to provide the freshest, most innovative, attribute-driven products in the market. We've also created a unique and easy-to-shop format with great service. During the first quarter, we organized Sprouts brand and organic events, which were highly successful.

Jack L. Sinclair: Aligned our merchandising marketing operations, new store design and supply chain strategies to provide the freshest most innovative attribute driven products in the marketplace.

Jack L. Sinclair: We've also created a unique and easy to shop format with Great service.

Jack L. Sinclair: During the first quarter, we organized sprouts brand inorganic events, which were highly successful these events and others led to positive customer traffic growth in the first quarter.

Jack L. Sinclair: These events and others led to positive customer traffic growth in the first quarter. We are pleased to bring sprouts to more communities across the country. The new store program continues to gather pace. We opened seven for the quarter and are on track for the year, and we're committed to helping our customers live and eat better with every new store opening across. I'll follow up with more on our journey in just a bit, but for now, I'll hand it over to Curtis to review our financial performance in the first quarter and our 2024 outlook. Thank you, Curtis.

Jack L. Sinclair: We are pleased to bring spreads to more communities across the country. The new store program continues to gather pace, we opened seven for the quarter and are on track for the year.

Jack L. Sinclair: And we're committed to helping our customers.

Jack L. Sinclair: Better with every new store opening across the country.

Jack L. Sinclair: I'll follow up with more on our journey in just a bit but for now I'll hand, it over to Curtis to review our financial performance in the first quarter.

Curtis Valentine: 2020 quarter Luke Cutler.

Curtis Valentine: Curtis.

Curtis Valentine: Thanks, Jack and good afternoon, everyone for the first quarter total sales were $1 9 billion up $150 million or 9% from the same period last year.

Curtis Valentine: Thanks, Jack. And good afternoon, everyone. For the first quarter, total sales were $1.9 billion, up $150 million or 9% from the same period last year. This increase was driven by comparable store sales growth of 4% and the addition of new stores. We had another quarter of positive traffic, and as expected, average unit retail and units per basket continue to stabilize sequentially. Our business continues to be resilient. Our comp performance highlights the categories with the most differentiation, such as grocery, dairy, frozen, and meat, which continue to attract our target customers and drive our results. Sprouts brand growth continued to outpace total company performance and contributed 21% of our total sales for the quarter.

Curtis Valentine: This increase was driven by comparable store sales growth of 4% and the addition of new stores.

Curtis Valentine: We had another quarter of positive traffic and as expected average unit retails and units per basket continued to stabilize sequentially.

Curtis Valentine: Our business continues to be resilient.

Curtis Valentine: Our comp performance highlights the categories with the most differentiation such as grocery dairy frozen meat continue to attract our target customers and drive our results.

Curtis Valentine: Sprouts brand growth continued to outpace total company performance and contributed 21% of our total sales for the quarter.

Curtis Valentine: Our e-commerce sales grew approximately 25%, representing 14% of our total sales for the quarter. This included incremental sales from our recently launched UberEATS partnership. And all three of our online partners have joined us in promoting healthy trends to create momentum in the new year. The fact that so many of our target customers seek out Sprouts online continues to highlight the appeal of our differentiated assortment. Our first quarter gross margin was 38.3%, an increase of approximately 80 basis points from the same period of the prior year.

Curtis Valentine: Our E Commerce sales grew approximately 25% representing 14% of our total sales for the quarter.

Curtis Valentine: This included incremental sales from our recently launched Uber eats partnership and.

Curtis Valentine: And all three of our online partners joined us in promoting healthy trends to create momentum in the new year.

Curtis Valentine: The fact, so many of our target customers seek out sprouts online continues to highlight the appeal of our differentiated assortment.

Curtis Valentine: Our first quarter gross margin was 38, 3% an increase of approximately 80 basis points from the same period of the prior year.

Curtis Valentine: This improvement was primarily due to a significant turnaround in our fresh shrink performance, driven by our continued focus on inventory management. We also continue to see year-over-year margin improvement due to promotional optimization efforts carried over from 2023. SG&A for the quarter totaled $540 million, an increase of $57 million or approximately 80 basis points of deleverage compared to adjusted SG&A from the same period of the prior year. As anticipated, the first quarter was impacted by approximately $4 million in holiday pay, with New Year's Day falling on the first day of fiscal 2024.

Curtis Valentine: This improvement was primarily due to a significant turnaround in our fresh shrink performance driven by our continued focus on inventory management.

Curtis Valentine: We also continue to see year over year margin improvement due to promotional optimization efforts carrying over from 2023.

Curtis Valentine: SG&A for the quarter totaled $540 million, an increase of $57 million or approximately 80 basis points of deleverage compared to adjusted SG&A from the same period of the prior year.

Curtis Valentine: As anticipated the first quarter was impacted by approximately $4 million in holiday pay with the new year's day falling in the first day of fiscal 2024.

Curtis Valentine: Our strong sales performance led to higher e-commerce fees as well as higher incentive compensation for the team.

Curtis Valentine: Our strong sales performance led to higher e-commerce fees as well as higher incentive compensation for the team. Last quarter, we shared our plan to invest $15 million in 2024 to build a foundation for sustainable long-term earnings growth. And we are on track with approximately $2 million spent in the first quarter; store closure and other costs totaled approximately $2 million for the quarter. These are primarily related to the ongoing occupancy costs from our 2023 store closures. Depreciation and amortization, excluding depreciation included in the cost of sales, was $32 million.

Curtis Valentine: Last quarter, we shared our plan to invest $15 million in 2020 forward to build a foundation for sustainable long term earnings growth and we are on track with approximately $2 million spent in the first quarter.

Curtis Valentine: Store closure and other costs totaled approximately $2 million for the quarter.

Curtis Valentine: These are primarily related to the ongoing occupancy costs from our 2023 store closures.

Curtis Valentine: Depreciation and amortization, excluding depreciation included in the cost of sales was $32 million.

Curtis Valentine: For the quarter, earnings before interest and taxes were $148 million, interest expense was approximately $1 million, and our effective tax rate was 23%. Net income was $114 million, and diluted earnings per share were $1.12, an increase of 14% compared to adjusted diluted earnings per share from the same period of the prior year. During the first quarter, we opened seven new stores, ending the quarter with 414 stores across 23 states. A strong and healthy balance sheet has underpinned our financial performance.

Curtis Valentine: For the quarter, our earnings before interest and taxes were $148 million interest expense was approximately $1 million and our effective tax rate was 23%.

Curtis Valentine: Net income was $114 million and diluted earnings per share were $1 12.

Curtis Valentine: An increase of 14% compared to adjusted diluted earnings per share from the same period of the prior year.

Curtis Valentine: During the first quarter, we opened seven new stores ending the quarter with 414 stores across 23 states.

Curtis Valentine: A strong and healthy balance sheet has underpinned our financial performance.

Curtis Valentine: We generated $220 million in operating cash flow, allowing us to self-fund our investments of $46 million in capital expenditures, net of landlord reimbursement, to grow the business. We also returned $60 million to our shareholders by repurchasing nearly 1 million shares. We have $148 million remaining under our current share repurchase authorization. We ended the quarter with $312 million in cash and cash equivalents, $125 million outstanding on our $700 million revolver, and $21 million of our outstanding letters of credit.

Curtis Valentine: We generated $220 million in operating cash flow, allowing us to self fund our investments of $46 million in capital expenditures net of landlord reimbursements to grow the business.

Curtis Valentine: We also returned $60 million to our shareholders by repurchasing nearly 1 million shares.

Curtis Valentine: We have $148 million remaining under our current share repurchase authorization.

Curtis Valentine: We ended the quarter with $312 million in cash and cash equivalents of one one.

Curtis Valentine: Wondered $25 million outstanding on our 700 million revolver and $21 million of our outstanding letters of credit.

Curtis Valentine: Turning to our outlook for the full year, we expect total sales growth to be between 7% to 8% and comp sales in the range of two five to three 5%.

Curtis Valentine: Turning to our outlook for the full year, we expect total sales growth to be between 7% and 8% and comp sales in the range of 2.5% 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 $415 and $425 million, and adjusted earnings per share are expected to be between $3.05 and $3.13, assuming no additional share repurchase.

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

Curtis Valentine: Adjusted earnings before interest and taxes are expected to be between $415 and $425 million and adjusted earnings per share are expected to be between $3 <unk> and $3 13.

Curtis Valentine: Assuming no additional share repurchases.

Curtis Valentine: That said, we do expect to continue to repurchase shares opportunistically. We also expect our corporate tax rate to be approximately 25%. During the year, we expect capital expenditures net of landlord reimbursements to be between $225 and $245 million.

Curtis Valentine: That said, we do expect to continue to repurchase shares opportunistically.

Curtis Valentine: We also expect our corporate tax rate to be approximately 25%.

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

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

Jack L. Sinclair: To add a bit more color to the full year, we expect gross margins to be up as we continue to focus on initiatives to improve, shrink, and annualize our promotional optimization work in 2023. On the cost front, we expect ongoing wage increases, new store de-leverage, and our strategic investments to pressure SG&A, resulting in additional de-leverage in 2024. For the second quarter of the year, we expect comparable sales in the range of 3 to 4% and adjusted earnings per share between $0.75 and $0.79.

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

Curtis Valentine: For the second quarter of the year, we expect comp sales in the range of 3% to 4% and adjusted earnings per share between <unk> 75, and.

Curtis Valentine: 79.

Jack L. Sinclair: We are expecting more moderate year-over-year impacts in both gross margins and SG&A as we see fewer outliers in our second quarter comparison, resulting in gross margins up slightly while SG&A will de-leverage slightly. And with that, I'll turn it back to Jack.

Curtis Valentine: We are expecting more moderate year over year impacts in both gross margins and SG&A as we lap fewer outliers in our second quarter comparison, resulting in gross margins up slightly while SG&A, we will deleverage slightly.

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

Jack L. Sinclair: Thanks Curtis.

Jack L. Sinclair: Thanks, Curtis. We remain committed to serving our customers, our health enthusiasts, with products that help them live and eat better. Our team is dedicated to finding innovative and distinctive products with attributes such as organic, gluten free, grass fed, or vegan that set us apart from others. The success of our foraging program has continued as sales at our innovation center continue to grow. And we believe we have become the destination for exciting entrepreneurial food companies to introduce their unique products to the marketplace. This innovative spirit lives within our Sprouts brand and culinary team, as they continue to add hundreds of new items, like hot honey chicken tenders, non-dairy frozen desserts, and flavored cauliflower.

Jack L. Sinclair: We remain committed to serving our customers our health enthusiasts with products that help them live better.

Curtis Valentine: Our team is dedicated to finding innovative and distinctive products without attributes such as organic gluten free cross state of the union that set us apart from others.

Jack L. Sinclair: The success of our quality program has continued our sales on our innovation center continue to grow and we believe we have become the destination for the exciting entrepreneurial food companies to introduce the unique products to the marketplace.

Jack L. Sinclair: This innovative spirit lives within our sprouts brand income the culinary teams.

Jack L. Sinclair: As they continue to add hundreds of new items like hot Honey chicken tenders, non daily frozen desserts and flavored cauliflower rice.

