Q2 2026 Sprouts Farmers Market Inc Earnings Call

July 29, 2026

Speaker #1: Questioned during the session. You would need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised.

Operator: To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I would now like to hand the conference over to Susannah Livingston. You may begin.

Speaker #1: To withdraw your question, please press star 11 again. I would now like to hand the conference over to Susannah Livingston, you may begin.

Speaker #2: Thank you, and good afternoon, everyone. We are pleased you are joining Sprouts on our second quarter 2026 earnings call. Jack Sinclair, Chief Executive Officer, Curtis Valentine, Chief Financial Officer, and Nick Konat, President and Chief Operating Officer, are with me today.

Susannah Livingston: Thank you, good afternoon, everyone. We are pleased you are joining Sprouts on our Q2 2026 earnings call. 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 Q2 2026 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 2026 and beyond. These statements involve several risks and uncertainties that could cause results to differ materially from those described in the forward-looking statements. For more information, please refer to the risk factors discussed in our SEC filings and the commentary on forward-looking statements at the end of our earnings release. Our remarks today include references to non-GAAP financial measures.

Susannah Livingston: Thank you, good afternoon, everyone. We are pleased you are joining Sprouts on our Q2 2026 Earnings Call. 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 Q2 2026 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 2026 and beyond. These statements involve several risks and uncertainties that could cause results to differ materially from those described in the forward-looking statements. For more information, please refer to the risk factors discussed in our SEC filings and the commentary on forward-looking statements at the end of our earnings release. Our remarks today include references to non-GAAP financial measures.

Speaker #2: The earnings release announcing our second quarter 2026 results, the webcast of this call, and financial slides can be accessed through the investor relations section of our website, at investors.sprouts.com.

Speaker #2: During this call, management may make certain forward-looking statements, including statements regarding our expectations for 2026 and beyond. These statements involve several risks and uncertainties, that could cause results to differ materially from those described in the forward-looking statements.

Speaker #1: Hello, and welcome to Sprouts Farmers Market, Q2, 2026 earnings conference call. At this time, all participants on the listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

Speaker #1: To ask a question during the session, you will need to press star 11 on your telephone. You can then hear an automated message advising your hand is raised.

Speaker #2: For more information, please refer to the risk factors discussed in our SEC filings and the commentary on forward-looking statements at the end of our earnings release.

Speaker #1: To withdraw your question, please press star 11 again. I would now like to hand the conference over to Susannah Livingston. You may begin.

Speaker #2: 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 the comparable GAAP figures.

Susannah Livingston: Please see the tables in our earnings release for a reconciliation of our non-GAAP financial measures to the comparable GAAP figures. With that, let me hand it over to Jack.

Speaker #2: Thank you, and good afternoon, everyone. We are pleased you are joining Sprouts on our Q2, 2026 earnings call. Jack Sinclair, Chief Executive Officer, Curtis Valentine, Chief Financial Officer, and Nick Konat, President and Chief Operating Officer, are with me today.

Speaker #2: With that, let me hand it over to Jack.

Speaker #3: Thanks, Susannah, and good afternoon, everyone. Our second quarter results were in line with our expectations. And the core elements of our strategy remain strong.

Jack Sinclair: Thanks, Susannah, good afternoon, everyone. Our Q2 results were in line with our expectations, and the core elements of our strategy remain strong. New stores continue to perform well. Our differentiated and attribute-based assortment continues to resonate, and our teams are moving with urgency to sharpen value, improve communication, and support customers in the areas that matter most. The consumer environment remains challenging, with customers continuing to make thoughtful choices around their healthy grocery spend, and we continue to face difficult year-on-year comparisons. With that said, our most difficult prior year comparisons are behind us and become more manageable as the year progresses. We continue to see opportunities to improve our business in the short, medium, and long term.

Speaker #2: The earnings release announcing our Q2 2026 results, the webcast of this call, and financial slides can be accessed through the Investor Relations section of our website at investors.sprouts.com.

Speaker #3: New stores continue to perform well. Our differentiated and attribute-based assortment continues to resonate. And our teams are moving with urgency to sharpen value, improve communication, and support customers in the areas that matter most.

Speaker #2: During this call, management may make certain forward-looking statements, including statements regarding our expectations for 2026 and beyond. These statements involve several risks and uncertainties that could cause results to differ materially from those described in the forward-looking statements.

Speaker #3: The consumer environment remains challenging, with customers continuing to make thoughtful choices around their healthy grocery spend. And we continue to face difficult year-on-year comparisons.

Speaker #3: With that said, our most difficult prior-year comparisons are behind us, and become more manageable as the year progresses. We continue to see opportunities to improve our business in the short, medium, and long term.

Speaker #2: For more information, please refer to the risk factors discussed in our SEC filings and the commentary on forward-looking statements at the end of our earnings release.

Speaker #3: The short term, we are taking a balanced approach, investing to strengthen support for customers today while building capabilities to support our proposition for the long term.

Jack Sinclair: The short term, we are taking a balanced approach, investing to strengthen support for customers today while building capabilities to support our proposition for the long term, ensuring sustainable growth into the future. In a moment, Curtis will review our Q2 results and our updated outlook. After that, I'll come back to discuss the key business priorities we're advancing across affordability, loyalty and personalization, innovation, real estate, supply chain, and our teams. Curtis.

Speaker #2: With that, let me hand it over to Jack.

Speaker #3: Thanks, Susannah, and good afternoon, everyone. Our Q2 results were in line with our expectations, and the core elements of our strategy remain strong. New stores continue to perform well.

Speaker #3: Ensuring sustainable growth into the future. In a moment, Curtis will review our second quarter results and our updated outlook. After that, I'll come back to discuss the key business priorities we're advancing across affordability, loyalty and personalization, innovation, real estate, supply chain, and our teams.

Speaker #3: Our differentiated and attribute-based assortment continues to resonate, and our teams are moving with urgency to sharpen value, improve communication, and support customers in the areas that matter most.

Speaker #3: Curtis?

Speaker #4: Thanks, Jack, and good afternoon, everyone. In the second quarter, our results played out in line with our outlook, as we continue to lap outsized growth from the prior year and help our customers navigate the affordability challenge that they face in the current environment.

Curtis Valentine: Thanks, Jack, and good afternoon, everyone. In the Q2, our results played out in line with our outlook as we continue to lap outsized growth from the prior year and help our customers navigate the affordability challenge that they face in the current environment. Total sales were $2.3 billion, up $105 million or 5% compared to the same period last year. This growth was driven by strong new store performance, partially offset by a 1% decline in comparable store sales. We saw sequential comp improvement through May. June, as expected, we had our lowest comp of the quarter as we lapped strong last year produce performance and a disruption in the natural and organic supply chain that sent more customers to our stores. Starting in July, the business has improved in line with expectations.

Speaker #3: With that said, our most difficult prior-year comparisons are behind us and become more manageable as the year progresses. We continue to see opportunities to improve our business in the short, medium, and long term.

Speaker #4: Total sales were $2.3 billion, up 105 million or 5% compared to the same period last year. This growth was driven by strong new store performance, partially offset by a 1% decline in comparable store sales.

Speaker #3: The short term, we are taking a balanced approach, investing to strengthen support for customers today while building capabilities to support our proposition for the long term.

Speaker #4: We saw sequential comp improvement through May. June, as expected, we had our lowest comp of the quarter, as we lapped ed strong last year produce performance, and the disruption in the natural and organic supply chain that sent more customers to our stores.

Speaker #3: Ensuring sustainable growth into the future. In a moment, Curtis will review our Q2 results and our updated outlook. After that, I'll come back to discuss the key business priorities we're advancing across affordability, loyalty, and personalization innovation real estate supply chain and our teams.

Speaker #4: Starting in July, the business has improved in line with expectations. The sequential improvement has been driven by modest improvements in both traffic and units in the basket.

Curtis Valentine: The sequential improvement has been driven by modest improvements in both traffic and units in the basket. E-commerce sales grew more than 12% and represented approximately 16% of total quarterly sales. Sprouts brand also continued to perform better than the rest of the business, representing 26% of total sales. Our Q2 gross margin was 38.7%, a decrease of 12 basis points compared to the same period last year. This primarily reflects our loyalty investment and elevated fuel costs. These headwinds were partially offset by benefits from self-distribution and vendor participation to help support customer value. SG&A for the quarter totaled $683 million, an increase of $38 million and 30 basis points deleverage compared to the same period last year. This was primarily driven by fixed cost deleverage from lower comparable store sales and investments in the business, partially offset by disciplined cost management and lower incentive compensation.

Speaker #4: E-commerce sales grew more than 12% and represented approximately 16% of total quarterly sales. Sprouts brand also continued to perform better than the rest of the business, representing 26% of total sales.

Speaker #3: Curtis?

Speaker #4: Thanks, Jack, and good afternoon, everyone. In the Q2, our results played out in line with our outlook as we continue to lap outsized growth from the prior year and help our customers navigate the affordability challenge that they face in the current environment.

Speaker #4: Our second quarter gross margin was 38.7%, a decrease of 12 basis points compared to the same period last year. This primarily reflects our loyalty investment and elevated fuel costs.

Speaker #4: These headwinds were partially offset by benefits from self-distribution and vendor participation to help support customer value. SG&A for the quarter totaled $683 million. An increase of 38 million and 30 basis points deleveraged compared to the same period last year.

Speaker #4: We saw sequential comp improvement through May. June, as expected, we had our lowest comp of the quarter as we lapped strong last year produce performance and the disruption in the natural and organic supply chain that sent more customers to our stores.

Speaker #4: This was primarily driven by fixed-cost deleverage from lower comparable store sales and investments in the business, partially offset by discipline-cost management and lower incentive compensation.

Speaker #4: Starting in July, the business has improved in line with expectations. The sequential improvement has been driven by modest improvements in both traffic and units in the basket.

Speaker #4: Depreciation and amortization, excluding depreciation included in the cost of sales, was 43 million. For the second quarter, our earnings before interest and taxes were $174 million, interest income was approximately $68,000, and our effective tax rate was 26%.

Curtis Valentine: Depreciation and amortization, excluding depreciation included in the cost of sales, was $43 million. For the Q2, our earnings before interest and taxes were $174 million. Interest income was approximately $68,000, and our effective tax rate was 26%. Net income was $129 million, and diluted earnings per share were $1.37, an increase of 1% compared to the same period last year. Turning to unit growth, we opened seven new stores, ending the quarter with 490 stores across 25 states. Our pipeline remains robust, with more than 110 executed leases and 155 approved new stores, giving us confidence in our ability to continue expanding access to Sprouts over the long term. Our balance sheet and cash generation remain strong and provide flexibility. Year-to-date, we have generated $369 million in operating cash flow, which enabled self-funding of our investments in capital expenditures of $186 million, net of landlord reimbursement.

Speaker #4: Our Q2 gross margin was $38.7%, a decrease of 12 basis points compared to the same period last year. This primarily reflects our loyalty investment and elevated fuel costs.

Speaker #4: Net income was $129 million, and diluted earnings per share were $1.37. An increase of 1% compared to the same period last year. Turning to unit growth, we opened 7 new stores.

Speaker #4: Ending the quarter with $490 stores, across 25 states. Our pipeline remains robust, with more than 110 executed leases and 155 approved new stores. Giving us confidence in our ability to continue expanding access to Sprouts over the long term.

Speaker #4: This was primarily driven by fixed-cost deleverage from lower comparable store sales and investments in the business, partially offset by disciplined cost management and lower incentive compensation.

Speaker #4: Our balance sheet and cash generation remain strong and provide flexibility. Year to date, we have generated $369 million in operating cash flow, which enabled self-funding of our investments in capital expenditures of $186 million.

Speaker #4: Depreciation and amortization, excluding depreciation included in cost of sales, was $43 million. For Q2, our earnings before interest and taxes were $174 million, interest income was approximately $68,000, and our effective tax rate was 26%.

Speaker #4: Net of landlord reimbursement. Through the second quarter, we also returned $210 million to our shareholders by repurchasing 2.8 million shares and have $626 million remaining under our $1 billion share repurchase authorization.

Curtis Valentine: Through the Q2, we also returned $210 million to our shareholders by repurchasing 2.8 million shares and have $626 million remaining under our $1 billion share repurchase authorization. We ended the Q2 with $224 million in cash and cash equivalents and $22 million of outstanding letters of credit. As we look to the balance of 2026, we are beginning to move past the most difficult compares and seeing early progress, though the operating environment remains uneven. We believe our initiatives in affordability, innovation, personalization, marketing, and supply chain will strengthen engagement over time. Customer behavior is evolving gradually, and we recognize it will take time for our actions to fully gain traction in this macro environment. The lower-engaged customer remains an opportunity, and all customers are managing units in the basket.

Speaker #4: Net income was $129 million, and diluted earnings per share were $1.37. An increase of 1% compared to the same period last year. Turning to unit growth, we opened 7 new stores.

Speaker #4: We ended the second quarter with $224 million in cash and cash equivalents, and $22 million of outstanding letters of credit. As we look to the balance of 2026, we are beginning to move past the most difficult compares and seeing early progress.

Speaker #4: Ending the quarter with 490 stores across 25 states. Our pipeline remains robust, with more than 110 executed leases and 155 approved new stores, giving us confidence in our ability to continue expanding access to Sprouts over the long term.

Speaker #4: Though the operating environment remains uneven. We believe our initiatives in affordability, innovation, personalization, marketing, and supply chain will strengthen engagement over time. Customer behavior is evolving gradually, and we recognize it will take time for our actions to fully gain traction in this macro environment.

Speaker #4: The lower engaged customer remains an opportunity, and all customers are managing units in the basket. Given that context, we continue to take a disciplined view of the back half while investing in the actions we believe will support engagement and long-term growth.

Curtis Valentine: Given that context, we continue to take a disciplined view of the back half while investing in the actions we believe will support engagement and long-term growth. As a reminder, 2026 will be a 53-week year, with the extra week falling at the end of the Q4. For the full year, on a 52-week basis, our outlook for total sales growth is between 5.5% to 6.5%, with comp sales between -0.5% to +0.5%. We now plan to open 42 net new stores in 2026. This accounts for 43 new openings as well as one closure of an underperforming store with an expiring lease. Earnings before interest and taxes is expected to be between $675 and $685 million. We expect our corporate tax rate to be approximately 25.5%, and we expect capital expenditures, net of landlord reimbursements, to be approximately $310 million.

Speaker #4: Net of landlord reimbursement. Through the Q2, we also returned $210 million to our shareholders by repurchasing $2.8 million shares and have $626 million remaining under our $1 billion share repurchase authorization.

Speaker #4: As a reminder, 2026 will be a 53-week year. With the extra week falling at the end of the fourth quarter. For the full year, on a 52-week basis, our outlook for total sales growth is between 5.5 to 6.5%, with comp sales between negative 0.5% to positive 0.5%.

Speaker #4: We ended the Q2 with $224 million in cash and cash equivalents and $22 million of outstanding letters of credit. As we look to the balance of 2026, we are beginning to move past the most difficult compares and seeing early progress.

Speaker #4: We now plan to open 42 net new stores in 2026. This accounts for 43 new openings, as well as one closure of an underperforming store with an expiring lease.

Speaker #4: Earnings before interest and taxes is expected to be between $675 and $685 million. We expect our corporate tax rate to be approximately 25.5%, and we expect capital expenditures, net of landlord reimbursements, to be approximately $310 million.

Speaker #4: Our diluted earnings per share outlook is expected to be between $5.32 and $5.40, assuming at least 300 million in share repurchases. This updated outlook also reflects the current consumer backdrop, our continued efforts around affordability, ongoing fuel surcharges, and disciplined cost management.

Curtis Valentine: Our diluted earnings per share outlook is expected to be between $5.32 and $5.40, assuming at least $300 million in share repurchases. This updated outlook also reflects the current consumer backdrop, our continued efforts around affordability, ongoing fuel surcharges, and disciplined cost management. It also incorporates the expected one-time, year-over-year gross margin benefit in the Q4 as we cycle an easier shrink comparison and the loyalty program changes we made earlier this year. We believe this outlook gives us the flexibility to continue investing in customer value while managing the business with discipline. For the Q3, we expect comp sales to be in the range of -0.5% to +1.5%, and diluted earnings per share to be between $1.20 and $1.24.

Speaker #4: It also incorporates the expected one-time year-over-year gross margin benefit in the fourth quarter as we cycle an easier shrink comparison and the loyalty program changes we made earlier this year.

Speaker #4: We now plan to open 42 net new stores in 2026. This accounts for 43 new openings, as well as one closure of an underperforming store with an expiring lease.

