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DATE

Thursday, Feb. 19, 2026 at 5 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Jack Sinclair
  • Chief Financial Officer — Curtis Valentine
  • President and Chief Operating Officer — Nicholas Konat

TAKEAWAYS

  • Total Sales -- $2.1 billion for the fourth quarter, up $152 million or 8%.
  • Comparable Store Sales -- Increased by 1.6% in the fourth quarter.
  • E-commerce Sales -- Grew 15% and represented about 15.5% of total sales during the quarter.
  • Sprouts Brand Sales Mix -- Accounted for nearly 26% of total sales in the quarter.
  • Gross Margin -- 38% in the fourth quarter, a decrease of 10 basis points year over year, driven by shrink and pressured by loyalty program adoption.
  • SG&A Expenses -- $653 million for the quarter, with 41 basis points of leverage attributed to lower incentive compensation and disciplined cost management.
  • Net Income -- $90 million for the quarter.
  • Diluted Earnings per Share -- $0.92, up 16% year over year for the quarter.
  • Fiscal Year Total Sales -- $8.8 billion, an increase of nearly 14%, driven by 7.3% comparable store growth and new store strength.
  • Fiscal Year Gross Margin -- 38.8%, an increase of 70 basis points, led by inventory management and lower shrink.
  • Fiscal Year Earnings per Share -- $5.31, up 42% year over year.
  • Store Count -- 477 stores in 24 states at year-end.
  • Approved Store Pipeline -- Over 140 approved stores and more than 95 executed leases in place.
  • Operating Cash Flow -- $716 million for the year, with $224 million in capital expenditures net of landlord reimbursement.
  • Share Repurchases -- $472 million returned to shareholders through the repurchase of 4 million shares, with $836 million remaining under the authorization.
  • Cash Balance -- Ended the year with $257 million in cash and cash equivalents.
  • 2026 Sales Outlook -- Projected total sales growth of 4.5%–6.5% on a 52-week basis, with comp sales expected between negative 1% and positive 1%.
  • Store Openings Guidance -- At least 40 new stores planned for 2026, with over 140 approved locations in the pipeline.
  • 2026 Earnings per Share Guidance -- Expected within $5.28–$5.44, including $300 million planned share repurchases in 2026 and impact from 53rd week.
  • 53rd Week Impact -- Anticipated to add approximately $200 million in sales, $28 million in EBIT, and $0.21 to diluted earnings per share.
  • Q1 2026 Comp and EPS Guidance -- Comp sales between negative 3% and negative 1%, with EPS between $1.66 and $1.70, reflecting higher tax rate and fixed cost deleverage.
  • 2026 Capital Expenditure Guidance -- Targeting $280 million–$310 million net of landlord reimbursements.
  • Organic Sales Mix -- Surpassed 30% of total sales by year-end.
  • Sprouts Brand Annual Sales -- Exceeded $2 billion for the year.
  • Loyalty Program -- Rapid adoption, exceeded sign-up expectations, and put pressure on near-term gross margins; enhancements and increased personalization investment planned.
  • Self-Distribution Rollout -- 75% of stores now serviced for fresh meat; Northern California facility on track for completion by Q2 2026.
  • Customer Engagement Trends -- Most engaged loyalty members increased frequency and spend; less engaged customers visited less often and reduced basket size.
  • New Store Productivity -- 2025 cohort outperformed expectations, though less robust than 2024 cohort; new store mix caused quarterly variability.

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RISKS

  • Jack Sinclair said, "we are not happy with how the year finished as our comp momentum slowed," highlighting a deceleration in sales momentum exiting 2025.
  • Curtis Valentine stated, "challenge of lapping this growth has been more difficult than we anticipated, particularly with our lower engaged customers who are visiting less often and purchasing fewer items as they navigate economic challenges."
  • Curtis Valentine noted, "The first quarter, we expect EBIT margin pressure of approximately 85 basis points due to fixed cost deleverage and the impact of our loyalty program."
  • Guidance includes a comp sales outlook for 2026 of negative 1% to positive 1%, reflecting expectations for sales stagnation or decline under continued consumer and macroeconomic headwinds.

SUMMARY

Sprouts Farmers Market (SFM +4.51%) delivered significant full-year growth in sales and earnings, driven by innovation, brand strength, and disciplined cost management, yet exited the year facing comp sales deceleration and lower traffic from less engaged customers. Management emphasized new store expansion plans, ongoing investment in customer engagement and personalization, and the completion of self-distribution to drive long-term competitiveness. The 2026 outlook calls for flat to modestly positive comparable sales, margin pressure from fixed cost deleverage and increased loyalty program participation, and an accelerated share repurchase strategy enabled by strong operating cash flows.

  • Sprouts brand performance outpaced the overall company, with annual sales exceeding $2 billion and accounting for nearly 26% of quarterly sales.
  • Over 7,000 new products were introduced during the year, including more than 600 under the Sprouts brand, as part of a three-year innovation pipeline focused on health-forward attributes.
  • Sprouts exited the year with 477 stores and is targeting at least 40 store openings in 2026, with over 140 approved sites and a growing presence in the Northeast and Midwest.
  • Operating cash flows of $716 million funded both expansion and $472 million in share repurchases, with $836 million remaining authorized for buybacks.
  • The loyalty program drove higher frequency and spending among engaged customers but contributed to near-term gross margin compression.
  • Inflation, especially in meat and coffee, contributed to pressure on less engaged customers' spend and units in specific product categories.
  • Management plans further balance in assortment and pricing to address affordability for value-conscious consumers, with ongoing innovation and enhanced personalization as primary growth levers.