Jack L. Sinclair: Additionally, as I mentioned earlier, the in-store experience and customer engagement remain paramount for us. Part of our appeal is our friendly and knowledgeable team members who help customers navigate the differentiated assortment available to them. The team's dedication to our customers in the first quarter resulted in some of the highest customer service scores in our history, a remarkable achievement. Sprouts is incredibly fortunate to have the support of many customers who truly love our brand.

Jack L. Sinclair: Additionally, as I mentioned earlier and store experience and customer engagement remains Paramount for us.

Jack L. Sinclair: Parts of our appeal as a friendly and knowledgeable team members to help customers navigate differentiated assortment available to them.

Jack L. Sinclair: The team's dedication to our customers in the first quarter resulted in some of the highest customer service scores in our history a remarkable achievement.

Jack L. Sinclair: Sprouts is incredibly fortunate to have the support of many customers who truly love our brand.

Jack L. Sinclair: As a complementary shop, we have an opportunity to deepen our engagement with our customers and grow their share of wallet through a loyalty program. Our vision is to distinguish our program by enhancing what our brand already does, helping our customers and their passions to live the best. This is a multi-year endeavor that will enable Sprouts to build a thriving community where our customers can engage with our brand, and we can provide them with personalized content catering to their unique shopping preferences.

Jack L. Sinclair: Complementary shop, we have an opportunity to deepen our engagement with our customers and grow their share of wallet through a loyalty program.

Jack L. Sinclair: Our vision is to distinguish our program by enhancing our brand already does helping out customers and the passion to living better.

Jack L. Sinclair: This is a multi year endeavor that will enable <unk> to build a thriving community.

Jack L. Sinclair: Customers can engage with our brand and we can provide them with personalize content catering to the unique shopping preferences.

Jack L. Sinclair: On upcoming detailed launch of <unk> in two markets. This quarter is just the beginning and we're excited to continuously improve the program by incorporating feedback from our customers.

Jack L. Sinclair: Team members to enhance the experience functionality and technology overtime.

Jack L. Sinclair: One of the reasons, our customers and team members loves surprise is because our values are aligned we all care care deeply for our communities on the planet.

Jack L. Sinclair: We recently published our 2023 Impact Report, highlighting our work in areas we believe matter most to our target customers, areas such as responsible sourcing of sustainable products, waste reduction, and supporting the communities we serve. In 2023, 3.3 billion of our sales were from products with social or environmental attributes. Our transition to reusable bags removed approximately 113 million single-use bags from circulation, and our stores donated 29 million meals to those in need within our communities.

Jack L. Sinclair: We recently published our 2023 impact report highlighting our work in areas. We believe matter most to our target customers areas, such as responsible sourcing of sustainable products waste reduction and supporting the communities we serve.

Jack L. Sinclair: In 2020 333 billion of our sales were from products with social or environmental attributes.

Jack L. Sinclair: Transition to reusable bikes removed approximately 130 million single use bags from circulation.

Jack L. Sinclair: Our stores in Egypt, $20 9 million meals to those in need within our communities.

Jack L. Sinclair: It was exciting to see our team member support our healthy communities Foundation by donating over 5500 service hours to build school gardens that help kids grew a healthy two nutrition education.

Jack L. Sinclair: It was exciting to see our team members support our Healthy Communities Foundation by donating over 5,500 service hours to build school gardens that help kids grow healthy through nutrition education. I encourage you to read through the report to get a flavor of our focus areas and impact. I was delighted with the opening of several new stores during the quarter from Cudahy, California, to Bertensville, Maryland.

Jack L. Sinclair: I encourage you to read through the report to get a flavor of our focus areas on the impact.

Jack L. Sinclair: I was delighted with the opening of several new stores during the quarter from cardiac California to buttons Bill, Maryland.

Jack L. Sinclair: In the first quarter, we launched seven new stores and are on track to open approximately 35 by the end of the year. We have an extensive pipeline of approximately 100 approved new stores and 70 executed leases, a testament to our commitment to expanding our brand and access to healthy foods in more communities across the country. We've also seen improved new store openings this year, and we attribute much of this success to better brand awareness as we continue to densify markets, and we are growing confidence in our real estate site selection model, which continues to evolve.

Jack L. Sinclair: In the first quarter, we launched seven new stores and are on track to open approximately 35 by the end of the year.

Jack L. Sinclair: We have an extensive pipeline of approximately 100 approved new stores and 70 executed leases a testament to our commitment to expanding our brand and access to healthy food and more communities across the country.

Jack L. Sinclair: We've also seen improved new store openings this year.

Jack L. Sinclair: And we attribute much of this success to better brand awareness as we continue to densify markets and we have growing confidence in our real estate site selection model, which continues to evolve.

Jack L. Sinclair: These improved openings, coupled with continued comp momentum in your markets and our robust pipeline, will support our growth aspirations. Internally, our team is making great progress in building a best-in-class workplace through our values and culture. Our retention rates have come in at an all-time high, which is a tribute to the intentionality behind this work.

Jack L. Sinclair: These improved openings, coupled with continued comp momentum in newer markets and a robust pipeline will support our growth aspirations.

Jack L. Sinclair: Internally our team is making great progress in building a best in class workplace through our values and culture.

Jack L. Sinclair: Our retention rates are currently at an all time high which is a tribute to the intentionality behind this work, we're seeing improvement across the board and our team member engagement scores and believe this focus on culture is translating into the great customer service scores that we're seeing.

Jack L. Sinclair: We're seeing improvement across the board in our team member engagement scores, and we believe this focus on culture is translating into the great customer service scores that we're seeing. We know that our journey towards improving our culture is far from over, and we are excited for the progress we've made thus far. In addition to the culture work, we're focused on preparing our leaders for growth. We aim to have a pool of skilled team members ready for future assignments.

Jack L. Sinclair: We know that our journey towards improving our culture is ongoing and we are excited for the progress we've made thus far.

Jack L. Sinclair: In addition to the culture work, we're focused on preparing our lead us for growth. We aim to have a pool of skilled team members ready for future assignments, we typically close to 60% of store mind just from within.

Jack L. Sinclair: We typically promote close to 60% of store managers from within. To prepare them for leadership roles, we have developed the Assistant Store Manager Leadership Trials. Over 30 graduated this year from our initial cohort, and another 50 team members entered the program in 2024.

Jack L. Sinclair: To prepare them for leadership roles, we have developed assistant store manager leadership trial.

Jack L. Sinclair: Over 30 graduated this year from our initial cohort and another 50 team members and took the program in 2024.

Jack L. Sinclair: In closing the continued momentum we are seeing is a demonstration of the effectiveness of our execution. We are delighted to receive encouraging feedback from our customers, which confirms that our collective efforts are making a meaningful impact our store distribution center and support office teams.

Jack L. Sinclair: In closing, the continued momentum we are seeing is a demonstration of the effectiveness of our execution. We're delighted to receive encouraging feedback from our customers, which confirms that our collective efforts are making a meaningful impact. Our store, distribution center, and support office teams are ambitious for Sprout's future and are determined to deliver on the opportunities that lie ahead. Moving forward, we remain focused on execution, both day-to-day in our stores and on our investments for the future, all while keeping customers our top priority. Thank you for your support, and we look forward to connecting with many of you in the coming months. And with that, I'd like to turn it over to questions. Operator.

Jack L. Sinclair: Bishop for future and are determined to deliver on the opportunities that lie ahead.

Jack L. Sinclair: Moving forward, we remain focused on execution, both day to day in our stores and on our investments for the future.

Jack L. Sinclair: All while keeping customers our top priority. Thank.

Jack L. Sinclair: Thank you for your support unrealistic forward to connecting with many of you in the coming months.

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

Jack L. Sinclair: Operator.

Operator: Certainly. 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 11 again.

Jack L. Sinclair: Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby will be compile the Q&A roster.

Operator: Please stand by while we compile the Q&A, and we'll have a moment for our first question. Our first question will be coming from Leah Jordan of Goldman Sachs. Your line is open. Thank you, good afternoon, job on the quarter. Just wanted to start out on the comp.

Jack L. Sinclair: And one moment for your first question.

Jack L. Sinclair: Our first question will be coming from Jordan <unk> of Goldman Sachs. Your line is open.

Jordan: Thank you good afternoon, and great job on the quarter.

Jordan: Just wanted to start off on the comp.

Jordan: The primary driver for the outperformance versus your expectations, how did traffic trends throughout the quarter.

Jordan: What do you attribute to the recent market share gains.

Leah Dianne Jordan: What was the primary driver for the outperformance? How did traffic trend throughout the quarter? And what do you attribute it to? Mark Kitsch here.

Mark Kitsch: Hi Leah. Thanks for the note there. So yeah, comps outperformed, really, it's really coming from a lot of different things. I think it's a little bit of everything just being a little bit better than we expected. So continued positive solid traffic, the AUR units stabilizing as expected, and the business just continuing to hum along. So we're pleased with the performance in the QM channels that we have. So we're kind of feeling positive about that. And basically, everything seems to be in good shape. Okay, great.

Jordan: Hi, Lisa Thanks for the note there so yes comps outperformed really it's really coming from a lot of different things I think it's a little bit of everything just being a little bit better than we expected. So continued positive solid traffic.

Jordan: The AUR in the units stabilizing as expected.

Jordan: And the business just continuing to home along so we're pleased with the performance in Q1, yes, we are seeing positive traffic in both E call minded in our bricks and mortar business, we're seeing positive traffic and Tim positive basket in all in both of those.

Jordan: Both of those.

Jordan: Donald is that we have so we're kind of feeling positive about that.

Jordan: Basically everything seems to be in good shape.

Speaker Change: Okay, great on the market data again question Lia just to comment on that a little bit.

Leah Dianne Jordan: And the market share, again, question you asked, Leah, just to comment on that a little bit, we, we, market share is difficult for us; we kind of look at our own business and see how well it's doing. Because it's very difficult to define what we do within the context of the total grocery market share. But certainly, in the last few months, since the pandemic, I think people have been more comfortable shopping in more places, which suits us as a complementary shop. Great, that's very helpful. And then for a follow up, I just wanted to ask about gross margin. I mean, it came in really low.

Jordan: We we kind of market share is difficult for us we kind of look at our own business and <unk> is doing.

Lia: Very difficult to define what we do within the context of the total grocery market share, but certainly in the last since the pandemic I think people would be more comfortable in shopping in more places, which sits as as a complementary show.

Speaker Change: Okay, Great. That's very helpful. And then number my follow up I just wanted to ask about gross margin I mean, it came in really strong expansion in the quarter you talked about some of the tailwind earlier just.

Lia: How should we think about it for the balance of the year, how much of the magnitude.

Curtis Valentine: What do we think about it for the balance?,,,,,,,,,,,,,,,, Yeah, sure. I think for the year, I would say it is up approximately 50 now. So certainly, we got better flow through in the first quarter than we expected. And It was really just a shrink story.

Lia: Will moderate on the promo optimization side for the rest of the year and then you said it would be for the full year any more color compared to last quarter. When you said it would be up 20% to 25 basis points given the strength in the first quarter.