Speaker #4: We believe this outlook gives us the flexibility to continue investing in customer value while managing the business with discipline. For the third quarter, we expect comp sales to be in the range of negative 0.5 to positive 1.5%, and diluted earnings per share to be between $1.20 and $1.24.

Speaker #4: Earnings before interest and taxes is expected to be between $675 million and $685 million. We expect our corporate tax rate to be approximately 25.5%, and we expect capital expenditures, net of landlord reimbursements, to be approximately $310 million.

Speaker #4: EBIT margin pressure is expected to be approximately 50 basis points due to fixed-cost deleverage from lower comp sales and the impact of more new store openings when compared to the third quarter last year.

Curtis Valentine: EBIT margin pressure is expected to be approximately 50 basis points due to fixed cost deleverage from lower comp sales and the impact of more new store openings when compared to the Q3 last year. With that, I'll turn it back to Jack.

Speaker #4: And with that, I'll turn it back to Jack.

Speaker #1: Thanks, Curtis. Against an uneven near-term backdrop, we remain focused on the areas we can control: sharpening value, strengthening foraging, improving how we engage with customers, and providing them a great in-store experience.

Jack Sinclair: Thanks, Curtis. Against an uneven near-term backdrop, we remain focused on the areas we can control. Sharpening value, strengthening foraging, improving how we engage with customers, and providing them a great in-store experience, advancing supply chain capabilities, and executing against a strong new store pipeline. We're using data to better support our customers on their health journey. Our customers care about what they eat, and we are committed to making healthy, clean food more affordable and accessible, which is particularly important during these challenging times. Our teams are proud to rise to this challenge. That commitment is directly connected to our top priority, serving our target customer. They continue to value the Sprouts experience, the quality of our assortment, and the discovery we bring to health and wellness, while also looking for practical ways to make healthy living fit their budgets.

Speaker #1: Advancing supply chain capabilities, and executing against a strong new-store pipeline. We're using data to better support our customers on their health journey. Our customers care about what they eat, and we're re committed to making healthy, clean food more affordable and accessible.

Speaker #1: Which is particularly important during these challenging times. Our teams are proud to rise to this challenge. That commitment is directly connected to our top priority, serving our target customer.

Speaker #1: They continue to value the Sprouts experience, the quality of our assortment, and the discovery we bring to health and wellness, while also looking for practical ways to make healthy living fit their budgets.

Speaker #1: We're responding in a way that is consistent with who we are, by bringing together innovation, quality, and targeted value in the areas that matter most.

Speaker #4: And with that, I'll turn it back to Jack.

Jack Sinclair: We are responding in a way that is consistent with who we are by bringing together innovation, quality, and targeted value in the areas that matter most. In Q2, our Fresh Daily Meals, vitamin sale, and $9.99 wellness bowls were examples of how this approach resonated with customers. Our H1 affordability test produced mixed results. Most actions drove better unit movement, while broader traffic response developed more gradually than expected. We're using those learnings to refine our H2 approach, focusing on the items that matter most to customers and where targeted price and affordability actions can have the greatest impact on engagement. Foraging and innovation remain key strengths, and they continue to outperform overall company growth. They help differentiate the assortment and focus our space, promotions, and new item activity around the products customers value most.

Speaker #1: In the second quarter, our fresh deli meals, vitamin sale, and 9.99 wellness bowls were examples of how this approach resonated with customers. Our first half affordability test produced mixed results.

Speaker #1: Advancing supply chain capabilities, and executing against a strong new-store pipeline. We're using data to better support our customers on their health journey. Our customers care about what they eat, and we are committed to making healthy, clean food more affordable and accessible.

Speaker #1: Most actions drove better unit movement, while broader traffic response developed more gradually than expected. We're using those learnings to refine our second half approach, focusing on the items that matter most to customers, and we're targeted price and affordability actions can have the greatest impact on engagement.

Speaker #1: Foraging and innovation remain key strengths, and they continue to outperform overall company growth. They help differentiate the assortment and focus our space promotions and new item activity, around the products customers value most.

Speaker #1: During the second quarter, we launched approximately 1,300 new items, with an emphasis on attributes that we believe matters to our customers, including organic, seed oil-free, fiber, gut solutions.

Jack Sinclair: During Q2, we launched approximately 1,300 new items with an emphasis on attributes that we believe matters to our customers, including organic, seed oil free, fiber, gut health, and protein solutions. These products help reinforce why customers choose Sprouts. With our exclusive partnership, Pasturebird Chicken is now available nationwide at Sprouts. Products like Better Pop and Betty Soup Salt shots are resonating with customers. Our organic offerings continue to gain traction across departments, now representing more than 30% of total sales, including more than half of sales in dairy and produce. Loyalty and personalization remain important long-term enablers for the business. As consumer behavior evolves against this uneven macroeconomic backdrop, we continue to see progress.

Speaker #1: We are responding in a way that is consistent with who we are, by bringing together innovation, quality, and targeted value in the areas that matter most.

Speaker #1: These products help reinforce why customers choose Sprouts. With our exclusive partnership, Pasture Birth Chicken is now available nationwide at Sprouts, and products like Better Pop and Betty Soup Soap shots are resonating with customers our organic offerings continue to gain traction across departments.

Speaker #1: Most actions drove better unit movement, while broader traffic response developed more gradually than expected. We're using those learnings to refine our second-half approach, focusing on the items that matter most to customers, and where targeted price and affordability actions can have the greatest impact on engagement.

Speaker #1: Now representing more than 30% of total sales, including more than half of sales in dairy and produce. Loyalty and personalization remain important long-term enablers for the business.

Speaker #1: As consumer behavior evolves, against this uneven macroeconomic backdrop. We continue to see progress. Our acceleration efforts have identified new tactics to drive sales that should benefit us in the second half.

Jack Sinclair: Our acceleration efforts have identified new tactics to drive sales that should benefit us in H2, and the data we are building is increasingly useful across the business, with more in-depth customer behavior and preferences. Building our first-party data capability will continue to support our long-term strategy by unlocking value for our customers and Sprouts across the enterprise. Marketing is one area where our new data can help us more effectively engage customers in the H2 of the year and beyond. We're using these insights to better target media across both existing and new customers, while also refreshing our creative to more clearly communicate Sprouts' unique position and bring the brand to life. We'll continue to tailor our messaging to highlight health, discovery, the unique products that distinguish Sprouts, and compelling value on the healthy essentials our customers need. Our supply chain work is also advancing.

Speaker #1: And the data we are building is increasingly useful across the business, with more in-depth customer behavior and preferences. Building our first-party data capability will continue to support our long-term strategy by unlocking value for our customers and Sprouts, across the enterprise.

Speaker #1: These products help reinforce why customers choose Sprouts. With our exclusive partnership, Pasture Bird Chicken is now available nationwide at Sprouts, and products like Better Pop and Betty Soup Shots are resonating with customers. Our organic offerings continue to gain traction across departments.

Speaker #1: Marketing is one area where our new data can help us more effectively engage customers in the second half of the year and beyond. We're using these insights to better target media, across both existing and new customers, while also refreshing our creative to more clearly communicate Sprouts' unique position and bring the brand to life.

Speaker #1: We'll continue to tailor our messaging to highlight health, discovery, the unique products that distinguish Sprouts, and compelling value on the healthy essentials our customers need our supply chain work is also advancing.

Speaker #1: As consumer behavior evolves, against this uneven macroeconomic backdrop, we continue to see progress. Our acceleration efforts have identified new tactics to drive sales that should benefit us in the second half, and the data we are building is increasingly useful across the business with more in-depth customer behavior and preferences.

Speaker #1: Our Northern California distribution center is open, and operating smoothly. And nearly 85% of our stores are now supported with fresh meat, whose Sprouts distribution centers this gives us greater control over freshness, service levels, and shrink, and the financial benefits from this transition will continue to support our efforts on affordability.

Jack Sinclair: Our northern California distribution center is open and operating smoothly, and nearly 85% of our stores are now supported with fresh meat through Sprouts distribution centers. This gives us greater control over freshness, service levels, and shrink, and the financial benefits from this transition will continue to support our efforts on affordability. We also are continuing to advance our self-distribution journey with targeted investments in our existing space, beginning with select Sprouts brand SKUs, as we look beyond produce and meat to the next phase of this work. New stores remain one of the clearest proof points of the strength of our model. Performance continues to be strong, and our teams are selecting great sites, opening stores efficiently, and bringing Sprouts to more communities. We are pleased with the progress across both high volume existing markets and newer markets that are continuing to build awareness and momentum.

Speaker #1: Building our first-party data capability will continue to support our long-term strategy by unlocking value for our customers and Sprouts across the enterprise. Marketing is one area where our new data can help us more effectively engage customers in the second half of the year and beyond.

Speaker #1: We also are continuing to advance our self-distribution journey, with targeted investments in our existing space, beginning with select Sprouts brand SKUs, as we look beyond produce and meat to the next phase of this work.

Speaker #1: We're using these insights to better target media across both existing and new customers, while also refreshing our creative to more clearly communicate Sprouts' unique position and bring the brand to life.

Speaker #1: New stores remain one of the clearest proof points of the strength of our model. Performance continues to be strong. And our teams are selecting great sites, opening stores efficiently, and bringing Sprouts to more communities.

Speaker #1: We are pleased with the progress across both high-volume existing markets and newer markets that are continuing to build awareness and momentum. Our construction team have done a great job improving our processes and shortening our time to build stores.

Jack Sinclair: Our construction team have done a great job improving our processes and shortening our time to build stores. Given these improvements, along with our strong pipeline, we will be opening 42 net new stores this year, slightly ahead of our original guidance. We will open at least 15 stores in the Q3, which represents our largest quarterly opening cadence to date. Lastly, the Sprouts team remains the heart of the organization. Our team members bring the Sprouts experience to life every day, from the quality and freshness in our stores to the service and education they provide our customers. Their commitment to our purpose, our team, and our customers remains a key advantage for our business. In summary, we are operating with discipline against a dynamic near-term backdrop while staying focused on the actions that strengthen engagement, reinforce the Sprouts value proposition, and position the business for sustainable growth.

Speaker #1: Our Northern California distribution center is open and operating smoothly, and nearly 85% of our stores are now supported with fresh meat through Sprouts distribution centers.

Speaker #1: Given these improvements, along with our strong pipeline, we will be opening 42 net new stores this year, slightly ahead of our original guidance. We will open at least 15 stores in the third quarter, which represents our largest quarterly opening cadence to date.

Speaker #1: This gives us greater control over freshness, service levels, and shrink, and the financial benefits from this transition will continue to support our efforts on affordability.

Speaker #1: Lastly, the Sprouts team remains the heart of the organization. Our team members bring the Sprouts experience to life every day, from the quality and freshness in our stores to the service and education they provide our customers.

Speaker #1: We are also continuing to advance our self-distribution journey with targeted investments in our existing space, beginning with select Sprouts brand SKUs, as we look beyond produce and meat to the next phase of this work.

Speaker #1: Their commitment to our purpose, our team, and our customers remains a key advantage for our business. In summary, we are operating with discipline, against a dynamic near-term backdrop, while staying focused on the actions that strengthen engagement, reinforce the Sprouts value proposition, and position the business for sustainable growth.

Speaker #1: New stores remain one of the clearest proof points of the strength of our model. Performance continues to be strong, and our teams are selecting great sites, opening stores efficiently, and bringing Sprouts to more communities.

Speaker #1: We appreciate your continued interest in Sprouts, and look forward to keeping you updated on our progress in the quarters to come. And with that, I'd like to turn it over for questions.

Jack Sinclair: We appreciate your continued interest in Sprouts and look forward to keeping you updated on our progress in the quarters to come. With that, I'd like to turn it over for questions. Operator.

Speaker #1: Operator.

Speaker #2: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press Start 11 on your telephone and wait for your name to be announced.

Operator: Thank you. Ladies and gentlemen, as a reminder to ask a question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Edward Kelly with Wells Fargo. Your line is open.

Speaker #2: To withdraw your question, please press Start 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ed Kelly with Wells Fargo.

Speaker #2: Your line is open.

Speaker #3: Hi. Good morning. Good afternoon, everyone. Could we maybe just start with comp cadence? I'm specifically interested in July. You talked about July being in line.

Edward Kelly: Hi. Good morning. Good afternoon, everyone. Could we maybe just start with comp cadence? I'm specifically interested in July. You talked about July being in line. Could you provide a little bit more color around the month versus the Q3 guide? The Q3 guide leaves the possibility of a negative comp in it. I'm not sure if you saw that in July, was there any impact from Cyclospora? Just remind us of the compares, by month, moving forward now.

Ed Kelly: Hi. Good morning. Good afternoon, everyone. Could we maybe just start with comp cadence? I'm specifically interested in July. You talked about July being in line. Could you provide a little bit more color around the month versus the Q3 guide? The Q3 guide leaves the possibility of a negative comp in it. I'm not sure if you saw that in July, was there any impact from Cyclospora? Just remind us of the compares, by month, moving forward now.

Speaker #1: Their commitment to our purpose, our team, and our customers remains a key advantage for our business. In summary, we are operating with discipline against a dynamic near-term backdrop, while staying focused on the actions that strengthen engagement, reinforce the Sprouts value proposition, and position the business for sustainable growth.

Speaker #3: Could you provide a little bit more color around the month versus the Q3 guide? The Q3 guide leaves the possibility of a negative confident.

Speaker #3: I'm not sure if you saw that in July and was there any impact from cycle spora. And then just remind us of the compares by month moving forward now.

Speaker #1: We appreciate your continued interest in Sprouts and look forward to keeping you updated on our progress in the quarters to come. And with that, I'd like to turn it over for questions.

Speaker #4: Sure. Yeah. Hey, Ed. This is Curtis. Lots in that. So comp cadence, sequentially, improved through May, as we said in the script, June was a tough month.

Curtis Valentine: Sure. Yeah. Hey, Ed, this is Curtis. Lots in that. Comp cadence sequentially improved through May, as we said in the script. June was a tough month. That was really the end of kind of the challenging LY compares. Last year in June, really strong produce season, disruption of the natural and organic supply chain that sent customers our way. Those are behind us now. As far as the H2 of the year, there were no major disruptions or benefits last year that we're up against. The comp will sequentially get easier from a comparison perspective month to month as we go forward. Within July, we're within our guidance range. Just slightly negative for July is where we landed. On Cyclospora, it's really live right now. It's been really the last 2 weeks where we've seen a bit of impact on the business.

Speaker #1: Operator.

Speaker #2: Thank you. Ladies and gentlemen, as a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced.

Speaker #4: That was really the end of kind of the challenging LY compares. Last year in June, really strong produce season. Disruption of the natural and organic supply chain that sent customers our way.

Speaker #2: To withdraw your question, please press Start 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ed Kelly with Wells Fargo.

Speaker #4: And so those are behind us now. As far as the second half of the year, there were no major disruptions or benefits last year that were up against.

Speaker #2: Your line is open.

Speaker #4: So the comp will sequentially get easier from a comparison perspective, month to month, as we go forward. Within July, we're within our guidance range, just slightly negative for July, is where we landed.

Speaker #3: Hi, good morning, good afternoon, everyone. Could we maybe just start with comp cadence? I'm specifically interested in July; you talked about July being in line.

Speaker #3: Could you provide a little bit more color around the month versus the Q3 guide? The Q3 guide leaves the possibility of a negative comp in it.

Speaker #4: And then on cycle spora, it's really live right now. It's been really the last two weeks where we've seen a bit of impact on the business.

Speaker #3: I'm not sure if you saw that in July, and was there any impact from cyclospora? And then, just remind us of the compares by month moving forward now.

Speaker #4: And so we're really just kind of deal with that real-time. I mean, first and foremost, food safety is our number one priority. The team really does a great job with that.

Curtis Valentine: We really just kind of deal with that real time. First and foremost, food safety is our number one priority. The team really does a great job with that. They're watching all the news and the regulatory updates closely. We haven't had any product recall impact in our stores to date. It's impacting the customers and how they shop. It's really isolated to Lettuces, salads, and salad-related items is where we're seeing a bit of an impact. It's shifting from fresh to frozen.

Speaker #4: They're watching all the news and the regulatory updates closely. And we haven't had any product recall impact in our stores to date. But it's impacting the customers and how they shop.

Speaker #4: Sure. Yeah. Hey, Ed. This is Curtis. There’s a lot in that. So, comp cadence sequentially improved through May, as we said in the script. June was a tough month.

Speaker #4: It's really isolated to kind of lettuce's salads and salad-related items is where we're seeing a bit of an impact. So it's a shift in from fresh to frozen.

Speaker #4: And so those are behind us now. As far as the second half of the year, there were no major disruptions or benefits last year that were up against.

Speaker #3: So we're watching the spray closely. And just to see what is going to how the customer reaction to this is difficult to know exactly how this is going to play out, but we're focused on food safety.

