PHOENIX — Third-quarter financial results at Sprout’s Farmers Market, Inc., were slightly better than expected, said Jack Sinclair, chief executive officer, during an Oct. 30 conference call with analysts.
Net income in the third quarter ended Sept. 30 was $26,260,000, equal to 22c on the common stock, down from $37,500,000, or 29c per share, in the same period a year ago. Net sales increased 8% to $1.4 billion.
The company opened an additional 9 stores in the third quarter is on pace to open 28 new stores in 2019. Growth will slow slightly next year to approximately 20 store openings as the company modifies its store format. New stores will still have the expanded footprint launched in 2018, which includes the Market Corner Deli and enhanced fish and meat departments. Store size will be a key area of focus looking ahead.
“While the size of our store prototype has only increased slightly over the last few years, the cost to build has increased significantly,” Mr. Sinclair said. “As we’ve drifted a bit from the core elements of how we best serve our customers, new stores have been increasingly more complicated and become more expensive to operate and build. Interestingly, our smaller stores tend to be more productive than our larger stores.”
He added that there have been inefficiencies in creating stores far away from distribution centers. Moving forward, supply chain and new stores will go hand in hand.
“Shorter lines of distribution will lead us to focus on exactly where we build the stores,” Mr. Sinclair said.
While click-and-collect has so far struggled to catch on with customers, the company’s delivery business grew 200% during the third quarter.
Several retailers are making delivery more affordable for consumers. Amazon recently announced it is waiving grocery delivery fees for its prime members, and Walmart rolled out a new unlimited grocery delivery system for a $98 annual fee. Mr. Sinclair said Sprouts can gain share without rethinking its delivery fee structure.
“Our differentiation in terms of the product assortment that we have, in terms of what we do in bulk, in terms of the advice we give in vitamins, in terms of the clarity that we have around our plant-based initiatives, the clarity that we have around our vegan initiative, those kind of initiatives create a differentiation,” he said. “We think people will migrate to the Sprouts brand irrespective of that particular initiative.”