UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedJuly 3,2, ~~2022~~2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36029

Sprouts Farmers Market, Inc.

(Exact name of registrant as specified in its charter)

Delaware

32-0331600

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

5455 East High Street, Suite 111

Phoenix, Arizona 85054

(Address of principal executive offices and zip code)

(480) 814-8016

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value

SFM

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 1, 2022,~~July 28, 2023, the registrant had ~~107,455,274~~102,006,165 shares of common stock, $0.001 par value per share, outstanding.

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JULY ~~3, 2022~~2, 2023

TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.		4

	Consolidated Balance Sheets as of July ~~3, 2022~~2, 2023 (unaudited) and January ~~2, 2022~~1, 2023	4

	Consolidated Statements of Income for the thirteen and twenty-six weeks ended July ~~3, 2022~~2, 2023 and July ~~4, 2021~~3, 2022 (unaudited)	5

	Consolidated Statements of Comprehensive Income for the thirteen and twenty-six weeks ended July ~~3, 2022~~2, 2023 and July ~~4, 2021~~3, 2022 (unaudited)	6

	Consolidated Statements of Stockholders’ Equity for the thirteen and twenty-six weeks ended July ~~3, 2022~~2, 2023 and July ~~4, 2021~~3, 2022 (unaudited)	7

	Consolidated Statements of Cash Flows for the twenty-six weeks ended July ~~3, 2022~~2, 2023 and July ~~4, 2021~~3, 2022 (unaudited)	9

	Notes to ~~Unaudited~~ Consolidated Financial Statements (Unaudited)	10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		2322

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		3736

Item 4. Controls and Procedures.		3736

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.		3837

Item 1A. Risk Factors.		3837

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		3938

Item 5. Other Information.		38

Item 6. Exhibits.		4039

Signatures		4140

Table of Contents

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the “Exchange Act”), including, but not limited to, statements regarding our expectations, beliefs, intentions, strategies, future operations, future financial position, future revenue, projected expenses, and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the fiscal year ended January ~~2, 2022,~~1, 2023, and our other filings with the Securities and Exchange Commission. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to the “Company,” “Sprouts,” “Sprouts Farmers Market,” “we,” “us” and “our” refer to Sprouts Farmers Market, Inc. and, where appropriate, its subsidiaries.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


	July 3, 2022		January 2, 2022			July 2, 2023		January 1, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	288,965	$	245,287		$	259,484	$	293,233
Accounts receivable, net		13,260		21,574			13,616		16,108
Inventories		292,862		265,387			320,006		310,545
Prepaid expenses and other current assets		49,520		35,468			40,231		53,918
Total current assets		644,607		567,716			633,337		673,804
Property and equipment, net of accumulated depreciation		690,460		716,029			738,693		722,241
Operating lease assets, net		1,083,183		1,072,019			1,232,725		1,106,524
Intangible assets, net of accumulated amortization		184,960		184,960
Intangible assets							208,060		184,960
Goodwill		368,878		368,878			381,751		368,878
Other assets		15,236		13,513			13,630		13,973
Total assets	$	2,987,324	$	2,923,115		$	3,208,196	$	3,070,380
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	173,687	$	145,901		$	168,541	$	172,904
Accrued liabilities		138,659		155,996			194,621		151,306
Accrued salaries and benefits		48,222		58,743			59,311		61,574
Current portion of operating lease liabilities		153,651		151,755			114,685		135,584
Current portion of finance lease liabilities		1,130		1,078			1,068		1,012
Total current liabilities		515,349		513,473			538,226		522,380
Long-term operating lease liabilities		1,101,148		1,095,909			1,312,823		1,145,173
Long-term debt and finance lease liabilities		259,219		259,656			184,173		258,902
Other long-term liabilities		38,253		36,306			36,478		36,340
Deferred income tax liability		59,665		57,895			61,343		61,123
Total liabilities		1,973,634		1,963,239			2,133,043		2,023,918
Commitments and contingencies (Note 7)
Stockholders’ equity:
Undesignated preferred stock; $0.001 par value; 10,000,000 shares authorized, 0 shares issued and outstanding		0		0
Common stock, $0.001 par value; 200,000,000 shares authorized, 107,967,677 shares issued and outstanding, July 3, 2022; 111,114,374 shares issued and outstanding, January 2, 2022		108		111
Undesignated preferred stock; $0.001 par value; 10,000,000 shares authorized, no shares issued and outstanding							—		—
Common stock, $0.001 par value; 200,000,000 shares authorized, 102,183,083 shares issued and outstanding, July 2, 2023; 105,072,756 shares issued and outstanding, January 1, 2023							102		105
Additional paid-in capital		715,331		704,701			761,181		726,345
Accumulated other comprehensive income (loss)		193		(3,758	)
Retained earnings		298,058		258,822			313,870		320,012
Total stockholders’ equity		1,013,690		959,876			1,075,153		1,046,462
Total liabilities and stockholders’ equity	$	2,987,324	$	2,923,115		$	3,208,196	$	3,070,380

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


	Thirteen weeks ended					Twenty-six weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	July 3, 2022		July 4, 2021			July 3, 2022		July 4, 2021		July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Net sales	$	1,595,482	$	1,521,993		$	3,236,643	$	3,097,440	$	1,692,247	$	1,595,482	$	3,425,557	$	3,236,643
Cost of sales		1,015,125		971,912			2,044,538		1,961,185		1,066,275		1,015,125		2,149,523		2,044,538
Gross profit		580,357		550,081			1,192,105		1,136,255		625,972		580,357		1,276,034		1,192,105
Selling, general and administrative expenses		462,110		436,420			922,020		876,082		497,965		462,110		984,160		922,020
Depreciation and amortization (exclusive of depreciation included in cost of sales)		31,244		30,430			63,064		61,659		33,964		31,244		68,032		63,064
Store closure and other costs, net		493		(419	)		870		1,629		2,427		493		30,704		870
Income from operations		86,510		83,650			206,151		196,885		91,616		86,510		193,138		206,151
Interest expense, net		2,658		2,938			5,697		5,929		2,140		2,658		4,360		5,697
Income before income taxes		83,852		80,712			200,454		190,956		89,476		83,852		188,778		200,454
Income tax provision		21,855		19,698			50,150		46,894		22,142		21,855		45,284		50,150
Net income	$	61,997	$	61,014		$	150,304	$	144,062	$	67,334	$	61,997	$	143,494	$	150,304
Net income per share:
Basic	$	0.57	$	0.52		$	1.37	$	1.22	$	0.65	$	0.57	$	1.39	$	1.37
Diluted	$	0.57	$	0.52		$	1.36	$	1.22	$	0.65	$	0.57	$	1.38	$	1.36
Weighted average shares outstanding:
Basic		109,067		117,246			109,985		117,645		102,824		109,067		103,326		109,985
Diluted		109,619		117,831			110,762		118,265		103,514		109,619		104,240		110,762

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(IN THOUSANDS)

Thirteen weeks ended

Twenty-six weeks ended

July 3, 2022

July 4, 2021

July 3, 2022

July 4, 2021

Net income

$
61,997

$
61,014

$
150,304

$
144,062

Other comprehensive income (loss), net of tax

Unrealized gains (losses) on cash flow
   hedging activities, net of income tax of
    $778, $685, $2,018 and $1,485

2,248

1,981

5,834

4,295

Reclassification of net gains (losses) on
   cash flow hedges to net income, net
   of income tax of ($274), ($370), ($651) and ($740)

(792
)

(1,070
)

(1,883
)

(2,140
)
Total other comprehensive income (loss)

1,456

911

3,951

2,155

Comprehensive income

$
63,453

$
61,925

$
154,255

$
146,217


	Thirteen weeks ended					Twenty-six weeks ended
	July 2, 2023		July 3, 2022			July 2, 2023		July 3, 2022
Net income	$	67,334	$	61,997		$	143,494	$	150,304

Other comprehensive income, net of tax
Unrealized gains on cash flow hedging activities, net of income tax of $778 and $2,018 during the thirteen and twenty-six weeks ended July 3, 2022		—		2,248			—		5,834
Reclassification of net losses on cash flow hedges to net income, net of income tax of ($274) and ($651) during the thirteen and twenty- six weeks ended July 3, 2022		—		(792	)		—		(1,883	)
Total other comprehensive income		—		1,456			—		3,951

Comprehensive income	$	67,334	$	63,453		$	143,494	$	154,255

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)


For the thirteen and twenty-six weeks ended July 3, 2022
For the thirteen and twenty-six weeks ended July 2, 2023																		For the thirteen and twenty-six weeks ended July 2, 2023

	Shares			Common Stock			Additional Paid In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity				Shares			Common Stock			Additional Paid In Capital		Retained Earnings			Total Stockholders’ Equity
Balances at April 3, 2022		110,243,288		$	110		$	711,712	$	301,415		$	(1,263	)	$	1,011,974
Balances at April 2, 2023																				103,470,717		$	104		$	753,822	$	297,004		$	1,050,930
Net income		—			—			—		61,997			—			61,997				—			—			—		67,334			67,334
Other comprehensive income (loss)		—			—			—		—			1,456			1,456
Issuance of shares under stock plans		122,060			—			155		—			—			155				150,298			—			1,750		—			1,750
Repurchase and retirement of common stock		(2,397,671	)		(2	)		—		(65,354	)		—			(65,356	)			(1,437,932	)		(2	)		—		(50,468	)		(50,470	)
Share-based compensation		—			—			3,464		—			—			3,464				—			—			5,609		—			5,609
Balances at July 3, 2022		107,967,677		$	108		$	715,331	$	298,058		$	193		$	1,013,690
Balances at July 2, 2023																				102,183,083		$	102		$	761,181	$	313,870		$	1,075,153

	Shares			Common Stock			Additional Paid In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity				Shares			Common Stock			Additional Paid In Capital		Retained Earnings			Total Stockholders’ Equity
Balances at January 2, 2022		111,114,374		$	111		$	704,701	$	258,822		$	(3,758	)	$	959,876
Balances at January 1, 2023																				105,072,756		$	105		$	726,345	$	320,012		$	1,046,462
Net income		—			—			—		150,304			—			150,304				—			—			—		143,494			143,494
Other comprehensive income (loss)		—			—			—		—			3,951			3,951
Issuance of shares under stock plans		732,161			—			2,710		—			—			2,710				1,032,312			1			7,237		—			7,238
Repurchase and retirement of common stock		(3,878,858	)		(3	)		—		(111,068	)		—			(111,071	)			(4,476,343	)		(5	)		—		(149,636	)		(149,641	)
Share-based compensation		—			—			7,920		—			—			7,920				—			—			9,461		—			9,461
Balances at July 3, 2022		107,967,677		$	108		$	715,331	$	298,058		$	193		$	1,013,690
Issuance of shares for acquisition																				554,358			1			18,138		—			18,139
Balances at July 2, 2023																				102,183,083		$	102		$	761,181	$	313,870		$	1,075,153

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents


For the thirteen and twenty-six weeks ended July 4, 2021
For the thirteen and twenty-six weeks ended July 3, 2022																		For the thirteen and twenty-six weeks ended July 3, 2022

	Shares			Common Stock			Additional Paid In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity				Shares			Common Stock			Additional Paid In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balances at April 4, 2021		118,194,576		$	118		$	691,142	$	282,840		$	(7,230	)	$	966,870
Balances at April 3, 2022																				110,243,288		$	110		$	711,712	$	301,415		$	(1,263	)	$	1,011,974
Net income		—			—			—		61,014			—			61,014				—			—			—		61,997			—			61,997
Other comprehensive income (loss)		—			—			—		—			911			911
Other comprehensive income																				—			—			—		—			1,456			1,456
Issuance of shares under stock plans		136,905			—			365		—			—			365				122,060			—			155		—			—			155
Repurchase and retirement of common stock		(3,150,649	)		(3	)		—		(84,272	)		—			(84,275	)			(2,397,671	)		(2	)		—		(65,354	)		—			(65,356	)
Share-based compensation		—			—			4,238		—			—			4,238				—			—			3,464		—			—			3,464
Balances at July 4, 2021		115,180,832		$	115		$	695,745	$	259,582		$	(6,319	)	$	949,123
Balances at July 3, 2022																				107,967,677		$	108		$	715,331	$	298,058		$	193		$	1,013,690

																			Shares			Common Stock			Additional Paid In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Shares			Common Stock			Additional Paid In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balances at January 3, 2021		117,953,435		$	118		$	686,648	$	203,001		$	(8,474	)	$	881,293
Balances at January 2, 2022																				111,114,374		$	111		$	704,701	$	258,822		$	(3,758	)	$	959,876
Net income		—			—			—		144,062			—			144,062				—			—			—		150,304			—			150,304
Other comprehensive income (loss)		—			—			—		—			2,155			2,155
Other comprehensive income																				—			—			—		—			3,951			3,951
Issuance of shares under stock plans		508,014			—			1,246		—			—			1,246				732,161			—			2,710		—			—			2,710
Repurchase and retirement of common stock		(3,280,617	)		(3	)		—		(87,481	)		—			(87,484	)			(3,878,858	)		(3	)		—		(111,068	)		—			(111,071	)
Share-based compensation		—			—			7,851		—			—			7,851				—			—			7,920		—			—			7,920
Balances at July 4, 2021		115,180,832		$	115		$	695,745	$	259,582		$	(6,319	)	$	949,123
Balances at July 3, 2022																				107,967,677		$	108		$	715,331	$	298,058		$	193		$	1,013,690

The accompanying notes are an integral part of these consolidated financial statements.

