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We continue to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free.
−Removed: Since our founding in 2002, we have grown rapidly, significantly increasing our sales, store count and profitability.
Headquartered in Phoenix with 386 stores in 23 states as of January 1, 2023, we are one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States.
In 2002, we opened the first Sprouts Farmers Market store in Chandler, Arizona.
−Removed: From our founding in 2002 through January 2, 2022, we have grown rapidly, significantly increasing our sales, store count and profitability, including successfully rebranding to the Sprouts banner 43 Henry’s Farmers Market and 39 Sunflower Farmers Market stores added in 2011 and 2012, respectively, through acquisitions.
+Added: From our founding in 2002 through January 1, 2023, we have grown rapidly, significantly increasing our sales, store count and profitability, including successfully rebranding 43 Henry’s Farmers Market and 39 Sunflower Farmers Market stores added in 2011 and 2012, respectively, to the Sprouts banner through acquisitions.
These three businesses all trace their lineage back to Henry’s Farmers Market and were built with similar store formats and operations including a strong emphasis on value, produce and service in smaller, convenient locations.
Our Growth Strategy
−Removed: In 2020, we announced the initial steps of our new long-term growth strategy that we believe will transform our company and drive profitable growth.
−Removed: We are executing on this strategy, focusing on the following areas:
+Added: Since 2020, we have focused on a long-term growth strategy that we believe is transforming our company and driving profitable growth.
+Added: We continue to execute on this strategy, focusing on the following areas:
Win with Target Customers .
We are focusing attention on our target customers, identified through research as ‘health enthusiasts’
−Removed: and ‘experience seekers’, where there is ample opportunity to gain share within these customer segments.
+Added: and ‘selective shoppers’, where there is ample opportunity to gain share within these customer segments.
We believe our business can continue to grow by leveraging existing strengths in a unique assortment of better-for-you, quality products and by providing a full omnichannel offering through delivery or pickup via our website or the Sprouts app.
Update Format and Expand in Select Markets.
−Removed: We are beginning to deliver unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer’s market heritage Sprouts is known for.
−Removed: In 2021, we opened three stores and remodeled one store featuring our new format.
+Added: We are delivering unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer’s market heritage Sprouts is known for.
+Added: In 2021, we opened three stores and remodeled one store featuring our new format, and in 2022, we opened nine new format stores.
Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, which we believe will provide a long runway of at least 10% annual unit growth beginning in 2024.
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We believe our network of fresh distribution centers can drive efficiencies across the chain and support growth plans.
−Removed: To further deliver on our fresh commitment and reputation, as well as to improve financial results, we will aspire to ultimately position fresh distribution centers within a 250-mile radius of stores.
+Added: To further deliver on our fresh commitment and reputation, as well as to increase our local offerings and improve financial results, we aspire to ultimately position fresh distribution centers within a 250-mile radius of stores.
With the opening of two fresh distribution centers in 2021, we now have more than 85% of our stores within 250 miles of a distribution center.
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We believe we are elevating our national brand recognition and positioning by telling our unique brand story rooted in product innovation and differentiation.
−Removed: We are investing savings from removing our print ad into increasing customer engagement through digital and social connections, driving additional sales growth and loyalty.
+Added: We are investing savings from largely removing our weekly promotional print ad into increasing engagement and personalization with our target customers through digital and social connections, driving additional sales growth and loyalty.
+Added: Inspire and Engage Our Talent to Create a Best Place to Work.
+Added: Subsequent to the initial launch of our long-term growth strategy, we have added the focus area of inspiring and engaging our talent through our culture, acquisition and development and total rewards program to attract and retain the talent we believe we need to execute on our strategic goals and transform our company into a premier place to work.
Deliver on Financial Targets and Box Economics.
We are measuring and reporting on the success of this strategy against a number of long-term financial and operational targets.
−Removed: With the implementation of our strategy, we have significantly improved our margin structure above our 2019 baseline.
+Added: With the implementation of our strategy beginning in 2020, we have significantly improved our margin structure above our 2019 baseline.
Our Stores and Operations
−Removed: We believe our stores represent a blend of farmers markets, natural foods stores, and smaller specialty markets, differentiating us from other food retailers, while also providing a broad offering for our customers.
+Added: We believe our stores represent a blend of farmers markets, natural foods stores, and smaller specialty markets, distinguishing us from other food retailers, while also providing a broad offering of innovative and differentiated products with lifestyle friendly ingredients for our customers.
Store Design and Experience.
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market experience and allows our customers to view the entire store.
−Removed: Our small box format allows for quick in-and-out service, and our curated assortment of responsibly and locally sourced items offer surprise and delightful shopping experiences.
+Added: Our small box format allows for quick in-and-out service, and our curated assortment of innovative, responsibly and locally sourced items offer treasure hunt shopping experiences.
The below diagram shows a sample layout of our new smaller format stores:
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In addition, we continue to expand mobile and digital opportunities to further engage with our customers and provide a full omnichannel offering as many customers use both in-store and online for their grocery needs.
−Removed: Currently, our stores are generally between 28,000 and 30,000 square feet, which we believe is smaller than many of our peers’
+Added: Currently, our stores average approximately 28,000 square feet, which we believe is smaller than many of our peers’
average stores.
−Removed: Under our long-term growth strategy, our new format stores feature a smaller box size, generally between 21,000 and 25,000 square feet, that are less expensive to build, reduce non-selling space, reduce occupancy and operating costs and leverage the strengths of our older, highly productive stores.
+Added: Under our long-term growth strategy, our new format stores feature a smaller box size, generally between 21,000 and 25,000 square feet, that stay true to our fresh-focused, farmers market heritage but are less expensive to build, reduce non-selling space, reduce occupancy and operating costs and leverage the strengths of our older, highly productive stores.
Our stores are located in a variety of mid-sized and larger shopping centers, lifestyle centers and in certain cases, independent single-unit, stand-alone developments.
−Removed: The size of our stores and our real estate strategy provide us flexibility in site selection, including entering into new developments or existing sites formerly operated by other retailers, including other grocery banners, office supply stores, electronics retailers and other second generation space.
+Added: The size of our stores and our real estate strategy provide us flexibility in site selection.
Team Members.
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We strive to create a strong and unified company culture and develop team members throughout the entire organization, and we assist our store teams with our store support office and regional teams.
−Removed: We have prioritized making investments in training that we believe enhances our team members’
+Added: We have prioritized making investments in training development that we believe enhances our team members’
knowledge, particularly with respect to our expanded and evolving product offerings, so our team members can continue to engage and assist our customers.
+Added: We also support leadership and career opportunities for our team members at Sprouts.
We believe our team members contribute to our consistently high service standards and that this helps us successfully open and operate our stores.
Our Product Offering
−Removed: We are a complete natural and organic food retailer that offers a unique shopping experience for our customers.
+Added: We are a specialty natural and organic food retailer that offers a unique shopping experience for our customers.
To offer the right assortment of healthy alternatives and good-for-you options, we curate our product mix to differentiated fresh, natural and organic foods and healthier options throughout all of our departments, with innovative products that feature lifestyle friendly ingredients.
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packaged groceries, meat and seafood, deli, vitamins and supplements, dairy and dairy alternatives, bulk items, baked goods, frozen foods, natural health and body care, and beer and wine.
−Removed: Our departments reflect our intentional curation of responsibly and locally sourced products.
+Added: Our departments reflect our unique selling proposition featuring intentional curation of responsibly and locally sourced products.
We believe each of our departments provides high-quality, differentiated and value-oriented offerings for our customers which we continuously refine with our customer preferences in mind.
−Removed: Private Label
+Added: Sprouts Brand
We have been expanding the breadth of our Sprouts branded products over the last several years and have a dedicated product development team focused on continuing this growth.
−Removed: These products feature competitively priced specialty and innovative products, with great taste profiles and quality and strict ingredient standards that we believe equal or exceed national brands.
−Removed: Our private label program accounted for approximately 16% of our revenue in fiscal 2021.
−Removed: Our private label brands drive value by offering our customers lower prices while still delivering generally higher margin as compared to branded products, as well as an assortment of differentiated, attribute-driven products that are only available at our stores.
−Removed: We believe our private label products build and enhance the Sprouts brand and allow us to distinguish ourselves from our competitors, promoting customer loyalty and creating a destination shopping experience.
+Added: We sell a broad assortment of products that are differentiated and fun to explore, offer incredible taste, quality, value and experience, and are only available at Sprouts.
+Added: We started a program in 2022 to update and redesign all Sprouts branded products, and we are expecting to complete this in 2024.
+Added: Though early in the rollout of the new design, we are seeing positive impact in terms of sales and recognition.
+Added: The Sprouts Brand program accounted for just over 19% of our revenue in fiscal 2022.
+Added: We believe our Sprouts Brand products build and enhance the overall Sprouts brand and allow us to distinguish ourselves from our competitors, promoting customer loyalty and creating a destination shopping experience.
Product Innovation
−Removed: Our stores feature a curated selection of differentiated products that resonate with our target customers.
−Removed: Since our founding, Sprouts has carried a wide selection of innovative natural and organic brands that align with our mission to inspire healthy living for everyone.
−Removed: Our centralized buying strategy has always put niche brands first, and we have nurtured and grown many once-shoestring brands that now serve as category leaders.
−Removed: As we continue to grow, we are committed to growing our relationships with niche vendors to bring their unique, quality products to the millions of shoppers who visit our stores every week.
−Removed: Sprouts is on the forefront of food innovation and has paved the way for natural food trends for two decades.
−Removed: We embrace product innovation, and our stores serve as an incubator for growth across the natural foods industry, highlighting new and differentiated items in our innovation center merchandising displays.
−Removed: In 2021, we have launched more than 5,700 new and unique branded and private label products, focused purely on innovation and taste.
+Added: We believe Sprouts is on the forefront of food innovation and has paved the way for natural food trends for over two decades.
+Added: Since our founding, Sprouts has carried a wide selection of innovative natural and organic brands that resonate with our target customers and inspire healthy living for everyone.
+Added: We have nurtured and grown many once-shoestring brands that now serve as category leaders.
+Added: As we continue to grow, we aspire to become the most innovative health and wellness specialty food retailer in the country by seeking out and growing our relationships with niche vendors to bring their unique, quality products to the millions of shoppers who visit our stores every week.
+Added: Led by our dedicated foraging team, we embrace product innovation, and we believe our stores serve as an incubator for growth across the natural foods industry, highlighting new and differentiated items in our innovation center merchandising displays.
+Added: In 2022, we launched approximately 8,400 new products.
We feature thousands of responsibly sourced products with certifications and attributes that are desired by our target customer base, including organic, paleo, keto, plant-based, non-GMO, fair trade, gluten-free, vegan, grass-fed, raw and humane certified.
−Removed: We will continue to lead in product innovation to bring more new, innovative offerings into every department of our stores.
+Added: We will continue to offer a treasure hunt experience for our customers by sourcing new, innovative and differentiated offerings into every department of our stores.
Sourcing and Distribution
We manage the buying of, and set the standards for, the products we sell, and we source our products from hundreds of vendors and suppliers, both domestically and internationally.
−Removed: We are committed to sourcing products in a manner that respects people, our communities and the environment, and we partner with suppliers and service providers that share this commitment, as included in our Supplier Code of Conduct.
+Added: We are committed to sourcing products in a manner that respects people, our communities and the environment, and we seek to partner with suppliers and service providers that share this commitment, as included in our Supplier Code of Conduct, which details our expectations regarding workplace standards and supplier best practices, and Commitment to Human Rights.
We work closely with our supply chain partners to improve animal welfare standards, sustainable seafood sourcing, support for organic agriculture and the ethical treatment of people.
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about.sprouts.com/product-sourcing/ .
