Q3 2025 Sprouts Farmers Market Inc Earnings Call

Curtis Valentine: Taxes were $157 million, interest income was approximately $690,000, and our effective tax rate was 24%, including a benefit of $0.03 predominantly from a purchase discount for transferable tax credits. Net income was $120 million, and diluted earnings per share were $1.22, an increase of 34% compared to the same period last year. During Q3, we opened nine new stores, ending the quarter with 464 stores across 24 states. We are encouraged by our new store performance and the positive response we are getting from customers as we enter new communities across the country. The team continues to improve our processes and partnerships to accelerate our development cycle, and our planned expansion into the Midwest and the Northeast is providing fertile ground for site approvals.

During Q3, we opened 9 new stores and ending the quarter with 464 stores across 24 States.

We are encouraged by our new store performance in the positive response. We are getting from customers as we enter new communities across the country.

Curtis Valentine: We plan to open more stores in 2026 than in 2025 and believe we are on track to get to our 10% unit growth in 2027. A strong and healthy balance sheet has underpinned our financial performance. Year to date, we generated $577 million in operating cash flow, which allowed us to self-fund our investments of $194 million in capital expenditures net of landlord reimbursement to grow our business. We have also returned $342 million to our shareholders by repurchasing 2.4 million shares. We have $966 million remaining under our new $1 billion share repurchase authorization that was approved in August. We ended the third quarter with $322 million in cash and cash equivalents and $23 million of outstanding letters of credit. On July 25, we closed a $600 million revolving credit facility, which replaced our previously existing $700 million revolver.

The team continues to improve our processes and Partnerships to accelerate our development cycle and our planned expansion into the Midwest, and the Northeast is providing furl ground for site approvals.

We plan to open more stores in 2026 than in 2025 and believe we are on track to get to our 10% unit growth in 2027.

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

Year to date. We generated 577 million in operating cash flow, which allowed us to self-fund our investments of 194 million in capital expenditures. Net of landlord reimbursement, to grow our business,

we have also returned 342 million to our shareholders, by repurchasing, 2.4 million shares,

We have 966 million remaining under our new 1 billion. Share repurchase, authorization, that was approved buyers in August.

We ended the third quarter with 322 million in cash and cash equivalents and 23 million of outstanding letters of credit.

Curtis Valentine: The terms and conditions are substantially similar to our previous agreement, with a new expiration date of July 2030. While we plan to fund operations and unit growth through our robust cash flow generation, this facility provides Sprouts Farmers Market with financial flexibility as we grow. As we look ahead for the remainder of this year, we are balancing the strength of our business strategy against the consumer uncertainty and challenging year-over-year comp compares. For the full year, we expect total sales growth to be approximately 14% and comp sales to be approximately 7%. Given the strong execution of our real estate pipeline and fewer timeline delays, we now plan to open 37 new stores in 2025. Earnings before interest and taxes are expected to be between $675 million and $680 million, and earnings per share are expected to be between $5.24 and $5.28, assuming no additional share repurchases.

on July 25th, we closed a 600 million revolving credit facility which replaced our previously existing 700 million revolver

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

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

As we look ahead for the remainder of this year, we are balancing the strength of our business strategy against consumer uncertainty and challenging year-over-year comp compares.

For the full year, we expect total sales growth to be approximately 14% And comp sales to be approximately 7%.

Given the strong execution of our real estate Pipeline and fewer timeline. Delays, we now plan to open 37, 37, new stores in 2025,

Earnings before interest in taxes, are expected to be between 675 and 680 million dollars.

Curtis Valentine: That said, we expect to continue repurchasing shares opportunistically. 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 million and $250 million for the fourth quarter. We expect comp sales to be in the range of 0% to 2%, and earnings per share to be between $0.86 and $0.90 in the fourth quarter. Year over year margin rate in both gross margin and SGA are normalizing. Despite the pressure to our top line, we expect to be able to grow EBIT in line with our sales growth to deliver stable year over year margins in the fourth quarter. Despite facing challenging revenue comparisons, we remain confident that we have a resilient business capable of delivering solid earnings growth. This reflects our ongoing commitment to operational efficiency and disciplined cost management.

And earnings per share are expected to be between 5 dollars and 24 cents and 5.28 cents assuming no additional share repurchases.

that said we expect to continue repurchasing shares opportunistically

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 million and $250 million.

For the fourth quarter, we expect comp sales to be in the range of 0 to 2% and earnings per share to be between 86 and 90 cents.

In the fourth quarter year-over-year margin rate in both gross margin and sgna are normalizing.

Despite pressure to our Top Line, we expect to be able to grow ebit dollars in line with our sales, growth to deliver stable year-over-year margins in the fourth quarter.

Despite facing challenging Revenue comparisons. We remain confident that if we have a resilient business capable of delivering solid earnings growth

Curtis Valentine: These factors provide us with earnings stability while we continue to invest in our future growth. With that, I'll turn it back.

This reflects our ongoing commitment to operational efficiency and disciplined cost management.

These factors provide us with earning stability while we continue to invest in our future growth.

Jack Sinclair: Thanks Curtis. Over the years we have built a strong foundation for sustainable long term value creation. We focus on driving growth through differentiated innovation, strengthening our operations, enhancing our digital capabilities to deepen customer engagement, and expanding our store footprint, all while investing in our talent and technology today. Together, these elements form the cornerstone of our strategy, positioning us to compete effectively. The broader health and wellness movement in the United States continues to gain popularity. With this in mind, we remain committed to expanding and strengthening our unique product offering. We continue to see strong customer demand for our attribute driven products, which remain a key driver of our sales growth.

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

Thanks. Curtis over the years. We've built a strong foundation for sustainable long-term value creation. We focus on driving growth through differentiated Innovation. Strengthening our operations, enhancing our digital capabilities, to deepen, customer engagement and expanding our store footprint all while investing in our talent and Technology together. These elements form, the Cornerstone of our strategy positioning us to complete effectively

Jack Sinclair: Currently, more than one third of our sales come from organic products, and we'll continue investing in this important attribute for our customers, ensuring they have access to the best in organic offerings at a great value. The supplement sector is also evolving within our stores, focused on areas such as longevity, women's health, and gut health, trends that resonate with our health enthusiast customers. The Sprouts Brand now accounts for more than 25% of our sales, and with a robust product pipeline planned for the next three years, we are committed to continuing our growth. What makes our Sprouts Brand unique are our innovative products and flavors such as herb stuffing, potato chips, and maple flavored coconut pillows, new for this year's fall season. In the third quarter, we launched new Wellness Bowls, each priced under $10.

Attribute-driven products, which remain a key driver of our sales growth.

Currently more than 1, third of our sales come from organic products and will continue investing in this important attribute for our customers ensuring, they have access to the best in organic offerings at a great value.

The supplement sector is also evolving within our stores, focused on areas such as longevity, women's health, and gut health. These health trends resonate with our health enthusiast customers.

The Sprout brand now accounts for more than 25% of our sales, and with a robust product pipeline planned for the next three years, we are committed to continuing our growth.

What makes our Sprouts brand unique are our Innovative products and flavors such as herb, stuffing potato chips, and maple flavored. Coconut pillows, new for this year's fall season.

Jack Sinclair: These bowls feature attributes like grass fed beef or organic tofu and responsibly sourced salmon. They're packed with protein, bold flavors such as sesame, garlic, ponzu, and high quality fresh ingredients at a fantastic price. Our customers are responding, and we're pleased with the early results. As we look to the future of foraging, we're investing to ensure that we continue to lead in this space, supported by a robust pipeline of innovation and deep partnerships with entrepreneurial brands that view Sprouts as the ideal launch platform. These partnerships energize us, and together we're excited to introduce approximately 7,000 new products for 2025 that align with our customers' values and lifestyles to stay ahead in a rapidly evolving market. We're expanding the capabilities of our foraging team to better anticipate emerging trends and customer needs.

In the third quarter, we launched New Wellness PS, each priced under $10. These bowls feature attributes like grass-fed beef, organic tofu, and responsibly sourced salmon. They’re packed with protein, with flavors such as sesame, garlic, and ponzu, and high-quality fresh ingredients at a fantastic price. Our customers are responding, and we're pleased with the early results.

As we look to the future of foraging, we're investing to ensure that we continue to lead in this space, supported by our robust pipeline of innovation and deep partnerships with entrepreneurial brands that have used Sprouts as the ideal launch platform. These partnerships energize us, and together, we're excited to introduce approximately 7,000 new products for 2025 that align with our customers' values and lifestyles.

Jack Sinclair: Over the past year and into early 2025, we expanded our customer base, attracting a meaningful number of new shoppers. We are pleased to see that the vast majority have remained engaged. On the marketing front, we continue to partner with our influencers, extend our reach in new markets, and have started utilizing our Sprouts Rewards to engage with our customers. Speaking of the Sprouts Rewards loyalty program, it's fully launched this week, marking an essential step in our Sprouts customer engagement and personalization journey. We have seen good growth in our identifiable customers, and the stores are taking ownership of this important initiative. Although it's still early in the program, we are observing encouraging indications of increased shopping frequency and sales per customer in our early rollout geographies and are excited to see our progress in the coming months.

To stay ahead in a rapidly evolving Market where expanding the capabilities of our foraging team to better anticipate emerging Trends and customer needs.

Over the past year and into early 2025, we expanded our customer base attracting a meaningful number of new Shoppers. We're pleased to see that the vast majority of remained engaged on the marketing front. We continue to partner with our influencers, extend our reach in new markets and have started. Utilizing our Sprouts rewards to engage with our customers.

Speaking of the Sprouts Rewards loyalty program, it's fully launched this week, marking an essential step in our Sprouts customer engagement and personalization journey. We have seen good growth in our identifiable customers, and the stores are taking ownership of this important initiative.

Jack Sinclair: On the supply chain front, we're excited about our ongoing transition to self-distribution in fresh meat and seafood. It has been a difficult year for us in the meat category as multiple third-party supply disruptions led to availability challenges and customer disruption, further underscoring the importance of controlling our destiny through self-distribution. Through October, we have successfully completed the transition at four of our existing distribution centers, leading to increased delivery frequency to our stores and improved fill rates. Looking ahead, we anticipate completing this transition by the second quarter of 2026 with the opening of our new Northern California distribution center, further solidifying our commitment to operational excellence. The new stores we've opened this year are performing well both in terms of top line revenue and bottom line profitability. Additionally, last year's vintage is entering the comp base well, further validating the effectiveness of our model.

Although it's still early in the program where I'm serving encouraging indications of increased shopping frequency and sales per customer in our early rollout geographies and are excited to see our progress in the coming months.

