Sprouts Farmers Market, Inc. 10-Q

Item 1. Financial Statements SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) March 30, 2025 December 29, 2024 ASSETS Current assets: Cash and cash equivalents $ 285,663 $ 265,159 Accounts receivable, net 71,661 30,901 Inventories 340,280 343,329 Prepaid expenses and other current assets 34,689 36,131 Total current assets 732,293 675,520 Property and equipment, net of accumulated depreciation 898,834 895,189 Operating lease assets, net 1,501,951 1,466,903 Intangible assets 208,163 208,094 Goodwill 381,750 381,750 Other assets 15,267 13,243 Total assets $ 3,738,258 $ 3,640,699 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 293,897 $ 213,414 Accrued liabilities 220,474 216,842 Accrued salaries and benefits 68,214 97,991 Accrued income tax 33,922 — Current portion of operating lease liabilities 154,151 150,400 Current portion of finance lease liabilities 1,330 1,321 Total current liabilities 771,988 679,968 Long-term operating lease liabilities 1,556,561 1,520,272 Long-term debt and finance lease liabilities 6,913 7,248 Other long-term liabilities 37,160 38,259 Deferred income tax liability 77,654 73,059 Total liabilities 2,450,276 2,318,806 Commitments and contingencies (Note 6) Stockholders’ equity: Undesignated preferred stock; $ 0.001 par value; 10,000,000 shares authorized, no shares issued and outstanding — — Common stock, $ 0.001 par value; 200,000,000 shares authorized, 98,187,882 shares issued and outstanding, March 30, 2025; 99,255,036 shares issued and outstanding, December 29, 2024 98 99 Additional paid-in capital 814,796 808,140 Retained earnings 473,088 513,654 Total stockholders’ equity 1,287,982 1,321,893 Total liabilities and stockholders’ equity $ 3,738,258 $ 3,640,699 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Thirteen weeks ended March 30, 2025 March 31, 2024 Net sales $ 2,236,436 $ 1,883,808 Cost of sales 1,350,073 1,161,495 Gross profit 886,363 722,313 Selling, general and administrative expenses 623,226 539,771 Depreciation and amortization (exclusive of depreciation included in cost of sales) 35,099 32,232 Store closure and other costs, net 1,706 2,044 Income from operations 226,332 148,266 Interest (income) expense, net ( 924 ) 818 Income before income taxes 227,256 147,448 Income tax provision 47,230 33,348 Net income $ 180,026 $ 114,100 Net income per share: Basic $ 1.83 $ 1.13 Diluted $ 1.81 $ 1.12 Weighted average shares outstanding: Basic 98,537 101,071 Diluted 99,719 102,024 The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS) For the thirteen weeks ended March 30, 2025 Shares Common Stock Additional Paid In Capital Retained Earnings Total Stockholders’ Equity Balances at December 29, 2024 99,255,036 $ 99 $ 808,140 $ 513,654 $ 1,321,893 Net income — — — 180,026 180,026 Issuance of shares under stock plans 500,863 1 — — 1 Repurchase and retirement of common stock, including excise tax ( 1,568,017 ) ( 2 ) — ( 220,592 ) ( 220,594 ) Share-based compensation — — 6,656 — 6,656 Balances at March 30, 2025 98,187,882 $ 98 $ 814,796 $ 473,088 $ 1,287,982 For the thirteen weeks ended March 31, 2024 Shares Common Stock Additional Paid In Capital Retained Earnings Total Stockholders’ Equity Balances at December 31, 2023 101,211,984 $ 101 $ 774,834 $ 373,612 $ 1,148,547 Net income — — — 114,100 114,100 Issuance of shares under stock plans 547,948 1 2,282 — 2,283 Repurchase and retirement of common stock, including excise tax ( 957,780 ) ( 1 ) — ( 60,379 ) ( 60,380 ) Share-based compensation — — 6,477 — 6,477 Balances at March 31, 2024 100,802,152 $ 101 $ 783,593 $ 427,333 $ 1,211,027 The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) Thirteen weeks ended March 30, 2025 March 31, 2024 Operating activities Net income $ 180,026 $ 114,100 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 36,820 34,522 Operating lease asset amortization 34,689 32,303 Share-based compensation 6,656 6,477 Deferred income taxes 4,595 1,072 Other non-cash items 1,532 496 Changes in operating assets and liabilities, net of effects from acquisition: Accounts receivable 10,763 8,601 Inventories 3,049 6,996 Prepaid expenses and other current assets ( 236 ) 14,691 Other assets ( 357 ) 924 Accounts payable 54,084 28,899 Accrued liabilities 6,102 17,642 Accrued salaries and benefits ( 29,777 ) ( 17,667 ) Accrued income tax 33,922 8,869 Operating lease liabilities ( 41,249 ) ( 36,580 ) Other long-term liabilities ( 1,530 ) ( 1,650 ) Cash flows from operating activities 299,089 219,695 Investing activities Purchases of property and equipment ( 59,479 ) ( 51,241 ) Cash flows used in investing activities ( 59,479 ) ( 51,241 ) Financing activities Payments on finance lease liabilities ( 326 ) ( 253 ) Repurchase of common stock ( 218,762 ) ( 60,000 ) Proceeds from exercise of stock options — 2,283 Cash flows used in financing activities ( 219,088 ) ( 57,970 ) Increase in cash, cash equivalents, and restricted cash 20,522 110,484 Cash, cash equivalents, and restricted cash at beginning of the period 267,213 203,870 Cash, cash equivalents, and restricted cash at the end of the period $ 287,735 $ 314,354 Supplemental disclosure of cash flow information Cash paid for interest $ 807 $ 2,411 Cash refunded for income taxes 102 151 Supplemental disclosure of non-cash activities Property and equipment in accounts payable and accrued liabilities $ 19,224 $ 23,599 Excise tax accrued on repurchase of common stock 3,823 2,146 Leased assets obtained in exchange for new operating lease liabilities, net of lease terminations 69,736 72,791 The accompanying notes are an integral part of these consolidated financial statements. 7 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation Sprouts Farmers Market, Inc., a Delaware corporation, through its subsidiaries, offers a unique specialty grocery experience featuring an open layout with fresh produce at the heart of the store. The Company continues to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. As of March 30, 2025, the Company operated 443 stores in 24 states. For convenience, the “Company” is used to refer collectively to Sprouts Farmers Market, Inc. and unless the context otherwise requires, its subsidiaries. The Company’s store operations are conducted by its subsidiaries. The accompanying unaudited consolidated financial statements include the accounts of the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and are in the form prescribed by the Securities and Exchange Commission in instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company's financial position, results of operations and cash flows for the periods indicated. All material intercompany accounts and transactions have been eliminated in consolidation. Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The information included in these consolidated financial statements and notes thereto should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto for the fiscal year ended December 29, 2024 (“fiscal year 2024”) included in the Company’s Annual Report on Form 10-K, filed on February 20, 2025. The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The Company reports its results of operations on a 52- or 53-week fiscal calendar ending on the Sunday closest to December 31. The fiscal year ending December 28, 2025 (“fiscal year 2025”) and fiscal year 2024 are 52-week years. The Company reports its results of operations on a 13-week quarter, except for 53-week fiscal years (in which the fourth quarter has 14 weeks). All dollar amounts are in thousands, unless otherwise noted. 8 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 2. Summary of Significant Accounting Policies Revenue Recognition The Company’s performance obligations are satisfied upon the transfer of goods to the customer, which occurs at the point of sale, and payment from customers is also due at the time of sale. Proceeds from the sale of gift cards are recorded as a liability at the time of sale and recognized as sales when they are redeemed by the customer and the performance obligation is satisfied by the Company. The Company’s gift cards do not expire. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was not material in any period presented. A summary of the activity and balances in the gift card liability, net is as follows: Thirteen weeks ended March 30, 2025 March 31, 2024 Beginning Balance $ 11,071 $ 10,566 Gift cards issued during the period but not redeemed (1) 1,129 1,166 Revenue recognized from beginning liability ( 2,703 ) ( 2,532 ) Ending Balance $ 9,497 $ 9,200 (1) Net of estimated breakage The nature of goods the Company transfers to customers at the point of sale are inventories, consisting of merchandise purchased for resale. The Company does not have any material contract assets or receivables from contracts with customers, any revenue recognized in the current period from performance obligations satisfied in previous periods, any contract performance obligations, or any material costs to obtain or fulfill a contract as of March 30, 2025. Restricted Cash Restricted cash relates to the Company's defined benefit plan forfeitures and the Company's healthcare, general liability and workers’ compensation plan benefits of $ 2.1 million as of March 30, 2025 and December 29, 2024. These balances are included in prepaid expenses and other current assets in the consolidated balance sheets. Recently Issued Accounting Pronouncements Not Yet Adopted Income Taxes – Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU no. 2023-09, “Income Taxes (Topic 740) Improvements to Income Tax Disclosures." The amendments in this update enhance a public entity's annual income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance will be effective for the Company for its fiscal year 2025. Early adoption is permitted, and the guidance should be applied prospectively, with an option to apply it retrospectively. The Company expects this update to impact its income tax disclosures but does not anticipate that this update will impact its results of operations, cash flows or financial condition. 