−Removed: We believe, based on our industry experience, that our strong relationships in the produce business provide us a competitive advantage and enable us to offer high-quality produce at prices we believe are significantly below those of conventional food retailers and even further below high-end natural and organic food retailers.
+Added: We believe, based on our industry experience, that our strong relationships in the produce business provide us a competitive advantage and enable us to offer high-quality produce at prices we believe are generally below those of conventional food retailers and even further below high-end natural and organic food retailers.
Our centralized buyers are supported by dedicated regional procurement teams that provide us flexibility to procure produce on local, regional and national levels.
−Removed: Our regional produce buying teams allow us to form meaningful relationships with farmers, and our flexibility allows us to purchase produce in smaller quantities than larger chains to help us bring new and innovative products to our customers before they become commoditized.
+Added: Our regional produce buying teams allow us to form meaningful relationships with farmers to build a path to growing with them as we grow, and our flexibility allows us to react to produce markets quickly in order to purchase produce in smaller quantities than larger chains and to help us bring new and innovative varietals to our customers at favorable pricing.
These products become treasure hunt items found at our stores.
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As a pillar of our long-term growth strategy, we expect to create an advantaged supply chain and aspire to locate our distribution centers within 250 miles of the majority of our stores.
−Removed: With the opening of two new distribution centers in 2021, we currently have seven distribution centers, with two located in California and one located in each of Arizona, Texas, Georgia, Colorado and Florida.
−Removed: The increased proximity of our distribution centers to our stores has allowed us to deliver on our fresh commitment to our customers, by sourcing more from products from local farmers and improving efficiencies in our distribution process.
−Removed: We believe our scale, together with this decentralized purchasing structure and flexibility generates cost savings, which we then pass on to our customers.
+Added: We currently have seven distribution centers, with two located in California and one located in each of Arizona, Texas, Georgia, Colorado and Florida.
+Added: The increased proximity of our distribution centers to our stores has allowed us to deliver on our fresh commitment to our customers, by sourcing more products from local farmers and improving efficiencies in our distribution process.
+Added: We believe our scale, together with this decentralized purchasing structure and flexibility generates cost savings, which we frequently pass on to our customers.
Distributors and farmers recognize the volume of goods we sell through our stores and our flexible purchasing and supply chain model allows us to opportunistically acquire produce at great value which we will frequently pass along to our customers.
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Our Pricing, Marketing and Advertising
−Removed: As a farmers market style store, we emphasize low prices throughout the entire store, as we are able to pass along the benefits of our scale and purchasing power to our customers.
−Removed: We position our prices with everyday value for our customers with regular promotions that drive traffic and trial.
+Added: As a farmers market style store, we emphasize competitive prices throughout the entire store, as we are able to pass along the benefits of our scale and purchasing power to our customers, particularly in certain categories such as produce.
+Added: We position our prices with everyday value for our customers within our margin structure, with regular promotions that drive traffic and trial.
+Added: Our brands products offer entry-level price points in certain categories, but also focuses on innovation, treasure hunt experience, wellness or health benefits and quality.
Marketing and Advertising
−Removed: During 2020 as part of our long-term growth strategy to refine our brand and marketing approach, we launched our new branding campaign:
−Removed: Sprouts, Where Goodness Grows.
−Removed: This campaign, which launched on television, social, digital and radio media, is meant to drive home our farmers market experience by highlighting produce, the heart of our stores, and inspire our target customers to engage with our brand by focusing on our differentiation and innovation.
−Removed: In 2021, we executed on this strategy and expanded Sprouts’
−Removed: marketing reach through digital channels and new partnerships sharing our brand and differentiated selection of innovative products and fresh produce to a growing audience.
−Removed: We believe the launch of our new brand will reach more customers through our story telling on television and digital media than our prior approach of reaching customers by paper flyers, which we largely discontinued in 2020.
+Added: As part of our long-term growth strategy to refine our brand and marketing approach, we have pivoted our marketing strategy to attempt to drive more profitable growth and create more meaningful connections with our customers.
+Added: Our digital-first marketing program is focused on connecting with our most important, higher value target customers via precision geographic targeting, data-driven media and focusing on personal relevance to tap into our target audience’s needs and affinities.
+Added: We believe our story telling through broadcast and digital media will reach more customers than our prior approach utilizing weekly paper flyers, which we largely discontinued.
During 2022, we garnered more than 20 million weekly digital flyer impressions, demonstrating that our leverage of digital media to reach customers and share what is new and unique at Sprouts resonates with the habits of today’s shoppers.
−Removed: We experienced a 76% increase in SMS subscribers and a 26% increase in email subscribers in 2021.
+Added: We experienced a 27% increase in SMS subscribers and a 16% increase in email subscribers in 2022 compared to 2021.
Additionally, digital, TV and radio ads reached shoppers with 4.3 billion impressions, and we ended the year with 2.2 million followers across all social platforms.
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We worked with 270 social influencers from coast-to-coast last year who shared what they love about Sprouts in their own words to their unique followers.
−Removed: In October, we hosted our first-ever virtual wellness panel, and it gained the interest of shoppers with more than 19,000 RSVPs and addressed anxiety, inflammation and immune health with tips and words from experts.
−Removed: Sprouts announced its first ever back-of-jersey sponsorship with the Angel City Football Club, Los Angeles’
−Removed: first-ever National Women’s Soccer League team.
+Added: In June, we announced our long-term commitment to and investment in collegiate women’s athletics through partnerships with the Big 12 and Pac 12 conferences along with supporting 50 individual Name, Image and Likeness (NIL) deals with female athletes from multiple schools from both conferences, becoming the first grocery retailer to make such a commitment.
+Added: In conjunction with our partnerships with the Big 12 and Pac 12 conferences, in September we announced individual sponsorship agreements with the athletics departments at Arizona State University, University of California, Los Angeles, University of Southern California and University of Texas, pursuant to which we will continue our commitment to women’s athletics by sponsorship of season-long activities and entitlement games.
+Added: Sprouts first ever back-of-jersey sponsorship with the Angel City Football Club took flight as the club began play in the National Women’s Soccer League in 2022.
A portion of the partnership funds are being allocated to support local causes that provide fresh food access and further children’s nutrition education throughout Los Angeles.
−Removed: Sprouts also partnered with MyFitnessPal as the online platform’s first retail sponsor.
−Removed: Through healthy recipes and articles, more than 21 million users interacted with the sponsored content, and over 79,000 users participated in a 30-day healthy eating challenge.
−Removed: In conjunction with the Arizona State University athletic department, Sprouts developed two unique nutrition centers that support the health of more than 600 student athletes across 26 sports.
−Removed: We developed and maintain the Sprouts app on which we include digital coupons and in-store scan features, and our website, www.sprouts.com , on which we display our weekly sales flyers, highlight our product offerings and offer special deals.
+Added: We have developed and maintain the Sprouts app on which we include digital coupons and in-store scan features, and our website, www.sprouts.com , on which we display our weekly sales flyers, highlight our product offerings and offer special deals.
Our website and app also feature online ordering for delivery and pickup.
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Our research yielded a better understanding that our target customer is comprised of two specific groups:
−Removed: health enthusiasts and experience seekers, and we are focusing on these groups in our long-term growth strategy.
−Removed: Our target customer seeks better-for-you grocery options and innovative, quality products to support their healthy lifestyle.
+Added: health enthusiasts and selective shoppers (whom we formerly referred to as experience seekers), and we are focusing on these groups in our long-term growth strategy.
+Added: Our target customer over-indexes on lifestyle choices and seeks better-for-you grocery options and innovative, quality products to support their healthy lifestyle.
We believe they are engaged and connected to what they eat –
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Our 2022 ESG highlights included:
−Removed: Achieved 24% of total sales from organic products;
−Removed: Adopted standards aligned with the Better Chicken Commitment to improve broiler chicken welfare meaningfully and measurably;
−Removed: Sourced all shell and liquid eggs sold in our stores from cage-free, organic, or free-range farms as of December 2021;
+Added: Nearly 26% of total sales from organic products;
+Added: Approximately $200M in sales of products produced by women, minority, veteran, or LGBTQ-owned suppliers;
+Added: $145M in local produce sales;
+Added: 21% increase in less carbon intensive plant-based product sales;
Recovered 87% of food waste, and donated the equivalent of 27 million meals;
−Removed: Recycled more than 500 tons of plastic from customer returned bags and in-store use;
−Removed: Reduced carbon emissions by 10% per square foot from 2019;
−Removed: Engaged a third-party consultant to assist with setting a science-based target for greenhouse gas emission reduction.
+Added: Recycled more than 800,000 pounds of plastic from customer returned bags and product shipping wrap.
Based on our ESG accomplishments, we received a rating of AAA in the 2022 MSCI ESG Ratings assessment.
The AAA rating represents the highest on the scale and signifies a company leading its industry in managing the most significant ESG risks and opportunities.
+Added: Sprouts was also named as one of the 100 most sustainable companies in the world by Corporate Knights.
For more information on our ESG efforts and reporting, including our most recent ESG reports, please visit about.sprouts.com/sustainability/.
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The Sprouts Healthy Communities Foundation
−Removed: In 2015, we formed the Sprouts Healthy Communities Foundation (referred to as our “Foundation”), a registered 501(c)(3) organization focused on promoting nutrition education and increasing access to fresh, nutritious food in communities where Sprouts operates.
−Removed: Since the Foundation’s inception, it has awarded $15 million in donations to more than 380 non-profit organizations and hosted an estimated 200 volunteer service projects.
−Removed: Sprouts fully funds the Foundation’s programs directly.
+Added: I n 2015, we formed the Sprouts Healthy Communities Foundation (referred to as our “Foundation”), a registered 501(c)(3) organization focused on promoting nutrition education and increasing access to fresh, nutritious food in communities where Sprouts operates.
+Added: Since the Foundation’s inception, it has awarded approximately $18.5 million in donations to more than 440 nonprofit organizations and hosted an estimated 270 volunteer service projects.
+Added: Our Foundation's 2022 highlights included:
+Added: Invested over $3.2 million into programs to provide an estimated three million students with school garden and nutrition education programming;
+Added: Hosted annual Sprouts’
+Added: Day of Service, where 700 team members donated 3,000 volunteer hours.
+Added: In total, the Foundation hosted 59 volunteer activities that resulted in 4,000 service hours in 2022;
+Added: Awarded $2.2 million in high-impact capacity grants to empower nonprofit organizations to expand their program operations;
+Added: United more than 400 educators for the first-ever Sprouts’
+Added: School Garden Summit, a national four-day learning event dedicated to strengthening the school garden and outdoor education movement.
For more information on our Foundation, please visit about.sprouts.com/sprouts-foundation/.
Human Capital Management
−Removed: At Sprouts, we are proud of our “People Powered, Purpose Driven”
−Removed: culture focused on improving the health of the communities we serve.
+Added: At Sprouts, our culture is rooted in our values of “Care”, “Own it”, and “Love Being Different”.
+Added: We remain focused on improving the health of the communities we serve.
Customer engagement is critical to our culture and growth plans, and we place great importance on recruiting candidates and retaining team members that have a love of food, pride themselves on service excellence, and share our purpose driven culture.
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2022 Highlights.
−Removed: Despite the ongoing challenges that occurred during 2021 related to the COVID-19 pandemic, we are proud of the following achievements during the year:
−Removed: We finalized three core values that will intentionally shape our culture and act as a lens to guide the decisions we make.
+Added: We are proud of the following achievements during the year:
+Added: We continue to cascade our three core values to intentionally shape our culture and act as a lens to guide the decisions we make.
The values will inform our behaviors and actions to create a sense of inclusion and belonging.
+Added: We engaged in leadership development sessions across the organization with a focus on behaviors aligned to our values.
