Good day, ladies and gentlemen, and welcome to the Sprouts Farmers Market Second Quarter 2017 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 follow at that time. And as a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Susannah Livingston. Ma'am, you may begin.

Thank you and good morning, everyone. We are pleased you have taken the time to join Sprouts on our second-quarter 2017 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. The earnings release announcing our second-quarter 2017 results, our 10-Q 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 in growth, product expansion, new store openings and 2017 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 the 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 a reconciliation of our non-GAAP measures to the GAAP figures, please see the tables in our earnings release. For the second quarter ended July 2, 2017, diluted earnings per share of $0.29 increased 16% from diluted earnings per share of $0.25 in the same period in 2016. With that, let me hand it over to Amin.

Thank you, Susannah. Good morning, everyone, and thanks for joining our call today. On behalf of our 28,000 team members at Sprouts, Jim, Brad and I are excited to share with you today about the continued momentum that is building in the Sprouts business. Our teams' unrelenting focus on executing our strategic direction while managing through the near-term competitive environment has positioned us to increase our top-line and bottom-line guidance today. While many of you have known Sprouts only since 2013 when we became a public company, this summer marks our 15th year in business. Our passion for providing fresh, natural and organic items at affordable prices for our customers remains just as strong today as it did in 2002. We also remain focus on delivering an exceptional customer experience every day in our stores while strategically building for tomorrow. For the second quarter, sales rose to $1.2 billion or a 15% increase over last year, driven by strong new store productivity in the low-80s and comparable store sales growth of 1.4%. Sales continue to be bolstered by the strengthening in our non-perishables departments and strong execution of many of our strategic initiatives we have shared on past calls, including private label growth, enhanced meat and seafood offerings and momentum in the deli department. New store productivity has been strengthened by the various strategic initiatives we have implemented over the last several years, which has created a fuller shopping experience for our customers and further strengthening our fresh and healthy business model going forward. Cost deflation improved throughout the quarter, ending the quarter modestly inflationary as deflation eased in several fresh categories. The industry's promotional environment remains competitive with continued investments in retail price similar to the prior quarter. Sprouts continues to maintain our pricing strategies and our Healthy Living…

Thank you, Amin. I'll begin by discussing some of the business drivers for the second quarter and then review our guidance for 2017. As Amin mentioned, for the second quarter, sales were up 15% with comp sales growth of 1.4%. Modest inflation was mainly driven by fresh categories in the back half of the quarter. In the second quarter, gross profit increased by 12% to $342 million and our gross margin rate decreased 70 basis points to 28.9% compared to the same period last year. The majority of this decrease was due to modest cost inflation coupled with the ongoing competitive promotional environment negatively impacting margins. In addition, occupancy expense deleveraged due to an increase in average square footage growth in our new stores, higher rents and the associated deleverage from lower comps. For the second quarter, direct store expense increased 14% to $236 million, a decrease of 20 basis points to 19.9% of sales compared to last year. As wages and medical costs continue to rise, driving productivity in the stores remains a strategic focus. Leveraging our new labor management system in our non-production departments improved store labor productivity this quarter. As well, we remain focused on improving other operational efficiencies in the store, which have led to additional cost savings this quarter. These efficiencies were partially offset by higher benefit costs due to increased enrollment compared to last year. SG&A increased 24% to $38 million for the quarter, an increase of 20 basis points to 3.2% of sales compared to the same period last year. This primarily reflects higher compensation expenses, an increase in advertising and regional expenses and an increase in other corporate costs versus the prior year. EBITDA for the second quarter increased 4% to $87 million, a decrease of 70 basis points to 7.4% of…

Our first question comes from the line of Karen Short with Barclays. Your line is now open.

Hi. Thanks. Just to clarify on guidance. So you've given us what your new expectations are for inflation, flat to slightly negative in terms of deflation AND inflation for the year. But, I guess, your raised comp guidance doesn't necessarily reflect that magnitude of an increase. So maybe a little color there. And then I guess on guidance, what I'm a little confused by is – and I'm talking about EBIT more than EPS because there's so many moving parts with the tax rate and interest and things, but you had a really easy comparison in the second half and in terms of comparison to last year and yet you're really only looking for at best a slightly positive earnings growth rate, but still down EBIT for the second half of the year. And I guess I'm a little confused about that, given the momentum that you have in the business. Is that purely a function of gross margin investments that are required?