9 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Disaggregation of Income Statement Expenses In November 2024, the FASB issued ASU no. 2024-03, "Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses". The standard requires public entities to disclose additional disaggregation of expense in the notes to the financial statements for interim and annual reporting periods. The guidance is effective for the Company for its fiscal year 2027. Early adoption is permitted, and the guidance should be applied prospectively, with an option to apply it retrospectively. The Company is currently evaluating the potential impact of this ASU on its consolidated financial statements and disclosures. No other new accounting pronouncements issued or effective during the thirteen weeks ended March 30, 2025 had, or are expected to have, a material impact on the Company’s consolidated financial statements. 3. Fair Value Measurements The Company records its financial assets and liabilities in accordance with the framework for measuring fair value in accordance with GAAP. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value: Level 1: Quoted prices for identical instruments in active markets. Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in the impairment analysis of goodwill, intangible assets and long-lived assets. The Company did no t have any financial liabilities measured at fair value on a recurring basis as of March 30, 2025 and December 29, 2024. The determination of fair values of certain tangible and intangible assets for purposes of the Company’s goodwill or long-lived asset impairment evaluation is based upon Level 3 inputs. When necessary, the Company uses third party market data and market participant assumptions to derive the fair value of its asset groupings, which primarily include right-of-use lease assets and property and equipment. Cash, cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, and accrued salaries and benefits approximate fair value because of the short maturity of those instruments. 4. Long-Term Debt and Finance Lease Liabilities A summary of long-term debt and finance lease liabilities is as follows: As of Facility Maturity Interest Rate March 30, 2025 December 29, 2024 Senior secured debt $ 700.0 million Credit Agreement March 25, 2027 Variable $ — $ — Finance lease liabilities Various n/a 6,913 7,248 Long-term debt and finance lease liabilities $ 6,913 $ 7,248 10 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Credit Agreement The Company’s subsidiary, Sprouts Farmers Markets Holdings, LLC (“Intermediate Holdings”), is the borrower under a credit agreement entered into on March 25, 2022 (the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility (the "Revolving Credit Facility") with an initial aggregate commitment of $ 700.0 million. Amounts outstanding under the Credit Agreement may be increased from time to time in accordance with an expansion feature set forth in the Credit Agreement. The Company capitalized debt issuance costs of $ 3.4 million related to the Credit Agreement, which, combined with the remaining $ 0.5 million debt issuance costs in respect of that certain amended and restated credit agreement entered into on March 27, 2018, by and among the Company, Intermediate Holdings, certain lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (the “Former Credit Facility”), which remained outstanding as of the time of Intermediate Holdings’ entry into the Credit Agreement, were recorded to prepaid expenses and other current assets and other assets in the consolidated balance sheets and are being amortized on a straight-line basis to interest expense over the five-year term of the Credit Agreement. The Credit Agreement provides for a $ 70.0 million letter of credit sub-facility (the "Letter of Credit Sub-Facility") and a $ 50.0 million swingline facility. Letters of credit issued under the Credit Agreement reduce the capacity of Intermediate Holdings to borrow under the Revolving Credit Facility. Letters of credit totaling $ 21.6 million have been issued as of March 30, 2025 under the Letter of Credit Sub-Facility, primarily to support the Company’s insurance programs. Guarantees Obligations under the Credit Agreement are guaranteed by the Company