Jack Sinclair: We're watching this pretty closely, just to see how the customer reaction to this. It's difficult to know exactly how this is going to play out, we're focused on food safety.

Speaker #4: So the comp will sequentially get easier from a comparison perspective, month to month, as we go forward. Within July, we're within our guidance range—just slightly negative for July is where we landed.

Speaker #3: Okay. And it's maybe just a quick follow-up, Jack. You mentioned affordability results of the effort kind of being mixed and maybe some adjustments that you're making.

Edward Kelly: Okay. Maybe just a quick follow-up, Jack. You mentioned affordability results of the effort kind of being mixed and maybe some adjustments that you're making. Could you talk a bit more about that? Are those adjustments meaning intensifying pricing effort? Is it just sort of how you're spending the dollars?

Ed Kelly: Okay. Maybe just a quick follow-up, Jack. You mentioned affordability results of the effort kind of being mixed and maybe some adjustments that you're making. Could you talk a bit more about that? Are those adjustments meaning intensifying pricing effort? Is it just sort of how you're spending the dollars?

Speaker #3: Could you talk a bit more about that? And are those adjustments meaning intensifying pricing effort? Is it just sort of like how you're spending the dollars?

Speaker #4: And then on Cyclospora, it's really live right now. It's really been the last two weeks where we've seen a bit of impact on the business.

Speaker #5: We're being very focused on trying to look after our customers on those items that matter most. And the tests that we've done as we said have been mixed in different departments have done different items have performed differently.

Jack Sinclair: We're being very focused on trying to look after our customers on those items that matter most, and the tests that we've done, as we said, have been mixed, and different items have performed differently. The challenge for us is making sure that everything we're doing fits in within the model that we're working on. I'll maybe let Nick. Nick and his team have been doing a lot of work analyzing the specific detail of what we're investing in. I think we've got a pretty good handle on what it's going to cost and what we're going to do going forward.

Speaker #4: And so we're really just kind of deal with that real-time. I mean, first and foremost, food safety is our number one priority. The team really does a great job with that.

Speaker #4: They're watching all the news and the regulatory updates closely. And we haven't had any product recall impact in our stores to date. customers and how they shop.

Speaker #5: And the challenge for us is making sure that everything we're doing fits in within the model that we're working on. So I'll maybe let Nick.

Speaker #5: Nick and his team have been doing a lot of work analyzing the specific detail of what we're investing in. And I think we've got a pretty good handle on what it's going to cost and what we're going to do going forward.

Speaker #4: It's really isolated to lettuces, salads, and salad-related items where we're seeing a bit of an impact. So it's a shift from fresh to frozen.

Speaker #6: Yeah. Hey, Ed. Kind of three pillar approach to the affordability work. We outline the one that I think is showing the most growth and really happy with what the team's doing is in our assortment efforts.

Nick Konat: Yeah. Kind of three-pillar approach to the affordability work we outlined. The one that I think is showing the most growth and really happy with what the team's doing is in our assortment efforts. We see really strong momentum in our healthy meal solutions, and we're continuing to increase that offering with the health-driven, attribute-driven meals. We've talked about our new $29.99 family meals. We now have all of our fresh made salads in store under $9. That's been really strong for us. The second lever of that assortment's been in Sprouts brand with innovation in the healthy essentials. I'll give you a couple examples. We're launching seed oil-free frozen potatoes that are now a top seller in the category, and we're just about to launch a $4, actually, we did just launch a $4 fresh-baked organic sourdough bread.

Speaker #3: So we're watching the spray closely. And just to see what it's going to how the customer reaction to this is difficult to know exactly how this is going to play out, but we're focused on food safety.

Speaker #6: So we see really strong momentum in our healthy meal solutions and we're continuing to increase that offering with the health-driven attribute-driven meals. We've talked about our new 29.99 family meals.

Speaker #3: Okay. And it's maybe just a quick follow-up, Jack. You mentioned affordability results of the effort kind of being mixed and maybe some adjustments that you're making.

Speaker #3: Could you talk a bit more about that, and are those adjustments meaning intensifying pricing effort? Is it just sort of like how you're spending the dollars?

Speaker #6: We now have all of our fresh-made salads in store. Under $9. So that's been really strong for us. The second lever of that assortment has been in sprouts brand.

Speaker #6: With innovation in the healthy essentials. So I'll give you a couple of examples. We're launching seed oil-free frozen potatoes that are now top sellers in the category.

Speaker #4: We're being very focused

Speaker #5: on trying to look after our customers on those items that matter most. And the tests that we've done as we said have been mixed in different departments have done different items have performed differently.

Speaker #6: And we're just about to launch a $4 actually, we did just launch a $4 fresh-baked organic sourdough bread. So you see us investing in the areas where it's important for our customer and the assortment.

Speaker #5: And the challenge for us is making sure that everything we're doing fits in within the model that we're working on. So, I'll maybe let Nick.

Nick Konat: You see us investing in the areas that's important for our customer and the assortment. On the price and promotion piece, as Jack mentioned, it's been a little tougher to move the customer in this environment. We are seeing good basket and unit velocities from some of the price and promotion efforts we're doing. We're continuing to test and learn both how we price and also how we message. We're going to continue to be prudent about how we do that, as we learn how to move the customer. Then the third pillar of that work is on personal loyalty and our personalization efforts and the acceleration of the learnings we've had in H1 and Q3 to help continue to move our existing customer.

Speaker #5: Nick and his team have been doing a lot of work analyzing the specific detail of what we're investing in. I think we've got a pretty good handle on what it's going to cost and what we're going to do going forward.

Speaker #6: On the price and promotion piece, as Jack mentioned, it's been a little tougher to move. The customer in this environment, we are seeing good basket and unit velocities from some of the price and promotion efforts we're doing.

Speaker #6: Yeah. Hey, Ed. Kind of a three-pillar approach to the affordability work. We outlined the one that I think is showing the most growth, and I'm really happy with what the team's doing in our assortment efforts.

Speaker #6: But we're continuing to test and learn both how we price and also how we message. And we're going to continue to be prudent about how we do that.

Speaker #6: As we learn how to move the customer. And then the third pillar of that work is on personal loyalty and our personalization efforts. And the acceleration of the learnings we've had in the first half of the year in the third quarter to help continue to move our existing customer.

Speaker #6: So, we see really strong momentum in our healthy meal solutions, and we're continuing to increase that offering with health-driven, attribute-driven meals. We've talked about our new $29.99 family meals.

Speaker #6: We now have all of our fresh-made salads in store, under $9. So that's been really strong for us. The second lever of that assortment has been in Sprouts brand.

Speaker #3: Great. Thanks, guys.

Edward Kelly: Great. Thanks, guys.

Ed Kelly: Great. Thanks, guys.

Speaker #5: Thanks. Thanks, Ed.

Jack Sinclair: Thanks.

Curtis Valentine: Thanks, Ed.

Speaker #2: Our next question comes from the line of Leah Jordan with Goldman Sachs. Your line is open.

Operator: Our next question comes from the line of Leah Jordan with Goldman Sachs. Your line is open.

Speaker #6: With innovation in the healthy essentials, I'll give you a couple of examples. We're launching seed oil-free frozen potatoes that are now top sellers in the category.

Speaker #7: Good afternoon. Thank you for taking my question. I just wanted to follow up on Ed's first question around the comp. So in the prepared remarks, you talked about July improved in line with your expectation, but you still narrowed the comp guidance for the year.

Leah Jordan: Good afternoon. Thank you for taking my question. I just wanted to follow up on Ed's first question around the comp. In the prepared remarks, you talked about July improved in line with your expectation, but you still narrowed the comp guidance for the year. I'm just trying to get a sense of what's making you maybe less optimistic in terms of getting to that top end now. Is it really around the macro increasing competition, or is it simply just, hey, we've had a softer start to July and maybe some of this is tied to the lettuce concern that you talked about? Any color there, and then just ultimately maybe frame your confidence on getting back onto algo by the Q4. Thank you.

Speaker #7: So I'm just trying to get a sense of what's making you maybe less optimistic in terms of getting to that top end now. Is it really around the macro, increasing competition, or is it simply just, hey, we've had a softer start to July and maybe some of this is tied to the lettuce concern that you talked about?

Speaker #6: On the price and promotion piece, as Jack mentioned, it's been a little tougher to move the customer in this environment. We are seeing good basket and unit velocities from some of the price and promotion efforts we're doing.

Speaker #6: But we're continuing to test and learn both how we price and also how we message. And we're going to continue to be prudent about how we do that.

Speaker #7: Any color there? And then just ultimately, maybe frame your confidence on getting back onto algo by the fourth quarter. Thank you.

Speaker #3: Yeah. I think the questions are with regard to getting back to what we're feeling pretty confident about that going forward in terms of forward what we're projecting.

Jack Sinclair: Yeah, I think the questions with regarding getting back to algo, we're feeling pretty confident about that going forward in terms of what we're projecting. In terms of the specifics, there's a macro environment that's kind of difficult to really put your handle on. Clearly, grocery pricings are going up, gas prices have gone up and down, and they're clearly putting pressure on. We can see it in the units, and across grocery, units are not as strong as they were because of the inflation. We're trying to second-guess exactly where this is going to play out. Our guidance is something that we feel pretty confident about. Certainly, if the comparisons that we've got going forward play out the way we expect them to do, we should be back on our algorithm in due course.

Speaker #3: In terms of the specifics, there's a macro environment that's kind of difficult to really put your handle on. Clearly, grocery pricings are going up.

Speaker #3: Great. Thanks, guys.

Speaker #5: Thanks. Thanks, Ed.

Speaker #2: Our next question comes from the line of Leah Jordan with Goldman Sachs. Your line is open.

Speaker #3: Gas prices have gone up and down. And they're clearly putting pressure on. We can see it in the units. And it's not across grocery units are not as strong as they were.

Speaker #3: Because of the inflation. So we're trying to second-guess exactly where this is going to play out. But our guidance is something that we feel pretty confident about.

Speaker #3: And certainly, if the comparisons that we've got going forward play out the way we expect them to do, we should be back on our algorithm in due course.

Speaker #7: So I'm just trying to get a sense of what's making you maybe less optimistic in terms of getting to that top end now. Is it really around the macro increasing competition, or is it simply just, hey, we've had a softer start to July and maybe some of this is tied to the lettuce concern that you talked about?

Speaker #2: Okay. That's helpful.

Leah Jordan: Okay, that's helpful. Maybe just a quick follow-up on that. We'll stick with the comp here. Just maybe more color on the drivers, how you're thinking about traffic versus units, versus AUR kind of as we move through H2. It sounded like traffic and units were getting better in July. Just trying to think about the underlying drivers for your comp outlook as we go through Q4.

Speaker #7: Maybe just a quick follow-up on that. We'll stick with the comp here. I mean, just maybe more color on the drivers, how you're thinking about traffic versus units, versus AUR kind of as we move through the back half.

Speaker #7: Any color there? And then just ultimately, maybe frame your confidence on getting back onto algo by the fourth quarter. Thank you.

Speaker #5: Yeah. I think the questions are with regard to getting back to what we're feeling pretty confident about going forward in terms of what we're projecting.

Speaker #7: It sounded like traffic and units were getting better in July. Just trying to think about the underlying drivers for your comp outlook as we go through the fourth quarter.

Speaker #5: In terms of the specifics, there's a macro environment that's kind of difficult to really put your handle on. Clearly, grocery pricings are going up.

Speaker #4: Yeah. I think we expect. Sequential improvement in traffic for sure. Yeah. Units and traffic should get better. It's not going to come from AUR.

Curtis Valentine: Yeah, I think we expect sequential improvement in traffic for sure. Yeah, units and traffic should get better. Not going to come from AUR. Traffic was the thing that went up really well when we were doing well and has been moderated and been the driver as we've softened here. I think we'd expect that to continue to get better as the compares get easier. Then units should get a little bit better as we continue to work on the affordability piece.

Speaker #5: Gas prices have gone up and down. And they're clearly putting pressure on. We can see it in the units. And it's not across grocery units are not as strong as they were.

Speaker #4: Traffic was the thing that went up really well when we were doing well. And has been moderated and been the driver as we've softened here.

Speaker #4: So I think we'd expect that to continue to get better as the compares get easier. And then units should get a little bit better as we continue to work on the affordability piece.

Speaker #5: Because of the inflation. So we're trying to second-guess exactly where this is going to play out, but our guidance is something that we feel pretty confident about.

Speaker #5: And certainly, if the comparisons that we've got going forward play out the way we expect them to do, we should be back on our algorithm in due course.

Speaker #7: Okay. Thank you.

Leah Jordan: Okay, thank you.

Speaker #4: Thanks, Leah.

Nick Konat: Thanks, Leah.

Curtis Valentine: Thanks, Leah.

Speaker #2: Please stand by for our next question. Our next question comes from the line of Tom Palmer with JP Morgan. Your line is open.

Operator: Please stand by for our next question. Our next question comes from the line of Thomas Palmer with JP Morgan. Your line is open.

Speaker #2: Thank you.

Speaker #7: Okay. That's helpful. Maybe just a quick follow-up on that. We'll stick with the comp here. I mean, just maybe more color on the drivers, how you're thinking about traffic versus units versus AUR kind of as we move through the back half.

Speaker #8: Hey. Good afternoon. And thanks for the question. Maybe I could just first clarify on the guidance revision. So comps were narrowed around the midpoint.

Thomas Palmer: Hey, good afternoon, thanks for the question. Maybe I could just first clarify on the guidance revision. Comps were narrowed around the midpoint. The Q2 earnings came in a little bit ahead of, I think, what you'd guided for. I just wanted to understand maybe some of the narrowing to kind of the bottom half when we look at that EBIT outlook, if there are maybe incremental investments that are contemplated. I know there was the reference to some deleverage maybe the extra couple stores is the difference, but anything else on top of that? Thanks.

Tom Palmer: Hey, good afternoon, thanks for the question. Maybe I could just first clarify on the guidance revision. Comps were narrowed around the midpoint. The Q2 earnings came in a little bit ahead of, I think, what you'd guided for. I just wanted to understand maybe some of the narrowing to kind of the bottom half when we look at that EBIT outlook, if there are maybe incremental investments that are contemplated. I know there was the reference to some deleverage maybe the extra couple stores is the difference, but anything else on top of that? Thanks.

Speaker #8: The second quarter earnings came in a little bit ahead of, I think, what you'd guided for. So I just wanted to understand maybe some of the narrowing to kind of the bottom half when we look at that EBIT outlook.

Speaker #7: It sounded like traffic and units were getting better in July. I'm just trying to think about the underlying drivers for your comp outlook as we go through the fourth quarter.

Speaker #4: Yeah, I think we expect sequential improvement in traffic for sure. Yeah, units and traffic should get better. It's not going to come from AUR.

Speaker #8: If there are maybe incremental investments that are contemplated. I know there was the reference to some deleverage. And so maybe the extra couple of stores is the difference.

Speaker #4: Traffic was the thing that went up really well when we were doing well, and has moderated and been the driver as we've softened here.

Speaker #8: But anything else on top of that? Thanks.

Speaker #4: So I think we'd expect that to continue to get better as the compares get easier. And then units should get a little bit better as we continue to work on the affordability piece.

Speaker #4: Hey, Tom. It's Curtis. Yeah. I mean, really, the EBIT midpoint to midpoint, $5 million change is really fuel. We're just looking as we spoke about last time.

Curtis Valentine: Hey, Tom, it's Curtis. Yeah, really, the EBIT midpoint to midpoint $5 million change is really fuel. We're just looking, as we spoke about last time, we covered it off in Q2, but we said we didn't have it covered in the H2, we're going to wait and see how that played out. Obviously, it remains elevated and has been pretty volatile. We're embedding two and a half million a quarter in the H2 for fuel.

Speaker #4: We covered it off in Q2. But we said we didn't have it covered in the second half. And we weren't we're going to wait and see how that played out.

Speaker #7: Okay. Thank you.

Speaker #4: Thanks, Lia.

Speaker #2: Please stand by for our next question. Our next question comes from the line of Tom Palmer with JP Morgan. Your line is open.

Speaker #4: Obviously, it remains elevated. And it's been pretty volatile. So we're embedding two and a half million a quarter in the second half for fuel.

Speaker #8: Hey, good afternoon, and thanks for the question. Maybe I could just first clarify on the guidance revision. So, comps were narrowed around the midpoint.

Speaker #8: Oh, great. Thanks for that. And I also wanted to ask on some of the, I guess, vendor participation that was noted and then one of the earlier answers you noted focus on accelerating personalization.

