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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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 ~~October 31, 2017,~~August 3, 2021, the registrant had ~~133,070,570~~114,191,196 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 ~~1, 2017,~~3, 2021, 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~~“Sprouts Farmers Market,” “we,” “us” and “our” refer to Sprouts Farmers Market, Inc. and, where appropriate, its subsidiaries.

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


	Thirteen Weeks Ended						Thirty-nine Weeks Ended						Thirteen weeks ended					Twenty-six weeks ended
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016			July 4, 2021			June 28, 2020		July 4, 2021		June 28, 2020
Net sales	$	1,206,059		$	1,035,801		$	3,520,679		$	3,060,685		$	1,521,993		$	1,642,788	$	3,097,440	$	3,289,327
Cost of sales, buying and occupancy		859,650			744,288			2,494,998			2,156,857
Cost of sales														971,912			1,030,129		1,961,185		2,082,836
Gross profit		346,409			291,513			1,025,681			903,828			550,081			612,659		1,136,255		1,206,491
Direct store expenses		250,191			216,932			715,336			617,817
Selling, general and administrative expenses		39,955			29,664			110,312			91,482			436,420			488,877		876,082		925,181
Store pre-opening costs		2,456			3,446			10,055			11,625
Store closure and other costs		803			24			992			159
Depreciation and amortization (exclusive of depreciation included in cost of sales)														30,430			30,549		61,659		61,570
Store closure and other costs, net														(419	)		470		1,629		(612	)
Income from operations		53,004			41,447			188,986			182,745			83,650			92,763		196,885		220,352
Interest expense		(5,609	)		(3,723	)		(15,447	)		(10,985	)
Other income		162			135			388			326
Interest expense, net														2,938			3,737		5,929		8,564
Income before income taxes		47,557			37,859			173,927			172,086			80,712			89,026		190,956		211,788
Income tax provision		(16,071	)		(13,974	)		(55,186	)		(64,785	)		19,698			22,024		46,894		52,976
Net income	$	31,486		$	23,885		$	118,741		$	107,301		$	61,014		$	67,002	$	144,062	$	158,812
Net income per share:
Basic	$	0.23		$	0.16		$	0.87		$	0.72		$	0.52		$	0.57	$	1.22	$	1.35
Diluted	$	0.23		$	0.16		$	0.86		$	0.71		$	0.52		$	0.57	$	1.22	$	1.35
Weighted average shares outstanding:
Basic		134,320			147,743			136,063			149,202			117,246			117,832		117,645		117,688
Diluted		136,770			150,024			138,860			151,568			117,831			118,189		118,265		117,977

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

4. Long-Term Debt and Finance Lease Liabilities

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

As of

Facility

Maturity

Interest Rate

October 1,
2017

January 1,
2017

Senior secured debt

$450.0 million Credit Facility

April 17, 2020

Variable

$
349,000

$
255,000

Total debt

349,000

255,000

Long-term debt

$
349,000

$
255,000


			As of
Facility	Maturity	Interest Rate	July 4, 2021		January 3, 2021
Senior secured debt
$700.0 million Credit Agreement	March 27, 2023	Variable	$	250,000	$	250,000
Finance lease liabilities	Various	n/a		10,082		10,459
Long-term debt and finance lease liabilities			$	260,082	$	260,459

Senior Secured Revolving Credit Facility

~~On April 17, 2015, the~~The Company’s subsidiary, Sprouts Farmers Markets Holdings, LLC (“Intermediate Holdings”), asis the borrower under an amended and restated credit agreement entered into aon March 27, 2018 (the “Amended and Restated Credit Agreement”) to amend and restate the Company’s former’s senior secured credit ~~agreement that~~facility, dated April 17, 2015 (the “Former Credit Facility”). The Amended and Restated Credit Agreement provides for a revolving credit facility with an initial aggregate commitment of ~~$450.0~~$700.0 million, ~~(the “Credit Facility”),~~an increase from $450.0 million from the Former Credit Facility, which may be increased from time to time pursuant to an expansion feature set forth in the Amended and Restated Credit ~~Facility. The Credit Facility replaced the Company’s existing senior secured credit facility, dated April 23, 2013.~~Agreement.

The Company capitalized debt issuance costs of ~~$2.3~~$2.1 million related to the Amended and Restated Credit Agreement which combined with the remaining $0.7 million debt issuance costs for the Former Credit Facility, ~~which~~ are being amortized on a straight-line basis to interest expense over the five-year term of the Amended and Restated Credit ~~Facility.~~Agreement.

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Amended and Restated Credit ~~Facility~~Agreement also provides for a letter of credit ~~subfacility~~sub-facility and a ~~$15.0~~$15.0 million swingline facility. Letters of credit issued under the Amended and Restated Credit ~~Facility~~Agreement reduce ~~the~~its borrowing ~~capacity of the Credit Facility.~~capacity. Letters of credit totaling ~~$24.8~~$38.6 million have been issued as of ~~October 1, 2017,~~July 4, 2021, primarily to support the Company’s insurance programs.

~~Guarantees~~On March 6, 2019, Intermediate Holdings entered into an amendment to the Amended and Restated Credit Agreement intended to align the treatment of certain lease accounting terms with the Company’s adoption of ASC 842. This amendment had no impact on borrowing capacity, interest rate, or maturity.

Guarantees

Obligations under the Amended and Restated Credit ~~Facility~~Agreement are guaranteed by the Company and all of its current and future wholly-owned material domestic subsidiaries (other than the borrower), and are secured by first-priority security interests in substantially all of the assets of the Company and its subsidiary guarantors, including, without limitation, a pledge by the Company of its equity interest in Intermediate Holdings.

Interest and Fees

Loans under the Amended and Restated Credit ~~Facility bear~~Agreement initially bore interest at ~~the Company’s option, either at adjusted~~ LIBOR plus ~~1.50%~~1.50% per annum or ~~a base rate~~prime plus ~~0.50% per annum.~~0.50%. The interest rate margins are subject to adjustment pursuant to a pricing grid based on the Company’s total ~~gross~~net leverage ratio, as ~~defined~~set forth in the Amended and Restated Credit ~~Facility.~~Agreement. Under the terms of the Amended and Restated Credit ~~Facility,~~Agreement, the Company is obligated to pay a commitment fee on the available unused amount of the commitments between 0.15% to 0.30% per annum, also pursuant to a pricing grid based on the Company’s total net leverage ratio. As of July 4, 2021, loans under the Amended and Restated Credit ~~Facility commitments equal~~Agreement bore interest at LIBOR plus 1.25% per annum or prime plus 0.25%.

The interest rate on 100% of outstanding debt under the Amended and Restated Credit Agreement is fixed, reflecting the effects of floating to ~~0.20% per annum.~~fixed interest rate swaps (see Note 9, “Derivative Financial Instruments”).

~~Outstanding~~As of July 4, 2021,outstanding letters of credit under the Amended and Restated Credit ~~Facility are~~Agreement were subject to a participation fee of ~~1.50%~~1.25% per annum and an issuance fee of ~~0.125%~~0.125% per annum.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Payments and Borrowings

The Amended and Restated Credit ~~Facility~~Agreement is scheduled to mature, and the commitments thereunder will terminate on ~~April 17, 2020,~~March 27, 2023, subject to extensions as set forth ~~in the Credit Facility.~~therein.

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

During ~~fiscal year 2016,~~the thirteen and twenty-six weeks ended July 4, 2021, the Company ~~borrowed $105.0 million and~~ made ~~a total of $10.0 million of~~0 additional borrowings or principal ~~payments;~~payments, resulting in total outstanding debt under the Amended and Restated Credit ~~Facility~~Agreement of ~~$255.0~~$250.0 million ~~at January 1, 2017.~~as of July 4, 2021. During ~~the thirteen weeks ended October 1, 2017,~~fiscal year 2020, the Company ~~borrowed $49.0 million~~made 0 additional borrowings and made a total of ~~$10.0~~$288.0 million of principal ~~payments. During the thirty-nine weeks ended October 1, 2017, the Company borrowed $134.0 million and made a total of $40.0 million of principal payments;~~payments, resulting in total outstanding debt under the Amended and Restated Credit ~~Facility~~Agreement of ~~$349.0~~$250.0 million ~~as of October 1, 2017.~~ at January 3, 2021.

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Covenants

The ~~Company has used borrowings under the~~Amended and Restated Credit ~~Facility to assist with its share repurchase programs (see Note 9).~~

~~Covenants~~

~~The Credit Facility~~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 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 Amended and Restated Credit ~~Facility~~Agreement requires that the Company and its subsidiaries maintain a maximum total net leverage ratio not to exceed ~~3.00~~3.25 to 1.00 and minimum interest coverage ratio not to be less than 1.75 to 1.00. Each of these covenants is tested ~~as of~~on the last day of each fiscal quarter.

The Company was in compliance with all applicable covenants under the Amended and Restated Credit ~~Facility~~Agreement as of ~~October 1, 2017.~~July 4, 2021.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

5. ~~Closed Store and Other Costs~~

~~The following is a summary of closed store reserve activity during the thirty-nine weeks ended October 1, 2017 and fiscal year 2016:~~

Thirty-nine
Weeks Ended

Fiscal
Year Ended

October 1, 2017

January 1, 2017

Beginning balance

$
1,083

$
2,017

Additions

—

—

Usage

(387
)

(998
)
Adjustments

205

64

Ending balance

$
901

$
1,083

The Closed Store Reserve is included in Other accrued liabilities and Other long-term liabilities in the consolidated balance sheets. Usage relates to lease payments made during the period for closed stores.

During August and September 2017, 14 of our stores in Texas, Florida and Georgia were affected by Hurricanes Harvey and Irma. While physical damage was minimal, these stores experienced, to varying degrees, loss of perishable inventory, additional expenses to clean up and power stores, and a loss of business while closed. Actual costs incurred, not including the impact of lost sales, are estimated to be $1.0 million, with an estimated insurance recovery of $0.3 million for these costs. We are pursuing additional recovery under our business interruption and other insurance policy provisions; however, any additional recoveries are not expected to be material.