On the supply chair front, we're excited about our ongoing transition to self-distribution in Fresh Meat and seafood. It has been a difficult for you year for us in the meat category, as multiple third-party Supply. Disruptions led to availability challenges and customer disruption farther underscoring, the importance of controlling our destiny through self-distribution

Jack Sinclair: We're particularly pleased about our robust and new store pipeline, which currently includes 140 approved locations. This highlights the strength of our brand and also demonstrates the scalability of our format. We are confident that we will be able to meet the evolving needs of our customers while also achieving our ambitious growth targets. To that end, we are pleased that we plan to open 37 stores in 2025, exceeding our original target of 35. We're excited to welcome 3,700 new Sprouties to our team and to expand access for our target customers, allowing us to bring the Sprouts experience to more communities nationwide. The effective execution of our strategic initiative is made possible by the dedication and talent of our team members throughout the organization. Central to our culture is a shared belief in our purpose and values, which form the foundation of our long-term success.

The new store we've opened this year are performing well, both in terms of Topline, revenue and bottom line profitability. Additionally last year's vintage is entering the comp base. Well, further validating the effectiveness of our model.

We're particularly pleased about a robust and new store pipeline, which currently includes a, 140 approved locations. This highlights the sense of our brand and also demonstrates the scalability of our format.

We are confident that we'll be able to meet the evolving needs of our customers while also achieving our ambitious growth targets.

To that end, we are pleased to announce that we plan to open 37 stores in 2025, exceeding our original target of 35.

We're excited to welcome 3,700. New Sprouts to our team and to expand access for our Target customers.

Allowing us to bring the Sprouts experience to more communities Nationwide.

Jack Sinclair: I want to express my gratitude to our 35,000 team members for their unwavering commitment to serving our customers every day. We acknowledge the challenges of sustaining the momentum built from last year's exceptional results. Alongside an evolving consumer backdrop, we have an amazing business that has significant potential. We are confident in the resilience of our business model and are dedicated to investing in our foundations for sustainable long-term earnings growth. Thank you for joining us today. We look forward to sharing more of this journey with you in the quarters to come. With that, I'd like to turn it over for questions. Operator.

The foundation of our long-term success.

I want to express my gratitude to our 35,000 team members for their unwavering commitment to serving our customers every day.

We acknowledge the challenges of sustaining. The momentum built from last year's exceptional results, alongside an evolving consumer backdrop. We have an amazing business that has significant potential. We are confident in the resilience of our business model and our dedicated to investing in our foundations for sustainable long-term earnings growth,

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

and with that, I'd like to turn it over for questions.

Operator.

Susannah Livingston: 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. The first question comes from Michael Montani with Evercore. Your line is now open.

Jack Sinclair: Yes, hi, good evening. I just wanted to ask, we've had some questions about concerns around competition that might be potentially encroaching on your core consumer. I just wanted to see kind of.

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 and to withdraw your question. Please press star 1 1, 1 1 again. And the first question comes from, Michael montani with evercore, your line is now open.

Curtis Valentine: How would you respond to that if there were other cyclical temporal headwinds?

Jack Sinclair: We should be thinking about in the quarter, and then how that could play.

Curtis Valentine: Out in the fourth quarter.

Jack Sinclair: Do you see this as.

Curtis Valentine: a function of competition, or is it something else?

Uh yes I am good evening. Um I just wanted to ask um we've had some questions about uh concerns around competition that might be potentially encroaching on your core consumer. But I just wanted to see kind of how you would respond to that if there was other cyclical temporal headwinds that we should be thinking about in the quarter, you know, and then how that could play out in the fourth quarter and also you know do you see this as a function of competition

Or is it something else?

Jack Sinclair: I think what we talked about in the script there, Mike, was very much, we're lapping some tough numbers from last year. At the same time, there's a kind of consumer context that feels like things are getting a little bit more difficult for the consumer. Putting that into context, we always look at what our competitors are doing and what the competitors are playing in there. Our strategy is pretty clear. We got 7,500 new innovative products launched done. I don't think I have seen anyone else launching that kind of number of innovation and differentiation. We're building a lot of stores, up to 37 stores, which we're very confident about. We've got a great pipeline of stores coming through going forward. We're very excited about the loyalty and personalization work. The context of all of that, I think, shields us from what we've seen happening from our competitors.

Jack Sinclair: As I say, we're pretty confident about the future, Mike.

Well, I think what we talked about in the script here, Mike was very much. There's a there were laughing, some tough numbers from last year and at the same time, there's a kind of consumer context that feels like things are getting a little bit more difficult for the consumer. So I put that putting that into context, we always look at what our competitors are doing and what the competitors are playing in there, but our strategy is pretty clear. We've got 7 and a half thousand new Innovative products launched. And I don't think I haven't seen anyone else launching that kind of number of innovation and differentiation. We're building a lot of stores up to 37 stores, which are very confident about, and we've got a great pipeline of stores. Coming through going forward, and we're very excited about the loyalty and personalization work. So the contact of all of that, I think Shields us from what we've seen happening from our competitors. And as I say, we're pretty confident about the future, Mike?

Susannah Livingston: The next question comes from Seth Sigman with Barclays. Your line is open.

Jack Sinclair: Thanks.

Curtis Valentine: Good afternoon, everyone.

Sigmund with Barclays. Your line is open.

Jack Sinclair: There's a concern in the market that there have been some unique drivers helping your business over the last 12 months. You've had great performance, and the concern is that those drivers are going away. As you reflect on that and the current slowdown that you're seeing, is there anything you would call out that's proving more difficult to lap? You talked about keeping your customers. You grew your customers quite a bit last year. I mean, how are you seeing that play out? Are we seeing, perhaps, a change in spending behavior, lower spend per customer? Thank you so much.

Thanks. Hey, good afternoon, everyone. Um, there's a concern in the market that there have been some unique drivers, helping your business over the last 12 months, you've had great performance. And the concern is that those drivers are going away.

As you reflect on that and the current slowdown that you're seeing, is there anything you would call out? That's proving more difficult to lap. And then, you know, you talked about keeping your customers, um, you grew your customers, quite a bit last year. I mean, how are you seeing that play out? Are we seeing, you know, perhaps a change in spending Behavior, Uh, low lower spend per customer. Thank you so much.

Curtis Valentine: Hi, Seth. This is Curtis. We've just seen some pockets and windows where we've had some outsized growth and gains. We've talked about those on the call. Certainly last October was our strongest month that we've compared against. It was a 13% and change comp. February, we had some help from a strike at a competitor that was upside. May and June, we had strong months with a good customer season from produce and some challenges in the industry from a supply and a cyber issue. We saw customers come our way in those moments. We're always well positioned to kind of capitalize in those moments. We don't see anything structural outside of those types of things that we're up against. We do have those moments that we'll be up against over the course of the next 10 months. A little bit of softness in our business.

Curtis Valentine: We see things in more of our middle income trade areas, some of our younger trade areas, where we see those demographics, we've seen the business soft just a little bit more than the rest of the business. Those are the things that we're kind of pointing to as it relates to the customer pressure.

This is Curtis. Um, we've just seen some pockets and windows where we've had some outside growth and gains. Uh, we've talked about those on the call. Certainly last October um was our strongest month that we've compared against, that was uh 13 and change comp, February. We had some help from a, a strike at a competitor that was upside and then May and June we had strong months with a good, uh, customer season from produce, uh, and some challenges in the industry uh, from a supply and a cyber issue. Um, we saw customers come our way. In those moments, we're always well, positioned to kind of capitalize in those moments, but uh, we don't see anything structural in outside of those types of things that we're up against. Um, but we do have those moments that will be up against over the course of the next, uh, 10 months. Uh, and then just, yeah, a little bit of softness in our business. I mean, we see things in more of our middle income trade areas, some of our younger trade areas where we see those demographics. We've seen, we've seen the business often just a little bit more than the rest of the business.

And those are the things that we're kind of pointing to, as it relates to the customer pressure.

Susannah Livingston: Our next question will come from Leah Jordan with Goldman Sachs. Your line is open. Thank you. Good afternoon. I'll kind of stick with the same theme around the comp slowdown. Just seeing if you could provide some more detail on the key surprises versus your expectations. This was a notable miss right below even your guide. Has there been any major difference across the regions or product categories? I think ultimately you've historically talked about your offering being resilient to macro pressures as people are committed to their diets. Now you're talking about a softer consumer. I think ultimately, has something shifted around your value proposition today? How do you view it? I guess why don't you see the need to invest a bit more to reengage your core consumer as you're really implying market share losses in the fourth quarter? Thank you.

And our next question will come from Leah Jordan with Goldman Sachs your line is open.

Being resilient to macro pressures. As people are committed to their diets, but now you're talking about a software consumer. So, I think ultimately, has something shifted around your value proposition today? How do you view it? And I guess, why don't you see the need to invest a bit more to re-engage your core consumer? As you're really implying market share losses in the fourth quarter. Thank you.

Jack Sinclair: I think the first thing you'd say is we're lapping some tough numbers from last year, and we may have underestimated the challenge of lapping those numbers. It happened through the quarter as opposed to in the quarter. As we look forward, we're anticipating a challenging environment. We know what we've got to lap going forward, and we're anticipating a little bit of pressure on the consumer going forward. The health and wellness macro trends are still strong for us, and we see a real opportunity in doubling down on the loyalty program behind that going forward. There are some macro pressures that I think you'll see coming through in the marketplace that we're certainly experiencing with regard to thinking about what should we do with. We're not seeing a competitive dynamic changing dramatically in the marketplace in terms of pricing or activity.

Well, I think the first thing you'd say is, we're lapping some tough numbers from last year and we may have underestimated the challenge of lapping, those numbers and it happened through the quarter as opposed to in the quarter. And as we look forward, we're anticipating a challenging environment. We we know what we've got a lot going forward, and we're anticipating a little bit of pressure on the consumer. Going forward. Our the health and wellness micro Trends are still strong for us and we see a real opportunity in doubling down on the Loyalty program behind that going forward. And then there are some macro pressures that I think you'll see.

Jack Sinclair: We've always promoted, and we're very comfortable with promoting going forward, and we'll do what we need to do. We're very strong in terms of managing our margins, managing our costs, and we'll consistently do that. You can see that from the numbers that we've just produced and the numbers that we will produce going forward. No, we're not seeing anything dramatic in terms of the competitive dynamic in this space. We are seeing consumers under a bit of pressure and we'll have to react to that in some ways. We are reacting to that in the appropriate way.

Coming through in the marketplace that we're certainly experiencing with regard to thinking about what should we do with. We're not seeing a competitive Dynamic, changing dramatically in the marketplace, in terms of pricing or activity. We've always promoted and we're very comfortable with promoting going forward, and we'll do what we need to do. But we're very strong in terms of managing our margins managing our costs and we will consistently do that. You can see that from the numbers.

Curtis Valentine: To the miss in Q3. Leah? I think we sailed through that first step change in the comp in May and June and didn't really see the underlying pressure, again, probably masked a little bit of what was starting to go on there. It was really the end of Q3, as Jack mentioned, where it really started to drop off a bit. That's when we get up against the 10% plus comps here in September, then 13% plus in October. Being a little bit cautious with where we are and looking ahead as we go up against 10.5% and 10.5% roughly in November and December.

