Sprouts Farmers Market 2015 Annual Report Download - page 24

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distribution center infrastructure, such as disruptions due to fire, severe weather or other catastrophic
events, power outages, labor disagreements, shipping problems, or contractual disputes with third-party
service providers 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 or work stoppages 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. 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 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 loss of sales,
transactional or other data and 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.
If we are unable to successfully identify market trends and react to changing consumer
preferences in a timely manner, our sales may decrease.
We believe our success depends, in substantial part, on our ability to:
xanticipate, identify and react to natural and organic grocery and dietary supplement trends and
changing consumer preferences and demographics in a timely manner;