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.

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 ~~November 4, 2022,~~October 27, 2023, the registrant had ~~105,852,470~~101,560,802 shares of common stock, $0.001 par value per share, outstanding.

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.


	October 2, 2022		January 2, 2022			October 1, 2023		January 1, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	316,042	$	245,287		$	251,780	$	293,233
Accounts receivable, net		11,455		21,574			16,203		16,108
Inventories		301,667		265,387			323,662		310,545
Prepaid expenses and other current assets		43,867		35,468			28,906		53,918
Total current assets		673,031		567,716			620,551		673,804
Property and equipment, net of accumulated depreciation		694,098		716,029			773,072		722,241
Operating lease assets, net		1,081,514		1,072,019			1,294,270		1,106,524
Intangible assets, net of accumulated amortization		184,960		184,960
Intangible assets							208,060		184,960
Goodwill		368,878		368,878			381,741		368,878
Other assets		15,036		13,513			12,814		13,973
Total assets	$	3,017,517	$	2,923,115		$	3,290,508	$	3,070,380
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	166,968	$	145,901		$	190,133	$	172,904
Accrued liabilities		144,935		155,996			175,769		151,306
Accrued salaries and benefits		53,875		58,743			66,380		61,574
Current portion of operating lease liabilities		158,219		151,755			108,225		135,584
Current portion of finance lease liabilities		1,141		1,078			1,038		1,012
Total current liabilities		525,138		513,473			541,545		522,380
Long-term operating lease liabilities		1,095,154		1,095,909			1,382,937		1,145,173
Long-term debt and finance lease liabilities		258,992		259,656			158,936		258,902
Other long-term liabilities		38,486		36,306			38,009		36,340
Deferred income tax liability		58,919		57,895			54,072		61,123
Total liabilities		1,976,689		1,963,239			2,175,499		2,023,918
Commitments and contingencies (Note 7)
Stockholders’ equity:
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, 106,491,322 shares issued and outstanding, October 2, 2022; 111,114,374 shares issued and outstanding, January 2, 2022		106		111
Common stock, $0.001 par value; 200,000,000 shares authorized, 101,623,482 shares issued and outstanding, October 1, 2023; 105,072,756 shares issued and outstanding, January 1, 2023							101		105
Additional paid-in capital		720,447		704,701			768,057		726,345
Accumulated other comprehensive income (loss)		498		(3,758	)
Retained earnings		319,777		258,822			346,851		320,012
Total stockholders’ equity		1,040,828		959,876			1,115,009		1,046,462
Total liabilities and stockholders’ equity	$	3,017,517	$	2,923,115		$	3,290,508	$	3,070,380

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


	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Thirty-nine weeks ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021		October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Net sales	$	1,591,026	$	1,509,633	$	4,827,669	$	4,607,073	$	1,713,282	$	1,591,026	$	5,138,839	$	4,827,669
Cost of sales		1,007,376		969,904		3,051,914		2,931,089		1,087,848		1,007,376		3,237,371		3,051,914
Gross profit		583,650		539,729		1,775,755		1,675,984		625,434		583,650		1,901,468		1,775,755
Selling, general and administrative expenses		460,834		423,416		1,382,854		1,299,498		502,801		460,834		1,486,961		1,382,854
Depreciation and amortization (exclusive of depreciation included in cost of sales)		30,313		30,377		93,377		92,036		31,802		30,313		99,834		93,377
Store closure and other costs, net		2,164		128		3,034		1,757		3,176		2,164		33,880		3,034
Income from operations		90,339		85,808		296,490		282,693		87,655		90,339		280,793		296,490
Interest expense, net		1,951		2,911		7,648		8,840		1,698		1,951		6,058		7,648
Income before income taxes		88,388		82,897		288,842		273,853		85,957		88,388		274,735		288,842
Income tax provision		22,648		19,030		72,798		65,924		20,644		22,648		65,928		72,798
Net income	$	65,740	$	63,867	$	216,044	$	207,929	$	65,313	$	65,740	$	208,807	$	216,044
Net income per share:
Basic	$	0.61	$	0.56	$	1.98	$	1.78	$	0.64	$	0.61	$	2.03	$	1.98
Diluted	$	0.61	$	0.56	$	1.97	$	1.77	$	0.64	$	0.61	$	2.01	$	1.97
Weighted average shares outstanding:
Basic		107,229		114,201		109,066		116,497		101,881		107,229		102,844		109,066
Diluted		108,095		114,818		109,888		117,252		102,703		108,095		103,758		109,888

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


For the thirteen and thirty-nine weeks ended October 2, 2022
For the thirteen and thirty-nine weeks ended October 1, 2023																		For the thirteen and thirty-nine weeks ended October 1, 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 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
Net income		—			—			—		65,740			—			65,740				—			—			—		65,313			65,313
Other comprehensive income (loss)		—			—			—		—			305			305
Issuance of shares under stock plans		81,841			—			1,364		—			—			1,364				271,815			—			1,606		—			1,606
Repurchase and retirement of common stock		(1,558,196	)		(2	)		—		(44,021	)		—			(44,023	)			(831,416	)		(1	)		—		(32,332	)		(32,333	)
Share-based compensation		—			—			3,752		—			—			3,752				—			—			5,270		—			5,270
Balances at October 2, 2022		106,491,322		$	106		$	720,447	$	319,777		$	498		$	1,040,828
Balances at October 1, 2023																				101,623,482		$	101		$	768,057	$	346,851		$	1,115,009