As one of the fastest growing specialty retailers of fresh, natural and organic food in the country, we created 1,600 new jobs in 2022 through new store openings.
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Team members saved approximately $18.6 million through store discounts.
−Removed: We awarded 75 scholarships to team members and dependents, equating to more than $1.5 million in scholarships since our scholarship program began.
+Added: We awarded 58 scholarships to team members and dependents in 2022.
+Added: Since the scholarship program’s inception, we have awarded more than $1.7 million in scholarships.
Total Rewards.
−Removed: We are proud to offer our team members competitive pay, store discounts, and opportunities for professional growth.
−Removed: We regularly assess prevailing wages in the markets in which we operate and offer competitive wages and benefits as we believe engaged team members contribute to consumer satisfaction.
−Removed: Our total rewards program features the following:
+Added: Because we are a people powered business, we are proud to continuously invest in our workforce by offering competitive salaries and wages, which we regularly assess against the current business environment and labor market.
+Added: We proactively make changes to our total rewards programs to attract the talent that will support our growth strategy and will elevate the customer experience.
+Added: Furthermore, we offer comprehensive, relevant and market competitive benefits to all eligible team members:
+Added: We offer a variety of medical benefit plans to allow team members the ability to choose the best plan for them and their families.
+Added: We offer well-being services and support dedicated to the mental, physical, emotional and financial well-being of our team members.
We have a quarterly bonus plan for which all store team members are eligible.
+Added: All team members over 18 can enroll in our 401(k) plan the first of the month following three months of service, and we offer a contribution matching program.
We offer a paid sick time policy for all team members and offer generous leave programs.
−Removed: Beginning in 2021, all hourly team members are eligible for semi-annual reviews and merit increases.
+Added: All hourly team members are eligible for semi-annual reviews and merit increases.
We offer team members the opportunity to participate in the Western Association of Food Chains’
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During 2022, 64 Sprouts team members enrolled in this program, and 8 team members graduated from the program.
+Added: We participated in the McKinsey Connected Leaders Academy, for the second year, engaging high performing leaders in programs designed to develop diverse leaders at Sprouts.
+Added: We had 39 participants in 2022, which included leaders participating in Hispanic, Black & Asian Executive level and Manager level programs.
We offer The Henry Boney Memorial Scholarship, which is designed to offer team members or their dependents a $3,000 scholarship to achieve their college dreams.
−Removed: All team members over 18 can enroll in our 401(k) plan the first of the month following three months of service, and we offer a contribution matching program.
−Removed: We offer a variety of medical plans to allow team members the ability to choose the best plan for them and their families.
−Removed: We offer a well-being program dedicated to the mental, physical, emotional and financial well-being of our team members.
−Removed: All Sprouts team members can save at our stores, with a 15% Work Perk Discount that can increase to 20% with a simple annual wellness check.
−Removed: We are offering our team members up to two hours of paid time off to receive each dose of the COVID-19 vaccine and enhanced our paid sick time off to support our team members during the pandemic.
+Added: All Sprouts team members can save at our stores, with a 15% Work Perk Discount.
+Added: This year we offered a 30% discount to all team members over the course of six days aligned with our holiday celebrations.
Education, Training and Safety.
We believe Sprouts is an attractive place to work with significant growth opportunities for our approximately 31,000 team members.
−Removed: To grow the next generation of leaders at Sprouts, we have developed a Leadership Training Model for high-potential internal team members to take their careers to the next level, and to on-board store managers new to Sprouts.
+Added: To grow the next generation of leaders at Sprouts, we have developed a Leadership Training Model to on-board store managers new to Sprouts.
In 2022, we had 37 Leadership graduates totaling more than 8,900 hours in training.
−Removed: We have also partnered with an industry-leading virtual reality technology firm to implement cutting-edge virtual reality training in all of our stores in 2021.
−Removed: Our store team members completed over 585,000 hours of in-store training in 2021, and due to the COVID-19 pandemic, certain traditional training programs transitioned to webinars and learning modules.
+Added: We introduced a college fast-track program in stores in 2022 to train college graduates for assistant store management roles, with 9 graduates in the program.
+Added: Our store team members completed over 674,000 hours of in-store training in 2022.
We are committed to maintaining a safe environment for our team members and customers.
Our stores implement various programs to reduce and eliminate hazards, resulting in a safer workplace and improved shopping experience.
−Removed: In 2021, our stores reported a 22% reduction in non-COVID worker compensation claims over the prior year.
+Added: In 2022, our stores reported a 12% reduction in non-COVID worker compensation claims and a 15% reduction in general liability claims over the prior year.
Diversity and Inclusion.
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In 2021, Sprouts launched its first team member resource group "Inspiring Women at Sprouts" to continue to build a culture of inclusion and belonging.
+Added: In 2022, we launched three additional team member resource groups representing affinity team members and allies:
+Added: “Sabor”
+Added: our Hispanic & Latin resource group, “Soul”
+Added: our Black/African American resource group and “Rainbow Alliance”
+Added: our LBGTQIA+ resource group.
Growing Our Business
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Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, providing a long runway for us to achieve our growth target.
−Removed: We intend to continue to focus our growth on areas where we have a large concentration of stores, such as California and Texas, while building out our newer markets, such as Florida and the Mid-Atlantic region, to achieve a larger concentration of stores.
+Added: We intend to continue to focus our growth on areas where we have a large concentration of stores, such as California and Texas, while building out our newer markets, such as Florida, Georgia and the Mid-Atlantic region, to achieve a larger concentration of stores.
We have opened 16, 12 and 22 new stores in fiscal 2022, 2021 and 2020, respectively.
−Removed: We expect to continue to expand our store base with approximately 15 to 20 store openings planned for fiscal 2022.
−Removed: Beyond 2022, we expect to begin targeting at least 10% annual unit growth, subject to the impact of supply chain disruptions which delayed a number of our new store openings in 2021.
+Added: We expect to continue to expand our store base with approximately 30 store openings planned for fiscal 2023.
+Added: Beyond 2023, we expect to target at least 10% annual unit growth, subject to the impact of supply chain disruptions which delayed a number of our new store openings in 2020- 2022.
+Added: See “Item 2.
+Added: Properties”
+Added: for additional information with respect to our planned store closures in 2023.
The below diagram shows our store footprint, by state, as of January 1, 2023.
New Store Development
−Removed: We have an extensive process for new store site selection, which includes in-depth analysis of area demographics, competition, growth potential, traffic patterns, grocery spend and other key criteria.
+Added: We have an extensive analytics-based process for new store site selection, which includes in-depth analysis of area demographics, competition, growth potential, traffic patterns, grocery spend and other key criteria.
We have a dedicated real estate team as well as a real estate committee that includes certain of our executive officers.
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We have been successful across a variety of urban, suburban and rural locations in diverse geographies, from coast to coast, which we believe supports the portability of the Sprouts brand and store model into a wide range of markets.
−Removed: As we implement our long-term growth strategy, our future stores will feature a smaller box size than our recent vintages, generally between 21,000 and 25,000 square feet.
+Added: As we implement our long-term growth strategy, our future stores will deliver a unique and friendly shopping experience that stays true to our farmers market heritage by featuring a smaller box size than our recent vintages, generally between 21,000 and 25,000 square feet.
By reducing our store square footage, we expect that our newer stores will have a lower cost to build and decreased occupancy and operating costs, while reducing non-selling space that will result in generally flat sales compared to our larger stores.
−Removed: We expect these cost reductions will allow us to deliver strong returns and continue to accelerate our growth.
+Added: We expect these cost reductions will allow us to deliver higher returns than our larger stores and continue to accelerate our growth.
See “Item 2.
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Our average weekly sales per store fluctuate throughout the year and are typically highest in the first half of the fiscal year and lowest during the fourth quarter.
−Removed: COVID-19 Pandemic
−Removed: As COVID-19 has spread throughout the country, the situation has continued to evolve, including, more recently, the surge of variants resulting in record numbers of cases and evolving governmental requirements on vaccination and testing for employers.
−Removed: As we cycled periods of 2020 where our results benefited from the initial onset of the pandemic, we have reported declines in year over year net sales, comparable store sales growth and customer traffic.
−Removed: We have seen varying levels of inflation and experienced obstacles sourcing in certain categories resulting from product supply disruptions complicated by the pandemic.
−Removed: In addition, due to continued difficulties in obtaining necessary equipment from third parties due to supply chain delays complicated by the COVID-19 pandemic, seven of our planned new store-openings in the fourth quarter of 2021 were delayed until 2022.
−Removed: In addition, the possible implementation of governmental vaccine mandates and testing requirements may cause additional costs and disruptions in workforce availability.
−Removed: The ultimate impact of the COVID-19 pandemic on our results of operations for future periods will depend on the length, severity and potential resurgence of the pandemic, vaccine efficacy, adoption and mandates, the emergence and severity of COVID-19 variants and governmental, team member and consumer actions taken in response, which we cannot predict.
−Removed: These uncertainties make it challenging for our management to estimate our future business performance.
−Removed: See “Risk Factors—The coronavirus (COVID-19) pandemic has disrupted our business and could negatively impact our financial condition.”
−Removed: for additional information.
Our Competition and Industry
−Removed: We operate within the competitive and highly fragmented grocery store industry which encompasses a wide array of food retailers, including large conventional independent and chain supermarkets, warehouse clubs, small grocery and convenience stores, and natural and organic, specialty, mass, discount and other food retail and online formats.
+Added: We operate within the competitive and highly fragmented grocery store industry which encompasses a wide array of food retailers, including large national and regional conventional chain supermarkets, warehouse clubs, small grocery and convenience stores, independent grocers, and natural and organic, specialty, mass, discount and other food retail and online formats.
Based on our industry experience, we believe our new stores capture market share from conventional supermarkets and specialty concepts in the supermarket segment.
−Removed: Conventional supermarket customers are attracted to unique product offerings, formats and differentiated shopping experiences.
+Added: Grocery customers are attracted to unique product offerings, formats and differentiated shopping experiences.
Based on our industry experience, we also believe consumers are increasingly focused on health and wellness and are actively seeking healthy foods in order to improve eating habits.
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As a result, food retailers are offering an increased assortment of fresh, natural and organic foods as well as vitamins and supplements to meet this demand.
−Removed: Our competitors include conventional supermarkets such as Kroger, Albertsons and Safeway, and other food retailers such as Whole Foods, Natural Grocers by Vitamin Cottage and Trader Joe’s, as well as mass or discount retailers, warehouse membership clubs, online retailers such as Amazon, specialty stores, restaurants, and home delivery and meal solution companies.
+Added: Our competitors primarily include other specialty food retailers such as Whole Foods, Trader Joe’s, and smaller local or regional operators, conventional supermarkets such as Kroger, Albertsons, Safeway, H-E-B and Publix, as well as mass or discount retailers such as Target and Wal-Mart, warehouse membership clubs, online retailers such as Amazon, specialty stores, restaurants, home delivery and meal solution companies, and any other outlets offering food and similar products as those found in our stores.
We believe Sprouts offers consumers a compelling value and differentiated products relative to our competitors and will continue to benefit from increasing consumer focus on health, wellness and value, as well as their emphasis on an enhanced shopping experience featuring a broad selection of attribute-driven products along with exceptional customer engagement.
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We will continue making investments in our current information technology infrastructure and invest in systems that scale to support our growth and add efficiencies to our growing operations.
−Removed: In addition, we continue our focused efforts on limiting risk of a cyber-breach by investing in IT security technology tools, resources, penetration assessments, third-party security audits and employee training.
+Added: In addition, we continue our focused efforts on limiting risk of cyber-security incidents by investing in IT security technology tools, resources, penetration assessments, third-party security audits and employee training.