Karen, it's Brad. Let me start with the deflation question. So our previous guidance had us roughly at minus 1.5% deflation for the full year, as our previous range was minus 1% to minus 2%. Now we're looking at, based on what's happened in the second quarter and visibility into the third quarter, of being flat to slightly negative. And in terms of how that translates into our comp increase, we've raised effectively midpoint to midpoint 75 basis points to 80 basis points of our comp. And in the context of what that means for the back half, we're looking at almost a 3% comp. And so from our perspective, that lines up pretty closely. And with regards to the competitive landscape, we've really taken into account what's happening from a promotional point of view, looking at price investments that we'll continue to make, but also the fact that we're now seeing some strong productivity improvements that will continue through the back half as well as the strategic initiatives that are driving higher-margin categories. So all that taken together, I think we're feeling very strong in terms of the trends that we're seeing to-date through the third quarter. That's how we're looking at balancing it out.

Okay. I'll get back in the queue. Thanks.

Thank you. And our next question comes from the line of Kelly Bania with BMO Capital Markets. Your line is now open.

Hi. Good morning. Just wanted to ask a question about inflation, deflation and making that transition. Are you seeing prices being passed through, it sounds like mostly in some of the fresh categories, in a similar timeframe that you would expect historically? Or is it in those categories where you're seeing still some of the competitive pricing? Just any elaboration on these topics.

Kelly, I'll start broadly and then have Jim add. I think broadly speaking, across the board, what we're starting to see with a little bit of reflation in the fresh categories is retailers are starting to inch up in everyday retails. However, it remains highly promotional on front-page ad and in-store promotions. We've also seen in-store promotions continue to tick along. So I would describe the overall competitive environment to be relatively neutral for the last six months to nine months. It's feeling like people in certain pockets of the country are pulling up. Now, we've all certainly seen the headlines of Lidl and Walmart in certain pockets of the country, and that doesn't really impact Sprouts. That's a discounter model that historically has not been our shopper. So, that's sort of broad. I'll let Jim jump in if he wants to add any color about a particular department.

Yeah, Kelly, the only thing that I would add is in the non-perishable departments, we haven't seen much inflation. So, the shelf pricing has been very stable. As it relates to the fresh pricing, there's been a little bit of a lag one, two weeks. So, there's been a small short squeeze that we've had, but in general, as we look at all of our pricing data, most retailers are passing through the increases in costs at the shelf.

Okay. Thanks that's helpful. And then, I guess, just wanted to follow up on the Amazon Prime Now partnership. Sounds like it's expanding to 20 stores. Just longer term, I mean, do you envision continuing to grow that, are you looking at any other options, maybe diversifying some of your options on delivery? Any comments there?

Yes. So, I'll start by saying Amazon has been a fantastic partner. We've learned a lot together about the business and it's a great way for Sprouts to engage with our customers and bringing them fresh, healthy products to their doorsteps. And our focus is really to be convenient for our customers and engage with them whoever they want to be and so, we'll continue to learn and we want to be thinking about being channel agnostic and to the extent that our customers want us to be in other places, we'll look at that. So, that's really how we're thinking about this. And I would end by saying as we're very, very confident in our ability to continue to engage with our customers inside and outside the store. And today, we're continuing to develop our partnership with Amazon and we'll continue to actively have that dialogue with their senior team and move forward from there.

Great. Thank you.

Thank you. And our next question comes from the line of Scott Mushkin with Wolfe Research. Your line is now open.

Hey, guys, thanks. Got two quick question. So, I want to get back to Karen Short's original question on guidance, because I'm kind of with her a little bit on trying to understand things a little bit better and what the message is, because collectively, I think, most analysts are going to have to cut their back half given the strengths of the second quarter. So, I guess, I'm just trying to understand a little bit why that would be the case? And then, on a longer-term question kind of dovetailing into my next thought, obviously, in last couple years we haven't had big EBITDA growth rate here. And looking at the environment as we look out to next year, the year after and the year after, how do we get back to double-digit EBITDA growth? That's two-part question. Thanks.