Curtis Valentine: We talked about on the last call, but we had challenges throughout last year, and particularly in the second half, and credit really goes to the teams that got on top of it late last year. And that turnaround just happened a little faster than we expected and resulted in really good performances. So really, just to focus on inventory management and some of the things that we're investing in, and the teams really working together, be it operations, merchandising, some of our analytics teams, and our IT team, coming together to help the business figure things out and get things moving in the right direction.

Speaker Change: Yes, sure I think so for the year I would say approximately 50 narrow so certainly we got better flow through in the first quarter than we expected and it was really a shrink story.

Lia: We talked about on the last call, but we had challenges throughout last year and particularly in the second half and really credit to the teams on top of it late last year and that turnaround just happened a little faster than we expected.

Lia: And resulted in a really good performance.

Curtis Valentine: But yeah, for the full year, I expected it to be up about 50 on the growth side. And one moment for our next question, which will be coming from Mark Carden of UBS. Mark, your line is:

Lia: Really just a focus on inventory management and some of the things that we're investing in in.

Lia: And the team is really working together be it operations merchandising some of our analytics teams and our it team coming together to help the business figure things out and get things moving in the right direction.

Lia: But yes for the full year I expect it up about 50 on the gross side.

Speaker Change: Thank you.

Speaker Change: And one moment for our next question.

Lia: And our next question will be coming from Mark Carden of UBS Mark Your line is open.

Mark David Carden: Great. Thanks, so much for taking the questions and nice quarter.

Mark David Carden: Maybe a follow up on that gross margin question, obviously, a lot's going rate right now clearly benefited from shedding coupon Clippers <unk> historically your strongest quarter from a seasonality perspective, the strong performance in inventory management, just thinking about <unk> relative to maybe <unk> next year.

Mark David Carden: OneQ is historically your strongest quarter from a seasonality perspective. Strong Group Performance Inventory Management. Just thinking about 1Q relative to maybe 1Q next year. Was this pretty much a perfect backdrop for you guys?

Mark David Carden: This pretty much a perfect backdrop for you guys.

Curtis Valentine: Are you approaching the upper bound, or do you still see more room to go from here? So in other words, when you think about the benefit in the back half of the year, is that just these current tailwinds, or do you see really more room to go up? Yeah, I think, you know, we're pleased. There's a lot in that. So I'll try to tackle them piece by piece.

Lia: Are you approaching an upper bound or do you still see.

Lia: <unk> room to go from here. So in other words, when you think about the benefit in the back half of the year is that just these current tailwind or do you see really more room to go up.

Speaker Change: Yes, I think we're we're pleased there is a lot in that so I'll try to tackle them piece by piece, but.

Jack L. Sinclair: But, you know, we feel good about our margins. Certainly, the bottom line, we expect to be a stable business, and the gains we're experiencing in gross margin, there's nothing in there that was particularly one-time in nature. It was a soft compare year over year, which definitely helped from an overall magnitude perspective, but it won't be quite that big going forward.

Speaker Change: We feel good about our margins certainly bottom line, we expect to be a stable business and the gains where we're experiencing there in gross margin. There is nothing in there that was particularly onetime in nature. It was it was a soft compare year over year.

Speaker Change: Which definitely help from our overall magnitude perspective, it won't be quite that big going forward, but.

Curtis Valentine: But, again, we feel good about the work that we're doing. We feel like it's sustainable and that we're kind of changing the water level and shrinking here moving forward. And it'll be a little bit better here in 2024 than it was in 2023.

Speaker Change: But again, we feel good about the work that we're doing and we feel like it's sustainable and that we're kind of a change in the water level of ensuring tier moving forward and it will be a little bit better here in 2024 than it was in 2023.

Jack L. Sinclair: And, you know, longer term, we've talked about it a fair amount; we're still a fairly immature business. So there are opportunities. But there are pressure points as well.

Speaker Change: Longer term, we've we talk about it a fair amount, we're still a fairly mature business. So there are opportunities.

Speaker Change: There are pressure points as well in net net we plan to manage the business to stable on the bottom line and.

Curtis Valentine: And you know, net net, we plan to manage the business to be stable on the bottom line and, you know, continue to grow the business. And Mark, with gross margins, particularly, there's kind of a buckets that we look at. Shrink's certainly been a big benefit for us in this quarter.

Speaker Change: We continue to grow the business.

Speaker Change: Gross margins, particularly the kind of buckets that we look at shrink certainly been a big benefit for us in this quarter and I think there's continued opportunity as Carter said their maturity in our business as we get better at managing inventory with some of the systems that we put in applying increasingly more effectively I think there is some further benefits or not.

Jack L. Sinclair: And I think there's continued opportunity. As Curtis said, the immaturity of our business, as we get better at managing inventory with some of the systems that we put in and are increasingly applying more effectively, I think there's some further benefits to that going forward. We're getting a little bit better at promoting more effectively and understanding the elasticities of when that's been an ongoing thing over the last few years. And I think we're just gradually getting a little bit better at being efficient at promoting when we do promote.

Speaker Change: Forward, where again <unk> bench promoting more effectively and understand the elasticity of land, where that's been an ongoing thing over the last few years and I think we'll just gradually getting a little bit better of being efficient at promoting when we do promote and there has been some drivers on mix, which I think will continue to help us in terms of mix makes towards organic.

Jack L. Sinclair: And there's been some drivers for mix, which I think will continue to help us in terms of mix, mix towards organic, and mix towards some of the more attribute-based products that we are increasingly getting a reputation for. I think those three buckets will help us going forward. Great, that's helpful.

Speaker Change: Can mix towards some of the more attribute based products that we were increasingly getting a reputation for I think those three buckets will help us going forward.

Mark David Carden: And then as a follow-up, we've heard about some pressure on restaurant demand recently. Do you think Sprouts has been experiencing much trade-in from outside of food at home? Have you seen any uptick in prepared food sales, or do you think it's mainly just coming from within Food at Home? for the next six, nine, and 12 months. But I think it's more likely to be a benefit than a disbenefit going forward. Makes sense. Thanks so much and good luck.

Speaker Change: Great. That's helpful and then as a follow up we've heard about some pressure on restaurant demand recently do you think sprouts has been experiencing much trading from outside of food at home have you seen any uptick in prepared food sales or do you think it's mainly just coming from within food at home.

Speaker Change: No I think we've got we have had some benefit from that I've been very pleased by the investments. We've made that the team have made inside the stores. We've got a number of new cabinets and two to support the meals space from both the meat business on the daily business and we've seen some good benefits so not our frozen business has been strong so that kind of three big buckets.

Speaker Change: That come basically from people eating at home as opposed to eating in restaurants, I do think we've got a bit of a benefit from that and who knows how the economy is going to go over the next six 912 months, but I think it's more likely to be a benefit and a desk benefit going forward.

Speaker Change: Makes sense, thanks, so much and good luck.

Mark David Carden: Thanks, Mark. Thanks, Mark. And one moment for our next question. Our next question will come from Michael Montani of Evercore ISI. Your line is open.

Speaker Change: Thanks, Ken.

Speaker Change: And one moment our next question.

Speaker Change: Our next question will come from Michael Montana of Evercore ISI. Your line is open.

Michael David Montani: Hey, thanks for taking the question. I wanted to focus in on two areas, if I could. One was just on shrink.

Michael David Montani: Hey, Thanks for taking the question.

Michael David Montani: I wanted to focus in on two areas. If I could one was just on shrink I think for you all it's more a story of efficiency gains versus theft, but just wondering if you can give us some incremental color there Jack in terms of what you're seeing and what the opportunity could be and then secondly on <unk>.

Jack L. Sinclair: I think for you all, it's more a story of efficiency gains versus theft. But just wondering if you can give us some incremental color there, Jack, in terms of what you've seen and what the opportunity could be. And then, secondly, on the wage and benefit front. So, you know, can you just provide an update about what you all are experiencing there and what you're looking for this year in that line?

Speaker Change: On the wage and benefit front. So can you just provide an update about what you are experiencing there and what youre looking for this year in that line item.

Jack L. Sinclair: Michael, I like Curtis, add a little bit more color, but on the two buckets, shrink, we've made some benefits, particularly in our fresh shrink. And, as you correctly say, it's less likely we will experience the kind of theft that you're hearing from a lot of the non-food retailers going forward, partly because our attribute-paid products are so differentiated. I think it's harder for people to steal them and sell them on, to be honest with you.

Jack L. Sinclair: Sure Michael leg quarters, either a little bit more color on the two buckets strength.

Speaker Change: We've made some benefits, particularly in our fresh shrink and as you correctly say, it's less likely.

Speaker Change: Don't experience that kind of theft that youre getting from a lot of the non food retailers going forward, partly because our.

Speaker Change: Pedro products are so differentiated I think it's harder for people to steal them and sell them on to be honest with you. So I think we're getting we're not seeing the kind of issue in that space.

Jack L. Sinclair: So I think we're getting, we're not seeing the kind of issues in that space that a lot of other people are doing, although we continue to watch it. The real benefit lies in how we manage our fresh inventory. And we've got a bigger fresh mix than most, so the opportunity is bigger going forward as we get into these much better replenishment systems. We've got an initiative around here called FARM, which is Forecasting Allocation Replenishment Management, which is allowing us to, I think, get better at putting the right amount of inventory in the stores at the right time. And we're immature at this, Mike.

Speaker Change: A lot of other people out doing although we continue to watch it the real benefit lies in how we manage our fresh inventory, we've got bigger fresh mix than most so the opportunity is bigger going forward as we get into these much more better replenishment systems. We've got initiative Ryan here called farm, which is forecasting allocation replenishment management, which is allowing.

Speaker Change: As to I think get back to that putting the right amount of inventory in the stores at the right time, and we are immature and that's Mike So that remains a continued opportunity going forward.

Jack L. Sinclair: So that remains a continued opportunity going forward. And we're kind of, I'm very pleased the way the teams and the operations teams have really got, made some progress on that with a lot of support from the merchants and the IT teams. With regard to wages and benefits, one of the things we're very encouraged about is the retention rates that we're having in our stores, and we think that's having a positive effect. You don't have to pay as much for training. You don't have to pay as much for enrollment.

Speaker Change: What kind of I'm very pleased the way the teams and the operations teams have really got made some progress on that with a lot of support from them that since in the teams.

Speaker Change: Teams.

Speaker Change: With regards to wages and benefits when things were very encouraged about is the retention rates that we're having in our stores and we think that's having a positive benefit you don't have to pay as much for training and you don't have to pay as much but enrollment. So the fact that we're operating a very significant improvement on retention gives me a lot of confidence that the way the teams are.

Jack L. Sinclair: So the fact that we're operating at a very significant improvement in retention gives me a lot of confidence that the way the teams are managing each other is positive and is working well. And, as I alluded to in my remarks, I think some of the work that we've done on culture, values, and purpose is beginning to pay dividends in actual improved retention. Wages are going to continue to rise, and we've got that in the numbers going forward.

Speaker Change: Managing each other.

Speaker Change: Positive and is working well as I alluded to in my remarks, I think some of the work that we've done on culture and values and purpose is beginning to pay dividends and actual improved retention.

