Good day, ladies and gentlemen, and welcome to the Sprouts Farmers Markets Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded. I'd now like to hand the conference over to Susannah Livingston. Please go ahead.

Thank you, and good morning everyone. We are pleased you have taken the time to join Sprouts on our third quarter 2016 earnings call. Amin Maredia, Chief Executive Officer; Jim Nielsen, President and Chief Operating Officer and Brad Lukow, Chief Financial Officer are also on the call with me today. Sprouts'10-Q, the earnings release announcing our third quarter 2016 results, and the webcast of this call can be accessed through the Investor Relations section of our website at sprouts.com. During this call, management may make certain forward-looking statements including statements regarding our future performance and growth, product expansion, new store openings, and 2016 expectations and guidance. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For more information, please refer to the risk factors discussed in our filings with the Securities and Exchange Commission, along with a commentary on forward-looking statements at the end of our earnings release issued today. In addition, our remarks today include references to non-GAAP measures. For reconciliation of our non-GAAP measures to GAAP figures, please see the tables in our earnings release. For 2015, we have presented adjusted net income, adjusted earnings per share and adjusted EBITDA with adjusted measures stated in the reconciliation tables in our earnings release. For the third quarter of 2016, such adjustments would be immaterial, as such we have presented net income, earnings per share and EBITDA without adjustments. For the third quarter 2016, diluted earnings per share was $0.16. With that, let me now hand it over to Amin.

Thank you, Susannah. Good morning, everyone, and thanks for joining us today. In the third quarter, we remained focused on driving top-line sales and strategically building our business for long-term growth, while managing the current environment. Sprouts net sales grew to $1 billion up 15% compared to the prior year. We're pleased with our 2016 new stores which are performing well with new store productivity above 80% for the third quarter. Comparable store sales for the quarter were 1.3% comprised of 1.2% increase in basket and traffic of 0.1%. Comp sales were impacted primarily by cost and retail deflation, as well as higher cannibalization. Cost deflation was approximately 2% during the quarter and led by protein, dairy, bulk and produce, which also turned deflationary during the quarter. Nearly 60% of our business is fresh, which is on trend, drives frequency and a strength in our business model. However, today all of these departments are deflationary and impacted our sales and same-store sales this quarter. When deflation expands across multiple categories and extends for several quarters, it's not uncommon to see higher promotional activity in our industry, which leads to retail deflation higher than cost deflation, and this is what we saw during the third quarter. The last time the industry experienced deflation and investments similar to the current environment was in 2009. Historically, we've seen that when deflation turns, comp sales, sales and margin follow a similar positive moment. Based on what we're seeing today, we expect the promotional environment to continue in the near-term. We continue to remain competitive and invest as appropriate. Based on the slightly better than expected third quarter sales performance, we are raising the bottom of our full year same-store sales growth guidance to 2%. Brad, will discuss the guidance in detail later. Outside the…

Thank you, Amin. I'll begin by discussing some of the business drivers for the third quarter, and then review our guidance for the remainder of the year. For the third quarter, sales were up 15% with comp sales growth of 1.3%, slightly better than we expected in light of the competitive environment, higher cannibalization and the ongoing deflation of nearly 2%, the highest we have experienced all year. For the third quarter, gross profit increased by 11% to $292 million, and our gross margin rate decreased 80 basis points to 28.1% compared to the same period in 2015. 60 basis points of this reduction was due to price investments in certain categories in order to maintain our competitive pricing position, along with slightly higher shrink from lower comp sales growth. In addition, occupancy expense deleveraged 20 basis points, including the negative impact related to a rent credit received in the prior year period. As we have stated in the past, we will continue to be a sales-minded company, and we'll be aggressive when necessary to drive our traffic as we look to build this business over the next 5 to 10 years. For the third quarter, direct store expense was $217 million, and as a percentage of sales was 20.9%, an increase of 130 basis points, after excluding the pre-tax loss on disposal of assets in the third quarter of 2015. 30 basis points of this increase related to cycling a lower medical benefit expense from the prior year. The remaining increase was primarily due to deleverage from lower comp sales growth, higher payroll expense from planned increases in wages and training cost implemented at the beginning of the year and the impact of opening a greater number of new stores in 2016. SG&A totaled $30 million for the quarter,…

Thank you. Our first question for today comes from the line of Karen Short from Barclays.

