Note: This is an earnings call transcript. Content may contain errors.

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DATE

Wednesday, Oct. 29, 2025, at 5 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Jack L. Sinclair
  • President and Chief Operating Officer — Nick Konat
  • Chief Financial Officer — Curtis Valentine

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RISKS

  • Comparable sales decline -- CFO Curtis Valentine reported, "We've had two months now up against comps above 10%. We ran about a 4% in September against the 10%, and we've run about a 1% here against the 13%."
  • Consumer softness in key demographics -- CFO Curtis Valentine said, "We've seen the business soften just a little bit more than the rest of the business. And those are the things that we're kind of pointing to as it relates to the customer pressure," pointing to heightened pressure in these segments.
  • Supply chain disruptions -- CEO Jack L. Sinclair described the past year as "difficult year for us in the meat category, as multiple third-party supply disruptions led to availability challenges, and customer disruption," identifying negative operational impacts.
  • Short-term margin deleverage at low comps -- CFO Curtis Valentine acknowledged, "Certainly, longer term, it's it's hard at zero to two for a long period of time. We don't expect to be there for a long period of time, and so we believe it'll be a bit of a short-term phenomenon as we go up against the numbers from last year," indicating risk to cost leverage at lower sales growth.

TAKEAWAYS

  • Sprouts brand penetration -- The Sprouts brand now represents more than 25% of sales, with growth in private-label penetration highlighted as a core strategy going forward.
  • Organic product contribution -- Over one third of sales are from organic products, reinforcing consumer demand for attribute-led assortments.
  • Loyalty program launch -- The nationwide rollout of Sprouts Rewards was completed during the week of the call, with management citing "encouraging indications of increased shopping frequency and sales per customer," according to CEO Jack L. Sinclair, in early geographies following the full launch of the Sprouts Rewards loyalty program.
  • Store expansion pipeline -- Sprouts plans to open 37 stores in 2025, exceeding its original target, and has 140 approved locations in its new store pipeline as of the fiscal third quarter ended October 29, 2025.
  • Transition to self-distribution -- Four Tristo distribution centers transitioned to self-distribution in fresh meat and seafood as of the fiscal third quarter ended October 29, 2025, improving delivery frequency and fill rates through October, with completion targeted by 2026.
  • Comp store performance -- CFO Curtis Valentine reported sequential deceleration, stating, "We ran about a 4% in September against the 10%, and we've run about a 1% here against the 13%," reflecting notable comp headwinds as tougher prior-year comparisons materialize.
  • Cannibalization rate from new stores -- Management noted ongoing cannibalization of 125 to 150 basis points from new stores, driven by increased new store density in select areas.
  • Supplement category focus -- Management highlighted evolving demand in supplements, specifically "longevity, women's health, and gut health," aligning with differentiated assortment investments.
  • Share of wallet holding -- President Nick Konat stated, "We're actually seeing our share of wallet hold and slightly up," suggesting relative stability despite broader consumer caution.
  • Capital allocation -- CFO Curtis Valentine referenced a billion-dollar share repurchase authorization, stating intent to "buying opportunistically" as the stock trends lower.
  • Promotional stance -- President Nick Konat affirmed, "we're not changing our pricing or promotional philosophy in any econ way," maintaining a focus on value through quality, innovation, and freshness.

SUMMARY

Sprouts Farmers Market (SFM 26.15%) reported a sharper deceleration in comparable sales in the fiscal third quarter ended October 29, 2025, as it faces elevated prior-year sales levels and increasing macro pressures in key consumer segments. Management cited notable operational progress, completing a full rollout of the Sprouts Rewards program and advancing its transition to self-distribution in key perishable categories. The company plans to accelerate store expansion with 37 openings in 2025 and 140 locations approved in the pipeline, while reiterating that current consumer softness has not prompted a pullback in investment or structural changes to promotional strategy. Executives said private label and differentiated innovation continue to drive sales mix.

  • CEO Jack L. Sinclair attributed the current comp pressure to "lapping some tough numbers from last year" and noted management "may have underestimated the challenge of lapping those numbers."
  • CFO Curtis Valentine identified "things in more of our middle-income trade areas, some of our younger trade areas," pointing to uneven demand trends by demographic.
  • President Nick Konat emphasized that, "our most differentiated and innovative products continue to be the place that we see the strongest growth in comps," underscoring the importance of ongoing product innovation to market positioning.
  • The company stated that, despite ongoing softness, "we're full steam ahead on building stores," according to CEO Jack L. Sinclair, confirming no slowdown in growth capital deployment under current conditions.
  • Management highlighted an innovation pipeline of approximately 7,000 new products for 2025, framing the brand's differentiated assortment as a persistent sales driver amid uncertain macroeconomic conditions.

INDUSTRY GLOSSARY

  • Self-distribution: A supply chain model in which the retailer owns and manages distribution centers, controlling inventory flow to stores without relying on external third-party providers.
  • Comp (comparable) sales: Sales from stores open for at least one year, a key metric to assess underlying same-store performance versus previous periods.
  • Cannibalization: The negative impact on existing store sales resulting from new store openings within close proximity or overlapping trade areas.
  • Tristo distribution centers: Internal Sprouts distribution hubs referenced in the context of the transition to company-managed supply chain for fresh categories.
  • SNAP: Supplemental Nutrition Assistance Program, a federal aid program providing food-purchasing assistance for low- and no-income people in the United States.