INDUSTRY GLOSSARY

  • Attribute-forward products: Products marketed with explicit health, sustainability, or dietary features (e.g., organic, gluten-free, grass-fed) that distinguish them from conventional offerings.
  • Shrink: Reduction in inventory available for sale due to loss, theft, or spoilage, negatively impacting gross margins.
  • Self-distribution: Company-owned supply chain process enabling direct control over logistics, buying, and delivery of merchandise, enhancing efficiency and product freshness.
  • Box economics: Store-level financial performance measures, including sales per box (per store), profitability, and return on investment for newly opened stores.
  • Fixed cost deleverage: Decline in profit margins caused when sales growth does not keep pace with fixed expenses like rent or depreciation, leading to higher expense ratios.

Full Conference Call Transcript

Jack Sinclair: In 2025, Sprouts delivered over 7% comp sales growth and achieved more than 40% earnings per share growth, reflecting the strength of our strategy. These strong results are a testament to the team's focus on our target customers and Sprouts’ positioning to capitalize on the ongoing trends in healthy living. These are outstanding full year results. However, we are not happy with how the year finished as our comp momentum slowed. In 2025, we made progress on a number of key initiatives. New stores exceeded expectation, launched our loyalty program, and our expanded self-distribution supported both service levels and freshness. We introduced more than 7,000 new items, including more than 600 new products under the Sprouts brand.

In addition, disciplined cost management and a continued system enhancement helped us build a margin profile that has seen significant expansion. This performance builds in what has been a remarkable multiyear journey for the business. Over that time, we have driven strong new customer growth, reinforced our business foundation, and made meaningful progress towards our purpose of helping people live and eat better. At the same time, the macro environment remains uneven, and consumers increasingly value-focused. Against this backdrop, health and wellness landscape continues to evolve. What began as a focus on natural and fresh has expanded into more targeted outcome-driven solutions, with customers becoming more discerning, seeking innovation, quality, and transparency, also being highly value conscious.

We believe our purpose and strategy position us well to address affordability and access, two of the most important challenges in healthy living today. While our conviction in the long-term algorithm remains strong, 2026 will be a challenging year as we lap some big numbers. We are very pleased with our new stores, our investments in self-distribution, our growing depth of customer data, and the continued advancement of our differentiated assortment. At the same time, we are disappointed with transactions and still learning how we can shape customer behavior through loyalty and personalization. In 2026, we are investing in the capabilities needed to fully exploit our loyalty data. We know we can do more.

We also have the capacity in our P&L to help address the affordability challenges that many of our customers are facing. The team remains excited and confident in our ability to support our health enthusiast customers and drive growth in the years ahead. In a moment, I will talk more about our plans for 2026, but for now, I will hand it to Curtis to review our fourth quarter and full year financial results, as well as our 2026 outlook. Curtis? Thanks, Jack, and good afternoon, everyone. In the fourth quarter, total sales were $2,100,000,000, up $152,000,000, or 8%, compared to the same period last year.

This growth was driven by a 1.6% increase in comparable store sales and the strong results from new stores. Our key points of differentiation continued to drive our sales with attribute-forward products growing faster than our core business. E-commerce sales grew 15%, representing approximately 15.5% of our total sales for the quarter. Additionally, Sprouts brand continues to resonate, now making up nearly 26% of our total sales for the quarter. Basket drove our comp, with traffic ending slightly negative after a disappointing holiday season and finish to the quarter. We effectively managed costs and margins against this backdrop.

Gross margin for the fourth quarter was 38%, a decrease of 10 basis points compared to the same period last year, primarily due to shrink, partially offset by the benefits from our move to self-distribution in meat. In addition, the rapid adoption of our loyalty program did put some pressure on gross margins. We look forward to utilizing this data to further engage our target customers and drive sales behavior. SG&A for the quarter totaled $653,000,000, an increase of $38,000,000 and 41 basis points of leverage compared to the same period last year. This improvement was largely driven by lower incentive compensation expense and effective cost management. Depreciation and amortization, excluding depreciation included in the cost of sales, was $39,000,000.

For the fourth quarter, our earnings before interest and taxes were $123,000,000. Interest income was approximately $581,000. And our effective tax rate was 27%. Net income was $90,000,000, and diluted earnings per share were $0.92, an increase of 16% compared to the same period last year. For fiscal year 2025, total sales increased nearly 14% to $8,800,000,000, driven by comparable store sales growth of 7.3% and strong new store performance. Our focus on innovation and differentiation resonated well with our target customers, driving overall sales. Additionally, we were happy to see that our new stores exceeded our expectations for the second consecutive year.

Gross margin was 38.8%, an increase of 70 basis points compared to gross margin in the prior year. This was predominantly driven by improvements in shrink,

Curtis Valentine: from our investments in inventory management over the last couple of years, as well as leverage from increased sales early in the year. SG&A expenses for the year totaled $2,600,000,000, an increase of $283,000,000, or 45 basis points of leverage compared to SG&A last year. This leverage is mainly attributable to sales leverage from strong comp performance early in the year. Store closures and other costs totaled $5,600,000 due to ongoing occupancy costs from our 2023 store closures and disaster recovery costs. Depreciation and amortization, excluding depreciation included in the cost of sales, was $150,000,000. For 2025, our earnings before interest and taxes were $686,000,000. Interest income was $2,600,000, and our effective tax rate was approximately 24%.

Net income was $524,000,000, and diluted earnings per share were $5.31, an increase of 42% compared to the prior year's diluted earnings per share. Sprouts ended the year with 477 stores across 24 states. Looking ahead, there are over 140 approved new stores and more than 95 executed leases in our pipeline. A strong and healthy balance sheet has underpinned our financial performance. For the year, we generated $716,000,000 in operating cash flow, which enabled self-funding of investments in capital expenditures of $224,000,000 net of landlord reimbursement. We also returned $472,000,000 to our shareholders by repurchasing 4,000,000 shares and have $836,000,000 remaining under our new $1,000,000,000 share repurchase authorization.