Regulatory Compliance
Our stores and online retail operations are subject to various local, state and federal laws, regulations and administrative practices affecting our business.
−Removed: We must comply with provisions regulating health, sanitation and food safety standards, food labeling, equal employment, minimum wages, data privacy, environmental protection, licensing for the manufacture, preparation and sale of food and, in many stores, licensing for beer and wine or other alcoholic beverages.
+Added: We must comply with provisions regulating health, sanitation and food safety standards, food labeling, equal employment, minimum wages, data privacy, environmental protection, licensing for the manufacture, preparation and sale of food and, in many stores, licensing for beer and wine or other alcoholic beverages, and cannabidiol (“CBD”) products.
Our operations, including the manufacturing, processing, formulating, packaging, labeling and advertising of products by us and our vendors are subject to regulation by various federal agencies, including the Food and Drug Administration (“FDA”), the Federal Trade Commission (“FTC”), the U.S.
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USDA’s Agricultural Marketing Service (“AMS”) oversees compliance with the National Organic Standards Program and related labeling activity.
−Removed: In addition, AMS has responsibility for newly enacted requirements surrounding the disclosure of the presence of bioengineered ingredients in food, scheduled to become mandatory in 2022.
+Added: In addition, AMS has responsibility for newly enacted requirements surrounding the disclosure of the presence of bioengineered ingredients in food.
AMS also enforces the Perishable Agricultural Commodities Act (PACA) which imposes fair business practices on parties engaged in the sale of perishable fruits, vegetables and some nuts.
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without FDA evaluation for safety or effectiveness.
−Removed: Food, Cosmetics, Homeopathic Product and Dietary Supplement Advertising.
−Removed: The FTC exercises jurisdiction over the advertising of foods, cosmetics, homeopathic products and dietary supplements.
+Added: CBD Products.
+Added: The 2018 Farm Bill legalized the production of hemp and products made from hemp, hemp derivatives including CBD oil and extracts, and established that these products are no longer controlled substances, as long as the cannabis plant and products derived from the plant contain no more than 0.3% THC.
+Added: Under the FDCA, it is unlawful to introduce into interstate commerce a food to which has been added a substance that is an active ingredient in an approved drug product or a substance for which substantial clinical investigations have been instituted, and the existence of such investigations has been made public.
+Added: FDA has approved one drug product containing CBD as an active ingredient.
+Added: Consequently, because CBD has been approved as a drug active ingredient, FDA’s current legal position is that CBD cannot be legally contained in a dietary supplement or food product.
+Added: This restriction only applies to dietary supplements and foods.
+Added: To date, FDA has limited its enforcement actions to those ingestible, topical, and cosmetic CBD products that make therapeutic or drug claims.
+Added: However, regardless of enforcement priorities, FDA has the authority to remove from the market any CBD product if it is adulterated, its labeling is false or misleading, it is otherwise misbranded, or if it violates any other FDCA or FDA requirement or regulation.
+Added: This enforcement authority extends to states that have legalized and regulated the distribution of ingestible CBD products.
+Added: Food, Cosmetics, Homeopathic and CBD Products, and Dietary Supplement Advertising.
+Added: The FTC exercises jurisdiction over the advertising of foods, cosmetics, homeopathic and CBD products, and dietary supplements.
The FTC has the power to institute monetary sanctions and the imposition of consent decrees and penalties that can severely limit a company’s business practices.
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In order to comply with applicable statutes and regulations, our suppliers and contract manufacturers have from time to time reformulated, eliminated or relabeled certain of their products and we have revised certain provisions of our sales and marketing program.
+Added: COVID-19 Pandemic
+Added: Our operations have generally stabilized since the onset of the COVID-19 pandemic in 2020.
+Added: However, we continue to experience varying levels of inflation through increased product costs attributable in part due to the effects of the pandemic, which we continue to pass through to retail pricing.
+Added: In addition, due to continued difficulties in obtaining necessary equipment from third parties and inflationary pressures due to supply chain delays complicated by the COVID-19 pandemic, we have experienced and may continue to experience increased costs and delays in our planned new store openings.
+Added: See “Risk Factors—The coronavirus (COVID-19) pandemic has disrupted our business and could negatively impact our financial condition.”
+Added: for additional information.
Corporate Offices
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Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, and the Proxy Statement for our Annual Meeting of Stockholders are made available, free of charge, on our investor relations website at http://investors.sprouts.com/ , as soon as reasonably practicable after such reports have been filed with or furnished to the SEC.
+Added: We also use our website as a tool to disclose important information about our company and comply with our disclosure obligations under Regulation Fair Disclosure.
+Added: Our corporate governance documents, code of ethics and Board committee charters and policies are also posted on http://investors.sprouts.com/ .
Ri sk Factors
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Market and Other External Risks
−Removed: The coronavirus (COVID-19) pandemic has disrupted our business and could negatively impact our financial condition.
−Removed: The unprecedented global outbreak of the novel coronavirus (COVID-19) that began in the first quarter of 2020 has disrupted our business and could continue to do so for the foreseeable future until the impact of the pandemic subsides.
−Removed: Our operations have generally stabilized since the onset of the crisis;
−Removed: however, the COVID-19 pandemic has strained our entire supply chain, store operations and merchandising functions.
−Removed: We have encountered varying degrees of difficulties and delays in obtaining certain products from our distributors, delivering products to our stores and adequately staffing our stores and distribution centers.
−Removed: If we are unable to continue to source, transport and stock products in our stores or to maintain adequate staffing levels in our stores and distribution centers due to disruptions caused by the COVID-19 crisis, we will be unable to maintain inventory levels and continue to operate our stores at levels to meet customer demand.
−Removed: Further, if we do not identify and source appropriate products in response to our customers’
−Removed: evolving needs as the COVID-19 crisis evolves, we may lose existing customers and fail to attract new customers, which could cause our sales to decrease, resulting in a material adverse effect on our business, financial condition, results of operations and cash flows.
−Removed: We have incurred, and expect to continue to incur, significant costs to support our front-line store team members, including expenses for added labor, store bonuses, government-mandated wage increases, enhanced benefits and safety measures.
−Removed: If, as a result of the impact of the COVID-19 pandemic, we are unable to continue to provide our team members with appropriate compensation and protective measures, we may be unable to retain current or attract new team members to perform necessary functions within our stores and engage with our customers.
−Removed: There is no assurance we will be able to hire sufficient numbers of individuals to meet our needs.
−Removed: In addition, nearly all of our store support team members remain in a remote work environment in an effort to mitigate the spread of COVID-19.
−Removed: Our failure to provide appropriate technological resources and maintain adequate safeguards around our remote work environment could result in loss of productivity and usage errors by our team members or the loss or compromise of confidential customer, team member or company data.
−Removed: In addition, the remote work environment may increase certain risks to our business, including phishing and other cybersecurity attacks.
−Removed: We have experienced instances of our team members contracting COVID-19 that have generally tracked national trends, and in response, we follow CDC and other health authority guidelines to report positive test results and reduce further transmission.
−Removed: Any widespread transmission of COVID-19 among our team members within a particular store or geographical area might necessitate that we temporarily close impacted stores, which may negatively affect our business and financial condition, as well as the perception of our company.
−Removed: Further, if individuals believe they have contracted COVID-19 in our stores or believe that we have not taken appropriate precautionary measures to reduce the transmission of COVID-19, we may be subject to costly and time-consuming litigation.
−Removed: Measures taken by governmental authorities to reduce the transmission of COVID-19, including vaccine and testing mandates, may cause additional costs and disruptions in workforce availability.
−Removed: In addition, the COVID-19 pandemic has required and may continue to require us to make controversial decisions and recommendations about precautionary measures such as facial coverings, vaccinations and testing that could impact our results, including by impacting our brand, team member retention and satisfaction, and the willingness of customers to visit our stores.
−Removed: Although our grocery store operations are generally deemed “essential”
−Removed: operations by federal, state and local authorities, any reimplementation of reduced operating hours and restrictions on the number of customers allowed in our stores at a given time to promote social distancing could negatively impact store traffic.
−Removed: Failure to comply with any governmental regulations promulgated in response to the COVID-19 crisis could result in costly litigation, enforcement actions and penalties.
−Removed: Store traffic may further decline as customers shop less frequently, choose other retail or online outlets to minimize potential exposure to COVID-19 or return to restaurants and other outlets to purchase and consume food as state economies have reopened.
−Removed: We have incurred incremental ecommerce fees from pre-pandemic levels as more customers adopt our digital solutions.
−Removed: The full extent to which the COVID-19 pandemic impacts our business and financial condition will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the pandemic, emergence of variants and the actions necessary to contain COVID-19 or treat its impact.
−Removed: Supply chain disruptions have delayed our store growth plans.
−Removed: Due to continued difficulties in obtaining necessary equipment from third parties due to supply chain delays complicated by the COVID-19 pandemic, seven of our planned new store-openings in the fourth quarter of 2021 were delayed until 2022.
−Removed: We may continue to experience delays in our new store openings until disruptions to the global supply chain have been resolved, the timing of which is uncertain.
General economic conditions that impact consumer spending or result in competitive responses could adversely affect our business.
The retail food business is sensitive to changes in general economic conditions.
−Removed: In addition to the impact of the COVID-19 pandemic, recessionary economic cycles, increases in interest rates, higher prices for commodities, fuel and other energy, inflation, high levels of unemployment and consumer debt, depressed home values, high tax rates, tariffs and other macroeconomic factors that affect consumer spending and confidence or buying habits may materially adversely affect the demand for products we sell in our stores.
−Removed: As a result, consumers may be more cautious and could shift their spending to lower-priced competition, such as warehouse membership clubs, dollar stores, online retailers or extreme value formats, which could have a material and adverse effect on our operating results and financial condition.
+Added: In addition to the impact of the COVID-19 pandemic, inflation, recessionary economic cycles, increases in interest rates, higher prices for commodities, raw materials, fuel and other energy, high levels of unemployment and consumer debt, depressed home values, high tax rates, tariffs and other macroeconomic factors that affect consumer spending and confidence or buying habits may materially adversely affect the demand for and prices of products we sell in our stores.
+Added: As a result, consumers may be more cautious and could reduce their spending in our stores or shift their spending to lower-priced competition, such as warehouse membership clubs, dollar stores, online retailers or extreme value formats, which could have a material and adverse effect on our operating results and financial condition.
In addition, prolonged inflation or deflation can impact our business.
−Removed: Food inflation, when combined with reduced consumer spending, could also reduce sales, gross profit margins and comparable store sales.
+Added: Food inflation, such as the elevated levels we experienced during 2022, when combined with reduced consumer spending, could also reduce sales, gross profit margins and comparable store sales.
As a result, our operating results and financial condition could be materially adversely affected.
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We operate in the competitive retail food industry.
−Removed: Our competitors include supermarkets, natural food stores, mass or discount retailers, warehouse membership clubs, online retailers and specialty stores, as well as restaurants and home delivery and home meal solution providers.
+Added: Our competitors include specialty grocers, conventional supermarkets, natural food stores, mass or discount retailers, warehouse membership clubs, online retailers and specialty stores, as well as restaurants and home delivery and home meal solution providers.
These businesses compete with us for products, customers and locations.
−Removed: We compete on a combination of factors, primarily differentiated product selection, quality, convenience, customer engagement, store format, location, price and delivery options.
+Added: We compete on a combination of factors, primarily differentiated product selection, quality, convenience, shopping experience, customer engagement, store format, location, price and delivery options.
Our failure to offer products or services that appeal to our customers’
−Removed: preferences could lead to a decrease in our sales.
+Added: preferences or to effectively market these products or services could lead to a decrease in our sales.
