Following our reports on Ahold Delhaize and Walmart last week, Sprouts Farmers Market reported a +8% increase in sales during its fourth quarter, driven by a +3.3% comparable-store sales increase and a +4.4% contribution from store expansion (the 4.4% embeds a very healthy 80% new store productivity (NSP) level). Placer shows traffic per venue up +3.5% for quarter (October-December 2023). Adjusting for the new non-comparable venues, the increase would be at least mid-4% for comparable traffic/transactions. That implies around a -1% decline in basket size, which indicates less volume/fewer units.
While guidance for 2024 comparable store sales growth was softer-than-expected at +1.5% to +3.5%, that is likely all traffic and basket-size driven with inflation likely to have less of an impact on prices (Q4 2023 inflation ended at +3%). The 2024 plan also includes 35 new stores (up from 30 in 2023; also recall they had closed 11 units early in 2023). Sales per square foot ended the year at $610, which includes an industry-leading e-commerce mix of 12.4% of sales (e-commerce revenue increase up +17% for Q4). Uber Eats was added as a partner to the quarter, joining Instacart and DoorDash. According to management, the +3.3% increase in comparable-store sales was driven by "positive traffic both in-store and online throughout the quarter...units per basket continued to stabilize sequentially” (i.e., average unit retail and units per basket are still negative, but better quarter-over-quarter.) Sprouts CFO Curtis Valentine shared, “The elasticity we're seeing the units come back and stabilize as the AUR comes down, well, the rate comes down from disinflation. We're pretty pleased with where the business is running and expect that we can continue that forward.”
As it relates to 2024, Sprouts CEO Jack Sinclair shared, “Our intent is to become a leading provider in attribute, health-driven categories, such as organic, vegan, grass-fed and keto, prioritizing winning and gaining market share in these differentiated categories. To achieve this, our foraging team is searching far and wide for new health trends and working with niche vendors to find differentiated products such as low caffeine, Popadelics, a snackable mushroom chip and Matcha bubble tea drops. Looking ahead, we will continue launching new Sprouts brand products, expand our seasonal in and out programs, leverage our innovation centers in store and engaging more sampling to drive trial and basket. This focuses on our Sprouts brand continuing to deliver growth ahead of company performance and provide customers with products they value and trust. In 2024, we have an opportunity to gain new health enthusiasts and increase our share of wallet among existing customers. We'll continue to prioritize store execution to provide great in-store experience and exceptional customer service while maintaining an omnichannel approach to meet customers wherever they are. I'm particularly excited about our plans to introduce the first iteration of our new loyalty program this summer. We see a big opportunity to grow share of wallet with our target customers by getting them to visit more often and add additional items to their basket. The program is designed to grow our identifiable customer base and gather valuable data on their preferences, enabling us to personalize the experience to their specific needs.” (To summarize, 2024 is to be about more merchandise excitement and differentiation and the build-out of a loyalty program. That program will enable a retail media network and advertising revenue in time.)
On its new smaller store prototype, Sinclair shared, ‘When we reduced the square footage from 32,000 square feet down to 23,000 square feet, we were very focused on losing not selling space, but actually cutting back on non-customer-facing space, which allowed us to retain the SKU count that we had, apart from in our vitamins and herbal department. Going forward with the foraging team, we introduced an innovation center in our stores, which is allowing us to move really fast with items that the “foraging team” are finding...It's creating this treasure hunt of new items coming into the store, customers looking at the items, checking and really curating their own assortment from that and the discernment of our customers in that space.”
Below we show how the early 2023 openings performed in the second half of 2023. There are 15 venues in the cohort group–six in CA, four in FL, and one each in AZ, NV, TX, TN, and VA. While the average of the cohort tracts the chain-wide average at 84% (a figure similar to the NSP number above), there is a wide dispersion between locations.
The new location in Norwalk, CA (northwest of Anaheim) is the cohort’s star location and the location in North Dallas is the weakest; we also see that in rankings as the below. When we compare the demographics of the trade areas, we see that the Dallas location has a highly affluent trade area and customer. The average household income is $125K, 1.44 times the Texas average. Moreover, the Experian Mosaic customer segments Power Elite, Singles & Starters, and Young City Solos make up 70% of the customers. By contrast, the Norwalk store has a $83K household income, 0.78X the California average. Moreover, the Experian Mosaic customer segments are starkly different from the Dallas location. In general, the new California locations outperformed the cohort, whereas the Florida stores came in softer (63% the chain-wide average versus 84% for the entire cohort). Let us know if you would like to see a deeper analysis of this and the causes for divergence.