6. Income Taxes

The Company’s effective tax rate decreased to 24.4% for the thirteen weeks ended ~~October 1, 2017 and October 2, 2016~~July 4, 2021, compared to 24.7% for the thirteen weeks ended June 28, 2020. The decrease in the effective tax rate was ~~33.8% and 36.9%, respectively.~~primarily due to an increase in enhanced charitable contributions.

The Company’s effective tax rate decreased to 24.6% for the twenty-six weeks ended July 4, 2021, compared to 25.0% for the twenty-six weeks ended June 28, 2020. The decrease in the effective tax rate is primarily due to ~~tax return to provision adjustments for the 2016 income tax return.~~

~~The Company’s effective tax rate for the thirty-nine weeks ended October 1, 2017 and October 2, 2016 was 31.7% and 37.7%, respectively. The decrease~~an increase in ~~the effective tax rate is primarily related to recognition of excess~~enhanced charitable contributions along with tax benefits ~~related to the exercise or vesting of equity-based~~for share-based payment awards in the current year period compared to prior year period detriments, partially offset by an increase in disallowed executive compensation. The income tax ~~provision. See ASU 2016-09, Compensation – “Stock Compensation (Topic 718)” under Recently Adopted Accounting Pronouncements (Note 2).~~

~~Excess~~effect resulting from excess tax ~~benefits associated with~~detriments/(benefits) of share-based payment awards ~~are recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur.~~

~~The income tax benefits resulting from equity-based awards~~ were ~~$0.2~~($0.2) million and $0.5 million for the ~~thirteen~~twenty-six weeks ended ~~October 1, 2017.~~ July 4, 2021 and June 28, 2020, respectively.

The Company files income tax ~~benefits resulting from~~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 ~~equity-based awards~~tax year to which those filings relate. The Company’s U.S. federal income tax return for the ~~thirteen weeks~~fiscal year ended ~~October 2, 2016 were $0.2 million and recorded in Additional Paid-in Capital.~~

~~The income tax benefits resulting from equity-based awards were $8.4 million for~~December 31, 2017 is currently under examination by the thirty-nine weeks ended October 1, 2017. The income tax benefits resulting from equity-based awards for the thirty-nine weeks ended October 2, 2016 were $3.9 million and recorded in Additional Paid-in Capital.Internal Revenue Service.

~~7. Related-Party Transactions~~

A member of the Company’s board of directors is an investor in a company that is a supplier of coffee to the Company for resale. During the thirteen weeks ended October 1, 2017 and October 2, 2016, purchases from this supplier were $2.7 million and $2.1 million, respectively. During the thirty-nine weeks ended October 1, 2017 and October 2, 2016, purchases from this supplier were $8.1 million and $7.3

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~million, respectively. The Company had recorded accounts payable due to this vendor of $0.7 million, as of both October 1, 2017 and October 2, 2016, respectively.~~

The Company’s former Executive Chairman of the Board has been the chief executive officer, an equity investor, and lender to a technology supplier to the Company. During the thirteen weeks ended October 1, 2017 and October 2, 2016, purchases from this supplier and its predecessors were $1.6 million and $2.2 million, respectively. During the thirty-nine weeks ended October 1, 2017 and October 2, 2016, purchases from this supplier and its predecessors were $5.2 million and $6.0 million, respectively. As of October 1, 2017, and October 2, 2016, the Company had recorded accounts payable due to the supplier of $0.2 million and $0.5 million, respectively.

8.6. 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.~~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.

~~Securities Action~~14

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

~~On March 4,~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

“Phishing” Scam Actions

In April 2016, ~~a complaint was~~4 complaints were filed,2 in the federal courts of California, 1 in the Superior Court ~~for~~of California and 1 in the ~~State~~federal court in the District of ~~Arizona against the Company and certain of its directors and officers~~Colorado, each on behalf of a purported class of ~~purchasers of shares~~the Company’s current and former team members whose personally identifiable information (“PII”) was inadvertently disclosed to an unauthorized third party that perpetrated an email “phishing” scam against one of the Company’s ~~common stock in the Company’s underwritten secondary public offering which closed on March 10, 2015 (the “March 2015 Offering”).~~team members. The ~~complaint purports to state claims under Sections 11, 12 and 15 of the Securities Act of 1933, based on an~~complaints alleged ~~failure by~~ the Company failed to ~~disclose adequate information about produce price deflation~~properly safeguard the PII in ~~the March 2015 Offering documents.~~accordance with applicable law. The ~~complaint seeks~~complaints sought damages on behalf of the purported class in an unspecified ~~amount, rescission,~~amounts, attorneys’ fees and ~~an award~~litigation expenses. On March 1, 2019, a number of ~~reasonable costs and attorneys’ fees. After removal to federal court,~~individual plaintiffs filed arbitration demands. On May 15, 2019, certain other plaintiffs filed a second amended class action complaint in the ~~plaintiffs sought remand, which the court granted in March 2017. The Company has appealed the order granting remand~~District of Arizona, alleging that certain subclasses of team members are not subject to the ~~Ninth Circuit Court of Appeals. On May 25, 2017,~~Company’s arbitration agreement and attempted to pursue those team members’ claims in federal court. In late August 2019, the Company reached an agreement in principle to settle the majority of these claims, which were funded in the fourth quarter of 2019. Primary funding for the settlement came from the Company’s cyber insurance policy, and the settlement did not have a material impact on the consolidated financial statements. Following the group settlement, 3 (3) individual claimants planned to proceed with arbitration of their claims. The 3 individual arbitrations were settled in late June and early July 2020, with immaterial settlement amounts fully funded by the Company’s cyber insurance policy.

Proposition 65 Coffee Action

On April 13, 2010, an organization named Council for Education and Research on Toxics (“CERT”) filed a ~~Motion to Dismiss~~lawsuit in the Superior Court ~~for~~of the State of ~~Arizona, which~~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.

On November 20, 2020, CERT filed a notice of appeal to appeal the ruling on the defense motion for summary judgment. The case is currently being briefed, with a decision expected in ~~part and denied in part by order entered August 30, 2017. The~~2022. At this stage of the proceedings, the Company ~~answered the complaint on September 28, 2017. The Company will continue~~is unable to ~~defend this case vigorously, but it is not possible at this time to~~predict or reasonably estimate ~~the outcome of, or~~ any potential ~~liability from,~~loss or effect on the ~~case.~~Company or its operations. Accordingly, no loss contingency was recorded for this matter.

9.7. Stockholders’ Equity

Share Repurchases

On ~~November 4, 2015,~~March 3, 2021, the Company’s board of directors authorized a $150 million common stock share repurchase program, which was completed during the second quarter of 2016. On September 6, 2016, the Company’s board of directors authorized a $250 million common stock share repurchase program, which was completed during the first quarter of 2017. On February 20, 2017, the Company’s board of directors authorized a new ~~$250~~$300 million ~~common stock~~ share repurchase ~~program.~~ program for its common stock. The following table outlines the common stock share repurchase programs authorized by the ~~Board,~~Company’s board of directors and the related repurchase activity and available authorization as of ~~October 1, 2017 (in thousands):~~July 4, 2021.


Effective date	Expiration date	Amount authorized		Cost of repurchases		Authorization available
February 20, 2018	December 31, 2019	$	350,000	$	308,017	$	—
March 3, 2021	March 3, 2024	$	300,000	$	87,484	$	212,516

Effective date

Expiration date

Amount
authorized

Cost of
repurchases

Authorization
available

November 4, 2015

November 4, 2017

$
150,000

$
150,000

$
—

September 6, 2016

December 31, 2017

$
250,000

$
250,000

$
—

February 20, 2017

December 31, 2018

$
250,000

$
112,000

$
138,000

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 ~~prior to the applicable expiration date,~~through March 3, 2024, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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. ~~The Company has used borrowings under its Credit Facility to assist with the repurchase programs authorized on September 6, 2016 and February 20, 2017 (see Note 4).~~

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				Twenty-six weeks ended
	October 1, 2017		October 2, 2016		October 1, 2017		October 2, 2016		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Number of common shares acquired		3,249,204		3,189,818		9,136,468		8,169,510		3,150,649		0		3,280,617		0
Average price per common share acquired	$	22.16	$	19.93	$	21.01	$	22.99	$	26.75	$	0	$	26.67	$	0
Total cost of common shares acquired	$	72,000	$	63,572	$	192,000	$	187,836	$	84,275	$	0	$	87,484	$	0

Shares purchased under the Company’s repurchase programs were subsequently retired.

Subsequent to July 4, 2021 and through August 5, 2021, we repurchased an additional 1.0 million shares of common stock for $25.0 million.

~~10.~~8. Net Income Per Share

The computation of 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 restricted stock units (“RSUs”), assumed vesting of performance stock awards (“PSAs”), and assumed vesting of restricted stock awards (“RSAs”).