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SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)


	Twenty-six weeks ended						Twenty-six weeks ended
	July 3, 2022			July 4, 2021			July 2, 2023			July 3, 2022
Operating activities
Net income	$	150,304		$	144,062		$	143,494		$	150,304
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		64,856			63,152			70,013			64,856
Operating lease asset amortization		57,360			52,631			62,331			57,360
Store closure and other costs, net		171			0
Impairment of assets								27,845			171
Share-based compensation		7,920			7,851			9,461			7,920
Deferred income taxes		1,770			2,920			(5,953	)		1,770
Other non-cash items		324			740			254			324
Changes in operating assets and liabilities:
Changes in operating assets and liabilities, net of effects from acquisition:
Accounts receivable		11,389			14,685			8,390			11,389
Inventories		(27,475	)		(19,873	)		(7,665	)		(27,475	)
Prepaid expenses and other current assets		(12,851	)		(13,679	)		9,915			(12,851	)
Other assets		164			(4,363	)		3,205			164
Accounts payable		32,877			23,653			3,374			32,877
Accrued liabilities		(318	)		(8,416	)		41,733			(318	)
Accrued salaries and benefits		(10,521	)		(28,587	)		(2,561	)		(10,521	)
Operating lease liabilities		(65,502	)		(58,131	)		(68,986	)		(65,502	)
Other long-term liabilities		(1,505	)		660			(69	)		(1,505	)
Cash flows from operating activities		208,963			177,305			294,781			208,963
Investing activities
Purchases of property and equipment		(53,098	)		(39,421	)		(98,683	)		(53,098	)
Payments for acquisition, net of cash acquired								(13,042	)		—
Cash flows used in investing activities		(53,098	)		(39,421	)		(111,725	)		(53,098	)
Financing activities
Proceeds from revolving credit facilities								—			62,500
Payments on revolving credit facilities								(75,000	)		(62,500	)
Payments on finance lease liabilities		(385	)		(333	)		(482	)		(385	)
Payments of deferred financing costs		(3,373	)		0			—			(3,373	)
Repurchase of common stock		(111,071	)		(87,484	)		(148,346	)		(111,071	)
Proceeds from exercise of stock options		2,710			1,246			7,238			2,710
Cash flows used in financing activities		(112,119	)		(86,571	)		(216,590	)		(112,119	)
Increase in cash, cash equivalents, and restricted cash		43,746			51,313
(Decrease)/Increase in cash, cash equivalents, and restricted cash								(33,534	)		43,746
Cash, cash equivalents, and restricted cash at beginning of the period		247,004			171,441			295,192			247,004
Cash, cash equivalents, and restricted cash at the end of the period	$	290,750		$	222,754		$	261,658		$	290,750

Supplemental disclosure of cash flow information
Cash paid for interest	$	5,717		$	6,128		$	7,517		$	5,717
Cash paid for income taxes		46,257			49,071			43,191			46,257

Supplemental disclosure of non-cash activities
Property and equipment in accounts payable and accrued liabilities							$	26,818		$	10,934
Issuance of shares for acquisition								18,139			—
Leased assets obtained in exchange for new operating lease liabilities		68,668			60,074			207,835			68,668

Supplemental disclosure of non-cash investing and financing activities
Property and equipment in accounts payable and accrued liabilities	$	10,934		$	11,771
Leased assets obtained in exchange for new finance lease liabilities								809			—

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

Sprouts Farmers Market, Inc., a Delaware corporation, through its subsidiaries, ~~operates as a healthy grocery store that~~ offers a unique ~~grocery~~food specialty retail experience featuring an open layout with fresh produce at the heart of the store. The Company continues to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. As of July ~~3, 2022,~~2, 2023, the Company operated ~~378~~391 stores in 23 states. ~~The~~For convenience, the “Company” is used to refer collectively to Sprouts Farmers Market, Inc. and unless the context otherwise requires, its subsidiaries.

The accompanying unaudited consolidated financial statements include the accounts of the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and are in the form prescribed by the Securities and Exchange Commission in instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company's financial position, results of operations and cash flows for the periods indicated. All material intercompany accounts and transactions have been eliminated in consolidation. Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The information included in these consolidated financial statements and notes thereto should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto for the fiscal year ended January ~~2, 2022~~1, 2023 (“fiscal year ~~2021”~~2022”) included in the Company’s Annual Report on Form 10-K, filed on ~~February 24, 2022.~~March 2, 2023.

The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP.

The Company reports its results of operations on a 52- or 53-week fiscal calendar ending on the Sunday closest to December 31. The fiscal year ending ~~January 1,~~December 31, 2023 (“fiscal year ~~2022”~~2023”) and fiscal year ~~2021~~2022 are 52-week years. The Company reports its results of operations on a 13-week quarter, except for 53-week fiscal years (in which the fourth quarter has 14 weeks).

All dollar amounts are in thousands, unless otherwise noted.

Revision of previously issued financial statements

The Company identified an error in the financing activities section of its consolidated statements of cash flows for the twenty-six weeks ended July 3, 2022, related to the presentation of proceeds from and repayments of borrowings associated with a modification of the Company's revolving credit facility on March 25, 2022. The correction of the error did not have any impact on the previously reported consolidated balance sheets, statements of income, or statements of comprehensive income, nor did it have any impact on total cash flows from operating activities or used in investing or financing activities. Although the Company has determined that the error did not have a material impact on its previously issued consolidated financial statements, the Company revised the presentation of cash flows from financing activities to reflect the proceeds from borrowings under the revolving credit facility of $62.5 million as a cash inflow from financing activities, and the repayments of borrowings under the revolving credit facility of $62.5 million as a cash outflow from financing activities.

Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

2. Summary of Significant Accounting Policies

Revenue Recognition

The Company’s performance obligations are satisfied upon the transfer of goods to the customer, which occurs at the point of sale, and payment from customers is also due at the time of sale. Proceeds from the sale of gift cards are recorded as a liability at the time of sale and recognized as sales when they are redeemed by the customer and the performance obligation is satisfied by the Company. The Company’s gift cards do not expire. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was not material in any period presented.A summary of the activity and balances in the gift card liability, net is as follows:

Balance at
January 2, 2022

Gift Cards Issued During
Current Period but Not
Redeemed(1)

Revenue Recognized from
Beginning Liability

Balance at
July 3, 2022

Gift card liability, net

$
12,586

$
1,568

$
(4,554
)

$
9,600


	Twenty-six weeks ended
	July 2, 2023			July 3, 2022
Balance, beginning of year	$	10,906		$	12,586
Gift cards issued during the period but not redeemed(1)		1,621			1,568
Revenue recognized from beginning liability		(3,562	)		(4,554	)
Balance, end of year	$	8,965		$	9,600

(1) net of estimated breakage

The nature of goods the Company transfers to customers at the point of sale are inventories, consisting of merchandise purchased for resale.

The Company does not have any material contract assets or receivables from contracts with customers, any revenue recognized in the current period from performance obligations satisfied in previous periods, any contract performance obligations, or any ~~remaining performance obligations~~material costs to obtain or fulfill a contract as of July ~~3, 2022.~~2, 2023.

Restricted Cash

Restricted cash relates to the Company's defined benefit plan forfeitures ~~as well as~~and the Company's healthcare, general liability and workers’ compensation ~~restricted funds~~plan benefits of approximately $~~1.8~~2.2 million and $~~1.7~~2.0 million as of July ~~3, 2022~~2, 2023 and January ~~2, 2022,~~1, 2023, respectively. These balances are included in prepaid expenses and other current assets in the consolidated balance sheets.

Recently ~~Adopted Accounting Pronouncements~~

~~Reference Rate Reform~~

In March 2020 and January 2021, the FASB issued ASU no. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and ASU 2021-01, “Reference Rate Reform (Topic 848): Scope,” respectively. The amendments in these updates provide optional expedients and exceptions for a limited period of time to ease the potential burden in accounting for contracts, hedging relationships, and other transactions affected by reference rate reform. In the twenty-six weeks ended July 3, 2022, the Company adopted certain optional expedients provided under Topic 848 that permit its hedging relationships to continue without de-designation upon changes due to reference rate reform. The adoption of this guidance resulted in no material impact to the Company’s consolidated financial statements. See Note 10, “Derivative Financial Instruments” for more information on our hedging activities. The optional expedients and accounting relief in Topic 848 remain effective through December 31, 2022.

~~Recently~~ Issued Accounting Pronouncements Not Yet Adopted

No ~~other~~ new accounting pronouncements issued or effective during the thirteen weeks ended July ~~3, 2022~~2, 2023 had, or are expected to have, a material impact on the Company’s consolidated financial statements.

~~SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

3. Fair Value Measurements

The Company records its financial assets and liabilities in accordance with the framework for measuring fair value in accordance with GAAP. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:

Level 1: Quoted prices for identical instruments in active markets.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in the ~~valuation of derivative instruments,~~ impairment analysis of goodwill, intangible assets and long-lived assets.

The following tables present the fair value hierarchy for the Company’s financial liabilities measured at fair value on a recurring basis as of July ~~3, 2022~~2, 2023 and January ~~2, 2022:~~1, 2023:

July 3, 2022

Level 1

Level 2

Level 3

Total

Long-term debt

$
—

$
250,000

$
—

$
250,000

Total financial liabilities

$
—

$
250,000

$
—

$
250,000

Interest rate swap asset

$
—

$
230

$
—

$
230

Total assets

$
—

$
230

$
—

$
230

January 2, 2022

Level 1

Level 2

Level 3

Total

Long-term debt

$
—

$
250,000

$
—

$
250,000

Interest rate swap liability

—

5,107

—

5,107

Total financial liabilities

$
—

$
255,107

$
—

$
255,107

The Company’s interest rate swaps are considered Level 2 in the hierarchy and are valued using an income approach. Expected future cash flows are converted to a present value amount based on market expectations of the yield curve on floating interest rates, which is readily available on public markets.


July 2, 2023	Level 1		Level 2		Level 3		Total
Long-term debt	$	—	$	175,000	$	—	$	175,000
Total financial liabilities	$	—	$	175,000	$	—	$	175,000

January 1, 2023	Level 1		Level 2		Level 3		Total
Long-term debt	$	—	$	250,000	$	—	$	250,000
Total financial liabilities	$	—	$	250,000	$	—	$	250,000

The determination of fair values of certain tangible and intangible assets for purposes of the Company’s goodwill or long-lived asset impairment evaluation ~~as described above~~ is based upon Level 3 inputs. ~~The weighted average cost~~When necessary, the Company uses third party market data and market participant assumptions to derive the fair value of ~~capital is estimated using information from comparable companies~~its asset groupings, which primarily include right-of-use lease assets and ~~management’s judgment related to the risk associated with the operations of the stores.~~property and equipment.

Cash, cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, and accrued salaries and benefits approximate fair value because of the short maturity of those instruments. Based on comparable open market transactions, the fair value of the long-term debt approximated carrying value as of July ~~3, 2022~~2, 2023 and January ~~2, 2022.~~1, 2023.

~~SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

4. Long-Term Debt and Finance Lease Liabilities

A summary of long-term debt and finance lease liabilities is as follows:


			As of						As of
Facility	Maturity	Interest Rate	July 3, 2022		January 2, 2022		Maturity	Interest Rate	July 2, 2023		January 1, 2023
Senior secured debt
$700.0 million Credit Agreement	March 25, 2027	Variable	$	250,000	$	—	March 25, 2027	Variable	$	175,000	$	250,000
Former Credit Facility	March 27, 2023	Variable		—		250,000
Finance lease liabilities	Various	n/a		9,219		9,656	Various	n/a		9,173		8,902
Long-term debt and finance lease liabilities			$	259,219	$	259,656			$	184,173	$	258,902

~~New~~ Credit Agreement

The Company’s subsidiary, Sprouts Farmers Markets Holdings, LLC (“Intermediate Holdings”), is the borrower under a credit agreement entered into on March 25, 2022 (the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility (the "Revolving Credit Facility") with an initial aggregate commitment of $700.0 million. Amounts outstanding under the Credit Agreement may be increased from time to time in accordance with an expansion feature set forth in the Credit Agreement.

The Company capitalized debt issuance costs of $3.4 million related to the Credit Agreement, which, combined with the remaining $0.5 million debt issuance costs in respect of that certain amended and restated credit agreement entered into on March 27, 2018, by and among the Company, Intermediate Holdings, certain lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (the “Former Credit Facility”), which remained outstanding as of the time of Intermediate Holdings’ entry into the Credit Agreement, were recorded to prepaid expenses and other current assets and other assets in the consolidated balance sheets and are being amortized on a straight-line basis to interest expense over the five-year term of the Credit Agreement.

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SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Credit Agreement provides for a $70.0 million letter of credit sub-facility (the "Letter of Credit Sub-Facility") and a $50.0 million swingline facility. Letters of credit issued under the Credit Agreement reduce the capacity of Intermediate Holdings to borrow under the Revolving Credit Facility. Letters of credit totaling $~~24.8~~21.5 million have been issued as of July ~~3, 2022~~2, 2023 under the Letter of Credit Sub-Facility, primarily to support the Company’s insurance programs.

Guarantees

Obligations under the Credit Agreement are guaranteed by the Company and substantially all of its existing and future wholly-owned material domestic subsidiaries, and are secured by first-priority security interests in substantially all of the assets of the Company, Intermediate Holdings, and the subsidiary guarantors, including, without limitation, a pledge by the Company of its equity interest in Intermediate Holdings.

