Sprouts' Q2 2023 comparable-store sales increased +3.2% and 6 new stores were opened to end at 391 stores in 23 states; 10 stores were closed during the quarter. Comps were driven by average basket size (units per transaction down, but average price up) and e-commerce comparable transactions. The company's e-commerce sales increased at an industry leading rate of +16%, with this channel now representing 12% of total sales. (We recently looked at Sprout’s loyalty and visit distribution. Management said both Instacart and DoorDash were indeed growing this quarter. That business is starting to pressure margins due to notable customer acquisition and servicing costs.)
Total net sales are expected to grow +5%-6% in Q3 2023, including comparable sales growth of +2%-3% in Q3 2023 (reflecting slowing inflation) and 16 new stores are to open in the second half of the year. Beyond 2023, CEO Jack Sinclair noted that the company's pipeline “is also growing with nearly 100 approved new stores and more than 60 executed leases, helping us gain traction towards our goal of 10% unit growth per year, starting in 2024.”
In support of success in expanding into new markets, Sinclair said, “I've been very encouraged by Florida, though in terms of where we've been because those stores are now big. We're now getting some critical mass in terms like Tampa, and we're seeing some encouraging 2-year numbers out of our Florida business, which suggests kind of how we thought about this that it takes a little bit longer and you need critical mass from a marketing point of view.” Our data indicates that visits for Sprout's twelve Tampa locations are down 6% year-over-year on a trailing-basis and visits remain well below the average for both Florida and the nation.
To support that footprint expansion, Sinclair shared that, “During the quarter, we also relocated our Southern California distribution center (DC) to a new larger facility, and we simultaneously expanded our DC technology. These distribution centers will allow us to bring fresher products to our customer base while providing capacity for growth in those markets for years to come.” New DCs were also recently added in Colorado and Florida. Additionally, the retailer's DC in Texas was doubled in size. That investment also better allows the brand to enhance the quality/freshness of its perishables which is an important deliverable for any grocer and what’s driving growth.
Private brands was another driver of growth, as sales of Sprouts' branded products grew +12% (2X the total store average to hit 20% of sales and even a higher percentage on a unit base). Sprouts is also adding store labor hours to allow for more product sampling by shoppers in its stores. Product sampling is how grocers get consumers to try their brands. By contrast, if that sample person is handing out samples of a national branded product, say Kettle Brand potato chips, that person is paid by Kettle Brand. (Campbells owns Kettle Brand.) The company is also investing in more labor hours to improve the store experience (in-stocks and store standards). The other news of note from the company's update was that CFO Chip Molloy is retiring.