Q4 2024 Sprouts Farmers Market Inc Earnings Call

Speaker Change: Good day and thank you for standing by. Welcome to the Sprouts Farmers Market fourth quarter and full year 2024 earnings conference call. At this time all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation there will be a question and answer session. To ask a question please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again. I would now like to hand the conference over to your speaker today.

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

Speaker Change: 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.

Speaker Change: <unk> 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: Thanks, Susanna and good afternoon, everyone first I'd like to extend my deepest gratitude to our dedicated team for their tireless efforts during the past few months our stores have been dealing with floods in the Carolinas.

Jack: Angela has wildfires and the unfortunate airplane crash near Philadelphia store I want to take this opportunity to thank our team members for supporting one another the communities. We serve on the families devastated by these events and thank you to the firefighters and other first responders, who did so much I'm proud of that.

Jack: <unk> healthy communities Foundation, along with our customers a supporting firefighters under families on the rebuilding effort for communities in Los Angeles.

Jack: 2024 was an outstanding year for surprise it was one of tremendous execution and exceptional teamwork our teams across all areas of the business work together to deliver a 13% increase in sales for the year of seven 6% comp on a bottom line margin improvement of more than 70 basis points.

Jack: This success is a testament to the team's focus on our target customers delivering operational excellence daily and positioning spreads to capitalize on the ongoing trends towards healthy eating.

Jack: Our target customers seek differentiated attribute driven healthy products. We believe these customers represent $200 billion.

Jack: Of the one six trillion.

Jack: Food at home market by maintaining our focus on their needs. We have established ourselves as a leader in trend forward health and speciality products. This focus includes all aspects of our business offering healthy products on practicing responsible sourcing are fundamental to our purpose to help people.

Jack: Any better.

Jack: We were delighted that progressive grocer has recognized our commitment to offering this unique assortment by naming us retailer of the year for 2024, what truly matters to US is a recognition we received from our customers.

Jack: In 2024, we introduced approximately 7100, new items, including more than 300, new products under the sprouts brand such as grass fed meat balls organic pasture raised eggs and the new real root line of premium health and beauty products.

Jack: Our teams collaborated across functions to execute merchandising events that effectively highlighted our differentiated products such as our summer Cherry Festival, and we continue to get better at helping our target customers find the right products for them.

Jack: We ended the year with the company's best customer service scores. Thanks to a service orientated culture embodies by our store team members. We also streamlined our operations through disciplined inventory management across the stores distribution channels and support office positively impacting our sustainable margin profile.

Jack: Phil.

Phil: Our customer engagement has continued to improve resulting in strong traffic across all of our channels on healthy new customer growth, our marketing is geared to our target customers.

Phil: And as unique and differentiated much like our product offering we are seeing strong success and leaning away from a conventional seasonal messaging to focusing on unique products and solutions, we continue to improve our ability to engage via social media by utilizing healthy eating trends.

Phil: And working with Influencers, who share our purpose of helping people live in beta.

Phil: The addition of Uber eats as a delivery partner has helped us grow our e-commerce sales to above $1 billion, a significant landmark for our ecommerce team.

Phil: In 2024, we expanded our footprint from sea to Shining Sea and added Wyoming is our 24th State. We opened 33, new stores, which together performed robustly and surpassed previous year's performance and our early expectations.

Phil: Our growth created approximately 3300, new jobs, we promoted almost 20% of our 33000 team members in 2024, while continuing to cultivate a workplace culture that we believe will sustain profitable business for years to come.

Phil: None of our achievements would be possible without our fantastic team.

Phil: In summary, our achievements in 2024 have laid a strong foundation for the future and we're only just getting started we have significantly improved the talent in our business and I am excited to work alongside our team members as we continue to unlock a incredible potential I'll discuss our 2025 journey in a few moments.

Carter: For now I'll hand, it to Carter's to review, our 2020 for financial performance in the fourth quarter and the year as well as our 2025 outlook Carter's.

Carter's: Thanks, Jack and good afternoon, everyone for the fourth quarter total sales were $2 billion up $298 million or 17, 5% from the same period last year.

Carter's: This increase was driven by comparable store sales growth of 11, 5% and adding new stores.

Carter's: Our strong comp performance was broad based and balanced across channels geographies basket and traffic.

Carter's: October was the strongest comp month with both of the other months in the quarter also showing double digit comp growth.

Carter's: Our E Commerce sales grew approximately 37% representing 14, 5% of our total sales for the quarter with strong performance from all partners and.

Carter's: In addition, sprouts brand contributed 23% to our total sales for the quarter.

Carter's: As we've seen throughout the year the strong performance within categories with the most differentiation.

Carter's: Sprouts has experienced exponential growth in the <unk>.

Carter's: Tribute driven categories, gaining popularity due to the quality and health benefits these products provide.

Carter's: This makes them a top choice for our customers to prioritize healthy eating year round, resulting in continued growth in our seasonal programs as we make attributes the story of the holidays at sprouts.

Carter's: This fourth quarter, we saw strength across our core business and seasonal business and that combination was the key to our success.

Carter's: Our fourth quarter gross margin was 38, 1% an increase of 150 basis points from the same period last year.

Carter's: This is primarily due to leveraging our improvements in inventory management. In addition, our strong sales performance drove leverage in our supply chain and supply constraints further reduce shrink.

Carter's: SG&A for the quarter totaled $615 million, an increase of $101 million or approximately 60 basis points of deleverage from the same period last year.

Carter's: Deleverage was due to higher incentive compensation for our teams spending against our planned $15 million strategic investment in the business and.

Carter's: And increased e-commerce fees. This was partially offset by leverage from higher sales.

Carter's: Store closure and other costs totaled approximately $4 million for the quarter. These are primarily related to costs associated with exiting leases related to our 2023 store closures.

Carter's: Depreciation and amortization, excluding depreciation included in the cost of sales was $35 million.

Carter's: For the fourth quarter, our earnings before interest and taxes were $106 million interest income was approximately $2 million and our effective tax rate was 26, 5%.

Carter's: Net income was $80 million and diluted earnings per share were <unk> 79, an increase of 61% compared to the same period last year.

Carter's: For the fiscal year 2024, total sales increased nearly 13% to seven 7 billion.

Carter's: Driven by comparable store sales growth of seven 6% and strong new store performance.

Carter's: Comp sales for the entire year were supported by strong traffic and increase basket, mainly due to product mix.

Carter's: Our focus on innovation and differentiated product assortments resonated well with our target customers driving overall sales. Additionally, we were thrilled to see the strong performance of our new stores across all regions.

Carter's: Gross margin was 38, 1% an increase of 120 basis points compared to adjusted gross margin last year the.

Carter's: Inventory and category management investments, we have made in SG&A over the past few years showed positive results and drove this year's improvements in gross margin.

Additionally, our strong sales performance is creating supply chain leverage.

Carter's: SG&A expenses for the year totaled $2 3 billion, an increase of $300 million or approximately 55 basis points of deleverage compared to adjusted SG&A last year.

Carter's: <unk> leverages, mainly attributable to higher incentive compensation for the teams increased e-commerce fees linked to higher sales and spending against our planned $15 million investment in the business.

Carter's: Store closures and other cost totaled $13 million, primarily related to ongoing occupancy costs from our 2023 store closures depreciation and amortization excluding depreciation included in the cost of sales was $133 million.

Carter's: For 2024, our earnings before interest and taxes were $504 million interest income was $2 $2 million, our effective tax rate was approximately 25%.

Carter's: Net income was $381 million and diluted earnings per share were $3 75.

Carter's: An increase of 32% compared to the prior year's adjusted diluted earnings.

Carter's: We ended the year with 440 stores across 24 states.

Carter's: For the years ahead, we have over 110 approved new stores and nearly 70 executed leases in the pipeline.

Carter's: A strong and healthy balance sheet is underpinning our financial performance for the year, we generated $645 million in operating cash flow, which allowed us to invest $200 million in capital expenditures net of landlord reimbursement to grow our business, we voluntarily paid down our outstanding balance of 120.

Carter's: $5 million on our credit facility and returned $238 million to our shareholders by repurchasing two 7 million shares.

Carter's: We ended the year with $265 million in cash and cash equivalents zero balance on our $700 million revolver.

Carter's: And $20 million of outstanding letters of credit.

Our diluted weighted average shares outstanding were down 2% compared to last year, and we have repurchased 43% of our shares since we started our share repurchase program in 2015.

Carter's: We have $451 million remaining under our current share repurchase authorization.

Carter's: While we're pleased with our progress significant opportunities remain as we look ahead to our expectations for 2025, we remain focused on delivering earnings growth, while investing to unlock future opportunities.

Carter's: The significant improvements made to our business give us confidence in our ability to drive drive long term sustainable earnings growth.

Carter's: For 2025, we expect total sales growth to be 10, five to 12, 5% and comp sales in the range of four five to six 5% we.

Carter's: We anticipate comp sales start the year stronger and moderated as we cycled the higher comps from late 2024.

Carter's: We plan to open at least 35, new stores adjusted earnings before interest and taxes are expected to be between 590 and $610 million and adjusted earnings per share are expected to be between $4 52.

Carter's: And $4 68, assuming no additional share repurchases.

Carter's: That said, we do expect to continue to repurchase shares opportunistically.

Carter's: Also expect our corporate tax rate to be approximately 25%.

Carter's: During the year, we expect capital expenditures net of landlord reimbursements to be between $230 and $250 million.

Carter's: To add a bit more color to the year, we anticipate a continued expansion of our gross margins.

Carter's: Plan to further reduce shrink and leverage our supply chain, which will help offset the costs associated with the rollout of our loyalty program.

Carter's: But we still have investments to support our growth, we expect slight SG&A leverage in 2025, as we lap higher incentive compensation from 2024, partially offset by pressure related to new store growth and strong E Commerce sales.

Carter's: We are effectively managing our expenses, while identifying opportunities for improvement. We continue to expect these investments will lead to profitable growth in the future as they have in our recent past.

Carter's: Most of our Capex spending will be for new stores with the remainder focused on supply chain and technology enhancements store refresh and maintenance and merchandising initiatives.

Carter's: For the first quarter of the year, we continue to see momentum in the business and we expect comp sales in the range of approximately 10% to 11% and.

Carter's: And adjusted earnings per share between $1 51, and $1 55.

Carter's: We also expect year over year improvement in gross margin by approximately 50 basis points as well as improvement in SG&A margin of approximately 75 basis points as we leveraged higher sales.

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

Thanks, Scott just.

Jack: Over the past year, we've made significant strides in our performance by continuing to establish a solid foundation for growth highlighting our uniqueness and living our purpose of helping people live any better we.

Jack: Prioritize our target customers needs by focusing on differentiated merchandising marketing and store formats, which positions us well to compete in any environment.

Jack: More to come from this team.

Jack: We're excited for 2025 as we build upon that strong foundation focus on what's working well and forge new capabilities for the future.

Jack: <unk> got some exciting initiatives underway that we believe will further propel our growth and success. These plans include showcasing more innovation in our stores launching our loyalty program strengthening our advantage supply chain for fresh products building exceptional stores, Alex enjoyable to sharpen and developing.

Jack: Our best in class team dedicated to serving our customers.

Jack: Our target customers are more engaged than ever before and the role <unk> plays in that health and our ability to support them as a key reason price price is succeeding.

Jack: The sounding shoppers, who scrutinize every ingredient seek wellness benefits explore culinary trends and aspire to more sustainable and premium choices, while looking to spreads as a trusted partner on that journey.

Jack: In 2025 product innovation will focus on where we have been winning specifically attribute driven products that are unique in the marketplace.

Speaker Change: The <unk> team will continue sourcing the best innovation in our space such as organic clean ingredients minimally processed and pasture raised proteins, while staying ahead of evolving trends. Additionally, they will introduce more innovative sprouts brand items, such as organic avocado oil tortilla chips.

Speaker Change: Jack noodles organic reduced sugar possess an organic archive chunks.

Speaker Change: Our surprise, Brian this thriving delivering growth and outpacing company performance, while providing customers with products They trust.

Speaker Change: The two years prior to rebranding initiative, focusing on vibrant and clear messaging on our packaging is yielding positive results and will foster further growth.

Speaker Change: This year, we will market these exceptional products more effectively by emphasizing storytelling to highlight the uniqueness and attributes the dedication of our team has led to an impressive product development pipeline planned for the next three years filled with new items tailored for those target customers.

Speaker Change: The project remains nearly 20% of our sales and is at the heart of our farmers market appeal. We have seen this business steadily grew thanks to strong cross functional effort on our commitment to freshness variety and organics. The project team is also focused on growing our sourcing partnerships to bring more unique varietals to a customer.

Speaker Change: Inspiring them to explore new items.

Speaker Change: These initiatives will enhance organic local and national supply and most importantly ensure exceptional freshness.

Speaker Change: In 2025, we will continue our strategic investment to attract you and health enthusiasts and increase our share of wallet among existing customers.

Speaker Change: Our strategy focuses on engaging customers and the channels, where they want to shop, whether in store delivery or pickup our teams will double down on what works in stores by providing seamless customer experiences on educating shoppers to sampling.