	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		—			—			—		216,044			—			216,044				—			—			—		208,807			208,807
Other comprehensive income (loss)		—			—			—		—			4,256			4,256
Issuance of shares under stock plans		814,002			—			4,074		—			—			4,074				1,304,127			1			8,843		—			8,844
Repurchase and retirement of common stock		(5,437,054	)		(5	)		—		(155,089	)		—			(155,094	)			(5,307,759	)		(6	)		—		(181,968	)		(181,974	)
Share-based compensation		—			—			11,672		—			—			11,672				—			—			14,731		—			14,731
Balances at October 2, 2022		106,491,322		$	106		$	720,447	$	319,777		$	498		$	1,040,828
Issuance of shares for acquisition																				554,358			1			18,138		—			18,139
Balances at October 1, 2023																				101,623,482		$	101		$	768,057	$	346,851		$	1,115,009

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


For the thirteen and thirty-nine weeks ended October 3, 2021
For the thirteen and thirty-nine weeks ended October 2, 2022																		For the thirteen and thirty-nine weeks ended October 2, 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 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
Net income		—			—			—		63,867			—			63,867				—			—			—		65,740			—			65,740
Other comprehensive income (loss)		—			—			—		—			968			968
Other comprehensive income																				—			—			—		—			305			305
Issuance of shares under stock plans		54,007			—			672		—			—			672				81,841			—			1,364		—			—			1,364
Repurchase and retirement of common stock		(2,079,420	)		(2	)		—		(49,998	)		—			(50,000	)			(1,558,196	)		(2	)		—		(44,021	)		—			(44,023	)
Share-based compensation		—			—			3,453		—			—			3,453				—			—			3,752		—			—			3,752
Balances at October 3, 2021		113,155,419		$	113		$	699,870	$	273,451		$	(5,351	)	$	968,083
Balances at October 2, 2022																				106,491,322		$	106		$	720,447	$	319,777		$	498		$	1,040,828

																			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		—			—			—		207,929			—			207,929				—			—			—		216,044			—			216,044
Other comprehensive income (loss)		—			—			—		—			3,123			3,123
Other comprehensive income																				—			—			—		—			4,256			4,256
Issuance of shares under stock plans		562,021			—			1,918		—			—			1,918				814,002			—			4,074		—			—			4,074
Repurchase and retirement of common stock		(5,360,037	)		(5	)		—		(137,479	)		—			(137,484	)			(5,437,054	)		(5	)		—		(155,089	)		—			(155,094	)
Share-based compensation		—			—			11,304		—			—			11,304				—			—			11,672		—			—			11,672
Balances at October 3, 2021		113,155,419		$	113		$	699,870	$	273,451		$	(5,351	)	$	968,083
Balances at October 2, 2022																				106,491,322		$	106		$	720,447	$	319,777		$	498		$	1,040,828

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


	Thirty-nine weeks ended						Thirty-nine weeks ended
	October 2, 2022			October 3, 2021			October 1, 2023			October 2, 2022
Operating activities
Net income	$	216,044		$	207,929		$	208,807		$	216,044
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		96,057			94,422			103,668			96,057
Operating lease asset amortization		87,316			80,295			94,403			87,316
Store closure and other costs, net		171			—
Impairment of assets								27,845			171
Share-based compensation		11,672			11,304			14,731			11,672
Deferred income taxes		1,025			2,085			(13,225	)		1,025
Other non-cash items		404			883			596			404
Changes in operating assets and liabilities:
Changes in operating assets and liabilities, net of effects from acquisition:
Accounts receivable		16,491			12,999			10,070			16,491
Inventories		(36,280	)		(16,860	)		(11,322	)		(36,280	)
Prepaid expenses and other current assets		(7,880	)		(6,001	)		21,093			(7,880	)
Other assets		1,678			(2,834	)		3,870			1,678
Accounts payable		23,121			29,479			27,446			23,121
Accrued liabilities		2,482			1,046			19,027			2,482
Accrued salaries and benefits		(4,868	)		(30,544	)		4,509			(4,868	)
Operating lease liabilities		(99,055	)		(88,664	)		(103,787	)		(99,055	)
Other long-term liabilities		(1,588	)		1,120			1,294			(1,588	)
Cash flows from operating activities		306,790			296,659			409,025			306,790
Investing activities
Purchases of property and equipment		(80,749	)		(70,010	)		(165,016	)		(80,749	)
Payments for acquisition, net of cash acquired								(13,032	)		—
Cash flows used in investing activities		(80,749	)		(70,010	)		(178,048	)		(80,749	)
Financing activities
Proceeds from revolving credit facilities								—			62,500
Payments on revolving credit facilities								(100,000	)		(62,500	)
Payments on finance lease liabilities		(600	)		(507	)		(749	)		(600	)
Payments of deferred financing costs		(3,373	)		—			—			(3,373	)
Repurchase of common stock		(155,094	)		(137,484	)		(180,415	)		(155,094	)
Proceeds from exercise of stock options		4,074			1,918			8,844			4,074
Cash flows used in financing activities		(154,993	)		(136,073	)		(272,320	)		(154,993	)
Increase in cash, cash equivalents, and restricted cash		71,048			90,576
(Decrease)/Increase in cash, cash equivalents, and restricted cash								(41,343	)		71,048
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	$	318,052		$	262,017		$	253,849		$	318,052