It was just produced and the numbers that we will produce going forward, so no we're not seeing anything dramatic in terms of the competitive dynamic in this space. We are seeing consumers under a bit of pressure and we'll have to react to that in some ways and we are reacting to that in the appropriate way.

And then to the, to the missing Q3 Leah. Yeah, I think we we sailed through that first step change in the comp uh in May and June and and didn't really see the underlying pressure, again, probably massed a little bit of what was starting to go on there, but it was really the end of Q3, as Jack mentioned where it really started to to drop off a bit. And that's when we get up against the 10, plus comps here in September and the 13th in October. And so, being a little bit cautious, with where we are, and and looking ahead, uh, as we go up against, uh, 10 and a half, and 10, and a half roughly in November and December.

Susannah Livingston: Okay, that's super helpful. I was going to ask about the compares in November, December. That's really helpful, I guess. My related follow up would be then for as we look into 2026. Right. You're going to have some difficult laps in the front half of the year. You just talked about how you sailed through it in March of last year. How should you know? I know you haven't. It's a little bit early for the guide, but how should we think about the building blocks for the comp next year, driving engagement and lapping that as well?

Okay, that's super helpful and I was going to ask about the comparison November December, so that's really helpful, I guess.

So, my related follow-up would be then for, as we look into 26, right? You're going to have some difficult laps in the front half of the year. You just talked about how you sailed through it in in March of last year. So how should, you know? I know you haven't. It's a little bit early for the guide, but how should we think about the building blocks for the comp next year, driving engagement and lapping that as well?

Jack Sinclair: From the building blocks point of view, I'd like Curtis talk a little about how the numbers play through from the building blocks point of view. Leah, we've got real confidence in the innovation pipeline that's got coming through that we've got coming through. We're really confident about the store pipeline that we've got coming through in terms of new stores. We're really confident about the work we've been doing that hasn't come through yet in loyalty and personalization, which we're excited about. There's a lot of real positives in terms of the consumer side of this equation going forward. I'll let Curtis talk a little bit about the numbers.

Curtis Valentine: Yep. You called it out. We are early. Obviously, we'll be going through our budget process here in the fourth quarter, and we'll talk in more specifics in February. We'll have a bit of a challenging first half up against the double-digit comps, and then as we get to the second half, we've got those building blocks that Jack just referenced. We're pretty excited about those things coming online and getting us back into that algorithm range and getting back to driving towards the high end of that algorithm comp as we hit the second half of next year. Again, we'll get specific when we get to February. We've been investing in the business to create levers to manage through any environment. We'll be working through that, and we'll manage our margins effectively here in Q1 in the first half of 2026.

Well from the building blocks point of view like Curtis talk, a little about how the numbers play through from from the building blocks point of view. Leo, we've got real confidence in The Innovation pipeline, that's got coming through. We've got coming through, we're really confident about the store pipeline that we've got coming through. In terms of new stores, we're really confident about the work we've been doing that hasn't come through yet in loyalty and personalization, which were excited about. So, there's a lot of real positives. In terms of the consumer side of this equation going forward. I'll let Curtis talk a little bit about the numbers. Yep. And you call that out, we are early, obviously, we'll be going through our budget process here in the fourth quarter and we'll, we'll talk in more specifics in February. Um, so yeah, we'll have a bit of a challenge for first half up against the double digit comps. Uh, and then, as we get to the second half, again, we've got those building blocks that Jack just referenced. And so we're pretty excited about those things coming online and and, uh, getting us back into kind of that algorithm range and giving back to driving towards the high end of that algorithm comp as we hit the second half of next year. Again, we'll get specific, um, when we get to

February, but we've been investing in the business to create lovers to kind of manage through, um, any environment and and you know, we'll be working through that. And uh, we'll we'll manage our margins effectively here in queue in uh, the first half of 2026.

Susannah Livingston: Very helpful. Thank you.

Jack Sinclair: Thanks.

Very helpful. Thank you.

Susannah Livingston: The next question will come from Mark Carden with UBS. Your line is open.

Thanks.

Curtis Valentine: Good afternoon and thanks for taking the questions. To start, you guys called out strength in your best differentiated products.

And the next question will come from Mark Kardon with UBS, your line is open.

Jack Sinclair: Even with a slowdown.

Curtis Valentine: Do you think customers are spreading out their shopping more and becoming any more price sensitive on some of the less differentiated items like, say, produce? Have you seen shifts in what you think your overall wallet share is for customers today?

Good afternoon, and thanks for taking the questions. So, so to start, um, yes, call that strength in your best differentiated products, even with a Slowdown, do you think customers are, are spreading out their shopping more and becoming any more price sensitive? Uh, on some of the less differentiated items like, say produce.

Jack Sinclair: How you're thinking about really the broader promotional environment over the next few periods.

Um, have you seen shifts in what you think your overall wallet share is for customers today and just how you're thinking about really the broader promotional environment over the next few periods.

Curtis Valentine: Yeah, thanks, Mark Carden.

Jack Sinclair: It's Nick.

Nick Konat: On the differentiation front, we measure that really closely. That's so strategically important to us. We haven't seen our levels of differentiation wane at all in the last year, even through, as we mentioned, some of the business dynamics here. We feel really good about where we are from a differentiation standpoint in the market. Yes, our most differentiated and innovative products continue to be the places we see the strongest growth in comps. As we continue to fill that pipeline and bring all the new products we do to market, we feel bullish about what that's going to do for us moving forward. As Jack mentioned, I do want to touch on share of wallet to your question. We're actually seeing our share of wallet hold slightly up. To the competitive questions and dynamics, we're not seeing our customer take their share of spend other places.

Nick Konat: We're holding our own on the share of wallet side, which I think portends to some of the macro we're seeing. At the last part of your question, I think for us, we're not seeing a major exodus of customers. We're just seeing our customer at times spend maybe a little bit less on the tail end of their basket as they manage some of those pressures. That's how we're seeing it come across in our dynamic.

And we haven't seen our levels of differentiation weighing at all in the last year. Um, you've been through, um, you know, as we mentioned some of the, the business Dynamics here. So we feel really good about where we are from a differentiation standpoint in the market, and yes, our, our most differentiated and Innovative products continue to be the places, we see the strongest growth in comps. And so as we continue to, um, fill that Pipeline and bring all the new products we do to Market, we feel bullish about what that's going to do for us. Um, moving forward, as Jack mentioned. Um, I do want to touch on on shared a lot to your question. We we're actually seeing our share of wallet hold to slightly up. So to the competitive questions and Dynamics, we're not seeing our customer, take their share of spend other places. Um, we're holding our own on the share of wallet side, which I think portends to some of the, you know, some of the macro we're seeing and then and that the last part of your question, I think, for us we're not seeing a major Exodus of customers, we're just seeing our customer at times, spend, maybe a little bit

Less on the tail end of their basket, uh, as they manage, uh, some of those pressures. And that's how we're seeing it come across and, and our dynamic.

Curtis Valentine: That's helpful.

Jack Sinclair: Thank you. You're seeing a lot of strength in private label with penetration climbing.

Curtis Valentine: Again this quarter, just given the softening.

Jack Sinclair: Of the consumer that you talked about, any changes to how you're thinking about the pace of adding additional SKUs to your assortment? Thanks.

Curtis Valentine: Sure.

Got it. That's helpful. Thanks. And then you're seeing a lot of strength in private label, with penetration climbing again this quarter, just given the softening of the consumer that you talked about. Any changes to how you're thinking about the pace of adding additional SKUs to your assortment? Thanks.

Nick Konat: We've been on a pretty aggressive pace over the last couple of years, adding hundreds of SKUs each year. Our team has done an amazing job of doing that. I think what's important to keep in mind is when we build our Sprouts Brand program, we don't play sort of that national brand compare strategy. We look to find unique items that our health enthusiasts can't find other places. To your point, what's happening around is that's really winning. We continue to see our penetration grow. Our sales growth in Sprouts Brand has been really, really good. We will continue to fill that pipeline and over invest in that space to capture the momentum we have in the brand.

Sure. Um you know we've we've been on a pretty aggressive Pace over the last couple of years. Adding hundreds of skus each year, um and our team has done an amazing job of of doing that. And I think you know what's important to keep in mind is when we when we build our Sprouts brand program. We're not we don't play sort of that. Um National brand compare um, strategy, we look to find unique items that uh our

Health enthusiast.

Jack Sinclair: We have some pretty exciting plans going forward in terms of what's happening next year. Some holiday products are pretty exciting as well. The investment in Sprouts Brand will continue aggressively going forward. Mark, thanks so much.

Can't find other places. And to your point, what, what's happening around that? That's really winning. We continue to see our our penetration grow, our sales growth and Sprouts Brands, um, have been really, really good. So we will continue to feel feel that Pipeline and over invest in that space to capture the world and we have in the brand and we've got some pretty exciting plans tonight going forward in terms of what's Happening next year. And some holiday products are pretty exciting as well. So the investment in Sprouts brand will continue aggressively going forward mark.

Curtis Valentine: Good luck, guys.

Jack Sinclair: Thanks, Mark.

Thanks so much. Good luck guys.

Susannah Livingston: The next question will come from Ed Kelly with Wells Fargo. Your line is open.

Thanks. Thanks Mark.

Jack Sinclair: Yeah. Hi. Good morning everyone. I was curious if you could talk a bit more about the fourth quarter comp expectation and what you have seen so far quarter to date. Obviously the October compare is tougher, but have you seen any stabilization yet in the two year as it pertains to October, and then what's the assumption that's based into the comp guidance as you think about the quarter itself.

And the next question will come from Ed Kelly with Wells Fargo. Your line is open.

Yeah. Hi, good morning, everyone. Uh, I was curious if you could talk a bit more about the fourth quarter comp expectation and what you have seen so far in the quarter to date. Um, obviously, the October comparable is tougher. Um, but have you seen any stabilization yet in the 2-year, um, as it pertains to October? And then what's the assumption that's based?

Into the, uh, into the comp guidance. As you think about the quarter itself,

Curtis Valentine: Hi, Ed, this is Curtis. Yeah, so quarter to date we are just north of a 1% up against that 13% and change last year for October. The two-year has started to stabilize a little bit here in the last, call it, six or eight weeks, but we've definitely seen some ups and some downs week to week in the one-year and the two-year, and that's what's got us a little bit cautious. We're up against, again I said earlier, about 10.5% in both November and December. We're really watching closely the one-year versus the two-year and how that plays out, particularly as we go through holidays with some of the consumer pressure that we've noted already. Watching closely and we'll see how we go. We've had two months now up against 10% plus comps.

Curtis Valentine: We ran about a 4% in September against the 10%, and we've run about a 1% here against the 13%. We just want to see a few more of those months against the double digits to shore that up.