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				Twenty-six weeks ended
	October 1, 2017		October 2, 2016		October 1, 2017		October 2, 2016		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Basic net income per share:
Net income	$	31,486	$	23,885	$	118,741	$	107,301	$	61,014	$	67,002	$	144,062	$	158,812
Weighted average shares outstanding		134,320		147,743		136,063		149,202		117,246		117,832		117,645		117,688
Basic net income per share	$	0.23	$	0.16	$	0.87	$	0.72	$	0.52	$	0.57	$	1.22	$	1.35
Diluted net income per share:
Net income	$	31,486	$	23,885	$	118,741	$	107,301	$	61,014	$	67,002	$	144,062	$	158,812
Weighted average shares outstanding - basic		134,320		147,743		136,063		149,202		117,246		117,832		117,645		117,688
Dilutive effect of equity-based awards:
Dilutive effect of share-based awards:
Assumed exercise of options to purchase shares		2,128		2,200		2,506		2,278		276		81		217		1
RSUs		122		28		124		49		309		276		393		258
RSAs		114		13		102		9		—		—		—		18
PSAs		86		40		65		30		—		—		10		12
Weighted average shares and equivalent shares outstanding		136,770		150,024		138,860		151,568		117,831		118,189		118,265		117,977
Diluted net income per share	$	0.23	$	0.16	$	0.86	$	0.71	$	0.52	$	0.57	$	1.22	$	1.35

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

For the thirteen weeks ended ~~October 1, 2017,~~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 ~~does not include 1.9 million options and 0.1 million PSAs~~ as those awards would have been antidilutive or were ~~unvested~~ performance ~~awards.~~awards with performance conditions not yet deemed met. For the thirteen weeks ended ~~October 2, 2016,~~June 28, 2020, the Company had 0.3 million options, 0.1 million RSUs, and 0.3 million PSAs outstanding which were excluded from the computation of diluted net income per share ~~does not include 2.2 million options, 0.1 million RSUs, and 0.1 million PSAs~~ as those awards would have been antidilutive or were ~~unvested~~ performance ~~awards.~~awards with performance conditions not yet deemed met.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

For the ~~thirty-nine~~twenty-six weeks ended ~~October 1, 2017,~~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 ~~does not include 1.9 million options and 0.1 million PSAs~~ as those awards would have been antidilutive or were ~~unvested~~ performance ~~awards.~~awards with performance conditions not yet deemed met. For the ~~thirty-nine~~twenty-six weeks ended ~~October 2, 2016,~~June 28, 2020, the Company had 1.4 million options, 0.1 million RSUs, and 0.3 million PSAs outstanding which were excluded from the computation of diluted net income per share ~~does not include 1.3 million options, 0.1 million RSUs and 0.1 million PSAs~~ as those awards would have been antidilutive or were ~~unvested~~ performance ~~awards.~~awards with performance conditions not yet deemed met.

9. Derivative Financial Instruments

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 designated and qualifies as a cash flow hedge, and its change in fair value is recorded as a component of other comprehensive income and reclassified into earnings in the same period or periods in which the forecasted transaction occurs. The forward contract initially consisted of 5 cash flow hedges, of which 2 were outstanding at July 4, 2021. To qualify as 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 two outstanding swaps was $250.0 million at July 4, 2021 and January 3, 2021, under which the Company pays a fixed rate and receives a variable rate of interest (cash flow swap). The cash flow swaps hedge the change in interest rates on debt related to fluctuations in interest rates and each have a length of one year and mature annually from 2021 to 2022. These interest rate swaps have been designated and qualify as cash flow hedges and have met the requirements to assume 0 ineffectiveness. The Company reviews the effectiveness of its hedging instruments on a quarterly basis.

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 4, 2021

As of
January 3, 2021

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Interest rate swaps

Accrued liabilities

2,904

Accrued liabilities

5,695

Interest rate swaps

Other long-term liabilities

5,680

Other long-term liabilities

5,756

The gain or loss on these derivative instruments is 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
	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Consolidated Statements of Income Classification
Interest expense, net	$	1,440	$	1,117	$	2,880	$	1,510

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

10. Comprehensive Income

The following table presents the changes in accumulated other comprehensive income (loss) for the twenty-six weeks ended June 28, 2020 and July 4, 2021.


	Cash Flow Hedges
Balance at December 29, 2019	$	(4,682	)
Other comprehensive income (loss), net of tax
Unrealized losses on cash flow hedging activities, net of income tax of ($1,533)		(4,436	)
Reclassification of net losses on cash flow hedges to net income, net of income tax of ($389)		(1,121	)
Total other comprehensive income (loss)		(5,557	)
Balance at June 28, 2020	$	(10,239	)

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	)

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

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11. ~~Equity-Based~~Segments

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

In accordance with ASC 606, the following table represents a disaggregation of revenue for the thirteen and twenty-six weeks ended July 4, 2021 and June 28, 2020.


	Thirteen weeks ended
	July 4, 2021				June 28, 2020
Perishables	$	889,684	58.5	%	$	950,584	57.9	%
Non-Perishables		632,309	41.5	%		692,204	42.1	%
Net Sales	$	1,521,993	100.0	%	$	1,642,788	100.0	%

	Twenty-six weeks ended
	July 4, 2021				June 28, 2020
Perishables	$	1,800,652	58.1	%	$	1,863,224	56.6	%
Non-Perishables		1,296,788	41.9	%		1,426,103	43.4	%
Net Sales	$	3,097,440	100.0	%	$	3,289,327	100.0	%

The Company categorizes the varieties of products it sells as perishable and non-perishable. Perishable product categories include produce, meat, 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.

12. Share-Based Compensation

2013 Incentive Plan

The Company’s board of directors adopted, and its equity holders approved, the Sprouts Farmers Market, Inc. 2013 Incentive Plan (the “2013 Incentive Plan”). The 2013 Incentive Plan became effective July 31, 2013 in connection with the Company’s initial public ~~offering and replaced the 2011 Option Plan (as defined below) (except with respect to outstanding options under the 2011 Option Plan).~~offering. The 2013 Incentive Plan serves as the umbrella plan for the Company’s ~~equity-based~~share-based and cash-based incentive compensation programs for its directors, officers and other team members. Awards granted under these plans include RSUs, PSAs, and RSAs. On May 1, 2015, the Company’s stockholders approved the material terms of the performance goals under the 2013 Incentive Plan for purposes of Section 162(m) of the Internal Revenue ~~Code.~~Code as then in effect.

Awards Granted

During the twenty-six weeks ended July 4, 2021, the Company granted the following share-based compensation awards under the 2013 Incentive Plan:


Grant Date	RSUs		PSAs		Options
March 16, 2021		356,503		178,780		404,016
June 9, 2021		50,839		—		6,493
Total		407,342		178,780		410,509
Weighted-average grant date fair value	$	24.83	$	24.42	$	7.67
Weighted-average exercise price		—		—	$	24.47

The aggregate number of shares of common stock that may be issued to team members and directors under the 2013 Incentive Plan may not exceed ~~10,089,072.~~10,089,072. Shares subject to awards granted under the 2013 Incentive Plan which are subsequently forfeited, expire unexercised or are otherwise not issued will not be treated as having been issued for purposes of the share limitation. As of ~~October 1, 2017,~~July 4, 2021, there were ~~3,686,043~~2,864,915 stock awards outstanding and ~~5,805,674~~3,608,758 shares remaining available for issuance under the 2013 Incentive Plan.

~~2011 Option Plan~~19

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

In May 2011, the Company adopted the Sprouts Farmers Markets, LLC Option Plan (the “2011 Option Plan”) to provide team members or directors of the Company with options to acquire shares of the Company. The Company had authorized 12,100,000 shares for issuance under the 2011 Option Plan. Options may no longer be issued under the 2011 Option Plan. As of October 1, 2017, there were 2,384,978 options outstanding under the 2011 Option Plan.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Awards Granted~~(UNAUDITED)

~~During the thirty-nine weeks ended October 1, 2017, the Company granted the following equity-based compensation awards:~~

Grant Date

RSUs

PSAs

RSAs

March 2017

325,406

148,944

288,746

May 2017

21,820

—

—

August 2017

10,630

—

—

Total:

357,856

148,944

288,746

Weighted-average grant date fair value

$
18.66

$
18.11

$
18.11

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 and vary depending on if they are time-based or performance-based.~~letter.

Time-based options granted prior to fiscal year 2016 generally ~~vest~~vested ratably over a period of 12 quarters ~~(three years)~~(three years), and time-based options granted ~~in fiscal year~~after 2016 vest annually over a period of three ~~years.~~years.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~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 ~~fiscal year 2015 are restricted shares that~~2017 were subject to the Company achieving certain earnings per share performance targets ~~as well as additional time-vesting conditions.~~ during fiscal year 2017. The ~~fair value of PSAs is~~criteria was based on ~~the closing price~~a range of performance targets in which grantees could earn between 10% and 150% of the ~~Company’s common stock on the grant date. During the thirty-nine weeks ended October 2, 2016, the~~base number of awards granted. The performance conditions with respect to ~~2015~~fiscal year 2017 earnings per share were deemed to have been met, and the PSAs ~~will vest~~ vested 50 ~~percent at each~~% on the second anniversary of the ~~second~~grant date (March 2019) and vested 50% on the third anniversary of the grant ~~date. During the thirty-nine weeks ended October 1,~~date (March 2020). There were 0 outstanding 2017 ~~21,050~~PSAs as of ~~the 2015 PSAs were vested. No PSAs vested during the thirty-nine weeks ended October 2, 2016.~~July 4, 2021.

PSAs granted in ~~fiscal year 2016 are restricted shares that are~~2018 were subject to the Company achieving certain earnings before interest and taxes (“EBIT”) performance targets for the 2020 fiscal year. The criteria was based on ~~an annual~~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 ~~cumulative basis over a three-year~~the PSAs vested at the maximum pay out level on the third anniversary of the grant date (March 2021). During the twenty-six weeks ended July 4, 2021, 31,544 of the 2018 PSAs vested. There were 0 outstanding 2018 PSAs as of July 4, 2021.

PSAs granted in 2019 are subject to the Company achieving certain EBIT performance ~~period, as well as additional time-vesting conditions.~~ targets for the 2021 fiscal year. The ~~fair value of these PSAs~~criteria is based on ~~the closing price~~a range of performance targets in which grantees may earn 0% to 200% of the Company’s common stock on the grant date. The EBIT target resets annually for each of the three years during the performance period based on a percentage increase over the previous year’s actual EBIT, with each annual performance tranche independent of the previous and next tranche. Cumulative performance is based on the aggregate annual performance targets. Payout of the performance shares will either be 0% or range from 50% to 150% of the targetbase number of ~~shares~~awards granted. If ~~the~~ performance conditions are met, ~~PSAs cliff~~the applicable number of performance shares will vest on the third anniversary of the grant ~~date. The Company’s board of directors determined that the performance targets for the fiscal year 2016 tranche were not met and 30,981 performance shares were not earned.~~date (March 2022).

