Sprouts Farmers Market 2013 Annual Report Download - page 34

Table of Contents
Energy costs are an increasingly significant component of our operating expenses and increasing energy costs, unless
offset by more efficient usage or other operational responses, may impact our profitability.
We utilize natural gas, water, sewer and electricity in our stores and use gasoline and diesel in trucks that deliver products to
our stores. We may also be required to pay certain adjustments or other amounts pursuant to our supply and delivery contracts in
connection with increases in fuel prices. Increases in energy costs, whether driven by increased demand, decreased or disrupted
supply, increased environmental regulations or an anticipation of any such events will increase the costs of operating our stores.
Our shipping costs have also increased recently due to rising fuel and freight prices, and these costs may continue to increase. We
may not be able to recover these rising costs through increased prices charged to our customers, and any increased prices may
exacerbate the risk of customers choosing lower-cost alternatives. In addition, if we are unsuccessful in attempts to protect against
these increases in energy costs through long-term energy contracts, improved energy procurement, improved efficiency and other
operational improvements, the overall costs of operating our stores will increase, which would impact our profitability, financial
condition and results of operations.
Increases in certain costs affecting our marketing, advertising and promotions may adversely impact our ability to
advertise effectively and reduce our profitability.
Postal rate increases, and increasing paper and printing costs affect the cost of our promotional mailings. In response to any
future increase in mailing costs, we may consider reducing the number and size of certain promotional pieces. In addition, we rely
on discounts from the basic postal rate structure, such as discounts for bulk mailings and sorting by zip code and carrier routes. We
are not party to any long-term contracts for the supply of paper. Future increases in costs affecting our marketing, advertising and
promotions could adversely impact our ability to advertise effectively and our profitability.
We may be unable to adequately protect our intellectual property rights, which could harm our business.
We rely on a combination of trademark, trade secret, copyright and domain name law and internal procedures and
nondisclosure agreements to protect our intellectual property. In particular, we believe our trademarks, including SPROUTS
FARMERS MARKET
®
, SPROUTS
®
and HEALTHY LIVING FOR LESS!
®
, and our domain names, including sprouts.com, are
valuable assets. However, there can be no assurance that our intellectual property rights will be sufficient to distinguish our
products and services from those of our competitors and to provide us with a competitive advantage. From time to time, third
parties may use names and logos similar to ours, may apply to register trademarks or domain names similar to ours, and may
infringe or otherwise violate our intellectual property rights. There can be no assurance that our intellectual property rights can be
successfully asserted against such third parties or will not be invalidated, circumvented or challenged. Asserting or defending our
intellectual property rights could be time consuming and costly and could distract management’s attention and resources. If we are
unable to prevent our competitors from using names, logos and domain names similar to ours, consumer confusion could result, the
perception of our brand and products could be negatively affected, and our sales and profitability could suffer as a result. We also
license the SPROUTS FARMERS MARKETS trademark to a third party for use in operating two grocery stores. If the licensee fails
to maintain the quality of the goods and services used in connection with this trademark, our rights to, and the value of, this and
similar trademarks could potentially be harmed. Negative publicity relating to the licensee could also be incorrectly associated with
us, which could harm the business. Failure to protect our proprietary information could also have a material adverse effect on our
business.
We may also be subject to claims that our activities or the products we sell infringe, misappropriate or otherwise violate the
intellectual property rights of others. Any such claims can be
29