Thomas Palmer: Great. Thanks for that. I also wanted to ask on some of the, I guess, vendor participation that was noted. In one of the earlier answers, you noted focus on accelerating personalization. With the loyalty rollout, are you starting to drive increased support? I think that's one of the goals, and the belief was it might take a little bit of time working with vendors. I am curious if we're hitting a point where that's becoming more of a factor, just given the call-outs earlier.

Tom Palmer: Great. Thanks for that. I also wanted to ask on some of the, I guess, vendor participation that was noted. In one of the earlier answers, you noted focus on accelerating personalization. With the loyalty rollout, are you starting to drive increased support? I think that's one of the goals, and the belief was it might take a little bit of time working with vendors. I am curious if we're hitting a point where that's becoming more of a factor, just given the call-outs earlier.

Speaker #8: With loyalty rollout, are you starting to drive increased support? I think that's one of the goals. And the belief was it might take a little bit of time, working with vendors.

Speaker #8: If there are maybe incremental investments that are contemplated. I know there was the reference to some deleverage. And so maybe the extra couple of stores is the difference.

Speaker #8: But I am curious if we're hitting a point where that's becoming more of a factor just given the callouts earlier.

Speaker #8: But anything else on top of that? Thanks.

Speaker #6: Hey, Tom. It's Nick. I would say we're still early stages in that. I mean, we just started opening it up. Vendor participation, the program at the beginning of this year.

Nick Konat: Hey, Tom, it's Nick. I would say we're still early stages in that. We just started opening it up, vendor participation in the program at the beginning of this year, and so we're nascent in that. The idea is always, hey, you have these really unique vendors with unique customers with unique needs, and how do you tie them all together to help them find their audience and their market? Because we have the health enthusiast that a lot of these new brands want. I feel really good about that strategy, and we're starting to see more and more vendors participate and see benefit from participating in the program. We're certainly ramping, but it's early stages.

Speaker #4: Hey, Tom. It's Curtis. Yeah. I mean, really, the EBIT midpoint to midpoint, $5 million change is really fuel. We're just looking as we spoke about last time.

Speaker #6: And so we're nascent in that. And the idea is always, hey, you have these really unique vendors with unique customers, with unique needs. And how do you tie them all together to help them find their audience and their market?

Speaker #4: We covered it off in Q2. But we said we didn't have it covered in the second half. And we weren't we're going to wait and see how that played out.

Speaker #4: Obviously, it remains elevated, and it's been pretty volatile. So we're embedding $2.5 million a quarter in the second half for fuel.

Speaker #6: Because we have the health enthusiasts that a lot of these new brands want. And so I think they're really good about that strategy. We're starting to see more and more vendors participate and see benefit from participating in the program.

Speaker #8: Oh, great. Thanks for that. And I also wanted to ask about some of the, I guess, vendor participation that was noted. And then, in one of the earlier answers, you noted a focus on accelerating personalization.

Speaker #6: So we're certainly ramping. But it's early stages. And I think we've got certainly as we build out the capability, as we continue to invest in technology, that'll be something we continue to push over the next number of years.

Nick Konat: I think we've got certainly, as we build out the capability, as we continue to invest in technology, that'll be something we continue to push over the next number of years.

Speaker #8: With the loyalty rollout, are you starting to drive increased support? I think that's one of the goals, and the belief was it might take a little bit of time, working with vendors.

Speaker #8: Got it. Thank you.

Thomas Palmer: Got it. Thank you.

Tom Palmer: Got it. Thank you.

Speaker #2: Thank you. Our next question comes from the line of Kelly Bania with BMO Capital Markets. Your line is open.

Operator: Thank you. Our next question comes from the line of Kelly Bania with BMO Capital Markets. Your line is open.

Speaker #8: But I am curious if we're hitting a point where that's becoming more of a factor just given the callouts earlier.

Speaker #7: Hi. Thanks for taking our question. I wanted to just double-click on the comment about kind of all customers are managing units per basket. As we look at your sales across the two categories, between perishables and non-perishables, it looks relatively stable.

Kelly Bania: Hi. Thanks for taking our question. Wanted to just double-click on the comment about all customers are managing units per basket. As we look at your sales across the two categories between perishables and non-perishables, it looks relatively stable. Just wondering, what is really happening underneath the hood there with units per basket? I thought that was a little bit more isolated to produce, but maybe you can just help us understand if anything has changed on a units per basket and what the plan is there to address that. It sounded like the focus is on traffic for now, but just as you look out further on the units per basket, what is the remedy for that?

Speaker #6: Hey Tom, it's Nick. I would say we're still in the early stages of that. I mean, we just started opening it up to vendor participation, the program, at the beginning of this year.

Speaker #7: So just wondering, what is really happening underneath the hood there with units per basket? I thought that was a little bit more isolated to produce.

Speaker #6: Because we have the health enthusiasts that a lot of these new brands want, I think they're really good about that strategy. We're starting to see more and more vendors participate and see benefit from participating in the program.

Speaker #7: But maybe you can just help us understand if anything has changed on a units per basket and what the plan is there to address that.

Speaker #6: So, we're certainly ramping, but it's early stages. I think as we build out the capability, and as we continue to invest in technology, that'll be something we continue to push over the next number of years.

Speaker #7: It sounded like the focus is on traffic for now, but just as you look out further on the units per basket, what is the remedy for that?

Speaker #4: Hey, Kelly. It's Curtis. Yeah. I think units in the basket, produce is always a lead because it's one of the larger it's the largest unit count in our average basket.

Curtis Valentine: Hey, Kelly, it's Curtis. Yeah, I think units in the basket, produce is always a lead because it's the largest unit count in our average basket. In these times, we saw it back in 2022 and 2023, and again here, when the prices are up or there's an inflationary environment or the customer's under pressure, for us, they tend to manage that last item in the basket. It's a little bit of an impact across the entire business. Produce usually has a little bit larger impact, just simply because there's more produce units in our basket, say, than the average conventional. As far as what we're doing, I think the things that we are doing from a loyalty and personalization perspective, certainly that should help on the unit front. From an affordability perspective, that'll help on the unit front.

Speaker #8: Got it. Thank you.

Speaker #2: Thank you. Our next question comes from the line of Kelly Banier with BMO Capital Markets. Your line is open.

Speaker #4: But in these times, we saw it back in '22 and '23. And again, here, when the prices are up or there's an inflationary environment or the customers under pressure, for us, they tend to manage that last item in the basket.

Speaker #4: And so it's a little bit of an impact across the entire business. And then produce usually has a little bit larger impact just simply because there's more produce units in our basket.

Speaker #4: Say than the average mean, I think the things that we are doing from a loyalty and personalization perspective, certainly that should help. On the unit front and from an affordability perspective, that'll help on the unit front.

Speaker #7: So just wondering, what is really happening underneath the hood there with units per basket? I thought that was a little bit more isolated to produce.

Speaker #7: But maybe you can just help us understand if anything has changed on a units-per-basket basis, and what the plan is there to address that.

Speaker #4: And we're seeing some good progress on units in the tests that we're doing as we alluded to earlier. We'd like to see a little bit of a broader impact from a traffic perspective, but the unit piece has been positive so far.

Curtis Valentine: We're seeing some good progress on units in the tests that we're doing, as we alluded to earlier. We'd like to see a little bit of a broader impact from a traffic perspective, the unit piece has been positive so far.

Speaker #7: It sounded like the focus is on traffic for now, but just as you look out further on the units per basket, what is the remedy for that?

Speaker #2: Okay. And Curtis, when you talk about kind of thinking about the items, that matter most to your customers, some of the examples I think sounded like they were in fresh.

Kelly Bania: Okay. Curtis, when you talk about thinking about the items that matter most to your customers, some of the examples, I think, sounded like they were in fresh. Maybe correct me if I'm wrong, but how do you think about balancing the fresh price investments or affordability versus the new innovation and the new items, which seems so critical to the Sprouts merchandising strategy? How do you balance that, or are you trying to figure out where to put more or less investment between those categories?

Speaker #4: Hey, Kelly. It's Curtis. Yeah. I think units in the basket, produce is always a lead because it's one of the larger it's the largest unit count in our average basket.

Speaker #2: Maybe correct me if I'm wrong, but are you how do you think about kind of balancing the fresh kind of price investments or affordability versus kind of the new innovation and the new items, which seems so critical to the Sprouts merchandising strategy?

Speaker #4: And so it's a little bit of an impact across the entire business. And then produce usually has a little bit larger impact just simply because there's more produce units in our basket.

Speaker #2: How do you balance that, or are you trying to figure out where to put more or less investment between those categories?

Speaker #4: Say than the average conventional. And so as far as what we're doing, I mean, I think the things that we are doing from a loyalty and personalization perspective, certainly that should help.

Speaker #6: Hey, Kelly. I'll take that. It's Nick. We start with our customer and less think about it less around fresh and non-perishables and more around what's in the customer's basket and what's most important for them.

Nick Konat: Hey, Kelly. I'll take that. It's Nick. We start with our customer, think about it less around fresh and non-perishables and more around what's in the customer's basket and what's most important for them. For us, I think you've heard me talk about the healthy essentials. It's organic cheese, it's organic bread, it's organic meat, and it's obviously organic produce. It's across the board on that. I think it's non-perishable and perishable that we're focused on, then looking at what's most important to them and where can we help make some of these things more accessible to them. That's where you see us both innovating with assortment, especially in Sprouts brand, then making the selective investments to ensure that they're more accessible.

Speaker #4: On the unit front and from an affordability perspective, that'll help on the unit front. And we're seeing some good progress on units in the tests that we're doing as we alluded to earlier.

Speaker #6: And for us, I think you've heard me talk about the healthy essentials. It's organic cheese. It's organic bread. It's organic meat and it's obviously organic produce.

Speaker #4: We'd like to see a little bit of a broader impact from a traffic perspective, but the unit piece has been positive so far.

Speaker #2: Okay. And Curtis, when you talk about kind of thinking about the items, that matter most to your customers, some of the examples I think sounded like they were in fresh, maybe correct me if I'm wrong, but are you how do you think about kind of balancing the fresh kind of price investments or affordability versus kind of the new innovation and the new items, which seems so critical to the Sprouts merchandising strategy?

Speaker #6: So it's across the board. It's non-perishable and perishable. We're focused on. And then looking at what's most important to them and where can we help make some of these things more accessible to them, that's where you see us both innovating with assortment and especially in Sprouts brand.

Speaker #6: And then making this selective investments to ensure that they're more accessible. So we look at it from a total customer standpoint. And we've seen good success in fresh right now because I think that's a good driver for the customer around meals and meal solutions.

Nick Konat: We look at it from a total customer standpoint, we've seen good success in fresh right now because I think that's a good driver for the customer on meals and meal solutions. Look at it holistically across the store.

Speaker #6: But look at it holistically across the store.

Speaker #2: How do you balance that, or are you trying to figure out where to put more or less investment between those categories?

Speaker #2: Thank you.

Kelly Bania: Thank you.

Speaker #7: Live for our next question. Our next question comes from a line of John Heinbockel with Guggenheim. Your line is open.

Operator: All right, for our next question. Our next question comes from the line of John Heinbockel with Guggenheim. Your line is open.

Speaker #4: Hey, can you guys address cohort performance demographically, right? And I'm thinking you've talked in the past about the emerging health enthusiast, right? Perhaps having more affordability issues.

John Heinbockel: Hey, can you guys address cohort performance demographically, right? I'm thinking you've talked in the past about the emerging health enthusiast

Speaker #6: And for us, I think you've heard me talk about the healthy essentials. It's organic cheese. It's organic bread. It's organic meat and it's obviously organic produce.

John Heinbockel: Right. Perhaps having more affordability issues. How is that group performing? When you distinguish between, right, you had some waves of shelf price reductions, you've also done some stuff with the loyalty program and 3x, 5x points. When you think about what's working, what's not working from a pricing standpoint, how would you assess that?

Speaker #4: How is that group performing? And then when you distinguish between right, so you had some waves of shelf price reductions and then you've also done some stuff with the loyalty program in 3X, 5X points.

Speaker #6: So it's across the board—non-perishable and perishable, we're focused on. And then looking at what's most important to them and where can we help make some of these things more accessible to them, that's where you see us both innovating with assortment, and especially in Sprouts brand.

Speaker #4: When you think about what's working, what's not working, from a pricing standpoint, how would you assess that?

Speaker #6: Hey, John. It's Nick. I think the broader headline the two headlines for me on the question of working, not I think one is the macro is tough and it's tough.

Nick Konat: Hey, John, it's Nick. I think the two headlines for me on the question of working, not. I think one is the macro's tough, and it's tough. The customer is proving tougher to move overall. Efforts are not quite the same as they may have been in a more stable market. We don't have the level of inflation that we're seeing in the market. That has an impact overall. I think the second thing is we're seeing, as we mentioned before, our less engaged, lower income customer is the one that's been harder for us to move. Some of that's a lapping story, John. We're obviously still lapping some of that. If you look at our cohorts and our loyalty customers, it's those that are a little less engaged, lower income, where it's been tougher to drive that trip and that extra item in the basket.

Speaker #6: The customer is proving tougher to move overall. So efforts are not quite the same as they may have been in a more stable market.

Speaker #6: But look at it holistically across the store.

Speaker #2: Thank you.

Speaker #7: Moving on to our next question. Our next question comes from John Heimbachel with Guggenheim. Your line is open.

Speaker #6: We don't have the level of inflation that we're seeing in the market. So that has an impact overall. And I think the second thing is we're seeing as we mentioned before, our less engaged lower-income customer is the one that's been harder for us to move.

Speaker #4: Hey, can you guys address cohort performance demographically, right? And I'm thinking—you've talked in the past about the emerging health enthusiast, right? Perhaps having more affordability issues.

Speaker #6: Some of that's a laughing story, John. We're obviously still laughing some of that. But if you look at our cohorts and our loyalty customers, it's those that are a little less engaged lower-income where it's been tougher to drive basket.

Speaker #4: Maybe as a follow-up to that, I know the other opportunity, right, because of the sheer amount of product introductions, is to reach out to folks, right, that are attribute-oriented.

Curtis Valentine: Maybe as a follow-up to that, I know the other opportunity, because of the sheer amount of product introductions, is to reach out to folks that are attribute-oriented to let them know the 1,300 items came in, and maybe the opportunity is bigger with higher income customers. To what degree are you doing that now, or is that still to come, where there are these prompts, calls to action about these items?

John Heinbockel: Maybe as a follow-up to that, I know the other opportunity, because of the sheer amount of product introductions, is to reach out to folks that are attribute-oriented to let them know the 1,300 items came in, and maybe the opportunity is bigger with higher income customers. To what degree are you doing that now, or is that still to come, where there are these prompts, calls to action about these items?

Speaker #4: When you think about what's working, what's not working, from a pricing standpoint, how would you assess that?

Speaker #4: To let them know the 1,300 items came in and maybe that's the opportunity is bigger with higher-income customers. But to what degree are you doing that?

Speaker #6: Hey, John. It's Nick. I think the broader headline the two headlines for me on the question of working not, I think one is the macro is tough and it's tough.

Speaker #4: Now, or is that still to come? Right, where there's these prompts, calls to action about these items.

Speaker #6: The customer is proving tougher to move overall, so efforts are not quite the same as they may have been in a more stable market.

Speaker #6: Yeah. We're definitely doing that. We're seeing it in the numbers. Our innovation, the products that we are the new products we've launched in the last year are significantly outperforming the overall box.

Nick Konat: Yeah, we are definitely doing that. We are seeing it in the numbers. Our innovation, the new products we have launched in the last year are significantly outperforming the overall box. We are seeing the innovation continue to be strong and the customer continue to be willing to buy the new items, the unique items they see with us. I think that is a combination of the foraging work that we continue to do, the strong pipeline innovation that our merchants and foraging team has built, and then we are continuing to introduce it to our customers, not just through loyalty, which has been personalization, but also through social media and our marketing. I am actually very happy with how our newness continues to perform. We certainly have aspirations to continue to drive it even further, but that has been good for us.

Speaker #6: We don't have the level of inflation that we're seeing in the market, so that has an impact overall. And I think the second thing is we're seeing, as we mentioned before, our less engaged, lower-income customer is the one that's been harder for us to move.

Speaker #6: We're seeing the innovation continue to be strong and the customer continue to be willing to buy the new items, the unique items they see with us.

Speaker #6: So I think that's a combination of the foraging work that we continue to do, the strong pipeline innovation that our merchants and foraging team has built, and then we are continuing to introduce it to our customers, not just through loyalty, which has been personalization, but also through social media and our marketing.

Speaker #4: Maybe as a follow-up to that— I know the other opportunity, right, because of the sheer amount of product introductions— is to reach out to folks, right, that are attribute-oriented.

Speaker #6: And so I'm actually very happy with how our newness continues to perform. We certainly have aspiration to continue to drive it even further, but that's been good for us.

