Phoenix-based Sprouts Farmers Market reported $1.1 billion in sales, a 14% increase in growth, and 1.1% increase in same store sales, in the first quarter of 2017, which ended April 2.
CEO Amin Maredia said during the company’s earnings call held May 4 while the 3% cost deflation in the first quarter was “the highest we have experienced as a public company, we saw modest improvements throughout the first quarter as produce deflation eased toward the end of the quarter.
Tonnage growth, he said, was the strongest increase the company has seen since the fourth quarter of 2015.
The company added 8 stores in the first quarter, including the first stores in Florida and North Carolina, expanding its footprint to 15 states. A total of 63 new stores have approved site plans in the pipeline, and 43 have signed leases.
“We also opened our new Atlanta produce distribution center in December of 2016,” he said. “The DC is proving to be a tremendous benefit to all of our stores in the Southeast, most notably, it provides customers fresher and more local produce and allows us to expand our produce vendor relationships.”
Jim Nielsen, president and COO, said during the call that the distribution center’s opening expanded Sprouts’ ability to receive produce from southeastern growers, but it also was an overall logistics improvement, as well.
“Obviously the Atlanta DC provides us the ability to continue growth in the Southeast as well as into Florida, up into the Carolinas, so that was critical for us to get there,” he said. “And the other part was just getting fresher product, as we were moving it from Texas into the Atlanta market, we were just putting age on it, so the benefit really becomes not an acquisition cost savings because that product is still coming out of Mexico or California.”
Produce deflation?
Nielsen was mixed on the outlook for continued price deflation in produce.
“As we look at produce, it was kind of the tale of two halves,” he said. “The first of the year, we saw deflation in apples and berries and veg, and as we saw the growing regions move from South America, Mexico, Yuma into Southern California and Northern California, we did experience some tightness in berries due to some gapping on the import side coming from South America.”
The second quarter could see the reverse.
“Looking forward, when you think about produce for Q2, we see it being slightly deflationary,” he said. “Veg is already stabilizing, and will continue to stabilize, but we’re anticipating melons, grapes and berries to be slightly deflationary. And looking at cherries and soft fruit, which are big categories for us, to be in line with last year, and 2016 was a solid year.”
A threat from Aldi and Lidl?
Maredia, when asked by analysts about increasing pressure from discount competitors, was confident Sprouts will not be directly affected.
“What I would sort of reemphasize is we’ve got a pretty differentiated model,” he said. “Our business is really anchored on great tasting, healthy products at value prices – just the breadth of assortment of fresh, natural and organic as well as attribute-based products. A lot of our unique departments, like vitamins, are expanded, and are continuing to expand private label and also high-touch service.”