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What changed in Sprouts Farmers Market, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Sprouts Farmers Market, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+333 added−332 removedSource: 10-K (2023-03-02) vs 10-K (2022-02-24)

Top changes in Sprouts Farmers Market, Inc.'s 2023 10-K

333 paragraphs added · 332 removed · 271 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

187 edited+49 added−41 removed148 unchanged
Biggest changeOur total rewards program features the following: • We have a quarterly bonus plan for which all store team members are eligible. • We offer a paid sick time policy for all team members and offer generous leave programs. • Beginning in 2021, all hourly team members are eligible for semi-annual reviews and merit increases. • We offer team members the opportunity to participate in the Western Association of Food Chains’ Retail Management Certificate Program that provides the core skills and knowledge to move into a management role in the retail industry.
Biggest changeFurthermore, we offer comprehensive, relevant and market competitive benefits to all eligible team members: • We offer a variety of medical benefit plans to allow team members the ability to choose the best plan for them and their families. • We offer well-being services and support dedicated to the mental, physical, emotional and financial well-being of our team members. • We have a quarterly bonus plan for which all store team members are eligible. • All team members over 18 can enroll in our 401(k) plan the first of the month following three months of service, and we offer a contribution matching program. • We offer a paid sick time policy for all team members and offer generous leave programs. • All hourly team members are eligible for semi-annual reviews and merit increases. • We offer team members the opportunity to participate in the Western Association of Food Chains’ Retail Management Certificate Program that provides the core skills and knowledge to move into a management role in the retail industry.
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.
We rely heavily on sales of fresh produce and quality fresh, 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.
Real or perceived concerns that products we sell could cause unexpected side effects, illness, injury or death could result in their discontinuance or expose us to lawsuits, either of which could result in unexpected costs and damage to our reputation. There is increasing governmental scrutiny of and public awareness regarding food safety.
Real or perceived concerns that products we sell could cause unexpected illness, side effects, injury or death could result in their discontinuance or expose us to lawsuits, either of which could result in unexpected costs and damage to our reputation. There is increasing public awareness regarding and governmental scrutiny of food safety.
While FDCA provides FDA with the authority to remove products from the market that are adulterated or misbranded, state actors, and the Plaintiffs’ Bar have been targeting retailers and manufacturers of dietary supplements for failing to adhere to current good manufacturing practices and for false or misleading product statements.
While the FDCA provides FDA with the authority to remove products from the market that are adulterated or misbranded, state actors, and the Plaintiffs’ Bar have been targeting retailers and manufacturers of dietary supplements for failing to adhere to current good manufacturing practices and for false or misleading product statements.
If we are unable to maintain effective internal control over financial reporting, if we identify any material 29 weaknesses therein, if we are unsuccessful in our efforts to remediate any such material weakness, if our management is unable to report that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.
If we are unable to maintain effective internal control over financial reporting, if we identify any material weaknesses therein, if we are unsuccessful in our efforts to remediate any such material weakness, if our management is unable to report that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.
Due to this concentration of purchases from a small number of third-party suppliers, the cancellation of our distribution arrangements or the disruption, delay or inability of our suppliers to deliver product to our stores in quantities or within service parameters that meet our requirements may materially and adversely affect our operating results while we establish alternative supply chain channels.
Due to this concentration of purchases from a small number of third-party suppliers, the cancellation of our distribution arrangements or the disruption, delay or inability of our suppliers to timely deliver product to our stores in quantities or within service parameters that meet our requirements may materially and adversely affect our operating results while we establish alternative supply chain channels.
Such conditions may result in reduced customer traffic and spending in our stores, physical damage to our stores, full or partial loss of power in our stores, loss of inventory, closure of one or more of our stores, inadequate work force in our markets, temporary disruption in the supply of products whether from self or third-party distribution, delays in the delivery of 19 goods to our stores and a reduction in the availability of products in our stores.
Such conditions may result in reduced customer traffic and spending in our stores, physical damage to our stores, full or partial loss of power in our stores, loss of inventory, closure of one or more of our stores, inadequate work force in our markets, temporary disruption in the supply of products whether from self or third-party distribution, delays in the delivery of goods to our stores and a reduction in the availability of products in our stores.
With the opening of two fresh distribution centers in 2021, we now have more than 85% of our stores within 250 miles of a distribution center. 1 • Refine Brand and Marketing Approach. We believe we are elevating our national brand recognition and positioning by telling our unique brand story rooted in product innovation and differentiation.
With the opening of two fresh distribution centers in 2021, we now have more than 85% of our stores within 250 miles of a distribution center. • Refine Brand and Marketing Approach. We believe we are elevating our national brand recognition and positioning by telling our unique brand story rooted in product innovation and differentiation.
The outcomes of these actions have included both negotiated out-of-court settlements as well as litigation. 13 Information Technology Systems We have made significant investments in information technology infrastructure and business systems, including point-of-sale, data warehouse, labor management, purchasing, inventory control, demand forecasting, and financial and reporting systems.
The outcomes of these actions have included both negotiated out-of-court settlements as well as litigation. Information Technology Systems We have made significant investments in information technology infrastructure and business systems, including point-of-sale, data warehouse, labor management, purchasing, inventory control, demand forecasting, and financial and reporting systems.
In the past, the FDA has expressed concerns regarding summarized health and nutrition-related information that (i) does not, in the FDA’s view, accurately present such information, (ii) diverts a consumer’s attention and focus from FDA-required nutrition labeling and information or (iii) impermissibly promotes drug-type disease-related benefits.
In the past, the FDA has expressed concerns regarding summarized health and nutrition-related information that it (i) does not, in the FDA’s view, accurately present such information, (ii) diverts a consumer’s attention and focus from FDA-required nutrition labeling and information or (iii) impermissibly promotes drug-type disease-related benefits.
In addition, unexpected delays in deliveries from vendors that ship directly to our stores or increases in distribution and transportation costs (including through increased fuel costs) could have a material adverse effect on our financial condition, results of operations and cash flows.
In addition, unexpected delays in deliveries from vendors that ship directly to our stores or increases in distribution and transportation costs (including through increased labor or fuel costs) could have a material adverse effect on our financial condition, results of operations and cash flows.
Our performance is impacted by trends regarding healthy lifestyles, product attributes, dietary preferences, convenient options, natural and organic products, meal solutions, ingredient transparency and sustainability, and vitamins and supplements, as well as new and evolving methods of engaging with and delivering our products to our customers.
Our performance is impacted by trends regarding healthy lifestyles, product attributes, dietary preferences, convenient options, fresh, natural and organic products, meal solutions, ingredient transparency and sustainability, and vitamins and supplements, as well as new and evolving methods of engaging with and delivering our products to our customers.
In order to comply with applicable statutes and regulations, our suppliers and contract manufacturers have from time to time 27 reformulated, eliminated or relabeled certain of their products and we have revised certain provisions of our sales and marketing program. We are also subject to laws and regulations more generally applicable to retailers.
In order to comply with applicable statutes and regulations, our suppliers and contract manufacturers have from time to time reformulated, eliminated or relabeled certain of their products and we have revised certain provisions of our sales and marketing program. We are also subject to laws and regulations more generally applicable to retailers.
This authority applies to all domestic food facilities and, by way of imported food supplier verification requirements, to all foreign facilities that supply food products. 14 The FDA and FSIS also exercise broad jurisdiction over the labeling and promotion of food.
This authority applies to all domestic food facilities and, by way of imported food supplier verification requirements, to all foreign facilities that supply food products. The FDA and FSIS also exercise broad jurisdiction over the labeling and promotion of food.
Some of these competitors may have been in business longer or may have greater financial or marketing resources than we do and may be able to devote greater resources to sourcing, promoting and selling 18 their products.
Some of these competitors may have been in business longer or may have greater financial or marketing resources than we do and may be able to devote greater resources to sourcing, promoting and selling their products.
In addition to the impact of the COVID-19 pandemic, 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, tariffs and other macroeconomic factors that affect consumer spending and confidence or buying habits may materially adversely affect the demand for products we sell in our stores.
In addition to the impact of the COVID-19 pandemic, inflation, recessionary economic cycles, increases in interest rates, higher prices for commodities, raw materials, fuel and other energy, high levels of unemployment and consumer debt, depressed home values, high tax rates, tariffs and other macroeconomic factors that affect consumer spending and confidence or buying habits may materially adversely affect the demand for and prices of products we sell in our stores.
Our Amended and Restated Credit Agreement contains usual and customary restrictive covenants relating to our management and the operation of our business, including incurring additional indebtedness; making certain investments; merging, dissolving, liquidating, consolidating, or disposing of all or substantially all of our assets; paying dividends, making distributions, or redeeming capital stock; entering into transactions with our affiliates; and granting liens on our assets.
Our Credit Agreement contains usual and customary restrictive covenants relating to our management and the operation of our business, including incurring additional indebtedness; making certain investments; merging, dissolving, liquidating, consolidating, or disposing of all or substantially all of our assets; paying dividends, making distributions, or redeeming capital stock; entering into transactions with our affiliates; and granting liens on our assets.
The increased proximity of our distribution centers to our stores has allowed us to deliver on our fresh commitment to our customers, by sourcing more from products from local farmers and improving efficiencies in our distribution process. We believe our scale, together with this decentralized purchasing structure and flexibility generates cost savings, which we then pass on to our customers.
The increased proximity of our distribution centers to our stores has allowed us to deliver on our fresh commitment to our customers, by sourcing more products from local farmers and improving efficiencies in our distribution process. We believe our scale, together with this decentralized purchasing structure and flexibility generates cost savings, which we frequently pass on to our customers.
If we are unable to hire and retain team members capable of meeting our business needs and expectations, our business and brand image may be impaired.
If we are unable to hire, train and retain team members capable of meeting our business needs and expectations, our business and brand image may be impaired.
Our Amended and Restated Credit Agreement also requires us to maintain a specified total net leverage ratio and minimum interest coverage ratio at the end of any fiscal quarter at any time the facility is drawn. Our ability to meet these ratios, if applicable, could be affected by events beyond our control.
Our Credit Agreement also requires us to maintain a specified total net leverage ratio and minimum interest coverage ratio at the end of any fiscal quarter at any time the facility is drawn. Our ability to meet these ratios, if applicable, could be affected by events beyond our control.
Failure to comply with any of the covenants under our Amended and Restated Credit Agreement could result in a default under the facility, which could cause our lenders to accelerate the timing of payments and exercise their lien on substantially all of our assets, which would have a material adverse effect on our business, operating results, and financial condition.
Failure to comply with any of the covenants under our Credit Agreement could result in a default under the facility, which could cause our lenders to accelerate the timing of payments and exercise their lien on substantially all of our assets, which would have a material adverse effect on our business, operating results, and financial condition.
Our failure to compete successfully in our competitive industry may adversely affect our revenues and profitability. We operate in the competitive retail food industry. Our competitors include supermarkets, natural food stores, mass or discount retailers, warehouse membership clubs, online retailers and specialty stores, as well as restaurants and home delivery and home meal solution providers.
Our failure to compete successfully in our competitive industry may adversely affect our revenues and profitability. We operate in the competitive retail food industry. Our competitors include specialty grocers, conventional supermarkets, natural food stores, mass or discount retailers, warehouse membership clubs, online retailers and specialty stores, as well as restaurants and home delivery and home meal solution providers.
They could, however, increase our costs; result in our unintended misinterpretation or noncompliance; expose us to litigation; require the reformulation of certain products or alternative sourcing from domestic suppliers or otherwise to meet new standards, regulations or trade restrictions; require the recall or discontinuance of certain products not able to be reformulated or alternatively sourced in compliance with new regulations or restrictions; impose additional recordkeeping; expand documentation of the properties of certain products; necessitate expanded or different labeling and/or scientific substantiation; or require us to discontinue certain operations.