Speaker #4: Thank you.

John Heinbockel: Thank you.

Speaker #4: To let them know the 1,300 items came in, and maybe that's— the opportunity is bigger with higher-income customers. But to what degree are you doing that now, or is that still to come, where there's these prompts, calls to action about these items?

Speaker #2: Live for our next question. Our next question comes from a line of Christina Katai with Deutsche Bank. Your line is open.

Operator: Back for our next question. Our next question comes from the line of Krisztina Katai with Deutsche Bank. Your line is open.

Speaker #7: Hi. Good afternoon. And thanks for taking the question. So I wanted to follow up on the affordability test. You've noted that you're seeing improving unit movement, but it's generating this lower-than-expected traffic response.

Krisztina Katai: Hi, good afternoon, and thanks for taking the question. I wanted to follow up on the affordability test. You've noted that you're seeing improving unit movement, but it's generating a slower than expected traffic response. Can you help us quantify the gap there? You call these tests having mixed results. What have you learned about elasticity and just overall customer response that is shaping your second half investments?

Speaker #6: Yeah, we're definitely doing that. We're seeing it in the numbers. Our innovation, the products that are—the new products we've launched in the last year are significantly outperforming the overall box.

Speaker #7: So can you help us quantify the gap there? And you call these tests having mixed results. What have you learned about elasticity and just overall customer response that is shaping your second-half investments?

Speaker #6: We're seeing the innovation continue to be strong and the customer continue to be willing to buy the new items, the unique items they see with us.

Speaker #6: So I think that's a combination of the foraging work that we continue to do, the strong pipeline of innovation that our merchants and foraging team have built, and then we are continuing to introduce it to our customers, not just through loyalty, which has been personalization, but also through social media and our marketing.

Speaker #4: Hey, Christina. It's Curtis. I won't and Nick or Jack may jump in as well, but I don't think I'll get too specific on quantifying the exact expectations there or what's where we've been.

Curtis Valentine: Hey, Krisztina, it's Curtis. Nick or Jack may jump in as well, but I don't think I'll get too specific on quantifying the exact expectations there or where we've been. I'll just say, I think the one thing, again, it's challenging to move the customer in this environment. The longer we've gone with the elevated fuel and the challenging macro, it's just a little bit harder. Things that worked last year aren't working as well this year. Things that we think should work, that we try, don't work quite as well. There's been a lot of learning and kind of readjusting to the current environment for how we go to market, and that's really kind of how it's playing out as we think about the tests, whether it's in personalization or whether it's in price and promotion.

Speaker #4: I'll just say I think the one thing again, it's going to go back to it's challenging to move the customer in this environment. And the longer we've gone with the elevated fuel and the challenging macro, it's just a little bit harder.

Speaker #6: And so I'm actually very happy with how our newness continues to perform. We certainly have aspirations to continue to drive it even further, but that's been good for us.

Speaker #4: Things that work last year aren't working as well this year. Things that we think should work that we try don't work quite as well.

Speaker #4: Thank you.

Speaker #2: Live for our next question.

Speaker #4: And so it's been a lot of learning and kind of readjusting to the current environment for how we go to market. And that's really kind of how it's playing out as we think about the tests.

Speaker #7: Our next question comes from the line of Christina Katai with Deutsche Bank. Your line is open.

Speaker #8: Hi. Good afternoon. And thanks for taking the question. So I wanted to follow up on the affordability test. You've noted that you're seeing improving unit movement, but it's generating this lower-than-expected traffic response.

Speaker #4: Whether it's in personalization or whether it's in price and promotion.

Speaker #3: Yeah. And I think one of the the micro challenges, one of the biggest things that I think is affecting the chat their ability for us to move traffic and the comparison to last year is pretty significant on some of the things that happened last year.

Jack Sinclair: I think the macro challenge is one of the biggest things that I think is affecting the ability for us to move traffic. The comparison to last year is pretty significant on some of the things that happened last year. Those lower engaged customers that came to us last year in some unique circumstances, that's the group that we're seeing the biggest challenge on growing the traffic. When that lapping grows out, we're feeling pretty confident about that, linking to all the work the next team are doing in terms of how do you give value to the customer and how do you give value on those items that matter most to the customer. We're seeing some progress on that. I think the traffic will take a little bit longer.

Speaker #8: So can you help us quantify the gap there? And you call these tests having mixed results. What have you learned about elasticity and just overall customer response that is shaping your second-half investments?

Speaker #3: And those lower-engaged customers that came to us last year, in some unique circumstances, that's the group that we're seeing the biggest challenge on growing the traffic.

Speaker #4: Hey Christina, it's Curtis. I won't — and Nick or Jack may jump in as well — but I don't think I'll get too specific on quantifying the exact expectations there or where we've been.

Speaker #3: But when that lapping grows out, we're feeling pretty confident about that. Linking to all the work that Nick's team are doing in terms of how do you give value to the customer, and how do you give value on those items that matter most to the customer.

Speaker #4: I'll just say I think the one thing, again, it's going to go back to—it's challenging to move the customer in this environment. And the longer we've gone with the elevated fuel and the challenging macro, it's just a little bit harder.

Speaker #3: We're seeing some progress on that. I think the traffic will take a little bit longer.

Speaker #7: That's helpful. And if I could just follow up on that, obviously, you called that the lower-engaged customer remains the largest opportunity. So if you could just sort of give us any framework around how to think about that, just how much of the comp pressure today is coming from these shoppers?

Krisztina Katai: That's helpful. If I could just follow up on that. Obviously, you called that the lower engaged customer remains the largest opportunity. If you could just sort of give us any framework around how to think about that, just how much of the comp pressure today is coming from these shoppers? What percentage of your customer base would you characterize as lower engaged today? If you could just maybe tie that in terms of what behavioral changes are you seeing as the loyalty and personalization efforts gain traction. Thank you.

Speaker #4: Things that work last year aren't working as well this year. Things that we think should work that we try don't work quite as well.

Speaker #7: What percentage of your customer base would you characterize as lower-engaged today? And if you could just maybe tie that in terms of what behavioral changes are you seeing as the loyalty and personalization efforts gain traction.

Speaker #4: Whether it's in personalization, or whether it's in price and promotion.

Speaker #3: Yeah. And I think one of the micro challenges, one of the biggest things that I think is affecting the chat — their ability for us to move traffic — and the comparison to last year is pretty significant on some of the things that happened last year.

Speaker #7: Thank you.

Nick Konat: Hey, Krisztina, it's Nick. I probably won't quantify it. I would tell you that where we're seeing the biggest challenges, I mentioned in John's question, was with the lower engaged customer. It's certainly a smaller portion of our spend and a smaller portion of our customer base. It's not our core customer. We certainly see that. The behavior your question was about is we're just seeing them spread the trips out a bit more. We're not seeing them take the same level of frequency maybe as they have in the past. I think that's what's driven by in the macro, right? That people are managing their wallet right now, what they can spend. That's kind of what we're seeing from the less engaged cohort. The good news is our core customer has remained pretty resilient.

Speaker #6: Hey, Christina. It's Nick. I probably won't quantify, but I would tell you that where we're seeing the biggest challenges, as I mentioned in John's question, was with the lower-engaged customer.

Speaker #3: And those lower-engaged customers that came to us last year in some unique circumstances, that's the group where we're seeing the biggest challenge in growing the traffic.

Speaker #6: It's certainly a smaller portion of our spend and a smaller portion of our customer base. So it's not our core customer, but we're certainly see that.

Speaker #3: But when that lapping grows out, we're feeling pretty confident about that—linking to all the work that Nick's team is doing in terms of how do you give value to the customer, and how do you give value on those items that matter most to the customer.

Speaker #6: And the behavior, your question was about is we're just seeing them spread the trips out a bit more. We're not seeing them take the same low-frequency maybe that they have in the past.

Speaker #6: I think that's what's driven by in the macro, right, and that people manage their are managing their wallet right now, what they can spend.

Speaker #3: We're seeing some progress on that. I think the traffic will take a little bit longer.

Speaker #6: So that's kind of what we're seeing from a less engaged cohort. And the good news is our core customer has remained pretty resilient. I think part of what we're seeing and some of the price activity, it's been good for units in the basket, a little bit tougher on traffic, but we're seeing the customer respond to as great assortment that's had a great value.

Speaker #8: That's helpful. And if I could just follow up on that, obviously, you called that the lower-engaged customer remains the largest opportunity. So if you could just sort of give us any framework around how to think about that, just how much of the pressure today is coming from these shoppers?

Nick Konat: I think part of what we're seeing in some of the price activity, it's been good for units in the basket, a little bit tougher on traffic. We're seeing the customer respond to is great assortment that's at a great value and some of the newness and things that we've launched. I think that kind of highlights the type of customer we have and who we really stay focused on as we continue the work in H2. Okay. That's a great color. Thanks. Best of luck.

Speaker #8: What percentage of your customer base would you characterize as lower-engaged today? And if you could just maybe tie that in terms of what behavioral changes are you seeing as the loyalty and personalization efforts gain traction?

Speaker #6: And some of the newness and things that we've launched, I think that kind of highlights the type of customer we have, and who we really stay focused on as we continue to work in the second half.

Speaker #8: Thank you.

Speaker #7: Okay. That's great color. Thanks. Best of luck.

Krisztina Katai: Okay. That's a great color. Thanks. Best of luck.

Speaker #2: Thank you.

Operator: Thank you.

Speaker #1: All right. Thanks, Christina.

Jack Sinclair: Thanks, Krisztina.

Speaker #2: Our next question comes from a line of Rupesh Parikh with Oppenheimer and Company. Your line is open.

Operator: Our next question comes from the line of Rupesh Parikh with Oppenheimer & Company. Your line is open.

Speaker #5: Good afternoon. Thanks for taking my questions. Just given a number of players, highlighting price investments out there, just curious, how you guys feel about your price caps and just overall what you're seeing on the competitor promotional front.

Rupesh Parikh: Good afternoon. Thanks for taking my questions. Just given a number of players highlighting price investments out there, just curious, how you guys feel about your price caps and just overall, what you're seeing on the competitive promotional front. Thank you.

Speaker #6: So it's not our core customer, but we're certainly see that. And the behavior, your question was about is we're just seeing them spread the trips out a bit more.

Speaker #5: Thank you.

Speaker #6: We're not seeing them take the same low-frequency, maybe, that they have in the past. I think that's what's driven by, in the macro, right, and that people are managing their wallet right now—what they can spend.

Jack Sinclair: Specifics in terms of price cap, we talk fairly consistently, Rupesh, about that in terms of the important pricing and the way we've got direct comparisons with other guys is in our produce. We continue to pay a lot of attention on our produce. We're very pleased with where we are on our organic produce, it's a fairly volatile market as we alluded to earlier. Produce pricing, we feel we're in a pretty good place in terms of relative to the competition in that space. With regard to other activities that's gone in the marketplace, clearly a lot of people are talking about things that are going on in the marketplace.

Speaker #3: Specifics in terms of price cap, we talked fairly consistently, Rupesh, about that in terms of the important pricing and the way we've got direct comparisons with the other guys in our produce.

Speaker #6: So that's kind of what we're seeing from a less engaged cohort. And the good news is, our core customer has remained pretty resilient. I think part of what we're seeing in some of the price activity has been good for units in the basket—a little bit tougher on traffic—but we're seeing the customer respond to a great assortment that's had great value.

Speaker #3: So we continue to pay a lot of attention on our produce. We're very pleased with where we are on our organic produce and it's a fairly volatile market as you as we alluded to earlier.

Speaker #3: So produce pricing, we feel we're in pretty good place in terms of relative to the competition in that space. And with regard to other activities, it's gone in the marketplace.

Speaker #6: And some of the newness and things that we've launched, I think that kind of highlights the type of customer we have and who we really stay focused on as we continue to work in the second half.

Speaker #3: And clearly, a lot of people are talking about things that are going on in the marketplace. We're pretty confident that the assortment and products we're putting together are differentiated enough that we have to focus in on the value of those items that matter most to our customers.

Jack Sinclair: We're pretty confident that the assortment and products we're putting together are differentiated enough that we have to focus in on the value of those items that matter most to our customers and our customers being a health enthusiast customer. As Nick alluded to earlier, just picking the right items at the right price is something we can do because our products are differentiated, we do that in the context of making sure we've got the right value for the customer going forward. That's been our pricing model for a long time now.

Speaker #8: Okay, that's great color. Thanks. Best of luck.

Speaker #2: Thank you.

Speaker #1: All right. Thanks, Christina.

Speaker #2: Our next question comes from a line of Rupesh Farid with Oppenheimer and Company. Your line is open.

Speaker #3: And our customers being that health enthusiast customer. And as Nick alluded to earlier, just picking the right items at the right price is something we can do because our products are differentiated and we do that in the context of making sure we've got the right value for the customer going forward.

Speaker #9: Good afternoon. Thanks for taking my questions. Just given a number of players highlighting price investments out there, I'm just curious how you guys feel about your price caps and, just overall, what you're seeing on the competitor promotional front.

Speaker #9: Thank you.

Speaker #3: Specifically in terms of price cap, we talk fairly consistently, Rupesh, about that in terms of the importance of pricing and the way we've got direct comparisons with the other guys in our produce.

Speaker #3: And that's been our pricing model for a long time now.

Speaker #5: Great. And then my follow-up question, just on new stores, commentary suggests that there's still performing really well. But just curious, just given the more difficult backdrop, have you guys seen any challenges in how these stores ran for anything else to highlight just given the weaker backdrop?

Rupesh Parikh: Great. My follow-up question, just on new stores. Commentary suggests that they're still performing really well. Just curious, just given the more difficult backdrop, have you guys seen any challenges in how these stores ramp or anything else to highlight, just given the weaker backdrop?

Speaker #3: So we continue to pay a lot of attention on our produce. We're very pleased with where we are on our organic produce and it's a fairly volatile market as you as we alluded to earlier.

Speaker #4: Hey, Rupesh. It's Curtis. No, actually, I mean, that's one of the things we're really pleased about and kind of continues to give us confidence in the go forward and in the strategy overall is that the new stores continue to open well.

Speaker #3: So, produce pricing—we feel we're in a pretty good place in terms of where we are relative to the competition in that space. And with regard to other activities going on in the marketplace...

Curtis Valentine: Hey, Rupesh, it's Curtis. No, actually, that's one of the things we're really pleased about and kind of continues to give us confidence in the go forward and in the strategy overall is the new stores continue to open well. It's really across the country, we've opened them in New York and in Florida and across to California. New stores opening everywhere. They're all generally performing the way we'd like them to. We see the typical nuances of new markets versus more established markets, all of them kind of performing ahead of our expectations and in line with the last couple of years of performance. The other encouraging proof point is, the recent vintages are comping positive.

Speaker #3: And clearly, a lot of people are talking about things that are going on in the marketplace. We're pretty confident that the assortment and products we're putting together are differentiated enough, and we have to focus in on the value of those items that matter most to our customers.

Speaker #4: And it's really across the country and we've opened them in New York and in Florida and across to California. And so new stores opening everywhere, they're all generally performing the way we'd like them to.

Speaker #4: We see the typical nuances of new markets versus more established markets, but all of them kind of performing ahead of our expectations and in line with the last couple of years of performance.

Speaker #3: And our customers, being that health-enthusiast customer, know that having the right items at the right price is something we can do because our products are differentiated. And we do that in the context of making sure we've got the right value for the customer going forward.

Speaker #4: And then the other encouraging proof point is the recent vintages are comping positive. So as the core is a bit challenged, those last four vintages are all positive.

Curtis Valentine: As the core's a bit challenged, those last four vintages are all positive, again, just continues to point to this is an offer, this is a format, this is a model that the customer is looking for. Been really pleased with the new stores.

Speaker #4: And again, just continues to point to that this is an offer. This is a format this is a model that the customer is looking for.

Speaker #3: And that's been our pricing model for a long time now.

Speaker #9: Great. And then my follow-up question, just on new stores—commentary suggests that they're still performing really well. But just curious, given the more difficult backdrop, have you guys seen any challenges in how these stores ran or anything else to highlight, just given the weaker backdrop?

Speaker #4: So been really pleased with the new stores.

Speaker #5: Great. Thank you.

Rupesh Parikh: Great. Thank you.

Speaker #4: Thanks, Rupesh.

Curtis Valentine: Thank you.

Speaker #7: Thank you.

Operator: Thank you. Our next question comes from the line of Mark Carden with UBS. Your line is open.

Speaker #2: Our next question comes from a line of Mark Carden with UBS. Your line is open.

Speaker #8: Good afternoon. Thanks so much for taking the question. So this one, this builds on the last one a bit, but it sounds like you're seeing good momentum on your new stores.