Yes. Thanks, Scott. Those are two great questions. I think, as Brad mentioned, the back half of the year we're assuming nearly a 3% comp. And when we look at the trajectory, I think at the low point in the fourth quarter we were at 0.7% comped, then first quarter 1.1%, second quarter here, 1.4% today. And when we look at the momentum building into the business and the competitive environment and not knowing who may get more competitive or less competitive any given month, we want it to be prudent. And so, we looked at our two-year stack, we always take a look at that, but we felt that a 3%, and that would basically equate to roughly a close to a 4% two-year stack, was prudent. And if the momentum continues to build, you could you see upside there, but we wanted to make sure that we were prudent about that. And then I think in the longer-term question around margin, I think as we all know the last two years that pressure on overall operating margin has been a large function of deflation and people get more competitive trying to keep sales up. And, as we all know, and we saw this at Sprouts in 2013 and 2014, that leverage is heaven and moves quickly and deleverage also moves quickly. So, as we're starting to turn the corner, we're pretty confident that leverage is following at the same – we think it will follow at the same time the initiatives that we have going on both on the product side as well as the middle of the P&L are going to give us additional dollars to either enhance margins to shareholders or reinvest in price if necessary. And particularly, when we think about deli and private label…

Hey, Scott, the only thing that I would add is that just think of the new market maturity. So, as we mature in those markets, we obviously – we're improving on the bottom line and the site selection over the course last year, as you're seeing new store productivity is continuing to improve. And so, that new market maturity will accelerate as we move forward.

Thanks, guys. Thanks for the answers. Appreciate it.

Thank you. Our next question comes from the line of Rupesh Parikh with Oppenheimer. Your line is now open. Rupesh Parikh - Oppenheimer & Co. Inc.: Thanks. Thanks for taking my question. So, first, just going to the comp performance during the quarter, is there any way to quantify, I guess, the headwind from the 4th of July shift and the availability comparison?

Well, I think as Amin mentioned, there was a negative impact. It was modest. Again, when we look at traffic, it was largely a traffic impact in the second quarter that put us just slightly negative. And taking into account that shift, we would have been positive on traffic. And importantly, we're seeing very strong uptick in traffic through the third quarter to-date and feel really, really good about that. Rupesh Parikh - Oppenheimer & Co. Inc.: Okay. Great. And then, on the gross margin guidance, it sounds like the commentary so far suggests that promotional environment has been consistent with your expectations. So, I'm still unclear in terms of what the key drivers of that guidance reduction is if the promotional environment has been fairly consistent with your expectations?

So, Rupesh, let me just be clear with regards to our articulated range of down 40 basis points to 50 basis points. That is almost entirely based on the first-half performance. As you know, we're sequencing easier compares. Certainly, sequentially, we had a significant drop last year from Q2 to Q3 due to the very heightened promotional environment. And so, we've taken that into account and it implies that we're basically flattish on gross margin for the back half of the year and that's how you get to minus 40 basis points to 50 basis points for the full year. Rupesh Parikh - Oppenheimer & Co. Inc.: So, is it then fair to say then the first-half grocery margin performance may even below your prior expectations?

Slightly below.

Slightly below, yeah. Rupesh Parikh - Oppenheimer & Co. Inc.: Okay. Great. Thank you.

You're welcome.

Thank you. And our next question comes from the line of Shane Higgins with Deutsche Bank. Your line is now open.

Hey. Good morning. Thanks for the questions. Just on the DSE dollar growth, it did slow pretty sharply sequentially about 400 basis points versus the first quarter. Can you guys just walk us through some of the factors behind that slowing growth rate? And I think in your prepared remarks, you guys mentioned some of the labor productivity efforts that you have and if you guys could just flesh that out a little bit and kind of how we should think about that year-over-year growth rate in the back half of the year. Thanks.

Sure, Shane, it's Brad. Again, as we talked about last year, middle of last year, we introduced labor scheduling into our non-production departments and it takes some time to get that integrated into the business. And what we're starting to see, what we saw clearly in the second quarter was some very favorable year-over-year sales per labor hour productivity improvements, which just reinforces what our initial expectations were in terms of we knew putting these technologies in, we're going to drive significant production enhancements. And we're only in the early stages. That was just for the non-production departments. We're now actively involved in rolling that out through the balance of the store. And so, when we look at first quarter, we were down about 75 basis points in DSE. Now, up about 20 basis points favorable. The lion's share of that relates to this labor productivity improvement, but also we've got a lot of good work going on in the building with regards to goods not for resale and really driving out cost, operating supplies expense, et cetera, et cetera. So, we are starting to get some tailwinds and again it's early days. So, when we look at the back half of the year with regards to DSE, we have an easier compare. In the third quarter, it should be flattish and then just slightly negative in the fourth quarter. Overall, for the full year, just slightly negative, but better than our initial beginning-of-year expectations.