They could, however, increase our costs; result in our unintended misinterpretation or noncompliance; expose us to litigation, enforcement actions and fines; require the reformulation of certain products or alternative sourcing from domestic suppliers or otherwise to meet new standards, regulations or trade restrictions; require the recall or discontinuance of certain products not able to be reformulated or alternatively sourced in compliance with new regulations or restrictions; impose additional recordkeeping; expand documentation of the properties of certain products; necessitate expanded or different labeling and/or scientific substantiation; or require us to discontinue certain operations.
Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, which we believe will provide a long runway of at least 10% annual unit growth beginning in 2023. • Create an Advantaged Fresh Supply Chain.
Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, which we believe will provide a long runway of at least 10% annual unit growth beginning in 2024. • Create an Advantaged Fresh Supply Chain.
We believe, based on our industry experience, that our strong relationships in the produce business provide us a competitive advantage and enable us to offer high-quality produce at prices we believe are significantly below those of conventional food retailers and even further below high-end natural and organic food retailers.
We believe, based on our industry experience, that our strong relationships in the produce business provide us a competitive advantage and enable us to offer high-quality produce at prices we believe are generally below those of conventional food retailers and even further below high-end natural and organic food retailers.
Successful implementation of our long-term growth strategy depends upon a number of factors, including our ability to effectively achieve a level of cash flow or obtain necessary financing to support our expansion; find suitable sites for new store locations; negotiate and execute leases on acceptable terms; secure and manage the inventory necessary for the launch and operation of our new stores; hire, train and retain skilled team members; promote and market new stores; successfully execute and gain customer acceptance of our new store format; and address competitive merchandising, distribution, operational and other challenges encountered in connection with expansion into new geographic areas and markets.
Successful implementation of our long-term growth strategy depends upon a number of factors, including our ability to effectively achieve a level of cash flow or obtain necessary financing to support our expansion; find suitable sites for new store locations; manage supply chain constraints to obtain necessary equipment; negotiate and execute leases on acceptable terms; secure and manage the inventory necessary for the launch and operation of our new stores; hire, train and retain skilled team members; promote and market new stores; successfully execute and gain customer acceptance of our new store format; and address competitive merchandising, distribution, operational and other challenges encountered in connection with expansion into new geographic areas and markets.
A widespread health epidemic or other incidents beyond our control could materially impact our business. As evidenced by the ongoing COVID-19 pandemic, our business could be severely impacted by other widespread regional, national or global health epidemics or other incidents beyond our control such as terrorism, riots, acts of violence and other crimes.
Another widespread health epidemic or other incidents beyond our control could materially impact our business. As evidenced by the ongoing COVID-19 pandemic, our business could be severely impacted by other widespread regional, national or global health epidemics or other incidents beyond our control such as terrorism, riots, acts of violence and other crimes.
As a retailer of certain topical or ingestible cannabidiol (“CBD”) products, the FDA also has the authority to remove from the market any CBD product if it is adulterated, its labeling is false or misleading, it is otherwise misbranded, or if it violates any other FDCA or FDA requirement or regulation.
As a retailer of certain topical or ingestible CBD products, the FDA also has the authority to remove from the market any CBD product if it is adulterated, its labeling is false or misleading, it is otherwise misbranded, or if it violates any other FDCA or FDA requirement or regulation.
The following is a breakdown of our perishable and non-perishable sales mix: 2021 2020 2019 Perishables 57.7 % 57.2 % 57.7 % Non-Perishables 42.3 % 42.8 % 42.3 % Departments While we focus on providing an abundant and affordable offering of natural and organic produce, our stores also include the following departments that enable customers to have a full grocery shopping experience: packaged groceries, meat and seafood, deli, vitamins and supplements, dairy and dairy alternatives, bulk items, baked goods, frozen foods, natural health and body care, and beer and wine.
The following is a breakdown of our perishable and non-perishable sales mix: 2022 2021 2020 Perishables 58.0 % 57.7 % 57.2 % Non-Perishables 42.0 % 42.3 % 42.8 % Departments While we focus on providing an abundant and affordable offering of natural and organic produce, our stores also include the following departments that enable customers to have a full grocery shopping experience: packaged groceries, meat and seafood, deli, vitamins and supplements, dairy and dairy alternatives, bulk items, baked goods, frozen foods, natural health and body care, and beer and wine.
The Sprouts Healthy Communities Foundation In 2015, we formed the Sprouts Healthy Communities Foundation (referred to as our “Foundation”), a registered 501(c)(3) organization focused on promoting nutrition education and increasing access to fresh, nutritious food in communities where Sprouts operates.
The Sprouts Healthy Communities Foundation I n 2015, we formed the Sprouts Healthy Communities Foundation (referred to as our “Foundation”), a registered 501(c)(3) organization focused on promoting nutrition education and increasing access to fresh, nutritious food in communities where Sprouts operates.
Based on our industry experience, we believe our new stores capture market share from conventional supermarkets and specialty concepts in the supermarket segment. 12 Conventional supermarket customers are attracted to unique product offerings, formats and differentiated shopping experiences.
Based on our industry experience, we believe our new stores capture market share from conventional supermarkets and specialty concepts in the supermarket segment. Grocery customers are attracted to unique product offerings, formats and differentiated shopping experiences.
These products become treasure hunt items found at our stores. 5 Given the importance of produce to our stores, we source, warehouse and self-distribute nearly all produce. This ensures our produce meets our high-quality standards.
These products become treasure hunt items found at our stores. 5 Table of Contents Given the importance of produce to our stores, we source, warehouse and self-distribute nearly all produce. This ensures our produce meets our high-quality standards.
No cosmetic product labeling or marketing may advertise any therapeutic use, such as treating or preventing disease, or claim to affect the structure or function of the body. 15 Homeopathic Products . The FDA has the authority to regulate homeopathic products.
No cosmetic product labeling or marketing may advertise any therapeutic use, such as treating or preventing disease, or claim to affect the structure or function of the body. 15 Table of Contents Homeopathic Products . The FDA has the authority to regulate homeopathic products.
Advertising and Product Claims Risks. In connection with the marketing and advertisement of products we sell, we could be the target of claims relating to false or deceptive advertising, including under the oversight of the FTC and pursuant to the consumer protection statutes of some states.
In connection with the marketing and advertisement of products we sell, we could be the target of claims relating to false or deceptive advertising, including under the oversight of the FTC and pursuant to the consumer protection statutes of some states.
Based on our ESG accomplishments, we received a rating of AAA in the 2021 MSCI ESG Ratings assessment. The AAA rating represents the highest on the scale and signifies a company leading its industry in managing the most significant ESG risks and opportunities.
Based on our ESG accomplishments, we received a rating of AAA in the 2022 MSCI ESG Ratings assessment. The AAA rating represents the highest on the scale and signifies a company leading its industry in managing the most significant ESG risks and opportunities.
We believe we only serve a small portion of these target customers at present and have an opportunity to gain a larger proportion of their market share of food-at-home purchases by targeting and identifying those innovative, attribute-driven, quality products and providing the in-store experience and support in living a healthy lifestyle that they are seeking. 7 Environmental, Social and Governance Central to our identity is a genuine commitment to social and environmental responsibility.
We believe we only serve a small portion of these target customers at present and have an opportunity to gain a larger proportion of their market share of food-at-home purchases by targeting and identifying those innovative, attribute-driven, quality products and providing the in-store experience and support in living a healthy lifestyle that they are seeking. 8 Table of Contents Environmental, Social and Governance Central to our identity is a genuine commitment to social and environmental responsibility.
We believe our success depends, in substantial part, on our ability to: • anticipate, identify and react to fresh, natural and organic grocery and dietary supplement trends and changing consumer preferences and demographics in a timely manner; • translate market trends into appropriate, innovative, saleable product and service offerings in our stores before our competitors; and • develop and maintain vendor and service provider relationships that provide us access to the newest on-trend merchandise and customer engagement options on reasonable terms.
We believe our success depends, in substantial part, on our ability to: • anticipate, identify and react to fresh, natural and organic grocery and dietary supplement trends and changing consumer preferences and demographics in a timely manner; • translate market trends into appropriate, innovative, saleable product and service offerings in our stores before our competitors and effectively market these trends to our target customers; and • develop and maintain vendor and service provider relationships that provide us access to the newest on-trend merchandise and customer engagement options on reasonable terms.
We will continue making investments in our current information technology infrastructure and invest in systems that scale to support our growth and add efficiencies to our growing operations. In addition, we continue our focused efforts on limiting risk of a cyber-breach by investing in IT security technology tools, resources, penetration assessments, third-party security audits and employee training.
We will continue making investments in our current information technology infrastructure and invest in systems that scale to support our growth and add efficiencies to our growing operations. In addition, we continue our focused efforts on limiting risk of cyber-security incidents by investing in IT security technology tools, resources, penetration assessments, third-party security audits and employee training.
Both FDA and USDA have broad authority to enforce their applicable provisions relating to the safety, labeling, manufacturing, distribution and promotion of foods, cosmetics, homeopathic and dietary supplements, including powers to issue a public warning letter to a company, publicize information about adulterated or misbranded products, institute an administrative detention of products, request or order a recall of food from the market, and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution.
Both FDA and USDA have broad authority to enforce their applicable provisions relating to the safety, labeling, manufacturing, distribution and promotion of foods, cosmetics, homeopathic and CBD products, and dietary supplements, including powers to issue a public warning letter to a company, publicize information about adulterated or misbranded products, institute an administrative detention of products, request or order a recall of food from the market, impose import restrictions and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution.
Store traffic may further decline as customers shop less frequently, choose other retail or online outlets to minimize potential exposure to COVID-19 or return to restaurants and other outlets to purchase and consume food as state economies have reopened. We have incurred incremental ecommerce fees from pre-pandemic levels as more customers adopt our digital solutions.
Store traffic may further decline as customers shop less frequently, choose other retail or online outlets to minimize potential exposure to COVID-19 or return to restaurants and other outlets to purchase and consume food. We have incurred incremental ecommerce fees from pre-pandemic levels as more customers adopt our digital solutions.
Labor shortages, work stoppages or wage increases in the transportation or other industries, 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 or increased costs could negatively affect our business.
Labor shortages, work stoppages or wage increases in the transportation or other industries, long-term disruptions to the national and international transportation infrastructure, reduction in capacity and industry-specific 22 Table of Contents regulations such as hours-of-service rules that lead to delays or interruptions of deliveries or increased costs could negatively affect our business.
Our Competition and Industry We operate within the competitive and highly fragmented grocery store industry which encompasses a wide array of food retailers, including large conventional independent and chain supermarkets, warehouse clubs, small grocery and convenience stores, and natural and organic, specialty, mass, discount and other food retail and online formats.
Our Competition and Industry We operate within the competitive and highly fragmented grocery store industry which encompasses a wide array of food retailers, including large national and regional conventional chain supermarkets, warehouse clubs, small grocery and convenience stores, independent grocers, and natural and organic, specialty, mass, discount and other food retail and online formats.
Financial Reporting, Legal and Other Regulatory Risks We, as well as our vendors, are subject to numerous laws and regulations and our compliance with these laws and regulations may increase our costs, limit or eliminate our ability to sell certain products, raise regulatory enforcement risks, or otherwise adversely affect our business, reputation, results of operations, cash flows and financial condition.
We, as well as our vendors, are subject to numerous laws and regulations and our compliance with these laws and regulations may increase our costs, limit or eliminate our ability to sell certain products, raise regulatory enforcement risks, or otherwise adversely affect our business, reputation, results of operations, cash flows and financial condition. Enforcement.
Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, and the Proxy Statement for our Annual Meeting of Stockholders are made available, free of charge, on our investor relations website at http://investors.sprouts.com/ , as soon as reasonably practicable after such reports have been filed with or furnished to the SEC. 16 I tem 1A.
Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, and the Proxy Statement for our Annual Meeting of Stockholders are made available, free of charge, on our investor relations website at http://investors.sprouts.com/ , as soon as reasonably practicable after such reports have been filed with or furnished to the SEC.