To the extent that our competitors offer lower prices or similar products, our ability to maintain profit margins and sales levels may be negatively impacted.
In addition, some competitors are aggressively expanding their number of stores or their product offerings, increasing the space allocated to perishable, prepared and specialty foods, including fresh, natural and organic foods, and enhancing options of engaging with and delivering their products to customers.
−Removed: Some of these competitors may have been in business longer or may have greater financial or marketing resources than we do and may be able to devote greater resources to sourcing, promoting and selling
−Removed: their products.
+Added: Some of these competitors may have been in business longer or may have greater financial or marketing resources than we do and may be able to devote greater resources to sourcing, promoting and selling their products.
As competition in certain areas or platforms intensifies or competitors open stores or expand delivery options within close proximity to our stores, our results of operations and cash flows may be negatively impacted through a loss of sales, decrease in customer traffic and market share, reduction in margin from competitive price changes or greater operating costs.
−Removed: We rely heavily on sales of fresh produce and quality natural and organic products, and product supply disruptions may have an adverse effect on our profitability and operating results.
+Added: We rely heavily on sales of fresh produce and quality fresh, natural and organic products, and product supply disruptions may have an adverse effect on our profitability and operating results.
We have a significant focus on perishable products, including fresh produce and natural and organic products.
−Removed: Sales of produce accounted for approximately 21% and 22% of our net sales in fiscal 2021 and 2020, respectively.
+Added: Sales of produce accounted for approximately 20% and 21% of our net sales in fiscal 2022 and
+Added: 2021, respectively.
Despite temporary challenges related to the COVID-19 pandemic, we have generally not experienced significant difficulty to date in maintaining the supply of our produce and fresh, natural and organic products that meet our quality standards.
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This could reduce the available supply of, or increase the price of, fresh produce, which may adversely impact sales of our fresh produce and our other products that rely on produce as a key ingredient.
−Removed: In addition, we and our suppliers compete with other food retailers in the procurement of fresh, natural and organic products, which are often less available than conventional products.
−Removed: If our competitors significantly increase their fresh, natural and organic product offerings due to increases in consumer demand or otherwise, we and our suppliers may not be able to obtain a sufficient supply of such products on favorable terms, or at all, and our sales may decrease, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
+Added: In addition, we and our suppliers compete with other food retailers in the procurement of fresh, natural and organic products, and other specialty, attribute-driven products which are often less available than conventional products.
+Added: If our competitors significantly increase these types of product offerings due to increases in consumer demand or otherwise, we and our suppliers may not be able to obtain a sufficient supply of such products on favorable terms, or at all, and our sales may decrease, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We could also suffer significant inventory losses in the event of disruption of our supply chain network or extended power outages in our stores or distribution centers.
If we are unable to maintain inventory levels suitable for our business needs, it would materially adversely affect our financial condition, results of operations and cash flows.
−Removed: The current geographic concentration of our stores creates an exposure to local or regional downturns or catastrophic occurrences.
+Added: The current geographic concentration of our stores creates an exposure to local or regional downturns or catastrophic occurrences and the impact of climate change.
As of January 1, 2023, we operated 130 stores in California, making California our largest market representing 34% of our total stores in fiscal 2022.
We also have store concentration in Texas, Arizona and Colorado, operating 51, 44 and 32 stores in those states, respectively, and representing 13%, 11% and 8% of our total stores in fiscal 2022, respectively.
−Removed: As we execute our long-term growth strategy, we may become even more concentrated in these markets.
+Added: As we execute our long-term growth strategy, we may become even more concentrated in these markets, as well as identified expansion markets such as Florida, in which we operated 35 stores in fiscal 2022.
In addition, we source a large portion of our produce from California, ranging from approximately 40% to approximately 70% depending on the time of year.
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changes in economic conditions;
−Removed: floods, prolonged droughts, windstorms such as tornados, cyclones, hurricanes and tropical storms, winter storms or other severe weather conditions (whether or not caused by climate change);
+Added: floods, prolonged droughts, diminished water resources, windstorms such as tornados, cyclones, hurricanes and tropical storms, winter storms or other severe weather conditions, which may be caused or exacerbated by climate change;
and other catastrophic occurrences, such as pandemics, earthquakes or wildfires.
−Removed: Such conditions may result in reduced customer traffic and spending in our stores, physical damage to our stores, full or partial loss of power in our stores, loss of inventory, closure of one or more of our stores, inadequate work force in our markets, temporary disruption in the supply of products whether from self or third-party distribution, delays in the delivery of
−Removed: goods to our stores and a reduction in the availability of products in our stores.
−Removed: Any of these factors may disrupt our business and materially adversely affect our financial condition, results of operations and cash flows.
+Added: Such conditions may result in reduced customer traffic and spending in our stores, physical damage to our stores, full or partial loss of power in our stores, loss of inventory, closure of one or more of our stores, inadequate work force in our markets, temporary disruption in the supply of products whether from self or third-party distribution, delays in the delivery of goods to our stores and a reduction in the availability of products in our stores.
+Added: Any of these factors, particularly in areas with significant geographic concentration of our stores or produce grocers on which we rely, may disrupt our business and materially adversely affect our financial condition, results of operations and cash flows.
Fluctuations in commodity prices and availability may impact profitability.
Many products we sell include ingredients such as wheat, corn, oils, milk, sugar, cocoa, nuts and other key commodities.
−Removed: Many commodity prices are subject to significant fluctuations and may be impacted by tariffs and inflation.
+Added: Many commodity prices are subject to significant fluctuations and may be
+Added: impacted by economic factors such as inflation and tariffs, and availability of commodities may be impacted by weather events and catastrophic occurrences.
Any increase in prices of such key ingredients may cause our vendors to seek price increases from us, and price decreases may result in our competitors reducing retail prices on items containing such ingredients.
If we are unable to mitigate these fluctuations, our profitability may be impacted either through increased costs to us or lower prices and loss of customers due to competitive conditions, which may impact gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions.
−Removed: A widespread health epidemic or other incidents beyond our control could materially impact our business.
+Added: The coronavirus (COVID-19) pandemic has disrupted our business and could negatively impact our financial condition.
+Added: The unprecedented global outbreak of the novel coronavirus (COVID-19) that began in the first quarter of 2020 had a significant impact on all aspects of our business, including strains on our entire supply chain, store operations and merchandising functions.
+Added: While our operations have generally stabilized since the peak of the pandemic, our operations may continue to be impacted by any continuing effects of COVID-19, including resurgences and variants of COVID-19 or outbreaks of any new viruses or contagions.
+Added: These impacts may include difficulties and delays in sourcing, transporting and stocking products, inabilities to staff our stores and distribution centers at adequate levels to conduct our operations resulting in store closures or operating hour reductions, and incurring significant costs in support of our front-line store team members for enhanced benefits, safety measures and government-mandated wage increases.
+Added: Measures taken by governmental authorities to reduce the transmission of COVID-19 or any new viruses, including vaccine and testing mandates, may cause additional costs and disruptions in workforce availability, as well as costly litigation, enforcement actions and penalties.
+Added: In addition, the COVID-19 pandemic has required and COVID-19 or new viruses may in the future again require us to make controversial decisions and recommendations about precautionary measures such as facial coverings, vaccinations and testing that could impact our results, including by impacting our brand, team member retention and satisfaction, and the willingness of customers to visit our stores.
+Added: Store traffic may further decline as customers shop less frequently, choose other retail or online outlets to minimize potential exposure to COVID-19 or return to restaurants and other outlets to purchase and consume food.
+Added: We have incurred incremental ecommerce fees from pre-pandemic levels as more customers adopt our digital solutions.
+Added: The full extent to which the COVID-19 pandemic impacts our business and financial condition will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the pandemic, emergence of variants and the actions necessary to contain COVID-19 or treat its impact.
+Added: Supply chain disruptions have delayed our store growth plans.
+Added: Due to continued difficulties in obtaining necessary equipment from third parties due to supply chain delays complicated by the COVID-19 pandemic, we may continue to experience delays in our new store openings until disruptions to the global supply chain have been resolved, the timing of which is uncertain.
+Added: Another widespread health epidemic or other incidents beyond our control could materially impact our business.
As evidenced by the ongoing COVID-19 pandemic, our business could be severely impacted by other widespread regional, national or global health epidemics or other incidents beyond our control such as terrorism, riots, acts of violence and other crimes.
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Additionally, these occurrences could adversely impact our business by disrupting production and delivery of products to our stores and by impacting our ability to appropriately staff our stores.
−Removed: We may require additional capital to fund the expansion of our business, and our inability to obtain such capital could harm our business.
−Removed: To support our growth strategy, we must have sufficient capital to continue to make significant investments in our new and existing stores and advertising.
−Removed: If cash flows from operations are not sufficient, we may need additional equity or debt financing to provide the funds required to expand our business.
−Removed: If such financing is not available on satisfactory terms or at all, we may be unable to expand our business or to develop new business at the rate desired.
−Removed: Debt financing increases expenses, may contain covenants that restrict the operation of our business, and must be repaid regardless of operating results.
−Removed: Equity financing, or debt financing that is convertible into equity, could result in additional dilution to our existing stockholders.
−Removed: Our inability to obtain adequate capital resources, whether in the form of equity or debt, to fund our business and growth strategy may require us to delay, scale back or eliminate some or all of our operations or the expansion of our business, which may have a material adverse effect on our business, operating results, financial condition or prospects.
Increasing energy costs, unless offset by more efficient usage or other operational responses, may impact our profitability.
We utilize natural gas, water, sewer and electricity in our stores and our transportation providers use gasoline and diesel in trucks that deliver products to our stores.
+Added: We have been adversely impacted by the
+Added: increased costs of energy and may be further adversely impacted if costs continue to increase.
We may also be required to pay certain adjustments or other amounts pursuant to our supply and delivery contracts in connection with increases in fuel prices.
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In addition, if we are unsuccessful in attempts to protect against these increases in energy costs through long-term energy contracts, improved energy procurement, improved efficiency and other operational improvements, the overall costs of operating our stores will increase, which would impact our profitability, financial condition, results of operations and cash flows.
+Added: We may require additional capital to fund the expansion of our business, and our inability to obtain such capital could harm our business.
+Added: To support our growth strategy, we must have sufficient capital to continue to make significant investments in our new and existing stores and advertising.
+Added: If cash flows from operations are not sufficient, we may need additional equity or debt financing to provide the funds required to expand our business.
+Added: If such financing is not available on satisfactory terms or at all, we may be unable to expand our business or to develop new business at the rate desired.
+Added: Debt financing increases expenses, may contain covenants that restrict the operation of our business, and must be repaid regardless of operating results.
+Added: Equity financing, or debt financing that is convertible into equity, could result in additional dilution to our existing stockholders.
+Added: Our inability to obtain adequate capital resources, whether in the form of equity or debt, to fund our business and growth strategy may require us to delay, scale back or eliminate some or all of our operations or the expansion of our business, which may have a material adverse effect on our business, operating results, financial condition or prospects.
Business and Operating Risks
−Removed: Our continued growth largely depends on new store openings, and our failure to successfully open new stores could negatively impact our business.
+Added: Our ability to execute on our long-term growth strategy largely depends on new store openings, and our failure to successfully open new stores could negatively impact our business.
Our continued growth depends, in large part, on our ability to open new stores and to operate those stores successfully.
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find suitable sites for new store locations;
+Added: manage supply chain constraints to obtain necessary equipment;
negotiate and execute leases on acceptable terms;
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If we are ineffective in performing these activities, then our efforts to open and operate new stores may be unsuccessful or unprofitable, and we may be unable to execute our growth strategy.
−Removed: We opened 12 and 22 stores in fiscal 2021 and 2020, respectively, and we currently expect to open approximately 15 to 20 new stores in 2022.
