Q2 2025 Sprouts Farmers Market Inc Earnings Call

Any 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 one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again I would now like to hand, the conference over to your speaker today.

Suzanne and Livingston, Vice President of Investor Relations and Treasury.

Thank you and good afternoon, everyone. We are pleased you're arguing sprouts on our second quarter 2025 earnings call, Jack Sinclair, Chief Executive Officer, and Curtis Valentine Chief Financial Officer are with me today.

Kona, our president and Chief operating Officer had a family commitment and not be joining us for this quarter.

The earnings release announcing our second quarter 2025 results. The webcast of this call and financial slides can be accessed through the Investor Relations section of our website at investors Sprouts Dot com. During this call management may make certain forward looking statements, including statements regarding our expectations for 2020.

Five and beyond these statements involve several risks and uncertainties that could cause results to differ materially from those described in the forward looking statements for more information. Please refer to the risk factors discussed in our SEC filings and the commentary on forward looking statements at the end of our earnings release, our remarks today include references to.

non-GAAP financial measures. Please see the tables in our earnings release to reconcile our non-GAAP financial measures to the comparable GAAP figures with that let me hand, it over to Jack.

Thank you Susanna and good afternoon, everyone.

At Sprouts, we remain committed to our purpose to help people live and eat better.

And in an environment, where consumers are becoming more mindful about what they eat and where it comes from sprouts stands apart our focus on fresh local and innovative natural and organic products along with our knowledgeable team members and approachable stores continues to resonate with our target customer.

In the second quarter, we delivered strong results driven by our strategy to market to our target customers with a differentiated assortment disciplined operations and advantaged supply chain and ongoing store growth.

Our sales increased 17% supported by comparable store sales of 10, 2% on a robust new store performance or.

Our diluted earnings per share reached $1 35, reflecting a 44% increase compared to the same period last year.

We probably we are proud of how our team continues to execute focusing on our customers, which in turn continues to deliver strong results today.

Today, we'll walk you through our performance highlights update you on our strategic initiatives and share how we're positioning spreads have continued success in the second half of the year on beyond.

We're excited about our progress and remained focused on delivering innovative fresh and healthy foods that meets the evolving needs of our health conscious consumers.

I want to thank the team for their ongoing commitment to supporting our customers on their health journey.

Now I'll hand, it to customers to review, our second quarter financial results as well as our updated 2025 output.

Yes.

Thanks, Jack and good afternoon, everyone in the second quarter total sales were $2 2 billion up $327 million or 17% compared to the same period last year. This.

This growth was driven by a 10, 2% increase in comparable store sales and the strong results from our new stores the.

The performance of our comps across categories channels, and geography remains balanced supported by new stores entering the comp base.

Traffic was strong and accounted for the majority of our comp as anticipated it's slightly moderated from the first quarter, which is not surprising given traffic was the main driver of last year's acceleration.

Our ecommerce sales grew 27% representing approximately 15% of our total sales for the quarter with good performance from all partners.

Additionally, sprouts brand contributed 24% to our total sales for the quarter.

Our second quarter gross margin was 38, 8% an increase of 91 basis points compared to the same period last year. This.

This increase was primarily due to leveraging our inventory and category management improvements as well as leverage from our sales performance.

SG&A for the quarter totaled $645 million, an increase of $89 million and 33 basis points of leverage compared to the same period last year.

Our strong comp performance led to leverage mainly in labor and occupancy.

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

Which is not surprising. Given traffic, was the main driver of last year's acceleration.

These are primarily due to costs associated with exiting leases related to our 2023 store closures.

Appreciation and amortization, excluding depreciation included in the cost of sales was $37 million.

Our e-commerce sales grew 27%, representing approximately 15% of our total sales for the quarter, with good performance from all partners.

Additionally, Sprouts brand contributed 24% to our total sales for the quarter.

For the second quarter, our earnings before interest and taxes were $179 million interest income was approximately $431000 and our effective tax rate was 26%.

Our second quarter, gross margin was 38.8%, an increase of 91 basis points compared to the same period last year.

Net income was $134 million and diluted earnings per share were $1 35.

This increase was primarily due to leveraging our inventory and category management improvements as well as leverage from our sales performance.

An increase of 44% compared to the same period last year.

During the second quarter, we opened 12, new stores ending the quarter with 455 stores across 24 states.

Sgna for the quarter totaled $645 million, an increase of $89 million, and 333 basis points of leverage compared to the same period last year.

our strong comp performance like to leverage mainly in like,

A strong and healthy balance sheet is underpinning our financial performance.

Year to date, we generated $410 million in operating cash flow, which allowed us to self fund our investments of $138 million in capital expenditures net of landlord reimbursement to grow our business.

The appreciation and amortization excluding depreciation included in the cost of sales was 37 million.

We have also returned $292 million to our shareholders by repurchasing 2 million shares.

We have $158 million remaining under our current share repurchase authorization.

For the second quarter, our earnings before interest in taxes were 179 million. Interesting, come was approximately 431,000 and our effective tax rate was 26%.

We ended the second quarter with $261 million in cash and cash equivalents and 23 million of outstanding letters of credit.

As you probably saw on July 25, we closed a $600 million revolving credit facility, which replaced our previously existing $700 million revolver.

34 million invested earnings per share were $1.35 an increase of 44% compared to the same period last year.

During the second quarter, we opened 12 new stores, ending the quarter with 455 stores across 24 States.

The terms and conditions are substantially similar to our previous agreement with a new exploration date of July 2030.

A strong and healthy balance sheet has underpinned, our financial performance.

While we plan to fund our operations and unit growth through our robust cash flow generation. This facility provides sprouts with financial flexibility as we grow.

An increasing number of customers are emphasizing the importance of quality healthy food options and this positive trend along with continued new store performance is inspiring our plans to expand into new markets.

Year to date. We generated 410 million in operating cash flow which allowed us to self-fund our investments of 138 million in capital expenditures. Net of landlord reimbursement, to grow our business.

We have also returned $292 million to our shareholders by repurchasing 2 million shares.

Looking ahead to the remainder of 2025, we are dedicated to achieving significant earnings growth while capitalizing on these emerging opportunities.

We have $158 million remaining under our current share repurchase authorization.

We ended the second quarter with 261 million in cash and cash, equivalents and 23 million of outstanding letters of credit.

For 2025, we expect total sales growth to be 14, 5% to 16% and.

<unk> comp sales in the range of seven 5% to 9%.

as you probably saw on July 25th, we closed the $600 million revolving credit facility which replaced our previously existing 700 million revolver

We still anticipate comp sales to moderate as we cycled the higher comps from late 2024.

The terms and conditions are substantially similar to our previous agreement, with the new expiration date of July 2030.

We plan to open at least 35 new stores.

Earnings before interest and taxes are expected to be between 675 and $690 million and earnings per share are expected to be between $5 20 and.

Well, we plan to fund our operations in unit, growth through our robust cash flow, generation to facility provide sprouts with financial flexibility as we grow.

And $5 32.

Assuming no additional share repurchases.

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

And increasing number of customers are emphasizing the importance of quality healthy, food options, and this positive trend along. With continued. New store, performance is inspiring. Our plans to expand into new markets.

We also expect our corporate tax rate to be approximately 24%.

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

Looking ahead to the remainder of 2025, we are dedicated to achieving significant earnings growth while capitalizing on these emerging opportunities.

For the third quarter, we expect comp sales to be in the range of 6% to 8% and earnings per share to be between $1 12, and $1 16.

For 2025, we expect total sales growth to be 14.5 to 16%.

And comp sales in the range of 7.5 to 9%.

As we have begun to lap last year's comp step changes, we continue to see consistent two year stack performance of approximately 15%.

We still anticipate cam sales to moderate as we cycle the higher comps from late 2024.

We plan to open at least 35 new stores.

In the second quarter. We also benefited from some external tailwind that pushed the two year stack above our run rate in May and June.

While those <unk> come and go the approximately 15% two year stack remains consistent and gives us confidence in our increased comp guidance.

Earnings before interest and taxes are expected to be between 675 and 690 million and earnings per share are expected to be between 5 dollars and 20 cents and 5 dollars. Assuming no additional share repurchases.

Year over year margin rate in both gross margin and SG&A are expected to start normalizing in the third quarter as we compare to last year's improved shrink performance and we work to Derisk, our supply chain, providing more flexibility and capacity we anticipate.

that said, we do expect to continue to repurchase shares opportunistically

We also expect our corporate tax rate to be approximately 24%.

<unk> continued EBIT margin expansion of approximately 40 to 50 basis points year over year.

During the year, we expect Capital expenditures, net of landlord reimbursements to be between 230 and 250 million.

For the rest of 2025, we are confident in our strong financial foundation and successful execution of our strategic initiatives, which position us to deliver strong earnings growth in the second half.

For the third quarter, we expect comp sales to be in the range of 6 to 8% and earnings per share to be between 1 and 12 cents and 1.16.

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

Thanks, Curtis we leveraged our strategic initiatives in the second quarter, which delivered excellent results and set us up for an exciting future with.

As we have begun to lap last year's comp step changes, we continue to see consistent two-year stack performance of approximately 15%.

and the second quarter, we also benefited from some external Tailwind that push the 2-year stack above our run rate in May and June

Keep reinvesting in our business by developing innovative products and enhancing our operations both in stores and across the supply chain. Additionally.

While those Tailwinds come and go the approximately, 15% to your stack remains consistent and gives us confidence in our increased comp guidance.

Additionally, we are driving engagement with our customers to targeted service strategies and carefully chosen store locations. We also continue to prioritize investing in our team members, who play a vital role in driving these results.

And we work to de-risk, our supply chain, providing more flexibility and capacity.

Customers are increasingly drawn to spreads due to our strengths and identifying trendy offerings, providing fresh and quality food on launching innovative products rich and health driven attributes <unk>.

We anticipate continued ebit margin expansion of approximately 40 to 50 basis, points year-over-year.

Innovation is a cornerstone of our strategy and our consistent launch of new products keeps us selection fresh and exciting.

For the rest of 2025, we are confident in our strong financial foundation and successful execution of our strategic initiatives, which position us to deliver strong earnings growth in the second half.

Our innovation center continues to grow in sales with baskets that contain innovation items being more than double the size of our overall company basket.

We remain focused on the categories that match up to our target customers.

<unk> brand continues to excel with plans to release over 350, new products this year alone.

Our success is driven by a strong emphasis on attributes high quality items on the discovery of products two seasonally themed events.

Growth in organic products is on the rise now accounting for nearly a third of our total sales and over 50% of our project sales.

Providing fresh and quality food and launching innovative products, rich in health-driven attributes.

Total organic fast match in diving initiatives.

Additionally, we continue to expand our SKU count in trending categories, such as <unk> at high protein items.

I will offer more than 3700 high protein products with 450, new items set to be released this year.

Innovation is a Cornerstone of our strategy and our consistent launch of new products, keeps our selection, fresh and exciting. Our Innovation Center continues to grow in sales with baskets that contain Innovation items being more than double the size of our overall company basket.

Our focus on our attribute driven products is resulting in increased sales surpassed the rest of the business and to outpace overall grocery and industry grow.

These efforts reinforce and strengthen <unk> leadership in the better for you segments, allowing us to capitalize quickly on key market trends.

As you know we've been building an advantaged supply chain that is a strategic priority.

Priority, enabling scalable growth for the future.

Events growth and organic products is on the rise, now accounting for nearly a third of our total sales and over 50% of our produce sales.

<unk> is the most important category for us we've been building capacity over the years to take on more self distribution.

Thanks to our organic first merchandising initiatives.

This includes expanding capacity in existing markets, such as northern California, DC in early 2026 and building new capacity in our expansion markets.

Additionally, we continue to expand our SKU count in trending categories such as no seed oils and high-protein items. We now offer more than 3,700 high-protein products, with 450 new items set to be released this year.

By taking control of key product categories, such as meat and seafood, we are taking critical steps towards self sufficiency.