Supplemental disclosure of cash flow information
Cash paid for interest	$	8,415		$	8,710		$	10,519		$	8,415
Cash paid for income taxes		65,671			65,783			64,569			65,671

Supplemental disclosure of non-cash activities
Property and equipment in accounts payable and accrued liabilities							$	28,500		$	17,834
Issuance of shares for acquisition								18,139			—
Leased assets obtained in exchange for new operating lease liabilities		96,956			96,713			301,452			96,956

Supplemental disclosure of non-cash investing and financing activities
Property and equipment in accounts payable and accrued liabilities	$	17,834		$	19,228
Leased assets obtained in exchange for new finance lease liabilities								809			—

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

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 October ~~2, 2022~~1, 2023 and January ~~2, 2022.~~1, 2023.

7.7. 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.

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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.

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

8.8. 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 October ~~2, 2022.~~1, 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	$	143,236	$	456,764	December 31, 2024	$	600,000	$	368,538	$	231,462

Table of Contents

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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				Thirty-nine weeks ended				Thirteen weeks ended				Thirty-nine weeks ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021		October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Number of common shares acquired		1,558,196		2,079,420		5,437,054		5,360,037		831,416		1,558,196		5,307,759		5,437,054
Average price per common share acquired	$	28.25	$	24.05	$	28.53	$	25.65	$	38.89	$	28.25	$	34.28	$	28.53
Total cost of common shares acquired	$	44,023	$	50,000	$	155,094	$	137,484	$	32,333	$	44,023	$	181,974	$	155,094

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 thirty-nine weeks ended October 1, 2023 included the 1% excise tax imposed as part of the Inflation Reduction Act of 2022.

Subsequent to October ~~2, 2022~~1, 2023 and through ~~November 4, 2022,~~the date of this filing, the Company repurchased an additional ~~0.6~~0.1 million shares of common stock for $~~17.8~~2.8 million.

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SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

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				Thirty-nine weeks ended				Thirteen weeks ended				Thirty-nine weeks ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021		October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Basic net income per share:
Net income	$	65,740	$	63,867	$	216,044	$	207,929	$	65,313	$	65,740	$	208,807	$	216,044
Weighted average shares outstanding		107,229		114,201		109,066		116,497
Weighted average shares outstanding - basic										101,881		107,229		102,844		109,066
Basic net income per share	$	0.61	$	0.56	$	1.98	$	1.78	$	0.64	$	0.61	$	2.03	$	1.98
Diluted net income per share:
Net income	$	65,740	$	63,867	$	216,044	$	207,929	$	65,313	$	65,740	$	208,807	$	216,044
Weighted average shares outstanding - basic		107,229		114,201		109,066		116,497		101,881		107,229		102,844		109,066
Dilutive effect of share-based awards:
Assumed exercise of options to purchase shares		314		197		318		211		317		314		345		318
RSUs		266		245		371		376		505		266		511		371
PSAs		286		175		133		168		—		286		58		133
Weighted average shares and equivalent shares outstanding		108,095		114,818		109,888		117,252
Weighted average shares and equivalent shares outstanding - diluted										102,703		108,095		103,758		109,888
Diluted net income per share	$	0.61	$	0.56	$	1.97	$	1.77	$	0.64	$	0.61	$	2.01	$	1.97

For the thirteen weeks ended October 1, 2023, the Company had 0.2 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 October 2, 2022, the Company had 0.3 million options and 0.3 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~~thirty-nine weeks ended October ~~3, 2021,~~1, 2023, the Company had ~~0.5~~0.4 million options and ~~0.3~~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 thirty-nine weeks ended October 2, 2022, the Company had 0.5 million options, 0.1 million RSUs, and 0.3 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 thirty-nine weeks ended~~

10. Derivative Financial Instruments

The Company did not have any outstanding interest rate swap agreements as of October ~~3, 2021, the Company had~~ 1, 2023 and January 1, 2023.~~0.5~~ ~~million options and~~ ~~0.3~~ 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.

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SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

10~~. Derivative Financial Instruments~~

~~The~~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 five cash flow hedges ~~of which~~ ~~one~~ ~~was outstanding at October 2, 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.~~

~~The~~ notional dollar amount of ~~the~~ ~~one~~ ~~outstanding swap was~~ $250.0 million, ~~at October 2, 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~~ ~~zero~~ 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
October 2, 2022

As of
January 2, 2022

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Interest rate swaps

Other current assets

$
687

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				Thirty-nine weeks ended				Thirteen weeks ended				Thirty-nine weeks ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021		October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Consolidated Statements of Income Classification
Interest expense, net	$	171	$	1,448	$	2,705	$	4,328	$	—	$	171	$	—	$	2,705

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~~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 thirty-nine weeks ended October ~~3, 2021 and October~~ 2, 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 $2,192

6,339

Reclassification of net losses on cash flow hedges to net income, net of income
tax of ($1,112)

(3,216
)
Total other comprehensive income (loss)

3,123

Balance at October 3, 2021

$
(5,351
)

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 $2,167

6,266

Reclassification of net losses on cash flow hedges to net income, net of income
tax of ($695)

(2,010
)
Total other comprehensive income (loss)

4,256

Balance at October 2, 2022

$
498


	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 $2,167		6,266
Reclassification of net losses on cash flow hedges to net income, net of income tax of ($695)		(2,010	)
Total other comprehensive income		4,256
Balance at October 2, 2022	$	498

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

12. Segments

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

In accordance with ASC 606, the following table represents a disaggregation of revenue for the thirteen and thirty-nine weeks ended October ~~2, 2022~~1, 2023 and October ~~3, 2021.~~2, 2022.


