How Sprouts Found Pandemic Success in Q4

Comparable-store sales increased 3.7% for Sprouts Farmers Market in the fourth quarter of 2020 — lower than during previous pandemic quarters — with the food retailer’s financial results also demonstrating the importance of pandemic e-commerce in the grocery sector.

For fourth quarter, which ended Jan. 3, Sprouts also reported that net sales reached $1.6 billion, up 17% from the previous year. That's a higher rate of gain during previous pandemic quarters. 

That compares to a 9.5% year-over-year revenue gain in the third quarter of 2020 (during which comparable-store sales increased 4.2%), and a 16% year-over-year revenue gain in the second quarter (during which comp sales increased 9.1%). 

The food retailer also reported $68 million in net income, up about 113%.

For the fiscal year 2020, Sprouts reported:

· Net sales of $6.5 billion; a 15% increase from 2019.

· Comparable store sales growth of 6.9%.

· Net income of $287 million, up 91.3%.

As Sprouts CEO Jack Sinclair explained it, online shoppers played a huge role in Sprout’s success during the pandemic.

“In 2020, we generated record earnings and cash flow from a 15% increase in sales while absorbing costs associated with a 340% increase in e-commerce sales, paying record bonuses to our front-line team members, and opening 22 new stores,” he said. “Executing our strategic initiatives at a more rapid pace than we originally planned is fueling these encouraging results and establishing a solid base from which we can invest and grow. I want to thank not only our dedicated team members at Sprouts, but also our supply chain partners, vendors, farmers and growers, who worked collectively to make healthy food accessible to our customers in this extraordinary year.”

More e-commerce brought more costs.

Selling, general and administrative (SG&A) expenses in fourth quarter increased $76 million to $464 million, or 28.9% of sales, a deleverage of 56 basis points compared to the same period in 2019. This deleverage was primarily driven by increased e-commerce fees and higher quarterly store performance bonuses, partially offset by leveraging fixed costs on increased sales and the 53rd week in 2020. Store operational expenses from COVID-19 were approximately $36 million for the fourth quarter of 2020.

SG&A for the year increased $314 million to $1.9 billion, or 28.8% of sales, a deleverage of 130 basis points compared to 2019. Increased operational expenses from COVID-19 were approximately $176 million for the year, driving the majority of the deleverage. Additionally, Sprouts realized increased e-commerce fees from higher online sales, partially offset by leveraging fixed costs. The impact of the 53rd week on the SG&A rate was insignificant.

Phoenix-based Sprouts, which employs more than 35,000 team members at 340-plus stores in 23 states, is No. 45 on The PG 100, Progressive Grocer's 2020 list of the top food and consumables retailers in North America.