The year ended with $257,000,000 in cash and cash equivalents and $23,000,000 of outstanding letters of credit. We have been encouraged by our strong sales and customer growth in recent years. However, the challenge of lapping this growth has been more difficult than we anticipated, particularly with our lower engaged customers who are visiting less often and purchasing fewer items as they navigate economic challenges. We are encouraged to see our loyalty members increasing their frequency and spend, but know that there is still significant opportunity ahead. Our customer engagement and personalization capabilities are still maturing, our customer is telling us they need greater support in making healthy living more affordable.

We are well positioned to do more for our customers as we look ahead to 2026. As for our outlook, it is important to note that fiscal year 2026 will be a 53-week year, with the extra week falling at the end of the fourth quarter. We estimate the impact from the 53rd week to be approximately $200,000,000 in sales, $28,000,000 in income before interest and taxes, and $0.21 in diluted earnings per share. For the full year, on a 52-week basis, we expect total sales growth to be between 4.5%–6.5% and comp sales to be between negative 1% and positive 1%. We plan to open at least 40 stores in 2026.

Earnings before interest and taxes are expected to be between $175,000,000 and $695,000,000 and earnings per share are expected to be between $5.28 and $5.44, which includes some share repurchases. With our strong cash generation, we plan to utilize free cash flow to repurchase our shares and would expect to spend at least $300,000,000 on this program in 2026, which is included in our EPS outlook. Year to date, we have already deployed $100,000,000 towards share repurchase, and we will continue to take a disciplined opportunistic approach when we see a disconnect between our share price and our long-term fundamentals. We also expect our corporate tax rate to be approximately 25.5%.

During the year, we expect capital expenditures, net of landlord reimbursements, to be between $280,000,000 and $310,000,000. For the first quarter, we expect comp sales to be in the range of negative 3% to negative 1% and earnings per share to be between $1.66 and $1.70, which includes the impact of a higher tax rate due to year-over-year share price changes and the related stock-based compensation tax impacts. The first quarter, we expect EBIT margin pressure of approximately 85 basis points due to fixed cost deleverage and the impact of our loyalty program. To add some additional color to the full year guide, we expect the first half of the year to be challenging as we lap double-digit comp comparisons.

We anticipate sequential comp improvement thereafter as we rebuild towards our long-term financial algorithm late in the year. EBIT margins are expected to face some early-year headwinds due to fixed cost deleverage and higher than expected sign-ups for our loyalty program. Expect we expect that this will stabilize later in the year as we leverage our investments in self-distribution, anniversary of the loyalty rollout, while still experiencing modest new store growth pressure in the second half as our pipeline is weighted more heavily to Q3 and Q4.

While we expect to experience short-term growth headwinds as we stabilize our business after two years of significant growth, we remain confident in our strategy and our ability to return to our long-term growth algorithm. And with that, I will turn it back to Jack.

Jack Sinclair: Thanks, Curtis. Well, we are not happy with our current business performance and our 2026 outlook. We believe strongly in the long-term potential of Sprouts and our ability to take the necessary steps to reaccelerate growth. Over the years, Sprouts has built a strong foundation for sustainable long-term value creation. As always, we recognize the future is more important than the past. The exceptional growth we have seen over the last two years was supported in part by the broad expansion of the U.S. health and wellness movement, where Sprouts is uniquely positioned with the right products and customer experience to serve as a top destination healthy discovery.

Growing from this elevated base of new customers now requires sharper execution, deeper customer engagement, and better affordability for our customers. In 2026, we are focused on preparing for our next phase of growth by leveraging our operational strengths and advancing our foraging, customer engagement, real estate, and supply chain initiatives, along with targeted investments in talent, technology, and affordability that reinforce our unique value proposition. We are positioning Sprouts for long-term success. Our top priority is serving the needs of our target customer. Launched last year, our loyalty program exceeded sign-up expectation and significantly broadened our customer insights. We expect the program to deliver a behavioral shift over time.

We are pleased to see our most engaged customers increasing their frequency and to see some customers join our rewards program and significantly increase both frequency and spend at Sprouts. Yet we see opportunities to deepen engagement further while by driving additional frequency, expanding participation across more categories, or encouraging trial of innovative new items. Beginning in 2026, we have enhanced our loyalty program to provide more value and are investing in our personalization capabilities to increase program effectiveness. As we have spoken about many times, our customers come to us for a variety of solutions to support their healthy living journey. Better understanding these customer cohorts, and personalizing how we engage with the needs remains a critical growth lever.

In 2026, we are adding new talent with deep expertise in data analytics and customer engagement to fully unlock this potential. Health and wellness continues to provide tailwinds in the marketplace, and we will stay ahead by offering more unique products. The foraging team continues to source products from around the world and is leading in evolving trends. We have established ourselves as the retailer of choice for launching new health and wellness products, supported by our commitment to nurturing and growing emerging brands as they scale. We would like to thank all our vendors for their partnership, especially those who have trusted us to launch their trending products.

Their innovation, combined with our customers' growing appetite for discovery in health and wellness, continues to be a key driver of our success. By the 2025, our organic sales mix grew to more than 30% of our total sales, and this trend remains a key focus for us. On the docket for 2026 are more products with on-trend attributes such as no seed oils, gut health, and longevity. Also, you will see organic grass-fed whey protein, functional hydration beverages such as Tractor’s modern take on the hay market, and products like Elevate Organics, formulated to heal the body and the planet through regenerative farming practices. These are just a few examples of what this team is delivering to our customers.