Mark Carden: Good afternoon. Thanks so much for taking the question. This one, this builds on the last one a bit. It sounds like you're seeing good momentum on your new stores. As you look to your stores in newer markets, are your customer mixes mirroring what you see across the broader footprint? Is it any tougher to bring in customers that are closer to the lower end of income spectrum in markets where you're still building up your name recognition? Does the excitement of the new concept offset this? Just what are you seeing on that front? Thanks.

Speaker #8: As you look to your stores in newer markets, are your customer mixes mirroring what you see across the broader footprint? Is it any tougher to bring in customers that are closer to the lower end of income spectrum in markets where you're still building up your name recognition?

Speaker #8: Does the excitement of the new concept offset this? Just what are you seeing on that front? Thanks.

Speaker #4: We see the typical nuances of new markets versus more established markets, but all of them are performing ahead of our expectations and in line with the last couple of years’ performance.

Speaker #4: Yeah. Mark is Curtis. I think it's in newer markets, it's just challenging generally because the awareness isn't there. And that's really the big difference.

Curtis Valentine: Yeah, Mark, this is Curtis. I think in newer markets, it's just challenging generally because the awareness isn't there. That's really the big difference. I don't think it's any materially different from a cohort perspective. We watch mix and what they shop from a department perspective. There's no dramatic differences there. I just think it takes a minute for people to figure out who we are, figure out that we're different, and how they can incorporate us into their share wallet from a grocery perspective. Those stores, as we've talked about over the years, tend to build a little bit slower. Or sorry, build a little faster. They start a little bit lower, and then they build a little bit faster as customers figure us out.

Speaker #4: And then the other encouraging proof point is the recent vintages are topping positive. So as the core is a bit challenged, those last four vintages are all positive.

Speaker #4: I don't think it's any materially different from a cohort perspective. We watch mix and what they shop from a department perspective. There's no dramatic differences there.

Speaker #4: And again, just continues to point to that this is an offer. This is a format this is a model that the customer is looking for.

Speaker #4: I just think it takes a minute for people to figure out who we are, figure out that we're different, and how they can incorporate us into their share wallet from a grocery perspective.

Speaker #4: So, I've been really pleased with the new stores.

Speaker #9: Great. Thank you.

Speaker #4: Thanks, Rupesh.

Speaker #4: And so those stores, as we've talked about over the years, tend to build a little bit slower. Or sorry, build a little faster. They start a little bit lower, and then they build a little bit faster.

Speaker #8: Thank you.

Speaker #2: Our next question comes from Mark Carden with UBS. Your line is open.

Speaker #10: Good afternoon. Thanks so much for taking the question. So this one, this builds on the last one a bit, but it sounds like you're seeing good momentum on your new stores.

Speaker #4: As customers figure us out.

Speaker #3: And it's definitely clear when you go to Long Island, you're not as well known as when we opened stores in Los Angeles. So we see that very specifically in our numbers.

Jack Sinclair: It's definitely clear when you go to Long Island, you're not as well known as when we open stores in Los Angeles. We see that very specifically in our numbers. The mix of our customer base, I don't think it's significantly different from where we are everywhere.

Speaker #10: As you look to your stores in newer markets, are your customer mixes mirroring what you see across the broader footprint? Is it any tougher to bring in customers that are closer to the lower end of the income spectrum in markets where you're still building up your name recognition?

Speaker #3: But the mix of our customer base, I don't think it's significantly different from where we are everywhere.

Speaker #5: Great. That makes sense. And then you guys alluded to some other opportunities from a self-distribution perspective. How would you think about timing as to when it's right to insource additional categories?

Mark Carden: Great. That makes sense. You guys alluded to some other opportunities from a self-distribution perspective. How would you think about timing as to when it's right to insource additional categories? Does your experience with meat and seafood pull up the timeline at all there?

Speaker #10: Does the excitement of the new concept offset this? Just what are you seeing on that front? Thanks.

Speaker #4: Yeah, Mark, it's Curtis. I think in newer markets, it's just challenging generally because the awareness isn't there. And that's really the big difference.

Speaker #5: Does your experience with meat and seafood pull up the timeline at all there?

Speaker #6: Hey, Mark. It's Nick. We're really happy with the work of the supply chain teams have done in the merchants have done in completing the meat rollout that we wrapped up with our NorCal DC in Q2.

Nick Konat: Hey, Mark, it's Nick. We're really happy with the work the supply chain teams have done and the merchants have done in completing the meat rollout that we wrapped up with our NorCal DC in Q2. They've done a phenomenal job across the board. I think what it's proven to us is, hey, there's potential for us to continue to learn and look for more ways to control the key products that are really important to us and our customer. As Jack mentioned, we're starting to dip our toe in the water a little bit there with a couple of Sprouts brand items that we're bringing in using the capacity we have in our existing distribution centers, to again, take ownership and try to improve service levels and profitability in the business.

Speaker #4: I don't think it's any materially different from a cohort perspective. We watch mix and what they shop from a department perspective; there's no dramatic differences there.

Speaker #4: I just think it takes a minute for people to figure out who we are, figure out that we're different, and how they can incorporate us into their share of wallet from a grocery perspective.

Speaker #6: They've done a phenomenal job across the board. And I think what it's proven to us is, hey, there's potential for us to continue to learn and look for more ways to control the key products that are really important to us and our customer.

Speaker #6: And as Jack mentioned, we're starting to dip our toe in the water a little bit there with a couple of sprouts brand items that we're bringing in using the capacity we have and our existing distribution centers.

Speaker #4: As customers figure us out.

Speaker #3: And it's definitely clear—when you go to Long Island, you're not as well known as when we open stores in Los Angeles. So we see that very specifically in our numbers.

Speaker #6: To again, take ownership and try to improve service levels and profitability in the business. We're going to continue to take it one step at a time, learn, see how that's working.

Speaker #3: But the mix of our customer base, I don't think it's significantly different from where we are everywhere else.

Nick Konat: We're going to continue to take it one step at a time, learn, see how that's working, and assess. We're going to continue to look for ways we can take more control where it makes sense for us. We're taking a measured approach over the next couple of years, and we'll look at that as we look at our long-term plan on our network as well.

Speaker #9: Great. That makes sense. And then you guys alluded to some other opportunities from a self-distribution perspective. How would you think about timing as to when it's right to insource additional categories?

Speaker #6: And assess, but we're going to continue to look for ways where we can take more control where it makes sense for us, but we're taking a measured approach over the next couple of years, and we'll look at that as we look at our long-term plan on our network as well.

Speaker #9: Does your experience with meat and seafood pull up the timeline at all there?

Speaker #3: And we're investing appropriate in supply chain. We've built I think it's four distribution centers in the last few years, and we've got more to come going forward in terms of building capacity to support our store base as we grow.

Jack Sinclair: We're investing appropriately in supply chain. We've built, I think it's four distribution centers in the last few years, and we've got more to come going forward in terms of building capacity to support our store base as we grow into different marketplaces. It's been a strong evolution of our supply chain over the last few years, and this idea of getting more control over things like Sprouts brand and some of the core categories is going to be really important to us, and we're investing in it appropriately.

Speaker #6: Hey, Mark. It's Nick. We're really happy with the work the supply chain teams have done and the merchants have done in completing the meat rollout that we wrapped up with our NorCal DC in Q2.

Speaker #3: Into different marketplaces. So it's been a strong evolution of our supply chain over the last few years, and this idea of getting more control over things like sprouts brand and some of the core categories is going to be really important to us, and we're investing in it appropriately.

Speaker #5: Great. Thanks so much. Good luck, guys.

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

Speaker #6: And as Jack mentioned, we're starting to dip our toe in the water a little bit there with a couple of Sprouts brand items that we're bringing in, using the capacity we have in our existing distribution centers.

Speaker #4: Thanks, Mark.

Curtis Valentine: Thanks, Mark.

Speaker #6: Thanks.

Nick Konat: Thanks.

Speaker #2: We stand by for our next question. Our next question comes from the line of Scott Marks with Jefferies. Your line is open.

Operator: Please stand by for our next question. Our next question comes from the line of Scott Marks with Jefferies. Your line is open.

Speaker #6: To again, take ownership and try to improve service levels and profitability in the business. We're going to continue to take it one step at a time, learn, see how that's working.

Speaker #7: Hey, good afternoon, guys. Thanks very much for taking our questions. Wanted to just hit on a comment you made in the prepared remarks about EBIT margin pressure being about 50 bips in Q3.

Scott Marks: Hey, good afternoon, guys. Thanks very much for taking our questions. Wanted to just hit on a comment you made in the prepared remarks about EBIT margin pressure being about 50 bps in Q3. I think you called out a few different components of that with more new store openings, fixed cost deleverage, lower comp sales. You called out some of the fuel headwinds. I was wondering if you can kind of help us bucket each of those components in terms of contribution from each as it relates to that expected pressure. Thanks.

Speaker #6: And assess, but we're going to continue to look for ways where we can take more control where it makes sense for us. But we're taking a measured approach over the next couple of years, and we'll look at that as we look at our long-term plan on our network as well.

Speaker #7: I think you called out a few different components of that with more new store openings, fixed cost to leverage, lower comp sales. You called out to some of the fuel headwinds.

Speaker #7: So I was wondering if you can kind of help us bucket each of those components in terms of contribution from each as it relates to that expected pressure.

Speaker #7: Thanks.

Speaker #4: Yeah. Hey, Scott, it's Curtis. I think probably the easiest way to say it is it'll be pretty similar to what we experienced in Q2.

Curtis Valentine: Yeah. Hey, Scott, it's Curtis. I think probably the easiest way to say it is it'll be pretty similar to what we experienced in Q2. If you go up and down the P&L in Q2, the shape of it's gonna look pretty similar. Slightly negative gross margins, slightly negative SG&A, a little bit of pressure in D&A, and then the new stores piece really kind of folds into that SG&A pressure.

Speaker #4: So if you go up and down the P&L in Q2, the shape of it's going to look pretty similar. So slightly negative gross margins, slightly negative SG&A, a little bit of pressure in DNA.

Speaker #9: Great. Thanks so much. Good luck, guys.

Speaker #4: Thanks, Mark.

Speaker #6: Thanks.

Speaker #4: And then the new stores piece really kind of folds into that SG&A pressure.

Speaker #2: Please stand by for our next question. Our next question comes from the line of Scott Marks with Jefferies. Your line is open.

Speaker #7: Okay. Clear on that. Thank you. And then previously, you had also called out a cannibalization factor in existing markets where you're rolling out new stores.

Scott Marks: Okay. Clear on that. Thank you. Previously, you had also called out a cannibalization factor in existing markets where you're rolling out new stores. Wondering if you can just give us an update on that and what you're seeing now relative to what you had been seeing previously. That's all. Thank you.

Speaker #11: Hey, good afternoon, guys. Thanks very much for taking our questions. Wanted to just hit on a comment you made in the prepared remarks about EBIT margin pressure being about 50 bips in Q3.

Speaker #7: Wondering if you can just give us an update on that and what you're seeing now relative to what you had been seeing previously. And that's all.

Speaker #11: I think you called out a few different components of that, with more new store openings, fixed cost deleverage, lower comp sales—you called out some of the fuel headwinds.

Speaker #7: Thank you.

Speaker #4: Thank you. Yeah, Scott, Curtis again. Yeah, I think we've talked about about 100 to 150 is kind of the range we'd typically expect to see.

Curtis Valentine: Thank you. Scott, Curtis again. Yeah. I think we've talked about 100 to 150 is kind of the range we'd typically expect to see, and that will depend on mix of new versus existing markets and et cetera. Right now, we're towards the lower end of the range. One piece is we've a fewer store openings in H1, and we'll ramp that up here in H2. Through Q2, it's kind of towards the low end of that range, and that's slightly better than what it was last year, but we've been pretty consistently in that range.

Speaker #11: So, just wondering if you can kind of help us bucket each of those components in terms of contribution from each as it relates to that expected pressure.

Speaker #4: And that will depend on mix of new versus existing markets and etc., etc. Right now, we're towards the lower end of the range. One piece is we've fewer store openings in the first half, and we'll ramp that up here in the second half.

Speaker #11: Thanks.

Speaker #4: Yeah. Hey Scott, it's Curtis. I think probably the easiest way to say it is it'll be pretty similar to what we experienced in Q2.

Speaker #4: But through Q2, it's kind of towards the low end of that range, and that's slightly better than what it was last year. But we've been pretty consistently in that range.

Speaker #4: So, if you go up and down the P&L in Q2, the shape of it's going to look pretty similar. So, slightly negative gross margins, slightly negative SG&A, and a little bit of pressure in D&A.

Speaker #3: I think one of the things that's encouraging for us is that the calculations on cannibalization, the model, the guys are doing a really good job at predicting exactly what that cannibalize so we can really understand it.

Jack Sinclair: I think one of the things that's encouraging for us is that the calculations on cannibalization, the model, the guys are doing a really good job at predicting exactly what that cannibalized, so we can really understand it. We've got much better at that over the last few years.

Speaker #4: And then the new stores piece really kind of folds into that SG&A pressure.

Speaker #3: We've got much better that over the last few years.

Speaker #11: Okay. Clear on that. Thank you. And then previously, you had also called out a cannibalization factor in existing markets where you're rolling out new stores.

Speaker #2: Thank you. Please stand by for our next question. Our next question comes from the line of Scott Mushkin with R5 Capital. Your line is open.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Scott Mushkin with R5 Capital. Your line is open.

Speaker #11: Wondering if you can just give us an update on that and what you're seeing now relative to what you had been seeing previously. And that's all.

Speaker #8: Hey, guys. Thanks for taking my questions. So I wanted to go back to the pricing thing for a second. Because we've seen some interesting pricing at you guys with you guys.

Scott Mushkin: Hey, guys. Thanks for taking my questions. I wanted to go back to the pricing thing for a second, because we've seen some interesting pricing with you guys. The example I would give is where we see Fage yogurt priced very well, but then we see Rao's tomato sauce priced way above the market. I guess I was just curious, like how deep do you guys get in understanding where the market is on different items to make sure you're priced right, or maybe there's times you can actually come up a little bit?

Speaker #11: Thank you.

Speaker #4: Thank you. Scott, Curtis again. Yeah, I think we've talked about about 100 to 150 is kind of the range we'd typically expect to see.

Speaker #4: And that will depend on mix of new versus existing markets and etc., etc. Right now, we're towards the lower end of the range. One piece is we've had fewer store openings in the first half, and we'll ramp that up here in the second half.

Speaker #8: And the example I would give is where we see Fahay Yogurt priced very well, but then we see Rayo's Tomato Sauce priced way above the market.

Speaker #8: And I guess I was just curious, how deep do you guys get an understanding where the market is on different items to make sure you're priced right?

Speaker #4: But through Q2, it's kind of towards the low end of that range. And that's slightly better than what it was last year, but we've been pretty consistently in that range.

Speaker #8: Or maybe there's times you can actually come up a little bit.

Speaker #3: We will dig into the specifics of those points, Scott, which we'll dig into understanding exactly where they are. We are looking on brands like that at where other people are pricing at.

Jack Sinclair: We will dig into the specifics of those points, Scott, which we'll dig into and understanding exactly where they are. We are looking on brands like that or where other people are pricing at. It's a combination of what's happening in the category. Are we evolving the category or not? How important is that category for us? I think we'll get better at that approach going forward. Maybe you want to say something.

Speaker #3: We've got much better that over the last few years.

Speaker #3: And it's a combination of are we at what's happening in the category? Are we evolving the category or not? Which is how important is that category for us?

Speaker #2: Thank you. Please stand by for our next question. Our next question comes from the line of Scott Mushkin with R5 Capital. Your line is open.

Speaker #3: And I think we'll get better at that approach going forward. Maybe you want to say something.

Speaker #8: Well, I think Jack said the only thing I would add, Scott, you know us. I think as we look at it, our intent is to try to continue to bring in brands that don't have the level of competition and a couple of those categories.

Nick Konat: No, I think Jack said it. The only thing I'd add, Scott, you know us. I think as we look at it, our intent is to try to continue to bring in brands that don't have the level of competition in a couple of those categories. We have a lot of new innovation coming in there too, that we're trying to introduce people to and get into that space. For the most part, again, the goal is to continue to try to not carry the same things, and when we do, be everyday competitive. There's certainly probably opportunities for us to tighten execution, but that's the way we're looking at the business, and that's the way we're executing.

Speaker #12: Hey, guys. Thanks for taking my questions. So I wanted to go back to the pricing thing for a second. Because we've seen some interesting pricing at you guys with you guys.

Speaker #8: We have a lot of new innovation coming in there too. That we're trying to introduce people to and get into that space. But for the most part, again, the goal is to continue to try to not carry the same things.