This approach allows us more control over our supply chain, while minimizing operational and supply chain risk.

Although there is significant work to do we will begin and sourcing fresh meat and seafood this quarter in Orlando and continue to work through the second quarter of 2026.

We will continue to focus on new DC expansion in the next three to five years to support our continued growth.

Ascribed to reward loyalty program launched in Arizona. This month, marking an important step in our sprouts customer engagement and personalization journey.

The results of our test and pilot programs have boosted our confidence in the program's potential showing that loyalty members are shopping more frequently growing at a faster rate and spending more.

As you know, we've been building an advantage supply chain, that is a strategic priority enabling scalable growth for the future. Fresh is the most important category for us. We've been building capacity over the years to take on more self-distribution. This includes expanding capacity and existing markets such as our Northern California DC in early 2026 and building new capacity in our expansion markets.

By taking control of key product categories, such as Meat and seafood, we are taking critical steps towards self-sufficiency.

Our teams are excited and prepared to support the full rollout which remains on track for the end of this year.

This approach allows us more control over our supply chain while minimizing operational and supply chain risk.

This initiative presents a significant opportunity for us to better understand and serve our target customers ultimately using these insights across our business to enhance the customer experience and create long term value.

Currently we are seeing strong customer acquisition and an increase in share of wallet.

Although there are significant work to do, we will begin in sourcing Fresh Meat and seafood. This quarter in Orlando and continue the work through the second quarter of 2026. We will continue to focus on new DC expansion in the next 3 to 5 years to support our continued growth.

Customer experience is improving across all channels and store performance has strengthened due to better installed fresh products and superior service.

The Sprouts Rewards loyalty program launched in Arizona this month, marking an important step in our Sprouts customer engagement and personalization journey.

Additionally, our E Commerce platform continues to grow with Sean Dodge Sprouts dotcom experiencing the fastest increase in penetration.

It has been exciting to witness the evolution of our marketing approach, which has transitioned from paper to digital to targeted marketing and noted genuinely personalised outreach leveraging customer data to foster a more meaningful and engaging customer experiences.

The results of our test and pilot programs have boosted. Our confidence in the program's potential. Showing that loyalty members are shopping more frequently growing at a faster rate and spending more

Our teams are excited and prepared to support the full rollout, which remains on track for the end of this year.

Building great stores remains the foundation of our growth strategy and we are on track to open 35 locations. This year new stores. This year are opening with solid top and bottom line results and last year's vantage is entering the comp base strong reinforcing the effectiveness of our model.

We continue to expand our footprint to enhance accessibility for more customers across the country.

With a robust pipeline of over 130 approved locations, including recent approvals in the Midwest and the northeast. We are poised for continued momentum from sea to shining Sea new stores are delivering strong performance underscoring the strength of our brand on the scalability of our format.

The great results and strong execution of our initiatives are possible.

Because of our team members across the business of the Hearts of our culture. Our team believes in our purpose and values, which serves as the basis for long term success.

To support our future growth, we have developed a robust talent engine that focuses on our team members recruitment development and engagement.

Key initiatives include the fast track program to develop future store managers, the assistant store manager University <unk>.

A robust onboarding process.

We have also implemented monthly talent planning reviews for our field to ensure we remain ahead of our needs and opportunities.

As a result of these intentional culture building and training efforts, we have significantly reduced turnover, creating a more stable engaged and high performing team I want to express my gratitude to our 35000 team members for their hard work, which continues to deliver outstanding results.

As we look ahead, we remain confident in our strategic direction and sprouts unique position within the speciality food retail landscape.

Germany is not just about growing stores are improving margins is about deepening our connection with customers, who seek real foods fresh quality ingredients on innovative products that meet their unique needs, we've been making progress, but we know there's much more to do with it is expanding our footprint strengthening our supply chain.

Jack Sinclair: These intentional culture building and training efforts, we have significantly reduced turnover, creating a more stable, engaged, and high-performing team. I want to express my gratitude to our 35,000 team members for their hard work, which continues to deliver outstanding results. As we look ahead, we remain confident in our strategic direction and Sprouts' unique position within the specialty food retail landscape. Our journey is not just about growing stores or improving margins; it's about deepening our connection with customers who seek real food, fresh quality ingredients, and innovative products that meet their unique needs. We've been making progress, but we know there's much more to do, whether it's expanding our footprint, strengthening our supply chain, or continuing to innovate. We're committed to building a resilient, purpose-driven company that delivers long-term value to our shareholders and positively impacts the communities we serve. Thank you for joining us today.

Turning to innovate with committed to building a resilient part first generic company that delivers long term value to our shareholders and positively impact the communities we serve.

Thank you for joining us today, we look forward to sharing more of this journey.

In the quarters to come.

With that I'd like to turn it over to the operator for <unk>.

Culture building and training efforts have significantly reduced turnover, creating a more stable, engaged, and high-performing team. I want to express my gratitude to our 35,000 team members for their hard work, which continues to deliver outstanding results.

<unk>.

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.

As we look ahead, we remain confident in our strategic direction and Sprouts' unique position within the specialty food retail landscape.

Our first question comes from Leo Jordan <unk> with Goldman Sachs. You May proceed.

Thank you Hi, Jackie Curtis great job, Tim and the team on the quarter.

Just for clarity if you could provide some more detail on the loyalty program I know its been rolling out across the country still more to go but I guess what has surprised you so far as you've rolled it out to more regions and then maybe what have you adapted now and your approach and any learnings over the past few months as it's been in some of your initial.

Our journey is not just about growing stores or improving margins, it's about deepening our connection, with customers who seek real food, fresh quality ingredients and Innovative products that meet their unique needs. We've been making progress, but we know there's much more to do whether it's expanding our fruit footprint. Strengthening our supply chain or continuing to innovate, we're committed to building a resilient Purpose Driven company that delivers long-term value to our shareholders and positively impact the communities, we serve

Jack Sinclair: We look forward to sharing more of this journey in the quarters to come. With that, I'd like to turn it over to the operator for questions.

Thank you for joining us today. We look forward to sharing more of this journey in the quarters to come

Locations for longer.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for questions. Our first question comes from Leah Jordan with Goldman Sachs. You may proceed.

With that, I'd like to turn it over to the operator for questions.

Yes, well the saturation of this as it was in 35 stores last week, we rolled out all of our stores in Arizona. So we're now up to close to 70 stores or 75 stores in terms of across so we're still on the rollout across the nation. We've been learning the encouraging thing is the number of people who are signing up in a week.

Thank you as a reminder, to ask a question. Please press star, 1, 1 1 on your telephone and wait for your name, to be announced to withdraw your question. Please press star 1 1 1 again, 1 moment for questions.

Leah Jordan: Thank you. Hi, Jack and Curtis. Great job to you and the team on the quarter. Just wanted to see if you could provide some more detail on the loyalty program. I know it's been rolling out across the country, still more to go. But I guess, what has surprised you so far as you've rolled it out to more regions? And then maybe, what have you adapted now in your approach and any learnings over the past few months as it's been in some of your initial locations for longer?

Our first question comes from Leah, Jordan with Goldman Sachs, you may proceed.

Consumers are scanning is ahead of what our expectations were so we're encouraged by that we're encouraged by the way it's working for US. We spent a lot of time and money, making sure the execution and the experience for the customer was good and worked well and we are comfortable with US we've learned a lot about.

Thank you. Hi, Jack and Curtis, great job to you and the team on the quarter.

How to make sure there isn't any clunkiness and the shining often to making it work, we're very confident in where we're at we're going to roll. This will all be rolled out by the end of October So we're feeling like the.

Jack Sinclair: Yeah. Well, Leah, the first iteration of this was in 35 stores. Last week, we rolled out to all of our stores in Arizona. So we're now up to close to 70 stores or 75 stores in terms of across. So we're still on the rollout across the nation. We've been learning. The encouraging thing is the number of people who are signing up and the way the consumers are scanning is ahead of what our expectations were. So we're encouraged by that. We're encouraged by the way it's working for. We spent a lot of time and money making sure the execution and the experience for the customer was good and worked well. And we're comfortable that we've learned a lot about how to make sure there isn't any clunkiness in the signing up and the making it work. We're very confident in where we're at.

Um, just wanted to see if you could provide some more detail on the Loyalty program. Um, I know it's been rolling out across the country, still more to go, but I guess what has surprised you so far. As you rolled it out to more regions and then, maybe what have you adapted now in your approach and any learning over the past few months as it's been in some of your initial locations for longer?

The program is ready to rollout and we think it will bring us some big benefits next year. So I think the landing has been about execution and making it work effectively.

And with the data that we're getting and the information.

We're going to be in a very good position to evolve.

All aspects of our communication aspects of our merchandising aspect of where we should put stores. So we're going to learn a lot from it going forward Im very excited by the Germany, where in the metal <unk>.

That's very helpful. Thank you and we'll look forward to hear more on that I guess from a follow up I just wanted to switch over to digital it continues to be very strong for you guys. Just more color on the trends there and also curious how engagement maybe is different for each of your partners and is there any divergence as they mature at different.

Jack Sinclair: We're going to roll. This will all be rolled out by the end of October. So we're feeling like the program's ready to roll out. And we think it'll bring us some big benefits next year. So I think the learning's been about execution and making it work effectively. And with the data that we're getting and the information, we're going to be in a very good position to evolve all aspects of our communication, aspects of our merchandising, aspects of where we should put stores. So we're going to learn a lot from it going forward. I'm excited by the journey we're in the middle of, Leah.

And then on your comments in the prepared remarks, you talked about sprouts dot com being the fastest increase in penetration. So curious what you're doing differently there thats driving that thank you.

Yeah. Well Leah, the first iteration of this is it was in 35 stores. Last week we ruled out all of our stores in Arizona. So we're now up to close to 70 stores or 75 stores in terms of across. So we're still on the roll out Across the Nation. We've been learning it and encouraging thing is the number of people who are signing up and that we the consumers are scanning is ahead of what our expectations were. So we're encouraged by that, we're encouraged. By the way, it's working for. We spent a lot of time and money, making sure the execution and the experience for the customer was good and worked, well, and we're comfortable that that's we've learned a lot about how to make sure there isn't any clunkiness in the signing off in the making it work. We're very confident in where we're at. We're going to roll this will all be rolled out by the end of October. So we're feeling like the the, the programs ready to roll out and we think it will bring us some big benefits next year.

So I think the landing's been about execution and making it work effectively and with the data that we're getting and the information.

Sure I think it's been pretty heavily this is curtis it's been pretty consistent and balanced. The same story continues to play out as we go from quarter to quarter.

Three really good partners all growing all growing well I think our team on the <unk>.

<unk> Dot sprouts Dot Com front, just continues to learn about how to engage the customer they're in and work with our partners to do that well and so they continue to make good solid progress and that was probably the channel that was coming from the lowest space and so they continue to see really strong growth.

We're going to be in a very good position to evolve. All aspects of our communication, aspects of our merchandising aspects of where we should put store. So we're going to learn a lot from it, going forward, and we're excited by the journey, we're in the middle of Leia.

Leah Jordan: That's very helpful. Thank you. And we'll look forward to hear more on that. I guess for a follow-up, I just wanted to switch over to digital. It continues to be very strong for you guys. Just more color on the trends there. And also curious how engagement maybe is different for each of your partners. And is there any divergence as they mature at different rates? And then on your comments in the prepared remarks, you talked about Sprouts.com being the fastest increase in penetration. So curious what you're doing differently there that's driving that. Thank you.

And I think the only real differences I think we've talked about it before but its the cart the infant car basket tends to be about <unk>, the brick and mortar baskets are little bit bigger and the Uber eats and door dash baskets are a little bit more convenient space.

