Sprouts Farmers Market 2014 Annual Report Download - page 22

outages, labor disagreements, or shipping problems, could adversely impact our ability to distribute
produce to our stores. Such interruptions could result in lost sales and a loss of customer loyalty to our
brand. While we maintain business interruption and property insurance, if the operation of our distribution
centers were interrupted for any reason causing delays in shipment of produce to our stores, our insurance
may not be sufficient to cover losses we experience, which could have a material adverse effect on our
business, financial condition and results of operations.
In addition, unexpected delays in deliveries from vendors that ship directly to our stores or increases in
transportation costs (including through increased fuel costs) could have a material adverse effect on our
financial condition and results of operations. Labor shortages in the transportation industry, long-term
disruptions to the national and international transportation infrastructure, reduction in capacity and industry-
specific regulations such as hours-of-service rules that lead to delays or interruptions of deliveries could
negatively affect our business.
Disruptions to, or security breaches involving, our information technology systems could harm our
ability to run our business.
We rely extensively on information technology systems for point of sale processing in our stores,
supply chain, financial reporting, human resources and various other processes and transactions. Our
information technology systems are subject to damage or interruption from power outages, computer and
telecommunications failures, computer viruses, security breaches, including breaches of our transaction
processing or other systems that could result in the compromise of confidential customer data, catastrophic
events, and usage errors by our team members. In January 2013, we discovered sophisticated malware
installed on certain credit card “pin pads” in a limited number of our stores designed to illegally access our
customers’ credit card information. We discovered the malware shortly after it was planted and promptly
shut down its access to our systems, but it is possible that our customers’ credit card information was
compromised. In connection with the January 2013 breach, in addition to replacing the affected card
terminals for a total cost of approximately $170,000, we 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.
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,
19