Hi. Thanks for taking my question. So, I guess I wanted to talk a little about the gross margin. And, I guess, maybe I'm wondering if you could give us a little color on when you become more promotional in the third quarter to drive the comp and obviously pressure gross margin. And I ask because it kind of helps to gauge what to expect for the fourth quarter. And I ask also because, given how your stock is acting it would appear that expectations are for much slower gross margins into perpetuity. So any color there? Because the other component of that is your comp guidance, implied comp guidance for the fourth quarter obviously still reflects negative comps in the fourth quarter, even though you're likely going to be even more promotional than you were in the third quarter? That makes sense?

Hi, Karen, it's Brad. Yes, when we set out our guidance on September 7, it was really reflective of what we saw in a stepped up promotional environment at that time. And looking at the results for the third quarter, while margin was down 80 basis points from a food margin perspective, it was down 60 basis points after eliminating the positive impact we had on occupancy in last year's Q3. Implied in our fourth quarter guidance both back in September and now, we're anticipating a similar competitive promotional environment and looking at roughly flat comps for the fourth quarter, as well as similar food margin investments in Q4 relative to Q3.

Yeah.

You bet.

Karen, one thing I would just – I was just going to add one layer a little bit deeper with respect to your timing of the investment in the third quarter when we did have higher shrink when we saw sales fall off in the third quarter, which we've course corrected. So as we did that – in your question, for X number of weeks, we were impacted by higher shrink because we had products flow into the stores that and that obviously we're able to correct for the fourth quarter. And what Brad just said is, when you pull that shrink out and based on what we're seeing is, we would expect gross margin, the 60 basis points you've referenced to be similar to maybe slightly better than what we saw in the third quarter. So I would not – in short, I would not say today that we would expect a much deeper margin investment than what you saw in the third quarter.

Okay. That's helpful. And is there any way you could give a little color on comps by geography, obviously in September, you highlighted one market in particular that had become very challenging but just to get a sense of how broad base the competitive landscape is?

Yeah. I think as far as promotions, we're seeing different retailers in different markets. The only structural comment I would make is, parts of Texas and Oklahoma, the economy has been little bit softer. So we're seeing not only pricing competitiveness there, but also customer traffic in some cases in certain pockets of Texas and Oklahoma being softer, but outside of that relatively similar across the board in terms of competition. Jim, I don't know if you want to add anything here?

The geographies like you said, we're experiencing the unemployment rate for Oklahoma as well as the Houston market, as Amin alluded to, has seen dramatic uptick, which has obviously impacted our sales from those markets. Okay.

Okay. And any reaction from the competition based on your stepped up activity?

We've seen similar actions continue. We've seen – I call it pauses or accelerators and brakes on and off depending on the week, but I think we have not seen incremental activity since we have stepped up. I think everybody was already competitive in some cases we might have been a little last to the table to get more aggressive. So, it's feeling like it's getting a little bit better but that tends to be moving week-to-week.

Great. Thanks very much.

Thank you. Our next question comes from the line of Chris Mandeville from Jefferies.

Hi. Good morning. Thanks for taking my questions. First off just the point of clarity very quickly, do you state that you are expecting a flat comp for Q4 or flat comp for the back half of the year?

That would be a flat comp for Q4 is what we are guiding to.

Okay.

And if you look at the two year stack, in Q4 it would imply a similar result to Q3.

Okay. And then I'm just trying to understand your decision to spend another $16 million or so on your buyback program post Q3 in light of today's results. Can you help us kind of go through the thought process there and the decision do you actually use your revolver to finance that. And then I supposed longer-term, has there been any change or increased willingness to actually utilize leverage on a go-forward basis?