Full Conference Call Transcript

Jack L. Sinclair: Thanks, Curtis. Over the years, we have built a strong foundation for sustainable long-term value creation. We focus on driving growth through differentiated innovation, strengthening our operations, and enhancing our digital capabilities to deepen customer engagement, and expanding our store footprint. All while investing in our talent and technology. Together, these elements form the cornerstone of our strategy, positioning us to compete effectively. The broader health and wellness movement in the United States continues to gain popularity. With this in mind, we remain committed to expanding and strengthening our unique product offering. Continue to see strong customer demand for our attribute-driven products. Which remain a key driver of our sales growth.

Currently, more than one third of our sales come from organic products, and we'll continue investing in this important attribute for our customers. Ensuring they have access to the best inorganic offerings, at a great value. The supplement sector is also evolving within our stores. Focused on areas such as longevity, women's health, and gut health. Trends that resonate with our health enthusiast customers. The Sprouts brand now accounts for more than 25% of our sales, and with our robust product pipeline planned for the next three years, we are committed to continuing our growth. What makes our Sprouts brand unique are our innovative products and flavors, such as herb stuffing potato chips, and maple flavored coconut pillows.

New for this year's fall season. In the third quarter, we launched new wellness bowls, each priced under $10. These bowls feature attributes like grass-fed beef, organic tofu, and responsibly sourced salmon. They're packed with protein, bold flavors such as sesame, garlic, ponzu, and high-quality fresh ingredients at a fantastic price. Our customers are responding, and we're pleased with the early results. As we look to the future of foraging, we are investing to ensure that we continue to lead in this space. Supported by our robust pipeline of innovation and deep partnerships with entrepreneurial brands, that view Sprouts as the ideal launch platform.

These partnerships energize us and together, we're excited to introduce approximately 7,000 new products for 2025 that align with our customers' values and lifestyles. To stay ahead in a rapidly evolving market, we're expanding the capabilities of our foraging team to better anticipate emerging trends and customer needs. Over the past year and into early 2025, we expanded our customer base, attracting a meaningful number of new shoppers. We are pleased to see that the vast majority have remained engaged. On the marketing front, we continue to partner with our influencers and extend our reach in new markets, and have started utilizing our Sprouts Rewards to engage with our customers.

Speaking of the Sprouts Rewards loyalty program, it was fully launched this week, marking an essential step in our Sprouts customer engagement and personalization journey. We have seen good growth in our identifiable customers, and the stores are taking ownership of this important initiative. Although it's still early in the program, we're observing encouraging indications of increased shopping frequency and sales per customer. In our early rollout geographies. And are excited to see our progress in the coming months. On the supply chain front, we're excited about our ongoing transition to self-distribution in fresh meat and seafood.

It has been a difficult year for us in the meat category, as multiple third-party supply disruptions led to availability challenges, and customer disruption. Further underscoring the importance of controlling our destiny through self-distribution. Through October, we have successfully completed the transition at four of our existing Tristo distribution centers leading to increased delivery frequency to our stores and improved fill rates. Looking ahead, we anticipate completing this transition by 2026 with the opening of our new Northern California distribution center, further solidifying our commitment to operational excellence. The new stores we've opened this year are performing well, both in terms of top-line revenue and bottom-line profitability.

Additionally, last year's vintage is entering the comp base well, further validating the effectiveness of our model. We're particularly pleased about our robust new store pipeline. Which currently includes 140 approved locations. This highlights the strength of our brand, and also demonstrates the scalability of our format. We are confident that we will be able to meet the evolving needs of our customers but also achieve our ambitious growth targets. To that end, we are pleased that we plan to open 37 stores in 2025, exceeding our original target of 35. We're excited to welcome 3,700 new Sprouts to our team and to expand access for our target customers. Allowing us to bring the Sprouts experience to more communities nationwide.

The effective execution of our strategic initiative is made possible by the dedication and talent of our team members throughout the organization. Central to our culture is a shared belief in our purpose and values, which form the foundation of our long-term success. I want to express my gratitude to our 35,000 team members for their unwavering commitment to serving our customers every day. We acknowledge the challenges of sustaining the momentum built from last year's exceptional results alongside an evolving consumer backdrop. We have an amazing business that has significant potential. We are confident in the resilience of our business model. And are dedicated to investing in our foundations for sustainable long-term earnings growth.

Thank you for joining us today. We look forward to sharing more of this journey with you in the quarters to come. And with that, I'll turn it over for questions.

Operator: Thank you. A question, please press 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press 11 again. And the first question comes from Michael Montani with Evercore. Your line is now open.

Michael David Montani: Yes. Hi. Good evening. I just wanted to ask, we've had some questions about concerns around competition that might be potentially encroaching on your core consumer. I just wanted to see which kind of how you would respond to that if there were other cyclical temporal headwinds that we should be thinking about in the quarter. You know, and then how that could play out in the fourth quarter. And also, do you see this as a function of competition or is it something else?