Interest and Fees

Loans under the Credit Agreement will initially bear interest, at the Company's option, either at the Term SOFR (with a floor of 0.00%) plus a 0.10% SOFR adjustment and 1.00% per annum or base rate (with a floor of 0.00%) plus 0.00% per annum. The interest rate margins are subject to upward adjustments pursuant to a pricing grid based on the Company’s total net leverage ratio as set forth in the Credit Agreement and to upward or downward adjustments of up to 0.05% based upon the achievement of certain diversity and sustainability-linked metric thresholds, as set forth in the Credit Agreement.

Under the terms of the Credit Agreement, the Company is obligated to pay a commitment fee on the available unused amount of the commitments, which commitment fee ranges between 0.10% to 0.225% per annum, pursuant to a pricing grid based on the Company’s total net leverage ratio. The commitment fees are subject to upward or downward adjustments of up to 0.01% based upon the achievement of certain diversity and sustainability-linked metric thresholds, as set forth in the Credit Agreement.

~~SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

As of July ~~3, 2022,~~2, 2023, loans outstanding under the Credit Agreement bore interest at Term SOFR (as defined in the Credit Agreement) plus a 0.10% SOFR adjustment and ~~1.00~~0.95% per annum.

~~The effective interest rate on~~ ~~100% of outstanding debt under the Credit Agreement is fixed, reflecting the effects of floating to fixed interest rate swaps (see Note 10, “Derivative Financial Instruments”).~~

As of July ~~3, 2022,~~2, 2023, outstanding letters of credit issued under the Credit Agreement were subject to a participation fee of ~~1.00~~0.95% per annum and an issuance fee of 0.125% per annum.

Payments and Borrowings

The Credit Agreement is scheduled to mature, and the commitments thereunder will terminate on March 25, 2027, subject to extensions as set forth therein.

The Company may prepay loans and permanently reduce commitments under the Credit Agreement at any time in agreed-upon minimum principal amounts, without premium or penalty (except SOFR breakage costs, if applicable).

In connection with the execution of the Credit Agreement, the Company's obligations ~~as borrower~~ under the Former Credit Facility were prepaid and terminated.

During the thirteen and twenty-six weeks ended July 3,2, 2023, the Company made no additional borrowings and made principal payments of $50.0 million and $75.0 million, respectively, resulting in total outstanding debt under the Credit Agreement of $175.0 million as of July 2, 2023. During 2022, the Company made 0no additional borrowings or principal payments, other than the net change of $62.5 million in the composition of the lending syndicate associated with a modification of the Company's revolving credit facility on March 25, 2022, resulting in total outstanding debt under the Credit Agreement of $250.0 million as of ~~July 3, 2022.~~January 1, 2023.

~~Covenants~~Subsequent to July 2, 2023, the Company made a $25.0 million principal payment, resulting in total outstanding debt under the Credit Agreement of $150.0 million as of August 1, 2023.

Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Covenants

The Credit Agreement contains financial, affirmative and negative covenants. The negative covenants include, among other things, limitations on the Company’s ability to:

•

incur additional indebtedness;

•

grant additional liens;

•

enter into sale-leaseback transactions;

•

make loans or investments;

•

merge, consolidate or enter into acquisitions;

•

pay dividends or distributions;

•

enter into transactions with affiliates;

•

enter into new lines of business;

•

modify the terms of certain debt or other material agreements; and

•

change its fiscal year.

Each of these covenants is subject to customary and other agreed-upon exceptions.

In addition, the Credit Agreement requires that the Company and its subsidiaries maintain a maximum total net leverage ratio not to exceed 3.75 to 1.00, which ratio may be increased from time to time in connection with certain permitted acquisitions pursuant to conditions as set forth in the Credit Agreement, and a minimum interest coverage ratio not to be less than 3.00 to ~~1.00.~~1.00. Each of these covenants is tested as of the last day of each fiscal quarter.

The Company was in compliance with all applicable covenants under the Credit Agreement as of July ~~3, 2022.~~2, 2023.

~~SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

5. Income Taxes

The Company’s effective tax rate ~~increased~~decreased to 24.7% for the thirteen weeks ended July 2, 2023, compared to 26.1% for the thirteen weeks ended July 3, ~~2022, compared to~~ ~~24.4% for the thirteen weeks ended July 4, 2021.The increase~~2022. The decrease in the effective tax rate is primarily due to ~~a decrease in enhanced charitable contributions due to the expiration of CARES Act benefits as well as~~ an increase ~~of non-deductible executive compensation.~~in excess tax benefits associated with share-based payment awards.

The ~~Company’s~~Company's effective tax rate ~~increased~~decreased to 24.0% for the twenty-six weeks ended July 2, 2023 compared to 25.0% for the twenty-six weeks ended July 3, ~~2022, compared to~~ ~~24.6% for the twenty-six weeks ended July 4, 2021.The increase~~2022. The decrease in the effective tax rate is primarily due to ~~a decrease in enhanced charitable contributions due to the expiration of CARES Act benefits as well as an increase of non-deductible executive compensation, partially offset by~~ an increase in ~~benefit from~~excess tax benefits associated with share-based payment ~~awards in the current year.~~awards. The income tax effect resulting from excess tax benefits of share-based payment awards were $~~1.6~~3.0 million and $~~0.2~~1.6 million for the twenty-six weeks ended July ~~3, 2022~~2, 2023 and July ~~4, 2021,~~3, 2022, respectively.

The Company files income tax returns for federal purposes and in many states. The Company’s tax filings remain subject to examination by applicable tax authorities for a certain length of time, generally three years, following the tax year to which those filings relate. ~~The Company’s U.S. federal income tax returns for the fiscal years ended December 31, 2017 and January 1, 2017, are currently under examination by the Internal Revenue Service.~~

6. Related Party Transactions

During the thirteen and twenty-six weeks ended July 2, 2023, the Company did not have any material related party transactions.

On May 24, 2022, the Company appointed a new member to its board of directors who isserved as an executive officer of a company that is a supplier of nutrition bars and related products to the Company for resale. ~~During~~The director departed employment from this supplier on February 28, 2023. The cost of sales recognized from this supplier during the thirteen weeks ended July 3, 2022 ~~the cost of sales recognized from this supplier~~ was $1.3 million.

Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

7. Commitments and Contingencies

The Company is exposed to claims and litigation matters arising in the ordinary course of business and uses various methods to resolve these matters that are believed to best serve the interests of the Company’s stakeholders. The Company’s primary contingencies are associated with self-insurance obligations and litigation matters. Self-insurance liabilities require significant judgment and actual claim settlements and associated expenses may differ from the Company’s current provisions for loss.

Proposition 65 Coffee Action

On April 13, 2010, an organization named Council for Education and Research on Toxics (“CERT”) filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, against nearly 80 defendants who manufacture, package, distribute or sell brewed coffee, including the Company. CERT alleged that the defendants failed to provide warnings for their coffee products of exposure to the chemical acrylamide as required under California Health and Safety Code section 25249.5, the California Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65. CERT seeks equitable relief, including providing warnings to consumers of coffee products, as well as civil penalties.

The Company, as part of a joint defense group, asserted multiple defenses against the lawsuit. On May 7, 2018, the trial court issued a ruling adverse to defendants on these defenses to liability. On October 1, 2019, before the court tried damages, remedies and attorneys' fees, California’s Office of Environmental Health Hazard Assessment adopted a regulation that exempted “Exposures to listed chemicals in coffee created by and inherent in the processes of roasting coffee beans or brewing coffee” from Proposition 65’s warning requirement. On August 25, 2020, the court granted the defense motion for summary judgment based on the regulation, and the case was dismissed.

~~SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

On November 20, 2020, CERT filed a notice of appeal to appeal the ruling on the defense motion for summary judgment. ~~The case is fully briefed, with a decision expected in late~~On October 26, 2022, ~~or early 2023. At~~the appellate court affirmed the trial court’s decision. In December 2022, CERT appealed this ~~stage~~ruling to the Supreme Court of the ~~proceedings,~~State of California, which denied the ~~Company is unable to predict or reasonably estimate any potential loss or effect on~~petition for review in February 2023, concluding the ~~Company or its operations. Accordingly, no loss contingency was recorded for this~~ matter.

8. Stockholders’ Equity

Share Repurchases

On March 2, 2022, the Company's board of directors authorized a new $600 million share repurchase program for its common stock. The new authorization replaced the Company's then-existing share repurchase authorization of $300 million that was due to expire on March 3, 2024, of which $99.8 million remained available upon its replacement. No further shares may be repurchased under the $300 million authorization. The following table outlines the common stock share repurchase ~~programs~~program authorized by the Company’s board of directors and the related repurchase activity and available authorization as of July ~~3, 2022.~~2, 2023.


Effective date	Expiration date	Amount authorized		Cost of repurchases		Authorization available		Expiration date	Amount authorized		Cost of repurchases		Authorization available
March 3, 2021	March 2, 2022	$	300,000	$	200,200	$	0
March 2, 2022	December 31, 2024	$	600,000	$	99,214	$	500,786	December 31, 2024	$	600,000	$	336,470	$	263,530

The shares under the Company’s repurchase programs may be purchased on a discretionary basis from time to time through the applicable expiration date, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. The board’s authorization of the share repurchase programs does not obligate the Company to acquire any particular amount of common stock, and the repurchase programs may be commenced, suspended, or discontinued at any time.

Share repurchase activity under the Company’s repurchase programs for the periods indicated was as follows (total cost in thousands):

Thirteen weeks ended

Twenty-six weeks ended

July 3, 2022

July 4, 2021

July 3, 2022

July 4, 2021

Number of common shares acquired

2,397,671

3,150,649

3,878,858

3,280,617

Average price per common share acquired

$
27.26

$
26.75

$
28.63

$
26.67

Total cost of common shares acquired

$
65,356

$
84,275

$
111,071

$
87,484

Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Thirteen weeks ended				Twenty-six weeks ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Number of common shares acquired		1,437,932		2,397,671		4,476,343		3,878,858
Average price per common share acquired	$	35.10	$	27.26	$	33.43	$	28.63
Total cost of common shares acquired	$	50,470	$	65,356	$	149,641	$	111,071

Shares purchased under the Company’s repurchase programs were subsequently retired and the excess of the repurchase price over par value was charged to retained earnings. The cost of common shares repurchased during the thirteen and twenty-six weeks ended July 2, 2023 included the 1% excise tax imposed as part of the Inflation Reduction Act of 2022.

Subsequent to July ~~3, 2022~~2, 2023 and through ~~August 1, 2022,~~the date of this filing, the Company repurchased an additional ~~0.5~~0.2 million shares of common stock for $~~14.1~~6.6 million.

9. Net Income Per Share

The computation of basic net income per share is based on the number of weighted average shares outstanding during the period. The computation of diluted net income per share includes the dilutive effect of share equivalents consisting of incremental shares deemed outstanding from the assumed exercise of options ~~assumed vesting of~~and unvested restricted stock units ~~(“RSUs”~~("RSUs") ~~and assumed vesting of performance~~. Performance share awards ~~(“PSAs”~~("PSAs")~~. PSAs~~ are included in the computation of diluted net income per share only to the extent that the underlying performance conditions are satisfied prior to the end of the reporting period or would be satisfied if the end of the reporting period were the end of the related performance period, and if the effect would be dilutive.

~~SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

A reconciliation of the numerators and denominators of the basic and diluted net income per share calculations is as follows (in thousands, except per share amounts):


	Thirteen weeks ended				Twenty-six weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021		July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Basic net income per share:
Net income	$	61,997	$	61,014	$	150,304	$	144,062	$	67,334	$	61,997	$	143,494	$	150,304
Weighted average shares outstanding		109,067		117,246		109,985		117,645		102,824		109,067		103,326		109,985
Basic net income per share	$	0.57	$	0.52	$	1.37	$	1.22	$	0.65	$	0.57	$	1.39	$	1.37
Diluted net income per share:
Net income	$	61,997	$	61,014	$	150,304	$	144,062	$	67,334	$	61,997	$	143,494	$	150,304
Weighted average shares outstanding - basic		109,067		117,246		109,985		117,645		102,824		109,067		103,326		109,985
Dilutive effect of share-based awards:
Assumed exercise of options to purchase shares		294		276		320		217		303		294		353		320
RSUs		258		309		401		393		387		258		474		401
PSAs		—		—		56		10		—		—		87		56
Weighted average shares and equivalent shares outstanding		109,619		117,831		110,762		118,265		103,514		109,619		104,240		110,762
Diluted net income per share	$	0.57	$	0.52	$	1.36	$	1.22	$	0.65	$	0.57	$	1.38	$	1.36

Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

For the thirteen weeks ended July 2, 2023, the Company had 0.4 million options and 0.5 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met. For the thirteen weeks ended July 3, 2022, the Company had 0.6 million options, 0.5 million RSUs, and 0.5 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met.

For the ~~thirteen~~twenty-six weeks ended July ~~4, 2021,~~2, 2023, the Company had ~~0.5~~0.4 million options~~0.1~~ ~~million RSUs,~~ and 0.5 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met.

For the twenty-six weeks ended July 3, 2022, the Company had 0.5 million options, 0.5 million RSUs, and 0.5 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met. ~~For the twenty-six weeks ended July 4, 2021, the Company had~~ ~~0.5~~ ~~million options,~~ ~~0.1~~ ~~million RSUs, and~~ ~~0.5~~ million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met.

10. Derivative Financial Instruments

The Company did not have any outstanding interest rate swap agreements as of July 2, 2023 and January 1, 2023.