Jack Sinclair: Okay. Just to follow up, Jack, you mentioned on the loyalty side that you were encouraged by some of the things that you have seen so far. I was wondering if you could elaborate on that. As we think about 2026, how are you thinking about utilizing the loyalty card, what you can do to.

I had this Curtis. Yeah. So uh quarter to date. We are just north of a 1 uh up against that 13 and change um last year for October. Um, so the 2 year has has started to stabilize a little bit here in the last call at 6 or 8 weeks. But we definitely seen some some ups and downs, week to week, and the 1 year, and the 2 year. And that's what's got us a little bit cautious. So, uh, we're up against again, I said earlier about 10 and a halfs and both, uh, November and December. Um, and so, we're really watching closely the 1 year versus the 2 year and they're, um, and and how that plays out particularly, you know, as we go through holidays, with some of the, the consumer pressure that we've we've noted already. So, um, watching closely and, you know, we'll see how we go. We've had 2 c 2 months now, uh, up against 10 plus comps, we ran about a 4 in September, uh, against the 10. And we've run about a 1 here against the 13. And so, we just want to see a few more of those months against the double digits to, uh, uh, to

make sure that up.

Nick Konat: Sort of push on that.

Jack Sinclair: Contribution that you think that it might begin to deliver? We won't commit specifically to what it might deliver, Ed, but it's a great question. It's very much the heart of it. What we're encouraged by is that the execution literally this week, I think where all stores have now got access to, it's taken a full nine months or so to get this rolled across the country. We've been really encouraged by the number of customers that are signing up, and we're encouraged by the number of customers that are scanning. We're in a better place with identifiable customers going forward to understand exactly what they're doing.

Okay. And then just to follow up Jack, you mentioned on the Loyalty side that you were encouraged by some of the things that you have seen. Um, so far, I was wondering if you could elaborate on that and as we think about, you know, 2026. Um how are you thinking about utilizing the loyalty card? Uh, what you can do to sort of push? Uh, you know, on that and and the contribution that you think?

It might begin to deliver.

Jack Sinclair: As we go on our personalized journey and the customers go on their personalized journey, we're going to be able to take, I think, a real opportunity to sell the story of how we can sell the story to our customers of new products that are relevant to them and be very targeted and efficient in that. The team are working hard on that. We made a little bit of progress on it, but I can anticipate letting it build on this. I think there's real opportunity in 2026 to build even further growth from our loyalty program.

Go on our personalized journey and the customers go on their personalized Journey. We're going to be able to take I think a real opportunity to

Nick Konat: Yeah, hey, Ed, it's Nick. Just a little more context there. We are seeing an ability to move customer behavior through loyalty right now with increased frequency and stronger sales per customer. The team's done a great job of getting us rolled out completely nationally. We can turn the team's attention fully to how do we make that work even harder for us in 2026. I think Jack gave good color on how we can do so, but we've got the rollout behind us and we know what we've been able to move behavior. I think we've got a lot of levers to pull next year to do even more to, again, bottom line, serve our unique customers the things that's most important to them and distinctive to us to drive long term value.

Sell the story of how we can tell or sell the story to our customers of new products that are relevant to them and be very targeted and efficient in that, the team are working hard on that. We made a little bit of progress on it back and anticipate letting it build on this, but I think there's real opportunity in 2026 to build even further growth from our loyalty program.

Jack Sinclair: Great, thank you.

Yeah, uh hey it's Nick, I need just a little more context there. We we are seeing an ability to move customer Behavior through loyalty right now with increased frequency, um, and stronger sales per customer. Uh, the team's done a great job of getting us rolled out, um, completely nationally. And so now, we can turn the team's attention fully to. How do we make that work even harder for us in 26? I think Jack gave good color on how we can do. So, but, uh, we've got the roll out behind us and we know what we, we've been able to move behavior and I think we've got a lot of levers to pull next year. Um, to do even more to again, bottom line. Serve our unique customers at things that's most important to them and distinctive to us to drive long-term value.

Great. Thank you.

Susannah Livingston: The next question will come from Tom Palmer with JP Morgan. Your line is open.

Jack Sinclair: Hi. Thanks for the question. I know you don't always give too much detail here, but I thought I'd ask on just some of the changes in customer behavior. First, I think you made a reference. Smaller baskets, not fewer customer visits, driving the comp slowdown.

And the next question will come from Tom Palmer with J.P. Morgan. Your line is open.

Curtis Valentine: Just want to make sure I heard that right.

Jack Sinclair: Are you seeing any notable shifts when we think regionally or in certain departments of the store? I'm just kind of wondering because it does seem to be a little bit in flux in terms of customer behavior. If anything stands out on that side. Thank you.

Hi, thanks for the question. Um, look I I know you don't always give too much detail here but I thought I'd ask um, on just some of the changes in customer Behavior. So first I I think you made a reference smaller baskets, not fewer customer visits driving the comps slow down. I just want to make sure I heard that right and then second

Curtis Valentine: Hey, Thomas. Curtis. Yeah. I think, you know, similar to how we talked about it on the way up last year, it was traffic and it was brick and mortar traffic that really accelerated. We saw it be pretty balanced across categories and geographies. We're seeing it really play out similarly as we lap those numbers this year. It's been a traffic slowdown. Traffic is still positive, as we noted in the script. That's the piece that slowed down. We're seeing a little bit of pressure at the end of the basket, as we called out earlier. Now, as the consumer pressure builds, a bit similar to what we saw during the inflationary period in 2022 and 2023, they're really managing the end of the basket and it's creating kind of a units per basket type pressure that we've seen before. That's been the dynamic. Okay, thanks for that.

Um, are you seeing any notable shifts when we think regionally or in certain Departments of the store just kind of wondering because it does seem to be a little bit in flux in terms of customer Behavior. If anything stands out on that side, thank you.

Hey, Thomas Curtis. Yeah, I think you know some somewhere, how we talked about it on the way up last year. It was it was traffic and it was brick and mortar traffic. That really accelerated. And we saw it be pretty balanced across categories in geographies and we're seeing it really play out. Similarly, as we lap those numbers this year. So, it's been a traffic slowdown. Um, traffic is still positive as we know it in the, in the script. Um, but that's the piece that's slowed down, and then, yeah, we're seeing a little bit of pressure at the end of the basket as we called out earlier. Now, as the as the consumer pressure builds a bit similar to what we saw during the inflationary period and uh, 22 and 23. They're really managing the end of the basket and it's creating kind of a units per basket type pressure.

That that we've seen before. So that's been the dynamic.

Jack Sinclair: On the fourth quarter, you noted the expectation, Curtis, for margin to be flat year over year. I just want to clarify, is that both gross margin and SG&A would be relatively flat, or is one kind of moving one direction and the other?

Curtis Valentine: Yeah, I think it's flat for EBIT margins is how we think about it. Stable EBIT margins, it'll be a little bit positive on the growth side, and then a little bit of pressure at a 0 to 2% comp, it'll be a little bit of pressure on SG&A.

Okay, thank thanks for that. And and then just on the fourth quarter, you noted, the expectation uh Curtis from margin to be flat year-over-year. I I just want to clarify is that both gross margin and sgna would be relatively flat or are is is 1 kind of moving 1 Direction and and the other the other

Jack Sinclair: Okay, thank you.

Yeah, I think it's flat at the EBIT. Margins are how we think about it. Stable EBIT margins; it'll be a little bit positive on the growth side. Um, and then a little bit of pressure at a 0 to 2 comp. There'll be a little bit of pressure on SG&A.

Okay, thank you.

Curtis Valentine: Thanks, Tom.

Susannah Livingston: The next question will come from Rupesh Parikh with Oppenheimer & Co. Your line is open.

Thanks Tom.

Curtis Valentine: Good afternoon.

Jack Sinclair: Thanks for taking my question. Given the moderation you've seen in.

And the next question will come from Rupesh Peri with Oppenheimer. Your line is open.

Curtis Valentine: Your business recently, does this at all?

Jack Sinclair: Impact how aggressively you invest next year, and then are there levers to pull.

Curtis Valentine: If you do see further softening from here? Yeah, I think we're going to continue to invest in the business. I think we will always make smart choices about how we allocate resources against the highest kind of priority and highest value type projects. We've had a good level of investment for the last two years and I think that's created some levers for us. Certainly, we've talked about inventory management, category management, the things that we've been working on helping drive some of those gross margin gains. We think there's still some room to go there. We're working hard on our cost capability on our indirect cost side and we spent a lot of time on that this year. We're preparing ourselves to be able to manage through and we feel like we're in good position as we head towards 2026.

Good afternoon. Thanks for taking my question. So you know give it, give it the moderation. You see me in your business recently uh does this at all Impact? How aggressively you invest next year and then you know, are there levels of poll if you you do see further softening from here,

Yeah, I think we're going to continue to invest in the business. I think we will always make smart choices about how we allocate resources against the highest kind of priority and highest value type projects. And so we've had a, a good level of investment for the last 2 years and and I think that's created some levers for us. Certainly, we've talked about Inventory management, category management and the things that we've been working on um, helping Drive some of those gross margin gains. We think there's still some room to go there.

Jack Sinclair: We're full steam ahead on building stores. We're excited about that. As we talked about, the new stores are opening well, we're really encouraged by that within the context of the macro environment that we're in the middle of. We're full steam ahead in terms of self-distribution. We'll continue to invest in that, which will bring forward some benefits in terms of in-stocks and benefits in terms of margins. We're full steam ahead in terms of investing in innovation pipeline and making new products come through in our business. As Nick said a minute ago, we're full steam ahead in our loyalty and personalization journey. We're very confident in the investments that we're making going forward. Once we get past some of these lapping challenges, I think we're in really good shape.

Curtis Valentine: Maybe just one quick follow.

Over post team ahead on our loyalty and personalization Journey. So we, um, we're very confident in the Investments that we're making going forward, and once we get past some of these lapping challenges, I think we're in really good shape.

Jack Sinclair: On the capital allocation front, it sounds like you're going to continue.

Curtis Valentine: Buying back shares, has your approach.

Jack Sinclair: At all, changes given more certain environment, but at the same time your stock is much lower?

Curtis Valentine: I'm just curious if there's any differences.

Jack Sinclair: In how you approach share buybacks at these levels.

Curtis Valentine: Yeah, I think we'll be more aggressive depending on where the shares settle out here when we're done. Certainly we've talked about buying opportunistically over the course of the year, and we bought pretty aggressively early in the year when the stock price was a little lower through the year. I think we'll be thinking about it the same way as we exit our quiet period here, our closed period here in the third quarter. We're excited about the $1 billion authorization, and we'll see where things land come Friday, but we'll go get after it.

And then maybe, maybe just one quick follow-up. Uh, you know, on the capital allocation, right? It sounds like you're going to continue buying back shares, but is your approach at all changed given, you know, the more uncertain environment? But at the same time, your stock is much lower. So just curious if there's any differences in, you know, how you approach share buybacks at these levels.