And do you guys expect – anticipate that as you continue to roll out some of these systems that – the 2018 you'll actually get even additional leverage potentially on DSE?

Absolutely. I mean, we're really in the early days. So, we got our plans and programs in place and that would be our expectation for 2018.

Great. Thanks for the color. I'll get back in the queue.

Thank you. Our next question comes from the line of Andrew Wolf with Loop Capital Markets. Your line is now open.

Hi. Just wanted to ask about new store productivity, which seemed to be pretty solid, but maybe I missed it if you didn't give out the metric. And is there any variation – I don't know if you're going to be specific, but could you tell us if there's much variation by geographies between some of your new geographies and existing markets?

Sure. I'll do those in sequence. We've historically always assumed our core model assumes new store productivity in the mid-70s and the past two years we have been around 80% and in the past couple of quarters we have been above 80%. And so the recent quarters' significant improvement has really been aided by two things. One is our 2015 and 2016 vintages were a little bit heavier in existing markets, which drove higher cannibalization, but also drove higher new store productivity. And in 2016, we took on a few more Haggen stores in California. So that was part of it. The additional piece which we're pretty excited about that's driving higher new store productivity, which is particularly helping the newer markets, is, one, we're continuing to refine our site selection process. Second, we've significantly improved our new and existing market launches and the social media and the grassroots marketing and new work. Our marketing team's done a fantastic job of defining a playbook there. And, third, which is long term, we think it will be incredibly beneficial as our strategic initiatives, particularly things we're doing in deli and meat and seafood, are leading to higher volumes in these areas so our mix is actually improving so our overall sales are improving and our mix to some of the higher-margin departments are improving. So we're pretty excited about that. And the customers are really engaging well with a fuller shop. And so we think that these initiatives, as we always thought, would continue to pay dividends, not only in the mid term, but also the long term as we enter new markets.

Andrew, the only thing that I would add is the last piece of that is the operational consistency. We learned a lot from Atlanta. And Dan Sanders and the operations team put together a really solid plan for all the new markets, not only opening them well with the support of the marketing team and the strong brand, but we're driving consistent operations post-open.

And I think you guys referenced site selection. Is there actually new methods being employed that are maybe using digital tracking and things like that that are perhaps improving your hit rate or your...

Yeah, sure. We've expanded our team. There are couple of things going on. As we've expanded our team there, we've got much deeper and more precise analytics around our core customers today and obviously now having nearly 280 stores to look at analytics from, it's really improved the process and has given us much greater confidence in estimating new store sales and that curve as well as cannibalization. In fact, in the last six months, the cannibalization number that we estimate is coming right square very, very close to what we expect when we approved this site. So that's fantastic for us to be able to narrow that down and understand the economics net of cannibalization for the new store. So, that's been incredibly helpful. And I think that the real estate availability. It's no surprise to anybody that portions of retail are continuing to struggle. And we're starting to see the waves of real estate availability kick up. And we're starting to be tougher on rents in negotiations because we have so many opportunities for opening 30 stores in 15 states, 16 states, gives us much more flexibility in positioning ourselves with the landlords.

And if you'd allow me to follow up on the gross margin. I'm going to just tell it to my understanding, is that it sounds like it's much more of the promotional environment than pricing. But at the end of the day, what's the difference? So, in any case, I just want to check if that is what's going on. Prices are creeping up on the shelf, but, yet, there's a lot of promotionality out there that's hindering price realization for the retailers. And I just wanted to check that my understanding versus what you're trying to tell us. And, second, I wonder if you would be willing to speak to regionality. Because I think earlier you said what's going on with Walmart and Lidl and Aldi is not exactly in your orbit. So it would sound like that may not be as big an issue as maybe what's going on in the Western part of the country.

Yeah. So, take that in order. On the first point around gross margin, you heard that clear, you described that well in terms of it's heavy ad and in-store promotions. This is something historically we've seen as reflation occurs and people are starting to feel better about their comps. As Jim mentioned a couple of minutes ago, id we tend to see a short squeeze in the near term and then it loosens back up. That's what we've seen in historical cycles, the last two deep cycles that we went through. And we don't have any reason to believe that this one would be materially different because competitive intrusion is also getting lighter out there, certainly in our core business model it is, with some of the specialty slowing down growth. And then, your second question in terms of regionality. I think we're quite protective of sharing too much there and signaling to competition. But I think Jim's comment about our operations are stronger, our new market rollouts are stronger, our product sets going into the value proposition for the customer are stronger than ever. All of those things are boding really well with Jim's comment about accelerating that maturity curve in new markets. So we do believe that, over time, we could see the delta between existing markets and new markets, which was quite wide years ago, will continue to narrow because of the brand and the value proposition and the consistency in which we're delivering in these new markets.