+Added: We opened 16 and 12 stores in fiscal 2022 and 2021, respectively, and we currently expect to open approximately 30 new stores in 2023.
Beyond 2023, we expect to achieve 10% annual unit growth, including penetration of new markets with a greater concentration of new stores.
−Removed: However, we may not achieve this expected level of new store growth due to supply chain disruptions or otherwise.
+Added: However, we may not achieve this expected level of new store growth due to inability to find suitable sites, supply chain disruptions or otherwise.
We may not have the level of cash flow or financing necessary to support our growth strategy.
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Further, new store openings in markets where we have existing stores may result in reduced sales volumes at our existing stores in those markets.
−Removed: If we experience a decline in performance, we may slow or discontinue store openings, or we may decide to close stores that we are unable to operate in a profitable manner.
+Added: If we experience a decline in performance, we may slow or discontinue store openings, or we may decide to close stores that we are unable to
+Added: operate in a profitable manner.
If we fail to successfully implement our growth strategy, including by opening new stores, our financial condition, results of operations and cash flows may be adversely affected.
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These factors may cause our comparable store sales results to be materially lower than in recent periods, which could harm our business and result in a decline in the price of our common stock.
+Added: Real or perceived concerns that products we sell could cause unexpected illness, side effects, injury or death could result in their discontinuance or expose us to lawsuits, either of which could result in unexpected costs and damage to our reputation.
+Added: There is increasing public awareness regarding and governmental scrutiny of food safety.
+Added: Unexpected illness, side effects, injury, or death caused by products we prepare and/or sell, in particular our Sprouts brand products, or involving vendors that provide us with products or services that are consumed by our customers could expose us to severe damage to our reputation, product liability or negligence lawsuits or government enforcement actions.
+Added: Any claims brought against us may exceed our existing or future insurance policy coverage or limits.
+Added: Any judgment against us that is in excess of our policy limits would have to be paid from our cash reserves, which would reduce our capital resources.
+Added: Further, we may not have sufficient capital resources to pay a judgment, in which case our creditors could levy against our assets.
+Added: Such illnesses, side effects, injuries or deaths could also result in the discontinuance of sales of these products or our relationship with such vendors or prevent us from achieving market acceptance of the affected products.
+Added: As a fresh, natural and organic retailer, we believe that many customers choose to shop our stores because of their interest in health, nutrition and food safety.
+Added: As a result, we believe that our customers hold us to a high food safety and quality standards, in particular our Sprouts brand products.
+Added: Therefore, real or perceived quality or food safety concerns, whether or not ultimately based on fact, and whether or not involving products prepared and/or sold at our stores or vendors that supply us with products or provide us with services, would cause negative publicity and lost confidence regarding our company, brand, or products, which could in turn harm our reputation and net sales, and could have a material adverse effect on our business, results of operations, cash flows or financial condition .
+Added: Any significant interruption in the operations of our distribution centers or supply chain network could disrupt our ability to deliver our produce and other products in a timely manner.
+Added: We self-distribute our produce through seven distribution centers located in Arizona, Texas, northern California, southern California, Georgia, Colorado and Florida.
+Added: As we further expand our geographic footprint, we may require additional distribution centers.
+Added: Any unanticipated or unusual expenses or significant interruption or failure in the operation of our distribution center infrastructure, such as disruptions due to fire, severe weather or other catastrophic events, power outages, labor shortages or disagreements, shipping or infrastructure problems, food safety concerns, integration of new distribution centers into our supply chain network, inability of our new distribution centers to perform as expected or contractual disputes with third-party service providers could result in increased expenses and adversely impact our ability to distribute produce and other products to our stores.
+Added: Such interruptions could result in lost sales and a loss of customer loyalty to our brand, as well as increased costs from third-party service providers.
+Added: While we maintain business interruption and property insurance, if the operation of our distribution centers or transportation network were interrupted for any reason, causing delays in shipment of product to our stores, our insurance may not be sufficient to cover losses we experience, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
+Added: In addition, unexpected delays in deliveries from vendors that ship directly to our stores or increases in distribution and transportation costs (including through increased labor or fuel costs) could have a material adverse effect on our financial condition, results of operations and cash flows.
+Added: Labor shortages, work stoppages or wage increases in the transportation or other industries, long-term disruptions to the national and international transportation infrastructure, reduction in capacity and industry-specific
+Added: regulations such as hours-of-service rules that lead to delays or interruptions of deliveries or increased costs could negatively affect our business.
Disruption of significant supplier relationships could negatively affect our business.
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Our primary supplier of meat and seafood products accounted for approximately 13% of our total purchases in both fiscal 2022 and 2021, respectively.
−Removed: Due to this concentration of purchases from a small number of third-party suppliers, the cancellation of our distribution arrangements or the disruption, delay or inability of our suppliers to deliver product to our stores in quantities or within service parameters that meet our requirements may materially and adversely affect our operating results while we establish alternative supply chain channels.
+Added: Due to this concentration of purchases from a small number of third-party suppliers, the cancellation of our distribution arrangements or the disruption, delay or inability of our suppliers to timely deliver product to our stores in quantities or within service parameters that meet our requirements may materially and adversely affect our operating results while we establish alternative supply chain channels.
Another 3% of our total purchases in both fiscal 2022 and 2021, respectively, were made through our secondary supplier of dry grocery and frozen food products, UNFI.
−Removed: Our current contractual relationship with UNFI continues through September 30, 2022.
+Added: Our current contractual relationship with UNFI continues through March 31, 2023, and we are engaging in discussions regarding a renewal.
There is no assurance UNFI or other distributors will be able to fulfill our needs on favorable terms or at all.
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Consolidation of distributors or the manufacturers that supply them could reduce our supply options and detrimentally impact the terms under which we purchase products.
−Removed: We may not be able to find replacement suppliers
−Removed: on commercially reasonable terms, which would have a material adverse effect on our financial condition, results of operations and cash flows.
−Removed: Any significant interruption in the operations of our distribution centers or supply chain network could disrupt our ability to deliver our produce and other products in a timely manner.
−Removed: We self-distribute our produce through seven distribution centers located in Arizona, Texas, northern California, southern California, Georgia, Colorado and Florida.
−Removed: As we further expand our geographic footprint, we may require additional distribution centers.
−Removed: Any unanticipated or unusual expenses or significant interruption or failure in the operation of our distribution center infrastructure, such as disruptions due to fire, severe weather or other catastrophic events, power outages, labor shortages or disagreements, shipping or infrastructure problems, food safety concerns, integration of new distribution centers into our supply chain network, inability of our new distribution centers to perform as expected or contractual disputes with third-party service providers could result in increased expenses and adversely impact our ability to distribute produce and other products to our stores.
−Removed: Such interruptions could result in lost sales and a loss of customer loyalty to our brand, as well as increased costs from third-party service providers.
−Removed: While we maintain business interruption and property insurance, if the operation of our distribution centers or transportation network were interrupted for any reason, causing delays in shipment of product to our stores, our insurance may not be sufficient to cover losses we experience, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
−Removed: In addition, unexpected delays in deliveries from vendors that ship directly to our stores or increases in distribution and transportation costs (including through increased fuel costs) could have a material adverse effect on our financial condition, results of operations and cash flows.
−Removed: Labor shortages, work stoppages or wage increases in the transportation or other industries, long-term disruptions to the national and international transportation infrastructure, reduction in capacity and industry-specific regulations such as hours-of-service rules that lead to delays or interruptions of deliveries or increased costs could negatively affect our business.
+Added: We may not be able to find replacement suppliers on commercially reasonable terms, which would have a material adverse effect on our financial condition, results of operations and cash flows.
Disruptions to, security breaches or non-compliance involving, our information technology systems could harm our ability to run our business and expose us to potential liability and loss of revenues.
−Removed: We rely extensively on information technology systems for point-of-sale processing in our stores, supply chain, financial reporting, human resources, store operations and various other processes and transactions.
+Added: We rely extensively on information technology systems for point-of-sale processing in our stores, supply chain, financial reporting, human resources, store operations, ecommerce and various other processes and transactions.
Our information technology systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, including tampering with hardware and breaches of our transaction processing or other systems that could result in the compromise of confidential customer or team member data, ransomware attacks, catastrophic events, and usage errors by our team members.
Phishing attacks have emerged as particularly pervasive, including as a means for ransomware attacks, which have increased both in frequency and breadth.
−Removed: In response, we have implemented numerous security protocols in order to strengthen security, and we maintain a customary cyber insurance policy, but there can be no assurance breaches will not occur in the future, be detected in a timely manner or be covered by our insurance policy.
+Added: Point-of-sale hardware in our stores has also been targeted by individuals attempting to install skimmer devices or conduct other tampering to illicitly obtain payment card information.
+Added: In response to these wide-ranging cybersecurity and data privacy risks, we have implemented numerous security protocols in order to strengthen security, and we maintain a customary cyber insurance policy, but there can be no assurance breaches will not occur in the future, be detected in a timely manner or be covered by our insurance policy.
Significant expenditures could be required to remedy future cybersecurity problems and protect against future breaches.
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Our information technology systems may also fail to perform as we anticipate, and we may encounter difficulties or significant expenses in implementing new systems, adapting these systems to changing technologies or legal requirements or expanding them to meet the future needs and growth of our business.
−Removed: If our systems are improperly implemented, breached, damaged, cease to function properly, or are perceived to have failed, we may have to make significant investments to fix or replace them;
+Added: If our systems are improperly implemented, breached, damaged, cease to function properly, do not function as anticipated or are perceived to have failed, we may have to make significant investments to fix or replace them;
suffer interruptions in our operations;
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face costly litigation, enforcement actions and penalties;
−Removed: and our brand and
−Removed: reputation with our customers may be harmed.
−Removed: Various third parties, such as our suppliers and payment processors, also rely heavily on information technology systems, and any failure of these systems could also cause loss of sales, transactional or other data and significant interruptions to our business.
+Added: and our brand and reputation with our customers may be harmed.
+Added: Various third parties, such as our suppliers and payment processors and their suppliers (i.e., our fourth parties), also rely heavily on information technology systems, and any failure of these systems for any reason (e.g., cybersecurity
+Added: attack, software glitch, human or system error or omission), could also cause loss of sales, transactional or other data and significant interruptions to our business.
Any security breach or other material interruption in the information technology systems we rely on may have a material adverse effect on our business, operating results and financial condition.
−Removed: Real or perceived concerns that products we sell could cause unexpected side effects, illness, injury or death could result in their discontinuance or expose us to lawsuits, either of which could result in unexpected costs and damage to our reputation.
−Removed: There is increasing governmental scrutiny of and public awareness regarding food safety.
−Removed: Unexpected side effects, illness, injury, or death caused by products we prepare and/or sell or involving vendors that provide us with products or services could result in the discontinuance of sales of these products or our relationship with such vendors or prevent us from achieving market acceptance of the affected products.
−Removed: Such side effects, illnesses, injuries and death could also expose us to severe damage to our reputation, product liability or negligence lawsuits or government enforcement actions.
−Removed: Any claims brought against us may exceed our existing or future insurance policy coverage or limits.
−Removed: Any judgment against us that is in excess of our policy limits would have to be paid from our cash reserves, which would reduce our capital resources.
−Removed: Further, we may not have sufficient capital resources to pay a judgment, in which case our creditors could levy against our assets.
−Removed: As a fresh, natural and organic retailer, we believe that many customers choose to shop our stores because of their interest in health, nutrition and food safety.
−Removed: As a result, we believe that our customers hold us to a high food safety standard.
