Sprouts Farmers Market 2013 Annual Report Download - page 33

Table of Contents
engaged a nationally recognized cybersecurity firm to investigate the incident. The costs associated with the investigation, and any
penalties assessed by our credit card vendors, are covered by our insurance policy, subject to our insurance deductible of
$100,000. We have implemented numerous additional security protocols since the attack in order to further tighten security, but
there can be no assurance similar breaches will not occur in the future, be detected in a timely manner or be covered by our
insurance policy. Our information technology systems may also fail to perform as we anticipate, and we may encounter difficulties in
adapting these systems to changing technologies or expanding them to meet the future needs of our business. If our systems are
breached, damaged or cease to function properly, we may have to make significant investments to fix or replace them, suffer
interruptions in our operations, incur liability to our customers and others, face costly litigation, and our reputation with our
customers may be harmed. Various third parties, such as our suppliers and payment processors, also rely heavily on information
technology systems, and any failure of these systems could also cause significant interruptions to our business. Any material
interruption in the information technology systems we rely on may have a material adverse effect on our operating results and
financial condition.
General economic conditions that impact consumer spending could adversely affect our business.
The retail food business is sensitive to changes in general economic conditions. Recessionary economic cycles, increases in
interest rates, higher prices for commodities, fuel and other energy, inflation, high levels of unemployment and consumer debt,
depressed home values, high tax rates and other economic factors that affect consumer spending and confidence or buying habits
may materially adversely affect the demand for products we sell in our stores. In recent years, the U.S. economy has experienced
volatility due to uncertainties related to energy prices, credit availability, difficulties in the banking and financial services sectors,
decreases in home values and retirement accounts, high unemployment and falling consumer confidence. As a result, consumers
are more cautious and could shift their spending to lower-priced competition, such as warehouse membership clubs, dollar stores
or extreme value formats, which could have a material and adverse effect on our operating results and financial condition.
In addition, inflation or deflation can impact our business. Food deflation could reduce sales growth and earnings, while food
inflation, combined with reduced consumer spending, could reduce gross profit margins. As a result, our operating results and
financial condition could be materially adversely affected.
A widespread health epidemic could materially impact our business.
Our business could be severely impacted by a widespread regional, national or global health epidemic. A widespread health
epidemic may cause customers to avoid public gathering places such as our stores or otherwise change their shopping behaviors.
Additionally, a widespread health epidemic could also adversely impact our business by disrupting production and delivery of
products to our stores and by impacting our ability to appropriately staff our stores.
Increased commodity prices and availability may impact profitability.
Many products we sell include ingredients such as wheat, corn, oils, milk, sugar, cocoa and other key ingredients. Commodity
prices worldwide have been increasing. Any increase in prices of such key ingredients may cause our vendors to seek price
increases from us. We cannot assure you that we will be able to mitigate vendor efforts to increase our costs, either in whole or in
part. In the event we are unable to continue mitigating potential vendor price increases, we may in turn consider raising our prices,
and our customers may be deterred by any such price increases. Our profitability may be impacted through increased costs to us
which may impact gross margins, or through reduced revenue as a result of a decline in the number and average size of customer
transactions.
28