Sprouts Farmers Market's Q3 2025: Contradictions Emerge in Loyalty Program Impact, Customer Acquisition Strategies, and Store Expansion

Date of Call: October 29, 2025

Financials Results

• Revenue: $2.2B, up $255M or 13% YOY
• EPS: $1.22 diluted EPS, up 34% YOY
• Gross Margin: 38.7%, up 60 bps YOY

Guidance:

• Full year sales growth expected ~14% and comp sales ~7%.
• Plan to open 37 new stores in 2025.
• Full-year EBIT expected $675M–$680M; FY EPS $5.24–$5.28 (assumes no additional repurchases).
• Q4 comp expected 0%–2%; Q4 EPS $0.86–$0.90.
• FY capital expenditures (net) $230M–$250M and corporate tax rate ~24%.
• Will continue opportunistic share repurchases; $966M remaining authorization.

Business Commentary:

* Sales and Revenue Growth: - Sprouts reported total sales of $2.2 billion for Q3, up $255 million or 13% compared to the same period last year. - The growth was driven by a 5.9% increase in comparable store sales and strong results from new stores.

• Strategic Pillars and Customer Engagement:
• The company's strategy, focusing on customer engagement and differentiated products, contributed to the increase in customer traffic and strong sales of unique and attribute-based products.

• Sprouts brand now accounts for more than 25% of total sales, with a robust product pipeline planned for the next three years.

• Inventory Management and Supply Chain Improvements:

• Inventory management improvements and a transition to self-distribution in fresh meat and seafood contributed to improved gross margin, which increased by 60 basis points.

• This was achieved by enhancing delivery frequency to stores and improving fill rates, supporting operational excellence.

• Challenges and Consumer Behavior:

• The company experienced a challenge in lapping strong numbers from the previous year, with moderating comp sales faster than expected.
• This was partly due to a softening consumer backdrop and a slowdown in some middle-income trade areas, leading to adjustments in customer spending behavior.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted 'strong earnings growth, up 34% year-on-year' but acknowledged Q3 'fell short of our top line expectations' and a 'softening consumer.' They provided constructive guidance (FY sales ~14%, EBIT $675–680M) and emphasized confidence in strategy and investments, balancing optimism with caution.

Q&A:

• Question from Michael Montani (Evercore ISI Institutional Equities): Are competitive pressures encroaching on your core consumer or is the slowdown driven by other factors, and how might this play out into Q4?
  Response: Management said the slowdown is primarily due to lapping tough comps and softer consumer demand, not a structural competitive encroachment, and emphasized confidence in differentiation, product innovation and the store/loyalty pipeline.

• Question from Seth Sigman (Barclays): Which unique drivers from last year are hardest to lap and are you seeing lower spend per customer?
  Response: CFO noted outsized pockets last year (Oct, Feb, May/June) that are difficult to lap and said softness is concentrated in middle‑income and younger trade areas, with modest reductions in spend per customer.

• Question from Leah Jordan (Goldman Sachs): What surprised you vs. expectations on the comp miss, are regions/categories different, and why not invest more to reengage core customers?
  Response: Management reiterated they underestimated the difficulty of lapping strong prior comps, saw consumer pressure late in Q3, and plan to rely on loyalty, personalization and margin/cost management rather than major promotional pivots.

• Question from Mark Carden (UBS): Are differentiated products holding share, is wallet share shifting, and will you change the pace of adding private‑label SKUs given consumer softening?
  Response: President said differentiation remains strong, share of wallet is holding to slightly up, and the company will continue to aggressively expand Sprouts brand SKUs to capture momentum.

• Question from Edward Kelly (Wells Fargo): What have you seen quarter‑to‑date for October/2‑year trends and what are you seeing from the loyalty rollout?
  Response: CFO: October QTD is just north of +1% versus a 13% LY comp and they remain cautious; CEO/COO: national loyalty rollout is complete with early signs of increased frequency and sales per customer and greater opportunity in 2026.

• Question from Thomas Palmer (JPMorgan): Is the comp slowdown from smaller baskets not fewer visits, and how should we view Q4 margin dynamics (gross vs SG&A)?
  Response: CFO said traffic remains positive but units‑per‑basket is pressured (smaller baskets); they expect stable EBIT margins in Q4 with slight SG&A pressure at 0%–2% comps.

• Question from Rupesh Parikh (Oppenheimer): Will moderation change investment plans for next year and are there levers if softness continues? Also, will buyback cadence change given lower stock?
  Response: COO/CEO: they remain committed to investing (stores, self‑distribution, innovation, loyalty) while retaining levers (inventory, indirect costs) to manage downside; buybacks will remain opportunistic and could be more aggressive depending on stock levels.