PSAs granted in ~~fiscal year 2017 are restricted shares that~~2020 are subject to the Company achieving certain earnings ~~per share~~before taxes (“EBT”) performance targets ~~as well as additional time-vesting conditions.~~ for the 2022 fiscal year. The ~~fair value of PSAs~~criteria is based on ~~the closing price~~a range of performance targets in which grantees may earn 0% to 200% of the ~~Company’s common stock on the grant date. Payout of the performance shares will either be 0% or range from 10% to 150% of the target~~base number of ~~shares~~awards granted. If ~~the~~ performance conditions are met, ~~PSAs~~the applicable number of performance shares will vest ~~50 percent at each of~~on the ~~second and~~ third anniversary of the grant ~~date.~~date (March 2023).

~~RSAs~~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).

RSAs

The fair value of RSAs is based on the closing price of the Company’s common stock on the grant date. ~~RSAs granted prior to January 1, 2017 will vest either ratably over a seven quarter period, beginning on December 31, 2016 or cliff vest on June 30, 2018. RSAs granted in fiscal year 2017 will~~Outstanding RSA grants vest annually over ~~a period~~three years. There were 0 outstanding RSAs as of ~~three years from the grant date.~~July 4, 2021.

~~Equity Award Restructuring~~

In connection with the appointments of the Company’s Chief Executive Officer and President & Chief Operating Officer in August 2015, the Compensation Committee of the Company’s Board of Directors approved a grant of stock options to purchase 1,200,000 and 500,000 shares of the Company’s common stock at an exercise price of $20.98 per share to these officers, respectively (the “August 2015 Options”) pursuant to the 2013 Incentive Plan. The August 2015 Options, taken together with other options granted under the 2013 Incentive Plan to such officers during 2015, exceeded the limit of 500,000 shares which may be granted pursuant to stock options and stock appreciation rights per calendar year to each participant under the 2013 Incentive Plan by 733,439 shares in the case of the Company’s Chief Executive Officer and 33,439 shares in the case of the Company’s President & Chief Operating Officer (the “Excess Options”). Accordingly, the Company has determined, and these officers have acknowledged, that the grants of the Excess Options were null and void.

In order to satisfy the original intent with respect to these individuals’ compensation, on May 23, 2016, the Compensation Committee granted to the Company’s Chief Executive Officer and President & Chief Operating Officer under the 2013 Incentive Plan options to purchase 386,496 and 33,439 shares of

1420

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~the Company’s common stock at an exercise price of $24.48 per share, respectively, and 215,251 and 2,601 RSAs, respectively.~~ Share-based Compensation Expense

The Company ~~recognized~~presents share-based compensation expense ~~of $0.9 million during~~in selling, general and administrative expenses on the thirteen week period and $2.9 million during the thirty-nine week period ended October 1, 2017 related to the options and RSAs granted. The Company recognized compensation expense of $1.0 million during the thirteen week period and $1.4 million during the thirty-nine week period ended October 2, 2016 related to the options and RSAs granted.

~~Equity-based Compensation Expense~~

~~Equity-based compensation expense was reflected in the~~Company’s consolidated statements of ~~operations~~income. The amount recognized was as follows:


	Thirteen weeks ended						Twenty-six weeks ended
	July 4, 2021			June 28, 2020			July 4, 2021			June 28, 2020
Share-based compensation expense before income taxes	$	4,238		$	4,327		$	7,851		$	6,727
Income tax benefit		(690	)		(790	)		(1,313	)		(1,348	)
Net share-based compensation expense	$	3,548		$	3,537		$	6,538		$	5,379

Thirteen Weeks Ended

Thirty-nine Weeks Ended

October 1,
2017

October 2,
2016

October 1,
2017

October 2,
2016

Cost of sales, buying and occupancy

$
265

$
244

$
777

$
726

Direct store expenses

349

339

1,098

1,015

Selling, general and administrative expenses

3,471

3,414

8,450

8,581

Equity-based compensation expense before
income taxes

4,085

3,997

10,325

10,322

Income tax benefit

(1,528
)

(1,519
)

(3,863
)

(3,922
)
Net equity-based compensation expense

$
2,557

$
2,478

$
6,462

$
6,400

The following ~~equity-based~~share-based awards were outstanding as of ~~October 1, 2017~~July 4, 2021 and ~~January 1, 2017:~~June 28, 2020:


	As of
	July 4, 2021		June 28, 2020
	(in thousands)
Options
Vested		281		367
Unvested		1,273		1,081
RSUs		840		888
PSAs		471		310

As of

October 1, 2017

January 1, 2017

(in thousands)

Options

Vested

4,394

5,552

Unvested

609

1,205

RSUs

453

274

PSAs

231

159

RSAs

384

187

As of ~~October 1, 2017,~~July 4, 2021, total unrecognized compensation expense ~~related to outstanding equity-based awards was as follows:~~

As of

October 1, 2017

Options

$
3,629

RSUs

6,803

PSAs

3,171

RSAs

6,106

Total unrecognized compensation expense

$
19,709

~~As of October 1, 2017, the total~~and remaining weighted average recognition period related to outstanding ~~equity-based~~share-based awards was as follows:

	~~As of~~
	~~October 1, 2017~~
~~Options~~		~~1.0~~
~~RSUs~~		~~1.7~~
~~PSAs~~		~~1.7~~
~~RSAs~~		~~2.0~~


	Unrecognized compensation expense		Remaining weighted average recognition period
Options	$	5,680		2.0
RSUs		15,375		1.8
PSAs		8,589		1.8
Total unrecognized compensation expense at July 4, 2021	$	29,644

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

During the ~~thirty-nine~~twenty-six weeks ended ~~October 1, 2017~~July 4, 2021 and ~~October 2, 2016,~~June 28, 2020, the Company received ~~$6.6~~$1.2 million and ~~$2.6~~$1.3 million, respectively, in cash proceeds from the exercise of options.

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 2020 fiscal year, filed on February ~~23, 2017~~25, 2021 (“Form 10-K”) with the Securities and Exchange Commission. All dollar amounts included below are in thousands, unless otherwise noted.

Sprouts Farmers Market ~~operates as~~offers a ~~healthy~~unique grocery ~~store that offers fresh, natural and organic food that includes~~experience featuring an open layout with fresh produce ~~bulk foods, vitamins~~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 supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, body care and natural household items catering to consumers’ growing interest in health and wellness. gluten-free. Since our founding in 2002, we have grown rapidly, significantly increasing our sales, store count and profitability. ~~With 282~~Headquartered in Phoenix with 363 stores in 1523 states as of ~~October 1, 2017,~~July 4, 2021, we are one of the largest specialty retailers of fresh, natural and organic food, and fastest growing retailers in the United States. ~~As of November 1, 2017, we have grown to 285 stores in 15 states.~~

At Sprouts, we believe healthy living is a journey and every meal is a choice. The cornerstones of our business are fresh, natural and organic products at compelling prices (which we refer to as “Healthy Living for Less”), an attractive and differentiated shopping experience featuring a broad selection of innovative healthy products, and knowledgeable team members who we believe provide best-in-class customer engagement and product education.

In 2002, we opened the first Sprouts Farmers Market store in Chandler, Arizona. From our founding in 2002, ~~through October 1, 2017,~~ we ~~continued to open new stores while~~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 (referred to as the “Transactions”).~~banner. 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. The consistency of these formats and operations was an important factor that allowed us to rapidly and successfully rebrand and integrate each of these businesses under the Sprouts banner and on a common platform.

In 2020, we announced the initial steps of our new long-term growth strategy that we believe will transform our company and drive profitable growth. This strategy focuses on the following areas:

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, and on March 13, 2020, the United States declared the pandemic to ~~continue~~be a national emergency. As COVID-19 spread throughout the country, the situation has continued to evolve, including, more recently, the increasing adoption of the COVID-19 vaccine and the accelerating reopening of state economies to approach pre-pandemic levels. As we cycle periods of 2020 where our ~~growth, including expansion~~results benefited from the initial onset of ~~our store base, continuing positive~~the pandemic, we are reporting declines in year over year net sales and comparable store sales growth. We have seen varying levels of inflation in certain categories resulting from product supply disruptions caused by the pandemic. In addition, due to continued difficulties in obtaining necessary equipment from third parties due to supply chain delays complicated by the COVID-19 pandemic, approximately seven of our planned new store-openings in the fourth quarter of 2021 may be delayed until 2022. The ultimate impact of the COVID-19 pandemic on our results of operations for future periods will depend on the length and ~~growing~~severity of the ~~Sprouts brand. We intend~~pandemic, vaccine efficacy and adoption, the emergence and severity of COVID-19 variants and governmental and consumer actions taken in response, which we cannot predict. These uncertainties make it challenging for our management to ~~continue expanding~~estimate our ~~store base by pursuing new store openings~~future business performance. See “Item 1A. Risk Factors— The coronavirus (COVID-19) pandemic has disrupted our business and could negatively impact our financial condition.” in our existing markets, expanding into adjacent markets and penetrating new markets. Although we plan to expand our store base primarily through new store openings, we may grow through strategic acquisitions if we identify suitable targets and are able to negotiate acceptable terms and conditionsForm 10-K for ~~acquisition. We intend to open 32 new stores in 2017, of which all 32 have opened through November 1, 2017, and approximately 30 new stores per year for the near term.~~additional information.

We also believe we can continue to deliver positive comparable store sales growth by enhancing our core value proposition and distinctive customer-oriented shopping experience, as well as through expanding and refining our fresh, natural and organic product offerings, our targeted and personalized marketing efforts and our in-store education. We are committed to growing the Sprouts brand by supporting our stores, product offerings and corporate partnerships, including the expansion of innovative marketing and promotional strategies through print, digital and social media platforms.