Curtis Valentine: Sure. I think it's been pretty, hi, Leah. This is Curtis. It's been pretty kind of consistent and balanced. The same story continues to play out as we go from quarter to quarter. Three really good partners, all growing, all growing well. I think our team on the shop.sprouts.com front just continues to learn about how to engage the customer there and work with our partners to do that well. And so they continue to make good, solid progress. And that was probably the channel that was coming from the lowest base. And so they continue to see really strong growth. And I think the only real difference is I think we've talked about it before, but Instacart, the Instacart basket tends to be about 2X. The brick-and-mortar basket's a little bit bigger.

Kind of what's for dinner Tonight milk eggs bread staples.

That's very helpful. Thank you. And we'll look forward to hearing more on that. I guess for a follow-up, I just wanted to switch over to digital. It can be very strong for you guys. Just more color on the trends there, and I'm also curious how engagement may be different for each of your partners. Is there any divergence as they mature at different rates? And then, on your comments in the prepared remarks, you talked about sprouts.com being the fastest increase in penetration. So, what are you doing differently there that's driving that? Thank you.

But outside of that the mix is pretty consistent up and down the different categories.

And again, they're all growing really well and provide good service to the customer and good partners for us and I'm very encouraged by the shop sprouts Dot com evolution and development because it gives us some confidence that the customers are navigating directly to this price brand as part of that context, and not something that the team have been working on for a number of years now.

Really beginning to come together, and we think that will build more loyalty going forward.

Sure, I think it's been pretty highly. This is Curtis, it's been pretty, um, kind of consistent and balanced. The same story continues to play out as we go from quarter to quarter. Um, 3, really good partners. All growing all growing. Well, I think our team on the, uh, shop sprouts.com, uh, front just continues to learn, uh, about how to engage the customer there and and, um, and work with our partners to do that. Well, and so they continue to make good solid progress and that that was probably the channel That was coming from the low space and so they continue to see really strong growth.

That's very helpful. Thank you.

Thank you.

Curtis Valentine: And the Uber Eats and DoorDash baskets are a little bit more convenience-based, kind of what's for dinner tonight, milk, eggs, bread, staples. But outside of that, the mix is pretty consistent up and down the different categories. And again, they're all growing really well and providing good service to the customer and good partners for us.

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

Hi, good afternoon, everyone nice quarter.

I wanted to ask you about the comp and the cadence that some so you talked about.

A stable sort of 15% ish to year before.

May and June acceleration. So I was hoping you could speak to that acceleration curious if it was related to the disruption across the industry.

Jack Sinclair: I'm very encouraged by the shop, sprouts.com evolution and development because it gives us some confidence that the customers are navigating directly to the Sprouts brand as part of that context. And that's something that the team have been working on for a number of years now. And it's really beginning to come together. And we think that'll build more loyalty going forward.

With UNFI.

And then I'm curious what you've seen so far in July.

And that kind of dovetails into guidance because.

Guidance for 6% to 8% in Q3.

6% is 15 right. So you've got at the midpoint, a little bit better than that and just kind of curious about sustainability of current trend and how you were thinking about at all with guidance.

Partners for us. But encouraged by the shop sprouts.com Evolution and development because it gives us some confidence that the customers are navigating directly to the Sprouts brand as part of that context. And that's something that the team have been working on for a number of years now. And it's really beginning to come together and uh we think I'll build more loyalty going forward.

Leah Jordan: That's very helpful. Thank you.

It's very helpful. Thank you.

Operator: Thank you. Our next question comes from Edward Kelly with Wells Fargo. You may proceed.

Thank you.

Sure. Thanks, Ed This is Curtis.

Edward Kelly: Hi. Good afternoon, everyone. Nice quarter. I wanted to ask you about the comp and the cadence and momentum. So you talked about a stable sort of 15 percentage two-year before a May and June acceleration. So I was hoping you could speak to that acceleration, curious if it was related to the disruption across the industry with UNFI. And then I'm curious what you've seen so far in July. And that kind of dovetails into guidance because the guidance for 6% to 8% in Q3, 6% is 15, right? So you've got it to midpoint, a little bit better than that. I'm just kind of curious about sustainability of current trend and how you were thinking about it all with guidance.

Yes, two things really in May and June really the biggest driver was we had a really strong produce season.

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

So we've seen some really good organic crops and availability. So the team again has done a great job, we're well positioned they work really closely with the growers.

We're focused on local they are focused on organic first and so when we have a good a good season, particularly inorganic they are able to capitalize on it and thats. What we really saw through May and June as the seasons of all that is kind of normalized a bit but in may and June we saw a nice pop in the produce business.

Hi. Good afternoon, everyone, nice quarter. Um I I wanted to ask you about the uh the comp and and the Cadence that I met some. So you talked about uh uh a stable sort of 15 percentage 2 year before a May and June acceleration. So I was hoping you could speak to that acceleration curious. If it was related to the disruption, you know, across the industry uh you know, with UNFI

Then the second piece sure there was quite a significant disruption in the natural organic space and where we had a limited impact there just because we are a smaller portion of our business.

Curtis Valentine: Sure. Thanks, Ed. This is Curtis. Yeah, two things really in May and June. Really, the biggest driver was we had a really strong produce season. So we've seen some really good organic crops and availability. Yeah. And so the team, again, has done a great job. We're well positioned. They work really closely with the growers. We're focused on local. They're focused on organic first. And so when we have a good season, particularly in organic, they're able to capitalize on it. And that's what we really saw through May and June. As the seasons evolved, that's kind of normalized a bit. But in May and June, we saw a nice pop in the produce business. And then the second piece, sure, there was quite a significant disruption in the natural organic space.

There and so that was that was a helper to we have some people come our way when they couldn't find things elsewhere and that also boosted.

And then, I'm curious what you've seen so far in July. Um, that kind of dovetails in the guidance, because, you know, the guidance for 6% to 8% in Q3, um, you know, 6% is 15, right? So you've got it, you know, the midpoint a little bit better than that. Just kind of curious about, you know, sustainability of current trends and how you were thinking about it, all with guidance.

A little bit more of a June but the May June story in total was a little bit better than that 15% and then as far as Alex of all quarter to date.

Both of those things have kind of settled in normalized a bit and so we're kind of back into that 15.

Percent two year stack run rate and really quarter to date through July it's right at the midpoint from a two year stack perspective.

And so that's what gives us the confidence in the guide its been since we since we jumped up last September it's been seven of the 11 periods have been in that 15% range with just a few periods, where we've seen some external factors that we capitalize them and seeing stronger numbers and so just the consistency of what we've seen I think gives us the confidence to guide where.

Curtis Valentine: And we had a limited impact there just because we have a smaller portion of our business there. And so that was a helper too. We had some people come our way when they couldn't find things elsewhere. And that also boosted the that's a little bit more of the June. But the May-June story in total was a little bit better than that 15%. And then as far as how that's evolved quarter to date, both of those things have kind of settled and normalized a bit. And so we're kind of back into that 15% two-year stack run rate. And really, quarter to date through July, it's right at the midpoint from a two-year stack perspective. And so that's what gives us the confidence and the guide.

Got it.

Great. Thank you that's good color and then just a quick follow up on the gross margin another strong quarter.

You talked about trends normalizing kind of from here and into the back half, but self distribution and meat and seafood is rolling in and I'm curious as to how.

Sure, thanks. This is Curtis. Um, yeah, 2 things really in May and June really the biggest driver was we had a really strong uh, produce season. Um, so we've seen some really good organic crops and and availability. Yeah, and so the team again, has done a great job. We're well positioned, they work really closely with the Growers. Um, we're focused on local they're focused on organic first and so when we have a good a good season particularly in organic, they're able to capitalize on it. And that's what we really saw through May and June uh, as the seasons evolved. That's kind of normalized, a bit, but in in May and June, we saw a nice pop in the produce business. Uh, and then the second piece, sure there. There was, uh, you know, quite a significant disruption in the natural organic space and, you know, we're, we had a limited impact there. Um, just because we have a smaller portion of our business, um, there. And so that was, that was a help or 2. We had some people come our way, uh, when they couldn't find things elsewhere and, and that also boosted them, uh, that's a little bit more of the June, but the May June Story in total was a little bit better than that.

That impacts.

Gross margin and then loyalty is also ramping and I am not sure. If there is some investment that takes place.

As that rolls out to so if you could just maybe speak to the outlook for the gross margin and how those things that might impact it.

Curtis Valentine: Since we jumped up last September, it's been 7 of the 11 periods have been in that 15% range, with just a few periods where we've seen some external factors that we've capitalized and seen stronger numbers. And so just the consistency of what we've seen, I think, gives us the confidence to guide where we guided.

With regard to self distribution, Ed we're going through a transition period. So we will get long term benefit on the margin, but that's not going to come through this year.

15% and then as far as how that's evolved quarter to date you know both of those things have kind of settled and normalized a bit. And so we're kind of back into that 15 uh percent to your stack run rate and really you know quartered at 8 through July it's right at the midpoint from a 2-year stack perspective. Um and so that's that's what gives us the confidence in the guide. It's been you know since we since we jumped up last September, it's been 7 of the 11 periods have been in that 15% range with just a few period.

The extent that it will in the future. So that's something that as we manage the transition we've got some issues that we're trying to deal with and dealing with effectively in terms of how we're managing the margin.

Edward Kelly: Great. Thank you. That's good color. And then just a quick follow-up on the gross margin, another strong quarter. You talked about trends normalizing kind of from here into the back half. But self-distribution and meat and seafood is rolling in. And I'm curious as to how that impacts gross margin. And then loyalty is also ramping. And I'm not sure if there is some investment that takes place as that rolls out too. So if you could just maybe speak to the outlook for the gross margin and how those things might impact it.

Periods where we've seen some external factors that we've capitalized and and seen stronger numbers. And so, just the consistency of what we've seen. I think gives us the confidence to to guide where we guided.

Volatility given points in our loyalty. So there will be some element of cost around the loyalty that we've taken into account in all of the margin forecast going forward, but ultimately law to bear, but oil will be about driving the top line and we think with the margin and core in due course as we get support for the initiatives will enable us to neutral.

Any margin impact from from loyalty going forward cost issue, maybe you could talk about just the kind of cadence.

Jack Sinclair: With regard to self-distribution, we're going through a transition period. So we will get long-term benefit on the margin. But that's not going to come through this year to the extent that it will in the future. So that's something that, as we manage the transition, we've got some issues that we're trying to deal with and dealing with effectively in terms of how we're managing the margin. And loyalty will take a we're given points in the loyalty. So there will be some element of cost around the loyalty that we've taken into account in all the margin forecasts for going forward. But ultimately, loyalty will be about driving the top line. And we think the margin in due course, as we get support for the initiatives, will enable us to neutralize any margin impact from loyalty going forward. Curtis, you maybe talk about the.

Kind of playing out as we expected at the first half was a little bit better certainly the supply disruptions that we've seen in both quarters helps on the on the shrink line a little bit.

Right. Like, thank you. That's good color. And then just a quick follow up on the gross margin, um, another strong quarter. Um, you know, you talked about trends of normalizing, you know, kind of from here, in into the back half. Um, but you know, self-distribution and meet and seafood is rolling in. And I'm curious as to how, you know, that impacts, um, gross margin and then, you know, loyalties also ramping. And I'm not sure if there is some, you know, investment that takes place. Um, as that rolls out, too. So, if you could, just maybe speak to the outlook for the gross margin and how those things might might impact it.

As we talked about last quarter.

The extent that it will in the future. So that's something that as we manage the transition we've got some issues that we're trying to deal with and dealing with effectively in terms of how we're managing the margin and volatility given points in our loyalty. So there will be some element of cost around the loyalty that we've taken into account in all of the margin forecast going forward, but ultimately law.

We're expecting that to stabilize and normalize here in the second half and then the comps for us normalize a little less supply chain leverage got the distribution investments and then we are up against the tougher compares and shrink and so.

Those are the kind of key factors, but really it's playing out as we'd expected.

But oil will be about driving the top line and we think the amount of the margin and core in due course as we get support for the initiatives will enable us to neutralize any margin impact from from loyalty going forward cut tissue, maybe talk about just kind of cadence.