In December 2017, the Company entered into an interest rate swap agreement ~~in December 2017~~ to manage its cash flow associated with variable interest rates. This forward contract ~~has been~~was designated and ~~qualifies~~qualified as a cash flow hedge, and its change in fair value iswas recorded as a component of other comprehensive income and reclassified into earnings in the same period or periods in which the forecasted transaction ~~occurs.~~occurred. The forward contract ~~initially~~ consisted of 5five cash flow hedges ~~of which~~ 1 ~~was outstanding at July 3, 2022. To qualify as~~with a ~~hedge, the Company needs to formally document, designate and assess the effectiveness of the transactions that receive hedge accounting.~~

~~SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~The~~ notional dollar amount of ~~the~~ 1 ~~outstanding swap was~~ $250.0 million, ~~at July 3, 2022~~ and January 2, 2022, under which the Company pays a fixed rate and receives a variable rate of interest (cash flow swap). The cash flow swap hedges the change in interest rates on debt related to fluctuations in interest rates and haseach had a length of one year~~, maturing in~~ and matured annually from 2018 to 2022. ~~This interest rate swap has been designated and qualifies as a cash flow hedge and has met the requirements to assume~~ 0 ineffectiveness. The Company reviews the effectiveness of its hedging instruments on a quarterly basis. During the first quarter of 2022, the Company elected to apply certain hedge accounting optional expedients allowed under Topic 848. The expedients allow the Company to continue the method of assessing effectiveness as documented in the original hedge documentation and allows the reference rate on the hypothetical derivative to match the reference rate on the hedging instrument.

The counterparties to these derivative financial instruments are major financial institutions. The Company evaluates the credit ratings of the financial institutions and believes that credit risk is at an acceptable level. ~~The following table summarizes the fair value of the Company’s derivative instruments designated as hedging instruments:~~

As of
July 3, 2022

As of
January 2, 2022

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Interest rate swaps

Other current assets

$
230

Other current assets

$
—

Interest rate swaps

Accrued liabilities

$
—

Accrued liabilities

$
5,107

The gain or loss on these derivative instruments iswas recognized in other comprehensive income, net of tax, with the portion related to current period interest payments reclassified to interest expense, net on the consolidated statements of income. The following table summarizes these losses classified on the consolidated statements of income:


	Thirteen weeks ended				Twenty-six weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021		July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Consolidated Statements of Income Classification
Interest expense, net	$	1,066	$	1,440	$	2,534	$	2,880	$	—	$	1,066	$	—	$	2,534

~~SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

11. Comprehensive Income

The following table presents the changes in accumulated other comprehensive income (loss) for the twenty-six weeks ended July ~~4, 2021 and July~~ 3, 2022.

Cash Flow
Hedges

Balance at January 3, 2021

$
(8,474
)
Other comprehensive income (loss), net of tax

Unrealized gains on cash flow hedging activities, net of income tax of $1,485

4,295

Reclassification of net losses on cash flow hedges to net income, net of income
tax of ($740)

(2,140
)
Total other comprehensive income (loss)

2,155

Balance at July 4, 2021

$
(6,319
)

Balance at January 2, 2022

$
(3,758
)
Other comprehensive income (loss), net of tax

Unrealized gains on cash flow hedging activities, net of income tax of $2,018

5,834

Reclassification of net losses on cash flow hedges to net income, net of income
tax of ($651)

(1,883
)
Total other comprehensive income (loss)

3,951

Balance at July 3, 2022

$
193


	Cash Flow Hedges
Balance at January 2, 2022	$	(3,758	)
Other comprehensive income, net of tax
Unrealized gains on cash flow hedging activities, net of income tax of $2,018		5,834
Reclassification of net losses on cash flow hedges to net income, net of income tax of ($651)		(1,883	)
Total other comprehensive income		3,951
Balance at July 3, 2022	$	193

Amounts reclassified from accumulated other comprehensive income (loss) ~~are~~were included within interest expense, net on the consolidated statements of income.

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SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

12. Segments

The Company has 1one reportable and 1one operating ~~segment, healthy grocery stores.~~segment.

In accordance with ASC 606, the following table represents a disaggregation of revenue for the thirteen and twenty-six weeks ended July ~~3, 2022~~2, 2023 and July ~~4, 2021.~~3, 2022.


	Thirteen weeks ended								Thirteen weeks ended
	July 3, 2022				July 4, 2021				July 2, 2023				July 3, 2022
Perishables	$	936,273	58.7	%	$	889,684	58.5	%	$	971,249	57.4	%	$	936,273	58.7	%
Non-Perishables		659,209	41.3	%		632,309	41.5	%		720,998	42.6	%		659,209	41.3	%
Net Sales	$	1,595,482	100.0	%	$	1,521,993	100.0	%	$	1,692,247	100.0	%	$	1,595,482	100.0	%

	Twenty-six weeks ended								Twenty-six weeks ended
	July 3, 2022				July 4, 2021				July 2, 2023				July 3, 2022
Perishables	$	1,888,360	58.3	%	$	1,800,652	58.1	%	$	1,970,824	57.5	%	$	1,888,360	58.3	%
Non-Perishables		1,348,283	41.7	%		1,296,788	41.9	%		1,454,733	42.5	%		1,348,283	41.7	%
Net Sales	$	3,236,643	100.0	%	$	3,097,440	100.0	%	$	3,425,557	100.0	%	$	3,236,643	100.0	%

The Company categorizes the varieties of products it sells as perishable and non-perishable. Perishable product categories include produce, meat and meat alternatives, seafood, deli, bakery, floral and dairy and dairy alternatives. Non-perishable product categories include grocery, vitamins and supplements, bulk items, frozen foods, beer and wine, and natural health and body care.

~~SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

13. Share-Based Compensation

2022 Incentive Plan

In March 2022, the Company’s board of directors adopted the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (the “2022 Incentive Plan”), which became effective May 25, 2022, upon approval by the Company’s stockholders. The 2022 Incentive Plan provides team members of the Company, certain consultants and advisors who perform services for the Company, and non-employee members of the Company's board of directors with the opportunity to receive grants of equity awards, including stock options, RSUs, PSAs, and other stock-based awards. The 2022 Incentive Plan replaced the 2013 Incentive Plan (as described below).

Awards Granted under the 2022 Incentive Plan

During the twenty-six weeks ended July ~~3, 2022,~~2, 2023, the Company granted the following share-based compensation awards under the 2022 Incentive Plan:


Grant Date	RSUs		PSAs		Options		RSUs		PSAs		Options
June 7, 2022		58,057		0		0
March 14, 2023								491,729		172,059		221,085
May 1, 2023								2,931		—		—
June 7, 2023								1,271		—		—
Total		58,057		0		0		495,931		172,059		221,085
Weighted-average grant date fair value	$	27.01	$	0	$	0	$	32.96	$	32.95	$	12.63
Weighted-average exercise price		0		0		0	$	—	$	—	$	32.95

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SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The aggregate number of shares of common stock that may be issued to team members and directors under the 2022 Incentive Plan may not exceed 6,600,000, subject to the following adjustments. If any awards granted under the 2022 Incentive Plan, terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested or paid in shares, the shares will again be available for purposes of the 2022 Incentive Plan. In addition, the number of shares subject to outstanding awards under the Sprouts Farmers Market, Inc. 2013 Incentive Plan (the “2013 Incentive Plan”) that terminate, expire, are paid in cash, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid in shares under the 2013 Incentive Plan after the effective date of the 2022 Incentive Plan will be available for issuance under the 2022 Incentive Plan. As of July ~~3, 2022,~~2, 2023, there were ~~58,057~~975,236 stock awards outstanding and ~~6,621,093~~5,778,129 shares remaining available for issuance under the 2022 Incentive Plan.

2013 Incentive Plan

Prior to the adoption of the 2022 Incentive Plan, the 2013 Incentive Plan served as the umbrella plan for the Company’s share-based and cash-based incentive compensation programs for its directors, officers and other team members. Upon ~~adoption~~stockholder approval of the 2022 Incentive Plan on May 25, 2022, no further awards will be granted under the 2013 Incentive Plan, but awards outstanding under the 2013 Incentive Plan will remain outstanding in accordance with their terms and the terms of the 2013 Incentive Plan.

~~Awards Granted under the 2013 Incentive Plan~~

~~During the twenty-six weeks ended July 3, 2022, the Company granted the following share-based compensation awards under the 2013 Incentive Plan:~~

Grant Date

RSUs

PSAs

Options

March 15, 2022

370,177

147,846

211,352

March 21, 2022

104,913

14,260

20,270

Total

475,090

162,106

231,622

Weighted-average grant date fair value

$
31.60

$
31.52

$
10.58

Weighted-average exercise price

0

0

$
31.52

~~SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Stock Options

The Company uses the Black-Scholes option pricing model to estimate the fair value of options at grant date. Options vest in accordance with the terms set forth in the grant letter.

Time-based options vest annually over a period of three years.

RSUs

The fair value of RSUs is based on the closing price of the Company’s common stock on the grant date. RSUs generally vest annually over a period of two or three years from the grant date.

PSAs

PSAs granted in ~~2018~~2019 were subject to the Company achieving certain earnings before interest and taxes ~~(“EBIT”~~("EBIT") ~~performance targets for the 2020 fiscal year.~~ ~~The criteria was based on a range of performance targets in which grantees may earn~~ 0~~% to~~ ~~200% of the base number of awards granted.~~ The performance conditions with respect to fiscal year 2020 EBIT were deemed to have been met, and the PSAs vested at the maximum pay out level on the third anniversary of the grant date (March 2021). There were 0 ~~outstanding 2018 PSAs as of July 3, 2022.~~

~~PSAs granted in 2019 are subject to the Company achieving certain EBIT~~ performance targets for the 2021 fiscal year. The criteria iswas based on a range of performance targets in which grantees may earn 0% to 200% of the base number of awards granted. The performance conditions with respect to fiscal year 2021 EBIT were deemed to have been met, and the PSAs vested at the maximum pay out level on the third anniversary of the grant date (March 2022). ~~During the twenty-six weeks ended July 3, 2022,~~ ~~208,172~~ ~~of the 2019 PSAs vested.~~ There were 0no outstanding 2019 PSAs as of July ~~3, 2022.~~2, 2023.

PSAs granted in 2020 ~~are~~were subject to the Company achieving certain earnings before taxes (“EBT”) performance targets for the 2022 fiscal year. The criteria iswas based on a range of performance targets in which grantees may earn 0% to 200% of the base number of awards granted. IfThe performance conditions ~~are~~with respect to fiscal year 2022 EBT were deemed to have been met, and the ~~applicable number of performance shares will vest~~PSAs vested at the maximum pay out level on the third anniversary of the grant date (March 2023). During the twenty-six weeks ended July 2, 2023, 268,699 of the 2020 PSAs vested. There were no outstanding 2020 PSAs as of July 2, 2023.

PSAs granted in 2021 are subject to the Company achieving certain EBIT performance targets for the 2023 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0% to 200% of the base number of awards granted. If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2024).

PSAs granted in 2022 are subject to the Company achieving certain EBIT performance targets for the 2024 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0% to 200% of the base number of awards granted. If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2025).

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SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

PSAs granted in 2023 are subject to the Company achieving certain EBIT performance targets for the 2025 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0% to 200% of the base number of awards granted. If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2026).

Share-based Compensation Expense

The Company presents share-based compensation expense in selling, general and administrative expenses on the Company’s consolidated statements of income. The amount recognized was as follows:

Thirteen weeks ended

Twenty-six weeks ended

July 3, 2022

July 4, 2021

July 3, 2022

July 4, 2021

Share-based compensation expense

$
3,464

$
4,238

$
7,920

$
7,851


	Thirteen weeks ended				Twenty-six weeks ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Share-based compensation expense	$	5,609	$	3,464	$	9,461	$	7,920

The following share-based awards were outstanding as of July 2, 2023 and July 3, 2022:


	As of
	July 2, 2023		July 3, 2022
	(in thousands)
Options
Vested		641		370
Unvested		475		1,053
RSUs		1,084		993
PSAs		471		460

As of July 2, 2023, total unrecognized compensation expense and remaining weighted average recognition period related to outstanding share-based awards were as follows:


	Unrecognized compensation expense		Remaining weighted average recognition period
Options	$	4,395		1.9
RSUs		23,572		1.6
PSAs		6,477		1.8
Total unrecognized compensation expense at July 2, 2023	$	34,444

During the twenty-six weeks ended July 2, 2023 and July 3, 2022, the Company received $7.2 million and $2.7 million, respectively, in cash proceeds from the exercise of options.

14. Goodwill

21The Company’s goodwill balance was $381.8 million and $368.9 million as of July 2, 2023 and January 1, 2023, respectively. As of July 2, 2023 and January 1, 2023, the Company had no accumulated goodwill impairment losses. The goodwill was related to the acquisitions of Sunflower Farmers Market, Henry’s Farmers Market and Ronald Cohn, Inc.For further details, see Note 16, "Business Combination".