Results of Operations for Thirteen Weeks Ended ~~October 1, 2017~~July 4, 2021 and ~~October 2, 2016~~June 28, 2020

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.

Comparison of Thirteen Weeks Ended ~~October 1, 2017~~July 4, 2021 to Thirteen Weeks Ended

Net sales during the thirteen weeks ended ~~October 1, 2017~~July 4, 2021 totaled ~~$1.2~~$1.5 billion, ~~increasing 16% over the same period~~a decrease of the prior fiscal year. Sales growth was primarily driven by solid performance in new stores opened. Comparable stores contributed approximately 87% of net sales for each of the thirteen weeks ended October 1, 2017 and October 2, 2016, respectively.

~~Gross profit increased during the thirteen weeks ended October 1, 2017~~$120.8 million, or 7%, compared to the thirteen weeks ended ~~October 2, 2016 by $54.9 million, of which $47.4 million~~June 28, 2020. The sales decrease was primarily due to a 10.0% decrease in comparable store sales as a result of ~~increased~~cycling the impact of the COVID-19 pandemic. Comparable stores contributed approximately 96% of total sales volume and $7.5 million related to increased margin rate. This improvement was primarily driven by cycling a heightened promotional environment in the third quarter of 2016 in addition to leverage from increased comparable sales.

~~Direct store expenses~~ for the thirteen weeks ended ~~October 1, 2017 increased $33.3~~July 4, 2021 and approximately 93% for the thirteen weeks ended June 28, 2020.

Gross profit totaled $550.1 million ~~including $26.5~~during the thirteen weeks ended July 4, 2021, a decrease of $62.6 million, ~~related to stores opened after October 2, 2016, and $6.8 million related to stores operated prior~~or 10%, compared to the ~~same~~thirteen weeks ended June 28, 2020, driven by decreased sales volume for the reasons discussed above. Gross margin decreased by 1.2% to 36.1%, compared to 37.3% for the thirteen weeks ended July 4, 2021, primarily due to cycling opportunistic produce buys and exceptionally low shrink in the prior period ~~in 2016. Direct store~~from the elevated demand due to the COVID-19 pandemic.

Selling, general and administrative expenses decreased $52.5 million, or 11%, compared to the thirteen weeks ended June 28, 2020. The decrease was primarily driven by lower COVID related costs including payroll and bonus expense and lower ecommerce fees. As a result of this decrease, partially offset by the effect of sales deleverage, selling, general and administrative expenses as a percentage of net sales decreased ~~20 basis points. This leverage is~~to 28.7% from 29.8%.

Depreciation and amortization expenses (exclusive of depreciation included in cost of sales) primarily ~~driven by improved comparable~~consists of depreciation and amortization for buildings, store leasehold improvements, and equipment. As a percentage of net sales, depreciation and amortization expenses (exclusive of depreciation included in cost of sales) increased slightly to 2.0% from 1.9% as ~~well as operating efficiencies, partially offset by higher benefit costs.~~a result of sales deleverage.

The increase in selling, general and administrative expenses primarily reflects a $7.1 million increase in bonus and compensation expenses, $1.5 million increase in advertising expenses, and $1.7 million of increases in other corporate expenses, commensurate with store growth and improved company performance.

Store pre-opening costs in the thirteen weeks ended October 1, 2017 included $1.9 million related to opening 8 stores during the thirteen weeks ended October 1, 2017 and $0.6 million associated with stores expected to open subsequent to October 1, 2017. Store pre-opening costs in the thirteen weeks ended October 2, 2016 included $2.6 million related to opening 10 stores during that period and $0.8 million associated with stores opened subsequent to quarter end.

Store closure ~~costs for the thirteen weeks ended October 1, 2017 and October 2, 2016 are related to adjustments to the closed store facility reserve primarily related to refinement of estimated subtenant income~~ and other ~~actual occupancy costs from original estimates.~~

During the third quarter of 2017, 14 of our stores were affected by hurricanes in three states. Although physical damage was minimal, the stores experienced loss of business due to temporary closures, inventory loss and additional expenses to clean up and power the stores. These costs, net decreased $0.9 million to a credit of ~~estimated insurance recovery, approximate $0.7~~$0.4 million, ~~in the thirteen weeks ended October 1, 2017.~~

~~The increase in interest expense is primarily due~~compared to the higher principal balance on the Credit Facility for borrowing to support our share repurchase program, combined with the slightly higher interest rate on our Credit Facility for the thirteen weeks ended October 1, 2017.

~~Income tax provision increased to $16.1~~$0.5 million for the thirteen weeks ended ~~October 1, 2017~~June 28, 2020. The credit in the current year period was primarily related to an insurance recovery from ~~$14.0 million~~a fire at one of our stores in the first quarter of 2021. Store closure and other costs, net during the thirteen weeks ended June 28, 2020 primarily related to ongoing activity associated with our closed store locations.

The decrease in interest expense, net was primarily due to the decrease in the average balance outstanding under the Amended and Restated Credit Agreement. This was partially offset by the interest expense paid as a result of an unfavorable interest rate swap.

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 24.4% for the thirteen weeks ended ~~October 2, 2016, primarily related to an increase in income before taxes. Our effective income tax rate decreased to 33.8% in~~July 4, 2021 from 24.7% for the thirteen weeks ended ~~October 1, 2017 from 36.9% in the thirteen weeks ended October 2, 2016.~~June 28, 2020. The decrease in the effective tax rate was primarily due to ~~tax return to provision adjustments for the 2016 income tax return.~~an increase in enhanced charitable contributions.

Net income ~~as a percentage of net sales increased~~decreased $6.0 million primarily due to ~~higher~~decreased net sales and ~~margins combined with a~~unfavorable margin impact, partially offset by lower ~~effective tax rate, offset in part by higher interest expense associated with the drawdown on our Credit Facility in connection with the stock buyback program.~~selling, general and administrative expenses.

The ~~increase~~decrease in diluted earnings per share of ~~$0.07~~$0.05 was driven by ~~the increase in~~lower net ~~income as well as fewer diluted shares outstanding compared to the prior year, due to the share repurchase program.~~income.

Results of Operations for ~~Thirty-nine~~Twenty-six Weeks Ended ~~October 1, 2017~~July 4, 2021 and ~~October 2, 2016~~June 28, 2020

Comparison of ~~Thirty-nine~~Twenty-six Weeks Ended ~~October 1, 2017~~July 4, 2021 to ~~Thirty-nine~~Twenty-six Weeks Ended

Net sales during the ~~thirty-nine~~twenty-six weeks ended ~~October 1, 2017~~July 4, 2021 totaled ~~$3.5~~$3.1 billion, ~~increasing 15%~~a decrease of $191.9 million, or 6%, over the same period of the prior fiscal year. ~~Sales growth~~The sales decrease was primarily ~~driven by solid performance~~due to a 9.7% decrease in ~~new stores opened.~~comparable store sales as a result of cycling the impact of COVID-19 in the prior year. Comparable stores contributed approximately ~~87%~~96% of ~~net~~total sales for the ~~thirty-nine~~twenty-six weeks ended ~~October 1, 2017~~July 4, 2021 and approximately ~~88%~~94% for the ~~same period of the prior fiscal year.~~twenty-six weeks ended June 28, 2020.

Gross profit ~~increased~~totaled $1.1 billion during the ~~thirty-nine~~twenty-six weeks ended ~~October 1, 2017~~July 4, 2021, a decrease of $70.2 million, or 6%, compared to the ~~thirty-nine~~twenty-six weeks ended ~~October 2, 2016~~June 28, 2020, primarily driven by ~~$121.9~~decreased sales volume for the reasons discussed above. Strategic initiatives contributed to gross margin remaining flat at 36.7% for the twenty-six weeks ended July 4, 2021 and June 28, 2020 despite the decrease in sales.

Selling, general and administrative expenses decreased $49.1 million, or 5%, compared to the twenty-six weeks ended June 28, 2020. The decrease is primarily ~~as a result of increased sales volume. Gross margin decreased~~ due to ~~the competitive environment, primarily~~lower compensation and other COVID driven costs in the ~~first half of 2017, as well as higher occupancy costs.~~

~~Direct store expenses for~~current year, partially offset by new stores opened since the ~~thirty-nine weeks ended October 1, 2017 increased $97.5 million. Direct store expenses, as~~comparable period in the prior year. As a percentage of net sales, increased 10 basis points. This primarily reflects higher payroll and benefit costs, in part due to deleverage of fixed costs associated with lower comparable store sales growth, partially offset by other operating efficiencies.

~~The increase in~~ selling, general and administrative expenses increased to 28.3% from 28.1% due to the deleveraging effect from lower sales.

Depreciation and amortization expenses (exclusive of depreciation included in cost of sales) primarily ~~reflects an $8.1 million increase~~consists of depreciation and amortization for buildings, store leasehold improvements, and equipment. As a percentage of net sales, depreciation and amortization expenses (exclusive of depreciation included in ~~compensation expense,~~cost of sales) increased slightly to 2.0% from 1.9% as a ~~$3.7 million increase in regional expenses, a $3.5 million increase in advertising to support growth and $3.5 million~~result of ~~increases in other corporate expenses, commensurate with store growth and improved company performance.~~sales deleverage.

Store pre-opening costs in the thirty-nine weeks ended October 1, 2017 included $9.0 million related to opening 29 stores during the thirty-nine weeks ended October 1, 2017 and $1.0 million associated with stores expected to open subsequent to October 1, 2017. Store pre-opening costs in the thirty-nine weeks ended October 2, 2016 included $10.6 million related to opening 33 stores during that period and $1.0 million associated with stores opened subsequent to quarter end.

Store closure and other costs, net increased $2.2 million to $1.6 million, compared to a credit of $0.6 million for the ~~thirty-nine~~twenty-six weeks ended October 1, 2017 and October 2, 2016 are related to adjustments to the closed facility reserve primarily related to refinement of estimated subtenant income and other actual occupancy costs from original estimates.