Speaker Change: Our retail mall E Commerce partners will continue to support us on our E Comm journey.

Speaker Change: Our merchandising team will collaborate with store teams to bring cross functional events to life, such as our sprouts brand event, making it easy for customers to engage in a healthy living journey.

Speaker Change: We embrace our uniqueness, which is reflected in our marketing as well our messaging is different our media selection at unconventional a social is engaging and our in store messaging emphasizes key attributes. We're also testing a new marketing campaign called dot spreads feeling capturing the excites.

Speaker Change: <unk> customers field, when discovering something new fresh unhealthy justify them.

Speaker Change: I'm, particularly excited about our plans for personalization and loyalty customers love shopping at surprise, but we have a large opportunity to an.

Speaker Change: Opportunity to increase our share of wallet with them all along.

Speaker Change: Loyalty rollout will be a key step in our customer engagement journey, providing invaluable data to help us understand our customers and customize how we serve their needs better and.

Speaker Change: In turn we expect to see them visit more often and add more items to their baskets.

Speaker Change: In our test markets, we've been focusing on sign ups in scans as a key metric of customer engagement on both have met and exceeded our expectations in December we expanded our loyalty test and pilot across 24 additional stores in four markets.

Speaker Change: As we look to the rest of the year, we will continue our pilot through the second quarter as we add additional functionality in the third quarter, we plan to launch our program in a phased rollout across our regions to continue through the rest of the year.

Speaker Change: We have made significant progress in developing an advantaged supply chain supporting our future growth over the past few years, we have implemented new systems expanded existing space and built new facilities as we prepared to sell and distribute more categories.

Speaker Change: These investments have enabled us to take create to support some control of our supply chain operations.

Speaker Change: Across 2025, we are transitioning to self distribute our meat and seafood alongside projects capitalizing on the capacity and capabilities. We have created over the past few years, we will move through this transition gradually over the next year with support from third party distributors as an interim.

Speaker Change: Debt.

Speaker Change: Additionally, in 2025, we will continue to invest in our distribution network as we grow across the country.

Speaker Change: As for growth, we plan to open at least 35 stores for the year. These stores will be located entirely in our existing markets further densify footprint, while 2025 openings will create store density in our existing footprint. We will also set the table for future expansion into new regions as we build.

Speaker Change: Our market plans for the Midwest and the northeast.

Speaker Change: We're confident in our journey to provide access to spreads and as many communities as possible.

Speaker Change: Lastly, our team is at the heart of surprises and we are dedicated to the growth and development. We are proud of the culture at spreads. It is our privilege to reinvigorate the culture. That's approach binders created many years ago.

Speaker Change: As we grow we will honor our roads on the journey that brought us here.

Speaker Change: <unk> culture is later led to a team member rate rent tension, reaching all time highs in 2025, we will strengthen our coaching and mentorship programs and continue developing future leaders, making spreads to a place where people can truly truly flooding Andrew.

Speaker Change: Without expansion through new store openings across the country, we are eager to offer even more career opportunities for our talented <unk>.

Speaker Change: Our team is our greatest asset and we are committed to fostering a culture that supports their success.

Speaker Change: In summary, we are excited about the future of <unk> and the growth opportunities that 2020 cycle break we're even more excited about the years ahead, we have a clear strategic focus and a strong team committed to executing our initiatives at a high level by taking care of our team members, who in turn take care of our customers needs.

Speaker Change: We are confident we will achieve strong financial performance and continue creating value for our shareholders. We look forward to sharing our progress with you in the coming quarters with that I'd like to turn it over for questions.

Speaker Change: For Asia.

Speaker Change: Thank you 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, one moment for questions.

Speaker Change: Our first question comes from Jordan with Goldman Sachs. You May proceed.

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

Speaker Change: I just wanted to thank you for your op margin.

Speaker Change: Margin.

Speaker Change: That said you expect continued expansion in the coming year and I think there's many things you've talked about the category management that you've highlighted but justine.

Speaker Change: Could provide more detail on the magnitude that youre thinking about expansion for this year and any key puts and takes as we move through the year.

Speaker Change: And I know you have some lapsed stronger season last year.

Speaker Change: Alright. Thanks Lee this is.

Speaker Change: Curtis, Yes, so call it 25 to 30 basis points for the year, we kind of had the first quarter in the script at approximately 50.

And then it will kind of settle to just slight leverage for the rest of the year.

Speaker Change: It's still shrink and supply chain leverage leverage from the sales, especially early in the year. It will be a factor in driving some of that leverage.

Speaker Change: I think the only other note as you know late in the year, we certainly some of the supply constraints led to some better shrink this year, so that might put a little bit of pressure on the fourth quarter and later in the year next year from a shrink perspective, but.

Speaker Change: It could be leverage each quarter.

Speaker Change: Okay very helpful. Thank you.

Speaker Change: Just wanted to ask about store growth I saw you guys are planning to open at least 35, new stores. This year that is a slight acceleration from and doors from last year, but we're still not out.

The longer term target of 10%.

Speaker Change: Obviously in line with what <unk> communicated so far but just.

Speaker Change: Maybe an update on where we are and how you view the path back to 10% are you still seeing an issue with developers with interest rates still high and then any color maybe on how we should think about the cadence of store openings this year as well.

Speaker Change: Yes.

Speaker Change: We remain really focused on growing our business through new stores and will continue and we're certainly pushing hard to keep moving faster, we're being very judicious in the stores that we're taking and the sites that we're getting we know where those 200 sites across the United States that could support a price in terms of the target customer.

Speaker Change: We also know that we hope to get the exactly right place within those.

Speaker Change: Geography to make sure is going to work. So that's the first stage of it our model has been making sure that the stores that we opened our watkins well and thats coming to fruition in terms of what's happened in 2024, and we certainly expect that in 2025. So there are still some constraints were kind of wondering exactly what's going to happen.

Speaker Change: With developers and what's going to happen with interest rates and what's going to happen or steel tariffs and those kind of things, but by and large we are confident in the number that we felt for this year and I am confident we will start to build more in the years ahead.

Speaker Change: And then Lee just to add on to that from a timing perspective, we'll do four in the first quarter here and then it's pretty smooth the rest of the year quarter to quarter to quarter.

Speaker Change: That gets you to 35.

And on the at least or the plus side ahead of 35, it would be all back loaded be late in the year. If we were to get past 35.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from John <unk> with Guggenheim Securities You May proceed.

Speaker Change: Yeah.

Speaker Change: So Jack I wanted to start with.

Speaker Change: Your thoughts on the concept of brand tipping point.

Speaker Change: Because you've had this acceleration in comps over the last nine months and I know that.

Speaker Change: If we take the first quarter and kind of look at <unk> through <unk>, it's sort of like a low single digit comp too.

Speaker Change: Two or three in the back half of the year what's.

Speaker Change: What's your thought on that and I don't think youre changing the secular algo.

Speaker Change: Are we hitting a brand tipping point, where that low single digit is conservative.

Speaker Change: <unk> of your engagement and your brand awareness with with the consumer broadly.

Speaker Change: Yes, it's a great question, John and I'll, let Tim just talk about the algorithm a little bit in terms of out of that spark can going forward, but significant opportunity in our business the target customer is.

Speaker Change: More of them.

Speaker Change: And they can spend more with us the share of wallet that we have.

Speaker Change: Such that we believe as we walk through our merchandising our marketing our loyalty personalization that we can get a greater share of wallet of existing customers and thats going to be more health focused customers in the future. So we're very confident in the underlying opportunity that exists in the business.

Speaker Change: Same time, we're being thoughtful and considered as to what the opportunities are to achieve that in the short term, but overall, we're pretty confident that the number that we've put down for 2025, we're comfortable with.

Speaker Change: There'll be more to come as we go through the course of the next year or two yes, John I'd just add.

Speaker Change: Yes.

Speaker Change: <unk> confident but it's a long year ahead, there is a lot of macro.

Speaker Change: The two to four the algo is we'll deliver it every quarter and every environment is kind of the mindset to that.

Speaker Change: This year will be an interesting year for us we're going to comp some mid to high single digit are now in the double digits in the fourth quarter. When we get there later this year. So that'd be the first time, we've done that in 10 plus years as a company.

Speaker Change: So we're excited to see how that plays out and certainly to the extent there is upside we will be talking to you about it every quarter from here on out.

Speaker Change: And then maybe as a follow up right.

Speaker Change: Spansion of the supply chain opportunity.

Speaker Change: Seafood.

Speaker Change: What's the thought on how far you can push that.

Speaker Change: And I don't think you want to do.

Speaker Change: <unk> type activity.

Speaker Change: Because of the quality and freshness impact.

Speaker Change: Or maybe I'm wrong about that but how far can you push.

Speaker Change: The potential what you can do out of your Dcs.

Speaker Change: Well certainly we as we said in the script there we've built capacity and capability in our business going forward. So we've got space to do more categories going forward and we've created the infrastructure in terms of having replenishment and being able to forecast the way we want to forecast. So we've got choice going forward and very specific.

Speaker Change: Typically fresh foods, as a fresh meat categories and categories around fresh meat.

Speaker Change: The ones that we're working on this year. We can go beyond that I think we've talked in the past potentially could read today in private label potentially could we get some other categories.

Speaker Change: So Matt there's a lot about it and working with some of our partners that help us.

Speaker Change: But we've got some opportunities to go further with regard to commentary that Youre absolutely right. That's not something we're planning to do when a car business has got so many states since it's a complicated exercise and I think we would take.

Speaker Change: But if we took out of the stores and put it in tech commentary.

Speaker Change: Thank you.

John: Thanks, John.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Mark Carden with UBS you May proceed.

Mark Carden: Good afternoon. Thanks, so much for taking the questions and very nice quarter guys to start just another one on the top line did you guys continue to comp obviously, a really strong rate youre growing at a much faster pace than the industry. Overall do you have a sense of what channels you are taking the most market share from at this point have you seen any changes and then are you seeing any differences in them.

Speaker Change: Graphic profiles.

Speaker Change: New shoppers relative to your existing base, even within that $200 billion bucket that you are going after.

Yeah, Hey, Mark this is Nick thanks for the question.

Speaker Change: As you look at where our growth is coming it's very balanced we're seeing a lot of balance in our growth, both whether that be channels brick and mortar E com or regions.

Speaker Change: And parts of the country, we're seeing that growth, even our new stores in our existing stores, both seeing strong growth. So there's good balance there.

Speaker Change: A question on the customer the good news is we're seeing growth a lot of new customer growth. We're also seeing our existing customers engage with us more both in the frequency in which they visit.

Speaker Change: And how much they're spending with us so again kind of to the same theme of a balance.

Speaker Change: From a demographic standpoint, I would tell you that there hasnt been a lot of change and for US. The most important thing is almost more of a lifestyle.

Speaker Change: The type of customers, we have and our customers are looking for ways to live and eat better and it's all about research and labels in things like organic and gluten free for them. So thats the more important sort of segment for us than a demographic, but I think we've talked in the past our core demographics still remains higher educated higher income.

Speaker Change: Skews, a little bit more female that's consistent with we're seeing in our new customer growth as well.

Speaker Change: Great. That's helpful. And then just on that potential tariff front, what proportion of your offering do you guys import overall and then how easily can you mitigate some of the potential sourcing headwinds.

Speaker Change: Yes.

Speaker Change: As you kind of understand your majority of food that we sell comes from the United States. We've got some dynamics around our French project business from sorry from Central and South America, exactly what's going to happen to tariffs. We've got no idea and that's something that we're watching we're ready to move whether it will work very closely with our partner growers will work very closely.

Speaker Change: The opportunity to change sourcing if we need to and we've got we're going to make sure we manage our business our respective of what is where it comes as it comes from us on the tariff front.

Speaker Change: And that's kind of from a sourcing point of view, we might make a few changes, but I think Ken we'll manage our price gaps and we will manage our margin as we always do.

Speaker Change: Alright, thanks, so much good luck guys.

Speaker Change: Thanks, Mark Thanks, Mark Thank.

Speaker Change: Thank you.

Curry: Our next question comes from refresh Curry with Oppenheimer <unk> Company you May proceed.

refresh Curry: Good afternoon, and thanks for taking my question and also congrats on a really strong quarter. So just going back to your comp momentum. So comps again accelerating Q4, youre continuing to see strong momentum it sounds like quarter to date did that any new factors contributing to the complement to the acceleration that youre seeing in the business and also just curious if youre seeing any impact related to wildfires.

Speaker Change: Hey, refreshes Curtis.

Speaker Change: No real material changes and whats driving the comps.

Speaker Change: Nick hit on a little bit in the last answer it's pretty broad and balanced the acceleration as we said last quarter is coming from new stores and is coming from brick and mortar traffic, which we're really pleased with.

And then as it relates to.

Speaker Change: The impact quarter to date from weather events or wildfires no. Those are typically pretty immaterial from us or for us.

Speaker Change: We don't see a lot there and we haven't seen a lot that would be material to us.

Speaker Change: Maybe I'll, just let jacques speak to the events in the first quarter, there and the team member impact but.

Speaker Change: From a comp perspective, it's immaterial.