Speaker #12: And the example I would give is where we see Fage yogurt priced very well, but then we see Rao's tomato sauce priced way above the market.

Speaker #8: And what we do, be everyday competitive. And there's certainly property opportunities for us to tighten execution, but that's the way we're looking at the business, and that's the way we're executing.

Speaker #12: And I guess I was just curious: how deep do you guys get in understanding where the market is on different items to make sure you're priced right? Or maybe there's times you can actually come up a little bit?

Scott Mushkin: Execution goes right into my second question. Is that you guys are opening a lot of stores now. How are you thinking about I remember Whole Foods back in the day when they were opening so many stores. One of the bigger challenges was just getting the right store manager in there, making sure the execution was consistent across the fleet. Again, one of the things they ran into is when they poached people out of stores, the execution at the older stores could fall down a little bit. How are you guys thinking about this as growth has really accelerated?

Speaker #8: And that goes right into execution goes right into my second question. Is that you guys are opening a lot of stores now? How are you thinking about I remember Whole Foods back in the day when they were opening so many stores.

Speaker #3: We will dig into the specifics of those points, Scott, and we'll dig into understanding exactly where they are. We are looking, on brands like that, at where other people are pricing at.

Speaker #8: One of the bigger challenges was just getting the right store manager in there, making sure the execution was consistent across the fleet. And again, one of the things they ran into is when they poached people out of stores, the execution at the older stores could fall down a little bit.

Speaker #3: And it's a combination of: Are we at—what's happening in the category? Are we evolving the category or not? Which is, how important is that category for us?

Speaker #3: And I think we'll get better at that approach going forward. Maybe you want to say something?

Speaker #8: So how are you guys thinking about this as growth is really accelerated?

Speaker #12: No, I think Jack said it. The only thing I would add, Scott—you know us—I think as we look at it, our intent is to try to continue to bring in brands that don't have the level of competition in a couple of those categories.

Jack Sinclair: I'll let Nick go through a bit of detail on that. It's a really good question, and we're thinking very hard as we grow our store base, how do we develop this? The whole process of promoting internally has been an important part of our exercise, and we're really pleased that the assistant manager programs that we're making progress on. Going forward, as we get to 40, 50 stores going forward in the years ahead, this is an important and a really important part of our proposition to the customer. We call ourselves Sprouties, and making sure we create and grow Sprouties is a key part. Our HR team are doing a terrific job working with the ops team. Nick, I don't know whether you want to build. It's such an important point.

Speaker #3: I'll let Nick go through a better detail on that. It's a really good question. And we're thinking very hard as we grow our store base, how do we develop this?

Speaker #12: We have a lot of new innovation coming in there, too, that we're trying to introduce people to and get into that space. But for the most part, again, the goal is to continue to try to not carry the same things.

Speaker #3: And the whole process of promoting internally is going to an important part of our exercise. And we're really pleased that the assistant manager programs that we're making progress on.

Speaker #12: And what we do is be everyday competitive. There are certainly opportunities for us to tighten execution, but that’s the way we’re looking at the business, and that’s the way we’re executing.

Speaker #3: Going forward, as we get to 40, 50 stores going forward in the years ahead, this is an important and a really important part of our proposition to the customer.

Speaker #3: We call ourselves Sprouties. And making sure we create and grow Sprouties. It's a key part in our HR team. We're doing a terrific job working with the ops team.

Speaker #12: And that goes right into execution—goes right into my second question. You guys are opening a lot of stores now. How are you thinking about— I remember Whole Foods back in the day when they were opening so many stores.

Speaker #3: Nick, I don't know what you want to build. It's such an important point.

Speaker #8: Yeah. I'll just give a little more color to Jack's comments, Scott. I think this has been something we've been talking about for a while.

Nick Konat: Yes. I'll just give a little more color to Jack's comments, Scott. I think this has been something we've been talking about for a while. Super important and to build our pipeline. Starts with making sure our culture and values are really well ingrained across the business. That's what drives the experience that's unique for us in the stores and done a lot of great work there. Two, we've put a lot of time into actually recruiting and bringing people internally before we place them in stores and letting them work side by side with assistant managers and managers, increase the pipeline of people who are ready. We're continuing to invest in putting more ASMs and store managers in the stores early to help us get people ready to take on a new store, and to your point, make sure that the existing stores maintain.

Speaker #12: One of the bigger challenges was just getting the right store manager in there, making sure the execution was consistent across the fleet. And again, one of the things they ran into is, when they poached people out of stores, the execution at the older stores could fall down a little bit.

Speaker #8: Super important to build our pipeline. Starts with making sure our culture and values are really well ingrained across the business. That's what drives the experience that's unique for us in the stores.

Speaker #8: And done a lot of great work there. Two, we put a lot of time into actually recruiting and bringing people internally before we place them in stores.

Speaker #12: So, how are you guys thinking about this as growth has really accelerated?

Speaker #8: And letting them work side by side with assistant managers and managers. Increase the pipeline of people who are ready and then we're continuing to vest invest in putting more ASMs and store managers into stores early to help us get people ready to take on a new store.

Speaker #3: I'll let Nick go through a bit bit of detail on that. It's a really good question. And we're thinking very hard as we grow our store base, how do we develop this?

Speaker #3: And the whole process of promoting internally has been an important part of our exercise. And we're really pleased that the assistant manager programs that we're making progress on.

Speaker #8: And to your point, make sure that the existing stores maintain. I think we're really happy with what we're seeing in the new stores. The teams have been great.

Nick Konat: I think we're really happy with what we're seeing in the new stores. The teams have been great. Overall, I've been impressed with what I've seen in the existing, it's certainly something we'll continue to invest in that pipeline as we continue to grow the number of stores.

Speaker #3: Going forward, as we get to 40 or 50 stores in the years ahead, this is an important, and really important, part of our proposition to the customer.

Speaker #8: And overall, I've been impressed with what I've seen in the existing, but it's certainly something we'll continue to invest in that pipeline as we continue to grow the number of stores.

Speaker #3: We call ourselves Sprouties, and making sure we create and grow Sprouties is a key part. Our HR team is doing a terrific job working with the ops team.

Speaker #8: All right, guys. Thanks so much. Appreciate the answers.

Scott Mushkin: All right, guys. Thanks so much. Appreciate the answers.

Speaker #2: Thank ank you. Please stand by for our next question. Our next question comes from the line of Robert Ohms with Bank of America. Your line is open.

Curtis Valentine: Thanks.

Nick Konat: Thanks.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Robert Ohmes with Bank of America. Your line is open.

Speaker #3: Nick, I don't know what you want to build. It's such an important point.

Speaker #12: Yeah, I'll just give a little more color to Jack's comments, Scott. I think this has been something we've been talking about for a while.

Speaker #12: It’s super important to build our pipeline. It starts with making sure our culture and values are really well ingrained across the business. That’s what drives the experience that’s unique for us in the stores.

Speaker #1: Oh, hey guys. A couple of quick follow-ups. For you, the first is just I'd love to get your sense of like-for-like inflation and maybe the trends that you saw in the first half.

Robert Ohmes: Oh, hey, guys. A couple of quick follow-ups for you. The first is just I'd love to get your sense of like-for-like inflation and maybe the trends that you saw in the H1 and as we go into the H2. What does inflation look like? Is it accelerating into the H2? Is it coming through from suppliers and things like that?

Speaker #12: And we’ve done a lot of great work there. Two, we put a lot of time into actually recruiting and bringing people internally before we placed them in stores.

Speaker #1: And as we go into the back half, what does inflation look like? Is it accelerating into the back half? And is it coming through from suppliers and things like that?

Speaker #12: And letting them work side by side with assistant managers and managers. To increase the pipeline of people who are ready and then we're continuing to vest invest in putting more ASMs and store managers into stores early to help us get people ready to take on a new store.

Speaker #8: Hey, Robbie. It's Curtis. The first half is second quarter was pretty consistent with the first quarter. We're seeing on like-for-like SKUs, inflation in line with CPI.

Curtis Valentine: Hey, Robbie. It's Curtis. Q2 was pretty consistent with Q1. We're seeing on like-for-like SKUs, inflation in line with CPI. For us, we always have a little bit of a mix uptick in some of our newer products and maybe more premium innovation, driving the AUR up a bit. On a like-for-like basis, we're still fairly in line with CPI, then you've got just a handful of categories like coffee and beef that are elevated.

Speaker #12: And to your point, make sure that the existing stores maintain. I think we're really happy with what we're seeing in the new stores. The teams have been great.

Speaker #8: And then for us, we always have a little bit of a mix uptick and some of our newer products and maybe more premium innovation driving the AUR up a bit.

Speaker #12: And overall, I've been impressed with what I've seen in the existing, but it's certainly something we'll continue to invest in—that pipeline—as we continue to grow the number of stores.

Speaker #8: But on a like-for-like basis, we're still fairly in line with CPI. And then you've got just a handful of categories like coffee and beef that are elevated.

Speaker #12: All right, guys. Thanks so much. I appreciate the answers.

Speaker #2: Thank you. Please stand by for our next question. Our next question comes from the line of Robert Owens with Bank of America. Your line is open.

Speaker #1: That's helpful. And then there's been some commentary out there and maybe some data. I don't have it, but about, I guess, the West Coast being much weaker at least for the traditional grocers.

Robert Ohmes: That's helpful. There's been some commentary out there and maybe some data, I don't have it, about, I guess, the West Coast being much weaker, at least for the traditional grocers, than, say, the middle of the country and the East Coast. Can you remind us your exposure to the West Coast, and have you seen significant differences, West Coast versus other regions?

Speaker #1: Oh, hey guys. A couple of quick follow-ups. The first is, I'd love to get your sense of like-for-like inflation and maybe the trends that you saw in the first half.

Speaker #1: Then say the middle of the country and the East Coast. Can you remind us your exposure to the West Coast and have you seen significant differences West Coast versus other regions?

Speaker #1: And as we go into the back half, what does inflation look like? Is it accelerating into the back half, and is it coming through from suppliers and things like that?

Speaker #8: We've got a lot of stores in the West Coast and quite honestly, Robbie, we're not seeing any difference in our performance in the West as we've seen the rest of the country.

Jack Sinclair: We've got a lot of stores on the West Coast, quite honestly, Robbie, we're not seeing any difference in our performance in the West as we see in the rest of the country. We've clearly heard that from others.

Speaker #12: Hey, Robbie. It's Curtis. The first half of the second quarter was pretty consistent with the first quarter. We're seeing, on like-for-like SKUs, inflation in line with CPI.

Speaker #8: But we've clearly had that from others.

Speaker #1: That's great. And just I'm going to slip in one last one. When you go to Long Island and when you think about opening a parts sale in Boston and places like that, do you are these higher average store volume markets in general for you or you would not expect that?

Robert Ohmes: That's great. Just, I'm going to slip in one last one. When you go to Long Island, when you think about opening up Hartsdale and Boston and places like that, are these higher average store volume markets in general for you, or you would not expect that?

Speaker #12: And then for us, we always have a little bit of a mix uptick, and some of our newer products and maybe more premium innovation driving the AUR up a bit.

Speaker #12: But on a like-for-like basis, we're still fairly in line with the CPI. And then you've got just a handful of categories, like coffee and beef, that are elevated.

Speaker #8: Hey, Robbie. It's Curtis. I think we have high hopes and aspirations for those markets. I think they're going to be strong markets for us.

Curtis Valentine: Hey, Robbie, it's Curtis. I think we have high hopes and aspirations for those markets. I think they're going to be strong markets for us. I would think, though, that early days, what we typically see when we open a new market is the volume's a little bit lower. Again, it takes a minute for people to figure us out. We don't have great density. That's challenging for marketing, just scale of the business. Early days, we expect them to be a little bit lighter than our average opening, and then we expect them to ramp pretty quickly over time. Certainly, one of the big changes we've made as we think ahead to Chicago and even greater New York is getting to that density even quicker.

Speaker #8: I would think, though, that early days, what we typically see when we open a new market is the volumes a little bit lower. Again, it takes a minute for people to figure us out.

Speaker #1: That's helpful. And then there's been some commentary out there, and maybe some data—I don't have it—but about, I guess, the West Coast being much weaker, at least for the traditional grocers.

Speaker #8: We don't have great density. That's challenging for marketing. Just scale of the business. And so early days, we expect them to be a little bit lighter than our average opening.

Speaker #1: Then say the middle of the country and the East Coast. Can you remind us of your exposure to the West Coast, and have you seen significant differences between the West Coast and other regions?

Speaker #8: And then we expect them to ramp pretty quickly over time. And certainly one of the big changes we've made is we think ahead to Chicago and even greater New York is getting to that density even quicker.

Speaker #3: We've got a lot of stores on the West Coast, and quite honestly, Robbie, we're not seeing any difference in our performance in the West as we've seen in the rest of the country.

Speaker #8: And so I think in Chicago, you'll see us start in 2027 and then our expectation is 12 to 18 months later, we'll have 10 stores in Chicago.

Curtis Valentine: I think in Chicago, you'll see us start in 2027, and then our expectation is 12 to 18 months later, we'll have 10 stores in Chicago, and there'll be a good presence of Sprouts in Chicago. Then we're putting our foundation teams and our marketing teams on the ground early in those markets to really build community and let folks know we're coming. We're trying to get ahead of that in those newer markets. That said, I think we'll still expect them to start a little bit slower.

Speaker #3: But we've clearly had that from others.

Speaker #8: And there'll be a good presence at Sprouts in Chicago. And then we're putting our foundation teams and our marketing teams on the ground early in those markets to really build community and let folks know we're coming.

Speaker #1: That's great. And just—I'm going to slip in one last one. When you go to Long Island and when you think about opening a part sale in Boston and places like that, are these higher average store volume markets in general for you, or would you not expect that?

Speaker #8: So we're trying to get ahead of that in those newer markets, but that said, I think we'll still expect them to start a little bit slower.

Speaker #8: And they are denser markets. So ultimately, there'll be great stores once we get the awareness where it needs to be.

Jack Sinclair: They are denser markets, so ultimately, they'll be great stores once we get the awareness where it needs to be.

Speaker #12: Hey Robbie, it's Curtis. I think we have high hopes and aspirations for those markets. I think they're going to be strong markets for us.

Curtis Valentine: Yeah.

Jack Sinclair: Which will take a little bit of time.

Speaker #12: I would think, though, that in the early days, what we typically see when we open a new market is the volumes are a little bit lower. Again, it takes a minute for people to figure us out.

Speaker #1: Sounds great. Thank you.

Robert Ohmes: Sounds great. Thank you.

Speaker #8: Thanks, Robbie.

Curtis Valentine: Thanks, Robbie.

Speaker #2: Thank you. Please stand by for our next question. Our next question comes from the line of Michael Montani with Evercall ISI. Your line is open.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Michael Montani with Evercore ISI. Your line is open.

Speaker #12: We don't have great density; that's challenging for marketing—just the scale of the business. And so, early days, we expect them to be a little bit lighter than our average opening.

Michael Montani: Great. Thanks. Good afternoon. Thanks for taking the question. Just wanted to ask, first off, on the lettuce impact. We were thinking about an 80 to 120 bip range impact currently that might moderate to 30 to 50 bips for the quarter. I'm wondering if you could give any commentary around if that's consistent with what you're seeing in your expectation set. The follow-up I had was around initiatives that you've got in place that give you confidence that you can drive comp units and stabilize traffic.

Speaker #3: Great. Thanks. Good afternoon. Thanks for taking the question. Just wanted to ask first off on the lettuce impact. We were thinking about an 80 to 120 BIP range impact currently that might moderate to like 30 to 50 BIPs for the quarter.

Speaker #12: And then we expect them to ramp pretty quickly over time. And certainly, one of the big changes we've made as we think ahead to Chicago and even greater New York is getting to that density even quicker.

Speaker #3: I'm wondering if you could give any commentary around if that's consistent with what you're seeing in your expectation set and then the follow-up I had was around initiatives that you've got in place that give you confidence that you can drive comp units and stabilize traffic.

Speaker #12: And so I think in Chicago you'll see us start in 2027, and then our expectation is 12 to 18 months later we'll have 10 stores in Chicago.

Speaker #12: And there will be a good presence of Sprouts in Chicago. And then we're putting our foundation teams and our marketing teams on the ground early in those markets to really build community and let folks know we're coming.

Speaker #8: Yeah. Hey, Mike. It's Curtis on the first one. Again, it's really live, right? It's been the last two weeks where we've seen the impacts there.

Curtis Valentine: Yeah. Hey, Mike, it's Curtis. On the first one, again, it's really live, right? It's been the last 2 weeks where we've seen the impacts there, we're really watching it closely. As far as what's going to happen, I don't think we've got a great handle on that. We'll have to just watch it, monitor it closely, and see how it plays out. It's been a small impact thus far over the last 2 weeks and we'll be watching it closely.

