Natural products retailer Sprouts Farmers Market did not disclose its pricing strategy when rolling out its new marketing plan this year, CEO Jack Sinclair told investors Thursday afternoon.
“We have the right strategy, and we’re excited to take it forward, step by step: making great strides on our supply chain; differentiated merchandise; new format; and real estate selections,” Sinclair said after the publication by the company of its third quarter report. earnings report. “However, our initial marketing messages fell short in a few areas. We expected to see a positive two-year stack in the second half of this year, and in the third quarter we did not.
“With this in mind, we are focused on delivering a clear message that highlights our accurate product pricing, innovative products and farmer market experience to drive incremental transactions in the quarters and years to come” , Sinclair said.
Comparable store sales in the third quarter, which ended Oct. 3, fell 5.4% from the same period in 2020 and 2.1% from the third quarter of 2019, the company said. .
Shortly after Sinclair took over as CEO in June 2019, Sprouts, based in Phoenix, Arizona, transformed its strategy to attract new customers and become more profitable. Two key elements of the strategy were to end extreme product pricing and to stop buying print and direct mail advertising, focusing instead on digital promotions.
As expected, in-store traffic dropped but margins improved, the CEO recalled. Then, in the first quarter of 2020, COVID-19 hit the United States and upended the grocery industry and the way consumers shopped.
In the second quarter of 2020, Sinclair said, transactions fell 25% — and did not return to pre-pandemic levels.
“There is no doubt that COVID has played a significant role in changing the shopping habits of our customers at the height of the pandemic. Additionally, our change in promotional approach resulted in the loss of coupons,” he said. He is encouraged, however, that pre-pandemic customers still buying from Sprouts — 75% of the company’s shoppers — are buying more products than they did two years ago.
The company is changing its messaging to focus on how its products differ from those available at other stores, its prices are lower than those of competitors, and it offers more varieties of local organic foods, Sinclair said. In-store traffic increased every month during the third quarter, he added, and the team continues to test new messaging.
Q3 financial statements
For the third quarter, Sprouts released its financial results with comparisons to fiscal 2020 and 2019:
- Net sales of $1.5 billion represent a decrease of 4% compared to the same period in 2020 and an increase of 5% compared to the same period in 2019.
- Gross profit for the third quarter of fiscal 2021 was $540 million, down 7.7% from the third quarter of fiscal 2020.
- Gross profit margin was 35.8%, down 131 basis points, or 1.31%, from the same period in 2020. Margin was 265 basis points, or 2.65% higher , on the margin of the same period of 2019.
- Net income of $64 million compared to net income of $60 million and adjusted net income of $62 million in Q3 2020. The adjustment, a timing change as 2020 was 53 weeks long, was made to align vacation for two years.
- Net income of $64 million was also compared to Q3 2019 net income of $26 million.
- Diluted earnings per share of $0.56, compared to diluted EPS of $0.51 and adjusted diluted EPS of $0.52 in 2020. Diluted EPS for Q3 2019 was $0.22.
Sprouts also released its financial results for the first three quarters of the year, compared to the same period in 2020:
- Net sales totaled $4.6 billion, down 5.6% from $4.87 billion in 2020.
- Gross profit was $1.7 billion, down 6.9% from $1.8 billion in 2020.
- Net income was $207.9 million, down 5.4% from $219.1 million in 2020.
New CFO expresses optimism
Chip Molloy, a former Sprouts board member, was appointed chief financial officer effective September 25, following the departure of Denise Paulonis to become CEO of Sally Beauty Holdings Inc. During the earnings call, he explained his reasons for joining the executive suite.
“First and foremost, I love this company, its people, and its goal of providing healthy living options at reasonable prices,” Molloy (left) said. “Second, the stage is set for future success. We have a differentiated customer experience with unique product offerings and a new prototype that should allow us to aggressively expand our reach while creating shareholder value by road course.
“As we continue to learn more about these customers who love us and to spread this message to those who do not know us, we will slowly but surely turn the corner on comparison store sales while maintaining relatively stable margins” , he continued.
Although Molloy said it was too early to offer definitive expectations for 2022, he said Sprouts plans to open 25-30 new stores – a strong pipeline of leases and sites already exists – likely in the fourth. trimester. COVID-19 is affecting supply chains, as well as municipal improvements and developments. The retailer currently operates 362 stores in 23 states.
This article originally appeared on New Hope Networka sister website to Supermarket News.