Speaker Change: I think.

Speaker Change: From a numbers point of view, you get a little bit of an upside down a little more of a downside on that itself. The same in terms of what can I.

Speaker Change: Our teams, particularly the fires in Los Angeles, we had a lot of people displaced from that with a lot of people we didn't lose any stores. Thank goodness in some of the other people that so.

Speaker Change: Our teams on how resilient and there were as I said in the script is something that inspires us in terms of how people support our communities through it and we're continuing to support those team members that have been affected by it and it was a big deal for them.

Speaker Change: Alright. Thank you and then maybe just my follow up question just on E. Commerce. So another strong year, obviously you added another partner.

Speaker Change: If you look at the outlook for 2025.

Speaker Change: Do you feel about the continued growth there or are there new initiatives or just sort of what are your feelings on can you give us the sand ecommerce momentum.

Nick: Yeah, Hi, it's Nick here.

Nick: I think as I mentioned, we mentioned in the past that the E. Commerce growth is really rooted in our differentiation. The fact that we have a lot of products that you can't find anywhere else lends itself to a lot of our customers, who need them or seek them getting them delivered or come into our stores to pick them up.

Nick: And I think as we've mentioned for US we look at it as well.

Nick: The customer needs us will be there for them, whether it's in store or online across our three key partners.

Nick: On the growth itself, we have seen really really strong growth as we noted in the script on E Commerce and that's been consistent across all three of our of our partners in the space.

Nick: And that the demand has also been strong in brick and mortar the good news.

Nick: E com customer as an omnichannel customer they shop, our stores and Theyre high value. So to your question on the future. I mean, we think there is E. Comm is going to continue to grow a little faster than our core business, which will.

Nick: Drive I think strong sales, both in brick and mortar and E comm for us and good customer growth.

Nick: Great. Thank you I'll pass it along.

Nick: Thanks next question.

Speaker Change: Our next question comes from Kelly Bania with BMO capital markets. You May proceed.

Kelly Bania: Hi, Thanks for taking our questions.

Speaker Change: John I think you made a comment you had about 7100 new items. This year I think that's been.

Speaker Change: Similar pace for the past couple of years, but I was just curious if you could talk about how many skus you have today.

Speaker Change: Are the same number of Skus being transitioned out every year and just.

Speaker Change: How do you feel about that dynamic and that adoption of <unk>.

Speaker Change: Skus that maybe are more competitive in mainstream grocery that you kind of pull out and just any holes in the pace of that dynamic as you look forward.

Speaker Change: A certainly moving fast and I think it has been moving fast over the last two or three years. We've got about 18 to 20000 skus on our business and we're rotating we're chasing that kind of number because everyone basically there's only a finite amount of space. So things I'll comment I didn't coming in and that's I think one of the things customers really like US again, a treasure hunt.

Not quite sure what's going to come next.

Come into the store with using this innovation center really effectively to bring people bring products into our business and then if they walk they can move into the main main site count us. So we're making I think part of the lumpy indifferent that who we are constantly changing our assortment is part of the excitement of coming into the store.

Speaker Change: It makes us some challenges in terms of replenishing and working behind that but it's something that we're very anxious to do because I think it makes a difference and we can reinvent ourselves.

Speaker Change: We expect products that come into our business sell really really well then they'll end up and more conventional retailers going forward and we kind of celebrate because then we can move on and keep reinventing ourselves and thats why so large gears to change and it brings some challenges for the team, but it is a really important part of our proposition of Kelly.

Speaker Change: Okay.

Speaker Change: Thank you that's helpful. Just wanted to dig in a little bit more on the self distribution comments it sounds like the meat and seafood. This year what is the impact to the P&L as you make this transition.

Speaker Change: And what could be the longer term benefits, whether it's cost savings or additional skus. Our freshness that you can bring to the table.

Speaker Change: Yes, so I'll work in reverse Kelly this is curtis, but yes, the benefit you've kind of nailed it right. It should be fresher product more control of that product and at a lower cost and it will land in gross margin. So there should be some gross margin upside in the long term there that'll be a 2026 and beyond story for US 2025 will be a.

Speaker Change: And here, we don't expect it to have a material impact transitions are always challenging.

Speaker Change: Fresh product, especially.

Speaker Change: But we don't expect a material impact from the transition, but we're not we're not counting on any benefit in 2025 either.

Speaker Change: Thank you.

Speaker Change: Thanks.

Speaker Change: <unk>.

Speaker Change: Our next question comes from Cristina <unk> with Deutsche Bank You May proceed.

Cristina: Hi, good afternoon, and great quarter.

Speaker Change: So you have some great progress on the marketing front and then the way sprouts is now leveraging social media and Influencers, how do you see it contributing to the improved customer frequency and overall.

Speaker Change: <unk> awareness of the breath banner and just listen on strength that Youre seeing an attribute based products just curious where the penetration of these products stands today and just what is the forging team most excited about right now.

Nick: Hi, Christine it's Nick.

Nick: Youre right I am really proud of the work the marketers have been doing.

Nick: To drive traffic, but is underneath spent a lot of customer growth new customer growth in visits from existing customers.

Nick: I would tell you, what's what's really helping us in driving US is we are differentiating our marketing as much as we've differentiated our product offering and.

Nick: And standing apart and a couple of ways that have really been working well to do that to engage one we have a we're having a lot of photos authentic storytelling.

Nick: We're talking to our target customer about what's most important to them. So for example in the fourth quarter.

Nick: A lot of traditional retailers will talk about seasonal items and product at a price we spend time talking about <unk>.

Nick: And cinnamon rolls and our sprouts brand pizza kits that are targeted just for our customers.

Nick: On social and our channels has got a ton of engagement.

We've talked about in the past our tailored media spend and messaging by region and market continues to pay dividends for us in the traffic it's driving.

Jack: And then I'm excited about our plans. This year. We are we are launching as Jack mentioned, our new brand campaign called that sprouts feeling.

Jack: Customers Love shopping us and in our research they've told us when they walk into our store and buy something there is this feeling that they can't describe that's unique that they don't feel anywhere else and so we're going to bring that to life in our marketing this year and share that with new and existing customers to help continue to drive the traffic and lead to more on.

Jack: Kristina regarding the Florida jobs are far just have got the best job in the world as far as I'm concerned.

Speaker Change: And I would like to do the job. They are very excited about everything the focus they go around looking at trade shows and looking for opportunities I think snacks has been a big opportunity for US I think drinks have been a big opportunity for US no now is on fire. This whole this whole non alcohol space and vitamins and supplements as being a huge.

Speaker Change: About 70% of our product is differentiated and we continue to push that agenda in the floor is yours are doing a great job photos Christina.

Speaker Change: Great. Thanks, and just as a follow up on the loyalty right you were doing it in two test markets. Initially during December I saw it expense in Georgia or actually signed up for it so any.

Speaker Change: Sort of early early any learnings that you can share as it relates to customer frequency or basket size and are you able to measure a wallet share changes. Indeed early test markets that would give your excitement for the Haynesville AD in the back half of the year. Thank you.

Speaker Change: Thanks for tuning in appreciate you're signing up and joining us. Thank you very much guys you got to see us in Georgia looking forward to taking care of you.

Speaker Change: What I would tell you is and we noted in the script, we're really pleased with the early indicators, we're seeing with the program as Jack mentioned, they're exceeding our expectations and these are in areas as we look at look at like sign ups and scan right. So early interest in the program in engagement and the program is really good.

Speaker Change: And we're seeing that to your question is yes, we certainly measure frequency basket.

Speaker Change: Retention in a handful of metrics within that and as we mentioned, we feel pretty good about where those numbers are.

Speaker Change: And what we're seeing so far from the 35 stores we are in pilot.

Speaker Change: And as we noted we're looking forward to a national rollout in the second half of the year to bring this to market to all of our customers.

Speaker Change: That's great. Thank you I'll pass it along.

Speaker Change: Thanks Sam.

Speaker Change: Got it.

Our next question comes from Edward Kelly with Wells Fargo. You May proceed.

Edward Kelly: Hi, everyone, good afternoon, and nice quarter.

Speaker Change: I wanted to ask about the growth.

Speaker Change: It's about the gross margin guidance for Q1, I mean, it's been a long time, but.

Speaker Change: Previously like set of pre pandemic Q1 was your highest gross margin quarter by quite a bit.

Speaker Change: And linked and I believe that maybe there is some conservatism in the Q1 gross margin guide based upon sort of how you are talking about it here I guess do those historical trends to hold is that is that a fair assessment.

Speaker Change: I think it has changed for US. This is Curtis I think it's changed for us over time and as we changed our strategy used to be stronger more because of what we did in Q2 and Q3 with price and item diluting our margins.

Speaker Change: So as we've changed the strategy and got more consistent day to day week to week quarter to quarter and how we think about our business from a margin perspective, that's kind of muted how much Q1 was better than the other quarters and it's more about the other quarters coming up a little bit more and having more opportunity because thats the place where we had.

Speaker Change: Those are the produce seasons right so that tended to be our big front page AD price and item type promos.

Speaker Change: Protos seasons in Q2, and Q3, so I think it's a little bit more about that than it is about the Q1 store.

Speaker Change: Okay, and then just the gross margin a follow up related to shrink.

Could you just talk a little bit more about the upside that you have been saying now you can talk about product shortages I'm sure in a very robust comp is probably helping with that.

Speaker Change: As things normalize or I guess, if things normalize from.

Speaker Change: From a comp perspective, do you give any of that shrink benefit back and just kind of curious as to how we should be thinking about like the outlook for that.

Speaker Change: Yes.

Speaker Change: I don't think we give back on the shrink line I think theres, a little bit of extra benefit more more so from the supply constraint piece I think than it is from the strong sales that is there as well, but I don't think we give the sales leverage piece back when we get to a more normalized comp environment.

Speaker Change: I think it's really the supply constraint thing that could put some pressure to it but it's not dramatic the majority of what we're experiencing now is is process efficiency and the improvement we've made in inventory in category management over the last 12 months to 18 months and again it surprised us a bit through 2024, but the teams have done a great job taking them.

Speaker Change: <unk> developed and the processes are improved and and and finding that shrink and getting rid of it in our business and so proud of the teams are doing a great job.

Speaker Change: It's mostly that in 2024, and we should see a normalized a normalization of that in 2025.

Speaker Change: Great. Thank you.

Speaker Change: Thanks, Ed.

Speaker Change: Our next question comes from Robbie <unk> with Bank of America You May proceed.

Speaker Change: Oh, Hey.

Thank you Bob.

Speaker Change: Jack I wanted to ask a kind of a follow up question on Kelly Bania. His question and it's about the capacity of the stores.

Speaker Change: Getting your stores enough I wish it would open some over here on the east coast, but.

Speaker Change: The <unk> will be less.

Speaker Change: Then second sooner.

Speaker Change: Thank you. Thank you Westchester County, hopefully.

Speaker Change: Yes, maybe in due course in due course excellent.

Speaker Change: I mean, youre opening some a little bit smaller size stores when I look back.

Speaker Change: Though like versus 2019 pre COVID-19 your sales per store or maybe up like 5% and I'm pretty sure. Your basket dollars are higher and is there how much.

Speaker Change: Let's say you kept comping the comp that you just put up for this quarter.

Speaker Change: Is there would you say there is capacity constrained are you. When you think about how strong your comps are are your stores too small for your opportunity now or is it they're actually.

Speaker Change: Not too small.

Speaker Change: The ticket is much higher and there is not super long lines and things like that.

Speaker Change: No I think we've done a really nice job of managing the volumes going through the stores remember when we take that made the stores smaller we didn't take any space away from the customer in that space. We took the space away from non customer facing space the back room and in the preparation areas, we cut that back and ended up with virtually.

Some categories with a little bit more skewed and been a little bit more space. So we didn't compromise that as we went smaller as we look at the volumes going forward I think we've got we've invested in self checkout, which I think is significantly helped us change the dynamic at the front end. So we've been able to cope with aggressive additional volume.

Speaker Change: Because there is a bit more traffic on the basket is growing as well so I'm not worried about that at this stage. If we start producing 200 comps and maybe we have to start thinking about it but the level. We're at at the moment, we've got plenty of room to grow in the stores that we've got and we're continuing to build these 23000 square foot store.

Speaker Change: And the numbers really cannot.

Speaker Change: It's a formula that's working floaters at the moment.

Speaker Change: That's helpful. And then just one follow up question also.

Speaker Change: E Commerce penetration do you think that kind of flattens out.

Speaker Change: From here, it's a little.

Speaker Change: But flattish quarter to quarter here do you think it flattened out at around 15 or something percent of sales or do you kind of grows in line with overall comp or do you think it continues to gain as a percent of sales.

Speaker Change: Ravi This is Curtis I think it'll continue to gain as a percentage of sales I think the the gain will be maybe smaller as we go forward, obviously, adding partners the last two years.

Accelerated some of that penetration growth, but we do expect it to outpace overall sales just not quite like it has the last few years.

Speaker Change: Got it sounds great. Thanks, so much ultimately the customer is going to just say well our e-commerce make says.

Speaker Change: Okay.