A summary of the activity and balances in goodwill is as follows:


	Balance at January 1, 2023		Additions		Balance at July 2, 2023
Goodwill	$	368,878	$	12,873	$	381,751

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SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~The following share-based awards were outstanding as of July 3, 2022 and July 4, 2021:~~15. Store Closures

As of

July 3, 2022

July 4, 2021

(in thousands)

Options

Vested

370

281

Unvested

1,053

1,273

RSUs

993

840

PSAs

460

471

AsIn February 2023, the Company's board of ~~July 3, 2022, total unrecognized compensation expense~~directors approved the closing of 11 stores during 2023. These stores, on average, were approximately 30% larger than the Company's current prototype format and ~~remaining weighted average recognition period related to outstanding share-based awards was as follows:~~were underperforming financially. The closure of these stores resulted in a charge of $27.8

Unrecognized
compensation
expense

Remaining
weighted
average
recognition
period

Options

$
4,548

1.3

RSUs

22,084

1.9

PSAs

5,601

1.7

Total unrecognized compensation expense at July 3, 2022

$
32,233

~~During~~ million during the twenty-six weeks ended July ~~3, 2022~~2, 2023 related to the impairment of leasehold improvements and right-of-use assets and is reflected in Store closure and other costs, net on the consolidated statements of income. The impairment charge represented the excess of the carrying value over the estimated fair value of each store's asset group. Accelerated depreciation on the closed stores' assets during the twenty-six weeks ended July ~~4, 2021, the Company received~~2, 2023 was $~~2.7~~5.9 million, and $is reflected in Depreciation and amortization on the consolidated statements of income. Severance expense was immaterial during the twenty-six weeks ended July 2, 2023, and ~~1.2~~no ~~million, respectively, in cash proceeds from the exercise of options.~~further severance expense is expected to be incurred.

2216. Business Combination

On March 20, 2023, the Company completed its acquisition of Ronald Cohn, Inc., a corporation that owned two stores located in California operating under the ‘Sprouts Farmers Market’ name pursuant to a legacy trademark license arrangement. The aggregate consideration paid in the transaction consisted of 0.6 million of the Company’s common shares valued at $18.1 million using the closing price of the Company's common stock on March 20, 2023 and cash consideration of $13.0 million, subject to customary post-closing adjustments.

The Company accounted for this transaction as a business combination in accordance with the acquisition method of accounting, which requires that the purchase price be allocated to the assets and liabilities acquired based on their estimated fair values as of the acquisition date. Acquisition-related costs were immaterial and were expensed as incurred. The financial results of the acquired stores have been included in the Company’s consolidated financial statements from the date of acquisition. The acquired stores' results of operations were not material to the Company's consolidated results during the thirteen and twenty-six weeks ended July 2, 2023.

The net purchase price was initially allocated to the net tangible assets of ($4.9) million and a reacquired right intangible asset of $23.1 million based on their preliminary fair values on the acquisition date. The remaining unallocated net purchase price of $12.9 million was recorded as goodwill. Goodwill represents the future economic benefits to the Company from the acquisition, which include the Company's ability to fully control the Sprouts Farmers Market brand by termination of the legacy trademark license agreement and allowing further expansion opportunities in Southern California. The goodwill is not expected to be deductible for tax purposes. There have been no material changes to the purchase price allocation originally recorded in the first quarter of 2023. The provisional fair value estimates are subject to adjustment as additional information is obtained within the measurement period, which may not exceed twelve months from the acquisition date.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the ~~2021~~2022 fiscal year, filed on ~~February 24, 2022~~March 2, 2023 (“Form 10-K”) with the Securities and Exchange Commission. All dollar amounts included below are in thousands, unless otherwise noted.

Business Overview

Sprouts Farmers Market offers a unique ~~grocery~~food specialty retail experience featuring an open layout with fresh produce at the heart of the store. Sprouts inspires wellness naturally with a carefully curated assortment of better-for-you products paired with purpose-driven people. We continue to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free.Headquartered in Phoenix with ~~378~~391 stores in 23 states as of July ~~3, 2022,~~ 2, 2023, we are one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States.

Our Heritage

In 2002, we opened the first Sprouts Farmers Market store in Chandler, Arizona. From our founding in 2002 through July 2, 2023, we have grown rapidly, significantly increasing our sales, store count and profitability, including successfully rebranding 43 Henry’s Farmers Market and 39 Sunflower Farmers Market stores added in 2011 and 2012, respectively, ~~through acquisitions~~ to the Sprouts ~~banner.~~banner through acquisitions. These three businesses all trace their lineage back to Henry’s Farmers Market and were built with similar store formats and operations including a strong emphasis on value, produce and service in smaller, convenient locations.

~~Outlook~~Our Strategy

InSince 2020, we ~~announced~~have focused on our ~~new~~ long-term growth strategy that we believe ~~will transform~~is transforming our company and ~~drive~~driving profitable growth. We ~~are executing~~continue to execute on this strategy, focusing on the following areas:

•

Win with Target Customers. We are focusing attention on our target customers, identified through research as ~~'health enthusiasts'~~‘health enthusiasts’ and ~~'experience seekers'~~‘selective shoppers’, where there is ample opportunity to gain share within these customer segments. We believe our business can continue to grow by leveraging existing strengths in a unique assortment of better-for-you, quality products and by providing a full omnichannel offering through delivery or pickup via our website or the Sprouts app.

•

Update Format and Expand in Select Markets. We are ~~beginning to deliver~~delivering unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer’s market heritage Sprouts is known for. ~~In 2021, we~~We have opened ~~three~~26 stores and remodeled one store featuring our new format ~~and in the twenty-six weeks ended~~through July ~~3, 2022, we opened two new format stores.~~2, 2023. Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, which we believe will provide a long runway of ~~approximately~~at least 10% annual unit growth beginning in 2024.

•

Create an Advantaged Fresh Supply Chain. We believe our network of fresh distribution centers can drive efficiencies across the chain and support growth plans. To further deliver on our fresh commitment and reputation, as well as to increase our local offerings and improve financial results, we aspire to ultimately position fresh distribution centers within a 250-mile radius of stores. With the opening of two fresh distribution centers in 2021 and the relocation of our Southern California distribution center in 2023, we now have more than 85% of our stores within 250 miles of a distribution center.

Table of Contents

•

Refine Brand and Marketing Approach. We believe we are elevating our national brand recognition and positioning by telling our unique brand story rooted in product innovation and differentiation. We are ~~investing savings from removing~~increasing our ~~print ad into increasing~~use of data analytics and insights. We believe this data-driven intelligence will increase customer engagement through personalization efforts with digital and social connections ~~driving~~to drive additional sales growth and loyalty.

•

Inspire and Engage Our Talent to Create a Best Place to Work. Subsequent to the initial launch of our long-term growth strategy, we have added the focus area of inspiring and engaging our talent through our culture, acquisition and development and total rewards program to attract and retain the talent we believe we need to execute on our strategic goals and transform our company into a premier place to work.

•

Deliver on Financial Targets and Box Economics. We are measuring and reporting on the success of this strategy against a number of long-term financial and operational targets. With the implementation of our strategy beginning in 2020, we have significantly improved our margin structure above our 2019 baseline.

Recent Developments ~~– COVID-19~~

~~Our operations have generally stabilized since the onset~~In February 2023 as part of ~~the COVID-19 pandemic. However,~~our real estate portfolio review, we ~~continue~~determined to ~~experience varying levels~~close 11 stores during 2023. These stores, on average, were approximately 30% larger than our current prototype format and were underperforming financially. See Note 15, “Store Closures” of inflation and encounter obstacles sourcing in certain categories resulting from product supply disruptions complicated by the pandemic. In addition, due to continued difficulties in obtaining necessary equipment from third parties and inflationary pressures due to supply chain delays complicated by the COVID-19 pandemic, we have experienced and may continue to experience increased costs and delays in our ~~planned new store openings. See “Risk Factors—The coronavirus (COVID-19) pandemic has disrupted our business and could negatively impact our~~unaudited consolidated financial ~~condition.” in our Form 10-K~~statements for additional ~~information.~~information regarding these store closures.

2423

Table of Contents

Results of Operations for Thirteen Weeks Ended July 2, 2023 and July 3, 2022

The following tables set forth our unaudited results of operations and other operating data for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. All dollar amounts are in thousands, unless otherwise noted.


	Thirteen weeks ended
	July 2, 2023		July 3, 2022
Unaudited Quarterly Consolidated Statement of Income Data:
Net sales	$	1,692,247	$	1,595,482
Cost of sales		1,066,275		1,015,125
Gross profit		625,972		580,357
Selling, general and administrative expenses		497,965		462,110
Depreciation and amortization (exclusive of depreciation included in cost of sales)		33,964		31,244
Store closure and other costs, net		2,427		493
Income from operations		91,616		86,510
Interest expense, net		2,140		2,658
Income before income taxes		89,476		83,852
Income tax provision		22,142		21,855
Net income	$	67,334	$	61,997

Weighted average shares outstanding - basic		102,824		109,067
Diluted effect of equity-based awards		690		552
Weighted average shares and equivalent shares outstanding - diluted		103,514		109,619
Diluted net income per share	$	0.65	$	0.57


	Thirteen weeks ended
	July 2, 2023			July 3, 2022
Other Operating Data:
Comparable store sales growth		3.2	%		2.0	%
Stores at beginning of period		395			379
Closed		(10	)		(3	)
Opened		6			2
Stores at end of period		391			378

Comparison of Thirteen Weeks Ended July 2, 2023 to Thirteen Weeks Ended

July 3, 2022

Net sales


	Thirteen weeks ended
	July 2, 2023			July 3, 2022			Change		% Change
Net sales	$	1,692,247		$	1,595,482		$	96,765		6	%
Comparable store sales growth		3.2	%		2.0	%

Net sales during the thirteen weeks ended July 2, 2023 totaled $1.7 billion, an increase of $96.8 million, or 6%, compared to the thirteen weeks ended July 3, 2022. The sales increase was driven by sales from new stores opened in the last twelve months and a 3.2% increase in comparable store sales, which were driven by positive traffic and a slight increase in basket value due to retail price inflation partially offset by a slight decrease in the number of items per basket and the impact of store closures. See "Impact of Inflation and Deflation". Comparable stores contributed approximately 96% of total sales for the thirteen weeks ended July 2, 2023 and approximately 97% of total sales for the thirteen weeks ended July 3, 2022.

Table of Contents

Cost of sales and gross profit


	Thirteen weeks ended
	July 2, 2023			July 3, 2022			Change			% Change
Net sales	$	1,692,247		$	1,595,482		$	96,765			6	%
Cost of sales		1,066,275			1,015,125			51,150			5	%
Gross profit		625,972			580,357			45,615			8	%
Gross margin		37.0	%		36.4	%		0.6	%

Gross profit totaled $626.0 million during the thirteen weeks ended July 2, 2023, an increase of $45.6 million, or 8%, compared to the thirteen weeks ended July 3, 2022, driven by increased sales volume. Gross margin increased by 0.6% to 37.0% for the thirteen weeks ended July 2, 2023, compared to 36.4% for the thirteen weeks ended July 3, 2022. The increase was a result of continued promotional optimization and favorable product mix.

Selling, general and administrative expenses


	Thirteen weeks ended
	July 2, 2023			July 3, 2022			Change			% Change
Selling, general and administrative expenses	$	497,965		$	462,110		$	35,855			8	%
Percentage of net sales		29.4	%		29.0	%		0.4	%

Selling, general and administrative expenses increased $35.9 million, or 8%, compared to the thirteen weeks ended July 3, 2022. The increase is primarily due to the net increase in new stores opened since the prior year, higher wages and incentive compensation costs, and higher ecommerce costs resulting from an increase in ecommerce sales.

Depreciation and amortization


	Thirteen weeks ended
	July 2, 2023			July 3, 2022			Change			% Change
Depreciation and amortization	$	33,964		$	31,244		$	2,720			9	%
Percentage of net sales		2.0	%		2.0	%		0.0	%

Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $34.0 million for the thirteen weeks ended July 2, 2023, compared to $31.2 million for the thirteen weeks ended July 3, 2022. Depreciation and amortization primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment for new stores as well as remodel initiatives in older stores. Depreciation and amortization for the thirteen weeks ended July 2, 2023 was inclusive of $1.9 million in accelerated depreciation in connection with the closing of certain underperforming stores during 2023. See Note 15, “Store Closures” of our unaudited consolidated financial statements.

Table of Contents

Store closure and other costs, net


	Thirteen weeks ended
	July 2, 2023			July 3, 2022			Change			% Change
Store closure and other costs, net	$	2,427		$	493		$	1,934			392	%
Percentage of net sales		0.1	%		0.0	%		0.1	%

Store closure and other costs, net for the thirteen weeks ended July 2, 2023 of $2.4 million and for the thirteen weeks ended July 3, 2022 of $0.5 million was primarily related to ongoing activity associated with our closed store locations. See Note 15, “Store Closures” of our unaudited consolidated financial statements.

Interest expense, net


	Thirteen weeks ended
	July 2, 2023			July 3, 2022		Change			% Change
Long-term debt	$	3,318		$	1,345	$	1,973			147	%
Finance leases		207			215		(8	)		(4	)%
Deferred financing costs		193			193		—			0	%
Interest rate hedge and other		(1,578	)		905		(2,483	)		(274	)%
Total interest expense, net	$	2,140		$	2,658	$	(518	)		(19	)%

Interest expense, net decreased to $2.1 million for the thirteen weeks ended July 2, 2023, compared to $2.7 million for the thirteen weeks ended July 3, 2022 primarily due to higher interest income earned as a result of higher average interest rates. See Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements.