We must comply with provisions regulating health, sanitation and food safety standards, food labeling, equal employment, minimum wages, data privacy, environmental protection, licensing for the manufacture, preparation and sale of food and, in many stores, licensing for beer and wine or other alcoholic beverages.
We must comply with provisions regulating health, sanitation and food safety standards, food labeling, equal employment, minimum wages, data privacy, environmental protection, licensing for the manufacture, preparation and sale of food and, in many stores, licensing for beer and wine or other alcoholic beverages, and cannabidiol (“CBD”) products.
Dietary Supplement, CBD and Homeopathic Product Risks. Our sales of dietary supplements are regulated by FDA. However, other public and private actors are increasingly targeting dietary supplement retailers and manufacturers for selling products that fail to adhere to requirements under FDCA, as amended by DSHEA.
Dietary Supplement, CBD and Homeopathic Product Risks. Our sales of dietary supplements are regulated by FDA. However, other public and private actors are increasingly targeting dietary supplement 27 Table of Contents retailers and manufacturers for selling products that fail to adhere to requirements under FDCA, as amended by DSHEA.
We use a combination of insurance and self-insurance plans to provide for potential liabilities, including for workers’ compensation, general liability (including, in connection with legal proceedings described under “—Legal proceedings could materially impact our business, financial condition, results of 25 operations and cash flows” below), property insurance, director and officers’ liability insurance, vehicle liability and team member health-care benefits.
We use a combination of insurance and self-insurance plans to provide for potential liabilities, including for workers’ compensation, general liability (including, in connection with legal proceedings described under “—Legal proceedings could materially impact our business, financial condition, results of operations and cash flows” below), property insurance, director and officers’ liability insurance, automobile liability insurance, environmental liability insurance, and team member health-care benefits.
Growing Our Business As part of our long-term growth plan, we plan to expand our store base with at least 10% annual unit growth beginning in 2023.
Growing Our Business As part of our long-term growth plan, we plan to expand our store base with at least 10% annual unit growth beginning in 2024.
The FTC exercises jurisdiction over the advertising of foods, cosmetics, homeopathic products and dietary supplements. The FTC has the power to institute monetary sanctions and the imposition of consent decrees and penalties that can severely limit a company’s business practices.
Food, Cosmetics, Homeopathic and CBD Products, and Dietary Supplement Advertising. The FTC exercises jurisdiction over the advertising of foods, cosmetics, homeopathic and CBD products, and dietary supplements. The FTC has the power to institute monetary sanctions and the imposition of consent decrees and penalties that can severely limit a company’s business practices.
Our target customer seeks better-for-you grocery options and innovative, quality products to support their healthy lifestyle. We believe they are engaged and connected to what they eat – how it makes them feel, where it comes from and the role it can play in their lives.
Our target customer over-indexes on lifestyle choices and seeks better-for-you grocery options and innovative, quality products to support their healthy lifestyle. We believe they are engaged and connected to what they eat – how it makes them feel, where it comes from and the role it can play in their lives.
We build on our targeted recruitment efforts with robust training on customer engagement and product knowledge to ensure there is friendly, knowledgeable staff in every store. As of January 2, 2022, we had approximately 31,000 team members. None of our team members are subject to collective bargaining agreements.
We build on our targeted recruitment efforts with robust training on customer engagement and product knowledge to ensure there is friendly, knowledgeable staff in every store. As of January 1, 2023, we had approximately 31,000 team members. None of our team members are subject to collective bargaining agreements.
If our systems are improperly implemented, breached, damaged, cease to function properly, or are perceived to have failed, we may have to make significant investments to fix or replace them; suffer interruptions in our operations; experience data loss; incur liability to our customers, team members and others; face costly litigation, enforcement actions and penalties; and our brand and 22 reputation with our customers may be harmed.
If our systems are improperly implemented, breached, damaged, cease to function properly, do not function as anticipated or are perceived to have failed, we may have to make significant investments to fix or replace them; suffer interruptions in our operations; experience data loss; incur liability to our customers, team members and others; face costly litigation, enforcement actions and penalties; and our brand and reputation with our customers may be harmed.
KeHE Distributors, LLC (“KeHE”), is our primary supplier of dry grocery and frozen food products, accounting for approximately 44%, 42% and 40% of our total purchases in fiscal 2021, 2020, and 2019, respectively. Another 3% of our total purchases in each of fiscal 2021, 2020 and 2019 were made through our secondary supplier, United Natural Foods, Inc. (“UNFI”).
KeHE Distributors, LLC (“KeHE”), is our primary supplier of dry grocery and frozen food products, accounting for approximately 45%, 44% and 42% of our total purchases in fiscal 2022, 2021, and 2020, respectively. Another 3% of our total purchases in each of fiscal 2022, 2021 and 2020 were made through our secondary supplier, United Natural Foods, Inc. (“UNFI”).
We believe our network of fresh distribution centers can drive efficiencies across the chain and support growth plans. To further deliver on our fresh commitment and reputation, as well as to improve financial results, we will aspire to ultimately position fresh distribution centers within a 250-mile radius of stores.
We believe our network of fresh distribution centers can drive efficiencies across the chain and support growth plans. To further deliver on our fresh commitment and reputation, as well as to increase our local offerings and improve financial results, we aspire to ultimately position fresh distribution centers within a 250-mile radius of stores.
The stores are designed with open layouts and low displays, intended to provide an easy-to-shop environment that invokes a farmers’ market experience and allows our customers to view the entire store. Our small box format allows for quick in-and-out service, and our curated assortment of responsibly and locally sourced items offer surprise and delightful shopping experiences.
The stores are designed with open layouts and low displays, intended to provide an easy-to-shop environment that invokes a farmers’ market experience and allows our customers to view the entire store. Our small box format allows for quick in-and-out service, and our curated assortment of innovative, responsibly and locally sourced items offer treasure hunt shopping experiences.
We believe each of our departments provides high-quality, differentiated and value-oriented offerings for our customers which we continuously refine with our customer preferences in mind. 4 Private Label We have been expanding the breadth of our Sprouts branded products over the last several years and have a dedicated product development team focused on continuing this growth.
We believe each of our departments provides high-quality, differentiated and value-oriented offerings for our customers which we continuously refine with our customer preferences in mind. 4 Table of Contents Sprouts Brand We have been expanding the breadth of our Sprouts branded products over the last several years and have a dedicated product development team focused on continuing this growth.
From our founding in 2002 through January 2, 2022, we have grown rapidly, significantly increasing our sales, store count and profitability, including successfully rebranding to the Sprouts banner 43 Henry’s Farmers Market and 39 Sunflower Farmers Market stores added in 2011 and 2012, respectively, through acquisitions.
From our founding in 2002 through January 1, 2023, we have grown rapidly, significantly increasing our sales, store count and profitability, including successfully rebranding 43 Henry’s Farmers Market and 39 Sunflower Farmers Market stores added in 2011 and 2012, respectively, to the Sprouts banner through acquisitions.
Brand value is based in large part on perceptions of subjective qualities, and even isolated incidents involving our company, our team members, suppliers, agents or third-party service providers, or the products we sell can erode trust and confidence, particularly if they involve our private label products, or result in adverse publicity, governmental investigations or litigation.
Brand value is based in large part on perceptions of subjective qualities, and even isolated incidents involving our company, our team members, suppliers, agents, marketing partners, or third-party service providers, or the products we sell can erode trust and confidence, particularly if they involve our Sprouts brand products, or result in adverse publicity, governmental investigations or litigation.
Our primary supplier of meat and seafood accounted for approximately 13% of our total purchases in each of fiscal 2021, 2020 and 2019.
Our primary supplier of meat and seafood accounted for approximately 13% of our total purchases in each of fiscal 2022, 2021 and 2020.
Further, new store openings in markets where we have existing stores may result in reduced sales volumes at our existing stores in those markets. If we experience a decline in performance, we may slow or discontinue store openings, or we may decide to close stores that we are unable to operate in a profitable manner.
Further, new store openings in markets where we have existing stores may result in reduced sales volumes at our existing stores in those markets. If we experience a decline in performance, we may slow or discontinue store openings, or we may decide to close stores that we are unable to 21 Table of Contents operate in a profitable manner.
In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, causing our customer engagement to suffer, while increasing our wages could cause our earnings to decrease.
In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, causing our customer engagement to suffer, while increasing our wages could 25 Table of Contents cause our earnings to decrease.
We intend to continue to focus our growth on areas where we have a large concentration of stores, such as California and Texas, while building out our newer markets, such as Florida and the Mid-Atlantic region, to achieve a larger concentration of stores. We have opened 12, 22 and 28 new stores in fiscal 2021, 2020 and 2019, respectively.
We intend to continue to focus our growth on areas where we have a large concentration of stores, such as California and Texas, while building out our newer markets, such as Florida, Georgia and the Mid-Atlantic region, to achieve a larger concentration of stores. We have opened 16, 12 and 22 new stores in fiscal 2022, 2021 and 2020, respectively.
In addition, we and our suppliers compete with other food retailers in the procurement of fresh, natural and organic products, which are often less available than conventional products.
In addition, we and our suppliers compete with other food retailers in the procurement of fresh, natural and organic products, and other specialty, attribute-driven products which are often less available than conventional products.
If our competitors significantly increase their fresh, natural and organic product offerings due to increases in consumer demand or otherwise, we and our suppliers may not be able to obtain a sufficient supply of such products on favorable terms, or at all, and our sales may decrease, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
If our competitors significantly increase these types of product offerings due to increases in consumer demand or otherwise, we and our suppliers may not be able to obtain a sufficient supply of such products on favorable terms, or at all, and our sales may decrease, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our website address is www.sprouts.com . The information on or accessible through our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the Securities and Exchange Commission (“SEC”).
The information on or accessible through our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the Securities and Exchange Commission (“SEC”).
In addition, we could become subject to investigations by the NASDAQ Stock Market, the SEC, or other regulatory authorities, which could require additional financial and management resources. If our goodwill or other intangible assets become impaired, we may be required to record a significant charge to earnings. We have a significant amount of goodwill and other intangible assets.
In addition, we could become subject to investigations by the NASDAQ Stock Market, the SEC, or other regulatory authorities, which could require additional financial and management resources. 30 Table of Contents If our goodwill or other intangible assets become impaired, we may be required to record a significant charge to earnings.
In addition, AMS has responsibility for newly enacted requirements surrounding the disclosure of the presence of bioengineered ingredients in food, scheduled to become mandatory in 2022. AMS also enforces the Perishable Agricultural Commodities Act (PACA) which imposes fair business practices on parties engaged in the sale of perishable fruits, vegetables and some nuts.
In addition, AMS has responsibility for newly enacted requirements surrounding the disclosure of the presence of bioengineered ingredients in food. AMS also enforces the Perishable Agricultural Commodities Act (PACA) which imposes fair business practices on parties engaged in the sale of perishable fruits, vegetables and some nuts.
Our nutrition-oriented educational activities may be impacted by government regulation or our inability to secure adequate liability insurance. We provide nutrition-oriented information to our customers, and these activities may be subject to state and federal regulation and oversight by professional organizations or misconstrued by our customers as medical advice.
Our nutrition-oriented educational activities may be impacted by government regulation or our inability to secure adequate liability insurance. We provide nutrition-oriented information to our customers, and these activities may be subject to state and federal regulation and oversight by professional organizations.
Under the FDCA, homeopathic products are subject to the same requirements related to approval, adulteration and misbranding as other drug products. There are no FDA-approved products labeled as homeopathic. any product labeled as homeopathic is being marketed in the U.S. without FDA evaluation for safety or effectiveness. Food, Cosmetics, Homeopathic Product and Dietary Supplement Advertising.
Under the FDCA, homeopathic products are subject to the same requirements related to approval, adulteration and misbranding as other drug products. There are no FDA-approved products labeled as homeopathic. Any product labeled as homeopathic is being marketed in the U.S. without FDA evaluation for safety or effectiveness. CBD Products.
