Efforts by Phoenix-based Sprouts Farmers Market to expand its footprint in new markets yielded positive results. The retailer opened six stores with the addition of two new states during the second quarter. New stores in both new and existing markets performed better than the company expected, says Lawrence P. Molloy, interim chief financial officer and director at Sprouts Farmers Market, during an Aug. 1 conference call with analysts.
Comparable store sales for the quarter were lackluster, increasing 0.1%, while comp transactions were down slightly.
“We work really hard for the grand opening, and then we don’t always come back later with a really good marketing plan and a really good branding plan, and really helping the customers throughout the marketplace understand who we are and what we stand for,” Molloy says. “We need to do a better job there. When you’re building the kind of square footage that we’re building today, there should be a natural comp coming from the maturation of the stores that we believe should be higher.”
Molloy, a member of the board since 2013, was named interim CFO after interim co-chief executive officer and CFO Brad Lukow resigned in late June.
Jack L. Sinclair, who also joined the company in late June as CEO, attributed the comp weakness to a lack of clear pricing strategy.
“The one thing we are clear about is that promotional mix we have in our business — this combination of everyday low pricing and high-low, and how we’re managing that balance — has probably got out of sync,” Sinclair says.
He added that Sprouts could better leverage its format, pricing and product advantages to differentiate from other grocers.
“What does Sprouts have that other people don’t have? The low-profile nature of the format is very unique in terms of grocery, and it creates a sense of trust in what you’re selling that I think is very unique,” he says. “I think departmentally, the way Sprouts presents produce and the way it comes to market is unique, and the pricing is pretty unique in produce.
“Then you look at the bulk category. Now, a few grocers have done a few things in bulk, but we’re pretty unique in terms of it being at the core of the format. I think, increasingly, with people’s concern about packaging and the concern that people have around broader aspects of the grocery world, we’re well placed there.”
Net income at Sprouts in the second quarter ended June 30 was $35,343,000, equal to 30c per share on the common stock, down 17% from $41,709,000, or 32c per share, in the same period a year ago. Net sales increased 7% to $1,415,736,000 from $1,321,693,000.
In the six months ended June 30, net income was $91,735,000, or 76c per share, down 15% from $108,333,000, or 82c per share, in the same period a year ago. Net sales increased nearly 8% to $2,829,623,000 from $2,608,889,000.