“We’ve made some fundamental changes in how we run our day-to-day business, and not only are some of those changes beginning to have a positive impact on financial results, they’re also helping us to understand the future opportunities,” he said.
While Sinclair said he is encouraged by the these results and the company will continue to pursue the changes that led to them, he also acknowledged that they may not be repeatable at the same level. In addition, he noted that there are still significant challenges that the retailer needs to address, including improving store traffic and stabilizing margins.
“Early signs of improvement”
Sprouts’ strong sales in Q4 helped buoy sales for the overall year, bringing net sales for fiscal 2019 to $5.6 billion – an 8% increase from 2018. It also lifted diluted earnings per share to $1.25 compared to $1.22 for 2018, according to the company.
This trend did not, however, hold true for the retailer’s full year net income which fell to $150 million compared to $159 million from the same time last year – suggesting that while many of the changes implemented are beneficial, there is, as Sinclair pointed out, “still work to be done.”
While the changes implemented by Sprouts were not perfect, Sinclair still touted them for delivering “some early signs of improvement.”
Among the fundamental changes enacted over the last several months, Sprouts’ refined and balanced its promotional strategy to better target its core customer and eliminate inefficient promotions.
“To be clear, we’re still promoting and providing value to our customers, but we’re doing so differently. We focused our promotional activity by responding to opportunities in the marketplace rather than reacting to promotional pricing elsewhere, resulting in improved cost of merchandise,” he explained.
In addition, he noted, the retailer focused on display and presentation in-store that highlight the company’s innovation and uniqueness.
“If the composition of the competition zigged, we zagged,” he said. For example, in produce, the retailer highlighted unique varieties of apples, such as the Lucy Glo, rather than broader commodity categories.
In terms of innovation, Sinclair said, Sprouts is targeting emerging brands and has a new think tank panel of industry partners that incubate start-up brands, such as Pipcorn and Van Leeuwen oat milk vegan ice cream.
Other fundamental changes include enhancing cross-collaboration to better plan and source products, and restructuring the store bonus plan so that it is “laser-focused on what our store team members can control” in order to be a better incentive for driving sales and engaging staff across the organization, he said.
Room for improvement
While Sinclair highlighted the positive results from these changes, he said he also is “keenly aware that our traffic remains negative,” and he is “taking a long-term view” of the problem so that he can implement a new marketing strategy that will pull back on unprofitable promotions, offer stronger everyday prices and move funds from print marketing to other channels that can better drive brand awareness, personalization and store traffic.
The benefits of this strategy will not occur over night, he said. Rather, “we expect an adjustment period and then profitable customers will respond.”
This likely will include consumers drawn to digital and delivery, both of which increased in 2019, Sinclair said.
“I’m pleased that during 2019, we enhanced our touch point with our customers. We increased our digital subscribers to over 2 million accounts, up more than 35% for the year. As well, our home delivery continues to expand, ending the year up more than 150%,” he said.
A 5-prong plan
While the retailer is improving its positioning, Sinclair said he thinks it can do better by following a five-prong plan.
The prongs include developing a deeper understanding of the current and future customer at Sprouts, accelerating store growth beyond its historical 30 stores a year, entering new markets, improving supply chain management for better costs and freshness, and focusing marketing on brand awareness.
Reflecting on the company’s progress so far and its plan for the future, Sinclair said he is “energized for the work and challenges ahead,” and is “confident in the team’s ability to focus on creating a more efficient business while implementing a strategic plan to position us for long-term profitable growth.”