As you could imagine, we would evaluate our capital structure in the context of our multiyear planning and clearly what we are seeing in the business notwithstanding that we are in a temporary deflationary period, the company continues to generate significant excess free cash flow. It's a very capital efficient model, and the cash-on-cash returns of 35% to 40% within three to four years are absolutely solid. And so, in the context of our annual review of capital structure, we initiated a $250 million authorization that is in place from the date we implemented it to the end of fiscal 2017. And I think we're being very prudent with our balance sheet. We have a conservative capital structure. And we think it's just another opportunity to enhance returns to shareholders and overall value creation.

Great. That's very helpful. And if I could sneak one last one in there, maybe I missed it, but did you discuss self-cannibalization, and then maybe more specifically any initial read on the former Haggen openings?

Yeah, I'll answer those in inverse. When Haggen closed last year and we called this out, when those Haggen stores started closing in the fourth quarter that gave us a positive impact in the fourth quarter of 2015 in the first couple of quarters of this year of 2016 as others – us and others started opening up in the second quarter really when we saw a lot of stores open back up, as either a conventional or some other operator that benefit started to go away and we're actually seeing a little bit of negative impact from those openings. So, while they weren't brand new store openings, there's another retailer opening up, and we'll cycle that in the second quarter of next year, really at the end of the first quarter. So, that's on that component. As far as cannibalization is concerned, the one comment I would make is that we've seen over the last couple of quarters, our cannibalization has picked up and we're above our 150 basis points, high-end of 150 basis points target. However, when we look at those stores, those stores are coming out of the gate strong even net of cannibalization that very strong cash on cash returns. So this is one of those decisions as a company that we know in the long-term, it's the right decision to make, while it'll hurt short-term comps. When I look at both comps and traffic for the stores that are not being cannibalized and we've had significant number of stores that were cannibalized over the last couple of quarters, both comps and traffic to non-cannibalized stores look pretty good. So, I think our traffic story is actually quite different in the stores that are not cannibalized. So, I'd view that as a positive and the last comment I'll make tied to that is, our tonnage continues to since we've started to invest through the middle of the summer tonnage continues to improve, so pretty positive sign on that front as well, albeit we've spent a little bit more on margin.

Very helpful. And best of luck in Q4.

Thank you. And our next question comes from the line of Zack Fadem from Wells Fargo.

Hi. Good morning. So you've historically talked about roughly a 30% discount on produce relative to competition. I'm curious how that's been trending of late given the current environment. And second you mentioned 60 bps of price investments in the quarter. Were these concentrated primarily in fresh or across the board?

Just with regards to the gross margin investment of 60 basis points, that includes both the promotional investment spend as well as the additional shrink that we experienced, because of the lower comp sales growth until we could adjust our operations to respond to our forecasted sales.

Hello. This is Jim. With regards to the produce spreads, we continue to maintain our spread. It's not what you quoted, but we continue to maintain our 20% to 25% spread that we have with our competitors across all geographies, and more of the drivers that we had impacted in produce for us was deflation, as Amin just mentioned, cannibalization and, to a lesser degree, was the competitive landscape.

Okay. And new store productivity, at least by my calculation, improved quite a bit versus last quarter, curious if you could comment on the drivers here. Was there a certain region outperforming or maybe greater mix of existing versus new market, any color here?

It's a good question. It's the latter of what you said is that. We talked about this on the last call. We were more existing markets heavy towards the back half of the nine-months where we opened most of our stores. So, at the beginning of the year, we were a lot more stores in new markets, which, as you know, take 3, 4 years to mature, whereas our existing markets start off quite well. So, I think, given the momentum that we have in our new store productivity, I expect kind of our new store productivity to continue to perform well going into the fourth quarter and into early part of next year.

Okay. And finally, did you guys provide a quarter-to-date comp for Q4?

No. We don't provide quarter-to-date comps.

Okay. Got you. Thanks. Thanks so much.

Thank you. And our next question comes from the line of Chuck Cerankosky from Northcoast Research.

Good morning, everyone. If you could when you are looking at these new store openings especially in new markets, how is the opening promotional package compared to a normal deflationary period? Are you forcing it to be more aggressive or could you talk about that a little bit, please?