Speaker Change: Wages are going to continue to rise and we've got that in the numbers going forward and are one of the reasons that we think we're 10 ish and Retentions. What can is we're doubling down on communicating the benefits. So we get whether it be health care health care benefits and bonuses, we pay bonuses.

Jack L. Sinclair: And one of the reasons that we think retention is working is that we're doubling down on communicating the benefits that we give, whether it be health care benefits and bonuses. We pay bonuses. In quite a number of stores, everybody in the store gets a bonus.

Jack L. Sinclair: The leadership team, well over 90 percent of the leadership team in every store got a bonus, and those numbers are significantly rising. And it's all self-financing, so we're very positive about the way our bonus programs have been working. So I don't know whether you want to add something to that, Curtis. No, I think the only color maybe on shrink is, we've talked about just about 75 percent of our shrink is on the fresh side.

Speaker Change: Quite a number of stores everybody in the store gets a bonus the leadership team well over 90% of the leadership team and every store got bonus and Thats those numbers up significantly rising on this wholesale financing. So we're very positive about the way our bonus programs have been more sudden whether you want to add something to that.

Speaker Change: I think the only color may be on shrink is about we've talked about just about 75% of our shrink is on the fresh side. So just to add some context to that that piece is pretty small for us as Jack over to Kip.

Curtis Valentine: So just to add some context to that, that tough piece is pretty small for us as Jack O'Loughlin. Thanks, and good luck. Thanks, Mike. One moment for our next question. And our next question will be from John Heinbockel of Guggenheim Securities. So Jack, let me start with what do you want to learn from the two test markets with the loyalty program? I mean, where do you think that the benefit lies? Right? Traffic basket

Kip: Great Thanks, and good luck.

Kip: Thanks, Mike.

Speaker Change: One moment for our next question.

John Edward Heinbockel: And I don't know if it's hard for you to figure out your wallet share, but how do you think about that? Yeah, John, great questions, and they very much relate to, first of all, what benefits will come in 2025. The work that we're doing in 2024 is, first of all, to get the plumbing right and the pipework right, so that we've got the proper marketing technology behind creating a very efficient experience for the customer, so that it is a seamless and efficient experience. In the two test markets that we're doing, we'll learn whether that works or not. And we'll iron out the kinks in that.

Speaker Change: And our next question will be coming from John Heimbach <unk> of Guggenheim Securities. Your line is open.

John Edward Heinbockel: So Jack let me start with what do you want to learn from the two test markets with the loyalty program.

John Edward Heinbockel: And then what do you think the benefit lies right.

Speaker Change: Traffic basket.

John Edward Heinbockel: I don't know if its hard for you to figure out your wallet share.

John Edward Heinbockel: But.

Speaker Change: How do you think about that.

Speaker Change: Yes, John Great questions and they very much relate to we first of all the benefits will come in 2025. The work that we're doing in 2024 is first of all to get the plumbing right and the <unk> right. So that we've got the proper marketing technology behind creating a very efficient experience for the customer so that a seamless and efficient experience the two test market.

Speaker Change: That we're doing will lend whether that works and we will get that will iron out the kinks in that and then by the end of the year, we'll extend that to a pilot.

Jack L. Sinclair: As you allude to, we're expecting an increase in the share of wallet of our target customers. I think we'll be able to understand those customers so much better that we'll be able to increase it. And we've got a measure, some measure of where we are in terms of share of wallet. And I think we've talked about that in the past. It's, it's, it's double digit, but it's not hugely into the double digits above the kind of low teens.

Speaker Change: Broader sense with more stores. So through 2024, we will learn how to do this.

John Edward Heinbockel: When it comes to 2025 and that will be in that sort of protest as well what do we expect to happen as you allude to we're expecting an increase in share of wallet of our target customers. I think we will be able to understand those customers. So much better that we'll be able to increase that and we've got a measure some measure of where we are in terms of share of wall.

John Edward Heinbockel: And I think we've talked about that in the past is.

Jack L. Sinclair: And that context, that's the context that we'll be expecting to drive a little bit more share of wallet from those target customers. And that will more than fund this and pay for this thing going forward. So, as I said, well, the benefits will come in 2025. The learnings will come in 2024.

John Edward Heinbockel: A double digit, but it's not <unk>, it's not a hugely into the double digits above the kind.

John Edward Heinbockel: Kind of low teens.

John Edward Heinbockel: Context, that's the context that we will be expecting to drive a little bit more of a share of wallet from those target customers are now more than fund doesn't pay for this thing going forward. So as I said will the benefits will come in 2025, the <unk> will come in 2020 for the first elements of the landing zone.

John Edward Heinbockel: Technology and marketing technology, the second element to the lending at about understanding our customer so that we can stimulate and create this feeling of being part of something special by being price cuts by being part of the space ecosystem and we're pretty excited about it. The team are doing a lot of work behind the scenes as you can imagine.

Jack L. Sinclair: The first elements of the learning are about technology and marketing technology. The second elements of the learning are about understanding our customers so that we can stimulate and create this feeling of being part of something special by being a Sprouts customer, by being part of the Sprouts ecosystem. And we're pretty excited about it. The team is doing a lot of work behind the scenes, as you can imagine. And we're excited about what's going to come out the other end, John.

John Edward Heinbockel: We're excited about what's going to come out the other end John.

Jack L. Sinclair: Maybe the second thing right now, you're obviously adding a lot of stores this year in the Northeast, and you did last year a little bit in the Northeast. So when you think about the timing, right, of that D.C., so how do you think about that now, and how far can you push the envelope? I know the idea was going well beyond, or potentially well beyond, production in all of the DCs. But how far can you push that?

John Edward Heinbockel: Maybe second thing right now Youre, obviously, you're adding a lot of stores.

John Edward Heinbockel: This year than you did last year, a little bit in the northeast. So when you think about the timing of that DC. So how do you think about that now and how far can you push the envelope I know the idea was going well beyond potentially well beyond produce.

John Edward Heinbockel: And all of the Dcs, how far can you push that.

Jack L. Sinclair: Again, we've created the infrastructure that allows us to have choice in this, and linking back to what I was saying about our farm initiative, when we get our replenishment mode in place that I wanted to get in place, we'll have a lot of optionality. We want to get more control of our Sprouts brand business going forward. We probably think there are some elements of our fresh business that we can take hold of.

John Edward Heinbockel: Again, there are we've created the infrastructure that allows us to have choice fitness and linking back to what I was saying about our farm initiative when we get our replenishment monarch mode in place that I wanted to get in place. We will have a lot of Optionality, we wanted to get more control of our brand business going forward.

John Edward Heinbockel: We probably think there's some elements of our fresh business that we can take hold off we've got capacity to do that as you allude to we have not quite got there in the northeast yet, but we will be there is a lot of work going on about what's the right distribution, where the right place for the distribution is and what the optionality as far as in that space I'm, hoping we'll be there.

Jack L. Sinclair: We've got the capacity to do that. As you allude to, we're not quite there in the Northeast yet, but we will be. There's a lot of work going on about what the right distribution is, where the right place for the distribution is, and what our optionality is for us in that space. I'm hoping we'll be there by 2026 at the latest, in terms of having that in place. So we're creating optionality through the work we're doing now, and going into 2025, you'll definitely see us doing more than produce. Thank you. Thanks, John. Thank you.

John Edward Heinbockel: By 2026 at the latest in terms of having that in place. So we've got we were creating the optionality by the work kit.

John Edward Heinbockel: We are doing now and going into 2025, you'll definitely see us doing more than projects.

Speaker Change: Thank you.

Speaker Change: Thanks, John.

Operator: One moment for our next question, and our next question will be coming from Rupesh Parikh of Oppenheimer and Company. Your line. Good afternoon.

Speaker Change: Thank you our next question.

John Edward Heinbockel: Okay.

John Edward Heinbockel: And our next question will be coming from Rakesh Perique of Oppenheimer <unk> Company. Your line is open.

Rupesh Dhinoj Parikh: Thanks for taking my question. Also, congrats on a nice quarter. So just on the e-commerce front, so as you've added Uber Eats and DoorDash in recent years, just curious if you're seeing the incrementality at this point you would have expected with these additional partners. Yeah, we're really pleased with all three partners. We've seen strong, strong business out of all three. They did a really nice job in the new year. You know, the healthy, fresh start to the year that everyone goes through. It's a big time for us, and they were great partners in that respect.

Rupesh Dhinoj Parikh: Good afternoon. Thanks for taking my question and also congrats on a nice quarter.

Jack L. Sinclair: And, and yeah, it's been incremental, as expected. So we've added both partners over the last two years and seen really strong results. And the good thing about it, Rupesh, is you've got DoorDash and Uber Eats, who both have a kind of different customer base. So I think we're bringing some access to the assortment that we have to a slightly broader base. So it's been working well, as Curtis said. They play a little differently geography-wise, too.

Rupesh Dhinoj Parikh: So it isn't just about the E Commerce front. So as you have added <unk> in recent years, just curious if youre seeing the incremental incrementally at this point you would have expected with additional partners.

Speaker Change: Yes, we're really pleased with all three partners, we've seen strong strong business out of all three.

Speaker Change: You did a really nice job in the new year.

Speaker Change: A healthy fresh start to the year that everyone goes through it's a big time for us and they were great partners in that respect and it's been incremental.

Rupesh Dhinoj Parikh: <unk>. So we've added both partners over the last two years and seeing really strong results.

Rupesh Dhinoj Parikh: We're in a good thing.

Rupesh Dhinoj Parikh: As you've got door dash on Uber eats have both got kind of a different customer base. So I think by bringing some some access to the assortment that we have test slightly broader base. So it's been working well as Carter said when they did play a little differently geography wise, two so again, it's allowing us to access new and different customers and is an increasingly.

Curtis Valentine: So again, it's allowing us to access new and different customers. And it's an increasingly omni-channel world, and that helps us as well from a convenience standpoint for those customers that are a little further away from our stores. Ray, and then maybe just one follow-up question, just given all the concerns out there in the macro.

Rupesh Dhinoj Parikh: The omni channel World in there that helps us as well from a convenience standpoint for those customers that are a little further away from our stores.

Speaker Change: Great and then maybe just one follow up question just given all the concerns out there in the macro.

Rupesh Dhinoj Parikh: Clearly, your business is performing quite well, but just curious, you know, what you're seeing from the consumer, any new trends to note or just anything, any changes? Well, one of the things we've always talked about is that we feel pretty confident that the assortment that we have, if you're a vegan, you're going to stay a vegan irrespective of what's going to happen in the macro world. So we feel there's some purpose, if you like, to the macroeconomic environment.

Rupesh Dhinoj Parikh: Clearly your business is performing quite well, but just curious what youre seeing from the consumer.

Rupesh Dhinoj Parikh: Any new trends to note or just anything any changes.

Rupesh Dhinoj Parikh: Staying with their consumer.

Rupesh Dhinoj Parikh: One of the things we've always talked about is that we feel pretty confident that the assortment that we average <unk> and youre going to stay a vegan irrespective of what's going to happen in the market.

Rupesh Dhinoj Parikh: Micro world. So we feel there's some more tip you like to the macroeconomic environment I think there's a lot of uncertainty and we continue to watch it very closely.