Thank you. And our next question comes from the line of Robby Ohmes with Bank of America Merrill Lynch. Your line is now open.

Oh. Hey, guys. Thanks for taking my question. I'll just do a simple short one. I was hoping you could clarify a little more as you talk about getting back to almost 3% IDEs for the back half. I think you mentioned inflation coming back in. But how much of it is traffic coming back? What's the assumption on the traffic build in getting back to 3%? And then as you think about being above that 3%, scenarios where you get above that, is it more likely to be traffic, or is it there are signs you're seeing that as you get to the fourth quarter you can really see much stronger inflation back in your assortment? Thanks.

Yeah, I think as far as the traffic, we'll continue to see traffic accelerate quite well. And, as you know, historically generally of our equation, 30% to 50% of our comps have been traffic depending on the year, it's been ranging in that range. And then, the other element around the 3%, as you remember as Brad mentioned is we still expect the back half to be relatively flat in terms of deflations. So, I think Karen asked the question earlier is and maybe you're perhaps asking the same one is does 3% feel soft. I think it's important to remember that 3% in a near zero deflation or even a slightly – near flat or slightly deflationary environment for the back half of the year is – or slightly inflationary environment in the back half of the year we still think is a very good number to walk in with at his point in time. But traffic has certainly taken a nice uptake and we're pretty excited about that.

Thanks. And just a quick follow-up. The productivity initiatives sound great. Any commentary just on the wage environment and are you seeing pressures there?

Yeah. I think generally we've been ahead of wages in most of our markets. And it's the same markets where we're not seeing any huge pressure, we did see a wave last year and coming into early this year, but I think things have settled down and I think more importantly our HR team has done a great job of staying ahead of the curve in markets like NorCal where cost of living is just exploding. But, overall, in the network, wage inflations have been entrapped. There's just couple of small pockets in the country where we've had to make sure that we're ahead of competition to attract the talent. And in fact, I'll go ahead and take the opportunity to talk about that. As we've expanded our training program, we've continued to see both store management level and staff-level turnover continue to come down at a fairly rapid pace in most environments having a 5%, 7% improvement and turnover is big, but we're starting to see well into the double digits, 10%, 20% improvements in management than at the staff level, which we're really excited about to, which really is going to help us build the power of this brand as we go forward.

Just a little bit more context in terms of what we're doing on the labor productivity side. I mean, the second quarter of this year, we saw a very nice productivity enhancements that slightly more than offset all of the wage cost increase. So, it's early days and we would expect going forward that we'll continue to see the benefit of those labor and technology initiatives in the business.

That sounds great. Thanks very much, guys.

You're welcome.

Thank you. And our next question comes from the line of Stephen Tanal with Goldman Sachs. Your line is now open. Stephen Tanal - Goldman Sachs & Co. LLC: Good morning, guys. Thanks for taking my question. I wondered if we can just spend a second on the Amazon Prime arrangement and I'd love to know how the stores are comping versus the rest of the chain and how you think about that rollout longer term. How many stores do you hope to get delivery in, I guess, whether or not with the Amazon Prime over time? How would you frame all that?

Yeah. So, I think it's been a slow start in a fast ramp. We're continuing to ramp faster now and I think we'll see that continue into 2018. And we wanted to make sure we work through all the operational kinks and efficiency kinks and particularly the customer service element of it which is super important to both Sprouts and Amazon. And as we've done that, we'll accelerate that. Ultimately, it depends by market of how many stores you need to serve the majority of the customers in that market, but we think that we certainly – we think that that number could be somewhere in the one-third to 40% range maybe to half of the stores, but the key point there is it helps us extend our trade area, that 7 to 10-minute driving trade area generally thought of as, especially retailers really help us extend that trade area in our network. So, we don't think – today, we certainly don't think we would need more than 30%, 40% of the network. Now, in the future to the extent that home delivery or click and collect continues to be more desired, more and more desired by customers, you might just add more stores simply for efficiency reasons, because at that point, you would have the ability – it would actually add network efficiency. So, in short, it's probably 30%, 40% of the stores over time and you'll see us accelerate in 2018. Stephen Tanal - Goldman Sachs & Co. LLC: Got it. And any color on sort of the comp differences? Is that contributing meaningfully to stores that have it already?

