Sprouts Farmers Market, Inc. (SFM) Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 delivered strong top-line and margin performance: net sales $1.996B (+17.5% YoY), comps +11.5%, gross margin 38.1% (+150 bps YoY), diluted EPS $0.79 (+61% YoY). Growth was broad-based across channels and categories, driven by attribute-led assortment and improved inventory/shrink management .
• Results exceeded the company’s prior Q4 guidance range (comps 8–10%, adj. EPS $0.67–$0.71) and full-year guidance (net sales growth ~12%, comps ~7%, adj. EBIT $490–$495mm, adj. EPS $3.64–$3.68). Actuals: comps +11.5%, EPS $0.79 in Q4; FY net sales $7.719B (+12.9%), comps +7.6%, EBIT $504.5mm, EPS $3.75 .
• FY 2025 outlook guides continued expansion: net sales +10.5%–12.5%, comps +4.5%–6.5%, adj. EBIT $590–$610mm, adj. EPS $4.52–$4.68, unit growth ≥35 stores, capex $230–$250mm; Q1 2025 comps +10–11% and adj. EPS $1.51–$1.55 .
• Stock-reaction catalysts: outsized comp/margin expansion, clear FY25/1Q25 guidance, loyalty rollout plan, and accelerating box economics; potential medium-term upside from planned self-distribution of meat/seafood (benefits post-2025) .

What Went Well and What Went Wrong

What Went Well

• Broad-based comp strength (+11.5%): balanced across channels/geographies, baskets, and traffic; e-commerce grew ~37% to ~14.5% penetration; Sprouts Brand reached 23% of sales in Q4 .
• Margin expansion: Q4 gross margin 38.1% (+150 bps YoY) on improved inventory management, supply-chain leverage, and lower shrink; FY gross margin 38.1% (+120 bps vs FY23 adjusted) .
• Strategic execution: 12 new stores in Q4 and 33 for FY; strong new vintages and healthy pipeline (110 approved sites, ~70 executed leases); liquidity robust (cash $265mm; revolver undrawn) .

Management quotes:

• “2024 was an outstanding year… a 13% increase in sales, a 7.6% comp and a bottom line margin improvement of more than 70 basis points” — CEO Jack Sinclair .
• “Our fourth quarter gross margin was 38.1%… primarily due to leveraging our improvements in inventory management” — CFO Curtis Valentine .

What Went Wrong

• SG&A deleverage (~60 bps YoY in Q4) from higher incentive compensation, planned ~$15mm strategic investments, and increased e-commerce fees; similar headwinds cited for FY .
• Ongoing store-closure related costs (Q4 ~$4mm; FY ~$13mm), tapering over time as leases run off/subleases are secured .
• Sequential EPS down vs Q3 ($0.79 vs $0.91) amid Q4 seasonal cost mix and elevated e-commerce fees despite strong comps and margin gains .

Financial Results

KPIs and Operating Metrics

Notes:

• Q4 diluted EPS +61% YoY (vs $0.49) on strong comps and margin improvements .
• There were no non-GAAP “special items” adjustments in 2024; adjusted EPS equals GAAP EPS .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our teams… deliver a 13% increase in sales for the year, a 7.6% comp and a bottom line margin improvement of more than 70 basis points” — Jack Sinclair, CEO .
• “Q4 gross margin was 38.1%… primarily due to leveraging our improvements in inventory management… strong sales performance drove leverage in our supply chain and supply constraints further reduced shrink” — Curtis Valentine, CFO .
• “We plan to open at least 35 new stores [in 2025]… [and] anticipate continued expansion of our gross margins… [with] slight SG&A leverage in 2025” — Curtis Valentine, CFO .
• “Our loyalty rollout will be a key step… providing invaluable data… we expect to see [customers] visit more often and add more items to their baskets” — Jack Sinclair, CEO .

Q&A Highlights

• Gross margin trajectory: CFO guided ~50 bps YoY expansion in Q1 2025 and ~25–30 bps for FY25, driven by shrink reduction and supply-chain leverage; late-year shrink benefit may moderate as supply constraints ease .
• Store growth cadence: ≥35 openings in FY25 with ~4 in Q1; disciplined site selection; density first, Midwest/Northeast later; pipeline ~110 approvals/~70 leases .
• Self-distribution expansion: Meat/seafood transition through 2025 (no material FY25 impact); expected long-term gross margin upside from freshness, cost control .
• E-commerce profitability: Slight rate dilution due to fees but larger baskets support dollar profitability; penetration expected to keep rising modestly .
• Loyalty pilot: Early metrics (sign-ups/scan rate) exceeded expectations across ~35 pilot stores; phased national rollout in H2 2025 .

Estimates Context

• S&P Global consensus estimates were unavailable due to service limits at the time of retrieval; therefore, comparisons vs Wall Street consensus could not be provided. We benchmarked actuals against company guidance instead .
• Where estimates are needed for future analyses, we will pull S&P Global consensus once access is restored.

Key Takeaways for Investors

• Momentum intact: Broad-based double-digit comps (+11.5%) and 150 bps gross margin expansion in Q4 signal structural improvements—inventory/shrink management and supply-chain leverage are durable drivers .
• FY25 setup: Guidance implies continued top-line growth with margin expansion and slight SG&A leverage despite loyalty rollout costs; Q1 outlook is strong (comps +10–11%, adj. EPS $1.51–$1.55) .
• Medium-term upside: Planned self-distribution of meat/seafood should begin contributing post-2025; expect gross margin benefits and better freshness/control .
• Box economics/density strategy: ≥35 new stores in FY25, with strong productivity from smaller formats; densification should enhance brand awareness and marketing efficiency before new-region expansion .
• Capital allocation: Robust operating cash flow ($645mm FY) funds growth while maintaining buybacks ($238mm FY); balance sheet healthy (cash $265mm; revolver undrawn) .
• Trading implications: Near-term strength anchored by Q1 guidance and ongoing margin expansion; watch SG&A/e-comm fee pressures and late-2025 shrink normalization. Monitor loyalty scaling milestones (Q3–Q4 rollout) as potential positive catalysts .