Jack L. Sinclair: I think there is a lot of uncertainty, and we continue to watch it very closely. We believe that what we are doing in targeting those specific health-enthusiast customers, there are a few more of them, again, whatever happens in the microenvironment, and we feel that that's going to stand us in good stead going forward over the next couple of years as that customer base continues to grow, and we continue to work hard at serving that customer base appropriately.

Rupesh Dhinoj Parikh: We believe that what we are doing in targeting those specific health enthusiast customers Theres a few more of them again, whatever happens in the macro environment and we feel that that is going to stand us in good stead going forward over the next couple of years.

Rupesh Dhinoj Parikh: Customer base continues to grow and we continue to work hard at serving that customer base appropriately. So again I don't want to dismiss the microenvironment, but it's something that we we think we're a little bit shielded from almost from them whatever happens here and.

Jack L. Sinclair: So again, I don't want to dismiss the microenvironment, but it's something that we think we're a little bit shielded from, almost from them, whatever happens here. And to be honest, Rupesh, your guess is as good as mine as to what's going to happen in the future. Great. Thank you, Beth.

Rupesh Dhinoj Parikh: To be honest surpassed your guess is as good as me, what's going to happen in the macro environment.

Speaker Change: Great. Thank you best of luck.

Rupesh Dhinoj Parikh: Thank you. Thank you. Our next question will come from Scott Mushkin of RF Capital. Your line, or Five Cap.

Speaker Change: Thank you.

Speaker Change: And one moment for our next question.

Speaker Change: Our next question will come from Scott Moskin.

Scott Andrew Mushkin: RF capital your line is open.

Speaker Change: Okay.

Scott Andrew Mushkin: Hey guys, thanks for taking my questions. So this is kind of a two part, two questions question here. So, I mean, obviously, Marge, is trending up, and you talked about it being stable. But just from like a company philosophy perspective, you know, versus margin rate versus margin dollars, where do you kind of think the rate is kind of where you want it to be? And you're going to focus more on the dollars, even accelerate sales more. Yeah, Scott, let me have a start on that.

Scott Andrew Mushkin: Hey, guys. Thanks for taking my questions.

Scott Andrew Mushkin: So kind of a two part.

Scott Andrew Mushkin: Two part question here. So I mean, obviously margins have been trending up and you talked about.

RF capital: It being stable, but just from like a company philosophy perspective.

RF capital: Versus margin rate versus margin dollars.

RF capital: Where do you kind of think that rate is kind of where you want it to be and youre going to focus more on the dollars.

RF capital: Even accelerating sales more.

Jack L. Sinclair: And then I'll pass it on to Curtis to talk specifically about the margins. Our primary focus is traffic and the top line. And everything we're doing is making sure that we're serving our target customers better and better. And we will be able to manage our margin within that context, but we'll be sensitive to it in terms of how that works going forward. Having said that, I think the elements of what we've talked about in terms of shrink, in terms of the mix of the product, and the better, better thinking around our promotion or evolving thinking on our promotion gives us opportunities going forward. But at no stage will we compromise margin or the customer top line if there's an interaction between it. So far, we haven't hit that point yet.

Speaker Change: Yeah, Scott, let me stop at that and then I'll pass it onto Carter's to tell specifically so on the margin our primary focus is traffic and top line.

Carter: And everything we're doing is making sure that we're serving our target customers better and better and we will we will be able to manage our margin within that context, but we will be sensitive to it in terms of how that works going forward, having said that I think the elements of what we've talked about in terms of shrink in terms of.

RF capital: The mix of the products and the better better thinking around our promotion our evolving thinking on a promotion gives us opportunities going forward, but at no stage will we compromise margin our custom our topline if theres an enter if theres an interaction between that so far we haven't hit that point.

Curtis Valentine: And I'm feeling pretty confident about that. We can manage both pretty effectively. But, as I say, the important thing for us is traffic. And, Scott, I'd just add to that, I mean, you know, I'm thinking about it on the bottom line and EBIT margins being stable, and we feel really good about being able to do that in the short-term, long-term, et cetera, as Jack spoke about. And sometimes that'll mean a little bit of investment in SG&A, like an inventory management investment, so that we can get a better shrink.

RF capital: And I'm feeling pretty confident about that we can manage both pretty effectively by as I say the important thing for us is traffic.

Speaker Change: And Scott I'd, just add to that.

RF capital: I'm thinking about it on the bottom line and EBIT margins being stable and we feel really good about being able to do that.

RF capital: The short term long term et cetera.

Scott Andrew Mushkin: To what Jack spoke about and sometimes that will mean, a little bit of investment in SG&A like.

RF capital: And inventory management investment so that we can get a better shrink.

Curtis Valentine: You know, so we're going to have to work out the immaturity in our business, and sometimes that'll fall as a gross benefit, and sometimes that'll be an SG&A benefit, but really, we're focused on that bottom line stability and maintaining that going forward, and we feel pretty good about being able to do that. So, my follow-up question to that is, you know, let's just say the strength in Obviously, you guys have had a nice little string of quarters.

RF capital: So we're going to work the immaturity in our business and sometimes that will fall in gross benefit with sometimes that'll be an SG&A benefit, but really we're focused on that bottom line stability and maintaining that going forward and we feel pretty good about being able to do that.

Speaker Change: So my follow up question to that is.

Speaker Change: Let's just say the strength in the business continues obviously you guys have had a nice little string of quarters and it seems like the customers coming your way macro it may not matter as much. So has this strength of the business continues.

Scott Andrew Mushkin: And, you know, it seems like the customers coming your way macro may not matter as much. So if this strength of the business continues, what areas would you invest in more over the next couple of years? I think it's the same places we're investing this year will be key components.

Speaker Change: What areas would you invest in more over the next couple of years.

RF capital: I think it's the same places we're investing this year will be key components right. So inventory management, we talked about the technology underpinnings for scalability, we will continue to work on that and make sure. We have there a foundation to continue to grow.

Curtis Valentine: So inventory management. We talked about the technology underpinnings for scalability. We'll continue to work on that and make sure we have the right foundation to continue to grow. And then loyalty will be a multi-year journey that we'll continue to improve upon. And I think the last piece is, you know, team and talent are critical for us.

RF capital: And then loyalty will be a multiyear journey that we will continue to improve upon and I think the last pieces team and talent is critical for us.

Jack L. Sinclair: We've got to continue to find store managers, department managers, and great team members who engage with the customer, take care of our target customers, and provide a great experience in the store. So those would be the places that we'll continue to double down on and make sure that we've got the right foundation and, or scalable, you know, for the long haul. And we need to invest. Going forward, the supply chain is going to be important to us as well, in terms of making sure that we're giving ourselves the option of supplying maybe broader geographies than where we're at at the moment. That's not the case for now.

RF capital: We've got to continue to fine store managers department managers and great team members, who engage with the customer take care of our target customers and provide a great experience in the store. So those would be the places that will continue to double down and make sure that we've got the right foundation and or scalable.

RF capital: For the long haul.

RF capital: Online, we need to invest going forward supply chain is going to be important to us as well Scott.

RF capital: Scott in terms of making sure that we're giving our sales team, giving ourselves the options above of supplying maybe broader geographies and where we are at the moment that's not for now but as we go forward. So there's plenty of places in the country that we don't have a <unk> store. So we've continued to accelerate that as we continue to see success and strengthen our business.

Jack L. Sinclair: But as we go forward, there are plenty of places in the country that we don't have a sprout store. So we continue to accelerate that as we continue to see success and strengthen our business. Perfect, guys. Thanks very much.

Speaker Change: Perfect guys, thanks very much.

Scott Andrew Mushkin: Thanks. Thanks, Scott. One moment for our next question. Our next question will be coming from Robbie Ohmes of Bank of America. Your line is open.

Speaker Change: Thanks, Thanks Scott.

Robert Frederick Ohmes: Hey, great quarter. And thanks for taking my questions. Jack, can you talk a little more about the new store performance in the first quarter? It was a pretty significant improvement in your new store productivity. And I know you mentioned a little bit, any more color on where stores opened a lot, say earlier in the quarter, like how did, how was there such a dramatic improvement in new store productivity? Well, it's only seven stores, and we were pleased by how those seven stores performed. Most of them, or six of the seven stores, we're very pleased with. But I think partly it's what I alluded to in the remarks.

Speaker Change: And one moment our next question.

RF capital: Our next question will be coming from Robbie Holmes.

Robbie Holmes: Of Bank of America. Your line is open.

Robbie Holmes: Hey, great quarter, and thanks for taking my questions.

Robbie Holmes: Jack can you talk a little more about the new store performance in the first quarter. It was a pretty significant improvement in your new store productivity and I know you mentioned a little bit any more color on where stores opened a lot say earlier in the quarter like how did how is there such a dramatic improvement in new store productivity.

Jack L. Sinclair: So only seven stores and we were pleased by how do those seven stores perform build most of them are saying to the southern stores, we're very pleased with.

Jack L. Sinclair: So, but I think partly it's why I alluded to in the remarks I think we're seeing the success of our new store modeling just beginning to find the right place a little bit more accurate in terms of where we open stores and that's that's something thats encouraging I think again when you look back when we open stores during the pandemic I think it was.

Jack L. Sinclair: I think we're seeing the success of our new store modeling just beginning to find the right place, a little bit more accurate in terms of where we open stores. And that's something that's encouraging. I think, again, when you look back at when we opened stores during the pandemic, I think it was harder to drive traffic to those stores as people were reluctant to go to lots of places to buy their groceries.

Jack L. Sinclair: Harder to drive traffic to those stores as people are reluctant to go into lots of places to buy their groceries and we talked a lot about that will be over our conversations in the last couple of years. So I think the benefit we'll get a better store model I think we're getting a little bit better at marketing and I think putting the right putting concentrating.

Jack L. Sinclair: And we talked a lot about that probably in our conversations in the last couple of years. So I think the benefit is that we're getting a better store model. I think we're getting a little bit better at marketing. I think putting the right, concentrating, stores so that we've got more stores in geographies. People are beginning to, awareness has always been a challenge for us in markets where we're not known, and getting more of them and driving that awareness. I think Florida has helped us a little bit in that sense.

Jack L. Sinclair: Stores. So we've got more stores and geographies people are beginning awareness has always been a challenge for us in markets, where were not known and get more of them and driving that awareness I think Florida has helped us a little bit in that sense of what we've been doing in Florida were up to a significant number of stores there and now we're filling in and that's I think benefit.

Jack L. Sinclair: The work we've been doing in Florida; we have a significant number of stores there, and now we're filling in. And that's, I think, benefiting us as well going forward as we build this, as we build the store program. And I think we'll see that benefit start to happen fairly significantly in the Mid-Atlantic going forward as we go into the next couple of years because we've got a lot of stores coming from all sorts of places.

Jack L. Sinclair: Fitting us as well going forward as we build us as we build the store program and I think we'll see that benefit start to happen and fairly significantly and then mid Atlantic going forward as we go into the next couple of years, because we've got a lot of stores coming from all sorts of places.