Income tax provision

Income tax provision differed from the amounts computed by applying the U.S. federal income tax rate to pretax income as a result of the following:


	Thirteen weeks ended
	July 2, 2023			July 3, 2022
Federal statutory rate		21.0	%		21.0	%
Change in income taxes resulting from:
State income taxes, net of federal benefit		5.0	%		4.9	%
Enhanced charitable contributions		(1.2	)%		(1.0	)%
Federal credits		(0.4	)%		(0.4	)%
Share-based payment awards		(0.5	)%		(0.1	)%
Other, net		0.8	%		1.7	%
Effective tax rate		24.7	%		26.1	%

The effective tax rate decreased to 24.7% for the thirteen weeks ended July 2, 2023 from 26.1% for the thirteen weeks ended July 3, 2022. The decrease in the effective tax rate was primarily due to an increase in excess tax benefits associated with share-based payment awards.

Table of Contents

Net income


	Thirteen weeks ended
	July 2, 2023			July 3, 2022			Change			% Change
Net income	$	67,334		$	61,997		$	5,337			9	%
Percentage of net sales		4.0	%		3.9	%		0.1	%

Net income increased $5.3 million primarily due to higher sales and favorable margin impact, partially offset by higher selling, general and administrative expenses for the reasons discussed above.

Diluted earnings per share


	Thirteen weeks ended
	July 2, 2023		July 3, 2022		Change			% Change
Diluted earnings per share	$	0.65	$	0.57	$	0.08			14	%
Diluted weighted average shares outstanding		103,514		109,619		(6,105	)

The increase in diluted earnings per share of $0.08 was driven by higher net income in addition to fewer diluted shares outstanding compared to the prior year, due primarily to the share repurchase program.

Table of Contents

Results of Operations for Twenty-Six Weeks Ended July 2, 2023 and July ~~4, 2021~~3, 2022

Thirteen weeks ended

July 3, 2022

July 4, 2021

Unaudited Quarterly Consolidated Statement of Income Data:

Net sales

$
1,595,482

$
1,521,993

Cost of sales

1,015,125

971,912

Gross profit

580,357

550,081

Selling, general and administrative expenses

462,110

436,420

Depreciation and amortization (exclusive of depreciation included
in cost of sales)

31,244

30,430

Store closure and other costs, net

493

(419
)
Income from operations

86,510

83,650

Interest expense, net

2,658

2,938

Income before income taxes

83,852

80,712

Income tax provision

21,855

19,698

Net income

$
61,997

$
61,014

Weighted average shares outstanding - basic

109,067

117,246

Diluted effect of equity-based awards

552

585

Weighted average shares and equivalent shares outstanding

109,619

117,831

Diluted net income per share

$
0.57

$
0.52

Thirteen weeks ended

July 3, 2022

July 4, 2021

Other Operating Data:

Comparable store sales growth

2.0
%

(10.0
)%
Stores at beginning of period

379

362

Closed

(3
)

—

Opened

2

1

Stores at end of period

378

363


	Twenty-six weeks ended
	July 2, 2023		July 3, 2022
Unaudited Quarterly Consolidated Statement of Income Data:
Net sales	$	3,425,557	$	3,236,643
Cost of sales		2,149,523		2,044,538
Gross profit		1,276,034		1,192,105
Selling, general and administrative expenses		984,160		922,020
Depreciation and amortization (exclusive of depreciation included in cost of sales)		68,032		63,064
Store closure and other costs, net		30,704		870
Income from operations		193,138		206,151
Interest expense, net		4,360		5,697
Income before income taxes		188,778		200,454
Income tax provision		45,284		50,150
Net income	$	143,494	$	150,304

Weighted average shares outstanding - basic		103,326		109,985
Diluted effect of equity-based awards		914		777
Weighted average shares and equivalent shares outstanding - diluted		104,240		110,762
Diluted net income per share	$	1.38	$	1.36


	Twenty-six weeks ended
	July 2, 2023			July 3, 2022
Other Operating Data:
Comparable store sales growth		3.2	%		1.8	%
Stores at beginning of period		386			374
Closed		(11	)		(4	)
Opened		14			8
Acquired		2			—
Stores at end of period		391		378

Comparison of ~~Thirteen~~Twenty-Six Weeks Ended July 2, 2023 to Twenty-Six Weeks Ended July 3, 2022 ~~to Thirteen Weeks Ended~~

~~July 4, 2021~~

Net ~~sales~~Sales

Thirteen weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Net sales

$
1,595,482

$
1,521,993

$
73,489

5
%
Comparable store sales growth

2.0
%

(10.0
)%


	Twenty-six weeks ended
	July 2, 2023			July 3, 2022			Change		% Change
Net sales	$	3,425,557		$	3,236,643		$	188,914		6	%
Comparable store sales growth		3.2	%		1.8	%

Net sales during the ~~thirteen~~twenty-six weeks ended July ~~3, 2022~~2, 2023 totaled ~~$1.6~~$3.4 billion, an increase of ~~$73.5~~$188.9 million, or 5%6%, ~~compared to~~over the ~~thirteen weeks ended July 4, 2021.~~same period of the prior fiscal year. The sales increase was ~~driven~~primarily due to a 3.2% increase in comparable store sales resulting from an increase in basket value due to retail price inflation partially offset by a slight reduction in the number of items per basket and the impact of store closures, as well as sales from new stores opened in the last twelve ~~months~~months. See "Impact of Inflation and ~~a 2.0% increase in comparable store sales.~~Deflation". Comparable stores contributed approximately ~~97%~~96% of total sales for the ~~thirteen~~twenty-six weeks ended July 2, 2023 and approximately 98% for the twenty-six weeks ended July 3, ~~2022 and approximately 96% for the thirteen weeks ended July 4, 2021.~~2022.

Table of Contents

Cost of sales and gross profit

Thirteen weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Net sales

$
1,595,482

$
1,521,993

$
73,489

5
%
Cost of sales

1,015,125

971,912

43,213

4
%
Gross profit

580,357

550,081

30,276

6
%
Gross margin

36.4
%

36.1
%

0.3
%


	Twenty-six weeks ended
	July 2, 2023			July 3, 2022			Change			% Change
Net sales	$	3,425,557		$	3,236,643		$	188,914			6	%
Cost of sales		2,149,523			2,044,538			104,985			5	%
Gross profit		1,276,034			1,192,105			83,929			7	%
Gross margin		37.3	%		36.8	%		0.5	%

Gross profit totaled ~~$580.4 million~~$1.3 billion during the ~~thirteen~~twenty-six weeks ended July 2, 2023, an increase of $83.9 million, or 7%, compared to the twenty-six weeks ended July 3, 2022, ~~an increase of $30.3 million, or 6%, compared to the thirteen weeks ended July 4, 2021,~~ driven by increased sales volume. Gross margin increased ~~by 0.3%~~ to ~~36.4%~~37.3% for the ~~thirteen~~twenty-six weeks ended July 2, 2023, compared to 36.8% for the twenty-six weeks ended July 3, 2022, ~~compared~~due to ~~36.1% for the thirteen weeks ended July 4, 2021, primarily driven by improved shrink.~~favorable product mix and continued promotional optimization.

Selling, general and administrative expenses

Thirteen weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Selling, general and administrative
expenses

$
462,110

$
436,420

$
25,690

6
%
Percentage of net sales

29.0
%

28.7
%

0.3
%


	Twenty-six weeks ended
	July 2, 2023			July 3, 2022			Change			% Change
Selling, general and administrative expenses	$	984,160		$	922,020		$	62,140			7	%
Percentage of net sales		28.7	%		28.5	%		0.2	%

Selling, general and administrative expenses increased ~~$25.7~~$62.1 million, or 6%7%, compared to the ~~thirteen~~twenty-six weeks ended July ~~4, 2021.~~3, 2022. The increase iswas primarily ~~due to~~driven by the net increase in new stores opened since the ~~comparable period in the~~ prior year period and higher ~~store~~payroll costs, ~~impacted by inflation,~~ as well as higher ~~credit card fees and~~ ecommerce costs resulting from an increase in ecommerce sales compared to the prior ~~year quarter.~~year.

Table of Contents

Depreciation and amortization

Thirteen weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Depreciation and amortization

$
31,244

$
30,430

$
814

3
%
Percentage of net sales

2.0
%

2.0
%

0.0
%


	Twenty-six weeks ended
	July 2, 2023			July 3, 2022			Change			% Change
Depreciation and amortization	$	68,032		$	63,064		$	4,968			8	%
Percentage of net sales		2.0	%		1.9	%		0.1	%

Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was ~~$31.2~~$68.0 million for the ~~thirteen~~twenty-six weeks ended July 2, 2023, compared to $63.1 million for the twenty-six weeks ended July 3, ~~2022 compared to $30.4 million for the thirteen weeks ended July 4, 2021.~~2022. Depreciation and amortization expenses (exclusive of depreciation included in cost of sales) primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment. Depreciation and amortization for the twenty-six weeks ended July 2, 2023 was inclusive of $5.9 million in accelerated depreciation in connection with the closing of certain underperforming stores during 2023. See Note 15, “Store Closures” of our unaudited consolidated financial statements.

Store closure and other costs, net

Thirteen weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Store closure and other costs, net

$
493

$
(419
)

$
912

218
%
Percentage of net sales

0.0
%

0.0
%

0.0
%


	Twenty-six weeks ended
	July 2, 2023			July 3, 2022			Change			% Change
Store closure and other costs, net	$	30,704		$	870		$	29,834			3429	%
Percentage of net sales		0.9	%		0.0	%		0.9	%

Store closure and other costs, net increased ~~$0.9~~$29.8 million to ~~$0.5~~$30.7 million, compared to $0.9 million for the ~~thirteen~~twenty-six weeks ended July 3, ~~2022 compared to a credit of $0.4 million for the thirteen weeks ended July 4, 2021.~~2022. Store closure and other costs, net induring the ~~current year~~twenty-six weeks ended July 2, 2023 primarily consisted of $27.8 million of impairment losses related to ~~ongoing activity associated~~the write-down of leasehold improvements and right-of-use assets and other costs incurred in association with ~~our closed store locations.~~the closing of 11 underperforming stores. Store closure and other costs, net induring the ~~prior year period~~twenty-six weeks ended July 3, 2022 was primarily related to ~~an insurance recovery received in~~costs associated with the ~~second quarter~~closing of ~~2021 relating to a fire at one of our~~four stores in the ~~first quarter~~prior year. See Note 15, “Store Closures” of ~~2021.~~our unaudited consolidated financial statements.

Interest expense, net

Thirteen weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Long-term debt

$
1,345

$
1,160

$
185

16
%
Capital and financing leases

215

228

(13
)

(6
)%
Deferred financing costs

193

141

52

37
%
Interest rate hedge and other

905

1,409

(504
)

(36
)%
Total interest expense, net

$
2,658

$
2,938

$
(280
)

(10
)%


	Twenty-six weeks ended
	July 2, 2023			July 3, 2022		Change			% Change
Long-term debt	$	6,800		$	2,499	$	4,301			172	%
Finance leases		412			437		(25	)		(6	)%
Deferred financing costs		386			416		(30	)		(7	)%
Interest rate hedge and other		(3,238	)		2,345		(5,583	)		(238	)%
Total interest expense, net	$	4,360		$	5,697	$	(1,337	)		(23	)%

Interest expense, net decreased ~~slightly~~ to ~~$2.7~~$4.4 million for the ~~thirteen~~twenty-six weeks ended July 2, 2023, compared to $5.7 million for the twenty-six weeks ended July 3, 2022 ~~compared to $2.9 million for the thirteen weeks ended July 4, 2021~~ primarily due to higher interest income earned as a result of higher interest rates and lower credit facility fees. See Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements.

Table of Contents

Income tax provision

Income tax provision differed from the amounts computed by applying the U.S. federal income tax rate to pretax income as a result of the following:

Thirteen weeks ended

July 3, 2022

July 4, 2021

Federal statutory rate

21.0
%

21.0
%

Change in income taxes resulting from:

State income taxes, net of federal benefit

4.9
%

4.7
%

Enhanced charitable contributions

(1.0
)%

(1.2
)%

Federal credits

(0.4
)%

(0.4
)%

Share-based payment awards

(0.1
)%

(0.1
)%

Other, net

1.7
%

0.4
%

Effective tax rate

26.1
%

24.4
%


	Twenty-six weeks ended
	July 2, 2023			July 3, 2022
Federal statutory rate		21.0	%		21.0	%
Change in income taxes resulting from:
State income taxes, net of federal benefit		5.0	%		4.9	%
Enhanced charitable contributions		(1.2	)%		(1.0	)%
Federal Credits		(0.4	)%		(0.4	)%
Share-based payment awards		(1.6	)%		(0.8	)%
Other, net		1.2	%		1.3	%
Effective tax rate		24.0	%		25.0	%

The effective tax rate ~~increased~~decreased to ~~26.1%~~24.0% for the ~~thirteen~~twenty-six weeks ended July ~~3, 2022~~2, 2023 from ~~24.4% for~~25.0% in the ~~thirteen weeks ended July 4, 2021.~~same period last year. The ~~increase~~decrease in the effective tax rate ~~was~~is primarily due to an increase ~~of non-deductible executive compensation as well as a decrease~~ in ~~enhanced charitable contributions due to the expiration of CARES Act benefits.~~excess tax benefits associated with share-based payment awards.

Net income

Thirteen weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Net income

$
61,997

$
61,014

$
983

2
%
Percentage of net sales

3.9
%

4.0
%

(0.1
)%


	Twenty-six weeks ended
	July 2, 2023			July 3, 2022			Change			% Change
Net income	$	143,494		$	150,304		$	(6,810	)		(5	)%
Percentage of net sales		4.2	%		4.6	%		(0.4	)%

Net income ~~increased $1.0~~decreased $6.8 million primarily due to ~~increased sales~~higher store closure and ~~gross profit, partially offset by higher~~other costs and selling, general and administrative expenses for the reasons discussed ~~above.~~above, partially offset by higher sales and gross profit.