Sprouts brands have now surpassed $2,000,000,000, continuing to outperform overall company performance. Rather than replicating national brands, our goal is to offer customers products that complement their favorites, while delivering something distinctly Sprouts: high-quality innovation at a great value. The team has developed a robust three-year innovation pipeline designed to meet the evolving needs of our health-orientated customers, focusing on products they trust and actively seek out. The launch of our new wellness bowls is a terrific example of the intersection of health and affordability. The success of this new offering shows that customers respond when we deliver in both in a compelling way.

Next week, customers will see our new Sweet Heat seasonal event come to life across our stores, an exciting set of limited time products only found at Sprouts. We continue to drive market-leading healthy innovation, and our stores help bring it to life for our customers. Our teams remain focused on delivering our unique customer experience, educating shoppers, and showcasing our differentiated assortment. I continue to be so proud of our teams execute in stores. For our customers. New stores continue to perform well. This strong performance reinforces our confidence in our growth path. Our robust new store pipeline now includes over 140 approved locations and plans to open 40-plus new stores in 2026.

We are also excited to have entered a new state earlier this year with the addition of our first New York store, expanding our presence in the Northeast. While nearly all of our 2026 openings will be in our existing footprint, the team is also looking forward to 2027 and beyond, as and we are approving sites in both the Midwest and the Northeast to lay the foundation for further future growth. On the supply chain front, the transition to self-distribution for fresh meat is progressing very well, strengthening our control over our fresh categories. Today, 75% of our stores are serviced with fresh meat from our distribution centers.

Our Northern California facility is on track to be fully operational by early in the second quarter, completing our self-distribution rollout. Stores are already benefiting from increased delivery frequency, with fresh meat products now arriving alongside daily produce shipments. We will also continue to invest in our forecasting and replenishment capability that we expect will enable Sprouts to scale and grow. We believe the cost efficiencies from these initiatives and other investments will allow us to support our customers with a more affordable, healthy living journey while also maintaining a strong margin profile in the long term.

Lastly, the Sprouts team remains the heart of the organization, with ongoing investments in the development to drive the business and key initiatives forward. We continue to invest in our talent engine pipeline to support our future growth. Our ongoing investments in our team have helped maintain a low turnover, and that stability is reflected in the consistently customer experience scores we receive. Many of whom tell us time and again, I love Sprouts. We extend our gratitude to our more than 6,000 team members for their commitment to serving customers every day. Also want to thank Scott Neal and wish him the very best in his retirement.

As our chief merchant, Scott has driven outstanding growth in our business while further furthering our strategy of differentiation. As well, we welcome both Don Clark, our new Chief Merchandising Officer, and Mandy Rasing, our new Chief Customer Officer. We look forward to their contributions as we scale our business for continued growth. In summary, while the near-term backdrop is challenging, the steps we are taking today are strengthening the business and reinforcing our ability to grow our $290,000,000,000 total addressable health and wellness market.

It is amazing to reflect on our growth from a single store in Chandler, Arizona in 2002 to more than 500 stores by the year end, serving over 14,000,000 customers walking through our doors every quarter. Health and wellness movement remains strong, and Sprouts’ unique positioning continues to set us apart. By managing costs with discipline and investing behind the capabilities that differentiate us, we are confident in our ability to create long-term growth and value for our shareholders. We appreciate your continued interest in Sprouts and look forward to keeping you updated on our progress throughout the year. And with that, I would like to turn it over for questions. Operator?

Operator: Thank you so much. And as a reminder, to ask a question, press 11 on your telephone and wait for your name to be announced. To remove yourself, press 11 again. We ask that you please limit your questions to one. Our first question comes from the line of Edward Joseph Kelly with Wells Fargo.

Edward Joseph Kelly: Hi, good afternoon. Thank you for taking my question. I guess I wanted to start with current comp momentum.

Curtis Valentine: You talked about, you know, some slowdown into holiday.

Edward Joseph Kelly: Disappointing into the year, and it seems like that has continued into Q1. I was hoping maybe you could unpack what you think is driving that additional step down, where you are running currently, versus the comp guidance that you have given for the quarter, and then as part of this, Jack, you have mentioned the idea of maybe investing in some value for your customers, and I think that is an idea that maybe, you know, price and promote, you have kind of resisted that idea historically. Just curious as to how deep of an investment you think you will be making there. Thank you.

Jack Sinclair: I will let Curtis talk specifically on the numbers, Ed. First and foremost, what is happening, there is an uncertain macro environment. There is clearly some tough lapping that we are going in. The toughest lapping does actually come in Q1 in terms of the numbers that we got last year for a variety of kind of a variety of reasons that are not going to be repeated this quarter. So that is one of the reasons for it. On the other context of it, in this affordability, the affordability issue, our customers are saying to us, look. We really love your business. We really love what you do. But can you help us a little bit on this affordability?

Can you help us a little bit on what you are doing? And it has caused us to take a really good look at what are the options in terms of pricing, what are the options in terms of promotions. And the great thing about the business today from where it has been over the years is we have got the capacity to invest going forward. If we need to invest to support the customer in the particular circumstances that are existing at the moment. So that I think we have just got more capacity to do the to get more options in terms of how we think about it.

And Nick and the team are thinking really hard about how we can pick the right act, the right actions to support the customer in this affordability issue. And some of it will be promotions, some of it a bit personalization. Some of it will be about pricing. So we are looking at it in a better detail across the board, and we will be taking some action, and we have got the capacity to do that. Do you want to talk numbers, Curtis?