Jack L. Sinclair: And we think there's some real benefit by having that concentration in our store portfolio. In any region, any more regional differences to call out? You mentioned Florida, but were any regions particularly stronger this quarter than others?

Jack L. Sinclair: We think there's some some real benefit by having that concentration in our store portfolio.

Robbie Holmes: And any other regional.

Robbie Holmes: Any more regional differences to call out you mentioned, Florida, but were any regions, particularly stronger this quarter than others or types of markets new versus versus existing.

Robert Frederick Ohmes: Or types of markets, new versus existing? No, I think the trends have been pretty consistent for us. We're not seeing any major departures from what we've seen, you know, the last several quarters; the new markets are performing well, we're excited about the momentum, but it's kind of coming in similar to what we've seen in prior quarters. And it gives us a lot of encouragement when we open in a place like Bartonsville, Maryland, where the team is doing a terrific job.

Robbie Holmes: No I think the trends have been pretty consistent for us we're not seeing any any major departures from what we've seen over the last several quarters.

Robbie Holmes: The new markets are performing well we are excited for the momentum, but it's kind of come in similar to what we've seen in prior quarters.

Robbie Holmes: And it has given us a lot of encouragement when reopening our placement buttonville, Maryland, where the team identa terrific job that is making us real confidence we kind of expect to change that we expect to do well in California, but we're doing well I would say to that as well. So that's very encouraging and Florida as we've talked about.

Robert Frederick Ohmes: That is giving us, you know, real confidence. We kind of expect, strangely, we expect to do well in California, but we're doing well outside of that as well. So that's very encouraging. And Florida, as we talked about.

Jack L. Sinclair: That's great. Thank you. Thank you. Bye.

Speaker Change: That's great. Thank you.

Speaker Change: Thank you.

Operator: One moment for our next question. Our next question will be coming from Kelly Bania of BMO Capital Markets. Your line is open. Again, Kelly Bania of BMO Capital Markets. Your line is: Hi, thanks for taking our questions. This is Kelly Bania.

Speaker Change: One moment for our next question.

Speaker Change: Our next question will be coming from Kelly Bania.

Kelly Ann Bania: With BMO capital markets. Your line is open.

Robbie Holmes: Again, Kelly Bania of BMO capital markets. Your line is open.

Kelly Ann Bania: Just wanted to follow up on the e-commerce topic. Are DoorDash and Instacart still growing? I assume maybe some of the outsized growth here is coming from the newest partner at Uber, but just wondering if you could talk about that. And also, just to see the structures, are they similar for Sprouts and for consumers across the three?

Kelly Ann Bania: Hi, Thanks for taking our questions. This is Kelly dania.

Kelly Ann Bania: Just wanted to follow up on the on the E Commerce topic.

Kelly Ann Bania: Our door dash and still growing at maybe some of the outsized growth, where it's coming from the newest partner Uber.

Kelly Ann Bania: Just wondering if you could talk about that and also just the fee structures are they.

Kelly Ann Bania: Similar for sprouts and for consumers across the across the three or is there any preference I guess from your vantage point.

Curtis Valentine: Or is there any preference, I guess, from your vantage point, between the different partners? And then also, just to follow up on competition with e-commerce, would you expect any competitive impact from Whole Foods given the new membership model that they recently announced with Amazon? I'll cover kind of the first couple of those, and maybe I'll let Jack cover the last one.

Kelly Ann Bania: Clean the different partners and then also just a follow up on competition with E. Commerce would you expect any competitive impact from wholesale given the new membership model that they've recently announced with Amazon.

Kelly Ann Bania: I'll cover kind of the the first couple of those and maybe I'll, let <unk> cover the last one but.

Jack L. Sinclair: But on EECOM, all three are really performing well for us, so we're really pleased with the results on all three. And I won't get very specific, but definitely all three are growing, and we're seeing a strong overall EECOM performance. On the fee structure, again, I won't get into specifics there, but we're comfortable with the fees we have. We work closely with our partners, and for us, there's really no preference between the three.

Kelly Ann Bania: And you can all three are really performing well for us. So we're really pleased with the results in all three and I won't get very specific but.

Kelly Ann Bania: But definitely all three are growing and we're seeing strong overall comp performance on the fee structure again, we'll get into specifics there but.

Kelly Ann Bania: We're comfortable with the fees, we have worked closely with our partners and for US There's really no preference between the three.

Curtis Valentine: Wherever the customer wants us to be, we're happy to be there for them. And if they want to go into the stores, great. If they want to go through Instacart, great.

Kelly Ann Bania: However, the customer wants us to be we're happy to be there for them and if they want to go through the stores great. If they want to go through instant card great door Dash Uber eats. However, however, they want to engage with US we're happy to have them.

Jack L. Sinclair: DoorDash, Uber Eats, however they want to engage with us, we're happy to have them. So just to reinforce what Curtis said, we're very pleased with all three partners. They do a great job for us, and all three of them are performing well in the context of our e-com growth. With regard to the Amazon Whole Foods conversation, Kelly. We watch Whole Foods.

Kelly Ann Bania: So I'm done to be just to reinforce to our Cutler said, we're very pleased with all three partners. They do a great job for us in all three of them are performing well in the context of our E comm growth with regard to the Amazon whole foods conversation.

Kelly Ann Bania: Kelly.

Jack L. Sinclair: Amazon has made a lot of statements about food and freshness, and we kind of watch them with interest. We feel our positioning is pretty strong against Whole Foods, which is the context of this that I would look at. In terms of value on produce, particularly organic produce, we feel we're in a really strong place for a customer, irrespective of whatever the delivery charges are. We're in a good place relative to value on fresh produce, which is an important part of our mix, a less important part of their mix, but an important part of our mix. So we look at that carefully, and we watch the pricing versus Whole Foods pretty carefully on everything else but produce, and we feel we're in pretty good shape there.

Kelly Ann Bania: We watch whole foods Amazon have made a lot of statements about food in French and we kind of watch them with interest we feel we feel our positioning is pretty strong against whole foods, which is the context of the star with Luca in terms of value on projects, particularly organic projects. We feel we are in.

Kelly Ann Bania: A really strong place for the customer irrespective of whether they.

Kelly Ann Bania: <unk> delivery charges are we're in a good place relative value on fresh projects, which is an important part of our mix less important part of their mix, but an important part of our mix.

Kelly Ann Bania: <unk> carefully and we watch we watch the pricing versus whole foods pretty carefully on a birth announcement projects and we feel we're in a pretty good shape there.

Kelly Ann Bania: We watch it carefully but it's not something that has caused.

Kelly Ann Bania: We feel as if we're in a good position versus Whole Foods on product and pricing, irrespective of what's happening with delivery charges. And that's one of the reasons we think our e-com business is so strong, the differentiation that we have. Why would you buy all your groceries through e-com at Sprouts unless there was a really strong differentiation? And I don't think it's easy to switch.

Kelly Ann Bania: We feel as if we're in a good place position versus whole foods on product and pricing irrespective of what's happening on the delivery charges and that's one of the reasons. We think our E. Comm business is so strong the differentiation that we have.

Kelly Ann Bania: Why would you buy all your groceries through E comm to sprouts, unless there was a really strong differentiation and I don't think it's easy to switch. So that's what gives us some confidence, but obviously, we'll watch it closely.

Jack L. Sinclair: So that's what gives us some confidence, but obviously, we'll watch it closely. Thank you. Thanks, Shelly. One moment for our next question. And our next question will be coming from Chuck Kerankosky of North Coast Research. Your line is, Again, our next question will come from Chuck Kerankosky of North Coast Research. Your line is open.

Speaker Change: Thank you.

Speaker Change: Thanks, Joe.

Speaker Change: One moment for our next question.

Speaker Change: And our next question will be coming from Chuck Cerankosky.

Charles Edward Cerankosky: Of Northcoast research your line is open.

Charles Edward Cerankosky: Our next question will come from Chuck Cerankosky Northcoast Research your line is open.

Charles Edward Cerankosky: Hello.

Charles Edward Cerankosky: Hello, Jack and Curtis. Can you talk about inflation and the 4% comps? How much was there? And how are your customers reacting to categories or SKUs that are inflating more than the average? Yeah, so from the kind of comp driver makeup, solid positive traffic, again this quarter, and then continued stabilization in the AUR and unit story. So a little bit less inflation this quarter than last, and we're really in that place now where inflation has stabilized. We're experiencing low single-digit inflation; we're still slightly negative on the unit side.

Charles Edward Cerankosky: Okay great.

Charles Edward Cerankosky: Good evening everyone.

Charles Edward Cerankosky: Thank you Jack.

Charles Edward Cerankosky: Curtis can you talk about inflation and a 4% comp so much.

Kelly Ann Bania: As in there and how are your.

Curtis Valentine: Customers are reacting to categories or skus that are inflating more than the average.

Curtis Valentine: But getting closer to flat with each passing quarter and month, and it's all playing out as we had anticipated. And then from a customer perspective, we're not really seeing a material change in our trajectory and trends there. I think the similar, you know, things that we were talking about in prior quarters are continuing to play out, but no major reaction or change in customer behavior as it relates to inflation or price there. But to Curtis's point, we're not seeing any specific categories that are going up so much that we're worried about the unit volume any more than we always have been.

Curtis Valentine: Yes, so from a kind of a comp driver makeup solid positive traffic again this quarter and then continued stabilization in the in the AUR in unit story, so a little bit less inflation this quarter than last number really to that place now where it has stabilized we are low single digit inflation, we're still slightly negative.

Curtis Valentine: On the unit side.

Curtis Valentine: But getting closer to flat with each passing quarter and month end.

Kelly Ann Bania: It's all playing out as we had anticipated.

Kelly Ann Bania: And then from a customer perspective, we're not really seeing a material change in our trajectory and trends there I think the similar thing.

Kelly Ann Bania: Things that we were talking about in prior quarters are continuing to play out, but no major reaction or a change in customer behavior as it relates to.

Kelly Ann Bania: Inflation or price there Chuck.

Kelly Ann Bania: The categories that you see the most volatility as the price the value of the fresh produce areas. When you see avocados going up dramatically coming down dramatically, we will double down in either <unk> or <unk> more <unk> customers do react to pricing in the fresh produce space linked to the inflationary trends that are happening in that category and it's very volte.

Kelly Ann Bania: So which is one of the reasons out inflation doesn't quite match, what you see with everybody else.

Kelly Ann Bania: But to <unk> point, we're not seeing any specific categories are going up so much that we're worried about the unit volume any more than kind of always have been.

Jack L. Sinclair: And I, you've made a lot of strides in private label, and that's being helped by people looking for value with inflation, even as it slows down. How does that, how is that trading off with all the new products in your innovation center? Yeah, well, we're trying to be balanced on this. We're not in the world of private label where it's about trading down or commoditizing against brands. We've got to be very clear about what our proposition is here.

Kelly Ann Bania: And you.

Kelly Ann Bania: You've made a lot of strides in private label and Thats being helped by.

Kelly Ann Bania: People looking for value with the inflation, even as it flows down how does that help.

Kelly Ann Bania: Or is that trading off with all the new products.

Kelly Ann Bania: And your innovation centers.