Great. Thanks, guys.

Thanks, Thanks, Ed.

Thank you. Our next question comes from Mike Montney with Evercore ISI you May proceed.

Yes, hey, thanks for taking the questions.

Curtis Valentine: Yeah, just the kind of cadence. I mean, it's kind of playing out as we expected, Ed. I mean, the first half was a little bit better. Certainly, the supply disruptions that we've seen in both quarters helps on the shrink line a little bit, as we talked about last quarter. We're expecting that to stabilize and normalize here in the second half. And then the comps for us normalize, so a little less supply chain leverage. We've got the distribution investments. And then we're up against the tougher comparison shrink. And so those are the kind of key factors. But really, it's playing out as we'd expected.

Just wanted to ask if I could on the margin front first could.

Kind of playing out as we expected at the first half was a little bit better certainly the supply disruptions that we've seen in both quarters helps on the on the shrink line a little bit.

Could you discuss if there was any kind of impact either on the Cogs front or even in SG&A due.

To some of the UNFI issues that they had in the supply chain and then similarly from the loyalty program.

As we talked about last quarter we're.

We're expecting that to stabilize and normalize here in the second half and then the comps for us normalized a little less supply chain leverage got the distribution investments and then we are up against the tougher compares and shrinking so.

Yes, so no loyalty is just rolling out here in the third quarter. So no impact there. We had the same 30 low 30 stores that were on the pilot, but they were on as of Q1. So no no change in the royalty story for Q2.

Those are the kind of key factors, but really it's playing out as we'd expected.

Edward Kelly: Great. Thanks, guys.

On the disruption front first off it.

Great. Thanks, guys.

Jack Sinclair: Thanks.

Edward Kelly: Thanks, Ed.

Thanks, Thanks, Ed.

It was great partnership with UNFI was really great. It was a difficult challenging period, but they worked really closely with the teams we were able to flow product through the entirety of it albeit manually.

Operator: Thank you. Our next question comes from Mike Montani with Evercore ISI. You may proceed.

Thank you. Our next question comes from Mike Montney with Evercore ISI you May proceed.

Michael Montani: Yes. Hey, thanks for taking the questions. I just wanted to ask if I could on the margin front first. Could you discuss if there was any kind of impact either on the COGS front or even in SG&A due to some of the UNFI issues that they had in the supply chain and then similarly from the loyalty program?

Yes, hey, thanks for taking the questions.

Just wanted to ask if I could on the margin front first could.

So it was helpful.

Could you discuss if there was any kind of impact either on the Cogs front or even in SG&A.

To be able to do that and so it was pretty minimally disruptive to us it's a small portion of our business.

Again, just the product flow a little bit a little bit challenging we didn't promote as much in the second quarter as a result.

Due to some of the UNFI issues that they had in the supply chain and then similarly from the loyalty program.

So some of those types of.

Curtis Valentine: Yeah. So no, loyalty is just rolling out here in the third quarter. So no impact there. We had the same low 30 stores that were on the pilot that they were on as of Q1. So no change in the loyalty story for Q2. On the disruption front, first off, it was great. The partnership with UNFI was really great. It was a difficult, challenging period. But they worked really closely with the teams. We were able to flow product through the entirety of it, albeit manually. And so it was helpful to be able to do that. And so it was pretty minimally disruptive to us. It's a small portion of our business. Again, just the product flow, a little bit challenging. We didn't promote as much in the second quarter as a result. So some of those types of issues arose.

Issues arose, but largely we were able to mitigate through it and we're kind of on the other side of it.

Yes, so no loyalty is just rolling out here in the third quarter. So no impact there. We had the same 30 low 30 stores that were on the pilot that they they were on as of Q1. So no no change in the royalty story for Q2.

Got it.

There was no margin impact from the disruption.

Okay, and then just a follow up was on the new stores, if you could talk about.

On the disruption front first off.

What youre seeing in terms of new store performance and.

Great partnership with UNFI was really great. It was a difficult challenging period, but they worked really closely with the teams we were able to flow product through the entirety of it albeit manually.

Obviously, how to think about the opening cadence for the rest of the year.

Well, we're committed to the 75 stores for the rest of the year and we opened 12 very successful story, we're absolutely delighted with the new store format squad.

So it was helpful.

To be able to do that and so it was pretty minimally disruptive to us it's a small portion of our business.

I think it went up to 100 of our V. Six pharma now in terms of we've opened all the stores have been opened in the new format and that's given us some consistency in terms of execution and rollout we're feeling confident in the number of stores for the rest of the year I think the encouraging thing Mike for US is we're seeing a strong performance in what has traditionally been markets that we're not well.

Again, just the product flow a little bit.

Little bit challenging we didn't promote as much in the second quarter as a result.

So some of those types of issues arose, but largely we were able to mitigate through it and we're kind of on the other side of it.

Curtis Valentine: But largely, we were able to mitigate through it. And we're kind of on the other side of it.

Jack Sinclair: Got it. There was no margin impact from the disruption.

No one had been very encouraged by the progress we're making in the mid Atlantic The Florida stores really coming alive now in terms of the new stores that are opening and by and large we're Hatton Manhattan.

Got it.

<unk> there was no margin impact from the disruption.

Michael Montani: Okay. And then just the follow-up was on the new stores. If you could talk about what you're seeing in terms of new store performance and obviously how to think about the opening cadence for the rest of the year.

Okay, and then just a follow up was on the new stores, if you could talk about.

What youre seeing in terms of new store performance and obviously how to think about the opening cadence for the rest of the year.

So baseball expression, we're hitting close to 100 on unused to ensure the moment yes.

And cadence wise, Mike. It's we had 12 in the second quarter nine in the third quarter, 11% in the fourth quarter is kind of where we are and then as always this time of year just the weather.

Jack Sinclair: Well, we're committed to the 35 stores for the rest of the year. And we opened 12 very successful stores. We're absolutely delighted the way the new store format's working. I think we're up to 100 of our V6 format now in terms of we've opened all the stores are being opened in the new format. And that's given us some consistency in terms of execution and rollout. We're feeling confident in the number of stores for the rest of the year. I think the encouraging thing, Mike, for us is we're seeing a strong performance in what has traditionally been markets that were not that well known. We've been very encouraged by the progress we're making in the Mid-Atlantic. The Florida store is really coming alive now in terms of the new stores that are opening. And by and large, we're hitting what's the baseball expression?

Well, we're committed to the 75 stores for the rest of the year and we opened 12 very successful store, we're absolutely delighted with the new store formats work and I think it went up to 100 of our V. Six format now in terms of we've opened all the stores have been opened in the new format and that's given us some consistency in terms of execution and rollout.

Any kind of impacts from that will be the only thing that would change that.

Got it thank you and good luck.

Thanks, Thanks, Mike.

Thank you. Our next question comes from refresh worry with Oppenheimer you May proceed.

We're feeling confident in the number of stores for the rest of the year I think the encouraging thing for us is.

Good afternoon, and thanks for taking my question and also congrats on a nice quarter.

I guess I'll start with maybe just I'll just kick it off to your macro question. So just on inflation. Just curious what you guys are seeing the business and expectations going forward and on the consumer front your.

As we're seeing a strong performance in what has traditionally been markets that were not well known been very encouraged by the progress we're making in the mid Atlantic the Florida stores really coming to life in terms of the new stores that are opening and by and large we're heading.

Our business continues to perform quite well just curious if youre seeing any changes in the dynamics around the consumer.

The baseball expression were hitting close to 100 on our new stores in the mall and.

Jack Sinclair: We're hitting close to 100 on our new stores at the moment.

On the inflation front, its been pretty consistent from quarter to quarter. So we're seeing a similar we're tracking CPI.

Curtis Valentine: Yeah. And cadence-wise, Mike, we had 12 in the second quarter, 9 in the third quarter, 11 in the fourth quarter is kind of where we are. And then, as always, this time of year, just the weather and any kind of impacts from that will be the only thing that would change that.

And cadence wise, Mike. It's we had 12 in the second quarter nine in the third quarter <unk> 11 in the fourth quarter is kind of where we are and then as always this time of year, just the weather and any kind of impact from that will be the only thing that would change that.

In line with the way, we typically do obviously, our fresh business is a little more volatile.

But it's tracking in line with that and then we've got some kind of mixed helpers as we move to organic and we work some of the value pack type things. So similar story to Q1 on the on the inflation and AUR front in terms of the customer side of things what we're seeing.

Michael Montani: Got it. Thank you. And good luck.

Got it thank you and good luck.

Jack Sinclair: Thanks.

Curtis Valentine: Thanks, Mike.

Thanks, Thanks, Mike.

Operator: Thank you. Our next question comes from Rupesh Farid with Oppenheimer. You may proceed.

Thank you. Our next question comes from refresh vary with Oppenheimer. You May proceed.

Edward Kelly: Good afternoon. Thanks for taking my question. Also, congrats on a nice quarter. I guess I'll start with maybe just I'll just kick it off with two macro questions. So just on inflation, just curious what you guys are seeing in the business and expectations going forward. And on the consumer front, you know your business continues to perform quite well. Just curious if you're seeing any changes in dynamics around the consumer.

Good afternoon, and thanks for taking my question also congrats on a nice quarter.

Our customer seems to have been pretty resilient theres still a lot of uncertainty.

I guess I'll start with maybe just I'll just kick it off with your macro question. So just on inflation. Just curious what you guys are seeing the business and expectations going forward and on the consumer front you know your business continues to perform quite well just curious if you're seeing any changes in the dynamics around the consumer.

But we're not quite sure if we look at the numbers and we look at how our customers are reacting I think we've always said our customer basis pretty focused on what the how the now the so I think we've got some resilience almost irrespective of what happens in the macro economy I think theres. Some uncertainty going forward, we're not seeing a lot of dynamics in the other.

Curtis Valentine: On the inflation front, it's been pretty consistent from quarter to quarter. So we're seeing a similar we're tracking CPI in line with the way we typically do. Obviously, our fresh business is a little more volatile. But it's tracking in line with that. And then we've got some kind of mixed helpers as we move to organic and we work some of the value pack type things. So similar story to Q1 on the inflation and AUR front.

On the inflation front, its been pretty consistent from quarter to quarter. So we're seeing a similar we're tracking CPI.

Grocery retailers in terms of changing things too much on our business has proven resilient as you can see from the numbers.

In line with where we typically do obviously, our fresh business is a little more volatile.

Great. Thank you I'll pass it along.

But it's tracking in line with that and then we've got some kind of mixed helpers as we move to organic and he works from a value pack type thing. So similar story to Q1 on the on the inflation and AUR front in terms of the customer side of things what we're seeing.

Thanks Paresh.

Thank you and our next question comes from John <unk> with Guggenheim You May proceed.

Jack Sinclair: In terms of the customer side of things, what we're seeing, our customer seems to be pretty resilient. There's still a lot of uncertainty going forward that we're not quite sure about. But if we look at the numbers and we look at how our customers are reacting, I think we've always said that our customer base is pretty focused on what they eat and how they eat and how they so I think we've got some resilience almost irrespective of what happens in the macroeconomy. I think there's some uncertainty going forward. We're not seeing a lot of dynamics in the other grocery retailers in terms of changing things too much. And our business has proven pretty resilient, as you can see from the numbers.

John Your line is now open.

With our customer seems to have been pretty resilient, there's still a lot of uncertainty.

I'm not quite sure, but if we look at the numbers and we look at how our customers are I think I think we've always said that our customer basis pretty focused on what the how the <unk>. So I think we've got some resilience almost irrespective of who often in the macro economy I think theres. Some uncertainty going forward, we're not seeing a lot of dynamics and the other cros.

One moment for our next question. Our next question comes from Robbie Holmes with.

Bank of America, you May proceed.

Thanks for taking my question Jack.

Jack I was hoping you could.

Talk about the new product flow outlook. It sounds like it continues to go great.

But I mean, how do you keep that same person in newness and I was curious if are you seeing any competitors kind of.