~~During the third quarter of 2017, 14 of our stores were affected~~June 28, 2020. The increase was driven by ~~hurricanes in three states. Although physical damage was minimal, the stores experienced loss of business due to temporary closures,~~ inventory loss and additional expenses, net of insurance recovery, related to ~~clean up~~the impact of winter storms at several of our stores and ~~power~~a fire at one of our stores during the ~~stores. These~~twenty-six weeks ended July 4, 2021. Store closure and other costs, net during the twenty-six weeks ended June 28, 2020 primarily represents a recognized gain on the assignment of ~~estimated insurance recovery, approximate $0.7 million~~the lease for one of our closed locations in the ~~thirty-nine weeks ended October 1, 2017.~~first quarter of 2020.

The ~~increase~~decrease in interest expense, net is primarily due to the ~~higher principal~~decrease in the average balance onoutstanding under the Amended and Restated Credit ~~Facility for borrowing to support our share repurchase program combined with~~Agreement. This is partially offset by the ~~slightly higher~~interest expense paid as a result of an unfavorable interest rate ~~on our Credit Facility for the thirty-nine weeks ended October 1, 2017.~~swap.

Income tax provision ~~decreased to $55.2 million for~~differed from the ~~thirty-nine weeks ended October 1, 2017 from $64.8 million for~~amounts computed by applying the ~~thirty-nine weeks ended October 2, 2016, primarily related to the recognition of excess tax benefits related to the exercise or vesting of equity-based awards in the~~U.S. federal income tax ~~provision. Our~~rate to pretax income as a result of the following:

The effective ~~income~~ tax rate decreased to ~~31.7%~~24.6% for the twenty-six weeks ended July 4, 2021 from 25.0% in the ~~thirty-nine weeks ended October 1, 2017 from 37.7%~~same period last year. The decrease in the ~~thirty-nine weeks ended October 2, 2016~~effective tax rate is primarily ~~related~~due to ~~recognition of excess~~an increase in enhanced charitable contributions along with tax benefits ~~related to the exercise or vesting of equity-based~~for share-based payment awards in the ~~income tax provision. See ASU 2016-09, Compensation – “Stock Compensation (Topic 718)” under Recently Adopted Accounting Pronouncements (Note 2).~~

~~Net income increased $11.4 million as a result of increased sales, but decreased slightly as a percentage of net sales due~~current year period compared to ~~lower gross margin and higher payroll expenses~~prior year period detriments, partially offset by aan increase in disallowed executive compensation.

Net income decreased $14.8 million primarily due to decreased net sales, partially offset by lower ~~effective tax rate.~~selling, general and administrative expenses.

The ~~increase~~decrease in diluted earnings per share of ~~$0.15~~$0.13 was driven by ~~the increase in~~lower net ~~income as well as fewer diluted shares outstanding compared to the prior year, due to the share repurchase program.~~income.

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 ~~leases are capitalized as part of the ROIC calculation to control for differences in capital structure between us and our competitors. Capitalized operating~~ lease interest represents ~~this adjustment~~the add-back to ~~NOPAT and is calculated~~operating income driven by the hypothetical ~~capitalization of~~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). The assumed ownership and associated interest expense are calculated using ~~eight times our trailing twelve months~~the discount rate for each lease as recorded as a component of rent expense within selling, general and ~~an interest rate factor of seven percent. Operating leases are determined as the trailing twelve months’ rent expense times a factor of eight.~~administrative expenses. Invested capital reflects a trailing twelve-month 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.

~~(2)~~

~~Net of tax amounts are calculated using the effective tax rate for the period presented.~~

(6)

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

~~(3)~~

~~Interest on capitalized leases is calculated as the trailing four quarters’ rent expense multiplied by eight and by a seven percent interest rate factor.~~

~~(4)~~

~~Inclusive of $4.1 million net income benefit of 53~~^rd ~~week in 2015.~~

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, ~~and~~ cash equivalents and restricted cash at the end of each period (in thousands):

	Thirty-nine weeks ended
	October 1, 2017			October 2, 2016			Twenty-six weeks ended
Cash and cash equivalents at end of period	$	18,892		$	50,290
							July 4, 2021			June 28, 2020
Cash, cash equivalents and restricted cash at end of period							$	222,754		$	329,594
Cash flows from operating activities	$	258,969		$	196,037		$	177,305		$	393,348
Cash flows used in investing activities	$	(158,429	)	$	(142,400	)	$	(39,421	)	$	(64,571	)
Cash flows used in financing activities	$	(94,113	)	$	(139,416	)	$	(86,571	)	$	(85,968	)

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. We believe that our existing cash, ~~and~~ 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, and we may continue to use borrowings under our Credit Facility to fund our share repurchase programs.~~months. Our future capital requirements will depend on many factors, including the impact of the COVID-19 pandemic on our operations, 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

~~equivalents~~ 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 $63.0~~decreased $216.0 million to ~~$259.0~~$177.3 million for the ~~thirty-nine~~twenty-six weeks ended ~~October 1, 2017~~July 4, 2021 compared to ~~$196.0~~$393.3 million for the ~~thirty-nine~~twenty-six weeks ended ~~October 2, 2016.~~June 28, 2020. The decrease in cash flows from operating activities ~~came from net income adjusted~~was primarily ~~for non-cash expenses~~a result of ~~depreciation and amortization, deferred income taxes, equity-based compensation and~~ changes in working capital.

Cash flows provided byby/(used in) operating activities from changes in working capital ~~was $34.4~~were ($32.2) million in the ~~thirty-nine~~twenty-six weeks ended ~~October 1, 2017,~~July 4, 2021 compared to ~~$2.5~~$166.0 million ~~use of cash~~ in the ~~thirty-nine~~twenty-six weeks ended ~~October 2, 2016.~~June 28, 2020. The ~~increase in cash flows from operating activities for changes in working capital~~decrease was primarily driven by elevated accrual balances in the thirty-nine weeks ended October 1, 2017, compared to the thirty-nine weeks ended October 2, 2016, was primarily due to higher net income combined with working capital improvements as a result of operating efficiencies achieved through our strategic initiatives, and higher payroll and bonus accruals in line with improved performance and company growth. prior year period.

Investing Activities

Cash flows used in investing activities were $158.4 million, and $142.4 million for the thirty-nine weeks ended October 1, 2017 and the thirty-nine weeks ended October 2, 2016, respectively. The increase in cash flows used in investing activities is primarily due to additional purchases of property and equipment, due to the addition of 32 stores in the last twelve months. 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. Cash flows used in investing activities were $39.4 million and $64.6 million, for the twenty-six weeks ended July 4, 2021 and June 28, 2020, respectively.

We expect capital expenditures to be ~~approximately $170~~in the range of $110 - $125 million in ~~fiscal 2017,~~2021, 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 and, if required, borrowings under our Credit Facility.~~activities.

Financing Activities

Cash flows used in financing activities were ~~$94.1~~$86.6 million for the ~~thirty-nine~~twenty-six weeks ended ~~October 1, 2017~~July 4, 2021 compared to ~~$139.4~~$86.0 million for the ~~thirty-nine~~twenty-six weeks ended ~~October 2, 2016.~~June 28, 2020. During the ~~thirty-nine~~twenty-six weeks ended ~~October 1, 2017,~~July 4, 2021, cash flows used in financing activities primarily consisted of ~~$192.0~~$87.5 million for stock repurchases, $40.0 million in payments on our Credit Facility, $3.0 million cash paid for capital and financing lease obligations, partially offset by $134.0 million of borrowings on the Credit Facility, $6.6 million in proceeds from the exercise of stock options and $0.3 million of cash received from landlords related to financing lease obligations.repurchases.

During the ~~thirty-nine~~twenty-six weeks ended ~~October 2, 2016,~~June 28, 2020, cash flows used in financing activities primarily consisted of $187.8 million for stock repurchases and $3.1 million cash paid for capital and financing lease obligations, partially offset by $45.0 million of borrowings on the Credit Facility $3.9 million of excess tax benefits from the exercise of stock options and $2.6$87.0 million in ~~proceeds from the exercise of stock options.~~payments on our credit facilities.

Long-Term Debt and Credit Facilities

Long-term debt ~~increased $144.0 million to $349.0~~outstanding was $250.0 million as of ~~October 1, 2017, compared to October 2, 2016 primarily related to borrowings to fund our share repurchase programs.~~July 4, 2021 and January 3, 2021.

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

Share Repurchase Program

~~On November 4, 2015, our~~Our board of directors ~~authorized a $150 million common stock~~from time to time authorizes share repurchase program, which was completed during the second quarter of 2016. On September 6, 2016, our board of directors authorized a $250 million share repurchase program for our common stock, which was completed during the first quarter of 2017. On February 20, 2017, our board of directors authorized a new $250 million share repurchase programprograms for our common stock. The following table outlines the share repurchase programs authorized by ~~the Board,~~our board, and the related repurchase activity and available authorization as of ~~October 1, 2017.~~July 4, 2021.


Effective date	Expiration date	Amount authorized		Cost of repurchases		Authorization available
February 20, 2018	December 31, 2019	$	350,000	$	308,017	$	—
March 3, 2021	March 3, 2024	$	300,000	$	87,484	$	212,516

The shares under ~~the~~our current repurchase ~~programs~~program may be purchased on a discretionary basis from time to time ~~prior to the applicable expiration date,~~through March 3, 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. ~~The~~Our board’s authorization of the share repurchase ~~programs~~program does not obligate usour Company to acquire any particular amount of common stock, and the repurchase ~~programs~~program may be commenced, suspended, or discontinued at any time. ~~We have used borrowings under our Credit Facility to assist with the repurchase program authorized on September 6, 2016 and February 20, 2017.~~

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


	Thirteen Weeks Ended				Thirty-nine Weeks Ended				Thirteen weeks ended				Twenty-six weeks ended
	October 1, 2017		October 2, 2016		October 1, 2017		October 2, 2016		July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Number of common shares acquired		3,249,204		3,189,818		9,136,468		8,169,510		3,150,649		—		3,280,617		—
Average price per common share acquired	$	22.16	$	19.93	$	21.01	$	22.99	$	26.75	$	—	$	26.67	$	—
Total cost of common shares acquired	$	72,000	$	63,572	$	192,000	$	187,836	$	84,275	$	—	$	87,484	$	—

Shares purchased under our repurchase programs were subsequently retired.