	Thirteen weeks ended								Thirteen weeks ended
	October 2, 2022				October 3, 2021				October 1, 2023				October 2, 2022
Perishables	$	928,908	58.4	%	$	867,880	57.5	%	$	985,760	57.5	%	$	928,908	58.4	%
Non-Perishables		662,118	41.6	%		641,753	42.5	%		727,522	42.5	%		662,118	41.6	%
Net Sales	$	1,591,026	100.0	%	$	1,509,633	100.0	%	$	1,713,282	100.0	%	$	1,591,026	100.0	%

	Thirty-nine weeks ended								Thirty-nine weeks ended
	October 2, 2022				October 3, 2021				October 1, 2023				October 2, 2022
Perishables	$	2,817,268	58.4	%	$	2,668,532	57.9	%	$	2,956,584	57.5	%	$	2,817,268	58.4	%
Non-Perishables		2,010,401	41.6	%		1,938,541	42.1	%		2,182,255	42.5	%		2,010,401	41.6	%
Net Sales	$	4,827,669	100.0	%	$	4,607,073	100.0	%	$	5,138,839	100.0	%	$	4,827,669	100.0	%

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SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

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~~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 thirty-nine weeks ended October ~~2, 2022,~~1, 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		—		—
September 7, 2022		21,598		—		—
March 14, 2023								491,729		172,059		221,085
May 1, 2023								2,931		—		—
June 7, 2023								1,271		—		—
September 5, 2023								6,408		—		—
September 11, 2023								10,204		—		—
Total		79,655		—		—		512,543		172,059		221,085
Weighted-average grant date fair value	$	27.75	$	—	$	—	$	33.18	$	32.95	$	12.63
Weighted-average exercise price		—		—		—	$	—	$	—	$	32.95

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 October ~~2, 2022,~~1, 2023, there were ~~79,655~~912,037 stock awards outstanding and ~~6,621,800~~5,774,130 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 thirty-nine weeks ended October 2, 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

—

—

$
31.52

2019

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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 no ~~outstanding 2018 PSAs as of October 2, 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 thirty-nine weeks ended October 2, 2022,~~ ~~208,172~~ ~~of the 2019 PSAs vested.~~ There were no outstanding 2019 PSAs as of October ~~2, 2022.~~1, 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 thirty-nine weeks ended October 1, 2023, 268,699 of the 2020 PSAs vested. There were no outstanding 2020 PSAs as of October 1, 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).

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

Thirty-nine weeks ended

October 2, 2022

October 3, 2021

October 2, 2022

October 3, 2021

Share-based compensation expense

$
3,752

$
3,453

$
11,672

$
11,304


	Thirteen weeks ended				Thirty-nine weeks ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Share-based compensation expense	$	5,270	$	3,752	$	14,731	$	11,672

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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 October 1, 2023 and October 2, 2022:


	As of
	October 1, 2023		October 2, 2022
	(in thousands)
Options
Vested		567		313
Unvested		469		1,047
RSUs		897		974
PSAs		471		460

As of October 1, 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	$	3,773		1.7
RSUs		19,842		1.7
PSAs		5,805		1.5
Total unrecognized compensation expense at October 1, 2023	$	29,420

During the thirty-nine weeks ended October 1, 2023 and October 2, 2022, the Company received $8.8 million and $4.1 million, respectively, in cash proceeds from the exercise of options.

14. Goodwill

The Company’s goodwill balance was $381.7 million and $368.9 million as of October 1, 2023 and January 1, 2023, respectively. As of October 1, 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 October 1, 2023
Goodwill	$	368,878	$	12,863	$	381,741

15. Store Closures

In February 2023, the Company's board of directors approved the closing of 11 stores during 2023, all of which were closed during the thirty-nine weeks ended October 1, 2023. These stores, on average, were approximately 30% larger than the Company's current prototype format and were underperforming financially. The closure of these stores resulted in a charge of $27.8 million during the thirty-nine weeks ended October 1, 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 thirty-nine weeks ended October 1, 2023 was $5.9 million, and is reflected in Depreciation and amortization on the consolidated statements of income. Severance expense was immaterial during the thirty-nine weeks ended October 1, 2023, and no further severance expense is expected to be incurred.

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SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

16. 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 ~~following share-based awards were outstanding as~~aggregate consideration paid in the transaction consisted of ~~October 2, 2022~~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 ~~October 3, 2021:~~cash consideration of $13.0 million, subject to customary post-closing adjustments.