Retailers in terms of changing things too much on our business has proven resilient as you can see from the numbers.

Edward Kelly: Great. Thank you. I'll pass it along.

Moving faster too.

Great. Thank you I'll pass it along.

Get in stock in some of the newer items you bring in.

Curtis Valentine: Thanks, Rupesh.

Thanks Paresh.

Operator: Thank you. Our next question comes from John Heimbachel with Guggenheim. You may proceed. John, your line is now open. One moment for our next question. Our next question comes from Ravi Holmes with Bank of America. You may proceed.

And also related to that.

Thank you. Our next question comes from John <unk> with Guggenheim You May proceed.

Organic pricing have you seen any.

Increased competition or anybody trying to do anything there like whole foods too.

John Your line is now open.

In order to make it tougher to keep the spread on the organic produce pricing.

Hello, Robbie as you can imagine we watch our competitors all the time in terms of what they are doing in terms of product launches and pricing and things like that the context.

One moment for our next question.

Next question comes from Robbie Holmes with Bank.

Bank of America, you May proceed.

Michael Montani: Thanks for taking my question. Jack, I was hoping you could talk about the new product flow outlook. It sounds like it continues to go great. But I mean, how do you keep that same percent of newness? And I was curious if are you seeing any competitors kind of moving faster to get in stock in some of the newer items you bring in? And also, related to that, on organic pricing, have you seen any increased competition or anybody trying to do anything there, like Whole Foods, to make it tougher to keep the spread on the organic produce pricing?

Energy is all about how do we bring new innovative.

Oh, Hey, thanks for taking my question.

Jack I was hoping you could.

Entrepreneur driven products into the marketplace and the <unk> team that we've talked about are doing a fantastic job of attending conferences traveling around the world <unk> guys. I think I've said in the past are good the best job in the world as far as I can see it's the one I would like sometimes.

Talk about the new product flow outlook. It sounds like it continues to go great.

But I mean, how do you keep that same person in newness and I was curious if are you seeing any competitors kind of.

Moving faster too.

Get in stock in some of the newer items you bring in.

The opportunity there.

And really understanding where the opportunities are and I think we're creating a reputation with the young entrepreneurial.

And also related to that on an organic pricing have you seen any <unk>.

Increased competition or anybody trying to do anything there like whole foods too.

People that are bringing new products to the marketplace and we're hoping that the commentary is first.

In order to make it tougher to keep the spread on the organic produce pricing.

We certainly see from we have a portal where people put new ideas into we get change of thousands of applications into the portal every every year and we're looking almost our challenge is how do we bring more of them and but there's plenty of opportunity for us to do it and I think we are seeing is a place that committed to it because we've got innovation center.

Jack Sinclair: Well, Robbie, as you can imagine, we watch our competitors all the time in terms of what they're doing in terms of product launches and pricing and things like that. The context we're for, our energy is all about how do we bring new, innovative, entrepreneur-driven products into the marketplace. And the foraging team that we've talked a lot about are doing a fantastic job attending conferences, traveling around the world. As I think I've said in the past, they've got the best job in the world, as far as I can see. It's the one I would like sometimes. And they're getting out there and really understanding where the opportunities are. And I think we're creating a reputation with the young entrepreneurial people that are bringing new products to the marketplace. And we're hoping that they're coming to us first.

Well Ravi as you can imagine we watch our competitors all the time in terms of what they're doing in terms of product launches and pricing and things like that the context.

<unk> is all about how do we bring new and innovative.

Entrepreneur driven products into the marketplace and the <unk> team that we've talked about are doing a fantastic job of attending conferences traveling around the world <unk> guys. I think I've said in the past they've got the best job in the world as far as I can see it's the one I would like some times.

We create space and get young entrepreneurs the opportunity to get started so we're pushing very hard on that agenda at the same time, we're pushing very hard on our <unk> brand and <unk> brand this innovative and different and based on attributes no seed oils, and vegetarian and vegan and the process that we're going through in terms of bringing differentiation from <unk>.

The opportunity there.

And really understanding where the opportunities are and I think we're creating a reputation with the young entrepreneurial.

<unk> brand, we think gives us a lot will be even more of a moat in terms of the comp linking to what the competition may or may not do we watch them and then clearly the our sector health focused innovative attribute based products are going to be more important in the future than they are less important but we think we're on the leading edge of that and we're watching it.

People that are bringing new products to the marketplace and we're hoping that the commentary is first we certainly see from we have a portal where people put new ideas into we get change of thousands of applications into the portal every every year and we're looking almost our challenge is how do we bring more of them and but there's plenty of opportunity for us to do it.

Jack Sinclair: We certainly see from we have a portal where people put new ideas into it. We get tens of thousands of applications into the portal every year. And we're looking almost our challenge is how do we bring more of them in. But there's plenty of opportunity for us to do it. And I think we're seen as a place that's committed to it because we've got an innovation center. And we create space and give young entrepreneurs the opportunity to get started. So we're pushing very hard on that agenda. At the same time, we're pushing very hard on our Sprouts brand. And Sprouts brand that's innovative and different and based on attributes, no seed oils and vegetarian and vegan.

Pretty hard organic pricing, we've been pretty active as you know about our organic pricing unfortunate differentiation, we're working very hard to long term contracts with our project suppliers to give us the opportunity to create this tripartite pricing position, where the customer gets a good deal we get a good deal on the farmer gets a good deal on those long term plans.

And I think we are seeing is a place that committed to it because we are an innovation center and we create space and get young entrepreneurs the opportunity to get started so we're pushing very hard on that agenda at the same time, we're pushing very hard on our <unk> brand and <unk> brand this innovative and different and based on attributes no seed oils and vegetate.

Just something that I think give us a point of difference in terms of the context of the marketplace.

Jack Sinclair: And the process that we're going through in terms of bringing differentiation from our Sprouts brand, we think gives us a little bit even more of a moat in terms of the linking to what the competition might or might not do. We watch them. And clearly, our sector, health-focused, innovative, attribute-based products are going to be more important in the future than they are less important. But we think we're at the leading edge of that. And we're watching it pretty hard. Organic pricing, we've been pretty assertive, as you know, about our organic pricing and forcing differentiation. We're working very hard at long-term contracts with our produce suppliers to give us the opportunity to create this tripartite pricing position where the customer gets a good deal, we get a good deal, and the farmer gets a good deal.

And vegan and the process that we're going through in terms of bringing differentiation from our <unk> brand. We think gives us a lot will be even more of a moat in terms of the comp linking to what the competition might or might not do we watch them and then clearly the our sector health focused innovative attribute based products are going to be more important.

We haven't seen too much from our competitors either ups or downs in terms of what's happening on organic projects or anything else for that matter, but a good question drove these things.

No. Thank you and just a quick follow up I apologize if I missed this but the <unk> agreement in delays there and everything can you talk about the status of that and what what issues might or might not be there.

In the future than they are less important but we think we're at the leading edge of that and we're watching it pretty hard organic pricing, we've been pretty assertive as you know about our organic pricing unfortunate differentiation, we're working very hard to long term contracts with our project suppliers to give us the opportunity to create this tripartite pricing position, where the customer I guess.

Yes. He has been a good partner for US will continue to be a good partner for US. We're just working through the details as you can imagine with a long term deal.

There's a lot to cover so we're working through the details and what we're planning for a long term extension here soon.

Alright, great. Thank you.

Good deal, we get a good deal and the farmer gets a good deal on those long term plans are something that I think give us a point of difference in terms of the context of the marketplace.

Okay.

Jack Sinclair: And those long-term plans are something that I think give us a point of difference in terms of the context of the marketplace. And we haven't seen too much from our competitors, either ups or downs, in terms of what's happening on organic produce or anything else for that matter. But they're good questions, Robbie. Thanks.

Okay. Thanks.

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

And then thanks, so much for taking the questions.

And we haven't seen too much from our competitors either ups or downs in terms of what's happening on organic projects or anything else for that matter.

To start we've seen a few strikes that two of your largest conventional competitors over the past few months, obviously some differences in structure, but have you seen these events lead to any pressure just in a broader underlying wage environment or has it been pretty steady in your view. Thanks.

Good question drove these things.

Michael Montani: No, thank you. And just a quick follow-up. I apologize if I missed this. But the CAHE agreement and delays there and everything, can you talk about the status of that and what issues might or might not be there?

No. Thank you and just a quick follow up I apologize if I missed this but the <unk> agreement and delays there and everything can you talk about the status of that and what what issues might or might not be there.

We work very hard to look after our team members growth I think we're the only retailer that gives the opportunity for every team member in the store count of bonus we play pretty good we look very hard about wages and benefits relative to the to the other people that <unk> pay above the average in every market in which we're operating in.

Curtis Valentine: Yeah, CAHE has been a good partner for us. Will continue to be a good partner for us. We're just working through the details. As you can imagine, with the long-term deal, there's a lot to cover. So we're working through the details. And we're planning for a long-term extension here soon.

Yes. He has been a good partner for US will continue to be a good perfect partner for US. We're just working through the details as you can imagine with a long term deal.

There's a lot to cover so we're working through the details and what we're planning for a long term extension here soon.

Michael Montani: All right. Great. Thank you.

Alright, great. Thank you.

So we're feeling on the amount of the HR team do a terrific job managing this regionally and locally to make sure. We're in the right place and we're taking care of our people we haven't seen any major change in terms of how people are thinking about.

Jack Sinclair: Thanks, guys.

Okay. Thanks.

Operator: Thank you. Our next question comes from Mark Cardin with UBS. You may proceed.

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

Mark Carden: Good afternoon. Thanks so much for taking the questions. So to start, we've seen a few strikes at two of your largest conventional competitors over the past few months. Obviously, some differences in structure. But have you seen these events lead to any pressure just in a broader underlying wage environment? Or has it been pretty steady in your view? Thanks.

And then thanks, so much for taking the questions. So to start we've seen a few strikes at two of your largest conventional competitors over the past few months, obviously some differences in structure, but have you seen these events lead to any pressure just in a broader underlying wage environment or has it been pretty steady in your deal.

That kind of initiative around our space.

I think it's incumbent on us to look after our people appropriately and we're working very hard at that.

That's great and then.

We've seen restaurant traffic continue to decline over the past three months.

<unk>.

Jack Sinclair: We work very hard to look after our team members. But I think we're the only retailer that gives the opportunity for every team member in the store to earn a bonus. We play pretty good. We look very hard about our wages and benefits relative to the other people. And we pay above the average in every market in which we're operating in. So we're feeling and the HR team do a terrific job managing this regionally and locally to make sure we're in the right place. And we're taking care of our people. We haven't seen any major change in terms of how people are thinking about that kind of initiative around our space. And I think it's incumbent on us to look after our people appropriately. And we're working very hard at that.

We work very hard to look after our team members growth I think we're the only retailer that gives the opportunity for every team member in the store count of bonus we play pretty good we look very hard about wages and benefits relative to the to the other people and then we pay above the average in every market in which we're operating in.

More moderate pace versus earlier in the year I know in the past you guys have talked about some potential trade and some food away from home do you believe you're seeing any more of a tailwind there and are you seeing any lift in your prepared food sales.

We are working very hard on prepared foods, we've got new solid program idea on our new meals program. There. So we're working hard to catch it on the team have put in some really the daily team on doing some really good work cannot space I'm encouraged by that and it might be helping us a little bit as you go through that going forward.

So we're feeling on the amount of the HR team do a terrific job managing this regionally and locally to make sure. We're in the right place and we're taking care of our people we haven't seen any major change in terms of how people are thinking about.

It's something that we'll continue to invest in.

That kind of initiative around our space and I think it's incumbent on us to look after our people appropriately and we're working very hard to that.

Great. Thanks, so much and good luck guys.

Thanks, Thanks Mark.

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

Mark Carden: That's great. And then we've seen restaurant traffic continue to climb over the past three months, been a bit more moderate pace versus earlier in the year. I know in the past, you guys have talked about some potential trade-ins from food away from home. Do you believe you're seeing any more of a tailwind there? And are you seeing any lifts in your prepared food sales?