and substantially all of its existing and future wholly-owned material domestic subsidiaries, and are secured by first-priority security interests in substantially all of the assets of the Company, Intermediate Holdings, and the subsidiary guarantors, including, without limitation, a pledge by the Company of its equity interest in Intermediate Holdings. Interest and Fees Loans under the Credit Agreement will initially bear interest, at the Company's option, either at the Term SOFR (with a floor of 0.00 %) plus a 0.10 % SOFR adjustment and 1.00 % per annum or base rate (with a floor of 0.00 %) plus 0.00 % per annum. The interest rate margins are subject to upward adjustments pursuant to a pricing grid based on the Company’s total net leverage ratio as set forth in the Credit Agreement and to upward or downward adjustments of up to 0.05 % based upon the achievement of certain diversity and sustainability-linked metric thresholds, as set forth in the Credit Agreement. Under the terms of the Credit Agreement, the Company is obligated to pay a commitment fee on the available unused amount of the commitments, which commitment fee ranges between 0.10 % to 0.225 % per annum, pursuant to a pricing grid based on the Company’s total net leverage ratio. The commitment fees are subject to upward or downward adjustments of up to 0.01 % based upon the achievement of certain diversity and sustainability-linked metric thresholds, as set forth in the Credit Agreement. As of March 30, 2025, loans outstanding under the Credit Agreement bore interest at Term SOFR (as defined in the Credit Agreement) plus a 0.10 % SOFR adjustment and 0.95 % per annum. The Company had no loans outstanding under the Credit Agreement as of March 30, 2025. As of March 30, 2025, outstanding letters of credit issued under the Credit Agreement were subject to a participation fee of 0.95 % per annum and an issuance fee of 0.125 % per annum. Payments and Borrowings The Credit Agreement is scheduled to mature, and the commitments thereunder will terminate on March 25, 2027, subject to extensions as set forth therein. 11 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The Company may prepay loans and permanently reduce commitments under the Credit Agreement at any time in agreed-upon minimum principal amounts, without premium or penalty (except SOFR breakage costs, if applicable). In connection with the execution of the Credit Agreement, the Company's obligations under the Former Credit Facility were prepaid and terminated. During the thirteen weeks ended March 30, 2025, the Company made no additional borrowings and had no outstanding debt under the Credit Agreement as of March 30, 2025. During 2024, the Company made no additional borrowings and made principal payments of $ 125.0 million, resulting in no outstanding debt under the Credit Agreement as of December 29, 2024. Covenants The Credit Agreement contains financial, affirmative and negative covenants. The negative covenants include, among other things, limitations on the Company’s ability to: • incur additional indebtedness; • grant additional liens; • enter into sale-leaseback transactions; • make loans or investments; • merge, consolidate or enter into acquisitions; • pay dividends or distributions; • enter into transactions with affiliates; • enter into new lines of business; • modify the terms of certain debt or other material agreements; and • change its fiscal year. Each of these covenants is subject to customary and other agreed-upon exceptions. In addition, the Credit Agreement requires that the Company and its subsidiaries maintain a maximum total net leverage ratio not to exceed 3.75 to 1.00, which ratio may be increased from time to time in connection with certain permitted acquisitions pursuant to conditions as set forth in the Credit Agreement, and a minimum interest coverage ratio not to be less than 3.00 to 1.00. Each of these covenants is tested as of the last day of each fiscal quarter. The Company was in compliance with all applicable covenants under the Credit Agreement as of March 30, 2025. 5. Income Taxes The Company’s effective tax rate decreased to 20.8 % for the thirteen weeks ended March 30, 2025, compared to 22.6 % for the thirteen weeks ended March 31, 2024. The decrease in the effective tax rate was primarily due to an increase in benefit from current year stock-based compensation partially offset by an increase in non-deductible executive compensation. The income tax effect resulting from excess tax benefits of share-based payment awards was $ 12.8 million and $ 4.5 million for the thirteen weeks ended March 30, 2025 and March 31, 2024, respectively. The Company files income tax returns for federal purposes and in many states. The Company’s tax filings remain subject to examination by applicable tax authorities for a certain length of time, generally three years, with some exceptions, following the tax year to which those filings relate. 