Speaker Change: That makes sense. Thanks, so much thanks Ross.

Speaker Change: Thanks, Ravi it's Joe.

Speaker Change: Our next question comes from Mike, Montana with Evercore ISI you May proceed.

Mike: Yes, hi, good afternoon, thanks for taking the questions.

Speaker Change: Just wanted to maybe ask first off.

Speaker Change: On the revenue side, if you could discuss any of the work that you all may be doing.

Speaker Change: To partner with different health care payers.

Speaker Change: To potentially find new pools of revenue that could be directed through that and then kind of related to that is.

Speaker Change: What you might be hearing on the snap front, because theres been some discussion as you know about the potential to change the dollars and snap and make them more directed towards healthy eating.

Speaker Change: Wanted to start with those questions.

Yes, Mike the question regarding health care Health care is a really important factor in terms of our team members and how we work with.

Speaker Change: Space that space and I do think the trends in the industry around people thinking more about nutrition and what it does for that hail and how that plays into the insurance market and how that plays into it is not something we've got really much to say about it right now, but it's certainly something we pay attention to and how thats going to work.

Speaker Change: So many take another look at in terms of where we're at specifically going forward.

Speaker Change: Mike. This is Curtis I'd, just add I mean, we're pretty heads down focused on unit growth and getting our proposition out to as many communities as possible. So as Jack said, it's on the radar, but not something we're actively pursuing.

Speaker Change: On the snap side of things I think increasingly that jurisdiction that manage snap evolving in terms of making it more healthy what you can buy on snap, which I think is an appropriate thing and I think given what's going to happen.

Speaker Change: That pressure point on nutrition, and health I think that will continue to evolve snaps nothing like as big for us as for many other people, but it is a factor and we need to keep looking at them.

Speaker Change: Just on the expense side, if I could quickly.

Speaker Change: Curtis the store closure costs from 2023.

Speaker Change: To those run off anytime soon is there.

The movement to stop that and then on supply chain have you seen any disruptions there.

Speaker Change: Terms of availability of fresh produce given.

Speaker Change: Some of what's going on with immigration and so forth.

Speaker Change: I'll cover the SG&A piece I'll pass it to Nick on the on the produce side.

Speaker Change: So from an SG&A perspective in the stores store closures, specifically that you asked about yes, that'll taper off over time I mean, we are working to get sub leases. Some of those were shorter term end of life type leases and they'll eventually.

Speaker Change: Run out so that should taper over time I think the run rate late in the year.

Speaker Change: As a decent starting point, but that should get smaller as we go kind of quarter to quarter to quarter Mike.

Speaker Change: And then the only other bit of noise in that line is there is some disaster recovery. So when we do have the weather events and those types of issues that that that those funds too.

Speaker Change: To take care team members and to get the stores keep the stores running generators things like that that also hits in that bucket.

And Mike It's Nick here on your question on Protos, we really haven't seen any disruption to our source of supply on the produce front across our commodities at this stage.

Speaker Change: Great. Thank you and good luck.

Speaker Change: Thanks, Mike.

Speaker Change: Our next question comes from Scott <unk> with <unk> capital you May proceed.

Scott: Hey, guys. Thanks, Thanks for taking my question. So I wanted to go back to something that John had said at the beginning of the call about our brand and collection.

Scott: And just kind of reflecting on some of the things that you guys are doing bringing distribution in house the marketing efforts.

Scott: I was wondering what else you think you could do to cement that brand.

Scott: Sprouts brand and consumers have.

Scott: <unk> some money into better spectrum produce I mean, what.

Scott: What can you do beyond what Youre doing but you've said on this call to really inflect the brand in a positive way and resonate with consumers and differentiate yourself in the marketplace even more so.

Scott: Yes, I think the reality of where we are at the moment. It is still a lot of people don't know whose products are and we've got plenty of opportunity to communicate I'm very excited by what the loyalty and personalization, what's going to do in terms of expanding the brand presence.

Scott: People, who should be more interested in it.

Scott: As we get more stores across the country. We are still at only 24 state. So how do we get to more states. So building more stores and communicate do we need to spend a little bit more on marketing going forward potentially although I think we're going to get much more efficient our marketing, which I think we've shown over the course of the year the whole.

Scott: Process by which we're buying a media and thinking about our media I think social the work. The teams have done in terms of social media I think has made a big difference to us this year and there's probably a lot more we can do in that space. Nick I don't know, whether you want to add on a little bit in terms of what we can do no I think you said it.

Scott: So there is still a lot of room ahead of us and the things we're already working on you mentioned it on the customer on loyalty on store growth and store density continuing to differentiate our assortment and the partnerships. We have long term with people who play in our space.

Theres certainly a lot of room for us to grow there.

Scott: Perfect Thats it from me guys. Thanks.

Speaker Change: Thanks, very much Scott.

Robert Dickerson: Our next question comes from Robert Dickerson with Jefferies. You May proceed.

Robert Dickerson: Great. Thanks, so much.

Robert Dickerson: I just wanted to circle back to the to the comp guidance, maybe one last time hopefully.

Speaker Change: There was another very large retailer grocer.

Robert Dickerson: That spoke earlier today.

Speaker Change: And clearly when they guided.

Robert Dickerson: Yeah.

Robert Dickerson: It was a little underwhelming right there are a lot of questions on the call.

Robert Dickerson: And there was this kind of like this idea that there is just a lot of uncertainty in the marketplace right and you can speak to some of the larger CPG companies as well.

Robert Dickerson: Just like kind of right in the near term I cut it right now.

Robert Dickerson: We are feeling a little less certain on kind of how how to guide right.

Robert Dickerson: Because of the environment.

Robert Dickerson: So with all that said Im just curious like.

Robert Dickerson: Clearly.

Robert Dickerson: When you guided for 2024, it was a heck of a lot lower right then.

Robert Dickerson: For the year ended.

Robert Dickerson: As we sit here now and we think Florida for 25.

Robert Dickerson: <unk>.

Robert Dickerson: With a great result in Q4 and another great result expected for Q1.

Robert Dickerson: What could be.

Robert Dickerson: Our real time deciding factor for maybe that growth to not continue and I realized you have more challenging comps.

Robert Dickerson: But now they are in the base and you're opening up new stores, we opened up new stores last year. So you still have new stores I saw it.

Robert Dickerson: Even.

Robert Dickerson: If the traffic really improved as widespread.

Robert Dickerson: Like why.

Robert Dickerson: Why it Couldnt got just a more widespread as we get through the back half of the year and I'm not suggesting we do double digit comps, but just curious if you kind of agree with your environment is a little Chunkier thing Theres, a little less certainty in the marketplace.

Robert Dickerson: But clearly if those trends continue.

Speaker Change: Maybe the year does provide a little bit better than you're guiding to let's just first question, Yes, I think I'll pass on to talk just to talk a little about the guidance and how we saw about guidance, but the specifics for me is in the nature almost I know this sounds a little bit strange, but almost wherever hopkins customer our customer.

Speaker Change: Our base is so interested in food and what the nutrition of what the <unk> whatever happens to the economy and that whole challenge of what people want to buy and how do they want to <unk>. Our customers are more discounting than most and I think that shields us a little bit from the vagaries of ups and downs and what other people may or might.

Speaker Change: Not do so we're pretty confident we know the share of wallet that we have with our existing customers is relatively small we just need to do a few things to get them growing and we feel we'll have some comfort in the numbers going forward, but your challenges right. There's a lot of uncertainty in the space going forward I'll, maybe let conscious <unk>.

Speaker Change: I think he kind of got it there all this uncertainty I think that's what we're looking at and we had two big step changes in our business last year, one in May and one in September where we kind of got to a different plan I think it's a different year from a guidance perspective, certainly last year sitting here on the call.

Speaker Change: Low single digit guide.

Speaker Change: Don't think anybody anticipated or thought we would accelerate like we did as quickly as we did throughout the year.

Speaker Change: So we're just again, it's been 10 plus years since we've seen those types of comps here at sprouts, we're excited to see how we comp over those but we want to see a little bit of those data at a few of those data points before we get too overclocked about promising something six 912 months down the line when there is a bunch of uncertainty.

Speaker Change: Okay.

Speaker Change: And then just maybe one more for me.

Speaker Change: I think you had said maybe in the prepared remarks, you made with Q&A.

Speaker Change: You have kind of line of sight, let's say about 110 approved new stores kind of in the pipeline.

Speaker Change: Now the stores are opening this year.

Speaker Change: Within pre existing markets.

Speaker Change: I'm just curious as we kind of think out the next 234 years whatever that timeline is.

Speaker Change: Is the idea.

Speaker Change: Kind of post this year that yes, we would still be opening a majority of those stores and those preexisting markets or as you start to build out the northeast and the Midwest.

Speaker Change: A much bigger percent of that 110, new stores are in new markets.

Speaker Change: Yes.

Speaker Change: Yeah. Thanks, Rob This is Curtis.

Speaker Change: Yes, the 110 that we have in the pipeline. The large majority of those are in the markets. We're in today.

Speaker Change: Basically all of them.

Speaker Change: And we are starting to plan for the Midwest were planning for the northeast, but that'll be a couple of year journey. So for the next two years. They will all be that's including this year 20 526, they will all be in.

Speaker Change: In our existing markets and then when we get to 'twenty seven and beyond that's where we'll start to see.

Speaker Change: Some of those newer geographies mix wise it will be 50 50 for the next couple of years.

Speaker Change: And then we will see when we get to 2027 and the.

Speaker Change: Plans that we're building in those markets, but I would expect $50 50 for the last couple of years.

Speaker Change: Okay perfect. Thank you so much.

Speaker Change: Thank you thanks, Joe.

Speaker Change: Our next question comes from Chuck Cerankosky with Northcoast Research you May proceed.

Speaker Change: Great quarter guys.

Speaker Change: Thanks Chuck.

Speaker Change: And looking back a little bit it wasn't it wasn't too long ago, Youre looking how to add those incremental items to the basket.

Speaker Change: And that seems to have been solved what what.

Speaker Change: Proportion of the basket now each basket now contains a new item Ora recently forged item.

Speaker Change: And you guys could define how that how you score that but I'd be very interested.

Speaker Change: Let's see how the.

Speaker Change: Attribute driven products are driving the comps.

Speaker Change: Okay.

Speaker Change: Well I don't think that we can give a specific answer on that but the reality is we launched seven new products in all of them, but in the attribute based space other than were launchings and this attribute based space. So increasingly our customers what they are buying from us and I think at 70% of our products are differentiated so other than we're buying is different to other people are buying I think.

Speaker Change: On the basket the overall basket numbers are flattened out basket stable.

Speaker Change: We've talked about that journey over the years in a quick turn items per basket and we stabilize there.

Speaker Change: Five six quarters have all been in that same range and so we've seen that MTT.

Speaker Change: It's per basket.

Speaker Change: Units per basket flatten out.

Speaker Change: We're excited to try and start moving that thing forward with some of the initiatives, we have in place, particularly loyalty and personalization.

And then a quick question about the.

Speaker Change: Self distribution of proteins, what kind of capital commitment will that be annually.

Speaker Change: No annual again, we've really made some of those capital investments.

Speaker Change: Historically as we've expanded space into the Dcs.

Speaker Change: That really got the room for US we'll have a few more moves to make there for the long term scale of the business.

Speaker Change: But we started the investment last year, specifically to prepare the Dcs around.

Speaker Change: For for meets here. This year. So some of that was in last year. The rest of it will hit this year and then every opportunity we get.

Speaker Change: To expand the geographies from a D C perspective.

Speaker Change: Consider that going forward. So it doesn't change the capital story dramatically on.

Speaker Change: From a supply chain perspective, and what's in our guidance and I saw it in our capital guidance and I think the DH as you know as you're trying to meet in different products, you've got to change the temperature regimes, a little bit which has involved some investment entities on top of the space that we've created.

Speaker Change: Great. Thanks, a lot good luck for this year.

Speaker Change: Thank you Sir.

Jack Sinclair: Thank you I would now like to turn the call back over to Jack Sinclair for any closing remarks.

Jack Sinclair: Thank you and thank everyone for their attention on the call. We really appreciate your interest in our business and we look forward to updating you as the year goes on thanks, everyone and have a good evening.

Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.

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Speaker Change: Good day, and thank you for standing by and welcome to the Sprouts farmers market fourth quarter and full year 2024 earnings conference call. At this time all participants are in a listen only mode. Please be advised that today's conference is being recorded after the speaker's presentation there'll be a question and answer session to ask a question. Please press star one.

Speaker Change: One on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again I would not like to hand, the conference over to your speaker today, Susannah Livingston, Vice President Investor Relations and Treasury.

Thank you and good afternoon, everyone. We are pleased you're joining sprouts on our fourth quarter and full year 2024 earnings call Jack Sinclair, Chief Executive Officer, Curtis Valentine, Chief Financial Officer, and Nick Kona, President and Chief operating Officer are with me today.

Speaker Change: The earnings release announcing our fourth quarter and full year 2024 results. The webcast of this call in financial slides can be accessed through the Investor Relations section of our website.

Speaker Change: Investors ask about dotcom.