Jack L. Sinclair: Well, I think what we talked about in the script there, Mike, was very much there's we were lapping some tough numbers from last year. And at the same time, there's kind of a consumer context that feels like things are getting a little bit more difficult for the consumer. So I put that into context. We always look at what our competitors are doing. And what the competitors are playing in there. But our strategy is pretty clear. We have got 7,500 new innovative products launched and I haven't seen anyone else launching that kind of number of innovation and differentiation. We're building up to 37 stores.

We're very confident about, and we've got a great pipeline of stores coming through going forward. And we're very excited about the loyalty and personalization work. So in the context of all of that, I think it shields us from what we've seen happening from our competitors and as I say, we're pretty confident about the future, Mike.

Operator: And the next question comes from Seth Sigman with Barclays. Your line is open.

Seth Sigman: Thanks. Hey, good afternoon, everyone. There's a concern in the market that there have been some unique drivers helping your business over the last twelve months. You've had great performance. The concern is that those drivers are going away. As you reflect on that and the current slowdown that you're seeing, is there anything you would call out that's proving more difficult to lap? And then, you know, you talked about keeping your customers. You grew your customers quite a bit last year. I mean, how are you seeing that play out? Are we seeing perhaps a change in spending behavior lower spend per customer? Thank you so much.

Curtis Valentine: Hi, Seth. This is Curtis. We've just seen some pockets in Windows where we've had some outsized growth and gains. We've talked about those on the call, certainly last October was our strongest month that we've compared against. It was a 13 and change comp. February, we had some help from a strike at a competitor that was upside. And then May and June we had strong months with a good customer season from produce. And some challenges in the industry from a supply and a cyber issue. We saw customers come our way in those moments.

We're always well positioned kind of capitalize in those moments we don't see anything structural outside of those types of things that we're up against. But we do have those moments that we'll be up against over the course of the next ten months. And then just, yeah, a little bit of softness in our business. I mean, we see things in more of our middle-income trade areas, some of our younger trade areas where we see those demographics. We've seen the business soften just a little bit more than the rest of the business. And those are the things that we're kind of pointing to as it relates to the customer pressure.

Operator: And our next question will come from Leah Jordan with Goldman Sachs. Your line is open.

Leah Dianne Jordan: Thank you. Good afternoon. I'll kind of stick with the same theme around the comp slowdown. Just seeing if you could provide some more detail on the key surprises versus your expectations? Because this was a notable miss, below even your guide. Has there been any major difference across the regions or product categories I think ultimately, you've historically talked about your offering being resilient to macro pressures. As people are committed to their diets. But now you're talking about a soft consumer. So I think ultimately, has something shifted around your value proposition today? How do you view it?

And I guess, why don't you see the need to invest a bit more to reengage your core consumer as you're really implying market share losses in the fourth quarter?

Jack L. Sinclair: Thank you. Well, I think the first thing we'd say we're lapping some tough numbers from last year, and we may have underestimated the challenge of lapping those numbers. And it happened through the quarter as opposed to in the quarter. And as we look forward, we're anticipating a challenging environment. We know what we've got a lot going forward. And we're anticipating a little bit of pressure on the consumer going forward. The health and wellness macro trends are still strong for us. And we see a real opportunity in doubling down on the program behind that going forward.

And then there are some macro pressures that I think you'll see coming through in the marketplace that we are certainly experiencing. With regard to thinking about what should we do with we're not seeing a competitive dynamic changing dramatically in the marketplace. In terms of pricing or activity. We've always promoted and we're very comfortable with promoting going forward. And we'll do what we need to do, but we're very strong in terms of managing our margins, managing our costs, and we'll consistently do that. You can see that from the numbers that we've just produced and the numbers that we will produce going forward.

So no, we're not seeing anything dramatic in terms of the competitive dynamic in this space. We are seeing consumers under a bit of pressure. We'll have to react to that in some ways, we are reacting to that in the appropriate way.

Curtis Valentine: And then to the to the miss in Q3, Leah, yeah, I think we sailed through that first step change in the comp. In May and June and didn't really see the underlying pressure again. Probably masked a little bit of what was starting to go on there. But it was really the end of Q3, as Jack mentioned, where it really started to drop off a bit, and that's when we get up against the 10 plus comps here in September and then 13 plus in October. And so being a little bit cautious with where we are and looking ahead as we go up against the 10.5% roughly in November and December.

Leah Dianne Jordan: Okay. That's super helpful. And I was gonna ask about the comparison November, December, so that's really helpful. I guess, so my related follow-up would be then for as we look into '20 right, you're going to have some difficult laps in the front half of the year. You just talked about how you sailed through it in March. So how should I know you haven't it's a little bit early for the guide, but how should we think about the building blocks for the comp next year driving engagement and lapping that as well?

Jack L. Sinclair: Well, from the building blocks point of view, I'll let Curtis talk a little about how the numbers play through. The building blocks point of view, Leo, we've got real confidence in the innovation pipeline that we've got coming through. We're really confident about the store pipeline that we've got coming through in terms of new stores. We're really confident about the work we've been doing that hasn't come through yet in loyalty and personalization, which we're excited about. So there's a lot of real positive in terms of the consumer side of this equation going forward. I'll let Curtis talk little bit about the numbers.