As of

October 2, 2022

October 3, 2021

(in thousands)

Options

Vested

313

244

Unvested

1,047

1,134

RSUs

974

935

PSAs

460

433

AsThe Company accounted for this transaction as a business combination in accordance with the acquisition method of ~~October 2, 2022, total unrecognized compensation expense~~accounting, which requires that the purchase price be allocated to the assets and ~~remaining weighted average recognition period related~~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 ~~outstanding share-based awards was as follows:~~

Unrecognized
compensation
expense

Remaining
weighted
average
recognition
period

Options

$
3,781

1.1

RSUs

19,114

1.7

PSAs

784

1.4

Total unrecognized compensation expense at October 2, 2022

$
23,679

~~During~~ the Company's consolidated results during the thirteen and thirty-nine weeks ended October ~~2, 2022~~1, 2023.

The net purchase price was initially allocated to the net tangible assets of ($4.9) million and ~~October 3, 2021,~~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 ~~received $4.1~~ ~~million and $1.9~~ ~~million, respectively, in cash proceeds~~ from the ~~exercise~~acquisition, which include the Company's ability to fully control the Sprouts Farmers Market brand by termination of ~~options.~~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.

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.

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 ~~379~~401 stores in 23 states as of October ~~2, 2022,~~ 1, 2023, we are one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States.

In 2002, we opened the first Sprouts Farmers Market store in Chandler, Arizona. From our founding in 2002 through October 1, 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.

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:

~~Our operations have generally stabilized since~~In the ~~onset~~thirty-nine weeks ended October 1, 2023, as part of ~~the COVID-19 pandemic. However,~~our real estate portfolio review, we ~~continue to experience varying levels~~closed 11 stores. These stores, on average, were approximately 30% larger than our current prototype format and were underperforming financially. See Note 15, “Store Closures” of inflation through increased product costs which we continue to pass through to retail pricing. 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.

Results of Operations for Thirteen Weeks Ended October 1, 2023 and October 2, 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.

Net sales during the thirteen weeks ended October 1, 2023 totaled $1.7 billion, an increase of $122.3 million, or 8%, compared to the thirteen weeks ended October 2, 2022. The sales increase was driven by sales from new stores opened in the last twelve months and a 3.9% increase in comparable store sales. Comparable stores contributed approximately 95% of total sales for the thirteen weeks ended October 1, 2023 and approximately 97% of total sales for the thirteen weeks ended October 2, 2022.

Gross profit totaled $625.4 million during the thirteen weeks ended October 1, 2023, an increase of $41.8 million, or 7%, compared to the thirteen weeks ended October 2, 2022, driven by increased sales volume. Gross margin decreased by 0.2% to 36.5% for the thirteen weeks ended October 1, 2023, compared to 36.7% for the thirteen weeks ended October 2, 2022. The decrease was driven by higher distribution costs resulting from our new and recently expanded distribution centers in California and Texas, respectively.

Selling, general and administrative expenses increased $42.0 million, or 9%, compared to the thirteen weeks ended October 2, 2022. The increase was primarily due to the net increase in new stores opened since the prior year and higher wages and incentive compensation costs.

Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $31.8 million for the thirteen weeks ended October 1, 2023, compared to $30.3 million for the thirteen weeks ended October 2, 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.

Store closure and other costs, net for the thirteen weeks ended October 1, 2023 of $3.2 million was primarily related to ongoing activity associated with our closed store locations. See Note 15, “Store Closures” of our unaudited consolidated financial statements. Store closure and other costs, net for the thirteen weeks ended October 2, 2022 of $2.2 million was primarily related to inventory loss and expenses incurred by several of our stores impacted by Hurricane Ian in the prior year.

Interest expense, net decreased to $1.7 million for the thirteen weeks ended October 1, 2023, compared to $2.0 million for the thirteen weeks ended October 2, 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 differed from the amounts computed by applying the U.S. federal income tax rate to pretax income as a result of the following:

The effective tax rate decreased to 24.0% for the thirteen weeks ended October 1, 2023 from 25.6% for the thirteen weeks ended October 2, 2022. The decrease in the effective tax rate was primarily due to an increase in excess tax benefits associated with share-based payment awards.

Net income decreased $0.4 million primarily due to higher selling, general and administrative expenses for the reasons discussed above.

The increase in diluted earnings per share of $0.03 was driven by fewer diluted shares outstanding compared to the prior year, due primarily to the share repurchase program.

Results of Operations for Thirty-nine Weeks Ended October 1, 2023 and October ~~3, 2021~~2, 2022

Comparison of ~~Thirteen~~Thirty-nine Weeks Ended October 1, 2023 to Thirty-nine Weeks Ended October 2, 2022 ~~to Thirteen Weeks Ended~~

Net sales during the ~~thirteen~~thirty-nine weeks ended October ~~2, 2022~~1, 2023 totaled ~~$1.6~~$5.1 billion, an increase of ~~$81.4~~$311.2 million, or 5%6%, ~~compared to~~over the ~~thirteen weeks ended October 3, 2021.~~same period of the prior fiscal year. The sales increase was ~~driven by sales from new stores opened in the last twelve months and~~primarily due to a ~~2.4% increase in comparable store sales. The~~3.4% increase in comparable store sales ~~was due in part to~~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.~~basket and the impact of store closures, as well as sales from new stores opened in the last twelve months. See "Impact of Inflation and Deflation". Comparable stores contributed approximately ~~97%~~96% of total sales for ~~each of~~ the ~~thirteen~~thirty-nine weeks ended October 1, 2023 and approximately 97% for the thirty-nine weeks ended October 2, ~~2022 and October 3, 2021.~~2022.