−Removed: Therefore, real or perceived quality or food safety concerns, whether or not ultimately based on fact, and whether or not involving products prepared and/or sold at our stores or vendors that supply us with products or provide us with services, would cause negative publicity and lost confidence regarding our company, brand, or products, which could in turn harm our reputation and net sales, and could have a material adverse effect on our business, results of operations, cash flows or financial condition.
+Added: In addition, many of our store support team members remain in a remote or hybrid work environment in response to changes in the work environment due to the COVID-19 pandemic.
+Added: Our failure to provide appropriate technological resources and maintain adequate safeguards around our remote work environment could result in loss of productivity and usage errors by our team members or the loss or compromise of confidential customer, team member or company data.
+Added: In addition, the remote work environment may increase certain risks to our business, including phishing and other cybersecurity attacks.
If we are unable to successfully identify market trends and react to changing consumer preferences in a timely manner, our sales may decrease.
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anticipate, identify and react to fresh, natural and organic grocery and dietary supplement trends and changing consumer preferences and demographics in a timely manner;
−Removed: translate market trends into appropriate, innovative, saleable product and service offerings in our stores before our competitors;
+Added: translate market trends into appropriate, innovative, saleable product and service offerings in our stores before our competitors and effectively market these trends to our target customers;
develop and maintain vendor and service provider relationships that provide us access to the newest on-trend merchandise and customer engagement options on reasonable terms.
Consumer preferences often change rapidly and without warning, moving from one trend to another among many product or retail concepts.
−Removed: Our performance is impacted by trends regarding healthy lifestyles, product attributes, dietary preferences, convenient options, natural and organic products, meal solutions, ingredient transparency and sustainability, and vitamins and supplements, as well as new and evolving methods of engaging with and delivering our products to our customers.
−Removed: Consumer preferences towards vitamins, supplements or natural and organic food products might shift as a result of, among other things, economic conditions, food safety perceptions, scientific research or findings regarding the benefits or efficacy of such products, national media attention and the cost or sustainability of these products.
−Removed: Our store offerings currently include natural and organic products and dietary supplements.
+Added: Our performance is impacted by trends regarding healthy lifestyles, product attributes, dietary preferences, convenient options, fresh, natural and organic products, meal solutions, ingredient transparency and sustainability, and vitamins and supplements, as well as new and evolving methods of engaging with and delivering our products to our customers.
+Added: Consumer preferences towards vitamins, supplements or fresh, natural and organic food products might shift as a result of, among other things, economic conditions, food safety perceptions, scientific research or findings regarding the benefits or efficacy of such products, national media attention and the cost, attributes or sustainability of these products.
+Added: Our store offerings currently include fresh, natural and organic products and dietary supplements.
A change in consumer preferences away from our offerings would have a material adverse effect on our business.
−Removed: Additionally, negative publicity over the safety, efficacy or benefits of any such items may adversely affect demand for our products, and could result in lower customer traffic, sales, results of operations and cash flows.
+Added: Additionally, negative publicity over the safety, efficacy or benefits of any such items, in particular our Sprouts brand products, may adversely affect demand for our products, and could result in lower customer traffic, sales, results of operations and cash flows.
If we are unable to anticipate and satisfy consumer preferences with respect to product offerings and customer engagement options, our sales may decrease, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our newly opened stores may negatively impact our financial results in the short-term, and may not achieve sales and operating levels consistent with our more mature stores on a timely basis or at all.
−Removed: We have actively pursued new store growth and plan to continue doing so in the future.
+Added: We have actively pursued new store growth as part of our long-term strategy and plan to continue doing so in the future.
Our new store openings may not be as successful or reach the sales and profitability levels of our existing stores.
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New stores may not achieve sustained sales and operating levels consistent with our more mature store base on a timely basis or at all.
−Removed: This may have an adverse effect on our financial condition and operating results.
−Removed: Further, we have experienced in the past, and expect to experience in the future, some sales volume transfer from our existing stores to our new stores as some of our existing customers switch to new, closer locations.
+Added: This may result in store closures or otherwise have an adverse effect on our financial condition and operating results.
+Added: Further, we have experienced in the past, and expect to experience in the future, some sales volume transfer from our existing stores to our new stores as some of our existing customers switch to
+Added: new, closer locations.
If our new stores are less profitable than our existing stores, or if we experience sales volume transfer from our existing stores, our financial condition and operating results may be adversely affected.
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If we are unable to successfully manage the potential difficulties associated with store growth, we may not be able to capture the efficiencies of scale that we expect from expansion.
−Removed: If we are not able to capture efficiencies of scale, improve our systems, sustain cost discipline, optimize promotional activity and maintain appropriate store labor levels and disciplined product selection, our customer traffic and operating margins may stagnate or decline.
−Removed: In addition, competition and pricing pressures from competitors may also adversely impact our operating margins.
+Added: If we are not able to capture efficiencies of scale related to our smaller store format, improve our systems, sustain cost discipline, optimize promotional activity and maintain appropriate store labor levels and disciplined product selection, our customer traffic and operating margins may stagnate or decline.
+Added: In addition, competition and pricing pressures from competitors and our inability to timely pass on product cost increases due to inflation or otherwise to our customers through retail price increases may also adversely impact our operating margins.
Both our inability to capture the efficiencies from scale and competition could have a material adverse effect on our business, financial condition, results of operations and cash flows and adversely affect the price of our common stock.
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Maintaining, promoting and positioning our brand and reputation will depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent, high-quality customer experience.
−Removed: Brand value is based in large part on perceptions of subjective qualities, and even isolated incidents involving our company, our team members, suppliers, agents or third-party service providers, or the products we sell can erode trust and confidence, particularly if they involve our private label products, or result in adverse publicity, governmental investigations or litigation.
+Added: Brand value is based in large part on perceptions of subjective qualities, and even isolated incidents involving our company, our team members, suppliers, agents, marketing partners, or third-party service providers, or the products we sell can erode trust and confidence, particularly if they involve our Sprouts brand products, or result in adverse publicity, governmental investigations or litigation.
Our brand could be adversely affected if we fail to achieve these objectives, or if our public image or reputation were to be tarnished by negative publicity.
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The food retail industry is labor intensive.
−Removed: Our continued success is dependent upon our ability to attract and retain qualified team members in our stores and at our regional and store support offices who
−Removed: understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and consumers.
+Added: Our continued success and ability to grow through new store openings is dependent upon our ability to attract and retain qualified team members in our stores and at our store support offices who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and customers.
We face intense competition for qualified team members, many of whom are subject to offers from competing employers.
−Removed: Due to concerns around COVID-19 and other factors, we have experienced, and could continue to experience, a shortage of labor for store positions.
−Removed: Such labor shortages could be further exacerbated by expanded COVID-19 vaccination or testing requirements.
+Added: Due to a tight labor market, availability of talent and other factors, we have experienced, and could continue to experience, a shortage of labor for store positions.
Our ability to meet our labor needs, while controlling wage and labor-related costs, is subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work force in the markets in which we are located, unemployment levels within those markets, unionization of the available work force, prevailing wage rates, changing demographics, health and other insurance costs and changes in employment legislation.
−Removed: In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, causing our customer engagement to suffer, while increasing our wages could cause our earnings to decrease.
−Removed: If we are unable to hire and retain team members capable of meeting our business needs and expectations, our business and brand image may be impaired.
+Added: In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, causing our customer engagement to suffer, while increasing our wages could
+Added: cause our earnings to decrease.
+Added: If we are unable to hire, train and retain team members capable of meeting our business needs and expectations, our business and brand image may be impaired.
Any failure to meet our staffing needs or any material increase in turnover rates of our team members or team member wages may adversely affect our business, results of operations, cash flows or financial condition.
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We use a combination of insurance and self-insurance plans to provide for potential liabilities, including for workers’
−Removed: compensation, general liability (including, in connection with legal proceedings described under “—Legal proceedings could materially impact our business, financial condition, results of
−Removed: operations and cash flows”
+Added: compensation, general liability (including, in connection with legal proceedings described under “—Legal proceedings could materially impact our business, financial condition, results of operations and cash flows”
below), property insurance, director and officers’
−Removed: liability insurance, vehicle liability and team member health-care benefits.
+Added: liability insurance, automobile liability insurance, environmental liability insurance, and team member health-care benefits.
Liabilities associated with the risks that are retained by us are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions.
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We may be unable to generate sufficient cash flow to satisfy our debt service obligations, which could adversely impact our business.
−Removed: As of January 2, 2022, we had outstanding indebtedness of $250.0 million under our credit agreement (referred to as the “Amended and Restated Credit Agreement”).
−Removed: We may incur additional indebtedness in the future, including borrowings under our Amended and Restated Credit Agreement.
−Removed: Our indebtedness, any additional indebtedness we may incur, or any hedging arrangements related to such indebtedness could require us to divert funds identified for other purposes for debt service and impair our liquidity position.
+Added: As of January 1, 2023, we had outstanding indebtedness of $250.0 million under our credit agreement (referred to as the “Credit Agreement”).
+Added: We may incur additional indebtedness in the future, including borrowings under our Credit Agreement.
+Added: Our indebtedness, any additional indebtedness we
+Added: may incur, or any hedging arrangements related to such indebtedness could require us to divert funds identified for other purposes for debt service and impair our liquidity position.
If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds.
We do not know whether we will be able to take any of such actions on a timely basis, on terms satisfactory to us or at all.
−Removed: Covenants in our debt agreements restrict our operational flexibility.
−Removed: Our Amended and Restated Credit Agreement contains usual and customary restrictive covenants relating to our management and the operation of our business, including incurring additional indebtedness;
+Added: Covenants in our Credit Agreement restrict our operational flexibility.
+Added: Our Credit Agreement contains usual and customary restrictive covenants relating to our management and the operation of our business, including incurring additional indebtedness;
making certain investments;
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and granting liens on our assets.
−Removed: Our Amended and Restated Credit Agreement also requires us to maintain a specified total net leverage ratio and minimum interest coverage ratio at the end of any fiscal quarter at any time the facility is drawn.
+Added: Our Credit Agreement also requires us to maintain a specified total net leverage ratio and minimum interest coverage ratio at the end of any fiscal quarter at any time the facility is drawn.
Our ability to meet these ratios, if applicable, could be affected by events beyond our control.
−Removed: Failure to comply with any of the covenants under our Amended and Restated Credit Agreement could result in a default under the facility, which could cause our lenders to accelerate the timing of payments and exercise their lien on substantially all of our assets, which would have a material adverse effect on our business, operating results, and financial condition.
+Added: Failure to comply with any of the covenants under our Credit Agreement could result in a default under the facility, which could cause our lenders to accelerate the timing of payments and exercise their lien on substantially all of our assets, which would have a material adverse effect on our business, operating results, and financial condition.
Financial Reporting, Legal and Other Regulatory Risks
+Added: Legal proceedings could materially impact our business, financial condition, results of operations and cash flows.
+Added: Our operations, which are characterized by a high volume of customer traffic and data collection and by transactions involving a wide variety of product selections, carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in some other industries.
+Added: Consequently, we may be a party to individual personal injury, product liability, intellectual property, data security and privacy, accessibility and other legal actions in the ordinary course of our business, including litigation arising from the COVID-19 pandemic, food-related illness or product labeling.
+Added: In addition, our team members may, from time to time, bring lawsuits against us regarding injury, hostile work environment, discrimination, wage and hour disputes, sexual harassment, or other employment issues.
+Added: In recent years, there has been an increase in the number of discrimination and harassment claims across the United States generally.
+Added: Additionally, we could be exposed to industry-wide or class-action claims arising from products we carry or industry-specific business or employment practices.
+Added: The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify.
+Added: Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time.
+Added: While we maintain insurance, insurance coverage may not be adequate, and the cost to defend against future litigation may be significant.