Curtis Valentine: Yeah. On a step down, Ed, really, the primary thing is that customer lapping issue as we have as we kinda look back. It is a it is a low engaged customer that we really brought in with new customers, with reactivated customers, you know, at the New Year last year and the fourth quarter last year. There were some of those viral moments and eggs and things like that were that were driving customers our way. So, as we get up against it, it is just been challenging. And, I do not think the macro helps in that respect. It makes it more challenging. And the combination of factors has made it difficult.

Year to date, we are right at the midpoint of the guide. We are about a little over halfway through the quarter, and we are past the King Soopers strike lapping that we had last year. That is behind us, but we are right at the midpoint of the guide here year to date.

Jack Sinclair: Thanks, guys.

Operator: Thank you. Our next question comes from the line of Seth Sigman with Barclays. Please proceed. I am going to move to the next question. Comes from the line of Leah Dianne Jordan with Goldman Sachs. Please proceed.

Leah Dianne Jordan: Thank you. Hi, Jack and Curtis. I just wanted to ask about the comp guide. See if you can just walk through how you are thinking about traffic versus ticket as we go through the year? What have you assumed of any contribution from loyalty? And then I under you have the difficult lap in the front half, but at the end of the day, natural and organic category is still growing pretty nicely across grocery. So I guess, why do you think you have been more challenged in this current backdrop? And has anything changed in the competitive landscape?

Or, you know, just more detail on what gives you the confidence that you can get back to that positive growth in the back half.

Curtis Valentine: Yeah. Hi, Leah. It is Curtis. On the guide front from a traffic basket perspective, we will we will see in the full year guide slight pressure on traffic. It should get sequentially better as the year progresses. The first half will be challenged, and then we will see sequential improvement as the compares soften a bit. And then the basket will be just the flip of that, slightly up and an offsetting to the flat midpoint in the guidance. As far as the confidence to get back to where we have where we have been before, it is really just we have we have, you know, good strength and pieces of our strategy right now.

New stores are performing really well. Attribute-based SKUs are performing really well. We continue to be pleased with the innovation and foraging piece, and the partnership with emerging brands and vendors. Those are all still going strong for us. We have had two great years of growth. We had two really strong years of sequential improvement prior to that too. And so we feel like, you know, those are the building blocks for how we will get back to where we need to go. As we mentioned earlier, we need to do a little bit more for the customer in this moment.

We are going to be working on our personalization and customer engagement capabilities throughout year and accelerating some resource there. Those are the pieces that should help us get back. And, yeah, we are we are expecting to, you know, to be a part of that sequential improvement. The things that we are doing, we are assuming will help us get back to where we want to be and embedded in the guide. There is obviously just a lot of uncertainty and a long year ahead of us as it relates to the consumer pressure in our customer lapping conversation. So, balance of those things embedded in the guidance.

Jack Sinclair: So with regard to the competitive scenario, clearly, you are referring to, I think the great thing about our company is it is all in our own hands. We have got the capacity to do what it needs to do in the marketplace. We are not seeing anything really dramatic coming at us from different. We think this is a kinda lapping challenge and an affordability challenge that everybody is having to look at carefully. And the consumer uncertainty that has come from the affordability, it is not really reflected itself in a huge competitive space. We are watching really closely whether the products that we have, the differentiated products that we have, are priced appropriately within the market.

But it is not about what other people are pricing because they do not sell these things, and it is about how do we give the right balance of the assortment, the right balance of price points, the right balance. And that is what we think we have got to do in the context of this affordability. Inflation has clearly driven some significant increases on pricing on coffee, on meat, and it has affected some of the less, the customer who does not come that as often is clearly affected in some of those categories. And we are watching that closely. We will take the action that we need to take.

But the great thing is it is all in our own hands.

Leah Dianne Jordan: Okay. That is very helpful. So I mean, it sounds like the lap is a big issue here. So that kind of leads to my next question around the right margin profile for this business. So you have had some really nice over the last couple of years. And I think when we have talked before, it is, hey, you know, we would not really be giving that back. But, you know, today's guide is implying a notable margin decline. We are hearing more about investing in value in the last question and in the prepared remarks. So assuming you look back on algo in the back half, what is the right margin profile for this business?

How do you think about the ongoing level of investment that is needed here? And just kind of know, the pressure that you are seeing today, what is temporary investment versus deleverage? Just kind of how do we think about the long-term margin profile?

Curtis Valentine: Hi, Leah. It is Curtis. Yeah. So I think, yeah, the midpoint of the guide, there is a there is a pressure on EBIT margins. That is primarily, if we look at the full year, fixed cost deleverage. Occupancy, depreciation deleverage as we think about the full year. Around that, still fairly stable, and, obviously, there will be a shape of it from first half and second half. But we have made investments in the business over the last few years to create some space, inventory management, self-distribution, we talked a lot about those.

And then we as we look ahead, we also feel like there is plenty of things left for us to go after and levers to pull in the longer term. So continued improvement, inventory management, category management, additional self-distribution down the line, there is there is lots of opportunity for us to go. And in fact, you know, the challenges, we have seen the business go up and then the business come back down, and that just highlights that there is still room and maturity for us to go to go get in the business and inefficiencies for us to capture.

So the medium and long term, we still think there is investments to be made that can drive profit profitability that we can use to address affordability and take care of our customer. And that is how we are thinking about it.

Operator: Thank you. Our next question comes from the line of Rupesh Dhinoj Parikh with Oppenheimer. Please proceed.

Rupesh Dhinoj Parikh: Good afternoon. Thanks for taking my question. To just go into store openings and new store productivity, just curious how they continue to perform as you got into Q4? And then new store productivity does look a little lighter in Q4. Just curious if it is your time or if there is anything else to discuss there.