Gross profit totaled ~~$583.7 million~~$1.9 billion during the ~~thirteen~~thirty-nine weeks ended October 1, 2023, an increase of $125.7 million, or 7%, compared to the thirty-nine weeks ended October 2, 2022, ~~an increase of $43.9 million, or 8%, compared to the thirteen weeks ended October 3, 2021,~~ driven by increased sales volume. Gross margin increased ~~by 0.9%~~ to ~~36.7%~~37.0% for the ~~thirteen~~thirty-nine weeks ended October 1, 2023, compared to 36.8% for the thirty-nine weeks ended October 2, 2022, ~~compared~~due to ~~35.8% for the thirteen weeks ended October 3, 2021, primarily as a result of offering fewer promotions~~favorable product mix and continued promotional optimization, partially offset by higher distribution costs resulting from our new and recently expanded distribution centers in ~~the current year.~~California and Texas, respectively.

Selling, general and administrative expenses increased ~~$37.4~~$104.1 million, or 9%8%, compared to the ~~thirteen~~thirty-nine weeks ended October ~~3, 2021.The~~2, 2022. The increase iswas primarily ~~due to~~driven by the net increase in new stores opened since the ~~comparable period in the~~ prior year ~~higher wages~~period and higher ~~marketing spend in the current year, as well as higher credit card and ecommerce fees.~~payroll costs.

Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was ~~$30.3~~$99.8 million for the ~~thirteen~~thirty-nine weeks ended October 1, 2023, compared to $93.4 million for the thirty-nine weeks ended October 2, ~~2022, compared to $30.4 million for the thirteen weeks ended October 3, 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 thirty-nine weeks ended October 1, 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 increased ~~$2.0~~$30.8 million to ~~$2.2~~$33.9 million, compared to $3.0 million for the ~~thirteen~~thirty-nine weeks ended October 2, 2022. Store closure and other costs, net during the thirty-nine weeks ended October 1, 2023 primarily consisted of $27.8 million of impairment losses related to the write-down of leasehold improvements and right-of-use assets and other costs incurred in association with the closing of 11 underperforming stores. See Note 15, “Store Closures” of our unaudited consolidated financial statements. Store closure and other costs, net during the thirty-nine weeks ended October 2, 2022 ~~compared~~was primarily related to ~~$0.1 million for the thirteen weeks ended October 3, 2021. The increase in store closure and other costs, net was driven by~~ inventory loss and ~~other~~ expenses incurred by several of our stores impacted by Hurricane Ian in addition to costs associated with the ~~current quarter.~~closing of four stores in the prior year.

Interest expense, net decreased to ~~$2.0~~$6.1 million for the ~~thirteen~~thirty-nine weeks ended October 1, 2023, compared to $7.6 million for the thirty-nine weeks ended October 2, 2022 ~~compared to $2.9 million for the thirteen weeks ended October 3, 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.

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:

The effective tax rate ~~increased~~decreased to ~~25.6%~~24.0% for the ~~thirteen~~thirty-nine weeks ended October ~~2, 2022~~1, 2023 from ~~23.0% for~~25.2% in the ~~thirteen weeks ended October 3, 2021.~~same period last year. The ~~increase~~decrease in the effective tax rate was 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 ~~increased $1.9~~decreased $7.2 million primarily due to ~~increased sales~~higher store closure and ~~gross profit, partially offset by higher~~other costs and selling, general and administrative expenses ~~and a higher effective tax rate~~ for the reasons discussed ~~above.~~above, partially offset by higher sales and gross profit.

The increase in diluted earnings per share of ~~$0.05~~$0.04 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 Thirty-nine Weeks Ended October 2, 2022 and October 3, 2021~~

~~Comparison of Thirty-nine Weeks Ended October 2, 2022 to Thirty-nine Weeks Ended~~

Net sales during the thirty-nine weeks ended October 2, 2022 totaled $4.8 billion, an increase of $220.6 million, or 5%, over the same period of the prior fiscal year. The sales increase was primarily due to a 2.0% increase in comparable store sales, driven primarily by an increase in basket due to retail inflationprogram, partially offset by a slight reduction of items in the basket, as well as sales from new stores opened in the last twelve months. Comparable stores contributed approximately 97% of total sales for the thirty-nine weeks ended October 2, 2022 and approximately 96% for the thirty-nine weeks ended October 3, 2021.lower net income.

Gross profit totaled $1.8 billion during the thirty-nine weeks ended October 2, 2022, an increase of $99.8 million, or 6%, compared to the thirty-nine weeks ended October 3, 2021 driven by increased sales volume. Gross margin increased to 36.8% for the thirty-nine weeks ended October 2, 2022, compared to 36.4% for the thirty-nine weeks ended October 3, 2021, due to improved shrink and offering fewer promotions in the current year.

Selling, general and administrative expenses increased $83.4 million, or 6%, compared to the thirty-nine weeks ended October 3, 2021.The increase was primarily driven by the net increase in new stores opened since the prior year period as well as inflationary conditions driving increases in costs including wages, utilities and supplies. In addition, we have seen higher credit card fees as more consumers shift to credit compared to the prior year and ecommerce costs resulting from an increase in ecommerce sales compared to the prior year.

Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $93.4 million for the thirty-nine weeks ended October 2, 2022, compared to $92.0 million for the thirty-nine weeks ended October 3, 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 increased $1.3 million to $3.0 million, compared to $1.8 million for the thirty-nine weeks ended October 3, 2021. Store closure and other costs, net during the thirty-nine weeks ended October 2, 2022 primarily related to inventory loss and expenses incurred by several of our stores impacted by Hurricane Ian in addition to costs associated with the closing of four stores year-to-date. Store closure and other costs, net during the thirty-nine weeks ended October 3, 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 thirty-nine weeks ended October 3, 2021.

Interest expense, net decreased to $7.6 million for the thirty-nine weeks ended October 2, 2022, compared to $8.8 million for the thirty-nine weeks ended October 3, 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 differed from the amounts computed by applying the U.S. federal income tax rate to pretax income as a result of the following:~~

The effective tax rate increased to 25.2% for the thirty-nine weeks ended October 2, 2022 from 24.1% 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 increased $8.1 million primarily due to increased sales and gross profit, partially offset by higher selling, general and administrative expenses and a higher effective tax rate for the reasons discussed above.

The increase in diluted earnings per share of $0.20 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.

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.

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):

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 ~~2045.~~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.

Cash flows from operating activities increased ~~$10.1~~$102.2 million to $409.0 million for the thirty-nine weeks ended October 1, 2023 compared to $306.8 million for the thirty-nine weeks ended October 2, ~~2022 compared to $296.7 million for the thirty-nine weeks ended October 3, 2021.~~2022. The increase in cash flows from operating activities was primarily a result of ~~cash generated from~~changes in working capital and higher net income ~~and changes in working capital.~~adjusted for non-cash items.

Cash flows provided by/(used inin) operating activities from changes in working capital were ~~$6.9~~$70.8 million in the thirty-nine weeks ended October ~~2, 2022~~1, 2023 compared to ~~$9.9 million~~($6.9 million) in the thirty-nine weeks ended October ~~3, 2021.~~2, 2022. The ~~decrease~~increase was ~~primarily~~ driven by ~~the higher payout of COVID related incentive compensation amounts earned in 2020~~prepaid expenses and ~~paid in 2021, partially offset by higher~~other current assets, inventories ~~impacted by inflationary cost increases on our purchases in the current year.~~and accrued liabilities.

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 ~~$80.7~~$178.0 million and ~~$70.0~~$80.7 million, for the thirty-nine weeks ended October ~~2, 2022~~1, 2023 and October ~~3, 2021,~~2, 2022, respectively.

We expect capital expenditures to be in the range of ~~$120~~$190 - ~~$135~~$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.

Cash flows used in financing activities were $272.3 million for the thirty-nine weeks ended October 1, 2023 compared to $155.0 million for the thirty-nine weeks ended October 2, ~~2022 compared to $136.1 million for~~2022. During the thirty-nine weeks ended October ~~3, 2021.~~ 1, 2023, cash flows used in financing activities primarily consisted of $180.4 million for stock repurchases and $100.0 million in payments on our Credit Agreement, partially offset by $8.8 million in proceeds from the exercise of stock options.

During the thirty-nine weeks ended October 2, 2022, cash flows used in financing activities primarily consisted of $155.1 million for stock repurchases and $3.4 million in debt issuance costs in connection with our Credit Agreement, partially offset by $4.1 million in proceeds from the exercise of stock options.

~~During the thirty-nine weeks ended October 3, 2021, cash flows used in financing activities primarily consisted of $137.5 million for stock repurchases.~~

Long-term debt outstanding was $150.0 million as of October 1, 2023 and $250.0 million as of ~~October 2, 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).

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 October ~~2, 2022.~~1, 2023.

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):

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 thirty-nine weeks ended October 1, 2023 included the 1% excise tax imposed as part of the Inflation Reduction Act of 2022.

Subsequent to October ~~2, 2022~~1, 2023 and through ~~November 4, 2022,~~the date of this filing, we repurchased an additional ~~0.6~~0.1 million shares of common stock for ~~$17.8~~$2.8 million.

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 October ~~2, 2022~~1, 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 October ~~2, 2022~~1, 2023 and interest rates in effect at the time of this filing, are estimated to be approximately ~~$52.7~~$28.3 million, with ~~$12.5~~$9.4 million payable within 12 months.

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 pressures we ~~are currently experiencing~~experienced in fiscal 2022 and continue to experience in fiscal 2023 due to product cost inflation which we ~~are~~ largely ~~passing~~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.

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.

There have been no substantial changes to these estimates, or the policies related to them during the thirteen and thirty-nine weeks ended October ~~2, 2022.~~1, 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.

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

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~~$150.0 million principal outstanding under our Credit Agreement as of October ~~2, 2022,~~1, 2023, each hundred basis point change in SOFR would result in a change in interest expense by ~~$2.5~~$1.5 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 October 2, 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 October 2, 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).~~

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 October ~~2, 2022,~~1, 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.

During the quarterly period ended October ~~2, 2022,~~1, 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.

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.

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.

The following table provides information about our share repurchase activity during the thirteen weeks ended October ~~2, 2022.~~1, 2023.

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.


		Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.		4

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

	Consolidated Statements of Income for the thirteen and thirty-nine weeks ended October ~~2, 2022~~1, 2023 and October ~~3, 2021~~2, 2022 (unaudited)	5

	Consolidated Statements of Comprehensive Income for the thirteen and thirty-nine weeks ended October ~~2, 2022~~1, 2023 and October ~~3, 2021~~2, 2022 (unaudited)	6

	Consolidated Statements of Stockholders’ Equity for the thirteen and thirty-nine weeks ended October ~~2, 2022~~1, 2023 and October ~~3, 2021~~2, 2022 (unaudited)	7

	Consolidated Statements of Cash Flows for the thirty-nine weeks ended October ~~2, 2022~~1, 2023 and October ~~3, 2021~~2, 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.		23

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


	Balance at January 2, 2022		Gift Cards Issued During Current Period but Not Redeemed(1)		Revenue Recognized from Beginning Liability			Balance at October 2, 2022
Gift card liability, net	$	12,586	$	1,911	$	(5,350	)	$	9,147


	Thirty-nine weeks ended
	October 1, 2023			October 2, 2022
Beginning Balance	$	10,906		$	12,586
Gift cards issued during the period but not redeemed(1)		1,926			1,911
Revenue recognized from beginning liability		(4,139	)		(5,350	)
Ending Balance	$	8,693		$	9,147


	Thirteen weeks ended
	October 1, 2023			October 2, 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		(1.4	)%		(0.9	)%
Federal credits		(0.5	)%		(0.3	)%
Share-based payment awards		(1.3	)%		0.0	%
Return to Provision		(0.9	)%		(0.3	)%
Other, net		2.1	%		1.2	%
Effective tax rate		24.0	%		25.6	%


	Thirteen weeks ended
	October 2, 2022			October 3, 2021
Other Operating Data:
Comparable store sales growth		2.4	%		(5.4	)%
Stores at beginning of period		378			363
Closed		—			—
Opened		1			3
Stores at end of period		379			366


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


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


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐


October 2, 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	$	—	$	687	$	—	$	687
Total assets	$	—	$	687	$	—	$	687

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


			As of						As of
Facility	Maturity	Interest Rate	October 2, 2022		January 2, 2022		Maturity	Interest Rate	October 1, 2023		January 1, 2023
Senior secured debt
$700.0 million Credit Agreement	March 25, 2027	Variable	$	250,000	$	—	March 25, 2027	Variable	$	150,000	$	250,000
Former Credit Facility	March 27, 2023	Variable		—		250,000
Finance lease liabilities	Various	n/a		8,992		9,656	Various	n/a		8,936		8,902
Long-term debt and finance lease liabilities			$	258,992	$	259,656			$	158,936	$	258,902


	As of October 2, 2022			As of January 2, 2022
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value

Interest rate swaps	Other current assets	$	687	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 $2,192		6,339
Reclassification of net losses on cash flow hedges to net income, net of income tax of ($1,112)		(3,216	)
Total other comprehensive income (loss)		3,123
Balance at October 3, 2021	$	(5,351	)

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 $2,167		6,266
Reclassification of net losses on cash flow hedges to net income, net of income tax of ($695)		(2,010	)
Total other comprehensive income (loss)		4,256
Balance at October 2, 2022	$	498


	Rolling Four Quarters Ended						Rolling Four Quarters Ended
	October 2, 2022			October 3, 2021 (1)			October 1, 2023			October 2, 2022
	(dollars in thousands)						(dollars in thousands)
Net Income (2)	$	252,272		$	276,326
Special items, net of tax (3), (4)		—			1,339
Net income (1)							$	253,928		$	252,272
Special items, net of tax (2), (3)								34,272			—
Interest expense, net of tax ~~(4)~~(3)		7,843			9,075			5,637			7,843
Net operating profit after tax (NOPAT)	$	260,115		$	286,740		$	293,837		$	260,115

Total rent expense, net of tax ~~(4)~~(3)		152,942			151,764			168,150			152,942
Estimated depreciation on operating leases, net of tax ~~(4)~~(3)		(90,349	)		(85,366	)		(94,696	)		(90,349	)
Estimated interest on operating leases, net of tax (4), (5)		62,593			66,398
Estimated interest on operating leases, net of tax (3), (4)								73,454			62,593
NOPAT, including effect of operating leases	$	322,708		$	353,138		$	367,291		$	322,708

Average working capital		258,834			164,740			251,985			258,834
Average property and equipment		702,206			716,425			728,689			702,206
Average other assets		568,716			568,922			589,132			568,716
Average other liabilities		(97,834	)		(103,444	)		(97,620	)		(97,834	)
Average invested capital	$	1,431,922		$	1,346,643		$	1,472,186		$	1,431,922

Average operating leases ~~(6)~~(5)		1,249,404			1,213,852			1,368,562			1,249,404
Average invested capital, including operating leases	$	2,681,326		$	2,560,495		$	2,840,748		$	2,681,326

ROIC, including operating leases		12.0	%		13.8	%		12.9	%		12.0	%


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)
July 4, 2022 - July 31, 2022		502,432	$	26.70		502,432	$	487,373,000
August 1, 2022 - August 28, 2022		457,650	$	29.49		457,650	$	473,875,000
August 29, 2022 - October 2, 2022		598,114	$	28.61		598,114	$	456,764,000


Exhibit Number		Description

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)


		SPROUTS FARMERS MARKET, INC.

Date: ~~November 8, 2022~~October 31, 2023	By:	/s/ Lawrence P. Molloy
	Name:	Lawrence P. Molloy
	Title:	Chief Financial Officer
		(Principal Financial Officer)