12 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6. Commitments and Contingencies The Company is exposed to claims and litigation matters arising in the ordinary course of business and uses various methods to resolve these matters that are believed to best serve the interests of the Company’s stakeholders. The Company’s primary contingencies are associated with self-insurance obligations and litigation matters. Self-insurance liabilities require significant judgment and actual claim settlements and associated expenses may differ from the Company’s current provisions for loss. Litigation In February 2025, the Company terminated its agreement with Harvest Sherwood Food Distributors, Inc. (“Harvest Sherwood”) for the distribution of certain meat and seafood products to the Company due to, among other things, Harvest Sherwood’s failure to pay the Company’s vendors for these products. Subsequently, on February 24, 2025, Harvest Sherwood filed a complaint against the Company in the Superior Court for the State of Delaware alleging breach of contract among other claims and seeking monetary damages. On March 6, 2025, the Company filed an answer and counterclaims against Harvest Sherwood, asserting its defenses to the complaint and its claims against Harvest Sherwood for breach of contract, negligent misrepresentation and unjust enrichment, among others. The court has set a trial date in February 2026. At this stage of the proceedings, the Company is unable to predict or reasonably estimate any potential loss or effect on the Company. Accordingly, no loss contingency was recorded for this matter. 7. Stockholders’ Equity Share Repurchases On May 22, 2024, the Company's board of directors authorized a $ 600 million share repurchase program for its common stock. The new authorization replaced the Company's then-existing share repurchase authorization of $ 600 million that was due to expire on December 31, 2024, of which $ 119.3 million remained available upon its replacement, and under which no further shares may be repurchased. The following table outlines the common stock share repurchase programs authorized by the Company’s board of directors and the related repurchase activity and available authorization as of March 30, 2025: Effective date Expiration date Amount authorized Cost of repurchases Authorization available March 2, 2022 December 31, 2024 $ 600,000 $ 480,715 $ — May 22, 2024 May 22, 2027 $ 600,000 $ 368,238 $ 231,762 The shares under the Company’s repurchase programs may be purchased on a discretionary basis from time to time through the applicable expiration date, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. The board’s authorization of the share repurchase programs does not obligate the Company to acquire any particular amount of common stock, and the repurchase programs may be commenced, suspended, or discontinued at any time. Share repurchase activity under the Company’s repurchase programs for the periods indicated was as follows (total cost in thousands): Thirteen weeks ended March 30, 2025 March 31, 2024 Number of common shares acquired 1,568,017 957,780 Average price per common share acquired $ 140.68 $ 63.04 Total cost of common shares acquired $ 220,594 $ 60,380 Shares purchased under the Company’s repurchase programs were subsequently retired and the excess of the repurchase price over par value was charged to retained earnings. The cost of common shares repurchased included the 1% excise tax imposed as part of the Inflation Reduction Act of 2022. 13 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Subsequent to March 30, 2025 and through April 28, 2025, the Company repurchased an additional 0.3 million shares of common stock for $ 53.0 million, excluding excise tax. 8. Net Income Per Share The computation of basic net income per share is based on the number of weighted average shares outstanding during the period. The computation of diluted net income per share includes the dilutive effect of share equivalents consisting of incremental shares deemed outstanding from the assumed exercise of options and unvested restricted stock units ("RSUs"). Performance share awards ("PSAs") are included in the computation of diluted net income per share only to the extent that the underlying performance conditions are satisfied prior to the end of the reporting period or would be satisfied if the end of the reporting period were the end of the related performance period, and if the effect would be dilutive. A reconciliation of the numerators and denominators of the basic and diluted net income per share calculations is