That's great and then.

We've seen in restaurant traffic continue to decline over the past three months.

Hi, This is Kelly bania from BMO.

More moderate pace versus earlier in the year I know in the past you guys have talked about some potential trade and from food away from home do you believe you're seeing any more of a tailwind there and are you seeing any lift in your prepared food sales.

Thanks for thanks for taking my question.

I wanted to go back to the topic of the loyalty program and just more color on kind of the timing of when you would expect the balance to accrue from that program is that something that is pretty immediate or does that take more time to build as you build out the capabilities and the communication with.

Jack Sinclair: We're working very hard on prepared foods. We've got a new salad program out there, a new meals program out there. So we're working hard at it. And the team are putting some really the deli team are doing some really good work in that space. I'm encouraged by that. And it might be helping us a little bit as you go through that going forward. It's something that we'll continue to invest in.

We are working very hard on prepared foods, we've got new solid program idea on our new meals program. There. So we're working hard.

And the team have put in some really the daily team on doing some really good work in that space. So I'm encouraged by that and it might be helping us a little bit as you go through that going forward.

Your loyalty members.

Just trying to get a sense.

If we should expect that this is a comp driver for 2026 as that gets rolled out by the end of the year.

It's something that we'll continue to invest in.

Mark Carden: Great. Thanks so much. And good luck, guys.

Great. Thanks, so much and good luck guys.

Or if you can shed any light on how those kind of initial 30 year, maybe 30 or 40 stores are comping relative to.

Jack Sinclair: Thanks.

Curtis Valentine: Thanks, Mark.

Thanks, Thanks Mark.

Operator: Thank you. Our next question comes from Kelly Benio with BMO Capital Markets. You may proceed.

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

The existing store base.

Kelly Bania: Hi. This is Kelly Benio from BMO. Thanks for taking our question. Wanted to go back to the topic of the loyalty program and just more color on kind of the timing of when you would expect the benefits to accrue from that program. Is that something that is pretty immediate? Or does that take more time to build as you build out the capabilities and the communication with your loyalty members? Just trying to get a sense if we should expect that this is a comp driver for 2026 as that gets rolled out by the end of the year? Or if you can shed any light on how those kind of initial 30 or maybe 30 or 40 stores are comping relative to the existing store base.

Hi, This is Kelly bania from BMO. Thanks.

Yes.

Hey, Kelly this is Curtis.

Thanks for thanks for taking my question.

Well, we would certainly expect it to impact comps in 2026.

Wanted to go back to the topic of the loyalty program and just more color on kind of the timing of when you would expect the benefits to accrue from that program is that something that is pretty immediate or does that take more time to build as you build out the capabilities and the communication with.

<unk> been working hard at it for quite a while and we're really excited to get rolled out here. The team members are fired up, especially here in Arizona, where we just launched in.

And so far so good on that front.

So I think it'll be a little bit different for us and thats. What we are interested to see as we do get rolled out certainly as a secondary shop.

Our frequency isn't the same as the traditional conventional grocer and so it should take us a little bit longer to build our database and build our customer data just from that perspective, and then again, how it plays out from frequency.

Your loyalty members.

I'm just trying to get a sense. If we should expect that this is a comp driver for 2026 as that gets rolled out by the end of the year.

Or if you can shed any light on how those kind of initial 30, or maybe 30 or 40 stores are comping relative to the.

Tabasco through retention the key markers that we're going to be watching it will be a little bit different for us than a traditional program and so.

Our existing store base.

We'll know a lot more obviously will be rolled out here.

Curtis Valentine: Hey, Kelly. This is Curtis. Yeah, I think we would certainly expect it to impact comps in 2026. We've been working hard at it for quite a while. And we're really excited to get rolled out here. The team members are fired up, especially here in Arizona where we just launched. And so far, so good on that front. And so I think it'll be a little bit different for us. And that's what we're interested to see as we do get rolled out. Certainly, as a secondary shop, our frequency isn't the same as a traditional conventional grocer. And so it should take us a little bit longer to build our database and build our customer data just from that perspective.

Yeah.

Hey, Kelly this is Curtis.

In the middle of Q4, and we'll be learning every day as we continue to rollout.

Yes, I think we'll we would certainly expect it to impact comps in 2026.

So we'll have better insight into that in the next call, but I think for now we're excited about it it's certainly going to drive comp in 'twenty six and then the question is just kind of pace and timing.

<unk> been working hard at it for quite a while and we're really excited to get rolled out here. The team members are fired up, especially here in Arizona, where we just launched them.

And so far so good on that front.

When that comes and it should start to help a little bit in Q4, but really we're thinking about it as a 2026 and forward type impact.

So I think it'll be a little bit different for us and Thats what were interested to see as we do get rolled out certainly as a secondary shop.

And it takes a little while but I'll also walk through given the number of the frequency of shop to our stores. So it's going to take a little bit of time for us to really understand the exact numbers, but we're really.

Our frequency isn't the same as the traditional conventional grocer and so it should take us a little bit longer to build our database and build our customer data just from that perspective, and then again, how it plays out from frequency.

Curtis Valentine: And then again, how it plays out from frequency to basket to retention, the key markers that we're going to be watching will be a little bit different for us than a traditional program. And so we'll know a lot more. Obviously, we'll be rolled out here in the middle of Q4. And we'll be learning every day as we continue to roll out. So we'll have better insight into that in the next call. But I think for now, we're excited about it. It's certainly going to drive comp in '26. And then the question is just kind of pace and timing on when that comes in. It should start to help a little bit in Q4. But really, we're thinking about it as a 2026 and forward type impact.

Got to set the team members are really pumped up about us and the customer feedback out hot for some customers as <unk> done it before.

Tabasco through retention the key markers that we're going to be watching it will be a little bit different for us than a traditional program and so well.

So we're kind of excited about that and as we see the numbers will come through in 2026.

We'll know a lot more obviously will be rolled out here.

In the middle of Q4, and we will be learning every day as we continue to rollout.

And just a follow up is that should we expect the opportunity in figure on the units per basket or the traffic or maybe a little bit of both.

So we'll have better insight into that in the next call, but I think for now we're excited about it it's certainly going to drive comp in 'twenty six and then the question is just kind of pace and timing.

Well I think that's the other part that we're interested to see we certainly expect it to help on frequency and traffic and we would expect it to help basket and we would expect it to help retention the mix of how that plays out and the pace at which it impacts those three buckets I think will be the piece that we'll learn as we go a little bit just given the different nature of our shop.

When that comes and it should start to help a little bit in Q4, but really we're thinking about it as a 2026 and forward type impact.

Jack Sinclair: And it takes a little while for it all to work through, given the frequency of shop to our stores. So it's going to take a little bit of time for us to really understand the exact numbers. But we're really, as Curtis said, the team members are really pumped up about this. And the customer, the feedback I've had from some customers is it's about time. Why have you not done it before now? So we're kind of excited about it. And as we say, the numbers will all come through in 2026.

And it takes a little while but I'll also walk through given the number the frequency of shops, our stores. So it's going to take a little bit of time for us to really understand the exact numbers, but we're really as Carter.

Thank you.

Thanks Kelly.

<unk> set the team members are really pumped up about it.

Thank you. Our next question comes from Scott marks with Jefferies. You May proceed.

On the customer feedback are hot for some customers as <unk> done it before.

Hey, good afternoon, Thanks, guys for taking our questions first one I wanted to ask about is we've heard a lot I would say for more traditional.

So we're kind of excited about that and as we see the numbers will come through in 2026.

Yeah.

Kelly Bania: And just to follow up, should we expect the opportunity is bigger on the units per basket or the traffic or maybe a little bit of both?

And just a follow up is that should we expect the opportunity in figure on the units per basket or the traffic or maybe a little bit of both.

Branded food suppliers and food retailers about increasing attribute based options, notably protein so wondering.

Curtis Valentine: Well, I think that's the other part that we're interested to see. We certainly expect it to help on frequency and traffic. And we'd expect it to help basket. And we'd expect it to help retention. The mix of how that plays out and the pace at which it impacts those three buckets, I think, will be the piece that we'll learn as we go a little bit, just given the different nature of our shop.

Well I think that's the other part that we're interested to see we certainly expect it to help on frequency and traffic and we would expect it to help basket and we would expect it to help retention the mix of how that plays out and the pace at which it impacts those three buckets I think there'll be the piece that we'll learn as we go a little bit just given the different nature of our shop.

One how your team has been kind of approaching that and how you think it may be impacting your business if at all.

Yes protein is going to be a really important part if you go around some of the shows in the AG sufficient protein is one of the biggest and most clear driver of attribution change in diets as people push that we're very well placed in the number of protein products that we've got in our business and we continue to expand it and we're excited about and we'll be talking to.

Kelly Bania: Thank you.

Thank you.

Curtis Valentine: Thanks, Kelly.

Thanks Kelly.

Operator: Thank you. Our next question comes from Scott Marks with Jefferies. You may proceed.

Thank you. Our next question comes from Scott marks with Jefferies. You May proceed.

A lot more about it going forward I think.

Edward Kelly: Hey, good afternoon. Thanks, guys, for taking our questions. First one I wanted to ask about is we've heard a lot, I would say, from more traditional branded food suppliers and food retailers about increasing attribute-based options, notably protein. So wondering, one, how your team has been kind of approaching that and how you think it may be impacting your business, if at all.

Hey, good afternoon, Thanks, guys for taking our questions first one I wanted to ask about is we've heard a lot I would say for more traditional.

They are saying is the right trend as an important trend and we want to be the leading edge of these kind of trends.

I think our assortment in a number of Skus, we have gotten our stores reflects that.

Branded fruit suppliers in food retailers about increasing attribute based options, notably protein.

We'll stop talking a little bit more assertively about it both in signage in store next Donnelly.

Wondering.

By people should come to us for protein, but it is going to be a competitive dynamic going forward.

One how your team has been kind of approaching that and how you think it may be impacting your business if at all.

Got it. Thank you for that and then second question for me, maybe a bit more of a longer term question I guess as we think about the store expansion into areas like the mid Atlantic and the northeast.

Jack Sinclair: Yeah, protein is going to be a really important part. If you go around some of the shows and the exhibitions, protein is one of the biggest and most clear drivers of attributes and change in diets as people push that. We're very well placed in the number of protein products that we've got in our business. And we continue to expand it. And we're excited about it. And we'll be talking a lot more about it going forward. I think what they're saying is the right trend. That's an important trend. And we want to be at the leading edge of these kind of trends. And I think our assortment and the number of SKUs we've got in our stores reflects that. And we'll start talking a little bit more assertively about it, both in signage in-store and externally, about why people should come to us for protein.

Yes protein is going to be a really important part if you go around some of the shows in the AG sufficient protein is one of the.

The biggest and most clear driver of attribution change in diet as people push that we're very well placed in the number of protein products will be gone in our business and we continue to expand it and really excited about and we'll be talking a lot more about it going forward I think.

How are you thinking about maintaining maybe produce especially freshness in some of those regions, especially as we get through winter months or times of year, where maybe it's a little more difficult.

They are saying is the right trend as an important trend and we want to be the leading edge of these kind of trends.

To kind of get things as quickly from farm to store, just wondering how youre thinking about fresh.

I think our assortment in a number of Skus, we have gotten our stores reflects that.

Freshness some of those products yet.

It's a good question Scott our distribution philosophy has always been to try and get our stores within 250 miles of the distribution center.

We'll stop talking a little bit more assertively approachable and signage in store next Donnelly.

By people should come to us for protein today is going to be a competitive dynamic going forward.

Jack Sinclair: But it is going to be a competitive dynamic going forward.

And then in each of the distribution centers, we will have a local sourcing team who will try their best to get all of within local that they possibly can if they can't get a local they'll get it regionally that they can't get it regionally they'll get it nationally until.