Curtis Valentine: Yep. And you called it out. We are early. Obviously, we'll be going through our budget process here in the fourth quarter, and we'll talk in more specifics in February. So, yeah, we'll have a bit of a challenging first half up against the double-digit comps. And then as we get to the second half, again, we've got those building blocks that Jack just referenced So we're pretty excited about those things coming online and getting us back into kind of that algorithm range and getting back to driving towards the high end of that algorithm comp as we hit the second half of next year.

Again, we'll get specific, when we get to February, but we've been investing in the business. To create levers to manage through, any environment. And we'll manage our margins effectively here in Q4 in the 2020.

Leah Dianne Jordan: Very helpful. Thank you.

Curtis Valentine: Thanks.

Operator: And the next question will come from Mark Carden with UBS. Your line is open.

Mark David Carden: Good afternoon. Thanks for taking the questions. To start, you guys called out strength in your best differentiated products even with the slowdown. Do you think customers are spreading out their shopping more and becoming any more price-sensitive on some of the less differentiated items, like, say, produce? Have you seen shifts in what you think your overall wallet share is for customers today and just how you're thinking about really the broader promotional environment over the next few periods?

Nick Konat: Yeah. Thanks, Mark. It's Nick. On the differentiation front, we measure that really closely since it's so strategically important to us, and we haven't seen our levels of differentiation wane at all in the last year, even as we've mentioned some of the business dynamics here. So we feel really good about where we are from a differentiation standpoint in the market. And yes, our most differentiated and innovative products continue to be the place that we see the strongest growth in comps. And so as we continue to fill that pipeline and bring all the new products we do to market, we feel bullish about what that's gonna do for us moving forward, as Jack mentioned.

I do want to touch on share of wallet to your question. We're actually seeing our share of wallet hold and slightly up. So to the competitive questions and dynamics, we're not seeing our customer take their share of spend other places. We're holding our own on the share of wallet side. Which I think portends to some of the, you know, some of the macro we're seeing. And then at the last part of your question, I think for us, we're not seeing a major exodus of customers.

We're just seeing our customer at times spend maybe a little bit less on the tail end of their basket as they manage some of those pressures, and that's how we're seeing it come across in our dynamic.

Mark David Carden: Got it. That's helpful. Thanks. And then you're seeing a lot of strength in private label with penetration climbing again this quarter. Just given the softening of the consumer that you talked about, any changes to how you're thinking about pace of adding additional SKUs to your assortment?

Nick Konat: Thanks. Sure. You know, we've had we've been on a pretty aggressive pace the last couple of years adding hundreds of SKUs each year. And our team has done an amazing job of doing that. And I think, you know, what's important to keep in mind is when we when we build our Sprouts brand program, we don't play sort of that national brand compare strategy. We look to find unique items that our health enthusiasts can't find other places. And to your point, what's happening now is that's really winning. We continue to see our penetration grow, our sales growth in Sprouts brands have been really, really good.

So we will continue to feel that pipeline and over invest in that space. To capture the momentum we have in the brand.

Jack L. Sinclair: And we've got some pretty exciting plans in it going forward in terms of what's happening next year and some holiday products are pretty exciting as well. So the investment in Sprout's brand will continue aggressively going forward, Mark.

Mark David Carden: Thanks so much. Good luck, guys.

Curtis Valentine: Thanks. Thanks, Mark.

Operator: And the next question will come from Edward Kelly with Wells Fargo. Your line is open.

Edward Joseph Kelly: Yes, hi. Good morning, everyone. I was curious if you could talk a bit more about the fourth-quarter comp expectations and what you've seen so far quarter-to-date. Obviously, the October compare is tougher. But have you seen any stabilization yet in the two-year, as it pertains to October? And then what's the assumption that's baked into the comp guidance as you think about the quarter itself?

Curtis Valentine: Hi. This is Curtis. Yeah. So quarter-to-date, we are just north of a one. Up against that 13 and change last year for October. So the two-year has started to stabilize a little bit here in the last six or eight weeks, but we've definitely seen some ups and some downs week to week in the one year and the two-year, and that's got us a little bit cautious. So, we're up against, again, as I said earlier, about 10 and a half in both, November and December.

And so we're really watching closely the one year versus the two-year, and how that plays out, particularly as we go through holidays with some of the consumer pressure that we've noted already. So watching closely, and, you know, we'll see how we go. We've had two months now up against 10 plus comps. We ran about a four in September. Against the 10, and we've run about a one here against the 13. And so we just want to see a few more of those months against the double digits to shore that up.

Edward Joseph Kelly: Okay. And then just a follow-up, Jack. You mentioned on the loyalty side that you were encouraged by some of the things that you have seen, so far. I was wondering if you could elaborate on that. And as we think about 2026, how are you thinking about utilizing the loyalty card? What you can do to sort of push on that and the contribution that you think that it might begin to deliver?