Curtis Valentine: Hey, Rupesh. It is Curtis. Yeah. Really pleased with the new stores. The performance continues to be strong there. The 2025 vintage outperformed our box economics expectations. Not quite as strong as the 2024 vintage, but still really strong. The performance has been consistent with our expectations as it relates to, you know, established markets, non-established markets, kinda East Coast, West Coast. It has been pretty consistent, and we are really pleased to see the response we are getting when we when we bring this to new communities. And it really reinforces for us the, you know, the confidence in the long term and our ability to return to our algorithm.

And then the new store productivity, that does get a little bit bouncy from quarter to quarter. You know, mix of stores and where we are opening them and year-over-year comparisons. But overall, really pleased with the with the new store performance.

Jack Sinclair: And the fact that we are consistently now building this the all in the new vent in the new v six that we started a little while ago. We have now got more than a 100 of those. We can start to make them even more efficient going forward as a team are working on learning how to do how to build them a little bit cheaper, how to them a little bit faster, and how we can operate them a little bit more effective. So there is a lot of really good work going on behind.

And when you have got the customers responding well to the new stores, it gives us a lot of scope to play to improve the efficiencies.

Operator: Thank you. Our next question is from Michael David Montani with Evercore ISI.

Michael David Montani: Yes. Hi. Thanks for taking the question. I had a two-parter. One was, can you share the new store opening cadence by quarter for the year? And then I guess, the other question was, if you look at 4Q, can you just parse out what you saw in terms of inflation versus transaction counts? And, you know, is the 300 bps softening you have had sequentially so far, is that basically all transaction counts?

Curtis Valentine: Yeah. Mike, it is Curtis. I will take them in reverse order there. On the on this softening, it is primarily traffic in the fourth quarter and a little bit of units. We are starting to see some unit pressure again, back to that affordability concept and some of the challenges from inflation that we are seeing. Inflation kind of continues to play out the way we have expected. It is it is low, you know, low single digits in line with CPI, and then you have

Nicholas Konat: you know, we have got our mix towards, you know, premium products. It is driving up our AUR and organic and things like that drive it up a bit and some of the value pack stuff that we have done over time. And then you have you do have some categories like coffee and meat that are that are that are inflationary that also drive that up a bit. And then, yeah. So we are seeing the unit

Curtis Valentine: pressure a little bit across the board for all customers, and then the traffic challenges is primarily that lower engaged customer

Nicholas Konat: that we have seen. On the new store opening cadence, back loaded again, as I mentioned in the script. Six here in the first quarter, should be nine in the second quarter, and then pretty balanced in Q2 and Q3 to get us to our 40 for the year. And, 2027 is shaping up pretty strong, and that should be a more balanced kinda quarterly spread of new store openings. But one more, you know, back weighted vintage here in 2026.

Jack Sinclair: And we try and avoid, I think we are going to avoid really having anything in November and December after the certainly after Thanksgiving, trying to avoid those. Yeah. And that is something that we are pretty confident we will do this year. Thank you.

Operator: Our next question comes from the line of Mark David Carden with UBS. Please proceed.

Mark David Carden: Good afternoon, and thanks so much for taking the question. So just building on the topic of affordability, you guys have mentioned in the past that you tend to be more of a secondary or a tertiary shopper for customers. I know your assortment is largely unique, but do you believe you have seen much in the way of wallet share shift on some of the categories where you might overlap with the Costco or another grocer where they tend to shop? I know you called out eggs perhaps in the lap, but does anything else jump out?

Or do you think it is more just a function of consumers controlling their own shrink, so to speak, as conditions remain challenging?

Jack Sinclair: I will let Nick have a go at that one. Mate.

Nicholas Konat: Hey, Mark. It is Nick. So we are seeing on the on the customer side, from a share of wallet standpoint, our share of wallet holding pretty flat. We saw just a little tiny bit of a loss in Q4 in share of wallet, but overall holding strong, which means if you think about our innovation and differentiation, continues to win, and we are not seeing significant any kind of real share of wallet declines to some of the, you know, more channels that you that you would expect or maybe allude to in your question. So we are we are holding our own there.

We are certainly seeing the consumer navigate towards value, which is part of what you hear from us on how do we meet our customer where they are and provide the value that we can do to help them. I think it is important to note it is it is not just about price. I know I think that is a place people go, but for us, it is all it starts with what we are great at, which is our innovation and differentiation.

What we are seeing in our business is, when we can provide health-forward products at a really strong value, like our bowl program under $10, our Sprouts brand organic program, our $5 sandwiches, we are seeing a really, really strong purchase from customers, and we just need to innovate more in that space at this given point in time. In addition to leaning on things like personalization and loyalty, our always sharp produce pricing and offering, and as Jack mentioned, you know, being smart about how we price and promote to continue to maintain and grow share in this time.

Operator: Our next question comes from the line of Thomas Palmer with JPMorgan. Please proceed.

Thomas Palmer: Hey, guys. Thanks for the question. I wanted to ask on shrink. It was not mentioned as one of the potential margin headwinds for this year. I know last year, it was called out as a pretty substantial tailwind, especially in the first couple of quarters of the year. And I think there was a little bit of a question of how much of that was double-digit comps driving shrink lower versus all your work with inventory management. So now as you lap that, I guess, update on what you are seeing with shrink and maybe how much of it you are holding on to versus your expectation?

Curtis Valentine: Hey, Tom. It is Curtis. Yeah. It was a little bit of pressure on shrink or a favorability last year as we had the strong comps. We are up against that in the fourth quarter. That is part of the story. And then in the first and second quarter, we will be up against that a little bit. But we do feel like we have made sequential improvement there over the years. And that the team is prepared for that. I think where it really gets challenging is when you get those whipsaws in sales. Right?

The big acceleration that we saw and now a bit of the deceleration that we have seen as the business has settled and moderated, that is where it is really challenging. I think we have got a good handle on where we are here as we are sitting here in the first quarter. And the teams are continuing to put work and investment into that to prepare us for later in the year. And so on the balance for the year, we do expect shrink to be fairly stable. It will just be a little bit choppy quarter to quarter.

Operator: Thank you. Our next question comes from the line of Robbie Ohmes with Bank of America. Please proceed.

Robbie Ohmes: Hey, thanks for taking my question. Curtis, I was hoping you could give a little more color on the gross margin assumptions you guys have in the guidance for 2026. We would love to see if you could give us a little more on, should we just think about it as occupancy deleverage in the weaker comp quarters and some more pressure on gross margin? Or can you give us some help on how much merchandise margin might change or go down in 2026?

Curtis Valentine: Yeah. Sure, Robbie. The first half will be a bit pressured. I will talk about it in terms of EBIT margins and the drivers there, and you will you will get a little bit of the color on both sides underneath that. But, yeah, the fixed cost deleverage certainly pressured as a with a negative comp here in the first half, that will be challenging. Primarily occupancy and depreciation. There is lots of moving parts. We have got cost work that we have done that will help, and other, you know, new store growth pressure and things like that. But net, it is really a fixed cost story.

On top of that, we have got the loyalty program that we saw a good adoption and uptake in people opting into the program that puts a little bit of pressure on the rewards and the points that we are absorbing there. So there will be a little bit pressure there that falls into the gross margin in the first half. And then as we get later in the year, be leveraging those investments in self-distribution. We will be anniversarying the loyalty program, and that compare will get a little easier, and we will get back to kind of a more stable EBIT margin as we think about the second half.

Jack Sinclair: Robbie, as I said in the script, I think that is real capacity in our organization to make sure we can deliver the algorithm long term in terms of the net margin going forward. So we are feeling pretty confident about that in the future.

Operator: Thank you. Our next question comes from the line of Kelly Ann Bania with BMO Capital Markets.

Kelly Ann Bania: I guess just to be frank, the outlook for 2026 kind of earnings or at least EPS flattish, maybe up low single digit. I guess it does not really signal to me a major or even small investment in affordability for your customers. So I was just wondering if you can talk about, you know, what is really planned there, whether it be pricing, promo. I know loyalty continues to roll out, and you made some tweaks there. But is that something that, you know, could evolve? Are you still kind of analyzing what kind of investment in affordability you want to make for your customers?

And I guess, you know, do you think that, you know, removing do you think that some more affordable prices could remove the volatility that we are seeing in your comps and maybe insulate you more from the macro pressures that you are seeing?

Jack Sinclair: We certainly think that from a customer point of view that they are asking us to do a little bit more to help them, as I said in the in one of the other questions. The customers are very positive about our assortment and this the service they get in stores and the type of stores that they are they are going into. So there is there is confidence in that. The customer is seeing in this challenging environment, and you do a little bit more for them? And we are going through a number of tests to try and figure this out.

So we are to that point, I will pass you on to Nick to just talk a little bit more about what we are thinking about doing, but it is not fixed yet, we are doing some tests to see where it goes.

Nicholas Konat: Hey, Kelly. It is Nick. Think to answer your question of affordability, there is multiple prongs there to get there. I think the biggest one is leaning into our strength and looking at our assortment and the offering we provided customer and making some changes. Candidly, we you know, I think you could argue we might have gotten a little bit further on the premium spectrum over the last couple years on our offering. And there is a lot of innovation and access to our healthy products that are a little bit more on the value side of the equation. And that is just some good assortment work to make sure we have good balance across our categories.

And the teams are already working on that as we speak just to give access at every price point to every one of our customers. So that is a big piece of it. As I mentioned, we are seeing that work in things like what we do with our deli meals and bowls program and so on. You are going to continue to see us stand tall with produce pricing. We are in a really good place there, and that strategy will continue.

And then as Jack mentioned, you know, I think there is there is some of the things that we carry that have a little bit of overlap, and the important thing for us is that we are competitive. We are not we are never going to win on price. We are always win at assortment and innovation differentiation. There is probably a handful of products that we want to be sure that we are right every day to just continue to maintain our trust.

But we have got a lot of levers to pull to help support that, so we do not think we need to make any kind of massive investment to do that, which is what I think you are seeing reflected in our financials. Now, obviously, the last piece of this is as we continue to improve our personalization capabilities, it is a great way to drive value for the customer and then the access to the things you are looking for.

Operator: Thank you. Our next question comes from the line of Charles Edward Cerankosky with Northcoast Research. Please proceed.

Charles Edward Cerankosky: Good afternoon, everyone. When you are looking at the loyalty program, how has the vendor participation been, and I am looking at it as an offset to the strong sign-ups from customers. And is that something that is less than expected? And perhaps, is there any conflict with the vendors as they look to Sprouts’ own brands product introductions as part of the loyalty program.

Nicholas Konat: Hey, Chuck. It is Nick. You know, we to be honest with you, we are just starting to unlock vendor participation in loyalty and personalization program in the beginning of this year. Now we 2025 was focused on launching the capability, building it out, starting to get some the data, the testing, the learnings. And this year really is a great for us to start to unlock more value for it. And so we are just starting into the into the fiscal year with getting vendor participation. The good news is, you know, this is a win-win for our vendors and for us.

Our vendors, especially the emerging players, are looking to find their target audience, their customers who might fit the key attributes, whether they are in the organic space or gluten-free space. And so we can provide great access to those customers at a really strong ROI that helps them get trial for their products. And for us, obviously, certainly, introducing these products to our customers, tell us they want newness from us and driving value and long-term value. So we are in the early innings, so to speak, Chuck, on that effort. I think we will continue to see ways to unlock value for our vendors and us through the course of this year.