Yeah, I think we'll, we'll be more aggressive depending on where the share is settle out here when we're done. Certainly, we've talked about buying opportunistically over the course of the year and you know we bought pretty aggressively early in the year uh when the stock price was a little lower through through the year and uh I think we'll be thinking about it the same way as we as we exit our quiet period here our uh closed closed period here in the third quarter. So

Jack Sinclair: Great, thank you.

Nick Konat: Best luck.

We're excited about the billion-dollar, uh, authorization and we'll see where things land come Friday. But we'll, we'll go get after it.

Curtis Valentine: Thanks Ripesh.

Great, thank you. Best of luck.

Susannah Livingston: The next question comes from John Heinbockel with Guggenheim Securities. Your line is open.

thanks for

Curtis Valentine: Two operational things. Has your thought changed now that you've rolled out loyalty? How much data you're going to need, how much history to really market very effectively to your base? Secondly, how do you guys size the opportunity in stock? What we keep hearing is that natural and organic fill rates are not anywhere near where they need to be. How can you fix that? How long will that take to address and how big is that opportunity in stock?

And the next question comes from John Hein backhoe with Guggenheim. Your line is open.

So, guys, uh, two upper things. Um, what's your thought changed now that you've rolled out loyalty?

How much data you, you're going to need, um, how much history, right to really um, Market very effectively to uh to your base.

And then, secondly, how do you guys size the opportunity in, um, in stock, right? Because I, you know, we keep hearing right? Is that natural and organic? Fill rates are are not, not anywhere near where they need to be.

Can you know, how can you fix that? How long will that take to to address and how big is that opportunity in, in, in stock?

Nick Konat: Yeah, hey John, it's Nick. Let me tackle first the loyalty question around data and history. Listen, to part of your point, the more data we get, the better we can be at personalizing and driving behavior. There's no doubt about it. This is a, we've mentioned, loyalty is a long term play for us to drive long term comp. We're going to continue to be able to create much better depth of how we personalize and more insights the more data we get. You're right on there, and I'm looking forward to that over the next number of years. I will also say, as we mentioned, we're able to use the data we have to drive customer behavior and plan on doing so in 2016. I think, as you know, our customers are not quite as frequent as your typical, you know, maybe grocery, conventional grocer shopper.

Yeah. Uh hey John it's Nick. Let me let me tackle first the um the Loyalty question around around data and history. So listen to

Part of your point is that the more data we get, the better we can be at personalizing and driving behavior. There's no doubt about it, right? And this is, we've mentioned.

Loyalty is a long-term play for us to drive long-term comp and the, and we're going to be continued to be able to create much better depth of how we personalize and more insights into more data we get. So you're right on there and I think I'm looking forward to to that over the next number of years.

Nick Konat: There's a little bit of time and just, hey, you know, getting that frequency and that basket doesn't happen as quickly when you have a super high frequency customer. We've got enough data and tools, and we're going to continue to build it now that we're rolled out nationally to increase the level of engagement with our customer, and I think continue to drive a lot of value for them.

Jack Sinclair: That's the.

Nick Konat: That's on the loyalty side you want to talk.

Jack Sinclair: Yeah. With regard to the supply chain and the in stock, we've talked a lot about what we've done in meat this year. That's going to make a significant difference in terms of in stocks and meat, and we believe that will help drive some sales in that space. Natural and organic has a very long tail, John, as you know. That does create a challenge in terms of being as in stock as people with less SKU count in the middle of their kind of assortment. We will be looking at expanding some other areas potentially on self-distribution, which we've talked about in the past. We would like to be better at our Sprouts Brand in terms of how we can get more in stock on that. We think there's certain categories that we need to double down on.

But I will also say we're as we mentioned, we're, we're able to use the data. We have, um, 2 Drive, customer behavior, and uh, plan on doing so in 26, I think is, as you know, our customers are not quite as frequent as your typical, you know, maybe grocery, conventional ger Chopper. So there's a little bit of time and just, hey, you know, getting that frequency. Um, and that basket doesn't happen as quickly when you have a super high frequency customer, um, but we've got an updated and tools, and we're going to continue to build it. Now that we're rolled out nationally, uh, to increase the level of Engagement with our customer. And and I think continue to drive a lot of value, um, for them. So that's the that's on the Loyalty side. You want to talk? Yeah, with regard to the supply chain and the end stock, we've talked a lot about what we've done and meet this year. That's going to make a significant difference in terms of in stocks and meet. And we believe that will help help Drive some sales in that space not to an organic because of a very long tail John as you know, and that does create a challenge in terms of being

Jack Sinclair: Having said that, we are working very hard with our partners to get better forecasting and better anticipation of how demand could be. We could anticipate demand even better. There's certainly an upside in stock numbers. We haven't put a clear number to that. We have in the meat category, but in other categories we haven't put a really clear number to it. Instinctively there's some upside for us in that if we can get better over the months and years ahead.

As we look at stock levels, we see that people with less SKU count in the middle of their assortment will be looking at expanding some other areas, potentially on self-distribution, which we've talked about in the past. We would like to be better at our Sprouts brand in terms of how we can get more in stock on that. We think there are certain categories that we need to double down on. Having said that,

Susannah Livingston: All right.

Curtis Valentine: Maybe a follow-up for Curtis. I know historically, or at least recently, right.

We are working very hard with our partners to get better forecasting, and better anticipation of how demand could be. We could anticipate demand even better, but you're, there's certainly an upside to know in, in sales, in, in stock numbers, we haven't put a clear number to that we have in the meat category. But in other categories, we haven't put a really clear number to it. But instinctively, there's some, there's some upside for us in that if we can get better over the years months, and years ahead,

Nick Konat: The.

Curtis Valentine: The breakeven comp has been closer to four. How much do you think you can reduce that? You don't want to do damage to the business, right. We will live with some deleverage for a while. How do you think about that trade off? I think it's a good call out. I think we do think about it in the shorter term. We feel like we can manage around it with some of the levers that we've created, with the investments we've made. Certainly, longer term, it's hard at 0 to 2 for a long period of time. We don't expect to be there for a long period of time, and we believe it'll be a bit of a short term phenomenon as we go up against the numbers from last year.

All right, and maybe follow up for for Curtis. Um, I know historically, right? Or at least recently. Uh, right the um the break even comp has been closer to 4.

How much do you think you can reduce that? Because you don't want to do damage to the business, right? So you say, okay, well, we'll live with some de-lever for a while. How do you think about that trade-off?

Curtis Valentine: Again, we're working on our cost capability and how we get as we scale and we get more efficient, and we get a little bit more automated through process and things like that. There should be some opportunities for us to better manage costs. That's how we'll be thinking about it, and we'll be exercising those levers here in the very near term while we get the comp momentum going again with the building blocks for 2026. Thank you. Thanks, John.

So we believe it'll be a bit of a short-term phenomenon, as we go up against, uh, the numbers from last year. Um, you know, again, we're we're working on our our cost capability and how we we get as we scale and we get more efficient and we um, you know, we get a little bit more automated through process and things like that. There should be some opportunities for us to better manage costs. Um, and so that's how we'll be thinking about it. And we'll be, you know, exercising those levers here in the in the very near term. Um, you know, while we while we get the compliment, I'm going again with the the building blocks for 26.

Thank you.

Susannah Livingston: The next question comes from Robbie Ohmes with Bank of America. Your line is open.

Thanks John.

Curtis Valentine: Hey, thanks for taking my question. You guys gave thoughts on fourth quarter gross margin being up a little. When you guys come up against the tough comparisons in 1H2026, any thoughts you can give us on gross margin puts and takes as you go through that? I think, Robbie, it's a little bit early to be talking about 2026 and you know, I want to go through our planning process and work through that. I'll just say that, you know, we talk about stable, stable margins and think about the full year for 2026. You know, I don't see a reason why we won't be, you know, talking about that when we get there. We've got to, we've invested in levers to help manage around some of the pressures we're facing right now.

And the next question comes from Robbie Owens with Bank of America. Your line is open.

Hey, thanks for uh, taking my question. Um, you you guys gave thoughts on fourth quarter, gross margin being up a little, you know, when you guys come up against the tough comparisons in the first half of 26,

Um, any thoughts you can give us on gross margin puts and takes as you go through that.

Curtis Valentine: We will continue to invest in some things and so there'll always be a bit of a put and take as it relates to the EBIT margin. We like the idea of stable, but we're not going to get too specific yet on first half, second half, those types of things. Got you.

Uh, I I think Robbie it's a little bit early to be talking about 26 and, you know, I want to go through our planning process and and and work through that. Um, I'll just say that, you know, we talk about stable, stable margins, and we'll think about the full year for 26, you know. I don't see a reason why we won't be, you know, talking about that when we get there. We've got a we've invested in in levers to help manage around, uh, some of the the pressures we're facing right now, and then we'll continue to invest in some things. And so the

Jack Sinclair: That's helpful.

Curtis Valentine: Just another follow up on the kind of pressure on the consumer you're seeing.

Jack Sinclair: How narrow is it? Is it just the, say, 25 to 35 year old demographic that you guys?

Curtis Valentine: Are seeing, you know, some of the pressures and maybe related to that, separate from the loyalty program, is there anything on the marketing side that you might need to change, you know, to get momentum going again? Yeah, I mean, I think the pressure on the consumer, I'll speak to that. Then I'll turn it over to Nick on the second question. From a consumer pressure perspective, I mean, I think that's building everywhere. What you see in the macro a little bit more in the kind of lower and middle income is what you read about, what you hear. I think those are the things where we just see that be a little bit outsized in those spaces. Again, I talked about middle income trade areas, younger demographics. It's just a little more pronounced in those.

Gotcha, that that's helpful. And then just another follow-up on the kind of pressure on the consumer. You're seeing how, how narrow is it. Is it a, is it just the say 25 to 35 year old demographic that you guys are seeing, you know, some of the pressures and and maybe related to that, um, separate from the Loyalty program, is there anything on the marketing side that you might need to change? Uh, you know, to get momentum going again?

Curtis Valentine: I think the pressure is there for everybody and everyone's trying to figure out how they manage through that in a dynamic environment.

Nick Konat: Yeah, obvious, Nick. To kind of second part of your question there on the marketing side, I think we have a great story to tell, but we're always testing, learning how well we're telling it. To your point, I think we can always tighten up our value proposition. Right now is a good chance to continue to just refine what makes us unique. It's about innovation, freshness, quality, and health. I think if we hit those at the great prices and fair prices we have, I think we'll be in a good place. We're always testing, but I don't think there's any significant changes or pivots other than what we always do, which is look at how well we're telling our story and then where we're spending the money by channel and location to maximize it.