Jack L. Sinclair: Well, I we won't commit specifically to what it may deliver, Ed, but it's a great question. It's very much at the heart of what we're encouraged by is that the execution literally this week, I think, we're all stores have now got access. It's taken us a full nine months or so to get this rolled across the country. We've been really encouraged by the number of customers that are signing up. And we're encouraged by the number of customers that are scanning. So we're in a better place with identifiable customers going forward to understand exactly what they're doing.

And as we go on our personalization journey and the customers go on their journey, we're going to be able to take I think, a real opportunity to sell the story of how we can tell or sell the story to our customers of new products that are relevant to them. And be very targeted and efficient in that. The team are working hard on that. We've made a little bit of progress on it, but I can anticipate letting it build on this. But I think there's real opportunity in 2026 to build even further growth from our loyalty program.

Nick Konat: Yeah. Hey, Ed. It's Nick. I think just a little more context there. We are seeing an ability to move customer behavior through loyalty right now with increased frequency and stronger sales per customer. The team's done a great job of getting us rolled out completely nationally, and so now we can turn the team's attention fully to how do we make that work even harder for us in '26. I think Jack gave good color on how we can do so, but, we've got the rollout behind us. And we know what we've been able to move behavior, and I think we've got a lot of levers to pull next year.

To do even more to, again, bottom line, serve our unique customers with things that's most important to them and distinctive to us to drive long-term value.

Edward Joseph Kelly: Great. Thank you.

Operator: And the next question will come from Tom Palmer with JPMorgan. Your line is open.

Michael David Montani: Hi, thanks for the question. Look, I know you don't always give too much detail here, but I thought I'd ask on just some of the changes in customer behavior. So first, I think you made a reference to smaller baskets, not fewer customer visits driving the comp slowdown. I just want to make sure I heard that right. And then second, are you seeing any notable shifts when we think regionally or in certain departments of the store? I'm just kinda wondering because it does seem to be a little bit in flux in terms of customer behavior. If anything stands out on that side. Thank you.

Curtis Valentine: Hey, Thomas Curtis. Yeah. I think similar to how we talked about it on the way up last year, it was it was traffic and it was brick-and-mortar traffic that really accelerated. And we saw it be pretty balanced across categories and geographies. And we're seeing it really play out similarly as we lap those numbers this year. So it's been a traffic slowdown. Traffic is still positive, as we noted in the script, but that's the piece that slowed down. And then, yeah, we're seeing a little bit of pressure at the end of the basket as we called out earlier now as the as the consumer pressure builds a bit.

Similar to what we saw during the inflationary period and '22 and '23. They're really managing the end of the basket. It's creating kind of a units per basket type pressure that we've seen before. So that's been the dynamic.

Michael David Montani: Okay. Thanks for that. And then just on the fourth quarter, you noted the expectation, Curtis, for margin to be flat year over year. I just want to clarify, is that both gross margin and SG and A would be relatively flat? Or is one kind of moving one direction and the other?

Curtis Valentine: Yes. I think it's flat for EBIT margins. Is how we think about it, stable EBIT margins. It'll be a little bit positive on the growth side. And then a little bit of pressure at zero to two comp. It'll be a little bit of pressure on SG and A.

Michael David Montani: Okay. Thank you.

Curtis Valentine: Thanks, Tom.

Operator: And the next question will come from Rupesh Parikh with Oppenheimer. Your line is open.

Rupesh Parikh: Good afternoon. Thanks for taking my question. So given the moderation you've seen in your business recently, does this at all impact how aggressive you invest next year? And then are there levers of pull if you do see further softening from here?

Curtis Valentine: Yeah. I think we're going to continue to invest in the business. I think we will always make smart choices about how we allocate resources against the highest kind of priority and highest value type projects. And so we've had a good level of investment for the last two years, and I think that's created some levers for us. Certainly, we've talked about inventory management, category management, the things that we've been working on helping drive some of those gross margin gains. We think there's still some room to go there. And we're working hard on our cost capability, you know, on our indirect cost side, and we spent a lot of time on that this year.

So we're preparing ourselves to be able to manage through and we feel like we're in good position as we head towards 2026.

Jack L. Sinclair: And we're full steam ahead on building stores. We're excited about that as we talked about the new stores are opening well. We're really encouraged by that within the context of this the macro environment that we're in the middle of. We're full steam ahead in terms of self distribution, so we'll continue to invest in that, which will bring forward some benefits in terms of in stocks and benefits in terms of margins. We're full steam ahead in terms of investing in innovation pipeline and making new products come through in our business. And as Nick said a minute ago, we're full steam ahead in our loyalty and personalization journey.

So we're very confident in the investments that we're making going forward, and once we get past some of these lapping challenges, I think we're in really good shape.

Rupesh Parikh: And then maybe just one quick follow-up. On the capital allocation front, it sounds like you're going to continue buying back shares. But has your approach at all changed just given a more uncertain environment, at the same time, stock is much lower? So just curious if there's differences in how you approach share buybacks at these levels?

Curtis Valentine: Yeah. I think we'll be more aggressive depending on where the shares settle out here when we're done. Certainly, we've talked about buying opportunistically over the course of the year and know we bought pretty aggressively early in the year when the stock price was a little lower through the year and as we exit our quiet period here or closed period here in the third quarter. So excited about the billion-dollar authorization and we'll see where things land. Come Friday. But we'll go get after it.

