Sprouts Farmers Market CFO on Growth and Capital Allocation

CFO Amin Maredia discusses the company’s two most recent acquisitions and its growth strategy.

Feb 27, 2014 at 12:00PM

Operating in eight states and set to grow, Sprouts Farmers Market (NASDAQ:SFM) describes itself as a neighborhood grocery store specializing in healthy living for less. CFO Amin Maredia joined the Fool to talk culture, margins, growth and more. A CPA and Harvard Business School alum, Maredia joined Sprouts in 2011 after serving at major companies including PricewaterhouseCoopers and  Burger King.

Moving into its ninth state as 2014 dawns, Sprouts is set to expand into a whole new region by midyear. In this video segment, Maredia discusses the company's growth strategy and shares the two questions he asks first when it comes to capital allocation.

A full transcript follows the video.

Looking for the ultimate growth stocks?
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Brendan Byrnes: Let's talk about your strategy for growth. It's been a pretty highly acquisitive company, Sprouts has. Is that something we should expect going forward, or is the balance going to shift more toward organic growth? How do you see it?

Amin Maredia: I think the two acquisitions we did over the last couple of years were natural -- no pun intended! Both Henry's and Sunflower had legacy. Henry's was actually started by the same family who started Sprouts, and Sunflower had similar roots. All three of them were the same footprint, similar go-to-market strategy, similar products, so it made it a natural acquisition.

Going forward, we really see this as an organic growth story. We're in eight states today. We're opening our ninth state Wednesday, and in the middle of the year we're going to the Southeast, which is going to be a very new, exciting region for us. We're going to start in Atlanta, and then continue to expand from there over the next several years.

Byrnes: How do you decide how many stores to open per year? Like you said, you're in eight states, going into nine. How do you strike that balance between growth but also not growing too fast when you have such a big runway, just state-wise in the continental United States?

Maredia: I think there's a few things here. There's plenty of evidence, if you look at history over the last 30, 40, 50, 60 years, of companies "growing, growing, gone." I think there's a lot of backdrop here, and context, to think about.

When I think about Sprouts, and when we think internally as a management team about how fast to grow, there's a few metrics that we look at. First of all, over the last couple of years we've enjoyed incredible success of integrating and bringing consistency of all three brands together. It's one brand today, Sprouts, moving forward.

We're very excited about the improvement in the level of product, in the level of operational execution, in the level of service. When we think about growth, we have a very disciplined methodology to grow. We started in Arizona, then went to California, then went to Texas, then went to Colorado.

In every market we go to -- for example in Texas we started in Dallas, built a few stores, got a management team put in place, then started opening in the surroundings in Houston, Austin, San Antonio, then went to Oklahoma, and now we're going to Kansas City -- a very methodical approach.

For me, the key thing from an opening perspective is we look at customer service scores, customer compliments, our traffic in the stores, our overall operational scores, as well as our risk profile scores in the store. Then just the energy in the region; when that region's ready, we build more stores there.

Today, we're growing at about 12%-13% a year, which feels pretty good and confident. We continue to revisit that, to say, "What is the right pace of growth for us?"

Byrnes: I think a related question is capital allocation, which investors will tell you is one of the most important things as far as management team, when they're trying to evaluate. How do you especially, as CFO, evaluate capital allocation and, relatedly, your decision-making? What's your process on that?

Maredia: I'm going to give you a pretty nonconventional answer, from a capital allocation standpoint. We talked about growth and our disciplined methodology about growth. Today, we have way more sites than we want to open, which really gives us a choice of who we want to go with, which landlord we want to work with, which corner we want to go on. It's a great "problem" to have, if you will.

Then once it gets past new store growth, capital allocation to me is... I think too many people look at capital allocation, as CFOs, financially. The first question that I ask is, "Is this good for the customer?" If it's good for the customer, it's probably going to make you money over time. The second question is, "Is it core to what we do as a business?"

Once you get past those two frameworks, only then do you want to have a financial discussion around it. That keeps you rooted in who you are as a business, and being very customer-focused and customer-centric around it.

Brendan Byrnes has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers