Sprouts Farmers Market 2013 Annual Report Download - page 26

Table of Contents
Our newly opened stores may negatively impact our financial results in the short-term, and may not achieve sales and
operating levels consistent with our more mature stores on a timely basis or at all.
We have actively pursued new store growth and plan to continue doing so in the future. We cannot assure you that our new
store openings will be successful or reach the sales and profitability levels of our existing stores. New store openings may
negatively impact our financial results in the short-term due to the effect of store opening costs and lower sales and contribution to
overall profitability during the initial period following opening. New stores build their sales volume and their customer base over time
and, as a result, generally have lower margins and higher operating expenses, as a percentage of net sales, than our more mature
stores. New stores may not achieve sustained sales and operating levels consistent with our more mature store base on a timely
basis or at all. This may have an adverse effect on our financial condition and operating results.
In addition, we may not be able to successfully integrate new stores into our existing store base and those new stores may not
be as profitable as our existing stores. Further, we have experienced in the past, and expect to experience in the future, some sales
volume transfer from our existing stores to our new stores as some of our existing customers switch to new, closer locations. If our
new stores are less profitable than our existing stores, or if we experience sales volume transfer from our existing stores, our
financial condition and operating results may be adversely affected.
We may be unable to maintain or improve our operating margins, which could adversely affect our financial condition and
ability to grow.
If we are unable to successfully manage the potential difficulties associated with store growth, we may not be able to capture
the efficiencies of scale that we expect from expansion. If we are not able to continue to capture efficiencies of scale, improve our
systems, continue our cost discipline, and maintain appropriate store labor levels and disciplined product selection, our operating
margins may stagnate or decline. In addition, competition and pricing pressures from competitors may also adversely impact our
operating margins. These factors could have a material adverse effect on our business, financial condition and results of operations
and adversely affect the price of our common stock.
We rely heavily on sales of fresh produce and quality natural and organic products, and product supply disruptions may
have an adverse effect on our profitability and operating results.
We have a significant focus on perishable products, including fresh produce and natural and organic products. Sales of
produce accounted for approximately 25% of our pro forma net sales in fiscal 2012 and 26% of our net sales in fiscal 2013.
Although we have not experienced difficulty to date in maintaining the supply of our produce and natural and organic products that
meet our quality standards, there is no assurance that these products will be available to meet our needs in the future. The
availability of such products at competitive prices depends on many factors beyond our control, including the number and size of
farms that grow natural or organic crops or raise livestock that meet our quality, welfare and production standards and the ability of
our vendors to maintain organic, non-genetically modified or other applicable third-party certifications for such products. Produce is
also vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, storms, frosts, earthquakes,
hurricanes and pestilences. Adverse weather conditions and natural disasters can lower crop yields and reduce crop size and
quality, which in turn could reduce the available supply of, or increase the price of, fresh produce, which may adversely impact
sales of our fresh produce and our other products that rely on produce as a key ingredient.
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