It's very productive, so I'll leave it at that. Stephen Tanal - Goldman Sachs & Co. LLC: Fair enough. And just lastly for me, a lot of talk about kind of the traffic and ticket, I wondered if you can quantify it, as you guys usually do, maybe adjusted for the shift the 4th of July and also on an unadjusted basis, just as I think about the acceleration that's ensued.

Yeah. So, I would it was slightly less than the 40% mix that we would normally see, primarily driven – and Jim can add color on this, but it was primarily driven by availability in produce and certain meat categories had also run up significantly. And when that happens, the ability to promote heavy is more difficult. You can certainly do it, but it doesn't bode as well on margins and doesn't give you the same traffic lift has been on our historical experience. So, we did have a couple of headwinds in those two departments during the quarter, which impacted traffic, but the key takeaway there is, is that produce is – it's a very strong summer season and so, it's in full swing now and we're certainly seeing the impact of traffic there. And certain categories in meat have come back down after the July 4 holiday season and we've seen a meaningful improvement in traffic over the past few weeks. Stephen Tanal - Goldman Sachs & Co. LLC: Okay. Thank you.

Thank you. And our next question comes from the line of Vincent Sinisi with Morgan Stanley. Your line is now open. Vincent J. Sinisi - Morgan Stanley & Co. LLC: Hey. Great. Thanks very much, guys, for taking the question here. So, I will limit to one question. Just in terms of the online initiatives, obviously, it's still early, but like you guys have said, you're drawing in from a bit wider trade area. I'm just wondering both in terms of the personalized mobile as well as the Amazon Prime Now, like how much are you doing yourselves in terms of advertising that? And then also, with what you're starting to see from both of those things, how does that factor or is it starting to factor in maybe kind of down the road how you think about store densities? Thanks very much.

Sure. So, I think as far as marketing, those two, we have – the marketing team has two separate teams working on how we market to the channels, so both the in-store and out-of-store channels. So, that keeps the teams very focused and it's interesting, because we'll try different approaches on one versus the other, because the customer behavior is different. So we're learning a lot from that and deploying our learnings to market to them differently. And we recently, as I've stated in my remarks not long ago, started to push more personalized coupons and personalized offers and personalized education to our growing KCIDs (48:11) as we have about 3.5 million customers who walk into our stores, slightly less than that every week. And we have now 850,000 customer IDs and we see many of our customers we're seeing an acceleration in engagement with Sprouts in online and mobile there and how they're interacting. And one data point I would share there is we've seen our mobile coupon activity tick up quite a bit over the last few months as that platform gets more robust and we're actually working on a new platform right now, which we'll be rolling out next year that we're pretty excited about, early next year, which will further enhance that customer engagement and customer connectedness on the Sprouts side, mobile web and – mobile and web both. Vincent J. Sinisi - Morgan Stanley & Co. LLC: Okay. That's helpful. And I guess maybe just the other part of the questions, just on kind of what you are maybe starting to think about or starting to see from a density standpoint.

Yeah. I think from a density standpoint is, that's been interesting is if you look at our most mature markets, we have market shares that are upwards percentages well above what we ever thought of as a specialty competition. So, in terms of how many stores Sprouts can open in the market, our view has just become that number just keeps going up over time. And I think the key there is we're operating as a convenient, healthy grocery store and it's a fuller shop. And as we continue to do that to meet our customer demand, the ability for Sprouts to open more store has just become more and more evident. And the leverage that we see in our mature markets when we open more stores has been incredible. So, the shift to e-commerce, I believe, over a 5, 10-year period we'll certainly will be smarter about placement of stores, but at this stage, we don't think that we would have a smaller network of stores than the 1,200-plus stores that we always thought of sitting here today.

Thank you. And our next question comes from the line of Bill Kirk with RBC Capital Markets. Your line is now open.

Hi. Thank you for taking the question. It looks like Aldi is looking at Arizona with plans for a distribution center. So, what would you expect from them maybe in terms of timing and size of entry versus what you've seen from them in Southern California?