We won't get into specific tactics on pricing in new markets. So what I'll say is we obviously in new markets spend quite a bit of time in doing a couple of things, and obviously training, because we have a lot of new team members. We'll have some people from existing markets transfer over, but predominantly a greater number of team members are new to Sprouts. So we spend a lot of time in that. From a marketing perspective, we spend a lot of time on grassroots and community engagement. While typically six months ahead of opening our first store, we'll start to go into the market, and really pickup the activity three months in. The comment I would make with respect to your specific question is we tend to hold pricing, our pricing strategy, for new markets for a longer period of time than existing markets because in existing markets, we're branded. Customers know us. So, the ability to attract traffic is a lot faster. So we tend to hold pricing for a longer period of time. But that's not new today, that's been consistent with the program for years when we entered in Dallas in 2005, and Colorado in 2008 or Northern California in 2012. What it does do, when we go to new markets is because we're holding the price longer when those stores first start pumping, they tend to have a slight adverse impact on comps early on, after 60 weeks, because we're holding our pricing longer, it takes a lot more than 60 weeks for that cycle to turn. But that's just the short-term phenomenon, no impact on the long-term pattern of those stores.

And, Chuck, the only thing that I would add is that our investment spend in terms of promotions for existing and emerging new markets is exactly in line with what we spent in prior years.

Okay. That's very helpful. And then on this new DC that'll be opening up in the Atlanta area, do you expect any drag from that and when will it start to contribute to reduce cost of goods?

In the very, very beginning, it's just going to be neutral. And as we progress, we'll start to see some positive leverage to the DC. More importantly, we're going to get fresher product for our stores in Atlanta that have better life as well as the ability to buy more local products and provide those to our consumers. So, we see it is a strong upside in sales.

And we always look for a base level of volume movement before we open a DC, so that's what Jim just said is, is it doesn't create a drag because we don't open the DC too early out of the gate. So, we incur more costs, shipping longer, prior to opening that DC, but now that we have a good amount of volume and tonnage going through the stores in the Southeast, that's sort of the appropriate time for us to open a DC there.

With the fresher product, any help on the shrink ratio that we would notice?

Yeah. We should see a benefit from shrink as well as a better positive consumer response and it helps us get a little bit more entrenched in the local environment there as opposed to having to backhaul something back to Dallas and all the way back out to Atlanta, so multiple positives by opening up our DC in Atlanta in the back half of this year.

Thank you. And our next question comes from the line of Ken Goldman from JPMorgan.

Hi, good morning, everyone. I know this isn't exactly on- topic today, but we've seen a lot of news about pricing pressure across the supplement category. And, I think and please correct me if I'm wrong, that supplements are maybe a little bit under 10% of your sales. So, I'm just curious, as you look across the competitive environment in the space, do you think going forward you may need to invest a little bit more in price in supplements than expected or do you think maybe your value proposition in terms of customer service and so forth, provides a little bit of cushion for you?

I mean, every one of our departments has a pricing strategy, and we continue to refine those. But, today, we feel extremely good about where we are from a pricing position. And our non-perishable departments continue to perform extremely well and I give a lot of credit to the team for strong promotions, relevant items that are on-trend. And as you mentioned, our strongest point of difference that we have is our people that are knowledgeable as well as extremely engaging.

One thing I would add to what just Jim said is what we've seen is, even in our early Amazon Prime Now test stores, we see a lower penetration in vitamins, and that just speaks to the importance of some of the flow items you might see move through there. But most of the items that are strong value-adds, customers, they still come into the stores, because they tend to change their regimens and engage and ask lot of questions around them. So, that's also just another data point showing that it's the customer service settlement, it's yet another proof to us it's so important in that part of the store.

Okay. And then, just going back to the discounting question, obviously a lot of what you're doing today in terms of promotions, not just supplements but really across the stores is more tactical in nature. I'm just curious, what the plan is for pulling back on some of these promotions once you get a less deflationary environment? The reason I'm asking is, I know that TPDs are less sticky by nature than list price reductions, but a lot of grocers and retailers in general find them hard as sort wean off than feared. So, I was just curious what's the strategy is for preventing customers and sort of getting used to buying on deal right now, when eventually you pull back on that a little bit?

