Sprouts Instacart grocery delivery Sprouts Farmers Market

Sprouts transitions delivery service from Amazon Prime Now to Instacart

Sprouts Farmers Market reported double-digit sales growth in its first quarter of 2018 but says the transition of its delivery model, plus lower-than-expected inflation, will dampen its outlook for the year.

Sprouts Farmers Market grew net sales 14 percent and comparable store sales 2.7 percent in the first quarter of 2018 as it opened nine new stores and continued to chip away at its strategic initiatives.

First-quarter net sales totaled $1.3 billion, with growth driven by strong performances in newly opened stores, CEO Amin Maredia said Thursday during a call with investors and analysts.

The retailer continues to open new stores and enter new markets, with 47 approved sites in the pipeline, including a first store in South Carolina set to open next month. It currently operates 298 stores in 16 states.

Private label penetration, which has now reached 12 percent, plus promotion optimization and product innovation fueled same-store sales growth of 2.7 percent, CFO Brad Lukow said.

Sprouts began its same-day home delivery partnership with Instacart at the beginning of the year, and as of May 1, has discontinued the delivery partnership it had with Amazon Prime Now in all of the 15 stores it was in, Maredia said. Its Instacart partnership was operational in 16 stores throughout the full quarter and will continue to expand to other markets.

That transition, though, combined with lower inflation than originally anticipated, led to a lowering of full-year comp and sales guidance for the year.

“There’s a ramp period—we certainly built the Amazon business over a two-year period and will do the same and feel very comfortable that we’ll do so, but when you turn off one system, you obviously have some transition headwinds,” Lukow said. “But we’re feeling very confident and feel really good about the business model and how the customers are responding to it.”

Other financial highlights from the quarter include:

  • Net income of $67 million, up 44 percent from the first quarter of 2017.
  • Gross profit margin was up about 25 basis points, to 30.1 percent, primarily driven by improved merchandise margins.
  • Diluted EPS of 50 cents, a 52 percent increase from 2017, despite tightness in produce supply and deflation.
  • For full-year 2018, net sales growth is expected to be between 10.5 percent and 11.5 percent (down from its previously stated expectations of 11.5 percent to 12.5 percent), and comparable store sales growth is expected to be 1.5 percent to 2.5 percent (down from previously stated expectations of 2.5 percent to 3.5 percent).

Executive leadership noted that Sprouts continues to invest in its strategic priorities, which include private label and deli innovation, team member development, and implementation of new technology to drive efficiency and lower cost structure.

In the first quarter, more than 80 stores also received Grocery Stewardship Certification, recognizing commitment to operational practices that reduce stores’ environmental impact and save resources. Sprouts has a goal of becoming zero-waste by 2020.

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