Subsequent to July 4, 2021 and through August 5, 2021, we repurchased an additional 1.0 million shares of common stock for $25.0 million.

Contractual Obligations

We are committed under certain ~~capital~~operating and finance leases for the rental of ~~certain~~ land, ~~and~~ buildings, and ~~certain operating leases~~ for rental of facilities and equipment. These leases expire or become subject to renewal clauses at various dates through ~~2035.~~2040.

The following table summarizes our ~~lease~~contractual obligations as of ~~October 1, 2017,~~July 4, 2021, and the effect such obligations are expected to have on our liquidity and cash flow in future periods:


	Payments Due by Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
	(in thousands)
$700.0 million Credit Agreement (1)	$	250,000	$	—	$	250,000	$	—	$	—
Interest payments on $700.0 million Credit Agreement (2)		16,797		5,119		11,678		—		—
Finance lease obligations (3)		41,957		2,179		6,345		6,668		26,765
Operating lease obligations (3)		1,857,544		212,946		409,714		347,684		887,200
Totals	$	2,166,298	$	220,244	$	677,737	$	354,352	$	913,965

Payments Due by Period

Total

Less Than
1 Year

1-3 Years

4-5 Years

More Than
5 Years

(in thousands)

Capital and financing lease obligations (1)

$
142,221

$
17,018

$
33,472

$
31,175

$
60,556

Operating lease obligations (1)

1,590,493

138,329

302,886

287,356

861,922

Totals

$
1,732,714

$
155,347

$
336,358

$
318,531

$
922,478

(1)

The Amended and Restated Credit Agreement is scheduled to mature, and the commitments thereunder will terminate on March 27, 2023, subject to extensions as set forth therein. These borrowings are reflected in the “1-3 Years” column and discussed in the financing activities section above. See 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.

(2)

Represents estimated interest payments through the March 27, 2023 maturity date of our Amended and Restated Credit Agreement based on the outstanding amounts as of July 4, 2021 and based on LIBOR rates in effect at the time of this report, net of interest rate swaps.

(3)

Represents estimated payments for finance and operating lease obligations as of July 4, 2021. Lease obligations are presented gross without offset for subtenant rentals. We have subtenant agreements under which we will receive $1.0 million for the period of less than one year, $1.8 million for years one to three, $1.7 million for years three to five, and $1.3 million for the period beyond five years.

~~(1)~~

Represents estimated payments for capital and financing and operating lease obligations as of October 1, 2017. Capital and financing lease obligations and operating lease obligations are presented gross without offset for subtenant rentals. We have subtenant agreements under which we will receive $1.5 million for the period of less than one year, $2.4 million for years one to three, $1.7 million for years four to five, and $1.7 million for the period beyond five years.

We have other contractual ~~purchase~~ commitments ~~and debt,~~ which were presented under Contractual Obligations in our Annual Report on Form 10-K for the fiscal year ended January ~~1, 2017. There~~3, 2021, and for which there have not been material changes ~~to our contractual purchase commitments~~ since that filing through ~~October 1, 2017. As of October 1, 2017, the outstanding balance on the Credit Facility was $349.0 million, as discussed in Note~~July 4, ~~to the unaudited consolidated financial statements.~~2021.

We periodically make other commitments and become subject to other contractual obligations that we believe to be routine in nature and incidental to the operation of the business. Management believes that such routine commitments and contractual obligations do not have a material impact on our business, financial condition or results of operations.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing activities, nor do we have any interest in entities referred to as variable interest entities.

Impact of ~~Inflation~~Deflation and ~~Deflation~~Inflation

~~Inflation~~Deflation and ~~deflation~~inflation in the prices of food and other products we sell may periodically affect our sales, gross profit and gross margin. Food deflation across multiple categories, particularly in produce, could reduce sales growth and earnings 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. Food inflation, when combined with reduced consumer spending, could also reduce sales, gross profit margins and comparable store sales. The short-term impact of ~~inflation~~deflation and ~~deflation~~inflation is largely dependent on whether or not the effects are passed through to our customers, which is subject to competitive market conditions.

Food ~~inflation~~deflation and ~~deflation~~inflation is affected by a variety of factors and our determination of whether to pass on the effects of ~~inflation~~deflation or ~~deflation~~inflation 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, we do not expect the effect of ~~inflation~~deflation or ~~deflation~~inflation 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 ~~but are not limited to, those related to~~ inventory valuations, lease assumptions, self-insurance reserves, ~~sublease assumptions for closed stores, goodwill and intangible assets,~~ impairment of long-lived assets, fair values of ~~equity-based~~share-based awards, 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 thirty-nine~~thirteen and twenty-six weeks ended ~~October 1, 2017.~~July 4, 2021. 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 ~~1, 2017.~~3, 2021.

Recently Issued Accounting Pronouncements

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

~~We have determined that all other recently issued accounting standards will not have a material impact on our financial statements, or do not apply to our operations.~~

Item 3. Quantitative and ~~Qualitativ~~eQualitative Disclosures About Market Risk.

As described in Note 4, “Long-Term ~~Debt”~~Debt and Finance Lease Liabilities” to our unaudited consolidated financial statements located elsewhere in this Quarterly Report on Form 10-Q, we have aan Amended and Restated Credit ~~Facility~~Agreement that bears interest at a rate based in part on LIBOR. Accordingly, we ~~are~~could be exposed to fluctuations in interest rates. Based solely on the ~~$349.0~~$250.0 million principal outstanding under our Amended and Restated Credit ~~Facility~~Agreement as of ~~October 1, 2017,~~July 4, 2021, each hundred basis point change in LIBOR would result in a change in interest expense by ~~$3.5~~$2.5 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 two outstanding swaps at July 4, 2021 and January 3, 2021 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 swaps, based on the $250.0 million principal outstanding under our Amended and Restated Credit Agreement as of July 4, 2021, each hundred basis point change in LIBOR 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 9, “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 ~~period~~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 ~~our~~ 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 1, 2017,~~July 4, 2021, 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 ~~October 1, 2017,~~July 4, 2021, 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.

P~~ART~~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.

~~Securities Action~~

~~On March 4, 2016, a complaint was filed in the Superior Court~~ See Note 6, “Commitments and Contingencies” to our Unaudited Consolidated Financial Statements for ~~the State of Arizona against our company and~~information regarding certain of our directors and officers on behalf of a purported class of purchasers of shares of our common stock in our underwritten secondary public offering which closed on March 10, 2015 (the “March 2015 Offering”). The complaint purports to state claims under Sections 11, 12 and 15 of the Securities Act of 1933, based on an alleged failure by our company to disclose adequate information about produce price deflation in the March 2015 Offering documents. The complaint seeks damages on behalf of the purported class in an unspecified amount, rescission, and an award of reasonable costs and attorneys’ fees. After removal to federal court, the plaintiffs sought remand, which the court granted in March 2017. We have appealed the order granting remand to the Ninth Circuit Court of Appeals. On May 25, 2017, we filed a Motion to Dismiss in the Superior Court for the State of Arizona, which the court granted in part and denied in part by order entered August 30, 2017. We answered the complaint on September 28, 2017. We will continue to defend this case vigorously, but it is not possible at this time to reasonably estimate the outcome of, or any potential liability from, the case.

~~“Phishing” Scam Actions~~

In April 2016, four complaints were filed, two in the federal courts of California, one in the Superior Court of California and one in the federal court in the District of Colorado, each on behalf of a purported class of our current and former team members whose personally identifiable information (referred to as “PII”) was inadvertently disclosed to an unauthorized third party that perpetrated an email “phishing” scam against one of our team members. The complaints allege we failed to properly safeguard the PII in accordance with applicable law. The complaints seek damages on behalf of the purported class in unspecified amounts, attorneys’ fees and litigation expenses. In June 2016, a motion was filed before the Judicial Panel on Multidistrict Litigation (referred to as “JPML”) to transfer and consolidate all four of the cases to the federal court in the District of Arizona. The JPML granted the motion on October 6, 2016. ~~On May 24, 2017, the JPML granted our motion to stay~~legal proceedings in ~~the case pending a U.S. Supreme Court ruling~~ which ~~is likely to be dispositive on the question of whether the arbitration agreements signed by each of the named plaintiffs~~we are ~~enforceable; oral argument in this case was heard by the U.S. Supreme Court on October 2, 2017, and we do not expect a decision from the U.S. Supreme Court until Spring 2018.~~ ~~We will continue to defend these cases vigorously, but it is not possible at this time to reasonably estimate the outcome of, or any potential liability from, the cases.~~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 ~~1, 2017.~~3, 2021.

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 ~~October 1, 2017.~~July 4, 2021.


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
April 5, 2021 - May 2, 2021		50,497	$	25.80		50,497	$	295,488,000
May 3, 2021 - May 30, 2021		1,247,457	$	26.09		1,247,457	$	262,936,000
May 31, 2021 - July 4, 2021		1,852,695	$	27.21		1,852,695	$	212,516,000

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

July 3, 2017 - July 30, 2017

675,727

$
23.01

675,727

$
194,450,000

July 31, 2017 - August 27, 2017

1,017,618

$
24.03

1,017,618

$
170,000,000

August 28, 2017 - October 1, 2017

1,555,859

$
20.57

1,555,859

$
138,000,000

(1)

Periodic information is presented by reference to our fiscal periods during the second quarter of fiscal year 2021.

~~(1)~~

~~Periodic information is presented by reference to our fiscal periods during the third quarter of fiscal year 2017.~~

Item 6. Exhibits.