Yeah, I mean I think the pressure on the consumer. I'll speak to that and then I'll I'll turn it over to Nick on the second question. But from a consumer pressure perspective, I mean, I think that's building everywhere is, is what you see in the macro a little bit more in the kind of lower and middle income is, is what you read about. And what you hear, I think those are the things where we just see that be a little bit outside than those spaces. So, again, I talked about middle income, trade areas, younger demographics. Uh, it's just a little more pronounced in those, but I think, you know, I think the pressure is, is, is there for everybody and everyone's trying to figure out how they manage through that in a dynamic environment.

Jack Sinclair: Got it.

Curtis Valentine: Thanks so much. Thanks, Robert.

Yeah, Robbie is Nick and then 2 second part of your question, there on the marketing side, I think we have a great story to tell but we're always testing learning how well we're telling it I think to your point. I think we can always tighten up our value proposition and right now is a good chance to continue to just refund on what makes us unique. It's about Innovation freshness quality um and health. And I think if we hit those that you know at the great prices and fair prices, we have I think will be in a good place, so we're always testing but I don't think there's any significant changes or tips other than what we always do, which is look at how Overtown or story and then where we're spending the money by um, Channel and location to maximize it.

Got it. Thanks so much.

Susannah Livingston: The next question comes from Scott Mushkin with R5 Capital. Your line is open.

Thanks Robbie.

And the next question.

Comes from.

Mushkin.

with our

5 capital.

Jack Sinclair: Hey guys, thanks for taking my questions.

It's open.

Curtis Valentine: I wanted to get.

Jack Sinclair: Back to the competitive environment a little bit. Our research, both research and consulting work, we've done a lot of work down in Texas in particular market for you guys that says the produce area has become hyper, hyper competitive. I guess I was wondering, where do you think you guys are priced if we were going to look specifically at the fresh basket and who do you think you're actually competing with? In other words, if the traditional market goes hyper competitive, is that something you actually need to react to? We watch our products, we talk regularly, Scott. We watch produce pricing more attentively than anything else. Texas has become a more aggressive market with HEB's expansion into Dallas. We're having a great time opening, used to. I'm delighted with our Dallas performance alongside HEB. We're doing really well in terms of how those new stores are opening.

Hey guys. Uh, thanks for taking my questions. Um, I guess I wanted to get back to the competitive environment a little bit. Our research, both research and consulting work, we've done a lot of work down in Texas, in particular market, for you guys.

That says the produce areas become hyper.

Hyper competitive. And I guess I was wondering, you know, where do you think you guys are priced? If we were going to look specifically at the fresh basket? And who do you think you're actually competing with? In other words, if the traditional market goes hyper competitive, is that something you actually need to react to?

Jack Sinclair: We're having success in San Antonio and Austin as well. We watch the Texas market closely. It is more competitive on produce than others, than other parts of the country. We've got a fairly significant price gap on most grocery competitors around the country. Texas is more competitive, and we're watching that closely. When you look at the rest of the country, produce remains a competitive advantage for us going forward, and we focus on that a lot as such a direct comparison. We're feeling pretty good about our produce pricing going forward. There's a lot of volatility in it, as you know, and people are. I don't see it getting any more aggressive from a margin point of view outside of Texas going forward. Okay, and then, Jack, when you think about your competitive set again, some of.

We watch our products, we talk regularly Scott, we watch produce pricing more, attentively than anything else. And Texas has become a more aggressive Market with HBS expansion into Dallas. We're having a great time opening used to. I'm delighted with our Dallas performance alongside HB. We're doing really well. In terms of how those new stores are opening, and we're having. We're we're having success in San Antonio, and Austin, as well. We watched the Texas Market closely. It is more competitive on produce than other than other parts of the country. We've got a fairly significant price gap on most grocery competitors around the country.

The rest of the country produce remains a competitive advantage for us going forward. We focus on that a lot, as it's such a direct comparison. But, um,

We're feeling pretty good about our produce pricing going forward.

There's a lot of volatility and as you know and people are I don't see again any more aggressive from a from a margin point of view outside of Texas going forward.

Nick Konat: Our research suggests that Amazon proper has.

Jack Sinclair: Gotten very aggressive again on pricing of everyday essentials. If you think about Whole Foods, do you think of them as a direct competitor? I guess you would, but I mean, how sensitive are you to things that they are doing competitively? We watch it very close. Yeah, sorry. I'll let you finish the question, Scott. No, that was it. We do watch those guys very closely and very intently because they do sell a lot of things that we sell. We've got very clear data overlap with those guys, and we're not seeing any significant change in the stores that are facing those guys than in the stores across the rest of the country. You kind of touched on what I think Amazon stroke Whole Foods are doing, which is chasing after maybe the 365, maybe the more entry point prices.

Okay? And then, Jack, when you think about your competitive set, again, some of our research suggests that Amazon proper has gotten very aggressive again on pricing of everyday essentials.

If you think about Whole Foods, do you think of them as a direct competitor? I guess you would. But, I mean, how sensitive are you to things that they are doing?

Competitively, we watch it very closely. Yeah, sorry to let you finish the question, Scott.

Okay, well we watch we do watch those guys very closely and very intently because they do sell a lot of things that we sell. But what we've got a we've got very clear data over what the overlap with with those guys and we're not seeing any significant change in the stores that are facing. Those guys, that in the stores, across the rest of the country. And, uh, I, I'm

Jack Sinclair: It's drifting away into trying to get the full basket from people. We're very much a complementary retailer and they're in the space. If we keep differentiating ourselves, we're feeling pretty confident that that's the right place for us to be. We keep watching it very closely and we're not getting over excited about what's happening in any of our competitors at the moment.

Uh, you kind of touched on what I think, Amazon stroke Whole Foods are doing, which is chasing after maybe the 365, maybe the more entry point prices. So it's drifting away into trying to get the full basket from people. We're very much a complimentary retailer and they're in the space. So if we keep differentiating ourselves, we're feeling pretty confident that that's the right place for us to be. And um, we keep watching it very closely and we're not getting over excited about what's happening in any of our competitors at the moment.

Curtis Valentine: All right, perfect.

Jack Sinclair: Jack, thanks very much for taking the questions. Thanks, Scott.

All right, perfect. Jack, thanks. Thanks very much for taking the questions.

Thanks Scott.

Susannah Livingston: The next question comes from Scott Mushkin with Jefferies. Your line is open.

Jack Sinclair: Hey, good afternoon. Thanks, guys, for taking your questions. First thing I wanted to ask about is last quarter you had called out a cannibalization factor with new stores impacting existing markets. Given that new stores are performing well, if you can just update that and update us on how you're thinking about that dynamic.

And the next question comes from Scott Marks with Jeffrey's, your line is open.

Hey, good afternoon. Thanks, guys, for taking your questions.

First thing I wanted to ask about is, um, last quarter. You had called out, uh, a cannibalization factor with new stores impacting. Uh, existing markets. Um, you know, given that new stores are performing well for your commentary. I'm wondering if you can just update that and update us on how you're thinking about that dynamic.

Curtis Valentine: Hey, Scott, this is Curtis. Yeah, I think it's still in the same general range. I think we talked about 125ish basis points, 125 to 150. That's kind of what we've seen. Certainly, as we ramp up the number of new stores, that'll continue to grow a bit, but that's about the range we've seen. We've had some strong openings, particularly in some dense areas that have had some larger cannibalizations, but it's in line with our expectations and not a huge change from quarter to quarter.

Hey Scott, this is Curtis. Uh, yeah, I think, um, it's still in the same general range. I think we talked about 125 basis points, 125 to 150, and that's kind of what we've seen. Certainly, as we ramp up the number of new stores, um, that'll continue to grow a bit, but that's about the range we've seen. Um, and we've had some strong openings, particularly in some dense areas that have had some larger cannibalization, but it's in line with our expectations and not a huge, uh, not a huge change from quarter to quarter.

Jack Sinclair: Okay, appreciate that. Next question for me, maybe you're a little bit less exposed to that, but just wondering, SNAP spend, you know, how exposed is your business to that and have you seen any impacts during some of the policy changes? Obviously the government shutdown having potential to impact that. Thanks.

Okay, appreciate that. And then. Um, next question for me, um, maybe you're a little bit less exposed to that but just wondering, um, snap spend, you know, how how exposed is your business to that. Um, and and have you seen any any impacts during some of the, the policy changes um, and obviously, the the government shutdown, uh, haven't potential to impact that

Curtis Valentine: Yeah, certainly, again, not going to be helpful from a consumer perspective. Our SNAP is about somewhere between 2% and 3% historically where it's been. It's a limited impact to us. I think we're just starting to see the effects of that, both from either a shutdown perspective or SNAP. I think that's happening kind of in real time the last several weeks. I don't think it's a huge impact to our business, but it's certainly not helping.

Yeah, so certainly again, not going to be helpful from a consumer perspective. Um, our snap is about, it's somewhere between 2 and 3,000 is historically, where it's been. So it's a, it's a limited impact to us. I think we're just starting to see the effects of that both from either a shutdown perspective or snap. I think that's happening. Kind of, in real time the last several weeks. So I don't think it's a huge impact to our business, um, but it's certainly not helping.

Jack Sinclair: Appreciate it. I'll pass it on. Thanks so much. Thank you.

Appreciate it. I'll pass it on. Thanks so much.

Susannah Livingston: The next question comes from Benjamin Wood with BMO Capital Markets. Your line is open. Hi. I think this might be for Kelly Bania from BMO. I'm not sure how that happened.

Thanks.

And the next question comes from Benjamin Wood with BMO Capital. Your line is open.

Jack Sinclair: Okay, thank you for taking our questions.

Oh hi. I think this might be for Kelly DIA from BMO. Um, not sure how that happened. Um,

Susannah Livingston: Wanted to talk about the promotional strategy. It seems like to us that the messaging is more aggressive with respect to price and promotion lately, as opposed to the shift over the last few years which has been to lean more on product attributes and seasonal highlights. Is that accurate? Is there any change in response to the comp trajectory from a promotional strategy? Can you talk about how your consumers are responding to promotions today? Is there any difference in how that has been progressing through the quarter or into the quarter to date period in October?

Is there any, you know, change in response to the comp trajectory from a promotional, uh, strategy? And um, is there any can you talk about how your consumers are responding to Promotions today? Is there any difference? And and how that has has um been progressing through the quarter or into the quarter to date period in October?

Nick Konat: Hi, Kelly, thanks for the question.

Jack Sinclair: It's Nick.

Nick Konat: Overall, we're not changing our pricing or promotional philosophy in any consequential way. As I mentioned, for us, the customers continue to tell us they define value through quality, innovation, freshness, and health. That's what we continually lean in on. We have a handful of key events that we do every quarter or so, things like organic sale or vitamin sale, we do a BOGO event. Within those, we certainly try to promote the things that we know are most important to the customer. We will play around at times with price points or messaging to try to learn what's happening with the customer. Overall, we're not having any significant changes in our strategy. I think what I want to also make clear, we're not changing how we manage to our margins or overall value proposition to the customer. I think you're going to see us be pretty consistent.