Diluted earnings per share

Thirteen weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Diluted earnings per share

$
0.57

$
0.52

$
0.05

10
%
Diluted weighted average shares
outstanding

109,619

117,831

(8,212
)


	Twenty-six weeks ended
	July 2, 2023		July 3, 2022		Change			% Change
Diluted earnings per share	$	1.38	$	1.36	$	0.02			1	%
Diluted weighted average shares outstanding		104,240		110,762		(6,522	)

The increase in diluted earnings per share of ~~$0.05~~$0.02 was driven by ~~higher net income in addition to~~ fewer diluted shares outstanding compared to the prior year due primarily to the share repurchase ~~program.~~

~~Results of Operations for Twenty-six Weeks Ended July 3, 2022 and July 4, 2021~~

~~Comparison of Twenty-six Weeks Ended July 3, 2022 to Twenty-six Weeks Ended~~

~~July 4, 2021~~

Twenty-six weeks ended

July 3, 2022

July 4, 2021

Unaudited Quarterly Consolidated Statement of Income Data:

Net sales

$
3,236,643

$
3,097,440

Cost of sales

2,044,538

1,961,185

Gross profit

1,192,105

1,136,255

Selling, general and administrative expenses

922,020

876,082

Depreciation and amortization (exclusive of depreciation included
in cost of sales)

63,064

61,659

Store closure and other costs, net

870

1,629

Income from operations

206,151

196,885

Interest expense, net

5,697

5,929

Income before income taxes

200,454

190,956

Income tax provision

50,150

46,894

Net income

$
150,304

$
144,062

Weighted average shares outstanding - basic

109,985

117,645

Diluted effect of equity-based awards

777

620

Weighted average shares and equivalent shares outstanding

110,762

118,265

Diluted net income per share

$
1.36

$
1.22

Twenty-six weeks ended

July 3, 2022

July 4, 2021

Other Operating Data:

Comparable store sales growth

1.8
%

(9.7
)%
Stores at beginning of period

374

362

Closed

(4
)

—

Opened

8

1

Stores at end of period

378

363

~~Net Sales~~

Twenty-six weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Net sales

$
3,236,643

$
3,097,440

$
139,203

4
%
Comparable store sales growth

1.8
%

(9.7
)%

Net sales during the twenty-six weeks ended July 3, 2022 totaled $3.2 billion, an increase of $139.2 million, or 4%, over the same period of the prior fiscal year. The sales increase was primarily due to a 1.8% increase in comparable store sales as well as sales from new stores opened in the last twelve months. Comparable stores contributed approximately 98% of total sales for the twenty-six weeks ended July 3, 2022 and approximately 96% for the twenty-six weeks ended July 4, 2021.

~~Cost of sales and gross profit~~

Twenty-six weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Net sales

$
3,236,643

$
3,097,440

$
139,203

4
%
Cost of sales

2,044,538

1,961,185

83,353

4
%
Gross profit

1,192,105

1,136,255

55,850

5
%
Gross margin

36.8
%

36.7
%

0.1
%

~~Gross profit totaled $1.2 billion during the twenty-six weeks ended July 3, 2022, an increase of $55.9 million, or 5%, compared to the twenty-six weeks ended July 4, 2021 driven~~program, partially offset by increased sales volume. Strategic initiatives contributed to the increase in gross margin to 36.8% for the twenty-six weeks ended July 3, 2022 compared to 36.7% for the twenty-six weeks ended July 4, 2021.

~~Selling, general and administrative expenses~~

Twenty-six weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Selling, general and administrative expenses

$
922,020

$
876,082

$
45,938

5
%
Percentage of net sales

28.5
%

28.3
%

0.2
%

Selling, general and administrative expenses increased $45.9 million, or 5%, compared to the twenty-six weeks ended July 4, 2021. The increase was primarily driven by new stores opened since the prior year period. In addition, inflationary conditions driving increases in costs including payroll, utilities and supplies as well as higher credit card fees in the current year contributed to the increase.

~~Depreciation and amortization~~

Twenty-six weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Depreciation and amortization

$
63,064

$
61,659

$
1,405

2
%
Percentage of net sales

1.9
%

2.0
%

(0.1
)%

Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $63.1 million for the twenty-six weeks ended July 3, 2022 compared to $61.7 million for the twenty-six weeks ended July 4, 2021. Depreciation and amortization expenses (exclusive of depreciation included in cost of sales) primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment.

~~Store closure and other costs, net~~

Twenty-six weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Store closure and other costs, net

$
870

$
1,629

$
(759
)

(47
)%
Percentage of net sales

0.0
%

0.1
%

(0.1
)%

~~Store closure and other costs,~~lower net decreased $0.8 million to $0.9 million, compared to $1.6 million for the twenty-six weeks ended July 4, 2021. Store closure and other costs, net during the twenty-six weeks ended July 3, 2022 primarily related to costs associated with the closing of four stores year-to-date. Store closure and other costs, net during the twenty-six weeks ended July 4, 2021 was driven by inventory loss and additional expenses, net of insurance recovery, related to the impact of winter storms at several of our stores and a fire at one of our stores during the twenty-six weeks ended July 4, 2021.income.

~~Interest expense, net~~

Twenty-six weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Long-term debt

$
2,499

$
2,341

$
158

7
%
Capital and financing leases

437

463

(26
)

(6
)%
Deferred financing costs

416

282

134

48
%
Interest rate hedge and other

2,345

2,843

(498
)

(18
)%
Total interest expense, net

$
5,697

$
5,929

$
(232
)

(4
)%

Interest expense, net decreased to $5.7 million for the twenty-six weeks ended July 3, 2022 compared to $5.9 million for twenty-six weeks ended July 4, 2021 primarily due to higher interest income and lower credit facility fees. See Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements.

~~Income tax provision~~

~~Income tax provision differed from the amounts computed by applying the U.S. federal income tax rate to pretax income as a result~~Table of ~~the following:~~Contents

Twenty-six weeks ended

July 3, 2022

July 4, 2021

Federal statutory rate

21.0
%

21.0
%
Decrease in income taxes resulting from:

State income taxes, net of federal benefit

4.9
%

4.8
%
Enhanced charitable contributions

(1.0
)%

(1.2
)%
Federal Credits

(0.4
)%

(0.4
)%
Share-based payment awards

(0.8
)%

(0.1
)%
Other, net

1.3
%

0.5
%
Effective tax rate

25.0
%

24.6
%

The effective tax rate increased to 25.0% for the twenty-six weeks ended July 3, 2022 from 24.6% in the same period last year. The increase in the effective tax rate is primarily due to an increase of non-deductible executive compensation as well as a decrease in enhanced charitable contributions due to the expiration of CARES Act benefits, partially offset by an increase in benefit from share-based payment awards in the current year.

~~Net income~~

Twenty-six weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Net income

$
150,304

$
144,062

$
6,242

4
%
Percentage of net sales

4.6
%

4.7
%

(0.1
)%

~~Net income increased $6.2 million primarily due to increased net sales and gross profit, partially offset by higher selling, general and administrative expenses and a higher effective tax rate.~~

~~Diluted earnings per share~~

Twenty-six weeks ended

July 3, 2022

July 4, 2021

Change

% Change

Diluted earnings per share

$
1.36

$
1.22

$
0.14

11
%
Diluted weighted average shares
outstanding

110,762

118,265

(7,503
)

The increase in diluted earnings per share of $0.14 was driven by higher net income, in addition to fewer diluted shares outstanding compared to the prior year, due primarily to the share repurchase program.

Return on Invested Capital

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, we provide information regarding Return on Invested Capital (referred to as “ROIC”) as additional information about our operating results. ROIC is a non-GAAP financial measure and should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. ROIC is an important measure used by management to evaluate our investment returns on capital and provides a meaningful measure of the effectiveness of our capital allocation over time.

We define ROIC as net operating profit after tax (referred to as “NOPAT”), including the effect of capitalized operating leases, divided by average invested capital. Operating lease interest represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as a finance ~~lease (capital lease prior to adoption of ASC 842).~~lease. The assumed ownership and associated interest expense are calculated using the discount rate for each lease as recorded as a component of rent expense within selling, general and administrative expenses. Invested capital reflects a trailing ~~twelve-month~~four-quarter average.

As numerous methods exist for calculating ROIC, our method may differ from methods used by other companies to calculate their ROIC. It is important to understand the methods and the differences in those methods used by other companies to calculate their ROIC before comparing our ROIC to that of other companies.

Our calculation of ROIC for the fiscal periods indicated was as follows:


	Rolling Four Quarters Ended						Rolling Four Quarters Ended
	July 3, 2022			July 4, 2021 (1)			July 2, 2023			July 3, 2022
	(dollars in thousands)						(dollars in thousands)
Net Income (2)	$	250,399		$	272,700
Special items, net of tax (3), (4)		—			3,134
Net income (1)							$	254,355		$	250,399
Special items, net of tax (2), (3)								32,492			—
Interest expense, net of tax ~~(4)~~(3)		8,639			9,304			5,800			8,639
Net operating profit after tax (NOPAT)	$	259,038		$	285,138		$	292,647		$	259,038

Total rent expense, net of tax ~~(4)~~(3)		152,902			151,041			162,916			152,902
Estimated depreciation on operating leases, net of tax ~~(4)~~(3)		(90,084	)		(84,411	)		(92,339	)		(90,084	)
Estimated interest on operating leases, net of tax (4), (5)		62,818			66,630
Estimated interest on operating leases, net of tax (3), (4)								70,577			62,818
NOPAT, including effect of operating leases	$	321,856		$	351,768		$	363,224		$	321,856

Average working capital		238,717			153,098			271,139			238,717
Average property and equipment		704,101			722,570			712,167			704,101
Average other assets		569,054			568,964			582,423			569,054
Average other liabilities		(99,049	)		(103,198	)		(98,788	)		(99,049	)
Average invested capital	$	1,412,823		$	1,341,434		$	1,466,941		$	1,412,823

Average operating leases ~~(6)~~(5)		1,242,722			1,208,682			1,321,289			1,242,722
Average invested capital, including operating leases	$	2,655,545		$	2,550,116		$	2,788,230		$	2,655,545

ROIC, including operating leases		12.1	%		13.8	%		13.0	%		12.1	%

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(1)

~~Fiscal 2020 included 53 weeks.~~

~~(2)~~

Net income amounts represent total net income for the past four trailing quarters.

~~(3)~~(2)

Special items ~~include professional fees~~ related to ~~strategic initiatives.~~store closure, supply chain transition and acquisition related charges net of tax.

~~(4)~~(3)

Net of tax amounts are calculated using the normalized effective tax rate for the periods presented.

~~(5)~~(4)

~~2022~~2023 and ~~2021~~2022 estimated interest on operating leases is calculated by multiplying operating leases by the ~~6.7%~~7.1% and ~~7.2%~~6.7% discount rate, respectively, for each lease recorded as rent expense within direct store expense.

~~(6)~~(5)

Average operating leases represents the average net present value of outstanding lease obligations over the past four trailing quarters.

Liquidity and Capital Resources

The following table sets forth the major sources and uses of cash for each of the periods set forth below, as well as our cash, cash equivalents and restricted cash at the end of each period (in thousands):


	Twenty-six weeks ended						Twenty-six weeks ended
	July 3, 2022			July 4, 2021			July 2, 2023			July 3, 2022
Cash, cash equivalents and restricted cash at end of period	$	290,750		$	222,754		$	261,658		$	290,750
Cash flows from operating activities	$	208,963		$	177,305		$	294,781		$	208,963
Cash flows used in investing activities	$	(53,098	)	$	(39,421	)	$	(111,725	)	$	(53,098	)
Cash flows used in financing activities	$	(112,119	)	$	(86,571	)	$	(216,590	)	$	(112,119	)

We have generally financed our operations principally through cash generated from operations and borrowings under our credit facilities. Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures primarily for opening new stores, remodels and maintenance, repurchases of our common stock and debt service. Our principal contractual obligations and commitments consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities. Our operating and finance leases for the rental of land, buildings, and for rental of facilities and equipment expire or become subject to renewal clauses at various dates through ~~2040.~~2044. We believe that our existing cash, cash equivalents and restricted cash, and cash anticipated to be generated from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors, including new store openings, remodel and maintenance capital expenditures at existing stores, store initiatives and other corporate capital expenditures and activities. Our cash, cash equivalents and restricted cash position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within days from the related sale.

Operating Activities

Cash flows from operating activities increased ~~$31.7~~$85.8 million to $294.8 million for the twenty-six weeks ended July 2, 2023 compared to $209.0 million for the twenty-six weeks ended July 3, ~~2022 compared to $177.3 million for the twenty-six weeks ended July 4, 2021.~~2022. The increase in cash flows from operating activities was primarily a result of changes in working ~~capital.~~capital and higher net income adjusted for non-cash items.

Cash flows provided by/(used inin) operating activities from changes in working capital were ~~$6.9~~$53.2 million in the twenty-six weeks ended July ~~3, 2022~~2, 2023 compared to ~~$32.2 million~~($6.9 million) in the twenty-six weeks ended July ~~4, 2021.~~3, 2022. The ~~decrease~~increase was ~~primarily~~ driven by ~~the higher prior year payout of COVID related incentive compensation amounts earned in 2020.~~prepaid expenses and other current assets, inventories and accrued liabilities.