Exhibit Number		Description

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

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

32.1		Certification of Chief Executive Officer ~~Pursuant~~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~~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
~~101.SCH~~		Inline XBRL Taxonomy Extension Schema Document
101.CAL
~~101.CAL~~		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
~~101.DEF~~		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
~~101.LAB~~		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
~~101.PRE~~		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

~~SIGNATURES~~

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: ~~November 2, 2017~~August 5, 2021	By:	/s/ ~~Bradley S. Lukow~~Denise A. Paulonis
	Name:	~~Bradley S. Lukow~~Denise A. Paulonis
	Title:	Chief Financial Officer
		(Principal Financial Officer)


Delaware	32-0331600
~~Delaware~~	~~32-0331600~~
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐

		Emerging growth company	☐


		Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.		14

	Consolidated Balance Sheets as of ~~October 1, 2017~~July 4, 2021 (unaudited) and January ~~1, 2017~~3, 2021	14

	Consolidated Statements of ~~Operations~~Income for the thirteen and ~~thirty-nine~~twenty-six weeks ended ~~October 1, 2017~~July 4, 2021 and ~~October 2, 2016~~June 28, 2020 (unaudited)	25

	Consolidated Statements of Comprehensive Income for the thirteen and twenty-six weeks ended July 4, 2021 and June 28, 2020 (unaudited)	6

	Consolidated Statements of Stockholders’ Equity for the ~~thirty-nine~~thirteen and twenty-six weeks ended ~~October 1, 2017~~July 4, 2021 and June 28, 2020 (unaudited) ~~and the year ended January 1, 2017~~	37

	Consolidated Statements of Cash Flows for the ~~thirty-nine~~twenty-six weeks ended ~~October 1, 2017~~July 4, 2021 and ~~October 2, 2016~~June 28, 2020 (unaudited)	49

	Notes to Unaudited Consolidated Financial Statements	510

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		1722

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		3035

Item 4. Controls and Procedures.		3036

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.		3137

Item 1A. Risk Factors.		3137

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		3238

Item 6. Exhibits.		3239

Signatures		3340

	October 1, 2017		January 1, 2017
	(Unaudited)				July 4, 2021			January 3, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	18,892	$	12,465	$	220,909		$	169,697
Accounts receivable, net		23,231		25,228		13,035			14,815
Inventories		222,216		204,464		274,097			254,224
Prepaid expenses and other current assets		25,594		21,869		43,338			27,224
Total current assets		289,933		264,026		551,379			465,960
Property and equipment, net of accumulated depreciation		690,763		604,660		703,571			726,500
Operating lease assets, net						1,052,851			1,045,408
Intangible assets, net of accumulated amortization		196,556		197,608		184,960			184,960
Goodwill		368,078		368,078		368,878			368,878
Other assets		5,886		5,521		16,724			14,698
Total assets	$	1,551,216	$	1,439,893	$	2,878,363		$	2,806,404
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	179,482	$	157,550	$	161,100		$	139,337
Accrued liabilities						135,503			143,402
Accrued salaries and benefits		41,219		32,859		48,108			76,695
Other accrued liabilities		60,683		56,376
Current portion of capital and financing lease obligations		8,776		12,370
Current portion of operating lease liabilities						137,827			135,739
Current portion of finance lease liabilities						1,004			959
Total current liabilities		290,160		259,155		483,542			496,132
Long-term capital and financing lease obligations		126,806		117,366
Long-term debt		349,000		255,000
Long-term operating lease liabilities						1,082,136			1,069,535
Long-term debt and finance lease liabilities						260,082			260,459
Other long-term liabilities		126,127		116,200		42,487			40,912
Deferred income tax liability		42,508		19,263		60,993			58,073
Total liabilities		934,601		766,984		1,929,240			1,925,111
Commitments and contingencies (Note 8)
Commitments and contingencies (Note 6)
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, 133,070,570 and 140,256,313 shares issued and outstanding, October 1, 2017 and January 1, 2017, respectively		133		140
Undesignated preferred stock; $0.001 par value; 10,000,000 shares authorized, 0 shares issued and outstanding						—			—
Common stock, $0.001 par value; 200,000,000 shares authorized, 115,180,832 shares issued and outstanding, July 4, 2021; 117,953,435 shares issued and outstanding, January 3, 2021						115			118
Additional paid-in capital		614,232		597,269		695,745			686,648
Accumulated other comprehensive loss						(6,319	)		(8,474	)
Retained earnings		2,250		75,500		259,582			203,001
Total stockholders’ equity		616,615		672,909		949,123			881,293
Total liabilities and stockholders’ equity	$	1,551,216	$	1,439,893	$	2,878,363		$	2,806,404

	Shares			Common Stock			Additional Paid In Capital		Retained Earnings			Total Stockholders’ Equity
Balances at January 3, 2016		152,577,884		$	153		$	577,393	$	245,446		$	822,992
Net income		—			—			—		124,306			124,306
Issuance of shares under stock plans		666,841			—			2,740		—			2,740
Repurchase and retirement of common stock		(13,242,483	)		(13	)		—		(294,252	)		(294,265	)
Excess tax benefit for exercise of options		—			—			3,737		—			3,737
Equity-based compensation		—			—			13,399		—			13,399
Balances at January 1, 2017		140,002,242		$	140		$	597,269	$	75,500		$	672,909
Net income		—			—			—		118,741			118,741
Issuance of shares under stock plans		1,800,157			2			6,638		—			6,640
Repurchase and retirement of common stock		(9,136,468	)		(9	)		—		(191,991	)		(192,000	)
Equity-based compensation		—			—			10,325		—			10,325
Balances at October 1, 2017		132,665,931		$	133		$	614,232	$	2,250		$	616,615


☒	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


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

	Shares			Common Stock			Additional Paid In Capital		(Accumulated Deficit) 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
Net income		—			—			—		61,014			—			61,014
Other comprehensive income (loss)		—			—			—		—			911			911
Issuance of shares under stock plans		136,905			—			365		—			—			365
Repurchase and retirement of common stock		(3,150,649	)		(3	)		—		(84,272	)		—			(84,275	)
Share-based compensation		—			—			4,238		—			—			4,238
Balances at July 4, 2021		115,180,832		$	115		$	695,745	$	259,582		$	(6,319	)	$	949,123

	Shares			Common Stock			Additional Paid In Capital		(Accumulated Deficit) 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
Net income		—			—			—		144,062			—			144,062
Other comprehensive income (loss)		—			—			—		—			2,155			2,155
Issuance of shares under stock plans		508,014			—			1,246		—			—			1,246
Repurchase and retirement of common stock		(3,280,617	)		(3	)		—		(87,481	)		—			(87,484	)
Share-based compensation		—			—			7,851		—			—			7,851
Balances at July 4, 2021		115,180,832		$	115		$	695,745	$	259,582		$	(6,319	)	$	949,123


	Balance at January 3, 2021		Gift Cards Issued During Current Period but Not Redeemed(a)		Revenue Recognized from Beginning Liability			Balance at July 4, 2021
Gift card liability, net	$	15,888	$	4,353	$	(6,889	)	$	13,352


July 4, 2021	Level 1		Level 2		Level 3		Total
Long-term debt	$	—	$	250,000	$	—	$	250,000
Interest rate swap liability		—		8,584		—		8,584
Total financial liabilities	$	—	$	258,584	$	—	$	258,584

January 3, 2021	Level 1		Level 2		Level 3		Total
Long-term debt	$	—	$	250,000	$	—	$	250,000
Interest rate swap liability		—		11,451		—		11,451
Total financial liabilities	$	—	$	261,451	$	—	$	261,451

	Thirty-nine Weeks Ended			Fiscal Year Ended
	October 1, 2017			January 1, 2017
Beginning balance	$	1,083		$	2,017
Additions		—			—
Usage		(387	)		(998	)
Adjustments		205			64
Ending balance	$	901		$	1,083


	Rolling Four Quarters Ended
	July 4. 2021 (1)			June 28, 2020
	(dollars in thousands)
Net Income (2)	$	272,700		$	216,705
Special items, net of tax (3), (4)		3,134			3,431
Interest Expense, net of tax (4)		9,304			14,557
Net operating profit after tax (NOPAT)	$	285,138		$	234,693

Total rent expense, net of tax (4)		151,041			136,883
Estimated depreciation on operating leases, net of tax (4)		(84,411	)		(69,063	)
Estimated interest on operating leases, net of tax (4), (5)		66,630			67,820
NOPAT, including effect of operating leases	$	351,768		$	302,513

Average working capital		153,098			75,016
Average property and equipment		722,570			738,999
Average other assets		568,964			566,192
Average other liabilities		(103,198	)		(99,934	)
Average invested capital	$	1,341,434		$	1,280,273

Average operating leases (6)		1,208,682			1,184,185
Average invested capital, including operating leases	$	2,550,116		$	2,464,458

ROIC, including operating leases		13.8	%		12.3	%

	Rolling Four Quarters Ended
	October 1, 2017			October 2, 2016 (4)
	(dollars in thousands)
Net income (1)	$	135,745		$	135,518
Interest expense, net of tax (2)		11,770			9,580
Net operating profit after tax (NOPAT)	$	147,515		$	145,098

Total rent expense, net of tax (2)		78,113			63,983
Estimated depreciation on capitalized operating leases, net of tax (2)		(34,370	)		(28,153	)
Estimated interest on capitalized operating leases, net of tax (2) (3)		43,743			35,830
NOPAT, including effect of capitalized operating leases	$	191,258		$	180,928

Average working capital		15,093			103,321
Average property and equipment		641,451			522,183
Average other assets		574,281			586,777
Average other liabilities		(149,039	)		(115,077	)
Average invested capital	$	1,081,786		$	1,097,204

Average estimated asset base of capitalized operating leases		930,645			814,532
Average invested capital, including the effect of capitalized operating leases	$	2,012,431		$	1,911,736

ROIC		13.6	%		13.2	%
ROIC, including the effect of capitalized operating leases		9.5	%		9.5	%