Yeah. I think, we've gone through this cycle several times and what tends to happen is this, when the deflation pulls back and we're back into an inflationary environment, you just see the promotion level tends to settle down across, that's been our experience across the channel. And the second element, I would say is, the reason we sort of think about it as temporary is we've not seen a lot of reduction at shelf, most of the reductions that we've seen or increasing competition that we've been seeing is in promotional activity. You said also speaks to a little bit of intent on part of many retailers on temporary versus long-term, so hopefully that answers your question, Jim, I don't know, if you want to add anything else here.

Yeah. I mean, I think that, while we are a promotional company, our everyday pricing is extremely strong and as we've mentioned in the past, we do full book checks on a quarterly basis and recently just gotten back and we're in a favorable position. So, it's not just the promotion, as it make us unique and a value brand, it's our everyday pricing as well. So, we think we've struck the right balance between promotions and everyday pricing.

Thank you. And our next question comes from the line of Scott Mushkin from Wolfe Research.

Hey, guys. Thanks for taking my questions. So, I can't remember, do you guys give us transactions and I mean, I think I saw it in the press release, I was wondering, if you do and how that trended sequentially between second quarter to third quarter?

Yes. I think transactions are definitely being softer in the third quarter compared to the previous quarter. What I would say is, on a two-year stack basis, they're exactly the same or very similar levels in the first quarter, second quarter and third quarter. Couple of additional points around transactions is, we've talk about Jim and I've talk about before is when it's highly promotional, it's harder to gain traffic and drive more traffic into the stores, because everyone is being promotional. And as well, the cannibalization I mentioned earlier probably not to be understated it as when you have much higher cannibalization that all traffic. And so, when we look at the traffic in the non-cannibalized stores certainly, we want to see them even higher, but it doesn't, those numbers are much stronger than our overall traffic numbers, but and that's we're using that sort of data, lot of these data points to determine where we need to invest, which market we need to invest, which departments and how deep, so we're trying to be surgical and not splattered across the board and our investments.

It is still positive though, I've assume you're right?

Yes.

Yes. Both tonnage and traffic is positive, even with the higher cannibalization.

So, this gets to a strategy question for you guys and clearly you've been – the stock was up a lot into the support (38:33), but you're being punished today. You obviously making a decision as a management team to take the pricing down, invest in gross margin, make sure those sales and traffic numbers remain positive or at least traffic numbers remain positive. We had a competitive of yours – report yesterday – they are kind of taken the opposite view right like they haven't done much on pricing, their transactions are hugely negative, get their stocks up today, so I was wondering – do you think you're pursuing the right strategy, and if so why, then I have one more question for you?

Yeah, you know I'll just start with the (39:19), there's lots of ways to run a business and Sprouts has always been a top-line and traffic-driven company, that's our life blood and we're pretty blessed to have a business model, which is highly accretive from a cash and cash return perspective. That's why, we don't feel like we need to be super defensive – or need to be defensive in any manner to drive the business because even when – we've talked about this in the past is, even when you – even if we needed to adjust our EBITDA margins business down for the mid to long-term in the business, this is just a very, very solid cash flowing business and, so you've got a 35% to 40% cash-on-cash return, which might dip by a few points, but that's not a reason not to drive traffic, drive tonnage, drive top-line sales for us. We feel like that's the absolute right strategy, health on trend, fresh is on trend, it's 60% of our business and at the same time, we know we have a long runway of growth ahead of us, so to take a posture of keep hanging on to margins or trying to – which would then impact traffic, we don't believe for Sprouts today or in the mid-term is the right strategy.

Scott, the only thing that I would add is that – again as Amin mentioned traffic is critical for us. And as you all know, as we've talked about this in the past and we have that kind of that trial, when our consumers moves into that transitional state they start to buy into the non-perishable departments and then kind of that lifestyle when they move over into vitamins it's critical for us to continue to keep attracting new customers, which in the future will help us leverage a bigger basket and a more profitable basket.