Jack Sinclair: And, Nick, I would probably say that the idea that we are much, there is no real conflict going on with the vendors about Sprouts brand. It is it is the opposite of that, Chuck. I think we have got ourselves in a place where we are kind of the place that people want to come to bring innovation and differentiation, and we are working really hard at that. The foraging team are doing really well. We are launching a lot of products, and we are giving people opportunity and a starting point for their brands, and as I say, we are not having a lot of we are not having any kind. It is the exact opposite. Thank you.

Operator: Our next question comes from the line of Scott Michael Marks with Jefferies. Please proceed.

Scott Michael Marks: Hey, good afternoon. Thanks very much for taking our questions. Wanted to just follow up on this notion of some pressure on units. Some of those comments earlier. Are you seeing maybe more impact on certain categories or the departments or even attribute-based items than others? And wondering how that impacts margin mix. And then, obviously, as you work through kind of the ways to create value, know, how does that inform your thinking about, you know, changes across different parts of the store, let us say?

Jack Sinclair: We are seeing some differences across different categories. We have referenced coffee and meat, but you are seeing significant inflation. You are seeing unit effects in that space. Produce business, we got people being put careful with their shrink, buying a little bit less units in our produce business than in what has been a volatile pricing environment in produce. So, yeah, we are seeing it and watching it pretty closely in terms of how that works.

And part of our job is to make sure that we minimize the impact of categories that are seeing a lot of inflation, and we certainly see that as something that is our job to try and take care of our customers when they are they are saying to us, like, this is costing a lot of money. So, yeah, we are seeing different things by different categories. And the unit, when you we have got an elasticity model, and if things do not sell as well, we can take a really good look at the pricing, and that is kind of the way we with the way we are thinking about it.

Nicholas Konat: Scott, the only thing I will just add to your question, think, we are there is not really any mix pressure based on how the sales are moving, so there is not a there is not any pressure on the mix driven by our sales. I think the only other thing I would add to Jack's comment is, you know, for us, the biggest unit challenge is there is there is some category piece, but it is just in that less engaged customer. The customer we began last year that are putting less units in the basket for the that group is where we are seeing it more so than, say, our core customer.

Operator: Thank you. Our next question comes from the line of John Edward Heinbockel with Guggenheim Securities. Please proceed.

John Edward Heinbockel: Hey, Jack. Just sort of follow up on that last one. How are your target or core cohorts performing behaviorally? Right? And their view on affordability, and then is affordability more an issue of is in reality, or perception and how you think about maybe altering the marketing message beyond personalization to address affordability.

Jack Sinclair: Well, we are certainly taking a good look at our marketing messaging and being the and focusing in on that. We think there is some real affordability issues rather than it being a for the customers. And what we found is, and our loyalty data has given this really clearly. Those loyal customers to us are spending a little bit more money with us. It is the less engaged customers that Curtis outlined, I think, in the script, which is specifically those are the customers that are drifting us, coming less often and spending a little bit less from us.

And the feedback we are getting from them is that is an crisis in terms of, or for the affordability crisis that exists in the marketplace is affecting them more so than our loyal customers.

Operator: Thank you. Our next question comes from the line of Krisztina Katai with Deutsche Bank. Please proceed.

Krisztina Katai: Hi. Good afternoon, Jack and Curtis. So I wanted to follow up on the attribute-based products that continue to perform well for you guys, can you talk about plans, SKU launches for 2026? And then within that, how are you thinking about the price points where you want to add more products or where you maybe double down a little bit to further deliver on the value that the customer is looking for? Or just maybe just talk about how you see the current assortment within the stores and just to what degree do you think that some of these assortment changes need to happen. Would love to get your thoughts there. Thank you.

Jack Sinclair: Yeah. It is a great it is a great question. Nick just touched on it, so I will let Nick expand on how to explain what we are doing there.

Nicholas Konat: Hi, Krisztina. I think as a starting point, I actually feel really good about our assortment mix across the key health attributes. Think about protein, fiber, grass-fed, gluten-free, organic. I mean, that is that is who we are, is offering breadth and depth across those attributes. And not just one part of the assortment and store, all over. So I actually feel we are really well positioned. My earlier comment, I think what we can improve is, how do we make sure access to some of those attributes and some of those offerings are available at more price points.

And so making sure that you have that at more entry-level price points in our category, the right opportunities for organic and gluten-free. I think there is some for us to get just better balance for where the customer is right now, what they are asking for from us. So you will see us spend more time on innovation and launches that continue to have balance and but continue to be focused on. We are not going to make any changes and change what we carry. We are going to continue to lean into the health and wellness attributes that help us stand out.

And then to those launches, I mean, you are going to see us continue to launch close to six, 7,000 new items this year. You are going to see us continue to grow Sprouts brand. And as a reminder, Sprouts brand is focused in areas where our customer is telling us they want innovation. We are not looking to do a national brand compared to program. That is not our strategy. So we will continue to see hundreds new items in Sprouts brand, both across our fresh businesses and our nonperishable. And I think you are going to see us also launch even stronger.

We are really happy with what has happened with our partnership with the Haymaker product from Tractor and Elevate. And when we really line up behind some of these key brands, we are seeing really uptake with the customer, and I think you will see our marketing and merchandising teams double down on some even bigger launches through the year as well.

Operator: Thank you, ladies and gentlemen. This will conclude our Q&A session. And I will pass it back to Jack Sinclair for closing comments.

Jack Sinclair: Yeah. Thanks, everybody, for your attention and to your interest in working with Sprouts and talking to us today. So I wish you all the very best. Take care.

Operator: And this concludes our conference. Thank you for participating. You may now disconnect.