Speaker Change: During this call management may make certain forward looking statements, including statements regarding our expectations for 2025 and beyond.

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

Speaker Change: 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.

Speaker Change: 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.

Jack: That let me hand, it over to Jack.

Jack Sinclair: Thanks, Suzanne and good afternoon, everyone first I'd like to extend my deepest gratitude to our dedicated team for their tireless efforts during the past few months our stores have been dealing with floods in the Carolinas, the Los Angeles wildfires and the unfortunate airplane crashed Philadelphia store.

I want to take this opportunity to thank our team members for supporting one another the communities, we serve and their families devastated by these events.

Jack Sinclair: Thank you to the firefighters and other first responders, who did so much I'm proud of the sprouts healthy communities Foundation, along with our customers a supporting firefighters under families and the rebuilding effort for communities in Los Angeles.

Jack Sinclair: 2024 was an outstanding year for spreads.

Jack Sinclair: It was one of tremendous execution and exceptional teamwork our teams across all areas of the business worked together to deliver a 13% increase in sales for the year of seven 6% comp on a bottom line margin improvement of more than 70 basis points.

Jack Sinclair: This success is a testament to the team's focus on our target customers delivering operational excellence daily and positioning spreads to capitalize on the ongoing trends towards healthy eating.

Jack Sinclair: Our target customers seek differentiated attribute driven healthy products. We believe these customers represent $200 billion.

Jack Sinclair: Of the one six trillion.

Jack Sinclair: Food at home market by maintaining our focus on their needs. We have established ourselves as a leader in trend forward health and speciality products. This focus includes all aspects of our business offering healthy products and practicing responsible sourcing are fundamental to our purpose to help people.

Jack Sinclair: Any better.

Jack Sinclair: Obviously, we're delighted that progressive grocer has recognized our commitment to offering this unique assortment by naming us retailer of the year for 2024, what truly matters to us is a recognition we receive.

Jack Sinclair: From a customer.

Jack Sinclair: In 2024, we introduced approximately 7100, new items, including more than 300, new products under the <unk> brand such as grass fed meat balls organic pasture raised eggs and the new real root line of premium health and beauty products.

Jack Sinclair: Our teams collaborated across functions to execute merchandising events.

Jack Sinclair: Actively highlighted our differentiated products such as our summer Cherry Festival, and we continue to get better at helping our target customers find the right products for them.

We ended the year with the company's best customer service scores. Thanks to a service orientated culture embodied by our store team members. We also streamlined our operations through disciplined inventory management across the stores distribution channels and support office positively impacting our sustainable margin profile.

Jack Sinclair: <unk>.

Jack Sinclair: Our customer engagement has continued to improve resulting in strong traffic across all of our channels and healthy new customer growth, our marketing is geared to our target customers.

Jack Sinclair: And as unique and differentiated much like our product offering we are seeing strong success and leaning away from a condensed conventional seasonal messaging to focusing on unique products and solutions, we continue to improve our ability to engage via social media by utilizing healthy eating trends.

And working with Influencers, who share our purpose of helping people live in beta.

Jack Sinclair: The addition of Uber eats as a delivery partner has helped us grow our e-commerce sales to above $1 billion, a significant landmark for our ecommerce team.

Jack Sinclair: In 2024, we expanded our footprint from sea to Shining Sea and added Wyoming is our 24th State. We opened 33, new stores, which together performed robustly and surpassed previous year's performance and our early expectations.

Jack Sinclair: Our growth created approximately 3300, new jobs, we promoted almost 20% of our 33000 team members in 2024, while continuing to cultivate a workplace culture that we believe will sustain profitable business for years to come.

Jack Sinclair: None of our achievements would be possible without our fantastic team.

Jack Sinclair: In summary, our achievements in 2024 have laid a strong foundation for the future and we're only just getting started we have significantly improved the talent in our business and I'm excited to work alongside our team members as we continue to unlock of incredible potential I'll discuss our 2025 journey in a few moments.

Jack Sinclair: For now I'll hand, it to conscious to review our 2020 for financial performance in the fourth quarter and the year as well as our 2025 outlook.

Jack Sinclair: <unk>.

Speaker Change: Thanks, Jack and good afternoon, everyone for the fourth quarter total sales were $2 billion up $298 million or 17, 5% from the same period last year.

Speaker Change: This increase was driven by comparable store sales growth of 11, 5% and adding new stores.

Speaker Change: Our strong comp performance was broad based and balanced across channels geographies baskets and traffic.

Speaker Change: October was the strongest comp month with both of the other months in the quarter also showing double digit comp growth.

Speaker Change: Our E Commerce sales grew approximately 37% representing 14, 5% of our total sales for the quarter with strong performance from all partners and.

Speaker Change: In addition, sprouts brand contributed 23% to our total sales for the quarter.

Speaker Change: As we've seen throughout the year the strong performance within categories with the most differentiation.

Speaker Change: Sprouts has experienced exponential growth in the attribute driven categories, gaining popularity due to the quality and health benefits. These products provide.

Speaker Change: This makes them a top choice for our customers to prioritize healthy eating year round, resulting in continued growth in our seasonal programs as we made attributes the story of the holidays at sprouts.

This fourth quarter, we saw strength across our core business and seasonal business and that combination was the key to our success.

Speaker Change: Our fourth quarter gross margin was 38, 1% an increase of 150 basis points from the same period last year.

Speaker Change: This was primarily due to leveraging our improvements in inventory management. In addition, our strong sales performance drove leverage in our supply chain and supply constraints further reduce shrink.

Speaker Change: SG&A for the quarter totaled $615 million, an increase of $101 million or approximately 60 basis points of deleverage from the same period last year.

Speaker Change: Deleverage was due to higher incentive compensation for our teams spending against our planned $15 million strategic investment in the business and.

Speaker Change: And increased e-commerce fees. This was partially offset by leverage from the higher sales.

Speaker Change: Store closure and other costs totaled approximately $4 million for the quarter. These are primarily related to costs associated with exiting leases related to our 2023 store closures.

Speaker Change: Depreciation and amortization, excluding depreciation included in the cost of sales was $35 million.

Speaker Change: For the fourth quarter, our earnings before interest and taxes were $106 million interest income was approximately $2 million and our effective tax rate was 26, 5%.

Speaker Change: Net income was $80 million and diluted earnings per share were <unk> 79, an increase of 61% compared to the same period last year.

Speaker Change: For the fiscal year 2024, total sales increased nearly 13% to seven 7 billion driven by comparable store sales growth of seven 6% and strong new store performance.

Speaker Change: Comp sales for the entire year were supported by strong traffic and increase basket, mainly due to product mix.

Speaker Change: Our focus on innovation and differentiated product assortments resonated well with our target customers driving overall sales. Additionally, we were thrilled to see the strong performance of our new stores across all regions.

Speaker Change: Gross margin was 38, 1% an increase of 120 basis points compared to adjusted gross margin last year the.

Speaker Change: Inventory and category management investments, we have made in SG&A over the past few years showed positive results and drove this year's improvements in gross margin.

Speaker Change: Additionally, our strong sales performance is creating supply chain leverage.

Speaker Change: SG&A expenses for the year totaled $2 3 billion, an increase of $300 million or approximately 55 basis points of deleverage compared to adjusted SG&A last year.

Speaker Change: <unk> leverages, mainly attributable to higher incentive compensation for the teams increased e-commerce fees linked to higher sales and spending against our planned $15 million investment in the business.

Speaker Change: Store closures and other cost totaled $13 million, primarily related to ongoing occupancy costs from our 2023 store closures depreciation and amortization excluding depreciation included in the cost of sales was $133 million.

Speaker Change: For 2024, our earnings before interest and taxes were $504 million interest income was $2 $2 million. Our effective tax rate was approximately 25% net income was $381 million and diluted earnings per share were $3 75.

Speaker Change: Yeah.

Speaker Change: An increase of 32% compared to the prior year's adjusted diluted earnings.

Speaker Change: We ended the year with 440 stores across 24 states.

Speaker Change: For the years ahead, we have over 110 approved new stores and nearly 70 executed leases in the pipeline.

Speaker Change: A strong and healthy balance sheet is underpinned our financial performance for the year, we generated $645 million in operating cash flow, which allowed us to invest $200 million in capital expenditures net of landlord reimbursement to grow our business, we voluntarily paid down our outstanding balance of 120.

Speaker Change: $5 million on our credit facility and returned $238 million to our shareholders by repurchasing two 7 million shares.

Speaker Change: We ended the year with $265 million in cash and cash equivalents.

Speaker Change: <unk> balance on our $700 million revolver.

Speaker Change: And $20 million of outstanding letters of credit.

Speaker Change: Our diluted weighted average shares outstanding were down 2% compared to last year, and we have repurchased 43% of our shares since we started our share repurchase program in 2015.

Speaker Change: We have $451 million remaining under our current share repurchase authorization.

Speaker Change: While we're pleased with our progress significant opportunities remain as we look ahead to our expectations for 2025, we remain focused on delivering earnings growth, while investing to unlock future opportunities.

Speaker Change: The significant improvements made to our business give us confidence in our ability to drive drive long term sustainable earnings growth.

Speaker Change: For 2025, we expect total sales growth to be 10, five to 12, 5% and comp sales in the range of four five to six 5%.

Speaker Change: We anticipate comp sales third the year stronger and moderate as we cycled the higher comps from late 2024.

Speaker Change: We plan to open at least 35, new stores adjusted earnings before interest and taxes are expected to be between 590 and $610 million and adjusted earnings per share are expected to be between $4 52.

Speaker Change: And $4 68, assuming no additional share repurchases.

Speaker Change: That said, we do expect to continue to repurchase shares opportunistically.

Speaker Change: We also expect our corporate tax rate to be approximately 25%.

Speaker Change: During the year, we expect capital expenditures net of landlord reimbursements to be between 230 and $250 million.

Speaker Change: To add a bit more color to the year, we anticipate a continued expansion of our gross margins.

Speaker Change: We plan to further reduce shrink and leverage our supply chain, which will help offset the costs associated with the rollout of our loyalty program.

Speaker Change: So we still have investments to support our growth, we expect slight SG&A leverage in 2025, as we lap higher incentive compensation for 2024, partially offset by pressure related to new store growth and strong E Commerce sales.

Speaker Change: We are effectively managing our expenses, while identifying opportunities for improvement. We continue to expect these investments will lead to profitable growth in the future as they have in our recent past.

Speaker Change: Most of our Capex spending will be for new stores with the remainder focused on supply chain and technology enhancements store refresh and maintenance and merchandising initiatives.

For the first quarter of the year, we continue to see momentum in the business and we expect comp sales in the range of approximately 10% to 11%.

Speaker Change: And adjusted earnings per share between $1 51, and $1 55.

Speaker Change: We also expect year over year improvement in gross margin by approximately 50 basis points as well as improvement in SG&A margin of approximately 75 basis points as we leveraged higher sales.

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

Jack: Thanks Scott.

Jack: Over the past year, we've made significant strides in our performance by continuing to establish a solid foundation for growth highlighting our uniqueness and living our purpose of helping people live any better we.

Jack: We have prioritized our target customers needs by focusing on differentiated merchandising marketing and store formats, which positions us well to compete in any environment that is more to come from this team with.

Jack: We are excited for 2025 as we build upon that strong foundation focus on what's working well and forge new capabilities for the future.

Jack: Got some exciting initiatives underway that we believe will further propel our growth and success. These plans include showcasing more innovation in our stores launching our loyalty program strengthening our advantaged supply chain for fresh products building exceptional stores, Alex enjoyable to sharpen and developing.

Jack: Best in class team dedicated to serving our customers.

Jack: Our target customers are more engaged than ever before and the role <unk> plays in that health and our ability to support them as a key reason vice price is succeeding.

Jack: Are they sounding shoppers, who scrutinize every ingredient seek wellness benefits explore culinary trends and aspired to more sustainable and premium choices, while looking to spreads as a trusted partner on that journey.

Jack: In 2025 product innovation, we will focus on where we have been winning specifically attribute driven products that are unique in the marketplace.

Jack: The <unk> team will continue sourcing the best innovation in our space such as organic clean ingredients minimally processed and pasture raised proteins, while staying ahead of evolving trends. Additionally, they will introduce more innovative sprouts brand items, such as organic avocado oil tortilla chips con.

Jack: Jack noodles organic reduced sugar possess an organic archived chunks.

Speaker Change: Our surprise, Brian this thriving delivering growth and outpacing company performance, while providing customers with products. They trust. The two years prior to rebranding initiative focusing on vibrant and clear messaging on our packaging is yielding positive results and will foster further growth.

Speaker Change: This year, we will market these exceptional products more effectively by emphasizing storytelling to highlight the uniqueness and attributes.

Speaker Change: Dedication of our team has led to an impressive product development pipeline planned for the next three years filled with new items tailored for those target customers.

Speaker Change: Projects remains nearly 20% of our sales and is at the heart of our farmers market appeal. We have seen this business steadily grow thanks to strong cross functional effort on our commitment to freshness variety and organics. The project team is also focused on growing our sourcing partnerships to bring more unique varietals Custer.