Nick Konat: With the onset of our personalization capability, I think that gives us another lever to target our price promotional spend to drive better return and take care.

Hi, Kelly. Thanks for the question. It's Nick. Um, you know, overall we're, we're not changing our pricing or promotional philosophy in any consequential way. Um, you know, as I mentioned for us, the customers continue to tell us they Define value through quality Innovation, uh, freshness, uh, and health. And that's where we continue to lean in on, you know, we have a handful of key events that, um, we do every, you know, every quarter or so things like organic sale or vitamin C, we do a BOGO event. Um, and within those, we certainly, um, try to promote the things that we know are most important to the customer. And we will play around at times with price points or messaging to try to learn what's happening with the customer. But overall, um, we're not having any significant changes and in our strategy and I think 1 to 1 I'm also make clear we're not um changing how we manage to our margins uh or overall that proposition to the customer. So I think um you're going to see us be pretty consistent and you know as and as the onset of our personalization capability I think.

Jack Sinclair: Of our best customers.

That gets another lever to Target, uh, our uh, price and promotional, uh, spend to uh, drive better return and and take care of our best customers.

Susannah Livingston: I guess maybe just to follow up on that, if this, you know, consumer softness were to continue, would you reconsider your level of promotional activity at all, particularly for this customer that seems to be most sensitive to whatever's going on right now?

And I guess, um, maybe just to follow up on that. If this, you know, consumer softness were to continue, would you reconsider, um, your level of promotional activity at all? Particularly for this customer that seems to be most, uh, sensitive to whatever is going on right now.

Nick Konat: Yeah, you know, with what we're seeing right now, no, no, we wouldn't. I mean, like I said, we are always looking at, as Jack mentioned earlier, we're always monitoring our pricing on produce and our key items and competition and making adjustments as we think we need to based on the dynamics of the local market or items. From a broad strategic standpoint, no, we don't see that. We just don't see the same impact doing that that maybe others do because of who our customer is. Again, what we want to win in the marketplace is winning with the areas I just mentioned.

Yeah, you know, with what we're seeing right now? No, no, no, we wouldn't. I mean, like I said we are always looking at Jack mentioned earlier. We're always monitoring, uh, our pricing on on produce and our key items and the competition and making adjustments. As we think we need to based on the Dynamics of the local market or items. But from a broad stand strategic standpoint. No, we don't, we don't see that in, uh, we just don't see the same impact, um, doing that that maybe others do because of who our customer is. And again, what we want to win in the marketplace is winning with the areas, I just mentioned

Susannah Livingston: The next question will come from Chuck Cerankosky with Northcoast Research. Your line is open.

Jack Sinclair: Good evening everyone. To what degree, if any, would Sprouts slow down new store openings to deal with an increased level of shopper caution?

Okay, and the next question will come from Chuck Synkowski with North Coast Research. Your line is open.

Good evening everyone. Um,

So what degree, if any, would sprouts?

Slow down new store openings to deal with an increased level of sharp caution.

Curtis Valentine: Yeah, I think, Chuck, we're really positive with the way the new stores are responding. As we've called out a couple times throughout, we're seeing really strong openings. We're seeing really good comps out of the second, third, fourth year vintages, and that's continued. We're continuing to get markers here on 2024 vintage as they get into the comp base here in Q4 and into next year. The results have been positive there. The customer is telling us they're looking for Sprouts and a Sprouts-like solution. We're excited to get into as many communities as we can over the long term. We'll see how the pipeline plays out and those types of things. Right now we're pretty bullish on the white space and pretty bullish on the performance we've seen.

Jack Sinclair: We've got a very clear purpose to help people. We've got a very clear purpose to help people live and eat better. The opportunity that we've got to do that by taking our brand across the country into places where we exist is a key part of what we want to achieve going forward. We're absolutely delighted by the way new stores are opening. The teams that are making this happen are doing a terrific job, and we're continuing to grow on it. We've absolutely no intention of backing off from that at the moment. Really excited about our new stores, and it really fulfills the purpose of what everyone here is working to try and do. We're excited about it going forward. Good. Thank you. Do you sense any need to maybe.

Yeah, I think Chuck, I I think we're really positive with the way. The new stores are responding is as we've called out a couple times, um, throughout we're seeing really strong openings. Um, we're seeing really good comps out of the second third fourth year vintages and that's continued. Um, we're continuing to get markers here on 24 vintage as they get into the comp base here in Q4, and into next year. But, um, the the the, the, the results have been positive. They're the customers, um, telling us, they're, they're looking for Sprouts and a Sprouts like solution, and we're excited to get into as many communities as we can. Uh, over the long term, we'll, we'll see how the the pipeline plays out and and those types of things. But right now, we're pretty, pretty bullish on the white space and pretty bullish, on the performance. We've seen

We've got very clear purpose to help people. Let we've got very clear purpose, to help people live, and eat better. And the opportunity that we've got to do that, by taking our brand across the country into places where they don't exist. Is a key part of what we want to achieve going forward and we're absolutely delighted. By the way, new stores are opening the the teams that are making this happen are make doing a terrific job and we're continuing to grow on it. And we've absolutely no intention of backing off from that at the moment. Really excited about our new stores and

It really fulfills the purpose of whatever is working to try and do, and we're excited about it going forward.

Curtis Valentine: Promote a little differently or more aggressively.

Nick Konat: With some of the new stores as they debut?

Jack Sinclair: I think the new stores are opening really well because I think we're getting better and better understanding where to build new stores. The models that we're building about where exactly the health enthusiast customers are are working well. The marketing team have done a really nice job in different locations communicating the values and what we have as a customer, as a business within each market. We're a pretty unique business, 24 states, relatively small business. We're going to get to a lot more states over the next year or two as we, as Curtis talked about, in the Midwest, in the Northeast corridor. We're going to have to think about having a different marketing approach by market, but not in terms of promotional approach. We're not going to be doing big aggressive things to drive people into the store.

Good. Thank you. Do you sense any need to, uh, uh, maybe promote a little differently or more aggressively with some of the new stores as they debut? Well, I think...

Curtis Valentine: Chuck, one of the things that's been really positive in the way that we've marketed those new stores is more about getting into the local community and getting more local earlier in the process to really build some excitement around the store and some enthusiasm in the local community. It's about telling our story. It's about engaging with the community, and we've seen a lot of positive traction when we've showed up in some new places. Great, thank you.

Relatively small business and we're going to get to a lot more States over the next year or 2 as we as Curtis talked about in the Midwest and the Northeast Corridor. So, we're going to have to think about having a different marketing approach by market. But not in terms of promotional approach, we're not going to be doing big aggressive things to drive people into the store. Yeah, Chuck. I just had 1 of the things that's been really positive in the in the way that we've marketed. Those new stores is more about getting its getting into the local community and getting more local earlier in the process to really build some excitement around the store and enthusiastic enthusiasm in the local community. And so again, it's it's about telling our story, it's about it, uh, engaging with the community. And, and we've seen a lot of positive traction when we've showed up in some new places.

Jack Sinclair: Thanks, Chuck.

Great. Thank you.

Susannah Livingston: I show no further questions in the queue at this time. I would now like to turn the call back over to Jack for closing remarks.

Thanks Chuck.

Jack Sinclair: Thank you everybody for taking the time and asking such great questions and showing so much attention to our company. We look forward to continuing the dialogue with you going forward. Thanks again. Take care.

I show no further questions in the queue at this time. I would now like to turn the call back over to Jack for closing remarks.

Well, thanks everybody for taking the time and showing so much asking such great questions and showing so much attention to our company. We look forward to continuing the dialogue with you going forward. Thanks again. Take care.

Susannah Livingston: This concludes today's conference call. Thank you for participating, and you may now disconnect.

Jack Sinclair: Sam.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Curtis Valentine: It.

Susannah Livingston: Ladies and gentlemen, thank you for standing by. Welcome to Sprouts Farmers Market's third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you would need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Susannah Livingston, Vice President, Investor Relations and Treasury. Please go ahead. Thank you and good afternoon, everyone. We are pleased you are joining Sprouts Farmers Market on our third quarter 2025 earnings call.

Ladies and gentlemen, thank you for staying by. Welcome to Sprouts' third quarter 2025 earnings conference call.

At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *1, 1 on your telephone. You will then hear an automated message advising that your hand is raised.

To withdraw your question, please press star 1, 1 again.

Please be advised that today's conference is being recorded. I would now like to turn the conference over to Susannah Livingston, Vice President of Investor Relations and Treasury. Please go ahead.

Susannah Livingston: Jack Sinclair, Chief Executive Officer, Curtis Valentine, Chief Financial Officer, and Nick Konat, President and Chief Operating Officer, are with me today. The earnings release announcing our third 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.com. During this call, management may make certain forward-looking statements, including statements regarding our expectations for 2025 and beyond. These statements involve 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 for a reconciliation of our non-GAAP financial measures to comparable GAAP figures.

Thank you, and good afternoon, everyone. We are pleased you are joining Sprouts for our third quarter of 2025 earnings call. I am Jackson, Claire, Chief Executive Officer. Curtis Valentine, Chief Financial Officer, and Nick Konat, President and Chief Operating Officer, are with me today.

The earnings release announcing our third 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.com.

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

These statements involve double 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 FCC filing and the commentary on forward-looking statements at the end of our earnings release.

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

A remarks today include references to non-GAAP financial measures. Please see the tables in our earnings release for reference of our non-GAAP financial measures to comparable GAAP figures.

Jack Sinclair: Thanks Susannah and good afternoon everyone. In the third quarter we delivered strong earnings growth up 34% year on year with a 5.9% comp and strong Newport new store performance. Our results continue to be driven by our execution on the key pillars of our strategy. We saw an increase in customer traffic as we effectively engaged with our target customers while our most differentiated and attribute-based products continued to drive sales as we continued to expand our store presence from sea to shining sea. In addition, our ongoing inventory management improvements in supply chain contributed to the expansion of our EBIT margin. Together, these achievements demonstrate the strength of our teams and the durability of our strategy. While it was a solid third quarter, it fell short of our top line expectations as the quarter progressed.

With that, let me hand it over to Jack.

Thanks, Susannah, and good afternoon, everyone.

In the third quarter, we delivered strong earnings growth of 34% year-on-year, with a 5.9% comparable store sales and strong performance from our new Newport stores.

Our results can continue to be driven by our execution on the key pillars of our strategy.

We saw an increase in customer traffic as we effectively engage with our target customers, while our most differentiated and attribute-based products continue to drive sales as we continue to expand our store presence from sea to shining sea.

Contributed to the expansion of our EBIT margin together. These achievements demonstrate the strength of our teams and the durability of our strategy.