Rupesh Parikh: Great. Thank you. Best of luck.

Curtis Valentine: Thanks. Thanks, Rupesh.

Operator: And the next question comes from John Heinbockel with Guggenheim. Your line is open.

John Edward Heinbockel: So, guys, two operational things. How much data you're gonna need? How much history? Right, to really, market very effectively to your base. And then secondly, how do you guys size the opportunity in stock? Right? Because what we keep hearing, right, is natural and organic fill rates are not anywhere near where they need to be. Can you can you how can you fix that How long will that take to address And how big is that opportunity in stock?

Nick Konat: Yeah. Hey, John. It's Nick. Let me let me tackle first the loyalty question around data and history. So listen. The part of your point, the more data we get, the better we can be at personalizing and driving behavior. There's no doubt about it. Right? And this is a we've mentioned loyalty is a long-term play for us to drive long-term comp, and then and we're gonna be continue to be able to create much better depth of how we personalize and more insights the more data we get. You're right on there, and I'm looking forward to that over the next number of years.

But I will also say we're as we mentioned, we're we're able to use the data we have to drive custom behavior and plan on doing so on 26. I mean, I think as you know, our customers are not quite as frequent as your typical, you know, maybe grocery conventional grocer shopper. So there's a little bit of time and just, hey. You know, getting that frequency in that basket doesn't happen as quickly when you have a super high-frequency customer. But we've got enough data and tools, and we're gonna continue to build it now that we're rolled out nationally.

To increase the level of engagement with the customer and I think continue to drive a lot of value for them. So that's the that's on the loyalty side. You wanna talk to And once we got to the supply chain and the end stock, we've talked a lot about what we've done in meat this year. That's gonna make a significant difference in terms of in stocks in meat, and we believe that will help drive some sales in that space. Not from an organic has a very long tail, John, as you know. Yep.

And that does create a challenge in terms of being as in stock as people with less SKU count in the middle of their kind of assortment. We will be looking at expanding some other areas potentially on self distribution, which we've talked about in the past. We would like to be better at our Sprouts brand in terms of how we can get more in stock on that. We think there's certain categories that we need to double down on. Having said that, we are working very hard with our partners to get better forecasting and better anticipation of how demand could be. We could anticipate even better. But there's certainly an upside in sale in stock numbers.

We haven't put a clear number to that. We have in the meat category. In other categories, we haven't put a really clear number to it. But instinctively, there's some upside for us in that if we can get better over the years. Months, and years ahead.

Curtis Valentine: Alright. And maybe follow-up for Curtis. I know historically, right, or at least recently, right, the breakeven comp has been closer to four. How much do you think you can reduce that because you don't want to do damage to the business Right? So, okay, we'll we'll live with some deleverage for a while. How do you think about that trade-off?

Curtis Valentine: Yeah. I think it's a good call-out. I think we do think about it in the shorter term. We feel like we can manage around it with some of the levers that we've created with the investment investments we've made. Certainly, longer term, it's it's hard at zero to two for a long period of time. We don't expect to be there for a long period of time, and so we believe it'll be a bit of a short-term phenomenon as we go up against the numbers from last year.

Again, we're working on our cost capability and how we get as we scale we get more efficient and we get a little bit more automated through process and things like that, there should be some opportunities for us to better manage costs. And so that's how we'll be thinking about it, and we'll be, you know, exercising those levers here in the in the very near term, you know, while we get the comp up again with the building blocks for '26.

John Edward Heinbockel: Thank you.

Curtis Valentine: Thanks, John.

Operator: And the next question comes from Robert Ohmes with Bank of America. Your line is open.

Robert Frederick Ohmes: Hey, thanks for taking my question. You guys gave thoughts on fourth-quarter gross margin being up a little. When you guys come up against the tough comparisons in the 2026, any thoughts you can give us on gross margin puts and takes as you go through that?

Curtis Valentine: I think, Robbie, it's a little bit early to be talking about '26, and I want to go through our planning process and work through that. I'll just say that, you know, to talk about stable margins, think about the full year for '26. You know, I don't see a reason why we won't be, you know, talking about that when we get there. We've invested in levers to help manage around some of the pressures we're facing right now. Then we'll continue to invest in some things. And so there'll always be a bit of a put and take as it relates to the EBIT margin.

We like the idea of stable, but we're not going to get too specific yet on first half, second half, those types of things.

Robert Frederick Ohmes: Gotcha. That's helpful. And then just another follow-up on the kind of pressure on the consumer you're seeing. How narrow is it? Is it just the, say, 25 to thirty-five-year-old demographic that you guys are seeing some of the pressures? And maybe related to that, separate from the loyalty program, is there anything on the marketing side you might need to change you know, to get momentum going again?

Curtis Valentine: Yeah. I mean, I think the pressure on the consumer I'll speak to that, and then I'll turn it over to Nick on the second question. But a consumer pressure perspective, I mean, think that's building everywhere is what you see in the a little bit more in the kind of lower and middle income is what you read about, what you hear. I think those are the things where we just see that be a little bit outsized than spaces. So, again, I talked about middle-income trade areas, younger demographics.