Edward Kelly: Got it. Thank you for that. And then second question from me, maybe a bit more of a longer-term question. I guess, as we think about the store expansion into areas like the Mid-Atlantic and the Northeast, how are you thinking about maintaining maybe produce, especially freshness, in some of those regions, especially as we get through winter months or times of year where maybe it's a little more difficult to kind of get things as quickly from farm to store? Just wondering how you're thinking about maintaining freshness of those products.

Got it. Thank you for that and then second question for me, maybe a bit more of a longer term question I guess as we think about the store expansion into areas like the mid Atlantic and the northeast.

In a place like Colorado, where we've got distribution center, we've got a team of people there that have done a terrific job in the last few months in terms of when.

How are you thinking about maintaining maybe produce especially freshness in some of those regions, especially as we get through winter months or times of year, where maybe it's a little more difficult to kind of get things as quickly from farm to store just wondering how you're thinking about fresh.

When it's appropriate in Colorado have Colorado, Peaches, now, Colorado, melons and have to call. It audio products are relevant to that local community and that will apply when we go to the mid Atlantic when you look at Jazzy Tomatoes, when you look at those kind of dynamics or certain times of the year, New York apples, we've got to have the right products in store and we want to be.

Freshness all of those products.

Jack Sinclair: Yeah. It's a good question, Scott. Our distribution philosophy has always been to try and get our stores within 250 miles of the distribution center. And then in each of the distribution centers, we will have a local sourcing team who will try their best to get all everything local that they possibly can. If they can't get it local, they'll get it regionally. And if they can't get it regionally, they'll get it nationally. And so in a place like Colorado, where we've got a distribution center, we've got a team of people there that have done a terrific job the last few months in terms of when it's appropriate in Colorado, have Colorado peaches and have Colorado melons and have the Colorado products that are relevant to that local community.

Good question, Scott our distribution philosophy has always been to try and get our stores within 250 miles of the distribution center.

Right and play in pace with that and our distribution Center program when we get to the Midwest Midwest will be thinking about why the appropriate things to buy locally at the right time of year clearly as you go into our things are a little bit different.

And then in each of the distribution centers, we will have a local sourcing team who will try their best to get all of within local that they possibly can if they can get a local they'll get a regionally that they can't get it regionally they'll get it nationally and so.

The process of getting product from the growing regions to the distribution center will also be doubling down on how we can do that faster or as fast as we possibly can but inevitably you have to bring things from California at certain times of the year that traveled a long way and we'd hope to be managing our inventory, so well that the freshness and the <unk>.

In a place like Colorado, where we've got distribution center, we've got a team of people there that have done a terrific job. The last few months in terms of when it's when it's appropriate.

Procreate in Colorado have Colorado features now, Colorado, Melons, and optic Colorado products are relevant to that local community and that will apply when we go to the mid Atlantic When you look at Chelsea tomato is when you look at those kind of dynamics or certain times of the year in New York apples, we've got to have the right products in store and we want to be right in <unk>.

Jack Sinclair: And that will apply when we go to the Mid-Atlantic, when you look at Jersey tomatoes, when you look at those kind of dynamics. There are certain times of the year, New York apples, we've got to have the right products in store. And we want to be right in pace with that. And our distribution center program, when we get to the Midwest, we'll be thinking about what are the appropriate things to buy locally at the right time of year. Clearly, as you go north, things are a little bit different. And the process of getting product from the growing regions to the distribution center will also be doubling down on how we can do that as fast as we possibly can. But inevitably, you have to bring things from California at certain times of the year that travel a long way.

<unk> allows us to maintain the freshness on those kinds of products, but as you can imagine is a really important part of our business. We think a lot about it region by region market by market distribution Center by distribution Center and we have got really good plans in place as we expand into the Midwest and the northeast.

In pace with that and our distribution Center program when we get to the Midwest Midwest will be thinking about what are the appropriate things to buy locally at the right time of year clearly as you go into our things are a little bit different.

But it's a great question.

Yes, I appreciate the thorough response thank you.

Thanks, Thanks Scott.

Thank you. Our next question comes from Chuck Cerankosky with Northcoast Research you May proceed.

The process of getting product from the growing regions to the distribution center will also be doubling down on how we can do that faster and as fast as we possibly can but inevitably you have to bring things from California at certain times of the year that traveled a long way and we'd hope to be managing our inventory, so well that the freshness and the <unk>.

Good afternoon, everyone great quarter again thanks.

Curtis I have a question for you it doesn't involve merchandising, but I noticed a 26% tax rate and you were talking about 24%.

Jack Sinclair: And we'd hope to be managing our inventory so well that the freshness and the rotation allows us to maintain the freshness on those kinds of products. But as you can imagine, it's a really important part of our business. We think a lot about it region by region, market by market, distribution center by distribution center. And we have got really good plans in place as we expand into the Midwest and the Northeast. But it's a great question.

Later in the year or for the full year any anything that sprouts can do to get that tax rate down.

<unk> allows us to maintain the freshness on those kinds of products, but as you can imagine is a really important part of our business. We think a lot about it region by region market by market distribution Center by distribution Center and we have got really good plans in place as we expand into the Midwest and the northeast.

And maybe even on a long term number that's below 24%.

Yes. Good question, Chuck I wasn't counting on that one I think.

No. It's acting doesn't really good jobs small, but mighty team and Theyre always looking at opportunities and how we leverage tax credits specifically around our.

But it's a great question.

Operator: Yeah. Appreciate the thorough response. Thank you.

Yes, I appreciate the thorough response thank you.

Jack Sinclair: Thanks.

Curtis Valentine: Thanks, Scott.

Our food waste and how we can divert that and do good things with that and take advantage of that so they are looking at those things always.

Thanks Scott.

Operator: Thank you. Our next question comes from Chuck Serenkowski with North Coast Research. You may proceed.

Thank you. Our next question comes from trucks are in coffee with Northcoast Research you May proceed.

And I think we'll continue to work on that but I think that 25% to 26 <unk> has been pretty consistent for us other than maybe the first quarter when we see some of the stock price impact.

Chuck Cerankosky: Good afternoon, everyone. Greg Quarter again.

Good afternoon, everyone great quarter again thanks.

Operator: Thanks.

Chuck Cerankosky: Curtis, I have a question for you. It doesn't involve merchandising. But I noticed a 26% tax rate. And you're talking about 24% later in the year or for the full year. Anything that Sprouts can do to get that tax rate down to maybe even a long-term number that's below 24%?

Curtis I have a question for you it doesn't involve merchandising, but I noticed a 26% tax rate and you were talking about 24%.

Alright, Thank you and good luck for the rest of the year.

Later in the year or for the full year any anything that sprouts can do to get that tax rate down.

Thank you thank.

Thanks, Paul.

Thank you. Our next question comes from Scott <unk> with <unk> capital you May proceed.

And maybe even on a long term number that's below 24%.

Hey, guys. Thanks, Thanks for taking my question. So my first one and it's just about the fourth quarter.

Curtis Valentine: Yeah. Good question, Chuck. I wasn't counting on that one. I think our tax team does a really good job, small but mighty team. And they're always looking at opportunities and how we leverage tax credits, specifically around our food waste and how we can divert that and do good things with that and take advantage of that. So they're looking at those things always. And I think we'll continue to work on that. But I think that '25 to '26 kind of has been pretty consistent for us, other than maybe the first quarter when we see some of the stock price impact, so.

Yeah. Good question, Chuck I wasn't counting on that one.

Our tax team does a really good job small, but mighty team and Theyre always looking at opportunities and how we leverage tax credits specifically around our.

Thinking about Curtis what you said about kind of a 15 to 16, I guess stacked comp that implies a pretty low comp for the fourth quarter.

Our food waste and how we can divert that and do good things with that and take advantage of that so they are looking at those things always.

Sure.

That's a good until they are not good and I was just wondering how you guys are thinking about the fourth quarter.

And I think we will continue to work on that but I think that 25% to 26 <unk> has been pretty consistent for us other than maybe the first quarter when we see some of the stock price impact.

I mean, it seems like as the business is running right now 4% comp even though it would catch your stack at the same place just doesn't seem realistic.

Yes, I think Scott I think what we'll be watching we've talked kind of for the year. The three big things right as we comp the comp to big step changes last year and we've cycled through the first one in May the next big ones in September and so we'll get a read on kind of your question could it be a little better in the fourth quarter from a two year stack perspective, we will have that.

Operator: All right. Thank you. Good luck for the rest of the year.

Alright, Thank you and good luck for the rest of the year.

Jack Sinclair: Thank you.

Curtis Valentine: Thanks.

Thank you.

Thanks, Paul.

Operator: Thanks, Chuck. Thank you. Our next question comes from Scott Mushkin with R5 Capital. You may proceed.

Thank you. Our next question comes from Scott <unk> with <unk> capital you May proceed.

Edward Kelly: Hey, guys. Thanks for taking my question. So my first one, and it's just about the fourth quarter, thinking about, Curtis, what you said about kind of a 15 to 16, I guess, stacked comp that implies a pretty low comp for the fourth quarter. And I was just, you know, stacks are good until they're not good. And I was just wondering how you guys are thinking about the fourth quarter. I mean, it seems like as the business is running right now, a 4% comp, even though it would get you a stack in the same place, just doesn't seem realistic.

Hey, guys. Thanks, Thanks for taking my questions. So my first one.

Answer when we get through September here later this quarter. The second piece was the new stores and particularly the comp impact from the 24 vintage.

About the fourth quarter.

Thinking about Curtis what you said about kind of a 15 to 16, I guess stacked comp that implies a pretty low comp for the fourth quarter.

About a quarter of the 24 vintage stores are now in the comp base. So that's still largely ahead of US and then loyalty loyalty will be some upside if it takes off a little bit quicker than we think or has a bigger impact early than we think it might well that's a piece that we've been watching as well, but is largely in front of us and so I think we still have some questions to answer that.

And stacks are good until theyre not good and I was just wondering how you guys are thinking about the fourth quarter I mean, it seems like as the business is running right now 4% comp even though it would catch your stack at the same place just doesn't seem realistic.

Curtis Valentine: Yeah. I think, Scott, I think what we'll be watching, we've talked kind of for the year, the three big things, right, is we comp the comp, two big step changes last year. And we've cycled through the first one in May. The next big one's in September. And so we'll get a read on kind of your question. Could it be a little better in the fourth quarter from a two-year stack perspective? We'll have that answer when we get through September here later this quarter. The second piece was the new stores and particularly the comp impact from the '24 vintage. I think about a quarter of the '24 vintage stores are now in the comp base. So that's still largely ahead of us. And then loyalty.

And certainly we're going to try to drive it higher and hope that it will be better but for now I think it's prudent to kind of stick to the 15% that we've been seeing pretty consistently for several months now.

Yes, I think Scott I think what we'll be watching we've talked kind of for the year. The three big things right as we comp the comp to big step changes last year and we've cycled through the first one in May next big ones in September and so we'll get a read on kind of your question could it be a little better in the fourth quarter from a two year stack perspective, we will have.

Yes, it makes sense, but.

It's introduced can be interesting to see especially with all your initiatives.

My second question is actually also on comp, but more long term. So if you think about the industry growth rate most things that we look at let's say, 5% to 6% through the through the end of the decade.

To answer when we get through September here later this quarter. The second piece was the new stores and particularly the comp impact from 'twenty four vintage I think about a quarter of the 24 vintage stores are now in the comp base. So that's still largely ahead of US and then loyalty loyalty will be some upside if it takes off a little bit quicker than we think or has a bigger <unk>.

When you look at your guys' initiatives, new store growth, maybe some cannibalization, but that would suggest at least seven comp over the next three years of growth rates in the industry holdup.

Curtis Valentine: Loyalty will be some upside if it takes off a little bit quicker than we think or has a bigger impact early than we think it might. That's a piece that we've been watching as well, but is largely in front of us. And so I think we still have some questions to answer there. And certainly, we're going to go try to drive it higher and hope that it'll be better. But for now, I think it's prudent to kind of stick to the 15% that we've been seeing pretty consistently for several months now.