as follows (in thousands, except per share amounts): Thirteen weeks ended March 30, 2025 March 31, 2024 Basic net income per share: Net income $ 180,026 $ 114,100 Weighted average shares outstanding - basic 98,537 101,071 Basic net income per share $ 1.83 $ 1.13 Diluted net income per share: Net income $ 180,026 $ 114,100 Weighted average shares outstanding - basic 98,537 101,071 Dilutive effect of share-based awards: Assumed exercise of options to purchase shares 575 404 RSUs 462 549 PSAs 145 — Weighted average shares and equivalent shares outstanding - diluted 99,719 102,024 Diluted net income per share $ 1.81 $ 1.12 For the thirteen weeks ended March 30, 2025, the Company had 0.1 million options and 0.3 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met. For the thirteen weeks ended March 31, 2024, the Company had 0.1 million options, 0.3 million RSUs and 0.4 million PSAs outstanding which were excluded from the computation of diluted net income per share as those awards would have been antidilutive or were performance awards with performance conditions not yet deemed met. 9. Segments The Company has one operating segment and, therefore, one reportable segment: healthy grocery stores. The Company derives all its revenues from the sale of products at its various store locations across the United States. The accounting policies of the segment are the same as described in the summary of significant accounting policies. The Company’s chief operating decision maker (“CODM”) is the chief executive officer. The CODM assesses performance and allocates resources based on consolidated net income. The measure of segment assets is reported on the balance sheet as total consolidated assets. In accordance with ASC 280, the following table represents the significant expense and key metrics reviewed by the CODM: 14 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Thirteen weeks ended March 30, 2025 March 31, 2024 Net Sales $ 2,236,436 $ 1,883,808 Less: Cost of sales 1,350,073 1,161,495 Direct store expenses 534,797 466,379 Other segment items (1) 125,234 107,668 Interest (income) expense, net ( 924 ) 818 Income tax provision 47,230 33,348 Net income $ 180,026 $ 114,100 (1) Other segment items include non-store selling, general, and administrative expenses, depreciation and amortization, store closure costs, and other overhead expenses. The Company categorizes the varieties of products it sells as perishable and non-perishable. Perishable product categories include produce, meat and meat alternatives, seafood, deli, bakery, floral and dairy and dairy alternatives. Non-perishable product categories include grocery, vitamins and supplements, bulk items, frozen foods, beer and wine, and natural health and body care. In accordance with ASC 606, the following table represents a disaggregation of revenue for the thirteen weeks ended March 30, 2025 and March 31, 2024: Thirteen weeks ended March 30, 2025 March 31, 2024 Perishables $ 1,269,732 56.8 % $ 1,069,730 56.8 % Non-Perishables 966,704 43.2 % 814,078 43.2 % Net Sales $ 2,236,436 100.0 % $ 1,883,808 100.0 % 10. Share-Based Compensation 2022 Incentive Plan In March 2022, the Company’s board of directors adopted the Sprouts Farmers Market, Inc. 2022 Omnibus Incentive Compensation Plan (the “2022 Incentive Plan”), which became effective May 25, 2022, upon approval by the Company’s stockholders. The 2022 Incentive Plan provides team members of the Company, certain consultants and advisors who perform services for the Company, and non-employee members of the Company's board of directors with the opportunity to receive grants of equity awards, including stock options, RSUs, PSAs, and other stock-based awards. The 2022 Incentive Plan replaced the 2013 Incentive Plan (as described below). Awards Granted under the 2022 Incentive Plan During the thirteen weeks ended March 30, 2025, the Company granted the following share-based compensation awards under the 2022 Incentive Plan: Grant Date RSUs PSAs Options March 18, 2025 185,228 58,805 61,079 Total 185,228 58,805 61,079 Weighted-average grant date fair value $ 137.81 $ 137.81 $ 51.46 Weighted-average exercise price $ — $ — $ 137.81 15 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The aggregate number of shares of common stock that may be issued to team members and directors under the 2022 Incentive Plan may not exceed 6,600,000 , subject to the following adjustments. If any awards granted under the 2022 Incentive Plan, terminate, expire, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested or paid in shares, the shares will again be available for purposes of the 2022 Incentive Plan. The number of shares subject to outstanding awards under the Sprouts Farmers Market, Inc. 2013 Incentive Plan (the “2013 Incentive