Yeah. I know that, Bill, the Arizona is a distribution facility and a lot of it is to allow for easier distribution into California. Well, we've not seen them expand materially in the Arizona market. With that said, I think the Aldi shopping experience, the products that carry – the product, the service, the go-to-market approach of what they sell is quite different from Sprouts. So, the discounters, Jim and I had a chance to visit Lidl stores last week and our overarching theme of the discounter business and its impact on Sprouts has been minimal in the past and we would expect it to be similar based on what we see today and how we see those stores, what they're selling, how they're selling and what customers they're drawing. But obviously, anyone who sells grocery is a competitor and we keep a close tab on how any new openings from even discounters could be impacting our business.

Bill, the only thing that I would add is, if you recall, we had – and we called it out about a year ago, 17 Aldis opened up within roughly 3 miles in Southern California and outside of that early grand opening period, we fared extremely well and I think that speaks to the brand, the brand strength in California. So, we're extremely confident in on the brand strength here in Arizona. And I would assume that that would follow the same type of cadence as we move into this marketplace.

Thank you. And our next question comes from the line of John Heinbockel with Guggenheim Securities. Your line is now open.

So, I mean, a two-part question here. When you think about the work you've done on labor productivity in-store, to what degree has that brought down the comp required to leverage? Has it dropped to 2% sustainably? And then, kind of as a follow on that, when you think about how you want to run the business long term, is there an opportunity and elasticity where you could or should run the business for a flat EBITDA margin over the next three to five years and drive more for share given how modest your share is today?

Yeah. So, I think the key thing on the productivity, as Brad alluded to, all of these systems are, at the first instance, intended to drive effectiveness and customer service and the resulting benefit has been productivity. And so, we're continuing to – starting to see the productivity in the non-perishable departments, but we think that the greater benefits frankly sit in the perishable departments, because they impact in a significant way what you need to produce, when you need to produce it, when you need to be there for the customer in the first instance. The second is inventory management, which, in fresh, can have a meaningful benefit to shrink. And third is just customer engagement and allowing those teams to be there when the customers are shopping those items in the store. So the customer service improvement would be better. So, we think that over the next two years to three years, that productivity will continue to strengthen. But our focus is we will not take productivity at the hest of customer service. We watch those customer service scores very carefully when we roll out these new systems. And we do them systematically market-by-market and not roll out fast to make sure we fully understand any impact we may be having. Hopefully, a positive impact on service is what we're looking for, and we've seen that so far. And I think on the second part of your question, maybe, John, can you just repeat that if you're still on the line? Oh, I think the second part of your question was around EBITDA margin of the businesses. I think the key for us is driving our product innovation initiatives and our out-of-store engagement initiatives that continue to focus on driving sales as well as margins, because some of these initiatives are higher-margin departments and they do have more production, but they are higher contribution departments as a whole. And second, the productivity that we just spoke to will continue to give us basis points. And I think we'll just be smart businessmen and women here and then to the extent that we need to reinvest it to be competitive and drive the business, we will. And to the extent that it's margin accretive, then we'll take it to margin. But there's no shift in this company of being a sales-minded company. We're very much interested in gross margin dollars over gross margin percentages.

Thank you. And our next question comes from the line of Ryan Domyancic with William Blair. Your line is now open. Ryan J. Domyancic - William Blair & Co. LLC: Hey. Good morning. Thanks for taking my question. So back to traffic, do you think the biggest headwind to traffic continues to be the loss of some value customers in this competitive environment? Over the past year, has it shifted to something else, like more competitive openings, more e-commerce or an overall softer consumer environment? Thanks.

So, I think for Sprouts, the drivers are cannibalization first, which is working its way down. We were above 150 basis points for several quarters. And now that number is continuing to come down towards the 125 basis point mark in the back half of this year and going into 2018. The second was we were seeing an uptick in competitive intrusion over the last couple of years, and that started to flatten out and, as I mentioned, is the one that we watch the most and we see the impact from the greatest was the specialty. And good news there is the specialty space is settling down in terms of growth. And then I think the third element is certainly competitive and, particularly in our core traffic driver departments, we've always remained true and competitive in that area not to lose traffic. I think the second quarter traffic commentary around having availability and certain gaps and certain produce and then also inflation in meat impacted traffic. But what I would stress is that we're back to our normal environment, an accelerating environment, and feel very positive about where traffic is headed as we sit here today. Ryan J. Domyancic - William Blair & Co. LLC: All right. Great. Thank you very much.

Thank you. And our next question comes from the line of Chuck Cerankosky with Northcoast Research. Your line is now open.

Good morning, everyone. Amin, I'd like to go back to something mentioned early in the call about how sales were helped by the non-perishable departments. Can you talk a little bit about what's driving that and how it's affecting basket size?