Speaker #12: So we're trying to get ahead of that in those newer markets. But that said, I think we'll still expect them to start a little bit slower.

Speaker #3: And they are denser markets. So, ultimately, there'll be great stores once we get the awareness where it needs to be, which will just take a bit of time.

Speaker #8: And so we're really watching it closely as far as what's going to happen. I mean, I don't think we've got a great handle on that.

Speaker #8: We'll have to just watch it, monitor it closely and see how it plays out. So it's been a small impact thus far. Over the last two weeks, and we'll be watching it closely.

Speaker #1: Sounds great. Thank you.

Speaker #3: Thanks, Robbie.

Speaker #2: Thank you. Please stand by for our next question. Our next question comes from the line of Michael Montani with Evercore ISI. Your line is open.

Speaker #5: Hey, Mike. Hey, Mike. It's Nick Lynch, the second part of your question. I think some of that I've talked about, if you think about how do we continue to drive the comps in the second half with the assortment work around meals and healthy essentials and the innovation there.

Nick Konat: Hey, Mike. It's Nick. I'll answer the second part of your question. I think some of that I talked about, if you think about how do we continue to drive the comps in the H2 with the assortment work around meals and healthy essentials and the innovation there. I think it's still a lot of testing and learning and price and promo. Obviously personal and loyalty. I think we've got some good green shoots in that space that leads to momentum in the H2. The other thing I hadn't mentioned.

Speaker #4: Great, thanks. Good afternoon, and thanks for taking the question. I just wanted to ask, first off, about the lettuce impact. We were thinking about an 80 to 120 basis point range impact currently, that might moderate to, like, 30 to 50 basis points for the quarter.

Speaker #5: I think it's still a lot of testing and learning in price and promo. And then obviously, personal loyalty I think we've got some good green shoots in that space that leads to momentum in the second half.

Speaker #4: I'm wondering if you could give any commentary around whether that's consistent with what you're seeing in your expectation set. And then, the follow-up I had was around initiatives that you've got in place that give you confidence that you can drive comp units and stabilize traffic.

Speaker #5: And then the other thing I hadn't mentioned I've been really happy with what I'm seeing from Mandy, our new chief customer officer, and her team on the marketing front as we look at new ways to harness her capabilities and insights on media, on using our first-party data that we're now acquiring and even a stronger way outside of our ecosystem.

Nick Konat: I've been really happy with what I'm seeing from Mandy, our new Chief Customer Officer, and her team on the marketing front as we look at new ways to harness her capabilities and insights and on media, on using our first-party data that we're now acquiring in an even stronger way outside of our ecosystem. Also, you're going to see us, I think, get even better about our messaging and communication on how we balance health, innovation, quality, and value. I like the work I'm seeing from the team that the customers will start to see in the back H2 of the year.

Speaker #12: Yeah. Hey, Mike. It's Curtis on the first one. Again, it's really live, right? It's been the last two weeks where we've seen the impacts there.

Speaker #5: And also you're going to see us, I think, get even better about our messaging and communication on how we balance health, innovation, quality, and value.

Speaker #12: And so we're really watching it closely as far as what's going to happen. I mean, I don't think we've got a great handle on that.

Speaker #12: We'll have to just watch it, monitor it closely, and see how it plays out. So, it's been a small impact thus far over the last two weeks, and we'll be watching it closely.

Speaker #5: So I like the work I'm seeing from the team that the customers will start to see in the back half of the year.

Speaker #8: Hey, Mike. It's Curtis again. I'll just clarify that as far as the quarter to date piece of it or what's behind us, the number you quoted was just a little bit high versus what we're seeing.

Curtis Valentine: Hey, Mike, it's Curtis again. I'll just clarify that as far as the quarter to date piece of it or the what's behind us, the number you quoted was just a little bit high versus what we're seeing. I won't speculate about what will be going forward, but it's not quite as high as you had it for the last couple of weeks that we've seen.

Speaker #5: Hey, Mike. Hey, Mike. It's Nick Lynch. The second part of your question—I think some of that I've talked about. If you think about how do we continue to drive the comps in the second half with the assortment work around meals and healthy essentials, and the innovation there.

Speaker #8: I won't speculate about what we'll be going forward, but it's not quite as high as you had it for the last couple of weeks that we've seen.

Speaker #5: I think it's still a lot of testing and learning in price and promo. And then, obviously, personal loyalty—I think we've got some good green shoots in that space that lead to momentum in the second half.

Speaker #2: Thank you. Please stand by for our next question. Our next question comes from the line of Seth Sigman with Barclays. Your line is open.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Seth Sigman with Barclays. Your line is open.

Speaker #5: And then the other thing I hadn't mentioned: I've been really happy with what I'm seeing from Mandy, our new Chief Customer Officer, and her team on the marketing front as we look at new ways to harness her capabilities and insights—on media, on using our first-party data that we're now acquiring, and even in a stronger way outside of our ecosystem.

Speaker #6: Hey, everyone. Thanks for taking the question. I wanted to focus on e-commerce growth accelerated this quarter. It was actually a big driver, I think, of the overall comp improvement despite that channel seemingly becoming more competitive.

Seth Sigman: Hey, everyone. Thanks for taking the question. I wanted to focus on e-commerce. Growth accelerated this quarter. It was actually a big driver, I think, of the overall comp improvement, despite that channel seemingly becoming more competitive. Just with the new data that you have on customers, is there anything more you can share about what you're learning about that customer? Where are they coming from? How do they shop cross-channel? How valuable are they? Thank you.

Speaker #6: So just with the new data that you have on customers, is there anything more you can share about what you're learning about that customer, where are they coming from, how do they shop cross-channel, how valuable are they?

Speaker #5: And also, you're going to see us, I think, get even better with our messaging and communication on how we balance health, innovation, quality, and value.

Speaker #6: Thank you.

Speaker #5: So, I like the work I'm seeing from the team that the customers will start to see in the back half of the year.

Speaker #8: Hey, Seth. It's Nick. Yeah, I'll share a couple of things. And it's pretty similar to what we've seen, but you're right. We saw very good e-commerce growth, and it's been a really good partnership with our partners, Instacart, DoorDash, and Uber Eats.

Nick Konat: Hey, Seth, it's Nick. Yeah, I'll share a couple of things, and it's pretty similar to what we've seen, but you're right. We saw very good e-commerce growth and it's been a really good partnership with our partners, Instacart, DoorDash, and Uber Eats. I think, the reason we continue to see it, even in a bit of a challenge macro, is we have a lot of things that customers really want and need that they can't find anywhere else. Even now, right? When maybe they might not be getting in the car to make that trip, they can get something ordered online or just have it picked up in front of our store, and we're seeing both our delivery and pickup businesses perform well. The e-commerce customer for us is an omni customer.

Speaker #12: Hey, Mike, it's Curtis again. I'll just clarify that as far as the quarter-to-date piece of it, or what's behind us, the number you quoted was just a little bit high versus what we're seeing.

Speaker #8: I think what the reason we continue to see it even in a bit of a challenge macro is we have a lot of things that customers really want and need that they can't find anywhere else.

Speaker #12: I won't speculate about where we'll be going forward, but it's not quite as high as you had it for the last couple of weeks that we've seen.

Speaker #8: And even now, right, when maybe they might not be making that, getting the car to make that trip, they can get something ordered online or just have it picked up in front of our store, and we're seeing both our delivery pickup businesses perform well.

Speaker #2: Thank you. Please stand by for our next question. Our next question comes from the line of Seth Sigman with Barclays. Your line is open.

Speaker #8: The e-commerce customer for us is an omni-customer. For the most part, the vast majority of those customers shop both channels. And they're our highest value customers.

Speaker #13: Hey, everyone. Thanks for taking the question. I wanted to focus on e-commerce growth; it accelerated this quarter. It was actually a big driver, I think, of the overall comp improvement, despite that channel seemingly becoming more competitive.

Nick Konat: For the most part, the vast majority of those customers shop both channels, and they're our highest value customers. The more we grow that customer and business, that's a very good thing for us. As mentioned in the past, I think what we're seeing is the basket for e-com and the mix look pretty similar to what you see in brick and mortar. A high amount of produce, a lot of fresh. I think the customer trusts our fresh business, and that's why you see it coming through in e-commerce. A pretty consistent dynamic to what you'd see from a mix standpoint in brick and mortar.

Speaker #8: So the more we grow that customer in business, that's a very good thing for us. And as I mentioned in the past, I think what we're seeing is the basket for e-com and the mix look pretty similar to what you see in brick and mortar.

Speaker #13: So, just with the new data that you have on customers, is there anything more you can share about what you're learning about that customer? Where are they coming from, how do they shop cross-channel, and how valuable are they?

Speaker #8: High amount of produce, a lot of fresh. I think the customer trusts our fresh business, and that's why you see it coming through an e-commerce.

Speaker #13: Thank you.

Speaker #12: Hey, Seth. It's Nick. Yeah, I'll share a couple of things. And it's pretty similar to what we've seen, but you're right. We saw very good e-commerce growth.

Speaker #8: So pretty consistent dynamic to what you'd see from a mixed standpoint in brick and mortar. And Seth, I'd just add, as Curtis, it's another really good proof point for the model at large.

Speaker #12: And it's been a really good partnership with our partners—Instacart, DoorDash, and Uber Eats. I think the reason we continue to see it, even in a bit of a challenging macro environment, is we have a lot of things that customers really want and need, that they can't find anywhere else.

Curtis Valentine: Seth, I just add, this is Curtis. It's another really good proof point for the model at large. We've talked about new stores and innovation and those continuing to perform. This is another area that's continued to perform in a macro environment where you'd expect to be some pressure on it. Again, it just highlights that the assortment is something the customer is looking for, and we want to be wherever they need us to be to service them. e-com's a great channel for us, and we expect it to continue to grow going forward.

Speaker #8: I mean, we've talked about new stores and innovation and those continuing to perform. This is another area that's continued to perform in a macro environment where you'd expect to be some pressure on it.

Speaker #12: And even now, right, when maybe they might not be making that—getting the car to make that trip—they can get something ordered online or just have it picked up in front of our store.

Speaker #8: And so again, it just highlights that the assortment is something the customer is looking for. And when we can we want to be wherever they need us to be to service them.

Speaker #12: And we're seeing both our delivery and pickup businesses perform well. The e-commerce customer for us is an omni-customer. For the most part, the vast majority of those customers shop both channels.

Speaker #8: And e-com is a great channel for us. And we expect it to continue to grow going forward.

Speaker #6: Okay. Thank you for that. Super helpful. And then I just want to follow up on the margins. So the expectation at gross margin will be down slightly in Q3.

Seth Sigman: Okay. Thank you for that. Super helpful. I just want to follow up on the margins. The expectation that gross margin would be down slightly in Q3, I think the hope was that H2 would see gross margins flat to up slightly. I think that was the original expectation. Is the delta there just higher fuel? If you could just clarify if there's any assumption that price would help offset that. How are you thinking about that?

Speaker #12: And they’re our highest-value customers. So the more we grow that customer and business, that’s a very good thing for us. And as I mentioned in the past, I think what we’re seeing is the basket for e-com and the mix look pretty similar to what you see in brick and mortar.

Speaker #6: I think the hope was that second half would see gross margins flat to up slightly. I think that was the original expectation. So is the delta there just higher fuel?

Speaker #6: And if you could just clarify, if there's any assumption that price would help offset that, how are you thinking about that?

Speaker #12: High amount of produce, a lot of fresh. I think the customer trusts our fresh business, and that's why you see it coming through in e-commerce.

Speaker #8: Yeah. I think really, yeah, the slight difference from the prior commentary is the fuel piece. Which does land in gross. And that's a challenge.

Curtis Valentine: I think the slight difference from the prior commentary is the fuel piece, which does land in gross and that's a challenge. I think the answer to the second part of the question is like, that's not the right time for us to be pushing through price, where the customer is, where the macro is, and with the work we're doing on affordability. The fuel piece is an incremental pressure we didn't have contemplated when the year began, and we're dealing with it accordingly. I think within Q3 specifically, there'll be just a little bit of an impact from the Cyclospora piece as well, and that's probably the Q3 story. A little bit of fuel, a little bit of Cyclospora, and then in Q4, we've got fuel embedded in where we're going.

Speaker #12: So, pretty consistent dynamic to what you'd see from a mixed standpoint in brick and mortar. And Seth, I'd just add—this is Curtis—it's another really good proof point for the model at large.

Speaker #8: And I think the answer to the second part of the question is that's not the right time for us to be pushing through price.

Speaker #12: I mean, we've talked about new stores and innovation, and those continue to perform. This is another area that's continued to perform in a macro environment where you'd expect there to be some pressure on it.

Speaker #8: Where the customer is, where the macro is, and with the work we're doing on affordability. And so the fuel piece is an incremental pressure.

Speaker #8: We didn't have contemplated when the year began. And we're dealing with it accordingly. I think within Q3 specifically, there'll be just a little bit of an impact from the cyclospora piece as well.

Speaker #12: And so again, it just highlights that the assortment is something the customer is looking for. And when we can, we want to be wherever they need us to be to service them.

Speaker #12: And e-commerce is a great channel for us, and we expect it to continue to grow going forward.

Speaker #8: And that's probably the Q3 story. A little bit of fuel, a little bit of cyclospora, and then in the fourth quarter, we've got fuel embedded and where we're going.

Speaker #13: Okay, thank you for that. Super helpful. And then I just want to follow up on the margins. So, the expectation is that gross margin would be down slightly in Q3.

Speaker #8: And then we do expect the fourth quarter margin to be up slightly. Again, the one-time changes in the loyalty program. So we'll be $2 going to a dollar started in January.

Curtis Valentine: We do expect the Q4 margin to be up slightly. Again, the one-time changes in the loyalty program. The $2 going to a dollar started in January, the Q4 will be a full run rate last year at the $2 level versus $1 this year. There'll be a little bit of a one-time benefit there.

Speaker #13: I think the hope was that the second half would see gross margins flat to up slightly. I think that was the original expectation. So is the delta there just higher fuel?

Speaker #8: So the fourth quarter will be a full run rate last year at the $2 level versus $1 this year. So there'll be a little bit of a one-time benefit there.

Speaker #13: And if you could just clarify if there's any assumption that price would help offset that. How are you thinking about that?

Speaker #6: Okay. Thanks so much.

Seth Sigman: Okay. Thanks so much.

Speaker #12: Yeah, I think really, yeah, the slight difference from the prior commentary is the fuel piece, which does land in gross. And that's a challenge.

Speaker #2: Thank you.

Operator: Thank you.

Speaker #8: Thanks, Seth.

Curtis Valentine: Thanks, Seth.

Speaker #2: Ladies and gentlemen, I'm Sean. No further questions in the queue. I would now like to turn the call back over to Jackson Claire for closing remarks.

Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Jack Sinclair for closing remarks.

Speaker #12: And I think the answer to the second part of the question is, that's not the right time for us to be pushing through price.

Speaker #1: Well, thanks again, Peter. Attention. We appreciate you taking the time to listen to our quarter call. We look forward to updating you in the future.

Jack Sinclair: Well, thanks again for your attention. We appreciate you taking the time to listen to our quarter call. We look forward to updating you in the future. Take care, everyone. Thank you.

Speaker #12: Where the customer is, where the macro is, and what work we're doing on affordability. And so the fuel piece is an incremental pressure.

Speaker #1: Take care, everyone. Thank you.

Operator: That concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker #12: We hadn't contemplated this when the year began, and we're dealing with it accordingly. I think within Q3 specifically, there will be just a little bit of an impact from the cyclospora piece as well.

Speaker #12: And that's probably the Q3 story—a little bit of fuel, a little bit of cyclospora. And then in the fourth quarter, we've got fuel embedded and where we're going.

Speaker #12: And then we do expect the fourth quarter margin to be up slightly. Again, the one-time changes in the loyalty program—so we'll be going from $2 to $1, starting in January.

Speaker #12: So the fourth quarter will be a full run rate last year at the $2 level versus $1 this year. So there'll be a little bit of a one-time benefit there.

Speaker #13: Okay. Thanks so much.

Speaker #2: Thank you.

Speaker #12: Thanks, Seth.

Speaker #2: Ladies and gentlemen, I'm Sean. There are no further questions in the queue. I would now like to turn the call back over to Jack Sinclair for closing remarks.

Speaker #1: Well, thanks again, Peter, for your attention. We appreciate you taking the time to listen to our quarter call. We look forward to updating you in the future.

Speaker #1: Take care, everyone. Thank you.

Q2 2026 Sprouts Farmers Market Inc Earnings Call

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