Sprouts: Product Differentiation, Omnichannel Presence Drive Q2 Growth

Sprouts Farmers Market credited its differentiated dairy, proteins, and bakery offerings for growing sales in its Q2 earnings report.

“We are encouraged by another solid quarter, as we further establish Sprouts as a go-to healthy specialty food retailer,” said CEO Jack Sinclair in a prepared statement. “We believe we are on track with our long-term growth strategy, with positive traffic, an enhanced supply chain and continued product innovation.”

For the quarter ending July 2, the grocery store chain saw comparable store sales grow 3.2% and total sales grow to 6% to $1.7 billion, attributed to improving traffic trends and the addition of new stores.

Sprouts opened six stores during the quarter, for a total of 14 new store openings since January. Earlier this year, the Phoenix, Arizona-based company announced plans to shutter 11 underperforming stores and open 30 locations in California, Florida, Nevada and Maryland by year’s end.

During the call with investors, Sinclair said the “pipeline is growing” with nearly 100 approved new stores and more than 60 new leases, which he believes will help the company gain traction towards its goal of 10% unit growth per year starting in 2024.

A sizeable opportunity still exists for the specialty food retailer to capture a larger share of its consumers’ dollars, particularly among its core target of health enthusiasts, by building basket sizes. For example, 50% of Sprouts’ beef sales are grass-fed, more than 50% of its chicken sales are organic and 90% of its grocery sales have specific diet attributes such as vegan and non-GMO.

“We’ve got a low share of our customers’ wallet[s], which is the nature of our assortment. We’ve said all along that we’re not going to try and win on conventional products with conventional grocers. We’re [going to win] on the differentiated assortment that we have,” said Sinclair.

In the second quarter, Sprouts focused on seasonal produce assortments in each region and shared the local grower stories in-store. During that period, 90% of the grocers’ produce sales came from local farms.

According to Sinclair, consumers are also “finding a treasure trove of products” from its private label Sprouts brand. The team has released over 200 new Sprouts branded items this year, driving sales through active sampling, ecommerce and store merchandising improvements as well as redesigned packaging. Private label items represented 20% of total Q2 sales.

To support its growing omnichannel presence, Sprouts rolled out a more active sampling program supporting the trial and basket growth of its unique and healthy offerings including its private-label products.

Additionally, the grocer saw sales growth in all three of its online channels including DoorDash, Instacart and Sprouts.com following a site redesign and optimized search functionality. During the quarter, ecommerce outpaced the grocer’s overall growth, accounting for 12.1% of total sales.

Separately, the grocery store chain announced yesterday that CFO Lawrence “Chip” Molloy is set to retire at the end of the year. He joined the company in 2013 as a member of its Board of Directors before serving as interim CFO from June 2019 to February 2020. He was then appointed CFO in 2021.

“I’m proud of our significant growth over the past 10 years and the strategic changes we’ve made to mature into a financially robust company that’s delivered value to its shareholders,” said Molloy in a press release.

An internal and external search for his successor is currently underway.

Looking ahead, Sprouts expects full-year sales growth of 5% to 6% and comparable sales growth of 2% to 3%.

“We believe we’re making progress in growing our business and establishing our brand as the healthy specialty retailer of choice in a challenging macro environment,” Sinclair told investors. “That said, we have a lot more work to do to capture the opportunities in front of us.”