Kelly Ann Bania: Yes, well, we're trying to be balanced on that we're not in the content that we're not in the world of private label, where it's about trading down a commoditizing against brands.

Kelly Ann Bania: We've got very clear about what our proposition is here, we're going to have innovative differentiated <unk> brand and the re labeling and the new products of the team have done have been very encouraging I think we've talked about 21% mix of our business, which is a really encouraging number in terms of where we used to be at 16, but it's being driven by differentiation.

Jack L. Sinclair: We're going to have an innovative, differentiated Sprouts brand. And the rebranding and the new products that the team have done have been very encouraging. I think we've talked about a 21 percent mix of our business, which is a really encouraging number in terms of where we used to be at 16. But it's being driven by differentiation, as are the branded businesses that are going into the innovation center.

Kelly Ann Bania: As is the branded businesses that are going into the innovation center, we are trying to be the destination for new entrepreneurial products in our held in our attribute health based space and if you look around our innovation centers, which are now in all of our stores and continue to perform well as a very strong brand.

Jack L. Sinclair: We are trying to be the destination for new entrepreneurial products in our health, in our attribute health based space. And if you look around our innovation centers, which are now in all our stores and continue to perform well, it's a very strong brand, you know, kind of unknown brands that have got a real sense of differentiation and excitement for our customers and our team members. We want to be really good at Sprouts on differentiated products and really good at branded items. And we'll keep away from those branded items that you can find in traditional supermarkets and traditional and mainline Walmarts, and people like that.

Kelly Ann Bania: Kind of unknown brands that have got real kind of sense of differentiation and excitement for our customers and our team members, we want to be really good at sprouts brand on differentiated product and really good at branded items and we will keep away from those branded items that you can find in traditional supermarkets.

Kelly Ann Bania: Traditional mainline Walmart.

Charles Edward Cerankosky: We are going to try and be as different as we possibly can be, and I think that will stand us in good stead going forward. Thanks very much.

Kelly Ann Bania: People like that we're going to try and be as different as we possibly can be and I think standing us in good stead going forward.

Speaker Change: Thanks very much.

Kelly Ann Bania: Thanks.

Operator: In one moment for our next question. And our next question comes from Robert Dickerson of Jeffrey's New Lines. Great, thanks so much. This might sound like kind of a random question, but I'm going to ask it.

Speaker Change: You're welcome next question.

Robert Dickerson: I'm just curious, how is your frozen department doing? And I just ask because, you know, I follow all the groceries, but I also follow companies that produce frozen products. Let's say, you know, frozen food in general has been kind of, you know, relatively weaker right over the past year or so on the volume side, well, you know, versus a lot of the other stores, but again, you have differentiated products. I'm curious, would you say, oh, our frozen department, we're seeing a little bit of pressure, or maybe you're not, which would clearly be a Yeah, Robert, it's not a too random question.

Speaker Change: And our next question comes from Robert Dickerson of Jefferies. Your line is open.

Robert Dickerson: Great. Thanks, so much.

Robert Dickerson: So it kind of a random question, but would ask that.

Robert Dickerson: I'm just curious how is your your frozen department doing can I just ask because by.

Robert Dickerson: My follow up the groceries, but also followed companies that produce frozen products, let's say.

Robert Dickerson: Frozen food in general.

Kelly Ann Bania: Kind of relatively weaker over the past year or so on the volume side.

Kelly Ann Bania: A lot of the other store, but again you have differentiated product. So I'm curious would you say oh, our frozen department, Yeah, we're still that pressure or where maybe you are not which would clearly be a differentiating factor.

Speaker Change: Yes, Rob it's not two random questions the kinds of things, we think about what's happening with different categories. So our frozen business I think what happened during the pandemic as it frozen got pretty big lift and there was a pretty big enough right across the marketplace. I think we have we doubled down in our stores on space and our new stores, we're giving them more space than we used to give it because we believe.

Kelly Ann Bania: The category that is frozen it blends itself well to attribute based products lends itself well to vegetarian based products plant based products and we've been we've seen some success have been really pleased with some of the <unk> workload, that's really playing through well for us in the frozen cabinets. So I don't know whats happening in the broader.

Jack L. Sinclair: It lends itself well to vegetarian-based products, plant-based products, and we've seen some success. I've been really pleased with some of the Sprouts brand work that's really playing through well for us in the frozen cabinet.

Jack L. Sinclair: So I don't know what's happening in the broader market. I think there was a boost during the pandemic, and it might have slowed down a little bit in the broader market. But in our space, we are seeing some really strong comps, and I'm encouraged by what's happening in frozen. And I honestly don't know if that's in line with what's happening in the rest of the market, Robert, but that's where we're at on it. Yeah, and I think, Rob, I would just attribute that to, you know, it's a differentiated story.

Kelly Ann Bania: I think there was a boost through the pandemic and it might have slowed down a little bit in the broader market, but in aerospace we are seeing some really strong comps and I'm encouraged about whats happening in frozen and I honestly I don't know if thats in line with what's happening in the rest of the market rubber, but last quarter. We are on it and I think Rob I would just attributed attribute that to.

Kelly Ann Bania: It's a differentiated differentiation story in our departments and categories, where we have the most differentiation those of the departments that have been drivers for us for comp in frozen is among those.

Curtis Valentine: In our departments and categories where we have the most differentiation, those are the departments that have been drivers for us for comp, and frozen's among those. And the team does a great job with the assortment, making it different, as Jack alluded to, and that just fits well within that broader story of where we're different. We continue to do well. Yeah, no, it's great.

Kelly Ann Bania: Team does a great job with the assortment, making a different as Jack alluded to them and that just fits well within that broader story of where we're different we continue to do well.

Robert Dickerson: And then I guess maybe just a broader question. You know, I know you continue to highlight the newer stores or some of the smaller stores, merchandising stores with, quote unquote, more prioritized categories that maybe have better growth potential. You know, if you're going from, I don't know, 30,000 square feet, 25,000, or these are like drastic changes in the box size, and they're smaller, better economics, everything that's great. I'm just curious, like, you know, then where do you trip?

Speaker Change: Yeah great.

Speaker Change: And then I guess, maybe just a broader question.

Speaker Change: I know you continue to highlight.

Speaker Change: The newer stores or some of the smaller stores.

Speaker Change: Merchandise our stores with carrier quote unquote more prioritize categories, maybe a better growth potential.

Speaker Change: If youre going from.

Speaker Change: 30000 square feet 25000.

Speaker Change: These are like drastic.

Speaker Change: Changes on the box size and they are smaller better economics, everything that's great I'm just curious.

Speaker Change: Where do you trim is a program to get a little bit smaller 35% of the store.

Jack L. Sinclair: Is like produce getting a little bit smaller? 35% of the store? I'm just trying to understand, I guess, more broadly, kind of, you know, now, if you're opening up a new store now, where would you view those better growth areas? Yeah, well, the 23,000 square foot stores that we're building, that's what we're building going forward. The 35 that we do this year and the numbers that we'll do next year, they'll all be 23, by and large, 23,000 square feet.

Speaker Change: Trying to understand I guess more broadly kind of.

Speaker Change: Now if you opened up a new store now.

Speaker Change: Where would you view view those better growth areas.

Speaker Change: Yes.

Speaker Change: 23000 square foot stores that we're building not so that's what we're building going forward that that <unk> done this year on the numbers that we'll do next year there'll be 23 by and large 23000 square feet.

Jack L. Sinclair: What did we do? We cut back fairly significantly the non-customer facing space so that the space that's required to create the debt behind the scenes in deli, behind the scenes in bakery, behind the scenes in meat, we merged them all together. We put a little bit more space into frozen and grocery and dairy and probably a little bit less space around bulk and some of the other spaces in our store. So, by and large,

Speaker Change: What did we do we cut back fairly significantly than non customer facing space.

Speaker Change: The space is required to create the depth behind the scenes and daily behind the scenes and bakery behind the scenes in meat, we match them altogether, we created a lot more space in the back room than we've done to come up more space out of the back room. So the consequences part of the category is going forward is we ended up with.

Speaker Change: Slightly less SKU assortment, and our vitamins and supplements department slightly less.

Speaker Change: The rest of the categories actually frozen got few more skus as I, just alluded to and across the rest of the stores.

Speaker Change: A pretty the same SKU count category wise, we chased after which it will continue to focus on projects because that's one of the key determining key drivers for our business.

Speaker Change: Put a little bit more space into frozen and grocery and dairy and probably a little bit less space around bulk and some of the other spaces in our stores. So by and large we ended up with the same SKU count apart from vitamins, a little bit more frozen.

Jack L. Sinclair: We ended up with the same skew count apart from vitamins, a little bit more frozen, and that would, and a little bit more grocery. That would be kind of where we're at. All right, perfect. I think the key piece, Rob, is that when we crept up to 30,000 square feet prior to Jack's arrival, it wasn't, again, it wasn't in the assortment. It wasn't in the proposition.

Speaker Change: That would provide a little bit more grocery that would be kind of where we're at.

Speaker Change: Alright, I think the key piece, Rob is that when we crept up to 30000 square feet prior to Jack survival. It wasn't again it wasn't an assortment it wasn't in the proposition that was in fixture that was in kind.

Curtis Valentine: It was in fixtures. It was kind of dead space and unproductive space. And so, you know, it was not hard for us to get back down to 23 without impacting the assortment. Okay, great. And then, maybe just another quick one for me.

Speaker Change: Kind of dead space and unproductive space and so.

Speaker Change: It was not hard for us to get back down to 23.

Speaker Change: Without impacting the Assortments.

Rob: Okay, Great and then maybe just another quick one for me is just I was curious.

Robert Dickerson: It's just, I'm just curious, you know, as you enter a new market or expand a pre-existing market in an area where there hasn't been a Sprouts, right, you open the store. As you open that store, is it just essentially kind of like word of mouth? I mean, I'm sure you have seen the signage, and people drive by the store, and they see it, but, you know, are there other ways to just try to kind of welcome the community, so to speak, to the actual store without having to spend? get a fair amount of capital to do so. That's all.

Rob: As you enter new market or expand our pre existing marketing area, where there hasnt been a sprouts right you open the store.

Speaker Change: As you open that store is it essentially kind of like word of mouth from you I'm sure you have them for signage and people drive by the store they see it but.

Speaker Change: Are there other ways to try to kind of welcome that community so to speak to the actual store without having to spend.

Speaker Change: A fair amount of capital to do so that's all thanks.

Robert Dickerson: Thanks. Yeah, we make sure that where we open a store, there are enough people that look like our health enthusiasts in that catchment area. And that's what I was talking about in terms of aligning our model. So the opportunity is there, the people are there, and our marketing teams are getting increasingly good at talking four to six weeks earlier than we open the store in terms of direct communication with those target customers. And we're working to get better and better at that. So there's a fairly intensive marketing approach to each individual store. And it has to be different.

Speaker Change: Yes, we certainly are that we make sure that where we open a store that are enough people that look like out health enthusiasts in that catchment area and that's what I was talking about in terms of.

Speaker Change: Aligning our module to the <unk> so the opportunity the other people out there and our marketing teams are getting increasingly good at <unk>.