+Added: There may also be adverse publicity associated with litigation that may decrease consumer confidence in or perceptions of our business and impact our ability to hire and retain team members, regardless of whether the allegations are valid or whether we are ultimately found liable.
+Added: As a result, litigation may materially adversely affect our business, financial condition, results of operations and cash flows.
We, as well as our vendors, are subject to numerous laws and regulations and our compliance with these laws and regulations may increase our costs, limit or eliminate our ability to sell certain products, raise regulatory enforcement risks, or otherwise adversely affect our business, reputation, results of operations, cash flows and financial condition.
−Removed: Both FDA and USDA have broad authority to enforce their applicable provisions relating to the safety, labeling, manufacturing, distribution and promotion of foods, cosmetics, homeopathic and dietary supplements, including powers to issue a public warning letter to a company, publicize information about adulterated or misbranded products, institute an administrative detention of products, request or order a recall of food from the market, and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution.
+Added: Both FDA and USDA have broad authority to enforce their applicable provisions relating to the safety, labeling, manufacturing, distribution and promotion of foods, cosmetics, homeopathic and CBD products, and dietary supplements, including powers to issue a public warning letter to a company, publicize information about adulterated or misbranded products, institute an administrative detention of products, request or order a recall of food from the market, impose import restrictions and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution.
Dietary Supplement, CBD and Homeopathic Product Risks.
Our sales of dietary supplements are regulated by FDA.
−Removed: However, other public and private actors are increasingly targeting dietary supplement retailers and manufacturers for selling products that fail to adhere to requirements under FDCA, as amended by DSHEA.
−Removed: While FDCA provides FDA with the authority to remove products from the market that are adulterated or misbranded, state actors, and the Plaintiffs’
+Added: However, other public and private actors are increasingly targeting dietary supplement
+Added: retailers and manufacturers for selling products that fail to adhere to requirements under FDCA, as amended by DSHEA.
+Added: While the FDCA provides FDA with the authority to remove products from the market that are adulterated or misbranded, state actors, and the Plaintiffs’
Bar have been targeting retailers and manufacturers of dietary supplements for failing to adhere to current good manufacturing practices and for false or misleading product statements.
−Removed: As a retailer of certain topical or ingestible cannabidiol (“CBD”) products, the FDA also has the authority to remove from the market any CBD product if it is adulterated, its labeling is false or misleading, it is otherwise misbranded, or if it violates any other FDCA or FDA requirement or regulation.
+Added: As a retailer of certain topical or ingestible CBD products, the FDA also has the authority to remove from the market any CBD product if it is adulterated, its labeling is false or misleading, it is otherwise misbranded, or if it violates any other FDCA or FDA requirement or regulation.
This enforcement authority extends to states that have legalized and regulated the distribution of CBD products.
−Removed: The FDCA also provides FDA with the authority to remove homeopathic products from the market that are adulterated or misbranded or contain improper or excessive amounts of
−Removed: active ingredients.
−Removed: Further marketing homeopathic products with quality issues have also been targets for litigation.
+Added: States in which we operate have also imposed restrictions or permitting requirements for the sale of various CBD products.
+Added: The FDCA also provides FDA with the authority to remove homeopathic products from the market that are adulterated or misbranded or contain improper or excessive amounts of active ingredients.
+Added: Further marketing homeopathic and CBD products with misbranding, misleading claims or quality issues have also been targets for litigation.
Advertising and Product Claims Risks.
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FSMA accomplished this goal by overhauling FDA’s current food safety program to require all actors in the food supply chain to expand their safety programs and record keeping processes.
−Removed: FSMA’s continued implementation and FDA’s own development in understanding effective ways to enforce FSMA provisions could delay the supply of certain products or result in certain products being unavailable to us for sale.
+Added: FSMA’s continued implementation, such as the rule on Additional Traceability Records for Certain Foods established in its Section 204(d) and finalized November 15, 2022, and FDA’s own development in understanding effective ways to enforce FSMA provisions could delay the supply of certain products, result in certain products being unavailable to us for sale, see an increase in price of certain products, and/or increase the expenditure of company resources to ensure compliance (e.g., technology, consultants, employees, etc.).
Ecommerce Platform and Third-Party Risks.
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In addition, the failure of such products to comply with applicable regulatory and legislative requirements could prevent us from marketing the products or require us to recall or remove such products from our stores.
−Removed: In order to comply with applicable statutes and regulations, our suppliers and contract manufacturers have from time to time
−Removed: reformulated, eliminated or relabeled certain of their products and we have revised certain provisions of our sales and marketing program.
+Added: In order to comply with applicable statutes and regulations, our suppliers and contract manufacturers have from time to time reformulated, eliminated or relabeled certain of their products and we have revised certain provisions of our sales and marketing program.
We are also subject to laws and regulations more generally applicable to retailers.
Compliance with or changes to such laws and regulations may increase our costs, limit or eliminate our ability to sell certain products or otherwise adversely affect our business, reputation, results of operations, financial condition or cash flows.
−Removed: We are subject to laws and regulations more generally applicable to retailers, including labor and employment, taxation, zoning and land use, environmental protection, workplace safety, public health, community right-to-know, data privacy, consumer protection and alcoholic beverage sales.
+Added: We are subject to laws and regulations more generally applicable to retailers, including those related to labor and employment, taxation, zoning and land use, environmental protection, workplace safety, public health, community right-to-know, data privacy, hazardous waste disposal, consumer protection and alcoholic beverage sales.
Due to the COVID-19 pandemic, we are subject to additional governmental regulations and health guidelines, as well as other voluntary safety protocols.
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result in our unintended misinterpretation or noncompliance;
−Removed: expose us to litigation;
+Added: expose us to litigation, enforcement actions and fines;
require the reformulation of certain products or alternative sourcing from domestic suppliers or otherwise to meet new standards, regulations or trade restrictions;
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Any or all of such requirements could have a material adverse effect on our business, financial condition, results of operations and cash flows.
−Removed: Legal proceedings could materially impact our business, financial condition, results of operations and cash flows.
−Removed: Our operations, which are characterized by a high volume of customer traffic and data collection and by transactions involving a wide variety of product selections, carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in some other industries.
−Removed: Consequently, we may be a party to individual personal injury, product liability, intellectual property, data security and privacy, accessibility and other legal actions in the ordinary course of our business, including litigation arising from the COVID-19 pandemic, food-related illness or product labeling.
−Removed: In addition, our team members may, from time to time, bring lawsuits against us regarding injury, hostile work environment, discrimination, wage and hour disputes, sexual harassment, or other employment issues.
−Removed: In recent years, there has been an increase in the number of discrimination and harassment claims across the United States generally.
−Removed: The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify.
−Removed: Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time.
−Removed: While we maintain insurance, insurance coverage may not be adequate, and the cost to defend against future litigation may be significant.
−Removed: There may also be adverse publicity
−Removed: associated with litigation that may decrease consumer confidence in or perceptions of our business, regardless of whether the allegations are valid or whether we are ultimately found liable.
−Removed: As a result, litigation may materially adversely affect our business, financial condition, results of operations and cash flows.
We may be unable to adequately protect our intellectual property rights, which could harm our business.
17 unchanged sentences
As a result, changes in accounting standards may materially impact our reported financial condition and results of operations.
−Removed: For example, our adoption of ASC 842, Leases , effective in fiscal 2019 impacted our financial statement presentation and financial results.
If we are unable to maintain effective internal control over financial reporting in the future, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline.
As a public company, we are required to maintain internal control over financial reporting.
−Removed: If we are unable to maintain effective internal control over financial reporting, if we identify any material
−Removed: weaknesses therein, if we are unsuccessful in our efforts to remediate any such material weakness, if our management is unable to report that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.
+Added: If we are unable to maintain effective internal control over financial reporting, if we identify any material weaknesses therein, if we are unsuccessful in our efforts to remediate any such material weakness, if our management is unable to report that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.
In addition, we could become subject to investigations by the NASDAQ Stock Market, the SEC, or other regulatory authorities, which could require additional financial and management resources.
6 unchanged sentences
Our nutrition-oriented educational activities may be impacted by government regulation or our inability to secure adequate liability insurance.
−Removed: We provide nutrition-oriented information to our customers, and these activities may be subject to state and federal regulation and oversight by professional organizations or misconstrued by our customers as medical advice.
−Removed: In the past, the FDA has expressed concerns regarding summarized health and nutrition-related information that (i) does not, in the FDA’s view, accurately present such information, (ii) diverts a consumer’s attention and focus from FDA-required nutrition labeling and information or (iii) impermissibly promotes drug-type disease-related benefits.
+Added: We provide nutrition-oriented information to our customers, and these activities may be subject to state and federal regulation and oversight by professional organizations.
+Added: In the past, the FDA has expressed concerns regarding summarized health and nutrition-related information that it (i) does not, in the FDA’s view, accurately present such information, (ii) diverts a consumer’s attention and focus from FDA-required nutrition labeling and information or (iii) impermissibly promotes drug-type disease-related benefits.
If our team members or third parties we engage to provide this information do not act in accordance with regulatory requirements, we may become subject to penalties or litigation that could have a material adverse effect on our business.
−Removed: We believe we are currently in compliance with relevant regulatory requirements.
−Removed: However, we cannot predict the nature of future government regulation and oversight, including the potential impact of any such regulation on this activity.
−Removed: Furthermore, the availability of professional liability insurance or the scope of such coverage may change, or our insurance coverage may prove inadequate, which may adversely impact the ability of our customer educators to provide some information to our customers.
−Removed: The occurrence of any such developments could negatively impact the perception of our brand, our sales and our ability to attract new customers.
+Added: Our business and reputation may be adversely impacted by evolving environmental, social and governance matters.
+Added: Increasingly, investors, customers, government agencies, non-governmental organizations, team members, communities and other stakeholders are focusing on environmental, social and governance (ESG) matters and related disclosures.
+Added: Many of these stakeholders evaluate and measure the performance of companies based on a variety of ESG metrics.
+Added: As a fresh, natural and organic specialty retailer, we believe that many stakeholders hold us to higher standards with respect to ESG matters.
+Added: As a result, we disclose certain ESG-related metrics, initiatives and goals in our SEC filings and other public disclosures.
+Added: Execution against these ESG initiatives may be costly, and we may be unable to achieve our goals due to factors outside of our control.
+Added: If our ESG-related reporting is incomplete or inaccurate or fails to comply with regulatory requirements, or if we fail to achieve significant progress with respect to our ESG goals on a timely basis, or at all, our business, financial performance, growth and reputation with our investors, customers and other stakeholders could be adversely affected.
Common Stock Ownership Risks
24 unchanged sentences
Instead, we plan to retain any earnings to finance our operations and growth plans.
−Removed: In addition, our Amended and Restated Credit Agreement contains covenants that we must satisfy in order to pay cash dividends.
+Added: In addition, our Credit Agreement contains covenants that we must satisfy in order to pay cash dividends.
Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment.
34 unchanged sentences
our remaining three distribution centers are leased or owned by our third-party logistics providers.
+Added: We expect to expand our distribution center network to support our growth.
See “Business –
1 unchanged sentence
for additional information with respect to our distribution centers.
−Removed: We believe our portfolio of long-term leases is a valuable asset supporting our retail operations, but we do not believe that any individual store property or distribution center is material to our financial condition or results of operations.
+Added: We believe our portfolio of long-term leases is a valuable asset supporting our retail operations, but we do not believe that any individual store property or distribution center lease is material to our financial condition or results of operations.
+Added: In February 2023 as part of our real estate portfolio review, we determined to close 11 stores during 2023.
+Added: These stores, on average, are approximately 30% larger than our current prototype format and are underperforming financially.
+Added: See Note 28, “Subsequent Events”
+Added: to our Consolidated Financial Statements for additional information regarding these store closures.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.