Speaker Change: Inspiring them to explore new items. These.

Speaker Change: These initiatives will enhance organic local and national supply and most importantly ensure exceptional freshness.

Speaker Change: In 2025, we will continue our strategic investment to attract you and health enthusiasts and increase our share of wallet among existing customers.

Speaker Change: Our strategy focuses on engaging customers in the channels, where they want to shop, whether in store delivery or pickup our teams will double down on what works in stores by providing seamless customer experiences on educating shoppers to sampling.

Speaker Change: Our retail mall E Commerce partners will continue to support us on our E Comm journey.

Speaker Change: Our merchandising team will collaborate with store teams to bring cross functional events to life, such as our surprise brand event, making it easy for customers to engage in a healthy living journey.

Speaker Change: We embrace our uniqueness, which is reflected in our marketing as well our messaging is different our media selection as unconventional a social is engaging and our in store messaging emphasizes key attributes. We're also testing a new marketing campaign called dot spreads feeling capturing the.

Speaker Change: <unk> customers feel when discovering something new fresh unhealthy justify them.

Speaker Change: I'm, particularly excited about our plans for personalization and loyalty customers love shopping at surprise, but we have a large opportunity to.

Speaker Change: An opportunity to increase our share of wallet with them our loyalty rollout will be a key step in our customer engagement journey, providing invaluable data to help us understand our customers and customize how we serve their needs better.

Speaker Change: In turn we expect to see them visit more often and add more items to the basket.

Speaker Change: In our test markets, we've been focusing on sign ups in scans as a key metric of customer engagement and both have met and exceeded our expectations in December we expanded our loyalty test and pilot across 24 additional stores in four markets.

Speaker Change: As we look to the rest of the year, we will continue our pilot through the second quarter as we add additional functionality in the third quarter, we plan to launch our program in a phased rollout across our regions to continue through the rest of the year.

Speaker Change: We have made significant progress in developing an advantaged supply chain supporting our future growth.

Speaker Change: Over the past few years, we have implemented new systems expanded existing space and built new facilities as we prepare to sell and distribute more categories. These.

Speaker Change: These investments have enabled us to take create to support some control of our supply chain operations.

Across 2025, we are transitioning to self distribute our meat and seafood alongside projects capitalizing on the capacity and capabilities. We have created over the past few years, we will move through this transition gradually over the next year with support from third party distributors as an interim.

Speaker Change: Debt.

Additionally, in 2025, we will continue to invest in our distribution network as we grow across the country.

Speaker Change: As for growth, we plan to open at least 35 stores for the year. These stores will be located entirely in our existing markets further densify footprint, while 2025 openings will create store density in our existing footprint. We will also set the table for future expansion into new regions as we bill.

Speaker Change: Our market plans for the Midwest and the northeast.

Speaker Change: We are confident in our journey to provide access to spreads and as many communities as possible.

Speaker Change: Lastly, our team is at the heart of surprises and we are dedicated to the growth and development. We are proud of the culture at spreads. It is our privilege to reinvigorate. The culture. This approach does created many years ago as we grow we will narrow roads on the journey that brought us here.

Speaker Change: <unk> commitment to culture has led to lead to a team member rate rent tension, reaching all time highs in 2025, we will strengthen our coaching and mentorship programs and continued developing future leaders, making spread it's a place where people can truly truly sluggish Andrew without expansion through new store.

Speaker Change: <unk> across the country, we are eager to offer even more career opportunities for our talented <unk>. Our team is our greatest asset and we.

Speaker Change: We're committed to fostering a culture that supports their success.

Speaker Change: In summary, we are excited about the future of spreads and the growth opportunities that 2020 FICO break we're even more excited about the years ahead, we have a clear strategic focus and a strong team committed to executing our initiatives at a high level.

Speaker Change: By taking care of our team members, who in turn take care of our customers' needs. We are confident we will achieve strong financial performance and continue creating value for our shareholders. We look forward to sharing our progress with you in the coming quarters with that I would like to turn it over for questions operator.

Speaker Change: Thank you 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, one moment for questions.

Speaker Change: Our first question comes from.

Jordan: Jordan <unk> with Goldman Sachs. You May proceed.

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

Speaker Change: I just wanted to thank you for your op margin.

Jordan: Margin.

Speaker Change: <unk> had said you expect continued expansion in the coming year and I think there's many things you've talked about the category management that you've highlighted but justine.

Speaker Change: Could provide more detail on the magnitude that you're thinking about expansion for this year and any puts and takes as we move through the year.

Speaker Change: As I know you have some lapsed with stronger protein even last year.

Speaker Change: Alright, Thanks Leah.

Speaker Change: Curtis.

Speaker Change: So call it 25 to 30 basis points for the year, we kind of had the first quarter in the script at approximately 50.

Speaker Change: And then it will kind of settle to just slight leverage for the rest of the year.

It's still shrink and supply chain leverage leverage from the sales, especially early in the year. It will be a factor in driving some of that leverage.

Speaker Change: I think the only other note is late in the year, we certainly some of the supply constraints led to some better shrink this year, so that might put a little bit of pressure on the fourth quarter and later in the year next year from a shrink perspective, but it.

Speaker Change: Should be leverage each quarter.

Speaker Change: Okay very helpful. Thank you.

And then I just wanted to ask about store growth I saw you guys are planning to open at least 35 new stores. This year that is a slight acceleration in doors from last year, but we're still not at the longer term target of 10% I think that's obviously in line with what <unk> communicated so far but just.

Speaker Change: Maybe an update on where we are and how you view the path back to 10% are you still seeing an issue with developers with interest rates. So high and then any color maybe on how we should think about the cadence of store openings this year as well.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Remain really focused on growing our business through new stores and will continue and we're certainly pushing hard to keep moving faster, we're being very judicious in the stores that we're taking and the sites that we're getting we know where those 200 sites across the United States that could support a price in terms of the target customer and we also know that way.

Speaker Change: To get the exactly right place without notice.

Speaker Change: Griffey to make sure it's going to work. So that's the first stage of it our model has been making sure that the stores that we opened our watkins well and that's coming to fruition in terms of what's happened in 2024, and we certainly expect that in 2025.

Speaker Change: There are still some constraints were kind of wondering exactly what's going to happen with developers and what's going to happen with interest rates and what's going to happen in the steel tariffs and those kind of things, but by and large we are confident in the number that we felt for this year and I am confident we will start to build more in the years ahead.

And then Lee just to add on to that from a timing perspective, we'll do four in the first quarter here and then it's pretty smooth the rest of the year quarter to quarter to quarter.

Speaker Change: That gets you to 35.

Speaker Change: And on the at least or the plus side ahead of 35, it would be all back loaded be late in the year. If we were to get past 35.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from John <unk> with Guggenheim Securities You May proceed.

Speaker Change: Yeah.

Speaker Change: So Jack I wanted to start with.

Speaker Change: Your thoughts on the concept of brand tipping point.

Speaker Change: Brian because you've had this acceleration in comps over the last nine months and I know that.

Speaker Change: If we take the first quarter and kind of look at <unk> through <unk>, it's sort of like a low single digit.

Speaker Change: <unk>.

Speaker Change: Two or three in the back half of the year.

Speaker Change: What's your thought on that and I don't think youre changing the secular algo.

Speaker Change: Are we hitting a brand tipping point, where that low single digit is conservative.

Speaker Change: Cost of your engagement and your brand awareness with with the consumer broadly.

Speaker Change: Yes, it's a great question, John and I'll, let Tim just talk about the algorithm a level that jumps out of that market going forward, but significant opportunity in our business the target customer is.

Speaker Change: Modal.

And they can spend more with us the share of wallet that we have.

Speaker Change: Such that we believe as we walk through our merchandising our marketing our loyalty personalization that we can get a greater share of wallet of existing customers and that's going to be more health focused customers in the future. So we're very confident in the underlying opportunity that exists in the business at the same time, we're being thoughtful and can set up.

Speaker Change: As to what the opportunities are.

Speaker Change: In the short term, but overall, we're pretty confident that the number that we put down for 2025, we are comfortable with.

Speaker Change: There'll be more to come as we go through the course of the next year or two yes, John I'd just add.

Speaker Change: Yes.

Speaker Change: Jack said confident but it's a long year ahead, there is a lot of macro.

Speaker Change: The two to four the algo is we'll deliver it every quarter and every environment is kind of the mindsets of that this.

Speaker Change: This year will be an interesting year for us we're going to comp some mid to high single digit are now in the double digits in the fourth quarter. When we get there later this year. So that'd be the first time, we've done that in 10 plus years as a company.

Speaker Change: So we're excited to see how that plays out and certainly.

Speaker Change: The extent there is upside we will be talking to you about it every quarter from here on out.

Speaker Change: And then maybe as a follow up right.

Speaker Change: Spansion of the supply chain opportunity.

Speaker Change: Seafood.

Speaker Change: What's the thought on how far you can push that and I don't think you want to do.

Speaker Change: <unk> type activity.

Speaker Change: Because of the quality and freshness impact.

Speaker Change: Or maybe I'm wrong about that but how far can you push.

Speaker Change: The potential of what you can do out of your Dcs.

Speaker Change: Well certainly we as we said in the script, we've built capacity and capability in our business going forward. So we've got space to do more categories going forward and we've created the infrastructure in terms of having replenishment and being able to forecast the way we want to forecast. So we've got choice going forward and very specific.

Speaker Change: Typically fresh foods as a fresh meat categories under categories around fresh meat.

Speaker Change: The ones that we're working on this year. We can go beyond that I think we've talked in the past potentially could reach <unk> private label potentially could we get some other categories.

Speaker Change: Theres a lot about it and working with some of our partners that help us.

But we've got some opportunities to go further with regard to commentary that Youre absolutely right. That's not something we're planning to do when a car business has got so many states and so it's a complicated exercise and I think we would take.

Speaker Change: But if we took out of the stores and put it in tech commentary.

Speaker Change: Thank you.

John: Thanks, John.

Speaker Change: Thank you.

Mark Carden: Our next question comes from Mark Carden with UBS you May proceed.

Mark Carden: Good afternoon. Thanks, so much for taking the questions and very nice quarter guys.

Mark Carden: Just another one on the top line you guys continue to comp obviously, a really strong rate youre growing at a much faster pace than the industry. Overall do you have a sense of what channels you are taking the most market share from at this point have you seen any changes and then are you seeing any differences in the demographic profiles, new shoppers relative to your existing base even within that.

Mark Carden: $200 billion bucket that you are going after.

Mark Carden: Yeah, Hey, Mark this is Nick thanks for the question.

Mark Carden: As you look at where our growth is coming but its very balanced we're seeing a lot of balance in our growth, both whether that be channels brick and mortar E com or regions.

Mark Carden: And parts of the country, we're seeing that growth, even our new stores in our existing stores, both seeing strong growth. So there's good balance there.

Mark Carden: A question on the customer the good news is we're seeing growth a lot of new customer growth. We're also seeing our existing customers engage with us more both in the frequency in which they visit.

Mark Carden: And how much they're spending with us so again kind of to the same theme of a balance.

Mark Carden: From a demographic standpoint, I would tell you that there hasnt been a lot of change and for US. The most important thing is almost more of a lifestyle.

Mark Carden: The type of customers, we have and our customers are looking for ways to live and eat better. It's all about research and labels in things like organic and gluten free for them. So thats the more important sort of segment for us than a demographic, but I think we've talked in the past our core demographic still remains higher educated higher income.

Speaker Change: Skews, a little bit more female.

Mark Carden: Consistent with we're seeing in our new customer growth as well.

Speaker Change: Great. That's helpful. And then just on the potential tariff front, what proportion of your offerings do you guys in part overall and then how easily can you mitigate some of the potential sourcing headwinds.

Speaker Change: Yes, I think as you kind of understand your majority of food that we sell comes from the United States. We've got some dynamics around Dr. Fresh project business from say from Central and South America, exactly what's going to happen to tariffs. So we've got no idea and that's something that we're watching we're ready to move whether it will work very closely with our partner.

Speaker Change: Growers will work very closely with the opportunity to change sourcing if we need to and we've got we're going to make sure we manage our business irrespective of where it comes as it comes from us on that front.

Speaker Change: And that's kind of from a sourcing point of view, we might make a few changes, but I think we'll manage our price gaps and we will manage our margin as we always do.

Speaker Change: Alright, thanks, so much good luck guys.

Speaker Change: Thanks Marty.

Speaker Change: Our next question comes from refresh Farooq with Oppenheimer <unk> Company you May proceed.

Farooq: Good afternoon, and thanks for taking my question and also congrats on a really strong quarter.

Farooq: So just going back to your comp momentum so comps again accelerating Q4, youre continuing to see strong momentum it sounds like quarter to date.

Farooq: Any new factors contributing to complement the acceleration that you're seeing in the business and also just curious if youre seeing any impact related to wildfires.

Curtis: Hey, refresh as Curtis.

Curtis: No real material changes and whats driving the comps.

Curtis: Nick hit on a little bit in the last answer it's pretty broad and balanced the acceleration as we said last quarter is coming from new stores and it is coming from brick and mortar traffic, which we're really pleased with.

And then as it relates to.