It's just a little more pronounced than those, but I think, you know, I think the pressure is there for everybody and everyone's trying to figure out how they manage through that in a dynamic environment.

Nick Konat: Yeah. Then Robbie, it's Nick, then on the second part of your question there on the marketing side. Look, I think we have a great story to tell, but we're always testing and learning how well we're telling it. I think to your point, I think we can always tighten up our value proposition. Right now is a good chance to continue to just refine on what makes us unique. It's about freshness, quality, and health. And I think if we hit those at the great prices and fair prices we have, I think we'll be in a good place.

So we're always testing, but I don't think there's any significant changes or pivots other than what we always do, which is look at how we're telling a story and then where we're spending the money by channel and location to maximize it.

Robert Frederick Ohmes: Got it. Thanks so much.

Nick Konat: Thanks, Robbie.

Operator: And the next question comes from Scott Mushkin with R5 Capital. Your line is open.

Scott Andrew Mushkin: Hey, guys. Thanks for taking my questions. I guess I wanted to get back to the competitive environment a little bit. Our research, both research and consulting work, we've done a lot of work down in Texas. In particular, a market for you guys. That says the produce areas become hyper hypercompetitive. And I guess I was wondering you know, where do you think you guys are priced if we're gonna look specifically at the fresh basket? And who do you think you're actually competing with? In other words, if the traditional market goes hypercompetitive, is that something you actually need to react to?

Jack L. Sinclair: We watch our product. We talk regularly, Scott. We watch produce pricing more attentively than anything else. And Texas has become a more aggressive market with HEB's expansion into Dallas. We're having a great time opening a new store. I'm delighted with our Dallas performance. Alongside HEB. We're doing really well in terms of how those new stores are opening, and we're having success in San Antonio and Austin as well. We watch the Texas market closely. It is more competitive on produce than other parts of the country. We've got a fairly significant price gap. On most grocery competitors around the country. Texas is more competitive, and we're watching that closely.

When you look at the rest of the country, produce remains a competitive advantage for us going forward and we focus on that a lot. As there's such a direct comparison. But we're feeling pretty good about our produce pricing going forward. There's a lot of volatility in it, as you know, and people are I don't see it getting any more aggressive from a from a margin view outside of Texas going forward.

Scott Andrew Mushkin: Okay. And then, Jack, when you think about your competitive set, again, some of our research suggests that Amazon proper has gotten very aggressive again on pricing of everyday essentials. If you think about Whole Foods and do you think of them as a direct compare? I guess you would. But, I mean, how sensitive are you to things that they are doing? Competitively?

Jack L. Sinclair: Watch it very close. We yeah. Sorry. I'll let you finish the question, Scott.

Scott Andrew Mushkin: No. That was it.

Jack L. Sinclair: Okay. Well, we watch we do watch those guys very closely and very intently because they do sell a lot of things that we sell. But we've got a net we've got very clear data overlap what they overlap with those guys, and we're not seeing any significant change in the that are facing those guys than in the stores across the rest of the country. And I'm you kinda touched on what I think Amazon Stroke Whole Foods are doing, which is chasing after maybe the three five, maybe the more entry-point prices. So it's drifting away and trying to get the full basket from people. We're very much a complementary retailer.

And they're in the space that if we keep differentiating ourselves, we're feeling pretty confident that's the right place for us to be. And we keep watching it very closely. And we're not getting overexcited about what's happening in any of our competitors at the moment.

Scott Andrew Mushkin: Alright. Perfect, Jack. Thanks. Thanks very much for taking the questions.

Jack L. Sinclair: Thanks, Scott.

Operator: And the next question comes from Scott Marks with Jefferies. Your line is open.

Scott Michael Marks: Hey, good afternoon. Thanks, guys, for taking the questions. First thing I wanted to ask about is, last quarter, you had called out, a cannibalization factor. With new stores impacting, existing markets. Given that new stores are performing well for your commentary. Wondering if you can just update us on how you're thinking about that dynamic.

Curtis Valentine: Hey, Scott. This is Curtis. Yeah. I think it's still in the same general range. I think we talked about 125 basis points, 125 to 150, and that's kind of what we've seen certainly as we ramp up the number of new stores. That'll continue to grow a bit, but that's about the range we've seen. And we've had some strong openings particularly in some dense areas that have had some larger cannibalization. But it's in line with our expectations and not a huge change from quarter to quarter.

Scott Michael Marks: Okay. Appreciate that. And then, next question for me. Maybe you're a little bit less exposed to that, but just wondering Snap spend. You know, how exposed is your business to that? And have you seen any impacts from some of the policy changes, and obviously, the government shutdown, have a potential impact on that?

Curtis Valentine: Yeah. So certainly, again, not gonna be helpful from a consumer perspective. Our snap is about it's somewhere between 23%. Is historically where it's been. So it's a limited impact on us. I think we're just starting to see the effects of that. Both from either a shutdown perspective or snap. I think that's happening kind of in real-time in the last several weeks, so I don't think it's a huge impact on our business, but it's certainly not helping.