Packed early than we think it might well that's a piece that we've been watching as well, but is largely in front of us and so I think we still have some questions to answer there and certainly we're going to try to drive it higher and hope that it will be better but for now I think it's.

Where am I wrong on that.

Yes, I don't know that Youre wrong, Scott I think we continue to look at things in the again the key markers that we've been looking at the ones I. Just mentioned, we will have a really good clarity on that obviously see in the third quarter.

Prudent to kind of stick to the 15% that we've been seeing pretty consistently for several months now.

Edward Kelly: Yeah, it makes sense. But it's interesting. It's going to be interesting to see, especially with all your initiatives. So my second question is actually also on comp, but more long term. So if you think about the industry growth rate, most things that we look at would say 5% to 6% through the end of the decade. You look at your guys' initiatives, new store growth, maybe some cannibalization. But that would suggest at least a 7% comp over the next three years if growth rates in the industry hold up. Where am I wrong on that?

We're building our confidence in that storyline, certainly as we sit here today.

Yes, it makes sense, but.

Its interests can be interesting to see especially with all your initiatives. So my second question is actually also on comp, but more long term. So if you think about the industry growth rate most things that we look at let's say, 5% to 6% through the through the end of the decade.

First August we'd be looking for a stronger comp in our algorithm two to four as we think about 2026.

So we're excited to kind of see those those key markers play out and maybe answer that question a little bit more directly when we get to kind of February 2026 guidance and beyond.

You look at your guys' initiatives, new store growth, maybe some cannibalization, but that would suggest at least to seven comp over the next three years if growth rates in the industry holdup, where.

And without without changing guidance or talking about numbers I think we certainly recognize there is a tailwind to this category is healthy eating people carrying about where their food grew in either fits produced people carrying about Watson Fitch I think thats, a tailwind trend that I think will begin to see and we've got a low share of wallet.

Or am I wrong on that.

Curtis Valentine: Yeah, I don't know that you're wrong, Scott. I think we continue to look at things. And again, the key markers that we've been looking at, the ones I just mentioned, we'll have a really good clarity on that. Obviously, seeing the third quarter guide, we're building our confidence in that storyline. Certainly, as we sit here today, you know, first of August, we'd be looking for a stronger comp in our algorithm two to four as we think about 2026. And so we're excited to kind of see those key markers play out and maybe answer that question a little bit more directly when we get to kind of February 2026 guidance and beyond.

Yes, I don't know that Youre wrong, Scott I think we continue to look at things and again the key markers that we've been looking at the ones I. Just mentioned, we'll have a really good clarity on that obviously see in the third quarter.

Customer base, so there should be or certainly ambitious to grow going forward, but we're not going to do is put numbers down that put pressure on our SG&A to be honest going forward and we're very conscious of that.

We're building our confidence in that storyline, certainly as we sit here today.

The first of August we'd be looking for a stronger comp in our algorithm two to four as we think about 2026.

Okay, great. Thanks for the thanks for the answers.

Thanks, Thanks Scott.

And so we're excited to kind of see those those key markers play out and maybe answer that question a little bit more directly when we get to kind of February 2026 guidance and beyond.

Thank you and as a reminder to ask a question. Please press star one on your telephone. Our next question comes from John <unk> with Guggenheim You May proceed.

Jack Sinclair: And without changing guidance or talking about numbers, I think we certainly recognize there's a tailwind to this category, this healthy eating, people caring about where their food is grown, how their food's produced, people caring about what's in their food. So I think that's a tailwind trend that I think we'll begin to see. And we've got a low share of wallet of our customer base. So we're certainly ambitious to grow going forward. But what we're not going to do is put numbers down that put pressure on our best G&A, to be honest, going forward. And we're very conscious of that.

And without without a change in guidance are talking about numbers I think.

Hey, guys.

I wanted to.

We certainly recognize there is a tailwind to this category is healthy eating people carrying about where the foot through and either fix produced people carrying about Watson Fitch I think thats a tailwind trend.

Sort of follow up on that one.

Jack can you talk to.

Wallet share.

Right, where you think you are today.

And as.

Is 20%.

An ambitious number to get to it wouldnt seem to be.

We will begin to see and we've got a low share of wallet of our customer base. So there should we're certainly ambitious to grow going forward, but what we're not going to do is put numbers down that put pressure on our SG&A to be honest going forward and we're very conscious of that.

And if you were to do that where do you think the biggest opportunities are.

Is it in prepared foods.

Well I think prepared foods is certainly one of them, but I think as people switch. The dice is the biggest thing switch in to what we sale products are more attribute best projects get more health benefits to them in a cleaner that hole as people switch, which I think people will switch you'll start to see a growing from there.

Edward Kelly: OK, guys. Great. Thanks for the answers.

Okay, great. Thanks for the thanks for the answers.

Jack Sinclair: Thanks.

Curtis Valentine: Thanks, Scott.

Thanks, Thanks Scott.

Operator: Thank you. And as a reminder, to ask a question, please press star 11 on your telephone. Our next question comes from John Heimbachel with Guggenheim. You may proceed.

Thank you and as a reminder to ask a question. Please press star one on your telephone. Our next question comes from John Hind Buckle with Guggenheim You May proceed.

13% that we talked about whether it will get to 'twenty I'm not sure, but we certainly think we can make a significant dent in the gap between <unk> and 'twenty, partly because the people will trend towards it and yes, we will develop better meals opportunities in terms of what people can get in that space.

Chuck Cerankosky: Hey, guys. I wanted to sort of follow up on that one. Jack, can you talk to a wallet share, right, where you think you are today? And is 20% an ambitious number to get to? It wouldn't seem to be. And if you were to do that, where do you think the biggest opportunities are? You know, is it in prepared foods?

Hey, guys.

I wanted to.

Sort of follow up on that one.

Jack can you talk to our wallet share right.

Alright, where you think you are today.

As.

Is 20%.

An ambitious number to get to it wouldnt seem to be.

Vitamins and supplements as another category that we talk a lot about what is going on I think lead to I think more people are going to get into that going forward. So I think that will help us in terms of category growth. So there's a number of initiatives that I think will encourage us to believe that we can get a share of wallet growth from 13 to somewhere north of that.

And if you were to do that where do you think the biggest opportunities are.

Is it in prepared foods.

Jack Sinclair: Well, I think prepared foods is certainly one of them. But I think it's as people switch their diets is the biggest thing, switching to what we sell, products that are more attribute-based, products that have got more health benefits to them and are cleaner. That whole, as people switch, which I think people will switch, you'll start to see it goes growing from the 13% that we talk about. Whether it'll get to 20, I'm not so sure. But we certainly think we can make a significant dent in the gap between 13 and 20, partly because people will trend towards it. And yes, we will develop better meals opportunities in terms of what people can get in that space.

Well I think prepared foods is certainly one of them, but I think as people switch. The dice is the biggest thing switch into what we sale products are more attribute best projects I've got more health benefits to them in a cleaner that hold as people switch, which I think people will switch youll start to see a growing from this.

Alright, and then sort of a follow up right.

So <unk> is probably going to end up.

A lot of reasons right market growth and your initiatives higher than perhaps you had thought at the same time.

13% that we talked about whether it will get to 'twenty I'm not sure, but we certainly think we can make a significant dent in the gap between <unk> and 'twenty, partly because the people will trend towards it and yes, we will develop better meals opportunities in terms of what people can get in that space.

Reduce the size of the box how do you think about capacity.

Right.

Within a typical box and is the answer the answer is not bigger stores. The answer is more density.

And then what which is fine.

Jack Sinclair: And vitamins and supplements is another category that we talk a lot about that's going to, I think, lead to, I think more people are going to get into that going forward. So I think that'll help us in terms of category growth. So there's a number of initiatives that I think will encourage us to believe that we can get a share of wallet growth from 13 to somewhere north of that.

Does that inevitably raise the cannibalization number within the comp.

Vitamins and supplements as another category that we talk a lot about it is going to I think lead to I think more people are going to get into that going forward. So I think that will help us in terms of category growth. So there's a number of initiatives that I think will encourage us to believe that we can get a share of wallet growth from 13 to somewhere north of that.

Yes, certainly the thing we're not going to change the size of the box, we're going to work hard to making the bulks more efficient and the team are doing a really nice job on not the team working in the operation space in terms of how we're utilizing the space behind the scenes in our stores in terms of how we manage inventory how we manage receiving how we manage the flow of goods through the back room into the store so as well.

Chuck Cerankosky: All right. And then sort of as a follow-up, right, so AUV is probably going to end up, for a lot of reasons, right, market growth and then your initiatives higher than perhaps you had thought. At the same time, you've reduced the size of the box. How do you think about capacity, right, within a typical box? And is the answer the answer is not bigger stores. The answer is more density, and then what, you know, which is fine. And what does that inevitably raise the cannibalization number within the comp?

Alright, and then sort of a follow up right.

So <unk> is probably going to end up.

It gives us some opportunities to expand capacity.

A lot of reasons right market growth and your initiatives higher than perhaps you had thought at the same time you reduce the size of the box.

Even within the boxes that we have and we continue to look at what are the right.

Certainly, we're not going to build bigger stores, so shall we build stores closer and closer and as our volumes grow against more and more attractive for us to cannibalize a little bit in terms of take some pressure off the stores are doing well. So your observation is appropriate we're not quite there yet in terms of the worry on it im looking forward to what in the stores are so busy there.

Do you think about capacity.

<unk>.

A typical box and is the answer the answer is not bigger stores. The answer is more density.

And then what which is fine and what does that inevitably raise the cannibalization number within the comp yes, yes.

Jack Sinclair: Yeah. Yeah, that's the only thing I said. We're not going to change the size of the box. We're going to work harder at making the box more efficient. And the team are doing a really nice job on that, the team working in the operations space in terms of how we're utilizing the space behind the scenes in our stores, in terms of how we manage inventory, how we manage receiving, how we manage the flow of goods through the back room into the store. There's a lot of work there that gives us some opportunities to expand capacity, even within the boxes that we have. And we continue to look at what are the right, certainly, we're not going to build bigger stores. So shall we build stores closer and closer?

We have to build other ones next door to them.

Yes, it's actually only thing we're not going to change the size of the box, we're going to work harder to making the box more efficient and the team are doing a really nice job on that the team working in the operation space in terms of how we're utilizing the space behind the scenes in our stores in terms of how we manage inventory how we manage receiving how we manage the flow of goods through the back room into the store. So there's a lot of what they are that gives us.

Thank you.

Thanks, Thank you very much John.

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

Yes, thanks, everyone for your attention and we really appreciate your interest in our business and we look forward to updating you in the future months come. Thank you very much for your attention.

Some opportunities to expand capacity, so we even within the boxes that we have and we continue to look at what are the right.

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

Certainly, we're not going to build bigger stores, so shall we build stores closer and closer and as our volumes grow it gets more and more attractive for us to cannibalize a little bit in terms of take some pressure off the stores are doing well. So your observations appropriate we're not quite there yet in terms of the worry on it I am looking forward to what he and his stores are so busy that we offer.

Jack Sinclair: And as our volumes grow, it gets more and more attractive for us to cannibalize a little bit in terms of taking some pressure off the stores that are doing well. So your observation is appropriate. We've not quite got there yet in terms of the worry on it. I'm looking forward to worrying that the stores are so busy that we have to build other ones next door to them.

To build other ones next door to them.

Chuck Cerankosky: Thank you.

Thank you.

Jack Sinclair: Thanks. Thanks very much, John.

Thanks, Thanks, very much John.

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

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

Jack Sinclair: Yeah. Thanks, everyone, for your attention. We really appreciate your interest in our business. And we look forward to updating you in the future months to come. Thank you very much for your attention.

Yes, thanks, everyone for your attention and we really appreciate your interest in our business and we look forward to updating you in the future months. Thank you very much for your attention.

Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

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

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