Investing Activities

Cash flows used in investing activities consist primarily of capital expenditures in new stores, including leasehold improvements and store equipment, capital expenditures to maintain the appearance of our stores, sales enhancing initiatives and other corporate ~~investments.~~investments as well as cash outlays for acquisitions. Cash flows used in investing activities were ~~$53.1~~$111.7 million and ~~$39.4~~$53.1 million, for the twenty-six weeks ended July ~~3, 2022~~2, 2023 and July ~~4, 2021,~~3, 2022, respectively.

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We expect capital expenditures to be in the range of ~~$130~~$190 - ~~$150~~$210 million in ~~2022,~~2023, including expenditures incurred to date, net of estimated landlord tenant improvement allowances, primarily to fund investments in new stores, remodels, maintenance capital expenditures and corporate capital expenditures. We expect to fund our capital expenditures with cash on hand and cash generated from operating activities.

Financing Activities

Cash flows used in financing activities were $216.6 million for the twenty-six weeks ended July 2, 2023 compared to $112.1 million for the twenty-six weeks ended July 3, ~~2022 compared to $86.6 million for~~2022. During the twenty-six weeks ended July ~~4, 2021.~~ 2, 2023, cash flows used in financing activities primarily consisted of $148.3 million for stock repurchases and $75.0 million in payments on our Credit Agreement, partially offset by $7.2 million in proceeds from the exercise of stock options.

During the twenty-six weeks ended July 3, 2022, cash flows used in financing activities primarily consisted of $111.1 million for stock repurchases and $3.4 million in debt issuance costs in connection with our Credit Agreement, partially offset by $2.7 million in proceeds from the exercise of stock options.

~~During the twenty-six weeks ended July 4, 2021, cash flows used in financing activities primarily consisted of $87.5 million for stock repurchases.~~

Long-Term Debt and Credit Facilities

Long-term debt outstanding was $175.0 million as of July 2, 2023 and $250.0 million as of ~~July 3, 2022 and~~ January ~~2, 2022.~~1, 2023.

See Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements for a description of our ~~new~~ Credit Agreement and our Former Credit Facility (each as defined therein).

Share Repurchase Program

Our board of directors from time to time authorizes share repurchase programs for our common stock. The following table outlines the share repurchase ~~programs~~program authorized by our board, and the related repurchase activity and available authorization as of July ~~3, 2022.~~2, 2023.


Effective date	Expiration date	Amount authorized		Cost of repurchases		Authorization available		Expiration date	Amount authorized		Cost of repurchases		Authorization available
March 3, 2021	March 2, 2022	$	300,000	$	200,200	$	—
March 2, 2022	December 31, 2024	$	600,000	$	99,214	$	500,786	December 31, 2024	$	600,000	$	336,470	$	263,530

The shares under our current repurchase program may be purchased on a discretionary basis from time to time through the applicable expiration date, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. Our board’s authorization of the share repurchase program does not obligate our Company to acquire any particular amount of common stock, and the repurchase program may be commenced, suspended, or discontinued at any time.

Share repurchase activity under our repurchase program for the periods indicated was as follows (total cost in thousands):


	Thirteen weeks ended				Twenty-six weeks ended				Thirteen weeks ended				Twenty-six weeks ended
	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021		July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Number of common shares acquired		2,397,671		3,150,649		3,878,858		3,280,617		1,437,932		2,397,671		4,476,343		3,878,858
Average price per common share acquired	$	27.26	$	26.75	$	28.63	$	26.67	$	35.10	$	27.26	$	33.43	$	28.63
Total cost of common shares acquired	$	65,356	$	84,275	$	111,071	$	87,484	$	50,470	$	65,356	$	149,641	$	111,071

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Shares purchased under our repurchase programs were subsequently retired and the excess of the repurchase price over par value was charged to retained earnings. The cost of common shares repurchased during the thirteen and twenty-six weeks ended July 2, 2023 included the 1% excise tax imposed as part of the Inflation Reduction Act of 2022.

Subsequent to July ~~3, 2022~~2, 2023 and through ~~August 1, 2022,~~the date of this filing, we repurchased an additional ~~0.5~~0.2 million shares of common stock for ~~$14.1~~$6.6 million.

Contractual Obligations

Our principal contractual obligations and commitments arising in the normal course of business consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities. ~~Except as otherwise disclosed in Note 4, “Long-Term Debt and Finance Lease Liabilities” of our unaudited consolidated financial statements, there~~There have been no material changes outside the normal course of business as of July ~~3, 2022~~2, 2023 in our contractual obligations and commitments from those reported in our Annual Report on Form 10-K for the fiscal year ended January ~~2, 2022.~~1, 2023.

The future amount and timing of interest payments are expected to vary with the outstanding amounts and then prevailing contractual interest ~~rates, net of interest rate swaps.~~rates. Interest payments through the March 25, 2027 maturity date of our Credit Agreement based on the outstanding amounts as of July ~~3, 2022~~2, 2023 and interest rates in effect at the time of this filing, are estimated to be approximately ~~$52.5~~$35.4 million, with ~~$11.2~~$11.0 million payable within 12 months.

Impact of Inflation and Deflation

Inflation and deflation in the prices of food and other products we sell may periodically affect our sales, gross profit and gross margin. Food inflation, when combined with reduced consumer spending, could also reduce sales, gross profit margins and comparable store sales. Inflationary pressures on compensation, utilities, commodities, equipment and supplies may also impact our profitability. Food deflation or declining levels of inflation across multiple categories, particularly in produce, could reduce sales growth and earnings, particularly if our competitors react by lowering their retail pricing and expanding their promotional activities, which can lead to retail deflation higher than cost deflation that could reduce our sales, gross profit margins and comparable store sales. The short-term impact of inflation and deflation is largely dependent on whether or not the effects are passed through to our customers, which is subject to competitive market conditions.

Food inflation and deflation is affected by a variety of factors and our determination of whether to pass on the effects of inflation or deflation to our customers is made in conjunction with our overall pricing and marketing strategies, as well as our competitors’ responses. Although we may experience periodic effects on sales, gross profit, gross margins and cash flows as a result of changing prices, including ~~most recently from inflationary~~ pressures we experienced in fiscal 2022 and continue to experience in fiscal 2023 due ~~primarily~~ to ~~supply chain disruptions complicated by the COVID-19 pandemic,~~product cost inflation which we largely passed along to retail pricing, we do not expect the effect of inflation or deflation to have a material impact on our ability to execute our long-term business strategy.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, cash flow and related disclosure of contingent assets and liabilities. Our critical accounting estimates include inventories, lease assumptions, self-insurance reserves, goodwill and intangible assets, impairment of long-lived assets, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

Table of Contents

There have been no substantial changes to these estimates, or the policies related to them during the thirteen and twenty-six weeks ended July ~~3, 2022.~~2, 2023. For a full discussion of these estimates and policies, see “Critical Accounting Estimates” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended January ~~2, 2022.~~1, 2023.

Recently Issued Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies” to our accompanying unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As described in Note 4, “Long-Term Debt and Finance Lease Liabilities” to our unaudited consolidated financial statements located elsewhere in this Quarterly Report on Form 10-Q, our Credit Agreement bears interest at a rate based in part on SOFR. Accordingly, we could be exposed to fluctuations in interest rates. Based solely on the ~~$250.0~~$175.0 million principal outstanding under our Credit Agreement as of July ~~3, 2022,~~2, 2023, each hundred basis point change in SOFR would result in a change in interest expense by ~~$2.5~~$1.8 million annually. We entered into an interest rate swap agreement in December 2017 to manage our cash flow associated with variable interest rates. The notional dollar amount of the one outstanding swap at July 3, 2022 and January 2, 2022 was $250.0 million under which we pay a fixed rate and received a variable rate of interest (cash flow swap). Taking into account the interest rate swap, based on the $250.0 million principal outstanding under our Credit Agreement as of July 3, 2022, each hundred basis point change in SOFR would result in no change in interest expense annually.

This sensitivity analysis assumes our mix of financial instruments and all other variables will remain constant in future periods. These assumptions are made in order to facilitate the analysis and are not necessarily indicative of our future intentions.

~~We do not enter into derivative financial instruments for trading purposes (see Note 10, “Derivative Financial Instruments” of our unaudited consolidated financial statements).~~

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures under the Exchange Act as of July ~~3, 2022,~~2, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

During the quarterly period ended July ~~3, 2022,~~2, 2023, there were no changes in our internal controls over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time we are a party to legal proceedings, including matters involving personnel and employment issues, product liability, personal injury, intellectual property and other proceedings arising in the ordinary course of business, which have not resulted in any material losses to date. Although management does not expect that the outcome in these proceedings will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, we could incur judgments or enter into settlements of claims that could materially impact our results.

See Note 7, “Commitments and Contingencies” to our unaudited consolidated financial statements for information regarding certain legal proceedings in which we are involved.

Item 1A. Risk Factors.

Certain factors may have a material adverse effect on our business, financial condition and results of operations. You should carefully consider the risks and uncertainties referenced below, together with all of the other information in this Quarterly Report on Form 10-Q, including our consolidated financial statements and related notes. Any of those risks could materially and adversely affect our business, operating results, financial condition, or prospects and cause the value of our common stock to decline, which could cause you to lose all or part of your investment.

There have been no material changes to the Risk Factors described under “Part I – Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January ~~2, 2022.~~1, 2023.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

The following table provides information about our share repurchase activity during the thirteen weeks ended July ~~3, 2022.~~2, 2023.

Period (1)

Total number
of shares
purchased

Average
price paid
per share

Total number
of shares
purchased as
part of publicly
announced plans
or programs

Approximate
dollar value
of shares that
may yet be
purchased under
the plans or
programs (2)

April 4, 2022 - May 1, 2022

586,753

$
32.38

586,753

$
547,142,000

May 2, 2022 - May 29, 2022

1,007,730

$
25.22

1,007,730

$
521,728,000

May 30, 2022 - July 3, 2022

803,188

$
26.07

803,188

$
500,786,000


Period (1)	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Approximate dollar value of shares that may yet be purchased under the plans or programs (2)
April 3, 2023 - April 30, 2023		445,907	$	34.09		445,907	$	298,328,000
May 1, 2023 - May 28, 2023		425,039	$	36.11		425,039	$	282,979,000
May 29, 2023 - July 2, 2023		566,986	$	34.30		566,986	$	263,530,000
Total		1,437,932				1,437,932

(1)

Periodic information is presented by reference to our fiscal periods during the second quarter of fiscal year ~~2022.~~2023.

(2)

On March 2, 2022, our board of directors authorized a $600 million share repurchase
program of our common stock. The shares may be purchased on a discretionary basis from
time to time through December 31, 2024, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated
transactions, or other means, including through Rule 10b5-1 trading plans.

Item 5. Other Information.

Rule 10b5-1 Trading Arrangement

On June 8, 2023, Stacy Hilgendorf, our Vice President - Controller and Principal Accounting Officer, adopted a written plan for the sale of our common stock that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (a “Rule 10b5-1 Trading Plan”). The Rule 10b5-1 Trading Plan provides for the sale of up to 6,626 shares of the Company's common stock beginning September 7, 2023 through September 6, 2024.

During the second quarter of 2023, except as described above, none of our other directors or executive officers adopted or terminated a Rule 10b5-1 Trading Plan, or a “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K).

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Item 6. Exhibits.


Exhibit Number		Description

~~10.1~~		~~Letter Agreement, dated May 25, 2022, by and between Sprouts Farmers Market and Gil Phipps (1)~~

~~10.2~~		~~Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (1)~~

~~10.3~~		~~Form of Restricted Stock Unit Agreement under the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (1)~~

~~10.4~~		~~Form of Performance Share Award Agreement under the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (1)~~

~~10.5~~		~~Form of Stock Option Award Agreement under the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (1)~~

~~10.6~~		~~Form Notice of Amendment to Outstanding Awards granted under the Sprouts Farmers Market, Inc. 2013 Incentive Plan (1)~~

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

~~(1)~~

~~Filed as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on May 27, 2022, and incorporated herein by reference.~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SPROUTS FARMERS MARKET, INC.

Date: August ~~3, 2022~~1, 2023	By:	/s/ Lawrence P. Molloy
	Name:	Lawrence P. Molloy
	Title:	Chief Financial Officer
		(Principal Financial Officer)

4140


	Balance at January 2, 2022		Gift Cards Issued During Current Period but Not Redeemed(1)		Revenue Recognized from Beginning Liability			Balance at July 3, 2022
Gift card liability, net	$	12,586	$	1,568	$	(4,554	)	$	9,600


	As of July 3, 2022			As of January 2, 2022
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value

Interest rate swaps	Other current assets	$	230	Other current assets	$	—
Interest rate swaps	Accrued liabilities	$	—	Accrued liabilities	$	5,107


	Cash Flow Hedges
Balance at January 3, 2021	$	(8,474	)
Other comprehensive income (loss), net of tax
Unrealized gains on cash flow hedging activities, net of income tax of $1,485		4,295
Reclassification of net losses on cash flow hedges to net income, net of income tax of ($740)		(2,140	)
Total other comprehensive income (loss)		2,155
Balance at July 4, 2021	$	(6,319	)

Balance at January 2, 2022	$	(3,758	)
Other comprehensive income (loss), net of tax
Unrealized gains on cash flow hedging activities, net of income tax of $2,018		5,834
Reclassification of net losses on cash flow hedges to net income, net of income tax of ($651)		(1,883	)
Total other comprehensive income (loss)		3,951
Balance at July 3, 2022	$	193