Sales of produce accounted for approximately 21% and 22% of our net sales in fiscal 2021 and 2020, respectively. Despite temporary challenges related to the COVID-19 pandemic, we have generally not experienced significant difficulty to date in maintaining the supply of our produce and fresh, natural and organic products that meet our quality standards.
Sales of produce accounted for approximately 20% and 21% of our net sales in fiscal 2022 and 18 Table of Contents 2021, respectively. Despite temporary challenges related to the COVID-19 pandemic, we have generally not experienced significant difficulty to date in maintaining the supply of our produce and fresh, natural and organic products that meet our quality standards.
We are beginning to deliver unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer’s market heritage Sprouts is known for. In 2021, we opened three stores and remodeled one store featuring our new format.
We are delivering unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer’s market heritage Sprouts is known for. In 2021, we opened three stores and remodeled one store featuring our new format, and in 2022, we opened nine new format stores.
Any or all of such requirements could have a material adverse effect on our business, financial condition, results of operations and cash flows. Legal proceedings could materially impact our business, financial condition, results of operations and cash flows.
Any or all of such requirements could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Such a lawsuit could also divert the time and attention of our management. 30 Anti-takeover provisions could impair a takeover attempt and adversely affect existing stockholders.
Such a lawsuit could also divert the time and attention of our management. 31 Table of Contents Anti-takeover provisions could impair a takeover attempt and adversely affect existing stockholders.
Business and Operating Risks 20 Our continued growth largely depends on new store openings, and our failure to successfully open new stores could negatively impact our business. Our continued growth depends, in large part, on our ability to open new stores and to operate those stores successfully.
Business and Operating Risks Our ability to execute on our long-term growth strategy largely depends on new store openings, and our failure to successfully open new stores could negatively impact our business. Our continued growth depends, in large part, on our ability to open new stores and to operate those stores successfully.
In response, we have implemented numerous security protocols in order to strengthen security, and we maintain a customary cyber insurance policy, but there can be no assurance breaches will not occur in the future, be detected in a timely manner or be covered by our insurance policy.
In response to these wide-ranging cybersecurity and data privacy risks, we have implemented numerous security protocols in order to strengthen security, and we maintain a customary cyber insurance policy, but there can be no assurance breaches will not occur in the future, be detected in a timely manner or be covered by our insurance policy.
Under our long-term growth strategy, our new format stores feature a smaller box size, generally between 21,000 and 25,000 square feet, that are less expensive to build, reduce non-selling space, reduce occupancy and operating costs and leverage the strengths of our older, highly productive stores.
Under our long-term growth strategy, our new format stores feature a smaller box size, generally between 21,000 and 25,000 square feet, that stay true to our fresh-focused, farmers market heritage but are less expensive to build, reduce non-selling space, reduce occupancy and operating costs and leverage the strengths of our older, highly productive stores.
During 2021, we garnered more than 215 million weekly digital flyer impressions, demonstrating that our leverage of digital media to reach customers and share what is new and unique at Sprouts resonates with the habits of today’s shoppers. We experienced a 76% increase in SMS subscribers and a 26% increase in email subscribers in 2021.
During 2022, we garnered more than 20 million weekly digital flyer impressions, demonstrating that our leverage of digital media to reach customers and share what is new and unique at Sprouts resonates with the habits of today’s shoppers. We experienced a 27% increase in SMS subscribers and a 16% increase in email subscribers in 2022 compared to 2021.
As a result, consumers may be more cautious and could shift their spending to lower-priced competition, such as warehouse membership clubs, dollar stores, online retailers or extreme value formats, which could have a material and adverse effect on our operating results and financial condition. In addition, prolonged inflation or deflation can impact our business.
As a result, consumers may be more cautious and could reduce their spending in our stores or shift their spending to lower-priced competition, such as warehouse membership clubs, dollar stores, online retailers or extreme value formats, which could have a material and adverse effect on our operating results and financial condition.
See “Risk Factors—Disruption of significant supplier relationships could negatively affect our business.” Our Pricing, Marketing and Advertising Pricing As a farmers market style store, we emphasize low prices throughout the entire store, as we are able to pass along the benefits of our scale and purchasing power to our customers.
See “Risk Factors—Disruption of significant supplier relationships could negatively affect our business.” Our Pricing, Marketing and Advertising Pricing As a farmers market style store, we emphasize competitive prices throughout the entire store, as we are able to pass along the benefits of our scale and purchasing power to our customers, particularly in certain categories such as produce.
If we are ineffective in performing these activities, then our efforts to open and operate new stores may be unsuccessful or unprofitable, and we may be unable to execute our growth strategy. We opened 12 and 22 stores in fiscal 2021 and 2020, respectively, and we currently expect to open approximately 15 to 20 new stores in 2022.
If we are ineffective in performing these activities, then our efforts to open and operate new stores may be unsuccessful or unprofitable, and we may be unable to execute our growth strategy. We opened 16 and 12 stores in fiscal 2022 and 2021, respectively, and we currently expect to open approximately 30 new stores in 2023.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeSee “Business – Sourcing and Distribution” for additional information with respect to our distribution centers. We believe our portfolio of long-term leases is a valuable asset supporting our retail operations, but we do not believe that any individual store property or distribution center is material to our financial condition or results of operations. 32
Biggest changeWe believe our portfolio of long-term leases is a valuable asset supporting our retail operations, but we do not believe that any individual store property or distribution center lease is material to our financial condition or results of operations. 34 Table of Contents In February 2023 as part of our real estate portfolio review, we determined to close 11 stores during 2023.
In fiscal 2020, we opened 22 new stores. We lease all of our stores from unaffiliated third parties. A typical store lease is for an initial 10 to 15 year term with three or four renewal options of five years each. We expect that we will be able to renegotiate these leases or relocate these stores as necessary.
In fiscal 2021, we opened 12 new stores. We lease all of our stores from unaffiliated third parties. A typical store lease is for an initial 10 to 15 year term with three or four renewal options of five years each. We expect that we will be able to renegotiate these leases or relocate these stores as necessary.
In addition to new store openings, we remodel or relocate stores periodically in order to improve performance. See “Business – New Store Development” for additional information with respect to our store site selection process. As of January 2, 2022, we utilized seven distribution centers.
In addition to new store openings, we remodel or relocate stores periodically in order to improve performance. See “Business – New Store Development” for additional information with respect to our store site selection process. As of January 1, 2023, we utilized seven distribution centers.
As of January 2, 2022, we had 374 stores located in 23 states, as shown in the chart below: State Number of Stores State Number of Stores Alabama 3 New Jersey 1 Arizona 43 New Mexico 9 California 128 North Carolina 5 Colorado 32 Oklahoma 11 Delaware 1 Pennsylvania 2 Florida 29 South Carolina 1 Georgia 18 Tennessee 6 Kansas 5 Texas 47 Louisiana 1 Utah 5 Maryland 5 Virginia 1 Missouri 3 Washington 4 Nevada 14 In fiscal 2021, we opened 12 new stores.
As of January 1, 2023, we had 386 stores located in 23 states, as shown in the chart below: State Number of Stores State Number of Stores Alabama 3 New Jersey 1 Arizona 44 New Mexico 9 California 130 North Carolina 5 Colorado 32 Oklahoma 11 Delaware 1 Pennsylvania 2 Florida 35 South Carolina 1 Georgia 18 Tennessee 6 Kansas 4 Texas 51 Louisiana 1 Utah 5 Maryland 5 Virginia 1 Missouri 3 Washington 4 Nevada 14 In fiscal 2022, we opened 16 new stores.
Added
We expect to expand our distribution center network to support our growth. See “Business – Sourcing and Distribution” for additional information with respect to our distribution centers.
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These stores, on average, are approximately 30% larger than our current prototype format and are underperforming financially. See Note 28, “Subsequent Events” to our Consolidated Financial Statements for additional information regarding these store closures.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSee Note 18, “Commitments and Contingencies ” to our Consolidated Financial Statements for information regarding certain legal proceedings in which we are involved. Item 4. Mine Safe ty Disclosures Not applicable. 33 PART II
Biggest changeSee Note 19, “Commitments and Contingencies ” to our Consolidated Financial Statements for information regarding certain legal proceedings in which we are involved.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe performance shown on the graph below is based on historical results and is not intended to suggest future performance.
Biggest changeThe graph assumes the initial value of our common stock on December 29, 2017 (the last trading day prior to the beginning of fiscal 2018) was the closing sale price on that day of $24.35 per share. The performance shown on the graph below is based on historical results and is not intended to suggest future performance.
Item 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock began trading on the NASDAQ Global Select Market under the symbol “SFM” on August 1, 2013. The number of stockholders of record of our common stock as of February 22, 2022 was 26.
Item 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock began trading on the NASDAQ Global Select Market under the symbol “SFM” on August 1, 2013. The number of stockholders of record of our common stock as of February 28, 2023 was 26.
The shares may be purchased on a discretionary basis from time to time through March 3, 2024, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. 34 Performance Graph The graph set forth below compares the cumulative total stockholder return on our common stock between January 1, 2017 and January 2, 2022, with the cumulative total return of (i) the Nasdaq Composite Index and (ii) the S&P Food Retail Index, over the same period.
The shares may be purchased on a discretionary basis from time to time through December 31, 2023, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. 36 Table of Contents Performance Graph The graph set forth below compares the cumulative total stockholder return on our common stock between December 31, 2017 and January 1, 2023, with the cumulative total return of (i) the NASDAQ Composite Index and (ii) the S&P Food Retail Index, over the same period.
Our Amended and Restated Credit Agreement contains covenants that we must satisfy in order to pay cash dividends. Issuer Purchases of Equity Securities The following table provides information about our share repurchase activity during the thirteen weeks ended January 2, 2022.
Our Credit Agreement contains covenants that we must satisfy in order to pay cash dividends. Issuer Purchases of Equity Securities The following table provides information about our share repurchase activity during the thirteen weeks ended January 1, 2023.
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any filing of Sprouts Farmers Market, Inc. under the Securities Act or the Exchange Act. 35 Item 6. [R eserved] 36
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any filing of Sprouts Farmers Market, Inc. under the Securities Act or the Exchange Act. 37 Table of Contents
(2) On March 3, 2021, our board of directors authorized a $300 million share repurchase program of our common stock.
(2) On March 2, 2022, our board of directors authorized a $600 million share repurchase program of our common stock.
The comparison assumes that $100.00 was invested in our common stock, the Nasdaq Composite Index and the S&P Food Retail Index, and assumes reinvestment of dividends, if any. The graph assumes the initial value of our common stock on January 1, 2017 was the closing sale price on that day of $18.92 per share.
The comparison assumes that $100.00 was invested in our common stock, the NASDAQ Composite Index and the S&P Food Retail Index, and assumes reinvestment of dividends, if any.
Period (1) Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs (2) Approximate dollar value of shares that may be purchased under the plans or programs (2) Oct 4, 2021 - Oct 31, 2021 896,851 $ 22.30 896,851 $ 142,516,000 Nov 1, 2021 - Nov 28, 2021 284,907 $ 25.24 284,907 $ 135,324,000 Nov 29, 2021 - Jan 2, 2022 874,562 $ 27.06 874,562 $ 111,657,000 Total 2,056,320 2,056,320 (1) Periodic information is presented by reference to our fiscal periods during the fourth quarter of fiscal year 2021.