Plan”) that terminate, expire, are paid in cash, or are cancelled, forfeited, exchanged, or surrendered without having been exercised, vested, or paid in shares under the 2013 Incentive Plan after the effective date of the 2022 Incentive Plan will be available for issuance under the 2022 Incentive Plan. As of March 30, 2025, there were 1,151,016 stock awards outstanding and 5,286,442 shares remaining available for issuance under the 2022 Incentive Plan. 2013 Incentive Plan Prior to the adoption of the 2022 Incentive Plan, the 2013 Incentive Plan served as the umbrella plan for the Company’s share-based and cash-based incentive compensation programs for its directors, officers and other team members. Upon stockholder approval of the 2022 Incentive Plan on May 25, 2022, no further awards will be granted under the 2013 Incentive Plan, but awards outstanding under the 2013 Incentive Plan will remain outstanding in accordance with their terms and the terms of the 2013 Incentive Plan. Stock Options The Company uses the Black-Scholes option pricing model to estimate the fair value of options at grant date. Options vest in accordance with the terms set forth in the grant letter. Time-based options vest annually over a period of three years . RSUs The fair value of RSUs is based on the closing price of the Company’s common stock on the grant date. RSUs generally vest annually over a period of two or three years from the grant date. PSAs PSAs granted in 2022 are subject to the Company achieving certain EBIT performance targets for the 2024 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0 % to 200 % of the base number of awards granted. The performance conditions with respect to fiscal year 2024 EBIT were deemed to have been met, and PSAs vested at 148 % pay out level on the third anniversary of the grant date (March 2025). During the thirteen weeks ended March 30, 2025, 182,560 of the PSAs vested. There were no outstanding 2022 PSAs as of March 30, 2025. PSAs granted in 2023 are subject to the Company achieving certain EBIT performance targets for the 2025 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0 % to 200 % of the base number of awards granted. If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2026). PSAs granted in 2024 are subject to the Company achieving certain EBIT performance targets for the 2026 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0 % to 200 % of the base number of awards granted. If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2027). PSAs granted in 2025 are subject to the Company achieving certain EBIT performance targets for the 2027 fiscal year. The criteria is based on a range of performance targets in which grantees may earn 0 % to 200 % of the base number of awards granted. If performance conditions are met, the applicable number of performance shares will vest on the third anniversary of the grant date (March 2028). 16 Table of Contents SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Share-based Compensation Expense The Company presents share-based compensation expense in selling, general and administrative expenses on the Company’s consolidated statements of income. The amount recognized was as follows: Thirteen weeks ended March 30, 2025 March 31, 2024 Share-based compensation expense $ 6,656 $ 6,477 The following share-based awards were outstanding under the 2022 and 2013 Incentive Plans as of March 30, 2025 and March 31, 2024: As of March 30, 2025 March 31, 2024 (in thousands) Options Vested 612 567 Unvested 213 338 RSUs 476 669 PSAs 306 395 As of March 30, 2025, total unrecognized compensation expense and remaining weighted average recognition period related to outstanding share-based awards were as follows: Unrecognized compensation expense Remaining weighted average recognition period Options $ 5,944 2.0 RSUs 38,904 2.0 PSAs 19,341 1.7 Total unrecognized compensation expense at March 30, 2025 $ 64,189 During the thirteen weeks ended March 30, 2025 no options were exercised. During the thirteen weeks ended March 31, 2024, the Company received $ 2.3 million in cash proceeds from the exercise of options. 11. Goodwill The Company’s goodwill balance was $ 381.8 million as of March 30, 2025 and December 29, 2024. As of March 30, 2025 and December 29, 2024, the Company had no accumulated goodwill impairment losses. The goodwill is related to the acquisitions of Henry’s Farmers Market and Sunflower Farmers Market in 2011 and 2012, respectively, and the acquisition of Ronald Cohn, Inc. in 2023. 12. Store Closures No stores were closed during the thirteen weeks ended March 30, 2025 and all lease costs associated with our closed store locations, for which a lease remains in effect are included within Store closure and other cost, net. 17 Table of Contents