Thank you. And our next question comes from the line of Vincent Sinisi from Morgan Stanley. Andrew R. Ruben - Morgan Stanley & Co. LLC: Hi. This is Andrew Ruben on for Vinnie. Just wondering from a competitive perspective, it seems like a lot of changes on the promotional environment, but any color you can provide on competitive openings and whether there's any certain types of formats that you're seeing the greater competition from today?

We're not going to disclose in terms of you know specific retailers, but it in terms of number of outlets, it was in line with Q2. On a year-over-year basis, it is up slightly. And we don't have – we can only look probably three months, four months out with any level of confidence, and we're anticipating the same level of competitive intrusion over the next quarter-and-a-half.

Thank you. And our next question comes from the line of Rupesh Parikh from Oppenheimer. Erica Eiler - Oppenheimer & Co., Inc. (Broker): Good morning. This is actually Erica Eiler on for Rupesh, thanks for taking my question. So I wanted to dive a little bit deeper into SG&A, kind of a two-part question here. So first, I mean clearly this year has been an investment year. So as we look into next year, I mean do you expect to see any relief on the SG&A line or should we expect to continue to see you know a level of elevated spending that we've seen in the past few quarters? And then the second part is, as we look at next year, should comps remain below your longer-term target of the 4% to 6% range? What are the opportunities to cut cost, or maybe you could talk about any other actions that you might be able to take to kind of minimize the impact of a softer top line? Thanks.

Yeah, it's Brad. As we've discussed all year long, this was an investment year for us with regards to DSE. We've made both strategic increases at the beginning of the year for wages in certain markets and positions as well as stepped up the training initiative, which Amin spoke about earlier. And when we look at the performance through the first half of the year, DSE had been deleveraged roughly 50 basis points, primarily as a result of these initiatives. In the third quarter, we saw a step-up to a 100 basis points excluding the 30 basis points win we had in Q3 last year. And so, that 100 basis points really included about 10 basis points to 15 basis points, impacted for a one-time step-up in the net new stores we've opened, which will be at similar level next year. And the rest has really deleveraged from the lower comp sales growth that we experienced in the quarter. When we think about the SG&A side, again we spoke in February and the results have proven out through the first three quarters in terms of front-end, we are investing in infrastructure projects, we successfully implemented an HRIS system, which is critical for us as we are growing 14% plus per year, as well as our labor scheduling system that is now implemented in the non-production departments in the stores. So, really setting up the company for scalability and growth. So, I would characterize 2016 as a step-up in investments. We're not anticipating a similar step-up next year, it's sort of like run rate for us. We'll be back to you obviously in February on our Q4 call with regards to our guidance for 2017. But just with regards to your question on comp and our sort of mid-term guidance that we set out about a year ago, that was clearly set out in the context of what our normal operating environment has been with inflation in the 0% to 2% range. But clearly over the last 10 months or so where we've seen prolonged deflation across many of our categories, which is almost 60% of our category sales are impacted by this deflation. We don't anticipate that continuing over the long-term as history has shown. So again we're sticking with our strategic focus on building the company for scale and profitable growth.

Thank you. And our next question comes from the line of Stephen Tanal from Goldman Sachs. Stephen Tanal - Goldman Sachs & Co.: Thanks, guys for taking the question. I just want to dig a little bit deeper into sort of the traffic disparities, the storage cannibalized versus not, if you can give us some color there? And then as well as the deltas between mature stores with no cannibalization and potentially the mature stores with cannibalization or how you just it color it around the 0.1% traffic increase this quarter?

Yeah. I think what I would say is over the last couple of quarters is the delta between in comps on cannibalized stores has continued to widen as cannibalization's gone up. We've certainly seen a little bit of moderation on traffic, even in the core stores, and we reacted to that. And we're starting to see good traffic and tonnage movement. We're, call it, back in the game, so to speak, but it remains competitive out there. And I think the key fundamental for us is, is when it's this promotional for us and for our consumer actually, when things are highly promotional, the ability to draw or pull customers, just because it's harder because it ends up being a net neutral for everybody, which I've always said that when it gets in a deflationary environment, the super promotional activity is not really benefiting anybody except the customer, in our minds, but it just becomes harder to pull more customers into your stores. Stephen Tanal - Goldman Sachs & Co.: Got it, understood. And I guess just maybe two follows-ups on the same point. If you could help us think about the mix of new markets versus existing markets or even more specifically the mix of the stores, the percentage of stores maybe being cannibalized as we kind of try to think through the traffic trend. And then the second question would be, do you have a feel for comps by sort of income bracket, as we think about maybe the chains that might be seeing some better traffic trends or maybe less bad traffic trends, as we try to figure out what's really going on out there?