Period (1) Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Approximate dollar value of shares that may yet be purchased under the plans or programs (2) October 3, 2022 - October 30, 2022 516,534 $ 27.61 516,534 $ 442,504,000 October 31, 2022 - November 27, 2022 436,669 $ 31.01 436,669 $ 428,964,000 November 28, 2022 - January 1, 2023 506,825 $ 33.71 506,825 $ 411,877,000 Total 1,460,028 1,460,028 (1) Periodic information is presented by reference to our fiscal periods during the fourth quarter of fiscal year 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFiscal 2021 Fiscal 2020 Fiscal 2019 (in thousands, except per share data) Consolidated Statement of Income Data: Net sales $ 6,099,869 $ 6,468,759 $ 5,634,835 Cost of sales 3,890,657 4,089,470 3,740,017 Gross profit 2,209,212 2,379,289 1,894,818 Selling, general and administrative expenses 1,748,205 1,863,869 1,549,707 Depreciation and amortization (exclusive of depreciation included in cost of sales) 122,258 124,124 120,491 Store closure and other costs, net 4,673 (369 ) 7,260 Income from operations 334,076 391,665 217,360 Interest expense, net 11,684 14,787 21,192 Income before income taxes 322,392 376,878 196,168 Income tax provision 78,235 89,428 46,539 Net income $ 244,157 $ 287,450 $ 149,629 40 Fiscal 2021 Fiscal 2020 Fiscal 2019 Other Operating Data: Comparable store sales growth (6.7 )% 6.9 % 1.1 % Stores at beginning of period 362 340 313 Opened (1) 12 22 28 Closed — — (1 ) Stores at end of period 374 362 340 (1) Stores opened is exclusive of one store relocation during fiscal 2021 and 2019. 41 Comparison of Fiscal 2021 to Fiscal 2020 Net sales Fiscal 2021 Fiscal 2020 Change % Change (dollars in thousands) Net sales $ 6,099,869 $ 6,468,759 $ (368,890 ) (6 )% Comparable store sales growth (6.7 )% 6.9 % Net sales during 2021 totaled $6.1 billion, decreasing 6% over the prior fiscal year.
Biggest changeFiscal 2022 Fiscal 2021 Fiscal 2020 (in thousands, except per share data) Consolidated Statement of Income Data: Net sales $ 6,404,223 $ 6,099,869 $ 6,468,759 Cost of sales 4,055,659 3,890,657 4,089,470 Gross profit 2,348,564 2,209,212 2,379,289 Selling, general and administrative expenses 1,855,649 1,748,205 1,863,869 Depreciation and amortization (exclusive of depreciation included in cost of sales) 123,530 122,258 124,124 Store closure and other costs, net 11,025 4,673 (369 ) Income from operations 358,360 334,076 391,665 Interest expense, net 9,047 11,684 14,787 Income before income taxes 349,313 322,392 376,878 Income tax provision 88,149 78,235 89,428 Net income $ 261,164 $ 244,157 $ 287,450 Weighted average shares outstanding - basic 108,232 115,377 117,821 Dilutive effect of equity-based awards 907 700 403 Weighted average shares and equivalent shares outstanding - diluted 109,139 116,077 118,224 Diluted net income per share $ 2.39 $ 2.10 $ 2.43 Fiscal 2022 Fiscal 2021 Fiscal 2020 Other Operating Data: Comparable store sales growth 2.2 % (6.7 )% 6.9 % Stores at beginning of period 374 362 340 Opened (1) 16 12 22 Closed (4 ) — — Stores at end of period 386 374 362 Selling square feet at the end of the period 10,894,396 10,625,686 10,344,669 Average store size at the end of the period (selling square feet) 28,224 28,411 28,576 (1) Stores opened is exclusive of one store relocation during fiscal 2021. 42 Table of Contents Comparison of Fiscal 2022 to 2021 Net sales Fiscal 2022 Fiscal 2021 Change % Change (dollars in thousands) Net sales $ 6,404,223 $ 6,099,869 $ 304,354 5 % Comparable store sales growth 2.2 % (6.7 )% Net sales during 2022 totaled $6.4 billion, increasing 5%, over the prior fiscal year.
Additional factors that influence comparable store sales growth and other sales trends include: • general economic conditions and trends, including levels of disposable income and consumer confidence; • product price inflation or deflation; • our competition, including competitive store openings in the vicinity of our stores and competitor pricing and merchandising strategies; • consumer preferences and buying trends; • our ability to identify market trends, and to source and provide product offerings that promote customer traffic and growth in average ticket; • the number of customer transactions and average ticket; • the prices of our products, including the effects of factors beyond our control, such as inflation, deflation and tariffs; • opening new stores in the vicinity of our existing stores; and • advertising, in-store merchandising and other marketing activities.
Additional factors that influence comparable store sales growth and other sales trends include: • general economic conditions and trends, including levels of disposable income and consumer confidence; • our competition, including competitive store openings in the vicinity of our stores and competitor pricing and merchandising strategies; • consumer preferences and buying trends; • our ability to identify market trends, and to source and provide product offerings that promote customer traffic and growth in average ticket; • the number of customer transactions and average ticket; • the prices of our products, including the effects of factors beyond our control, such as inflation, deflation and tariffs; • opening new stores in the vicinity of our existing stores; and • advertising, in-store merchandising and other marketing activities.
We believe that of our significant accounting policies, which are described in Note 3, “Significant Accounting Policies” to the audited consolidated financial statements included in this Annual Report on Form 10-K, the following accounting policies involve the most difficult, complex or subjective judgements: inventories, lease assumptions, self-insurance reserves, goodwill and intangible assets, impairment of long-lived assets, and income taxes.
We believe that of our significant accounting policies, which are described in Note 3, “Significant Accounting Policies” to the audited consolidated financial statements included in this Annual Report on Form 10-K, the following accounting policies involve the most difficult, complex or subjective judgments: inventories, lease assumptions, self-insurance reserves, goodwill and intangible assets, impairment of long-lived assets, and income taxes.
See Note 13, “Long-Term Debt and Finance Lease Liabilities,” Note 7, "Leases," Note 18, "Commitments and Contingencies" and Note 15, "Self-Insurance Programs" to our consolidated financial statements located elsewhere in this Annual Report on Form 10-K for more information on the nature and timing of these obligations.
See Note 7, "Leases," Note 13, “Long-Term Debt and Finance Lease Liabilities,” Note 15, "Self-Insurance Programs" and Note 19, "Commitments and Contingencies" to our consolidated financial statements located elsewhere in this Annual Report on Form 10-K for more information on the nature and timing of these obligations.
Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, which we believe will provide a long runway of at least 10% annual unit growth beginning in 2023. • Create an Advantaged Fresh Supply Chain.
Our geographic store expansion and new store placement will intersect where our target customers live, in markets with growth potential and supply chain support, which we believe will provide a long runway of at least 10% annual unit growth beginning in 2024. • Create an Advantaged Fresh Supply Chain.
Cost of sales and gross profit Cost of sales includes the cost of inventory sold during the period, including direct costs of purchased merchandise (net of discounts and allowances), distribution and supply chain costs and supplies. Cost of sales also includes depreciation and amortization expense for distribution centers and supply chain-related assets.
Cost of sales and gross profit Cost of sales includes the cost of inventory sold during the period, including direct costs of purchased merchandise (net of discounts and allowances), distribution and supply chain costs, and depreciation and amortization expense for distribution centers and supply chain-related assets.
Management believes that such routine commitments and contractual obligations do not have a material impact on our business, financial condition or results of operations. Impact of Inflation and Deflation Inflation and deflation in the prices of food and other products we sell may periodically affect our sales, gross profit and gross margin.
Management believes that such routine commitments and contractual obligations do not have a material impact on our business, financial condition or results of operations. 50 Table of Contents Impact of Inflation and Deflation Inflation and deflation in the prices of food and other products we sell may periodically affect our sales, gross profit and gross margin.
The assumed ownership and associated interest expense are calculated using the discount rate for each lease as recorded as a component of rent expense within selling, general and administrative expenses. Invested capital reflects a trailing twelve-month average. As numerous methods exist for calculating ROIC, our method may differ from methods used by other companies to calculate their ROIC.
The assumed ownership and associated interest expense are calculated using the discount rate for each lease as recorded as a component of rent expense within selling, general and administrative expenses. Invested capital reflects a trailing four-quarter average. As numerous methods exist for calculating ROIC, our method may differ from methods used by other companies to calculate their ROIC.
Selling, general and administrative expenses Selling, general and administrative expenses primarily consist of salaries, wages and benefits costs, share-based compensation, store occupancy costs (including rent, property taxes, utilities, common area maintenance and insurance), advertising costs, buying costs, pre-opening and other administrative costs. 39 Depreciation and Amortization Depreciation and amortization (exclusive of depreciation included in cost of sales) primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment.
Selling, general and administrative expenses Selling, general and administrative expenses primarily consist of salaries, wages and benefits costs, share-based compensation, store occupancy costs (including rent, property taxes, utilities, common area maintenance and insurance), advertising costs, buying costs, pre-opening and other administrative costs. 41 Table of Contents Depreciation and Amortization Depreciation and amortization (exclusive of depreciation included in cost of sales) primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment.
Our principal contractual obligations and commitments consist of obligations under our Amended and Restated Credit Agreement, interest on our Amended and Restated Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities.
Contractual Obligations Our principal contractual obligations and commitments consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities.
We recorded an impairment loss of $4.8 million and $4.1 million in 2021 and 2019, respectively, during the normal course of business. No impairment was recorded in 2020. See Note 3, “Significant Accounting Policies” and Note 6, “Property and Equipment”. Income Taxes Income taxes are accounted for under the asset and liability method.
We recorded an impairment loss of $8.1 million and $4.8 million in 2022 and 2021, respectively, during the normal course of business. No impairment was recorded in 2020. See Note 3, “Significant Accounting Policies” and Note 6, “Property and Equipment". Income Taxes Income taxes are accounted for under the asset and liability method.
We believe our network of fresh distribution centers can drive efficiencies across the chain and support growth plans. To further deliver on our fresh commitment and reputation, as well as to improve financial results, we will aspire to ultimately position fresh distribution centers within a 250-mile radius of stores.
We believe our network of fresh distribution centers can drive efficiencies across the chain and support growth plans. To further deliver on our fresh commitment and reputation, as well as to increase our local offerings and improve financial results, we aspire to ultimately position fresh distribution centers within a 250-mile radius of stores.
From our founding in 2002 through January 2, 2022, we have grown rapidly, significantly increasing our sales, store count and profitability, including successfully rebranding 43 Henry’s Farmers Market and 39 Sunflower Farmers Market stores added in 2011 and 2012, respectively, through acquisitions to the Sprouts banner.
From our founding in 2002 through January 1, 2023, we have grown rapidly, significantly increasing our sales, store count and profitability, including successfully rebranding 43 Henry’s Farmers Market and 39 Sunflower Farmers Market stores added in 2011 and 2012, respectively, to the Sprouts banner through acquisitions.
Store closure and other costs, net Store closure and other costs, net primarily reflects costs incurred related to store closures, including impairment charges of long-lived assets, severance and any exit costs associated with closing a store. One-time disaster recovery and executive severance costs are also included here.
Store closure and other costs, net Store closure and other costs, net primarily reflects impairment charges of long-lived assets and costs incurred related to store closures, including severance and any exit costs associated with closing a store, in addition to occupancy costs associated with closed store locations. One-time disaster recovery and executive severance costs are also included here.
Fair market value is used in determining whether the lease is accounted for as an operating lease or a finance lease. 50 Self-Insurance Reserves We are self-insured for costs related to workers’ compensation, general liability and employee health benefits up to certain stop-loss limits.
Fair market value is used in determining whether the lease is accounted for as an operating lease or a finance lease. 52 Table of Contents Self-Insurance Reserves We are self-insured for costs related to workers’ compensation, general liability and employee health benefits up to certain self-insured retentions and stop-loss limits.
No impairment of goodwill or indefinite-lived intangible assets was recorded during fiscal 2021, 2020 or 2019 because the fair value of those assets was substantially above carrying value. 51 Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
No impairment of goodwill or indefinite-lived intangible assets was recorded during fiscal 2022, 2021 or 2020 because the fair value of those assets was substantially above carrying value. 53 Table of Contents Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2021 filed with the SEC on February 25, 2021, which provides comparisons of fiscal 2020 and fiscal 2019, and which is incorporated by reference herein.
Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022 filed with the SEC on February 24, 2022, which provides comparisons of fiscal 2021 and fiscal 2020, and which is incorporated by reference herein.
We are beginning to deliver unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer’s market heritage Sprouts is known for. In 2021, we opened three stores and remodeled one store featuring our new format.
We are delivering unique smaller stores with expectations of stronger returns, while maintaining the approachable, fresh-focused farmer’s market heritage Sprouts is known for. In 2021, we opened three stores and remodeled one store featuring our new format, and in 2022, we opened nine new format stores.
Accordingly, our assessment of our valuation allowances requires considerable judgment and could have a significant negative or positive impact on our current and future earnings. 52
Accordingly, our assessment of our valuation allowances requires considerable judgment and could have a significant negative or positive impact on our current and future earnings. 54 Table of Contents
We believe that all inventories are saleable and no allowances or reserves for obsolescence were recorded as of January 2, 2022 and January 3, 2021.
We believe that all inventories are saleable and no allowances or reserves for obsolescence were recorded as of January 1, 2023 and January 2, 2022.
Proceeds from sales of gift cards are recorded as a liability at the time of sale and recognized as sales when they are redeemed by the customer. See Note 3, “Significant Accounting Policies” for additional information on revenue recognition related to gift cards.
Proceeds from sales of gift cards are recorded as a liability at the time of sale and recognized as sales when they are redeemed by the customer. See Note 3, “Significant Accounting Policies” for additional information on revenue recognition related to gift cards. We do not include sales taxes in net sales.
(2) Net income amounts represent total net income for the past four trailing quarters. (3) 2020 special items include professional fees related to our strategic initiatives . 2019 special items include the direct costs associated with store closure. (4) Net of tax amounts are calculated using the normalized effective tax rate for the periods presented.
(2) Net income amounts represent total net income for the past four trailing quarters. (3) 2020 special items include professional fees related to our strategic initiatives. (4) Net of tax amounts are calculated using the normalized effective tax rate for the periods presented.
We are executing on this strategy, focusing on the following areas: • Win with Target Customers . We are focusing attention on our target customers, identified through research as ‘health enthusiasts’ and ‘experience seekers’, where there is ample opportunity to gain share within these customer segments.
We continue to execute on this strategy, focusing on the following areas : • Win with Target Customers . We are focusing attention on our target customers, identified through research as ‘health enthusiasts’ and ‘selective shoppers’, where there is ample opportunity to gain share within these customer segments.
As of January 2, 2022, the consolidated self-insurance reserve balance was $50.5 million, of which a majority of the balance related to workers' compensation and general liability reserves. Liabilities for self-insurance reserves are estimated based on independent actuarial estimates, which are based on historical information and assumptions about future events.
As of January 1, 2023, the consolidated self-insurance reserve balance was $47.6 million, of which a majority of the balance related to workers' compensation and general liability reserves. Liabilities for self-insurance reserves are estimated based on independent actuarial estimates, which are based on historical information and assumptions about future events.
As of January 2, 2022, our consolidated goodwill balance was $368.9 million, and our consolidated indefinite-lived intangible assets balance was $185.0 million.
As of January 1, 2023, our consolidated goodwill balance was $368.9 million, and our consolidated indefinite-lived intangible assets balance was $185.0 million.
Share repurchase activity under our repurchase programs for the periods indicated was as follows (total cost in thousands): Year Ended January 2, 2022 January 3, 2021 Number of common shares acquired 7,416,357 — Average price per common share acquired $ 25.40 $ — Total cost of common shares acquired $ 188,343 $ — 47 Shares purchased under our repurchase programs were subsequently retired and the excess of the repurchase price over par value was charged to retained earnings.
Share repurchase activity under our repurchase programs for the periods indicated was as follows (total cost in thousands): Year Ended January 1, 2023 January 2, 2022 Number of common shares acquired 6,897,082 7,416,357 Average price per common share acquired $ 28.99 $ 25.40 Total cost of common shares acquired $ 199,980 $ 188,343 Shares purchased under our repurchase programs were subsequently retired and the excess of the repurchase price over par value was charged to retained earnings.
Each of these covenants is tested on the last day of each fiscal quarter, starting with the fiscal quarter ended April 1, 2018. We were in compliance with all applicable covenants under the Amended and Restated Credit Agreement as of January 2, 2022.
Each of these covenants is tested on the last day of each fiscal quarter, starting with the fiscal quarter ended April 3, 2022. We were in compliance with all applicable covenants under the Credit Agreement as of January 1, 2023.
We expect capital expenditures to be in the range of $150 - $170 million in 2022, including expenditures incurred to date, net of estimated landlord tenant improvement allowances, primarily to fund investments in new stores, remodels, maintenance capital expenditures and corporate capital expenditures. We expect to fund our capital expenditures with cash on hand and cash generated from operating activities.
We expect capital expenditures to be in the range of $210 - $230 million in 2023, net of estimated landlord tenant improvement allowances, primarily to fund investments in new stores, remodels, maintenance capital expenditures and corporate capital expenditures. We expect to fund our capital expenditures with cash on hand and cash generated from operating activities.
Liquidity and Capital Resources The following table sets forth the major sources and uses of cash for each of the periods set forth below, as well as our cash, cash equivalents and restricted cash at the end of each period (in thousands): Fiscal 2021 Fiscal 2020 Fiscal 2019 Cash, cash equivalents and restricted cash at end of period $ 247,004 $ 171,441 $ 86,785 Cash from operating activities $ 364,799 $ 494,035 $ 355,210 Cash used in investing activities $ (102,378 ) $ (121,968 ) $ (183,232 ) Cash used in financing activities $ (186,858 ) $ (287,411 ) $ (87,441 ) We have generally financed our operations principally through cash generated from operations and borrowings under our credit facilities.
Liquidity and Capital Resources The following table sets forth the major sources and uses of cash for each of the periods set forth below, as well as our cash, cash equivalents and restricted cash at the end of each period (in thousands): Fiscal 2022 Fiscal 2021 Fiscal 2020 Cash, cash equivalents and restricted cash at end of period $ 295,192 $ 247,004 $ 171,441 Cash from operating activities $ 371,329 $ 364,799 $ 494,035 Cash used in investing activities $ (124,010 ) $ (102,378 ) $ (121,968 ) Cash used in financing activities $ (199,131 ) $ (186,858 ) $ (287,411 ) We have generally financed our operations principally through cash generated from operations and borrowings under our credit facilities.
With the implementation of our strategy, we have significantly improved our margin structure above our 2019 baseline. Components of Operating Results We report our results of operations on a 52- or 53-week fiscal year ending on the Sunday closest to December 31, with each fiscal quarter generally divided into three periods consisting of two four-week periods and one five-week period.
Components of Operating Results We report our results of operations on a 52- or 53-week fiscal year ending on the Sunday closest to December 31, with each fiscal quarter generally divided into three periods consisting of two four-week periods and one five-week period.
See Note 13, “Long-Term Debt and Finance Lease Liabilities” of our audited consolidated financial statements, contained elsewhere in this Annual Report on Form 10-K, for more details.
Our Credit Agreement is defined and more fully described in Note 13, “Long-Term Debt and Finance Lease Liabilities” of our audited consolidated financial statements contained elsewhere in this Annual Report on Form 10-K.
Fiscal 2021 was a 52-week year ending on January 2, 2022. Fiscal 2020 was a 53-week year ending on January 3, 2021. Fiscal 2019 was a 52-week year ending on December 29, 2019. Net Sales We recognize sales revenue at the point of sale, with discounts provided to customers reflected as a reduction in sales revenue.
Fiscal 2022 and fiscal 2021 were 52-week years ending on January 1, 2023 and January 2, 2022, respectively. Fiscal 2020 was a 53-week year ending on January 3, 2021. 40 Table of Contents Net Sales We recognize sales revenue at the point of sale, with discounts provided to customers reflected as a reduction in sales revenue.
These three businesses all trace their lineage back to Henry’s Farmers Market and were built with similar store formats and operations including a strong emphasis on value, produce and service in smaller, convenient locations. 37 Outlook In 2020, we announced the initial steps of our new long-term growth strategy that we believe will transform our company and drive profitable growth.
These three businesses all trace their lineage back to Henry’s Farmers Market and were built with similar store formats and operations including a strong emphasis on value, produce and service in smaller, convenient locations. 39 Table of Contents Outlook Since 2020, we have focused on our long-term growth strategy that we believe is transforming our company and driving profitable growth.
Interest payments through the March 27, 2023 maturity date of our Amended and Restated Credit Agreement based on the outstanding amounts as of January 2, 2022 and LIBOR rates in effect at the time of this filing, are estimated to be approximately $12.0 million. These payments are $10.3 million in 2022 and approximately $1.7 million thereafter.
Interest payments through the March 25, 2027 maturity date of our Credit Agreement based on the outstanding amounts as of January 1, 2023 and interest rates in effect at the time of this filing, are estimated to be approximately $52.5 million. These payments are estimated to be approximately $15.2 million in 2023 and approximately $37.3 million thereafter.
Factors Affecting Liquidity We can currently borrow under our Amended and Restated Credit Agreement, up to an initial aggregate commitment of $700.0 million, which may be increased from time to time pursuant to an expansion feature set forth in the Amended and Restated Credit Agreement.
Factors Affecting Liquidity We can currently borrow under our Credit Agreement, up to an initial aggregate commitment of $700.0 million, which may be increased from time to time pursuant to an expansion feature set forth in the Credit Agreement. We have previously utilized borrowings under our Credit Agreement to fund our share repurchase program as described above.
Cash flows used in investing activities were $102.4 million and $122.0 million for 2021 and 2020, respectively. The decrease in cash flows used in investing activities is primarily due to fewer stores under construction in 2021 as compared to 2020.
Cash flows used in investing activities were $124.0 million and $102.4 million for 2022 and 2021, respectively. The increase in cash flows used in investing activities was primarily due to more stores under construction in 2022 as compared to 2021.
Although we may experience periodic effects on sales, gross profit, gross margins and cash flows as a result of changing prices, including most recently from inflationary pressures due primarily to supply chain disruptions complicated by the COVID-19 pandemic, we do not expect the effect of inflation or deflation to have a material impact on our ability to execute our long-term business strategy. 49 Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP.
Although we may experience periodic effects on sales, gross profit, gross margins and cash flows as a result of changing prices, including pressures we experienced in fiscal 2022 due to product cost inflation which we largely passed along to retail pricing, we do not expect the effect of inflation or deflation to have a material impact on our ability to execute our long-term business strategy. 51 Table of Contents Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP.
Subsequent to January 2, 2022 and through February 24, 2022, we repurchased an additional 0.2 million shares of common stock for $5.7 million.
Subsequent to January 1, 2023 and through February 28, 2023, we repurchased an additional 2.0 million shares of common stock for $64.0 million.
We do not have any material contractual commitments for future capital expenditures as of January 2, 2022. Financing Activities Cash flows used in financing activities were $186.9 million for 2021 compared to $287.4 million for 2020. During 2021, cash flows used in financing activities primarily consisted of $188.3 million for share repurchases.
We do not have any material contractual commitments for future capital expenditures as of January 1, 2023. Financing Activities Cash flows used in financing activities were $199.1 million for 2022 compared to $186.9 million for 2021.
(5) 2021, 2020 and 2019 estimated interest on operating leases is calculated by multiplying operating leases by the 6.7%, 7.2% and 7.5% discount rate, respectively, for each lease recorded as rent expense within direct store expense.
(5) 2022, 2021 and 2020 estimated interest on operating leases is calculated by multiplying operating leases by the 7.1%, 6.7% and 7.2% discount rate, respectively, for each lease recorded as rent expense within direct store expense. (6) 2022, 2021 and 2020 average operating leases represents the average net present value of outstanding lease obligations over the trailing four quarters.