Scott Michael Marks: Appreciate it. I'll pass it on. Thanks so much.

Curtis Valentine: Thanks.

Operator: And the next question comes from Benjamin Wood with BMO Capitals. Your line is open.

Kelly Ann Bania: Oh, hi. I think this might be for Kelly Bania from BMO. I'm not sure how that happened. Okay. Thank you for taking our questions. Wanted to talk about the promotional strategy. It seems like it seems like to us that the messaging is more aggressive with respect to price and promotion. Lately as opposed to the shift over the last few years, which has been to lean more on product attributes and seasonal highlights. Is that accurate? Is there any, you know, change in response to the comp trajectory from a promotional strategy? And is there any can you talk about how your consumers are responding to promotions today?

Is there any difference in how that has been progressing through the quarter or into the quarter-to-date period in October?

Nick Konat: Hi, Kelly. Thanks for the question. It's Nick. You know, overall, we're not changing our pricing or promotional philosophy in any econ way. You know, as I mentioned, for us, the customers continue to tell us they define value through quality, innovation, freshness, and health, and that's what we continually lean in on. You know, we have a handful of key events that we do every, you know, every quarter or so, things like organic sale or vitamin sale. We do a BOGO event.

And within those, we certainly try to promote things that we know are most important to the customer, and we will play around at times with price points or messaging to try to learn what's happening with the customer. But overall, not having any significant changes in our strategy. And I think one zero one will also make clear we're not changing how we manage our margins. Or overall value proposition to the customer. So I think you're gonna see us be pretty consistent. And, you know, as and then with the on of our personalization capability, I think that gives us another lever to target.

Our price promotional spend to drive better return and take care of our best customers.

Kelly Ann Bania: And I guess, maybe just to follow-up on that. If this consumer softness were to continue, would you reconsider your level of promotional activity at all particularly for this customer that seems to be most sensitive to whatever's going on right now?

Nick Konat: Yeah. You know, with what we're seeing right now, no. We wouldn't. I mean, like I said, we are always looking at Jack mentioned earlier. We're always monitoring our pricing on produce and our key items and the competition and make adjustments as we think we need to based on dynamics of the local market or items. But from a broad stand strategic standpoint, no. We don't see that in we just don't see the same impact doing that than maybe others do because of who our customer is and, again, what we wanna win in the marketplace is winning with the areas I just mentioned.

Operator: And the next question will come from Charles Edward Cerankosky with Northcoast Research. Your line is open.

Charles Edward Cerankosky: Good evening, everyone. To what degree, if any, would Sprouts slow down new store openings to deal with an increased level of shopper caution.

Curtis Valentine: Yeah. I think, Chuck, I think we're really positive with the way the new stores are responding is as we called out a couple of times throughout. We're seeing really strong openings. We're seeing really good comps out of the second, third, and fourth-year vintages. And that's continued. We're continuing to get markers here on 24 vintages. They get into the comp base here in Q4 and into next year. But the results have been positive. The other customers are telling us they're looking for sprouts, and the sprouts-like solution, and we're excited to get into as many communities as we can. Over the long term, we'll see how the pipeline plays out, and those types of things.

But right now, we're pretty bullish on the white space and pretty bullish on the performance we've seen.

Jack L. Sinclair: We've got a very clear purpose to help people. We've got a very clear goal to help people live and eat better, and the opportunity that we've got to do that by taking our brand across the country into places where they don't exist is a key part of what we want to achieve going forward. And we're absolutely delighted by the way new stores are opening that the teams that are making this happen are doing a terrific job, and we're continuing to grow on it. And we've absolutely no intention of backing off from that at the moment. Really excited about our new stores.

And it really fulfills the purpose of what everyone here is working to try and do. And we're excited about it going forward.

Charles Edward Cerankosky: Good. Do you sense any need to maybe promote a little differently or more aggressively with some of the new stores as they debut?

Jack L. Sinclair: Well, I think the new stores are opening really well because I think we're getting better and better understanding where to build new stores, the models that we're building about where exactly the health enthusiast customers are working well. And the marketing team has done a really nice job at different locations, communicating the values and what we have as a business within each market. But a pretty unique business 24 states, relatively small business, and we're gonna get to a lot more states over the next year or two as we as Curtis talked about in the Midwest and the Northeast Corridor.

We're going to have to think about having a different marketing approach by market but not in terms of a promotional approach. We're not gonna be doing big aggressive things to drive people into the store. Yeah.

Curtis Valentine: Chuck, I just have one of the things that's been really positive in the way that we've marketed those new stores is more about getting into the local community and getting more local earlier in the process to really build some excitement around the store and some enthusiasm in the local community. And so again, it's about telling our story. It's about engaging with the community, and we've seen a lot of positive traction when we've showed up in some new places.

Charles Edward Cerankosky: Great. Thank you.

Curtis Valentine: Thanks, Chuck.

Operator: I show no further questions in the queue at this time. I would now like to turn the call back over to Jack for closing remarks.

Jack L. Sinclair: Well, thanks, everybody, for taking the time and asking such great questions and showing so much attention to our company. We look forward to continuing the dialogue with you going forward. Thanks again. Take care.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.