Speaker Change: Talking four to six weeks earlier than we opened the store in terms of direct communication with those target customers and we're working to get better and better at that so theres a fairly intensive marketing approach on each individual store and it has to be that for and it will be different when we open a store and Cutty Los Angeles, then there will be an <unk>.

Jack L. Sinclair: It'll be different when we open a store in Cudahy, Los Angeles, than it will be in Aberdeen, New Jersey. How we approach that and how we think about it will be different. But the teams are increasingly getting better at picking the right way to let people know. Certainly, we want visible locations so when people drive by, they can see it.

Speaker Change: <unk>, New Jersey, how do we approach that and how do we think about it will be different but the teams are increasingly getting better at picking the right ways to let people know Jeremy we want vegetable site. So when people drive by the can see it with China to hide them too much but.

Curtis Valentine: We try not to hide them too much, but we try and get people excited in advance. And I spend some time talking to mayors of towns and trying to get them kind of excited about us coming into places that they don't know. So it's a combination of things that work, but our marketing teams are doing a great job. And I'll just reinforce Jack's earlier comments around, you know, the density in the market helps. Certainly, when you open the 10th store in a market, it's easier than the first. And there is some word of mouth.

Speaker Change: We try and get people excited and advanced and I spent some time talking to the towns.

Speaker Change: Towns and trying to get them kind of excited about us coming into places that they don't know us.

Speaker Change: A combination of things that work, but our marketing teams are doing a great job and I will just reinforce Jack's earlier comments around.

Speaker Change: The density in the market helps certainly when you open the 10th store in a market it's easier than the first and there is some word of mouth and just having the building up and the signage up as people drive by the more and more stores you put in the easier buckets and those of all those things are coming together to help help with new store performance.

Robert Dickerson: And just having the building up and the signage up as people drive by, the more and more stores you put in, the easier that gets. And all those things are coming together to help with new store performance. Okay, and our next question will come from Krisztina Katai, of Dorchester Bay. Hi, can you hear me?

Speaker Change: Okay and our next question will come from Kristina <unk>.

Kristina: Of Deutsche Bank.

Krisztina Katai: Hi, this is Jessica Taylor on behalf of Krisztina. Thanks for taking our question. I just want to go back to private label a little bit.

Kristina: Can you hear me.

Kristina: Hi, Chris Hi, this is.

Speaker Change: Hi, This is Jessica Taylor on for Christine Thanks for taking our questions. Just wanted to go back to private label a little bit.

Jack L. Sinclair: And, you know, in the past, you and today talked about how you watch your competitors' interest but don't worry too much given the product and customer differentiation. So now, the largest retailer has announced a new private label brand that's really aiming to increase its share from this set of customers who are more attribute-driven and who are more health conscious. So how does this kind of change your view on how you're watching that competitor, and competitors, in general, might follow that, follow that lead?

Jessica Taylor: And in the past and today you talk about like how you watch your competitors interest that don't worry too much given the product and customary differentiation. So now the largest retailer has announced a new private label brand that is really aiming to increase its share from this set of customers who are more attribute driven and who are.

Speaker Change: How content. So how does this kind of change your view on like how youre watching that competitor or competitors in general might follow that all of that Lee and how does it kind of impacts your go to market strategy for your private label and attribute driven items. Thank you Jessica.

Jack L. Sinclair: And how does it kind of impact your go-to-market strategy for your private label and attribute driven? The last couple of days, this whole initiative. We haven't kind of tasted it or eaten it all. I've forgotten what it's called.

Speaker Change: <unk>. Good question, we've been kind of Ive been reading with interest the last couple of days I saw initiative, we haven't tasted Eaton at all.

Jack L. Sinclair: Better for or something. What's it called? Better Good. Better Good. So the way the way I've read it, and we'll clearly watch it, Jessica, but the way I've read that, it's a tear in your branded strategy. So it's trying to trade people off. It's not necessarily trying to trade people for attributes.

Speaker Change: But going with scope better, Florida, or something nor has it caused you better get better goods other things. So the way that we have read it more clearly watch it guest count, but then we have red dot.

Speaker Change: It's a teething and your branded strategy. So its trying to trade people up is not necessarily trying to trade people to attributes and I think that's how I'm reading it doesn't feel like a health initiative. It feels like a trading up initiative on quality and again, that's a pretty common thing from my background in the UK how people think about.

Jack L. Sinclair: And I think that's how I'm reading it. It doesn't feel like a health initiative. It feels like a trading up initiative on quality. And again, that's a pretty common thing from my background in the UK, how people think about tearing.

Jack L. Sinclair: It feels more like a tearing exercise than it does a health and attribute-based act. Although there will be some things in there that, you know, oat milk this and something like that. But I didn't. I felt it was more a kind of, "Let's look at Trader Joe's and take some opportunity, take some business from that." But as I say, our Sprouts brand business is very much focused on being differentiated, not about trading up people on the same thing. And so it's not going to change what we do.

Speaker Change: Hearing it feels more like a teething exercise than it does a health and attribute based active although there will be some things in there.

Speaker Change: There's been something like that but I didn't I felt it was we love being nice to trader Joe's I felt it was more of a kind of like to look at trader Joe's and take some opportunity take some business from that.

Speaker Change: As I say, our <unk> business is very much focused on being differentiated.

Speaker Change: About trading up people on the same thing.

Jack L. Sinclair: We believe we've got a set of target customers that are very relevant to our business and that we can do. We can do 30 keto products. But I don't think that's better for things.

Speaker Change: So it's not going to change what we're going to do we believe we've got a set target customers that are very relevant to our business and we can do we can do theft Tiki tool products I don't think thats better for thing is going to be does that kind of attribute based initiative, but will clearly watch it.

Jack L. Sinclair: It's going to be that kind of attribute-based initiative, but we'll clearly watch it and be sensitive to how that evolves and develops. Walmart, I've got a habit of saying whatever they do is big.

Speaker Change: Be sensitive to and how that evolves and develops.

Speaker Change: Walmart.

Speaker Change: However, they do as bank.

Jack L. Sinclair: Yeah, that's true. Thank you so much. And just to follow up, can you talk a little bit about the cadence through the quarter for comp trends and any month to date or quarter to date? Sure, I'll take that one.

Speaker Change: Yes, that's fair. Thank you so much and just a follow up to think you're a little bit about the cadence through the quarter for comp trends and any month today or quarter to date trends.

Speaker Change: Sure I'll take that one.

Curtis Valentine: We won't get too specific here in the intro quarter, but pretty consistent from a comp perspective throughout Q1. You know, Q1 is always a little bit noisy; there's usually some weather events and things like that. And you'll see some weeks up and some weeks down, but generally pretty consistent for us in the quarter. And then, certainly, within Q2 here, we're comfortable within our guidance range with where the business is trending at the moment. Great! Thank you so much.

Speaker Change: To get too specific here and the intra quarter, but.

Speaker Change: Pretty consistent from a comp perspective throughout Q1.

Speaker Change: Always Q1 is always a little bit noisy, there's usually some weather events and things like that and Youll see some weeks up in some weeks down, but generally pretty consistent for us in the quarter and then certainly within Q2 here, we're comfortable within our guidance range with where the business is trending at the moment.

Krisztina Katai: Best of luck and congratulations on a great job. Thank you. Thank you, Jeff. And our last question will be coming from Edward Kelly of Wells Fargo. Your line is open. Yeah, guys, this is Evan Kettering and I'm Fred.

Speaker Change: Great. Thank you so much.

Speaker Change: Good luck and congrats on a great quarter.

Speaker Change: Thanks, guys I appreciate it.

Speaker Change: And our last question will be coming from Edward Kelly.

Edward Joseph Kelly: Of Wells Fargo. Your line is open.

Edward Joseph Kelly: Thanks for taking our questions and having a nice quarter. I know we've talked a lot about e-comm already, but just wanted to touch on it a bit more here. We assume that your online sales are included in the overall comp. Could you guys just confirm if that's correct? And if that also includes your Uber Eats partnership that started up more recently? And then the 25% growth this quarter, a bit of an acceleration for his prior quarters. Do you think that the bad weather in January might have played a role there?

Edward Joseph Kelly: Yeah, Hey, guys. This is carrying on for Ed. Thanks for taking my questions and nice quarter I know, we talk a lot.

Edward Joseph Kelly: What about E com already but just wanted to touch on it a bit more here, we assume that your online sales are included in the overall comp, but could you guys. Just confirm if that's correct and if that also in Queens.

Edward Joseph Kelly: The <unk> partnership that started up more recently.

Edward Joseph Kelly: And then the 25% growth this quarter.

Edward Joseph Kelly: Acceleration versus prior quarters do you think that the bad weather in January might have played a role there or should we just expect a higher rate of growth going forward with the increased number of partnerships that you have.

Curtis Valentine: Or should we just expect a higher rate of growth going forward with the increased number of partnerships that you have? Yeah, so the first part of it, yes, it's embedded in our compensation and included in our compensation. And certainly some of the acceleration would be the new partnership with Uber Eats, which launched kind of mid to late Q4 and has been ramping up. And then the last part's a good question. Yeah, we definitely see that when there's kind of significant weather events, it tends to move some people into e-commerce and out of the stores. And so through the first kind of half of the quarter, we had a few of those and saw that phenomenon.

Speaker Change: Yeah. So first first part of it yes, it's embedded in our comp and included in our comp in.

Edward Joseph Kelly: Certainly some of the acceleration would be the new partnership with Uber eats, which launched kind of mid to late Q4 and has been ramping up.

Edward Joseph Kelly: And then the last part is a good question, yes, we definitely see that when there's kind of a significant weather events. It tends to to move some people in the e-commerce and out of the stores and so through the first half of the quarter. We had a few of those and saw that phenomenon I would add too again, all three partners recognizing kind of that health trend at the beginning of the year.

Curtis Valentine: I would add that all three partners recognized kind of that health trend at the beginning of the year. You know, that's our Super Bowl as Sprouts, and they were right there with us and doing the best they could to capture that with our target customers. And so we had a lot of activity going on in those first six weeks of the quarter with us, and with our partners, to try to take advantage of that. And so I think all three of those things are contributing to that stronger e-commerce growth. Awesome. Thanks for the color and good luck.

Edward Joseph Kelly: That's our Super Bowl Sprouts, and they were right there with us and doing the best they could to capture that with our target customers and so we had a lot of activity going on in those first six weeks of the quarter with us with our partners.

Edward Joseph Kelly: Tried to take advantage of that and so I think all three of those things are contributing to that stronger e-commerce growth.

Speaker Change: Awesome, Thanks for the color and good luck.

Speaker Change: Thank you.

Speaker Change: I'd now like to hand, the call back to Jack for closing remarks.

Jack L. Sinclair: Yeah. Thanks, Thanks, everyone for your attention and your support and we look forward to catching up with you in due course, so thanks ever so much take care.

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

Jack L. Sinclair: Okay.

Jack L. Sinclair: [music].

Jack L. Sinclair: Okay.

Jack L. Sinclair: Yes.

Jack L. Sinclair: Okay.

Jack L. Sinclair: Yeah.

Jack L. Sinclair: Yes.

Jack L. Sinclair: [music].