Each of these covenants is subject to customary and other agreed-upon exceptions. In addition, the Amended and Restated Credit Agreement requires that we and our subsidiaries maintain a maximum total net leverage ratio not to exceed 3.25 to 1.00 and minimum interest coverage ratio not to be less than 1.75 to 1.00.
Each of these covenants is subject to customary and other agreed-upon exceptions. 49 Table of Contents In addition, the Credit Agreement requires that we and our subsidiaries maintain a maximum total net leverage ratio not to exceed 3.75 to 1.00, which ratio may be increased from time to time in connection with certain permitted acquisitions pursuant to conditions as set forth in the Credit Agreement, and a minimum interest coverage ratio not to be less than 3.00 to 1.00.
Operating lease interest represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as a finance lease (capital lease prior to adoption of ASC 842).
We define ROIC as net operating profit after-tax (“NOPAT”), including the effect of operating leases, divided by average invested capital. Operating lease interest represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as a finance lease.
The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. Fiscal 2021 and Fiscal 2019 consisted of 52 weeks, while Fiscal 2020 consisted of 53 weeks.
Results of Operations for Fiscal 2022, 2021 and 2020 The following tables set forth our results of operations and other operating data for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. Fiscal 2022 and 2021 consisted of 52 weeks, while Fiscal 2020 consisted of 53 weeks.
Our calculation of ROIC for the fiscal years indicated was as follows: 2021 2020 (1) 2019 (dollars in thousands) Net income (2) $ 244,157 $ 287,450 $ 149,629 Special items, net of tax (3), (4) — 6,565 377 Interest expense, net of tax (4) 8,848 11,272 16,214 Net operating profit after-tax (NOPAT) $ 253,005 $ 305,287 $ 166,220 Total rent expense, net of tax (4) 150,047 146,630 129,748 Estimated depreciation on operating leases, net of tax (4) (88,015 ) (80,944 ) (61,898 ) Estimated interest on operating leases, net of tax (4), (5) 62,032 65,686 67,850 NOPAT, including effect of operating leases $ 315,037 $ 370,973 $ 234,070 Average working capital 193,900 101,622 37,505 Average property and equipment 712,496 735,651 737,851 Average other assets 568,744 567,188 567,554 Average other liabilities (101,339 ) (100,531 ) (120,521 ) Average invested capital $ 1,373,801 $ 1,303,930 $ 1,222,389 Average operating leases (6) 1,222,513 1,196,822 1,185,080 Average invested capital, including operating leases $ 2,596,314 $ 2,500,752 $ 2,407,469 ROIC, including operating leases 12.1 % 14.8 % 9.7 % 45 (1) Fiscal 2020 includes 53 weeks.
Our calculation of ROIC for the fiscal years indicated was as follows: 2022 2021 2020 (1) (dollars in thousands) Net income (2) $ 261,164 $ 244,157 $ 287,450 Special items, net of tax (3), (4) — — 6,565 Interest expense, net of tax (4) 6,764 8,848 11,272 Net operating profit after-tax (NOPAT) $ 267,928 $ 253,005 $ 305,287 Total rent expense, net of tax (4) 154,626 150,047 146,630 Estimated depreciation on operating leases, net of tax (4) (87,775 ) (88,015 ) (80,944 ) Estimated interest on operating leases, net of tax (4), (5) 66,851 62,032 65,686 NOPAT, including effect of operating leases $ 334,779 $ 315,037 $ 370,973 Average working capital 271,604 193,900 101,622 Average property and equipment 704,786 712,496 735,651 Average other assets 568,609 568,744 567,188 Average other liabilities (96,583 ) (101,339 ) (100,531 ) Average invested capital $ 1,448,416 $ 1,373,801 $ 1,303,930 Average operating leases (6) 1,259,362 1,222,513 1,196,822 Average invested capital, including operating leases $ 2,707,778 $ 2,596,314 $ 2,500,752 ROIC, including operating leases 12.4 % 12.1 % 14.8 % 46 Table of Contents (1) Fiscal 2020 includes 53 weeks.
Diluted earnings per share Fiscal 2021 Fiscal 2020 Change % Change (shares in thousands) Diluted earnings per share $ 2.10 $ 2.43 $ (0.33 ) (13 )% Diluted weighted average shares outstanding 116,077 118,224 (2,147 ) The decrease in diluted earnings per share of $0.33 was driven by lower net income, partially offset by fewer diluted shares outstanding compared to the prior year, due primarily to the share repurchase program. 44 Return on Invested Capital In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, we provide information regarding Return on Invested Capital (“ROIC”) as additional information about our operating results.
Diluted earnings per share Fiscal 2022 Fiscal 2021 Change % Change (shares in thousands) Diluted earnings per share $ 2.39 $ 2.10 $ 0.29 14 % Diluted weighted average shares outstanding 109,139 116,077 (6,938 ) The increase in diluted earnings per share of $0.29 was driven by higher net income, in addition to fewer diluted shares outstanding compared to the prior year, due to our repurchase of approximately 6.9 million shares for a total cost of $200.0 million under our share repurchase program. 45 Table of Contents Return on Invested Capital In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, we provide information regarding Return on Invested Capital (“ROIC”) as additional information about our operating results.
See Note 13, “Long-Term Debt and Finance Lease Liabilities” and Note 21, “Derivative Financial Instruments.” Income tax provision Fiscal 2021 Fiscal 2020 Change % Change (dollars in thousands) Income tax provision $ 78,235 $ 89,428 (11,193 ) (13 )% Effective tax rate 24.3 % 23.7 % 0.6 % 43 Income tax provision decreased by $11.2 million to $78.2 million for 2021 from $89.4 million for 2020, primarily related to a decrease in income before income taxes.
See Note 13, “Long-Term Debt and Finance Lease Liabilities” and Note 22, “Derivative Financial Instruments.” Income tax provision Fiscal 2022 Fiscal 2021 Change % Change (dollars in thousands) Income tax provision $ 88,149 $ 78,235 $ 9,914 13 % Effective income tax rate 25.2 % 24.3 % 0.9 % Income tax provision increased by $9.9 million to $88.1 million for 2022 from $78.2 million for 2021, primarily related to an increase in income before income taxes.
Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures primarily for opening new stores, remodels and maintenance, repurchases of our common stock and debt service.
Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures primarily for opening new stores, remodels and maintenance, repurchases of our common stock and debt service. Our principal contractual obligations and commitments consist of obligations under our Credit Agreement, interest on our Credit Agreement, operating and finance leases, purchase commitments and self-insurance liabilities.
The board’s authorization of the share repurchase programs does not obligate our company to acquire any particular amount of common stock, and the repurchase programs may be commenced, suspended, or discontinued at any time. We have used borrowings under our Former Credit Facility and Amended and Restated Credit Agreement to assist with the repurchase programs.
Our board’s authorization of the share repurchase program does not obligate us to acquire any particular amount of common stock, and the repurchase program may be commenced, suspended, or discontinued at any time.
Food inflation, when combined with reduced consumer spending, could also reduce sales, gross profit margins and comparable store sales.
Food inflation, when combined with reduced consumer spending, could also reduce sales, gross profit margins and comparable store sales. Inflationary pressures on compensation, utilities, commodities, equipment and supplies may also impact our profitability.
Store closure and other costs, net Fiscal 2021 Fiscal 2020 Change % Change (dollars in thousands) Store closure and other costs, net $ 4,673 $ (369 ) $ 5,042 1366 % Percentage of net sales 0.1 % — 0.1 % Store closure and other costs, net in 2021 of $4.7 million includes $4.8 million of impairment losses related to the write-down of leasehold improvements and right-of-use assets.
Store closure and other costs, net in 2021 of $4.7 million primarily included $4.8 million of impairment losses related to the write-down of leasehold improvements and right-of-use assets.
Our practice is to include sales from a store in comparable store sales beginning on the first day of the 61st week following the store’s opening and to exclude sales from a closed store from comparable store sales on the day of closure. This practice may differ from the methods that other retailers use to calculate similar measures.
We monitor our comparable store sales growth to evaluate and identify trends in our sales performance. Our practice is to include sales from a store in comparable store sales beginning on the first day of the 61st week following the store’s opening and to exclude sales from a closed store from comparable store sales on the day of closure.
The shares under the Company’s repurchase program may be purchased on a discretionary basis from time to time through March 3, 2024, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans.
Effective date Expiration date Amount authorized Cost of repurchases Authorization available March 3, 2021 March 2, 2022 $ 300,000 $ 200,200 $ — March 2, 2022 December 31, 2023 $ 600,000 $ 188,123 $ 411,877 48 Table of Contents The shares under our current repurchase program may be purchased on a discretionary basis from time to time through the applicable expiration date, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans.
Real estate obligations, including legally binding minimum lease payments for leases executed but not yet commenced, were $451.5 million as of January 2, 2022. These obligations are $4.1 million in 2022 and $447.4 million thereafter. Our purchase commitments under noncancelable service and supply contracts that are enforceable and legally binding totaled $14.3 million as of January 2, 2022.
Real estate obligations, consisting of legally binding minimum lease payments for leases executed but not yet commenced, were $504.5 million as of January 1, 2023, including $7.2 million in 2023 and $497.3 million thereafter through 2044.
Comparable stores contributed approximately 97% of total sales for 2021 and approximately 92% for the prior fiscal year.
Comparable store sales contributed approximately 97% of total sales for both 2022 and 2021.
These commitments are $7.9 million in 2022 and $6.4 million thereafter. Obligations under contracts that we can cancel without a significant penalty are not included in purchase commitments. We periodically make other commitments and become subject to other contractual obligations that we believe to be routine in nature and incidental to the operation of the business.
We periodically make other commitments and become subject to other contractual obligations that we believe to be routine in nature and incidental to the operation of the business.
The decrease was primarily driven by the payout of incentive compensation amounts earned in the prior year and inventory stock recovery in the current year after levels were depleted during the height of the pandemic in the prior year. 46 Investing Activities Cash flows used in investing activities consist primarily of capital expenditures in new stores, including leasehold improvements and store equipment, capital expenditures to maintain the appearance of our stores, sales enhancing initiatives and other corporate investments.
The increase was primarily driven by higher inventories impacted by inflationary cost increases on our purchases in the current year and higher prepaid expenses and other current assets primarily due to the timing of marketing spend, partially offset by the higher payout of COVID related incentive compensation amounts earned in 2020 and paid in 2021. 47 Table of Contents Investing Activities Cash flows used in investing activities consist primarily of capital expenditures in new stores, including leasehold improvements and store equipment, capital expenditures to maintain the appearance of our stores, sales enhancing initiatives and other corporate investments.
Cost of sales and gross profit Fiscal 2021 Fiscal 2020 Change % Change (dollars in thousands) Net sales $ 6,099,869 $ 6,468,759 $ (368,890 ) (6 )% Cost of sales 3,890,657 4,089,470 (198,813 ) (5 )% Gross profit 2,209,212 2,379,289 (170,077 ) (7 )% Gross margin 36.2 % 36.8 % (0.6 )% Gross profit decreased during 2021 compared to 2020 by $170.1 million to $2.2 billion.
Cost of sales and gross profit Fiscal 2022 Fiscal 2021 Change % Change (dollars in thousands) Net sales $ 6,404,223 $ 6,099,869 $ 304,354 5 % Cost of sales 4,055,659 3,890,657 165,002 4 % Gross profit 2,348,564 2,209,212 139,352 6 % Gross margin 36.7 % 36.2 % 0.5 % Gross profit increased during 2022 compared to 2021 by $139.4 million to $2.3 billion driven by increased sales volume for the reasons discussed above.
Interest expense, net Fiscal 2021 Fiscal 2020 Change % Change (dollars in thousands) Long-term debt $ 4,601 $ 8,864 $ (4,263 ) (48 )% Capital and financing leases 906 970 (64 ) (7 )% Deferred financing costs 564 575 (11 ) (2 )% Interest rate hedge and other 5,613 4,378 1,235 28 % Total interest expense, net $ 11,684 $ 14,787 $ (3,103 ) (21 )% The decrease in interest expense, net was primarily due to the decrease in the average balance outstanding under the Amended and Restated Credit Agreement.
Interest expense, net Fiscal 2022 Fiscal 2021 Change % Change (dollars in thousands) Long-term debt $ 7,930 $ 4,601 $ 3,329 72 % Capital and financing leases 852 906 (54 ) (6 )% Deferred financing costs 800 564 236 42 % Interest rate hedge and other (535 ) 5,613 (6,148 ) (110 )% Total interest expense, net $ 9,047 $ 11,684 $ (2,637 ) (23 )% The decrease in interest expense, net was primarily due to higher interest income and lower credit facility fees.
Operating Activities Cash flows from operating activities decreased $129.2 million to $364.8 million in 2021 compared to $494.0 million in 2020. The decrease in cash flows from operating activities is primarily a result of changes in working capital in addition to a decrease in net income.
Operating Activities Cash flows from operating activities increased $6.5 million to $371.3 million in 2022 compared to $364.8 million in 2021. The increase in cash flows from operating activities was primarily a result of higher net income, partially offset by changes in working capital. The increase in net income was primarily due to increased net sales and favorable margin impact.
See Note 13, “Long-Term Debt and Finance Lease Liabilities” for a description of our Amended and Restated Credit Agreement and our Former Credit Facility (as defined therein). Share Repurchase Program On March 3, 2021, the Company’s board of directors authorized a $300 million share repurchase program for its common stock.
Long-term Debt and Credit Facilities Long-term debt outstanding was $250.0 million as of January 1, 2023 and January 2, 2022. See Note 13, “Long-Term Debt and Finance Lease Liabilities” for a description of our Credit Agreement and our Former Credit Facility (as defined therein).
Headquartered in Phoenix with 374 stores in 23 states as of January 2, 2022, we are one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States. Our Heritage In 2002, we opened the first Sprouts Farmers Market store in Chandler, Arizona.
We continue to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. Headquartered in Phoenix with 386 stores in 23 states as of January 1, 2023, we are one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States.
We have previously utilized borrowings under our Amended and Restated Credit Agreement to fund our share repurchase program as described above. The interest rate we pay on our borrowings increases as our leverage ratio increases. The Amended and Restated Credit Agreement contains financial, affirmative and negative covenants.
The interest rate we pay on our borrowings increases as our net leverage ratio increases and may increase or decrease based upon the achievement of certain diversity and sustainability-linked metric thresholds. The Credit Agreement contains financial, affirmative and negative covenants.
Net income Fiscal 2021 Fiscal 2020 Change % Change (dollars in thousands) Net income $ 244,157 $ 287,450 $ (43,293 ) (15 )% Percentage of net sales 4.0 % 4.4 % (0.4 )% Net income decreased $43.3 million primarily due to decreased net sales and unfavorable margin impact, partially offset by lower selling, general and administrative expenses.
The effective income tax rate increased to 25.2% in 2022 from 24.3% in 2021 primarily due to decreased charitable contribution deductions in 2022 from the lapsing of benefits initially provided for in the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act"). 44 Table of Contents Net income Fiscal 2022 Fiscal 2021 Change % Change (dollars in thousands) Net income $ 261,164 $ 244,157 $ 17,007 7 % Percentage of net sales 4.1 % 4.0 % 0.1 % Net income increased $17.0 million primarily due to increased net sales and favorable margin impact, partially offset by higher selling, general and administrative expenses and a higher effective tax rate for the reasons discussed above.
We are investing savings from removing our print ad into increasing customer engagement through digital and social connections, driving additional sales growth and loyalty. • Deliver on Financial Targets and Box Economics. We are measuring and reporting on the success of this strategy against a number of long-term financial and operational targets.
We are investing savings from largely removing our weekly promotional print ad into increasing engagement and personalization with our target customers through digital and social connections, driving additional sales growth and loyalty. • Inspire and Engage Our Talent to Create a Best Place to Work.
The sales decrease was primarily due to a 6.7% decrease in comparable store sales as a result of cycling the elevated demand driven by the COVID-19 pandemic in the prior year, as well as the 53 rd week in 2020. These decreases were partially offset by sales from new stores.
The sales increase was primarily due to a 2.2% increase in comparable store sales as well as sales from new stores opened since the prior year. The increase in comparable store sales was due in part to an increase in basket value due to retail price inflation, partially offset by a slight reduction in the number of items per basket.
Selling, general and administrative expenses Fiscal 2021 Fiscal 2020 Change % Change (dollars in thousands) Selling, general and administrative expenses $ 1,748,205 $ 1,863,869 $ (115,664 ) (6 )% Percentage of net sales 28.7 % 28.8 % (0.1 )% Selling, general, and administrative expenses decreased $115.7 million or 6% as compared to 2020 due to lower compensation and other COVID-19 driven costs in the current year and reduced costs from the 53rd week in 2020 , partially offset by new stores opened since the comparable period in the prior year. 42 Depreciation and amortization Fiscal 2021 Fiscal 2020 Change % Change (dollars in thousands) Depreciation and amortization $ 122,258 $ 124,124 $ (1,866 ) (2 )% Percentage of net sales 2.0 % 1.9 % 0.1 % Depreciation and amortization expenses (exclusive of depreciation included in cost of sales) primarily consists of depreciation and amortization for buildings, store leasehold improvements, and equipment for new stores as well as remodel initiatives in older stores.
Selling, general and administrative expenses Fiscal 2022 Fiscal 2021 Change % Change (dollars in thousands) Selling, general and administrative expenses $ 1,855,649 $ 1,748,205 $ 107,444 6 % Percentage of net sales 29.0 % 28.7 % 0.3 % Selling, general and administrative expenses increased $107.4 million, or 6%, compared to 2021 due to the net increase in new stores opened since the prior year as well as inflationary conditions driving increases in store costs including wages, utilities and supplies.
During 2020, cash flows used in financing activities primarily consisted of $288.0 million of payments on the Amended and Restated Credit Agreement. Long-term Debt and Credit Facilities Long-term debt outstanding was $250.0 million as of January 2, 2022 and January 3, 2021.
During 2022, cash flows used in financing activities primarily consisted of approximately $200 million for share repurchases and $3.4 million in debt issuance costs in connection with our Credit Agreement, partially offset by $5.0 million in proceeds from the exercise of stock options. During 2021, cash flows used in financing activities primarily consisted of $188.3 million for share repurchases.
The decrease in net income is primarily due to decreased net sales and unfavorable margin impact related to COVID-19, as well as the benefit of the 53 rd week in the prior year. Cash flows (used in)/ from operating activities from changes in working capital were ($13.2 million) in 2021, compared to $83.4 million in 2020.
Cash flows used in operating activities from changes in working capital were $28.6 million in 2022, compared to $13.2 million in 2021.
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We continue to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. Since our founding in 2002, we have grown rapidly, significantly increasing our sales, store count and profitability.
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Our Heritage In 2002, we opened the first Sprouts Farmers Market store in Chandler, Arizona.
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We do not include sales taxes in net sales. 38 We monitor our comparable store sales growth to evaluate and identify trends in our sales performance.
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Subsequent to the initial launch of our long-term growth strategy, we have added the focus area of inspiring and engaging our talent through our culture, acquisition and development and total rewards program to attract and retain the talent we believe we need to execute on our strategic goals and transform our company into a premier place to work. • Deliver on Financial Targets and Box Economics.
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To account for the 53rd week in fiscal 2020, when computing comparable store sales growth, we shifted each week back one week, thereby ignoring the first week of fiscal 2020 to better align holidays for comparable purposes. Historically, our net sales have increased as a result of new store openings and comparable store sales growth.
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We are measuring and reporting on the success of this strategy against a number of long-term financial and operational targets. With the implementation of our strategy beginning in 2020, we have significantly improved our margin structure above our 2019 baseline.
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However, as we cycled periods of 2020 where our results benefitted from the initial onset of the COVID-19 pandemic, we reported declines in 2021 year over year net sales and comparable store sales growth.
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This practice may differ from the methods that other retailers use to calculate similar measures. Historically, our net sales have increased as a result of new store openings and comparable store sales growth.
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Factors Affecting Comparability of Results of Operations COVID-19 Pandemic Our results of operations for the year ended January 3, 2021 were impacted by increased demand from our customers initially stockpiling groceries and wellness products at the onset of the COVID-19 pandemic and continuing to consume more food at home throughout the year as restaurants were not fully reopened to pre-pandemic levels, and we in turn made significant investments in compensation, benefits and personal protective equipment for our front-line store team members, as well as enhanced store sanitation procedures.
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Gross margin increased by 0.5% to 36.7% compared to 36.2%. The increase was a result of strategic initiatives to improve shrink, less promotional activity and better management of prices in line with inflationary product cost increases.
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We also incurred increased ecommerce fees as consumers increasingly used online shopping alternatives to purchase our products during the pandemic.
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In addition, we experienced the effects of higher credit card fees as more consumers shifted to credit compared to the prior year and higher ecommerce costs resulting from an increase in ecommerce sales compared to the prior year. 43 Table of Contents Depreciation and amortization Fiscal 2022 Fiscal 2021 Change % Change (dollars in thousands) Depreciation and amortization $ 123,530 $ 122,258 $ 1,272 1 % Percentage of net sales 1.9 % 2.0 % (0.1 )% Depreciation and amortization expense (exclusive of depreciation included in cost of sales) was $123.5 million in 2022, compared to $122.3 million in 2021.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAccordingly, we could be exposed to fluctuations in interest rates. Based solely on the $250.0 million principal outstanding under our Amended and Restated Credit Agreement as of January 2, 2022, each hundred basis point change in LIBOR would result in a change in interest expense by $2.5 million annually.
Biggest changeAccordingly, we could be exposed to fluctuations in interest rates. Based on the $250.0 million principal outstanding under our Credit Agreement as of January 1, 2023, each hundred basis point change in SOFR would result in a corresponding increase or decrease in interest expense by $2.5 million annually.
Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk Interest Rate Sensitivity As described in Note 13, “Long-Term Debt and Finance Lease Liabilities” to our accompanying audited consolidated financial statements located elsewhere in this Annual Report on Form 10-K, we have an Amended and Restated Credit Agreement that bears interest at a rate based in part on LIBOR.
Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk Interest Rate Sensitivity As described in Note 13, “Long-Term Debt and Finance Lease Liabilities” to our accompanying audited consolidated financial statements located elsewhere in this Annual Report on Form 10-K, we have a Credit Agreement that bears interest at a rate based in part on SOFR.
This sensitivity analysis assumes our mix of financial instruments and all other variables will remain constant in future periods. These assumptions are made in order to facilitate the analysis and are not necessarily indicative of our future intentions. We do not enter into derivative financial instruments for trading purposes (see Note 21, “Derivative Financial Instruments”). 53
This sensitivity analysis assumes our mix of financial instruments and all other variables will remain constant in future periods. These assumptions are made in order to facilitate the sensitivity analysis and are not necessarily indicative of our future intentions. We do not enter into derivative financial instruments for trading purposes (see Note 22, “Derivative Financial Instruments”). 55 Table of Contents
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We entered into an interest rate swap agreement in December 2017 to manage our cash flow associated with variable interest rates.
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The notional dollar amount of the one outstanding swap at January 2, 2022 and the two outstanding swaps at January 3, 2021 was $250.0 million, respectively, under which we pay a fixed rate and receive a variable rate of interest (cash flow swap).
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Taking into account the interest rate swaps, based on the $250.0 million principal outstanding under our Amended and Restated Credit Agreement as of January 2, 2022, each hundred basis point change in LIBOR would result in no change in interest expense annually.

Other SFM 10-K year-over-year comparisons