Yeah. So couple of questions in there, I'll try to pick them off and if I miss something, just restate it. In terms of cannibalization, clearly, it's most prevalent in our existing markets, where we're deeply penetrated and many at times we open stores near, just to peel traffic off as the volumes at other stores are just at such high levels that on peak times and days on the weekends and on certain other days, probably on the weekends, it just becomes a more difficult shopping experience for the – it's not the optimum experience for the customer in the stores. So, we decide that – and typically what we've seen is, when we do hit those stores and even if they drop 10%, 15% or even 20%, we've seen in sales, just about every time, those sales come back and those stores build back up. In fact, I can think of at least three or four stores in one of our markets, where we've hit three times and we're going to making a decision at the next meeting to hit it again, because that store is that tight, again, for customers' ability to get in and out. So, I think that's one element, in terms of geographic, from a vintage standpoint, our comps look good, when I look at our 2014 and 2013, we had a really good 2013 comp, 2013 vintage that started off strong. So comps there break away from the pattern. They were more front-loaded, but the 2015, 2014, 2012, when I look at all those vintages, they are following our historical patterns. As far as markets, we're continuing to see ex – just the deflation, just both the cost and the retail deflation. Once you adjust for the deflation, the pattern is holding very similar. So, a lot of the fundamentals of the business, we feel good about. We want to do a little bit more work on traffic, but I think the key for us is both cost deflation and retail deflation is having a pretty big impact on business. When we talk about 4% to 6% comps, that's on a base of zero to 2% inflation. And so, when you're at a negative 2% inflation, you're starting point is a 2%. And then when you have competitive activity, you've got to hurdle that as well on top of your cost deflation. So that's kind of how we're thinking about the business, and how we're looking at the business. And when we make investments, we always think about whether these are rational investment decisions or not. And trying to pull customers with irrational margin investments is not something that we like doing, but, in this environment, it's something that the industry forces in different markets at different times.

And Stephen, the only thing that I would add is, again point one, traffic is not kind of in line with history, but we're on a 4.9% traffic, on a stack basis 5%, and, as Amin mentioned earlier in the call, it's 5.1% for the year. So we're up against some real strong numbers. And you did kind of call out, is there the demographics, do they change in terms of where the consumer potential leakage. The only thing that really happens in a highly competitive marketplace like we see today with deflation is that ad shopper has a tendency to sometimes benefit and moves back and forth to different consumer, but the core customer, which is evident by our non-perishable growth in sales, and continues to be a loyal Sprouts shopper.

Thank you. And our next question comes from the line of Robby Ohmes from Bank of America Merrill Lynch.

Oh, good morning, I had a follow-up question for Amin and Jim. I wanted to see if I could get you guys to focus on produce deflation a little bit and it coming back. And sort of the question is, is the deflation at retail, in your view, in line with the cost deflation or are you seeing a strategy adjustment from the competition and maybe you could speak to us about, as you get beyond the deflationary environment, which we're all waiting for and I hope it happens tomorrow, but is there a scenario where the competitive aggressiveness in produce continues? Are you seeing anything that might imply that the strategy from some of your larger competitors in the produce category has changed, even beyond what you would assume from cost deflation in produce? And if that is true, can you help us think about how your model could adjust for that, so that you could return to those sort of 4% or better comps? Thanks.