Curtis: The impact quarter to date from weather events or wildfires no. Those are typically pretty immaterial from us or for us.

Curtis: We don't see a lot there and we haven't seen a lot that would be material to us.

I think maybe I'll, just let jacques speak to the events in the <unk>.

Curtis: First quarter, there and the team member impact but.

Curtis: From a comp perspective, it's immaterial.

Curtis: I think.

Curtis: From a numbers point of view.

Curtis: Of an upside down a little bit of a downside in Holland that solve the same in terms of what can I.

Curtis: Our teams, particularly the files in Los Angeles, we had a lot of people displaced from that with a lot of people we didn't lose any stores. Thank goodness in some of the other people that so but the way our teams on how resilient. They were as I said in the script is something that inspires us in terms of how people support the communities through it and we're continuing to support those team members that have been affected.

Curtis: And it was a big deal for them.

Speaker Change: Alright. Thank you and then maybe just my follow up question just on E Commerce.

Curtis: Another strong year, obviously you added another partner.

Curtis: You look at the outlook for 2025.

Curtis: Or you feel about the continued growth there in our new initiatives are just aren't what are your feelings on being able to sustain the ecommerce momentum.

Nick: Yeah, Hi, it's Nick here.

Nick: I think as I mentioned, we mentioned in the past that the E. Commerce growth is really rooted in our differentiation. The fact that we have a lot of products that you can't find anywhere else lends itself to a lot of our customers.

Nick: Who need them or seek them getting them delivered or coming to our stores to pick them up.

Nick: And I think as we've mentioned for US we look at it as well.

Nick: The customer needs us will be there for them, whether it's in store or online across our three key partners.

Nick: On the growth itself, we have seen really really strong growth as we noted in the script on E Commerce and that's been consistent across all three of our of our partners in the space.

Nick: And that the demand has also been strong in brick and mortar the good news.

Nick: E com customer as an omnichannel customer they shop, our stores and they're high value. So to your question on the future. I mean, we think there is E. Comm is going to continue to grow a little faster than our core business, which will.

Nick: Drive I think strong sales, both in brick and mortar and E comm for us and good customer growth.

Nick: Great. Thank you I'll pass it along.

Nick: Thanks next question.

Kelly Bania: Our next question comes from Kelly Bania with BMO capital markets. You May proceed.

Kelly Bania: Hi, Thanks for taking our questions.

Speaker Change: John I think you made a comment you had about 7100 new items. This year I think that's been.

Speaker Change: Similar pace for the past couple of years, but I was just curious if you could talk about how many skus you have today.

Speaker Change: Are the same number of Skus being transitioned out every year and just.

Speaker Change: How do you feel about that dynamic and that adoption of <unk>.

Speaker Change: Skus that maybe are more competitive in mainstream grocery that you kind of pull out and just any holes in the pace of that dynamic as you look forward.

Speaker Change: A certainly moving fast and I think it has been moving fast over the last two or three years. We've got about 18 to 20000 skus on our business and we're rotating we're chasing that kind of number because everyone basically there's only a finite amount of space. So things I'd comment I didn't coming in and that's I think one of the things customers really like US again, a treasure hunt.

Speaker Change: Not quite sure what's going to come next.

Speaker Change: Come into the store, we're using this innovation center really effectively to bring people bring products into our business and then if they walk they can move into the main main site count us. So we're making I think part of the love being different that who we are constantly changing our assortment is part of the excitement of coming into the store.

Speaker Change: It makes us some challenges in terms of replenishing and working behind that but it's something that we're very anxious to do because I think it makes a difference and we can reinvent ourselves.

Speaker Change: We expect products that come into our business sell really really well then they'll end up and more conventional retailers going forward and we kind of celebrate because then we can move on and keep reinventing ourselves and that's why so large gives to change and it brings some challenges for the team, but it's a really important part of our proposition Kelly.

Speaker Change: Okay.

Speaker Change: Thank you that's helpful.

Speaker Change: Just wanted to dig in a little bit more on the self distribution comments, it sounds like <unk> and <unk>.

Speaker Change: So this year what is the impact to the P&L as you make this transition.

Speaker Change: And what could be the longer term benefits, whether it's cost savings or additional skus. Our freshness that you can bring to the table.

Speaker Change: Yes, so I'll work in reverse Kelly this is curtis, but yes, the benefit you kind of nailed it right. It should be fresher product more control of that product and at a lower cost and it will land in gross margin. So there should be some gross margin upside in the long term there that'll be a 2026 and beyond story for US 225 will be a.

Speaker Change: <unk> transition year, we don't expect it to have a material impact transitions are always challenging.

Speaker Change: Fresh product, especially.

Speaker Change: But we don't expect a material impact from the transition, but we're not we're not counting on any benefit in 2025 either.

Speaker Change: Thank you.

Speaker Change: Thanks.

Speaker Change: Our next.

Speaker Change: <unk> comes from Cristina <unk> with Deutsche Bank You May proceed.

Hi, good afternoon, and great quarter.

Speaker Change: So you have some great progress on the marketing front and then the way sprouts is now leveraging social media and Influencers.

Speaker Change: Do you see it contributing to the improved customer frequency and overall.

Speaker Change: <unk> awareness of the breath banner and also the strength that youre seeing an attribute based products just curious where the penetration of these products stands today and just what is the forging team most excited about right now.

Nick: Hi, Christine it's Nick.

Nick: Youre right I am really proud of the work the marketers had been doing.

Speaker Change: To drive traffic, but is underneath spent a lot of customer growth new customer growth in visits from existing customers.

Speaker Change: I would tell you, what's what's really helping us in driving US is we are differentiating our marketing as much as we've differentiated our product offering and.

Speaker Change: And standing apart a couple of ways that have really been working well to do that to engage one we have a we're having a lot of photos authentic storytelling.

Speaker Change: We're talking to our target customer about what's most important to them. So for example in the fourth quarter.

Speaker Change: A lot of traditional retailers will talk about seasonal items and product at a price we spend time talking about <unk>.

Speaker Change: <unk> cinnamon rolls and our sprouts brand pizza kits that are targeted just for our customers.

Speaker Change: Activity on social and our channels has got a ton of engagement.

Speaker Change: We've talked about in the past our tailored media spend and messaging by region and market continues to pay dividends for us in the traffic it's driving.

And then Im excited about our plans. This year. We are we are launching as Jack mentioned, our new brand campaign called that sprouts feeling.

Speaker Change: Customers Love shopping us and in our research they've told us when they walk into a store and buy something there is this feeling that they can't describe that's unique that they don't feel anywhere else and so we're going to bring that to life in our marketing this year and share that with new and existing customers to help continue to drive the traffic and lead to more on.

Speaker Change: Kristina regarding the Florida, Jos our product just have got the best job in the world as far as I'm concerned and I would like to do the job. They are very excited about everything the focus so they go around looking at trade shows and looking for opportunities I think snacks has been a big opportunity for US I think drinks have been a big opportunity for US now is on <unk>.

This whole this whole non alcohol space on vitamins and supplements has been a huge about 70% of our product is differentiated and we continue to push that agenda and its largest youre doing a great job photos Christina.

Speaker Change: Alright, Thanks, and just as a follow up on the loyalty right you were doing it in two test markets. Initially during December I saw it expense in Georgia, where we actually signed up for it so any of these sort.

Speaker Change: Are they.

Speaker Change: Early any learnings that you can share as it relates to customer frequency or basket size and are you able to measure a wallet share changes and these early test markets that would give you excitement further phases will add in the back half of the year. Thank you.

Speaker Change: Thanks for tuning in appreciate you're signing up and joining us. Thank you very much guys you've got to see us in Georgia looking forward to two taken care of you.

Jack Sinclair: What I would tell you is and we noted in the script, we're really pleased with the early indicators, we're seeing with the program as Jack mentioned there <unk>.

Jack Sinclair: Meeting our expectations and these are in areas as we look at look at like sign ups and scan right. So early interest in the program and engagement of the program is really good.

Jack Sinclair: We're seeing that to your question is yes, we certainly measure frequency basket.

Jack Sinclair: Retention in a handful of metrics within that.

Jack Sinclair: And as you mentioned, we feel pretty good about where those numbers are.

Jack Sinclair: And what we're seeing so far from the 35 stores were in pilot.

Jack Sinclair: And as we noted we're looking forward to a national rollout in the second half of the year to bring this to market to all of our customers.

Jack Sinclair: That's great. Thank you I'll pass it along.

Sam: Thanks Sam.

Jack Sinclair: Got it.

Speaker Change: Our next question comes from Edward Kelly with Wells Fargo. You May proceed.

Edward Kelly: Hi, everyone, good afternoon, and nice quarter.

Edward Kelly: I wanted to ask about the gross but thats about the gross margin guidance for Q1, I mean, it's been a long time, but.

Edward Kelly: Previously like set of pre pandemic Q1 was your highest gross margin quarter by quite a bit.

Edward Kelly: At least that I believe that maybe there is some conservatism in the Q1 gross margin guide based upon sort of how you are talking about here I guess those historical trends to hold is that is that a fair assessment.

Edward Kelly: I think it has changed for US. This is Curtis I think it's changed for us over time and as we changed our strategy.

Edward Kelly: To be stronger more because of what we did in Q2 and Q3 with price and item diluting our margins.

Edward Kelly: So as we've changed the strategy and got more consistent day to day week to week quarter to quarter and how we think about our business from a margin perspective, that's kind of muted how much Q1 was better than the other quarters and it's more about the other quarters coming up a little bit more and having more opportunity because thats the place where we had.

Edward Kelly: Those are the produce seasons right so that tended to be our big front page AD price and item type promos in protos seasons in Q2, and Q3, So I think it's a little bit more about that than it is about the Q1 store.

Speaker Change: Okay, and then just the gross margin on a follow up related to shrink.

Speaker Change: Could you just talk a little bit more about the upside that you've been seeing or you can talk about product shortages I'm sure very robust comp is probably helping with that.

Speaker Change: As things normalize or I guess, if things normalize from.

Speaker Change: From a comp perspective, do U K, if any of that shrink benefit back and just kind of curious as to how we should be thinking about like the outlook for that.

Yes.

Speaker Change: I don't I don't think we give back on the shrink line I think theres, a little bit of extra benefit more more so from the supply constraint piece I think than it is from the strong sales that is there as well, but I don't think we give the sales leverage piece back when we get to a more normalized comp environment.

Speaker Change: I think it's really the supply constraints that could put some pressure to it but it's not dramatic the majority of what we're experiencing now is is process efficiency and the improvement we've made in inventory in category management over the last 12 months to 18 months and again it surprised us a bit through 2024, but the teams have done a great job.

Speaker Change: The tools, we've developed and the processes are improved.

Speaker Change: And finding that shrink and get rid of it in our business and so proud of the teams are doing a great job.

Speaker Change: It's mostly that in 2024, and we should see a normalized a normalization of that in 2025.

Speaker Change: Great. Thank you.

Ed: Thanks, Ed.

Ed: Our next question comes from Robbie <unk> with Bank of America You May proceed.

Speaker Change: Oh, hey, thanks.

Speaker Change: Hey, Jack I wanted to ask a kind of a follow up question on Kelly Bania. His question and it's about the capacity of the stores.

I don't get in your stores enough I wish you would open some.

Speaker Change: Here on the East coast, but.

Speaker Change: The will be there.

Speaker Change: Sooner.

Speaker Change: Thank you. Thank you Westchester County, hopefully.

Speaker Change: Yes, maybe.

Speaker Change: And in due course excellent.

Speaker Change: I mean, youre opening some a little bit smaller size stores.

Speaker Change: I look back though.

Speaker Change: Versus 2019 pre Covid your sales per store or maybe up like 5% and I'm pretty sure. Your basket dollars are higher and is there how much.

Let's say you kept comping the comp that you just put up for this quarter.

Is there would you say there is capacity constrained are you. When you think about how strong your comps are are your stores too small for your opportunity now or is it they're actually.

Speaker Change: Not too small.

Speaker Change: The ticket is much higher and there is not super long lines and things like that.

Speaker Change: No I think we've done a really nice job of managing the volumes going through the stores remember when we take that made the stores smaller we didn't take any space away from the customer in that space, we took space away from non customer facing space the back room and the preparation areas, we cut that back and ended up with virtually.

Speaker Change: Some categories are a little bit more skus and a little bit more space. So it didn't compromise that as we went smaller as we look at the volumes going forward I think we've got we've invested in self checkout, which I think is significantly helped us change the dynamic at the front end. So we've been able to cope with aggressive additional volume.

Speaker Change: They are because there is a bit more traffic on the basket is growing as well so I'm not worried about that at this stage. If we start producing 200 comps than maybe we have to start thinking about it but the level. We're at at the moment, we've got plenty of room to grow in the stores that we've got and we're continuing to build these 23000 square foot store.

Speaker Change: And now the numbers really cannot.

Speaker Change: It's a formula that's working floaters at the moment.

Speaker Change: That's helpful. And then just one follow up question also.

Speaker Change: The E Commerce penetration do you think that kind of flattens out.