• Question from John Heinbockel (Guggenheim): How much data/history do you need from loyalty to market effectively, and how big is the in‑stock opportunity (especially natural/organic)?
  Response: COO: more data improves personalization over time but current data is sufficient to move behavior; CFO: self‑distribution will materially help meat in‑stock but natural/organic is a long tail with upside yet to be quantified.

• Question from Scott Marks (Jefferies): What is the cannibalization impact from new stores and how exposed are you to SNAP changes?
  Response: CFO: cannibalization remains around 125–150 bps as expected; CEO: SNAP represents ~2%–3% of sales so impacts are limited but not helpful.

• Question from Scott Mushkin (R5 Capital): How competitive is produce pricing (esp. Texas) and how do you view Whole Foods/Amazon as competitors?
  Response: CEO said Texas (H‑E‑B) is unusually aggressive on produce and is monitored closely, but outside Texas produce is a competitive advantage; Whole Foods/Amazon overlap is watched but no material change observed.

Contradiction Point 1

Loyalty Program Impact

It involves differing expectations about the impact and timing of the loyalty program on comps, which could influence investor expectations.

Why was the comp slowdown a significant miss? How should we adjust for last year's strong performance? - Leah Jordan(Goldman Sachs)

2025Q3: We expect the loyalty program to impact comps in 2026. - Curtis Valentine(CFO)

When is the loyalty program expected to impact comps, and how are the first 30-40 stores performing? - Kelly Bania(BMO Capital Markets)

2025Q2: We expect the loyalty program to impact comps in 2026. It will build over time, with expectations to drive comp in the fourth quarter to some extent. - Curtis Valentine(CFO)

Contradiction Point 2

Customer Acquisition and Retention Strategies

It involves changes in company strategy regarding customer acquisition and retention, which are crucial for business growth and long-term sustainability.

Are there unique drivers disappearing? How are you managing customer retention after last year's customer growth? - Seth Sigman (Barclays Bank PLC)

2025Q3: Last year, we had some outsized gains, like October's 13-and-change comp. We saw challenges in July and August, but we're managing through it. We don't see anything structural that we're up against, but we are seeing some softness in younger and middle-income trade areas. - Curtis Valentine(CFO)

Was last year's excess customer acquisition driven more by pandemic-related consumer behavior changes or by your company's unique strategies? - Michael Montani (Evercore ISI Institutional Equities)

2025Q1: We are really kind of lapping a lot of the high comps from the prior year and we continue to believe that we are going to strengthen the base that we have. We do expect to see some decline in October, but feel pretty confident in terms of the fundamentals of the business, give us a good view to continue to build the business through the back half of the year. - Jack Sinclair(CEO)

Contradiction Point 3

Trends in Customer Retail Behavior

It involves differing perspectives on customer retail behavior trends, which could impact strategic planning and marketing efforts.

Are customers spreading their shopping? How do core vs. differentiated pricing strategies affect wallet share? - Mark Carden(UBS Investment Bank)

2025Q3: We are seeing a slowdown in traffic due to economic pressures. - Curtis Valentine(CFO)

Can you elaborate on digital trends? How does engagement vary among partners as they mature? - Leah Jordan(Goldman Sachs)

2025Q2: E-commerce sales grew by 27% in the quarter, with all partners growing well. - Curtis Valentine(CFO)

Contradiction Point 4

Consumer Pressure and Competition

It involves differing perspectives on the competitive environment and consumer pressure, which are crucial for understanding the company's strategic positioning and resilience.

Can you address concerns about competition affecting your core consumer and how you view short-term challenges in this competitive landscape? - Michael Montani(Evercore ISI Institutional Equities, Research Division)

2025Q3: We're lapping some tough numbers from last year and experiencing consumer pressure, but our strategy is well-positioned... We have launched 7,500 new innovative products, which we believe differentiates us. - Jack Sinclair(CEO)

What are your thoughts on the brand tipping point concept given the acceleration in comps over the last nine months? - John Heinbockel(Guggenheim Securities, LLC, Research Division)

2024Q4: We're seeing consumer interest in both our branded and private label products. We're not seeing a significant increase in competition, our marketing tactics continue to resonate with our current customer base. - Jack Sinclair(CEO)

Contradiction Point 5

Investment in Store Expansion

It involves changes in the company's approach to store expansion, which is a significant strategic decision impacting growth and capital allocation.

How will the recent business slowdown impact next year's investment plans and available levers if conditions soften? - Rupesh Parikh(Oppenheimer & Co. Inc., Research Division)

2025Q3: We are building 39 stores this year and we're excited about the performance... We will continue to invest in our business, focusing on strategic projects and leveraging past investments. - Jack Sinclair(CEO)

What factors could impact 2025 growth, and how do new store openings in existing markets compare to those in new regions? - Robert Dickerson(Jefferies)

2024Q4: We've been quite thematic about talking about unit growth as part of our long-term strategy... We're going to continue to focus on unit growth and we're going to continue to focus on building stores. - Curtis Valentine(CFO)