Yeah, I'll start and then I'll let Jim jump in. I think the non-perishable department is really driven by at the highest level the authenticity and the desire of more and more people to eat healthy, fresh, natural and organic. And Sprouts provides a convenient format with a very focused convenient and value-driven format, with a focus on those who desire and want to eat healthier. And the non-perishable department is no different. We can see it in the data that the categories are continuing to grow 8% to 10% from the public data. And Sprouts continues to lead in that space. And we also have certain departments which are heavy customer service-oriented. An example would be our vitamins and HBA department. And those departments have continued to see the benefit as more people are looking for supplementary additions to their nutrition. That business has been quite strong for us for many years and it continues to build. So those would be the headlines. I don't know, Jim, if you want to add anything else?

The only thing that I would add is we have a fantastic team in here in the office that we've assembled. So they put together on-trend products, category review process, extremely thorough. So we think we're always well positioned. Promos are relevant every time we go out. So we've got great partnerships with our vendors, which has continued to create tailwinds for us as we go into product development, promo development. And lastly on the non-perishable side, we really haven't talked about it today, but the private label continues to accelerate. Top line accelerated from Q1 to Q2. Comps accelerated from Q1 to Q2. And the basket on that, as you referred, is 1 times out of a non-private label basket and also generating better gross margin. So extremely pleased with what we're delivering on the non-perishable side. I've got to give the team a lot of credit here in the office as well as the store in terms of engagement and execution.

Thank you. And our next question comes from the line of Ken Goldman with JPMorgan. Your line is now open.

Hi. Thank you. I wanted to dig in a little bit more on the inflation question. I'm a little confused. First, I think you said that you ended the quarter with slight inflation, but it was deflation for the entire quarter overall. I was just curious. And I missed the beginning of the call, forgive me if you addressed this. But, perishables, fruits and vegetables should have been pretty inflationary. Some of your competitors recently reported and they have much less exposure to perishables than you do and they had either inflation or flat numbers. So, I'm just wondering am I missing something? I'm trying to figure out kind of what was deflationary that was holding you back this quarter? And then, my follow-up to that would be, what is your outlook for produce in the third quarter because I see it pulling back a little bit at least in the basic numbers that we see, but it's always hard to tell from our angle what the right numbers would be?

Okay. Ken, it's Brad. I will start and then Jim can provide some additional color, but just to be clear, in the second quarter, we were slightly inflationary overall. So, if you look at the first half of the year, from a total cost inflation/deflation perspective, we're about minus 1%. What we're now seeing and our projection for the full year is to be flat to slightly deflationary overall. And I'll let Jim add some color.

Yeah. So, Ken, as we move to the quarter and accelerated, and let's just step back for a second, just because things become inflationary, it doesn't mean you pass through a retail, because you saw big, big jumps in there. So, Q2 slightly inflationary. The California sharecrop was a little bit tight. As we move to Northwest, it's been extremely robust. As Amin mentioned earlier in his comments, poultry and beef on the back half of the quarter did provide some headwinds in terms of inflation. As we look at the back half of the year, just a little color, we would expect beef to be – our poultry and beef to be slightly inflationary, offset by produce being flat to potentially slightly deflationary to what we're seeing with some of the early crop estimates and then what we've seen here early in the third quarter, rose up to a zero to a negative 1.

Okay. And in terms of fruits and veggies, just a little bit – I know we're running a little long here, but just in terms of the California crop, any comments on how – I know we had a little bit of flooding maybe a few months ago, has that come down at all? What do you think in general in terms of your outlook there? I know it's so hard to see more than a few weeks out.

Yeah. So, I'll speak to the third quarter so we're not looking back. Looking back, some of the inflation was California cherries, stone fruits and melons. As we look forward, we're looking again flat to slight deflationary in produce, robust Northwest cherries, grapes, apples look good. Still running some few headwinds with stone fruit the first part of the quarter, but veggies stabilized. We're not seeing those – the variability that we did earlier and starting to see some consistent cost now with a high level of variability.

All right. Good. I know that we've run a little bit long and we have a couple more questions and we'll follow up in a few minutes with the analysts. So, we apologize for running long, but I really appreciate everybody's time on the call and hopefully you can hear from this team that we're pretty excited about where we're headed in terms of product and innovation at the company as well as how the businesses – how the overall industry is starting to see a positive turn. So, we're pretty excited as we go into the back half of the year and look forward to talking to many of you and seeing you on the road. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.