Speaker Change: From here, it's a little bit flattish quarter to quarter here do you think it flattens out at around 15 or something percent of sales or do you kind of grows in line with overall comp or do you think it continues to gain as a percent of sales.

Speaker Change: Ravi This is Curtis I think it will continue to gain as a percentage of sales I think the the gain will be maybe smaller as we go forward, obviously, adding partners the last two years.

Speaker Change: Accelerated some of that penetration growth, but we do expect it to outpace overall sales just not quite like it has the last few years.

Speaker Change: Got it sounds great. Thanks, so much ultimately the customer is going to just say well our E Commerce makes says.

Speaker Change: Okay.

Ross: That makes sense. Thanks, so much thanks Ross.

Speaker Change: Thanks Ravi.

Speaker Change #100: Our next question comes from Mike, Montana with Evercore ISI you May proceed.

Mike: Yes, hi, good afternoon, thanks for taking the questions.

Speaker Change #100: I just wanted to maybe ask first off.

Speaker Change #100: On the revenue side, if you could discuss any of the work that you all may be doing.

Speaker Change #100: To partner with different healthcare Payors.

Speaker Change #100: To potentially find new pools of revenue that could be directed through that and then kind of related to that is.

Speaker Change #100: What you might be hearing on the snap front, because theres been some discussion as you know about the potential to change the dollars and snap and make them more directed towards healthy eating.

Speaker Change #100: Wanted to start with those questions.

Yes, Mike the question regarding health care Health care is a really important factor in terms of our team members and how we work with.

Speaker Change #100: A space that space and I do think the trends in the industry around people thinking more about nutrition and what it does part of that health and how that plays into the insurance market and how that plays into it it's not something we've got really much to say about it right now, but it's certainly something we pay attention to and how that's going to work.

Speaker Change #100: So <unk> taken a look at in terms of where we're at specifically going forward.

Speaker Change #100: Mike. This is Curtis I'd, just add I mean, we're pretty heads down focused on unit growth and getting our proposition out to as many communities as possible. So as Jack said, it's on the radar, but not something we're actively pursuing.

Speaker Change #100: On the <unk> side of things I think increasingly the jurisdictions that manage snap evolving in terms of making it more healthy what you can buy on snap, which I think is an appropriate thing and I think given what's going to happen.

Speaker Change #100: That pressure point on nutrition, and health I think that will continue to evolve snaps nothing like as big for us as for many other people, but it is a factor we need to keep looking at them.

Just on the expense side, if I could quickly.

Speaker Change #100: For Curtis the store closure costs from 2023.

Speaker Change #100: To those run off anytime soon is there movement.

Speaker Change #100: A movement to stop that and then on supply chain have you seen any disruptions there in terms of availability of fresh produce given.

Speaker Change #100: Some of what's going on with immigration and so forth.

Speaker Change #100: I'll cover the SG&A piece I'll pass it to Nick on the on the produce side.

Speaker Change #100: So from an SG&A perspective in the stores store closure, specifically that you asked about yeah that'll taper off over time I mean, we are working to get sub leases. Some of those were shorter term end of life type leases and they'll eventually.

Speaker Change #100: Run out so that should taper over time I think.

Speaker Change #100: The run rate late in the year.

Speaker Change #100: As a decent starting point, but that should get smaller as we go kind of quarter to quarter to quarter Mike.

Speaker Change #100: And then the only other bit of noise in that line is there is some disaster recovery. So when we do have the weather events and those types of issues that that that those funds too.

Speaker Change #100: To take care team members and to get the stores keep the stores running generators things like that that also hits in that bucket.

Speaker Change #100: Mike It's Nick here on your question on Protos, we really haven't seen any disruption to our source of supply on the produce front across our commodities at this stage.

Speaker Change #100: Great. Thank you and good luck.

Speaker Change #100: Thanks, Mike.

Speaker Change #101: Our next question comes from Scott <unk> with <unk> capital you May proceed.

Speaker Change #102: Hey, guys. Thanks, Thanks for taking my question. So I wanted to go back to something that John had said at the beginning of the call about our brand and collection.

Speaker Change #102: And just kind of reflecting on some of the things that you guys are doing bringing distribution in house the marketing efforts.

Speaker Change #102: I was wondering what else you think you could do to cement that brand.

Speaker Change #102: Sprouts brand in consumers' heads at reinvesting some money into better spectrum produce I mean, what.

Speaker Change #102: What can you do beyond what Youre doing but you've said on this call to really inflect the brand in a positive way and resonate with consumers and differentiate yourself in the marketplace even more so.

Speaker Change #102: Yes, I think the reality of where we're at at the moment. It is still a lot of people don't know whose products are and we've got plenty of opportunity to communicate I'm very excited by what the loyalty and personalization, what's going to do in terms of expanding the brand presence.

Speaker Change #103: People, who should be more interested in it.

Speaker Change #103: As we get more stores across the country. We are still at only 24 state. So how do we get to more states. So building more stores and communicate do we need to spend a little bit more on marketing going forward potentially although I think we're going to get much more efficient our marketing, which I think we've shown over the course of the year the whole.

Speaker Change #103: Process by which we're buying a media and thinking about our media I think social but the teams have done in terms of social media I think has made a big difference to us this year and there's probably a lot more we can do in that space.

Speaker Change #103: Whether you want to add on a little bit in terms of what we can do I think you said it.

Speaker Change #103: So there is still a lot of room ahead of us and the things we're already working on you mentioned it on the customer on loyalty on store growth and store density continuing to differentiate our assortment and the partnerships. We have long term with people who play in our space.

Speaker Change #103: Theres certainly a lot of room for us to grow there.

Speaker Change #103: Perfect Thats it from me guys. Thanks.

Speaker Change #104: Thanks, very much Scott.

Speaker Change #105: Our next question comes from Robert Dickerson with Jefferies. You May proceed.

Robert Dickerson: Great. Thanks, so much.

Robert Dickerson: I just wanted to circle back to the to the comp guidance, maybe one last time hopefully.

Robert Dickerson: There was another very large retailer grocer.

Robert Dickerson: That spoke earlier today.

Robert Dickerson: And clearly when they guided.

Robert Dickerson: Okay.

Robert Dickerson: It was a little underwhelming right there are a lot of questions on the call.

Robert Dickerson: And there was this kind of like this idea that there is just a lot of uncertainty in the marketplace right you can speak to some of the larger CPG companies as well.

Robert Dickerson: Just like kind of right in the near term right now.

Robert Dickerson: We are feeling a little less certain on kind of how how to guide right.

Robert Dickerson: Because of the environment.

Robert Dickerson: So with all that said I am just curious like.

Robert Dickerson: Clearly.

Robert Dickerson: When you guided for 2024, it was a heck of a lot lower right.

Robert Dickerson: For the year ended.

Robert Dickerson: As we sit here now and we think Florida for 25.

Robert Dickerson: <unk>.

Robert Dickerson: With a great result in Q4 and another great result expected for Q1.

Robert Dickerson: What could be.

Robert Dickerson: Our real time deciding factor for maybe that growth to not continue and I realized you have more challenging comps.

Robert Dickerson: But now they are in the base and you are opening up new stores, we opened up new stores last year. So you still have new stores I saw it.

Robert Dickerson: Even.

Robert Dickerson: If the traffic really improved as widespread.

So why it Couldnt got just a more widespread as we get through the back half of the year and I'm not suggesting we do double digit comps, but just curious if you kind of agree with your environment is a little.

Robert Dickerson: I think theres, a little less certainty in the marketplace.

Robert Dickerson: But clearly if those trends continue.

Maybe the year does provide a little bit better than you're guiding to let's just first question, yes, yes.

Robert Dickerson: Yes, I think the I'll pass on to talk just to talk a little about the guidance and how we sell about guidance, but the specifics for me is in the nature almost I know this sounds a little bit strange, but almost whoever happens customer our customer base is so interested in food and bought the nutrition of what the <unk>.

Robert Dickerson: So whatever happens to the economy and that whole challenge of what people want to buy and how do they want to our customers on more of a sounding than most and I think not shields us a little bit from the vagaries of ups and downs and what other people might or might not do so we're pretty confident we know the share of wallet that we have with our existing customers is relatively small.

Speaker Change #106: We just need to do a few things to get them growing and we feel we'll have some comfort in the numbers going forward, but your challenges right. There's a lot of uncertainty in the space going forward I'll, maybe let Curt just talked <unk> think he kind of got it there.

Speaker Change #106: Uncertainty I think that's what we're looking at and we had two big step changes in our business last year, one in May and one in September where we kind of got to a different plan I think it is a different year from a guidance perspective, certainly last year sitting here on the call.

Speaker Change #106: Low single digit guide I don't think anybody anticipated or thought we would accelerate like we did it as quickly as we did throughout the year.

Speaker Change #106: So we're just again, it's been 10 plus years since we've seen those types of comps here at sprouts, we're excited to see how we comp over those but we want to see a little bit of those data at a few of those data points before we get too overclocked about promising something six 912 months down the line when there is a bunch of uncertainty.

Speaker Change #106: Okay.

Speaker Change #106: And then just maybe one more for me.

Speaker Change #106: I think you had said maybe in the prepared remarks, you made with Q&A.

Speaker Change #106: You have kind of line of sight, let's say about 110 approved new stores kind of in the pipeline.

Speaker Change #106: Now the stores you are opening this year.

Speaker Change #106: <unk> within pre existing markets.

Speaker Change #106: So I'm just curious as we kind of think out the next 234 years whatever that timeline is.

Speaker Change #106: Is the idea.

Speaker Change #106: Kind of post this year that yes, we would still be opening a majority of those stores and those preexisting markets or as you start to build out the northeast in the Midwest that.

Speaker Change #106: A much bigger percent of that 110, new stores are in new markets.

Speaker Change #106: Thanks.

Curtis Ravi: Yeah. Thanks, Rob This is Curtis.

Curtis Ravi: Yes, the 110 that we have in the pipeline. The large majority of those are in the markets. We're in today.

Curtis Ravi: Basically all of them.

Curtis Ravi: And we are starting to plan for the Midwest were planning for the northeast, but that'll be a couple of year journey. So for the next two years. They will all be that's including this year 20, 526, they'll all be in.

Curtis Ravi: In our existing markets and then when we get to 'twenty seven and beyond that's where we'll start to see.

Curtis Ravi: Some of those newer geographies mix wise it'll be 50 50 for the next couple of years.

Curtis Ravi: And then we will see when we get to 2027.

Plans that we're building in those markets, but I would expect $50 50 for the last couple of years.

Curtis Ravi: Okay perfect. Thank you so much.

Speaker Change #108: Thank you thanks, Joe.

Curtis Ravi: Yeah.

Speaker Change #109: Our next question comes from Chuck Cerankosky with Northcoast Research you May proceed.

Chuck Cerankosky: Great quarter guys.

Speaker Change #109: Thanks Chuck.

Speaker Change #111: And looking back a little bit it wasn't it wasn't too long ago, Youre looking how to add those incremental items to the basket.

Speaker Change #109: And that seems to have been solved what what.

Speaker Change #109: Proportion of the basket now each basket now contains a new item Ora recently forged item.

You guys could define how that how you score that but I'd be very interested to see.

Speaker Change #109: See how the.

Speaker Change #109: Attribute driven products are driving the comps.

Speaker Change #109: Okay.

Speaker Change #109: Well I don't think we can give a specific answer on that but the reality is we launched seven new products in all of them, but in the attribute based space other than were launchings and this attribute based space. So increasingly our customers what they are buying from us and I think at 70% of our products are differentiated so other than we're buying is different to other people are buying.

Ken: Ken on the basket. The overall basket numbers are flattened out basket stable.

Ken: We've talked about that journey and over the years and it's a 10 10 items per basket and we stabilize their last five six quarters have all been in that same range and so we've seen that MTT.

Ken: Units per basket or units per basket flattened out and we're excited to try to start moving that thing forward with some of the initiatives, we have in place, particularly loyalty and personalization.

Ken: And then a quick question about the.

Self distribution of proteins, what kind of capital commitment will that be annually.

No annual again, we've really made some of those capital investments historically.

Ken: Historically as we've expanded space into the Dcs.

Ken: Really got the room for US we'll have a few more moves to make there for the long term scale of the business.

Ken: But we started the investment last year, specifically to prepare the Dcs around.

Ken: For meets here. This year. So some of that was in last year. The rest of it will hit this year and then every opportunity we get.

Ken: To expand the geographies from a DC perspective.

Ken: Consider that going forward. So it doesn't change the capital story dramatically on.

Ken: From a supply chain perspective, and what's in our guidance and I saw it in our capital guidance and I think the the edge as you know as you try and do meet and different products, you've got to change the temperature regimes that level, but which has involved some investment in the Dcs on top of the space that we've created.

Speaker Change #113: Great. Thanks, a lot good luck for this year.

Ken: Thank you Sir.

Speaker Change #114: Thank you I would now like to turn the call back over to Jack Sinclair for any closing remarks.

Speaker Change #114: Thank you and thank everyone for their attention on the call. We really appreciate your interest in our business and we look forward to updating you as the year goes on thanks, everyone have a good evening.

Speaker Change #115: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.