Yeah. I think part of what you said is exactly where we're sitting is, deflation is a big part of the culprit here, I'll call it. As far as from a overall marketplace standpoint, clearly, fresh is on-trend, but when we look at our numbers, we're competitive in price as well as keeping our spreads and keeping our basket mixed. So if you look today, our produce is at very similar level of sales, at exactly the same level of sales as it was three-years ago from a mix-to-mix perspective. The other piece that we're really trying to do is, become a company that has multiple traffic drivers. I think some of the work we've done around deli and some of the gains we're starting to see in traffic, a food traffic in our deli department although, deli is not a business that you build overnight. But what we're doing in deli, what we're doing in Private Label from a stickiness perspective, as well as more engagement with our digital work to make us – to bring more touch points, more top of mind, more relevant advertising. The idea really is to bolster core of our business around perishables and health and add more reasons for customers to come to Sprouts and stay at Sprouts. And from where we sit today, we feel pretty good about how we've seen the marketplace behave in the produce environment and I can tell you that potentially any retailers, who have seen gains in produce, it's not come from Sprouts. So, I can tell you that because I see that in the numbers. So, if it's coming from other specialty or other conventionals, that's more likely to be happening than coming from Sprouts. Jim, I don't know if you want to add anything else here.

Yeah. I mean, again as I mentioned before, our pricing spreads have been consistent. I actually review them every week in every market by every retailers. So, it's been consistent week-to-week. If there's any variability, we obviously quickly react to that to get back in line with our strategies. The investments that we're seeing are really being made just on the promotional front, which we called out earlier in the call. And we've – kind of seeing that starting into the fourth quarter and we'd anticipate it and that's been laid out in her guidance today.

Thank you. And our next question comes from the line of Bill Kirk from RBC Capital Markets.

Hi, guys. Just one question from me. So, you stepped up price investment in the quarter, yet beat your own internal comp expectations. So, I'm wondering what was the elasticity on that 60 basis points of gross margin investment in order to pull that off?

Yeah. We're able to generate traffic pretty quickly with our model. So, the elasticity is quite strong. At the same time, I would also tell you that, I don't want to say a good part, but certainly a part of that 60 basis points was shrink for a period of time until we readjusted, as Brad said, our ordering. So, we've made investments, but we make investments very – not to repeat the word again but surgically and look at every market, every competitor, departments and not just throw it out there, the price is out there. So, – and we see when we make those tactical adjustments, we see traffic shift fairly well and we've seen that in the last six weeks to eight weeks, actually more than that, now it's in the last 10 weeks.

Thank you. And our next question comes from the line of John Heinbockel from Guggenheim.

So, maybe this is more for Jim, but just drilling down on private brand, strategically and tactically. So, when you think about where we go over the next couple of years and your sort of satisfaction with private brand placement and space allocation. So, what do you think happens going forward to that, the space that you give to it? And then with regard to pricing, what's happening to the price spreads between private brand and national brand. You pay a lot of attention to that, I imagine you would. And then lastly, do customers have any bearing on private brand to private brand from you to another retailer. Were they kind of blind to that, retailer or they're kind of blind to that?

All right. John, I mean – yeah, lots of questions there. So, I'll just kind of – I'll step back and say that look, we're trying to deliver what the consumer wants. And so, we're trying to strike obviously the right balance of that for our customers. As we look at Private Label this year versus last year and kind of the out years, we're looking at more incrementality of products. We launched about I think 138 items this last quarter and over 60% of those, we believe, were truly incremental products where they're attribute-based (57:57) based or seasonal or just unique formulations. So, we're trying to strike that right balance. And in terms of the price spreads that we have against our in line sets and the manufacturers, those have been consistent spreads that we've had for the last three years, four years. And our consumers are just getting more confidence with our brand. And, I think part of that I think definitely is driven by the quality or the experience, the eating experience. And then the ability to try new and exciting items to definitely make us unique and you can only find them at Sprouts.

Thank you. And this concludes our question-and-answer session. I would like to turn the conference back over to Amin for any closing comments.

I want to thanks everybody for joining us on the call. We know this is a tough deflationary environment, we're working through it. And I just want to give a call out to all of our team members in our office and the stores, the lights have been on a lot longer every night around here, working through this environment, but we feel pretty excited about the mid-term and long-term as this deflation period adjust itself. And as somebody said it on the call, we hope it was tomorrow, but it doesn't look like it's going to be tomorrow, but we hope it's soon and we look forward to speaking to you on the road. Thanks.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.