Jack Sinclair: Our comp sales moderated faster than expected as we came up against challenging year on year comparisons as well as signs of a softening consumer. As we look ahead, the investments we have made provide us with levers to manage our business and deliver earnings growth. Today, we'll walk you through our performance highlights, update you on our strategic initiatives, and share how we're positioning Sprouts Farmers Market for the rest of 2025 and beyond. I want to thank the team for their ongoing commitment to supporting our customers on their health journey. For now, I'll hand it over to Curtis to review our third quarter financial results as well as our updated 2025 outlook.

While it was a solid third quarter, it fell short of our topline expectations. As the quarter progressed, our comp sales moderated faster than expected. We came up against challenging year-on-year comparisons, as well as signs of a softening consumer. As we look ahead, the investments we have made provide us with levers to manage our business and deliver earnings growth. Today, we will walk you through our performance highlights update, our strategic initiatives, and share how we're positioning Sprouts for the rest of 2025 and beyond. I want to thank the team for their ongoing commitment to supporting our customers on their health journey.

Curtis Valentine: Katya, thanks Jack, and good afternoon everyone. In the third quarter, total sales were $2.2 billion, up $255 million or 13% compared to the same period last year. This growth was driven by a 5.9% increase in comparable store sales and the strong results from new stores. Traffic remained positive and accounted for approximately 40% of our third quarter comp. Our key points of differentiation continued to drive our sales, with attribute forward products growing faster than our core business. E-commerce sales grew 21%, representing approximately 15.5% of our total sales for the quarter, with good performance from all partners. Additionally, Sprouts Brand continues to resonate with our target customers and now represents more than 25% of our total sales for the quarter. While our third quarter yielded solid results, we expected more from our top line as we underestimated the impact of lapping strong numbers from last year.

For now, I'll hand it over to Curtis to review your third-quarter financial results as well as our updated 2025 outlook. Curtis.

Thanks, Jack, and good afternoon, everyone.

In the third quarter, total sales were $2.2 billion, up $255 million or 13% compared to the same period last year.

This growth was driven by a 5.9% increase in comparable store sales and strong results from new stores.

Traffic remained positive and accounted for approximately 40% of our third quarter comp. Our key points of differentiation continued to drive our sales, with attribute-forward products growing faster than our core business.

E-commerce sales grew 21%, representing approximately 15.5% of our total sales for the quarter, with good performance from all partners.

Additionally, the Sprouts brand continues to resonate with our Target customers and now represents more than 25% of our total sales for the quarter.

Curtis Valentine: In the context of a softening consumer backdrop, we believe our strategy always has us well positioned to capitalize on the surging interest in health and wellness. Last year, we saw outsized gains in new customers, substantially growing our customer base, and by and large, we've kept those customers. Against that backdrop, we have managed our costs and margins effectively. Our third quarter gross margin was 38.7%, an increase of 60 basis points compared to the same period last year. This improvement was mainly attributable to improved shrink. SG&A for the quarter took $153 million, an increase of $73 million and 13 basis points of leverage compared to the same period last year. This improvement was largely driven by lower compensation expense, which was partially offset by increased benefit costs and pressure from our new store growth.

While our third quarter yielded solid results, we expected more from our top line, as we underestimated the impact of swapping. Strong numbers from last year, in the context of a softening consumer backdrop,

We believe our strategy always has us well positioned to capitalize on the surging interest in health and wellness.

Last year, we saw outsized gains in new customers, substantially growing our customer base. By and large, we kept those customers.

Against that backdrop, we have managed our costs and margins effectively.

Our third quarter gross margin was 38.7%, an increase of 60 basis points compared to the same period last year.

This improvement was mainly attributable to improved shrink.

SG&A for the quarter was $153 million, an increase of $73 million and 13 basis points of leverage compared to the same period last year.

Curtis Valentine: Depreciation and amortization, excluding depreciation included in the cost of sales, was $39 million. For the third quarter, our earnings before interest and taxes were $157 million. Interest income was approximately $690,000 and our effective tax rate was 24%, including a benefit of $0.03, predominantly from a purchase discount for transferable tax credits. Net income was $120 million and diluted earnings per share were $1.22, an increase of 34% compared to the same period last year. During Q3, we opened nine new stores, ending the quarter with 464 stores across 24 states. We are encouraged by our new store performance and the positive response we are getting from customers as we enter new communities across the country. The team continues to improve our processes and partnerships to accelerate our development cycle, and our planned expansion into the Midwest and the Northeast is providing fertile ground for site approvals.

This improvement was largely driven by lower compensation expense, which was partially offset by increased benefits costs and pressure from our new store growth.

Depreciation and amortization, excluding depreciation included in the cost of sales, was $39 million.

For the third quarter, our earnings before interest and taxes were $157 million. Interest income was approximately $690,000, and our effective tax rate was 24%, which included a benefit of $0.03 predominantly from a purchase discount for transferable tax credits.

Net income was $120 million, and diluted earnings per share were $1.22, an increase of 34% compared to the same period last year.

During Q3, we opened 9 new stores, ending the quarter with 464 stores across 24 states.

We are encouraged by our new store performance and the positive response we are getting from customers as we enter new communities across the country.

Curtis Valentine: We plan to open more stores in 2026 than in 2025 and believe we are on track to get to our 10% unit growth in 2027. A strong and healthy balance sheet has underpinned our financial performance. Year to date we generated $577 million in operating cash flow, which allowed us to self-fund our investments of $194 million in capital expenditures, net of landlord reimbursement, to grow our business. We have also returned $342 million to our shareholders by repurchasing 2.4 million shares. We have $966 million remaining under our new $1 billion share repurchase authorization that was approved by the Board of Directors in August. We ended the third quarter with $322 million in cash and cash equivalents and $23 million of outstanding letters of credit. On July 25, we closed a $600 million revolving credit facility, which replaced our previously existing $700 million revolver.

The team continues to improve our processes and partnerships to accelerate our development cycle and our planned expansion into the Midwest. In the Northeast, we are providing fertile ground for site approvals.

We plan to open more stores in 2026 than in 2025 and believe we are on track to achieve our 10% unit growth by 2027.

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

Year to date, we generated $577 million in operating cash flow, which allowed us to self-fund our investments of $194 million in capital expenditures, net of landlord reimbursement, to grow our business.

We have also returned $342 million to our shareholders by repurchasing 2.4 million shares.

We have $966 million remaining under our new $1 billion share repurchase authorization that was approved by the Board of Directors in August.

Cash and cash equivalents, and $23 million of outstanding letters of credit.

Curtis Valentine: The terms and conditions are substantially similar to our previous agreement, with a new expiration date of July 2030. While we plan to fund operations and unit growth through our robust cash flow generation, this facility provides Sprouts Farmers Market with financial flexibility as we grow. As we look ahead for the remainder of this year, we are balancing the strength of our business strategy against the consumer uncertainty and challenging year-over-year comp compares. For the full year, we expect total sales growth to be approximately 14% and comp sales to be approximately 7%. Given the strong execution of our real estate pipeline and fewer timeline delays, we now plan to open 37 new stores in 2025. Earnings before interest and taxes are expected to be between $675 million and $680 million. Diluted EPS are expected to be between $5.24 and $5.28, assuming no additional share repurchases.

On July 25th, we closed a $600 million revolving credit facility, which replaced our previously existing $700 million revolver.

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

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

As we look ahead for the remainder of this year, we are balancing the strength of our business strategy against consumer uncertainty and challenging year-over-year comparisons.

For the full year, we expect total sales growth to be approximately 14% and comp sales to be approximately 7%.

Given the strong execution of our real estate pipeline and fewer timeline delays, we now plan to open 37 new stores in 2025.

Earnings before interest and taxes are expected to be between $675 million and $680 million.

Curtis Valentine: That said, we expect to continue repurchasing shares opportunistically. 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 million and $250 million.

And earnings per share are expected to be between 5 dollars and 24 cents and 5 dollars, 28 cents. Assuming no additional share repurchases that said we expect to continue. Repurchasing shares opportunistically

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

Jack Sinclair: Million.

Curtis Valentine: For the fourth quarter, we expect comp sales to be in the range of 0% to 2% and earnings per share to be between $0.86 and $0.90 in the fourth quarter. Year over year, margin rate in both gross margin and SG&A are normalizing. Despite the pressure to our top line, we expect to be able to grow EBIT in line with our sales growth to deliver stable year over year margins in the fourth quarter. Despite facing challenging revenue comparisons, we remain confident that we have a resilient business capable of delivering solid earnings growth. This reflects our ongoing commitment to operational efficiency and disciplined cost management. These factors provide us with earnings stability while we continue to invest in our future growth. I'll turn it back to Jack. Thanks, Curtis.

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

For the fourth quarter, we expect comp sales to be in the range of 0% to 2%, and earnings per share to be between $0.86 and $0.90.

In the fourth quarter, year-over-year margin rates in both gross margin and SG&A are normalized.

Despite pressure to our top line, we expect to be able to grow EBIT dollars in line with our sales growth to deliver stable year-over-year margins in the fourth quarter.

Despite facing challenging revenue comparisons, we remain confident that we have a resilient business capable of delivering solid earnings growth.

This reflects our ongoing commitment to operational efficiency and disciplined cost management.

These factors provide us with earning stability while we continue to invest in our future growth. And with that, I'll turn it back to Jack.

Jack Sinclair: Over the years, we have built a strong foundation for sustainable long-term value creation. We focus on driving growth through differentiated innovation, strengthening our operations, enhancing our digital capabilities to deepen customer engagement, and expanding our store footprint, all while investing in our talent and technology. Together, these elements form the cornerstone of our strategy, positioning us to compete effectively. The broader health and wellness movement in the United States continues to gain popularity. With this in mind, we remain committed to expanding and strengthening our unique product offering. We continue to see strong customer demand for our attribute-driven products, which remain a key driver of our sales growth. Currently, more than one third of our sales come from organic products, and we'll continue investing in this important attribute for our customers, ensuring they have access to the best in organic offerings at a great value.

Thanks, Curtis. Over the years, we've built a strong foundation for sustainable long-term value creation. We focus on driving growth through differentiated innovation, strengthening our operations, enhancing our digital capabilities to deepen customer engagement, and expanding our store footprint, all while investing in our talent and technology together. These elements form the cornerstone of our strategy, positioning us to compete effectively.

Jack Sinclair: The supplement sector is also evolving within our stores, focused on areas such as longevity, women's health, and gut health, trends that resonate with our health enthusiast customers. The Sprouts.

The broader health and wellness movement in the United States continues to gain popularity. With this in mind, we remain committed to expanding and strengthening our unique product offerings. We continue to see strong customer demand for our attribute-driven products, which remain a key driver of our sales growth. Currently, more than one-third of our sales come from organic products, and we will continue investing in this important attribute for our customers, ensuring they have access to the best in organic offerings at a great value.

The supplement sector is also evolving within our stores, focused on areas such as longevity, women's health, and gut health. These are health trends that resonate with our health enthusiast customers.