Sprouts Farmers Market, Inc. (SFM) Q2 2026 Earnings Report, Transcript and Summary

Kelly. And welcome to Sprouts Farmers Market Second Quarter 26 Earnings Conference Call. After the speakers' presentation, will be a question and answer session. To ask the question during the session, you would need to press 11 on your telephone. You could then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Would now like to hand the conference over to Susannah Livingston, You may begin.

Thank you, and good afternoon, everyone. We are pleased you are joining Sprouts on our second quarter 2026 earnings call. Jack L. Sinclair, Chief Executive Officer Curtis Valentine, Chief Financial Officer and Nick Konat, president and chief operating officer, are with me today. The earnings release announcing our second quarter 2026 results the webcast of this call, and financial slides can be accessed through the Investor Relations section of our website at investors.sprouts.com. During this call, management may make certain forward looking statements including statements regarding our expectations for 2026 and beyond. These statements involve several risks and uncertainties, that could cause results to differ materially from those described in the forward looking statements. For more information, please refer to the risk factors discussed in our SEC filings and the commentary on forward looking statements at the end of our earnings release. Our remarks today include references to non GAAP financial measures. Please see the tables in our earnings release for a reconciliation of our non GAAP financial measures to the comparable GAAP figures. With that, let me hand it over to Jack.

Thanks, Susannah, and good afternoon, everyone. Our second quarter results were in line with our expectations. And the core elements of our strategy remained strong. New stores continue to perform well. Our differentiated and attribute based assortment continues to resonate. And our teams are moving with urgency to sharpen value improve communication, and support customers in the areas that matter most. The consumer environment remained challenging. With customers continuing to make thoughtful choices around their healthy grocery spend. And we continue to face difficult year on year comparisons. With that said, our most difficult prior year comparisons are behind us. And become more manageable as the year progresses. We continue to see opportunities to improve our business in the short medium and long term. In the short term, we are taking a balanced approach. Investing to strengthen support for customers today while building capabilities to support our proposition for the long term, ensuring sustainable growth, into the future. In a moment, Curtis will review our second quarter results and our updated outlook. After that, I will come back to discuss the key business priorities advancing across affordability, loyalty and personalization, innovation, real estate, supply chain, and our teams. Curtis?

Thanks, Jack, and good afternoon, everyone. In the second quarter, our results played out in line with our outlook as we continue to lap outsized growth from the prior year and help our customers navigate the affordability challenge that they face in the current environment. Total sales were $2.3 billion up $105 million or 5% compared to the same period last year. This growth was driven by strong new store performance, partially offset by a 1% decline in comparable store sales. We saw sequential comp improvement through May. In June, as expected, we had our lowest comp of the quarter as we lapsed strong last year produce performance and a disruption in the natural and organic supply chain that sent more customers to our stores. Starting in July, the business has improved, in line with expectations. The sequential improvement has been driven by modest improvements in both traffic and units in the basket. E commerce sales grew more than 12% and represented approximately 16% of total quarterly sales. Sprouts brand also continued to perform better than the rest of the business, representing 26% of total sales. Our second quarter gross margin was 38.7%, a decrease of 12 basis points compared to the same period last year. This primarily reflects our loyalty investment and elevated fuel costs. These headwinds were partially offset by benefits from self distribution, and vendor participation to help support customer value. SG&A for the quarter totaled $683 million an increase of $38 million and 30 basis points deleverage compared to the same period last year. This was primarily driven by fixed cost deleverage from lower comparable store sales and investments in the business. Partially offset by disciplined cost management and lower incentive compensation. Depreciation and amortization, excluding depreciation included in the cost of sales, was $43 million For the second quarter, our earnings before interest and taxes were $174 million Interest income was approximately $668 thousand and our effective tax rate was 26%. Net income was $129 million and diluted earnings per share were $1.37 an increase of 1% compared to the same period last year. Turning to unit growth. We opened 7 new stores, ending the quarter with 490 stores across 25 states. Our pipeline remains robust. With more than 110 executed leases and 155 approved new stores. Giving us confidence in our ability to continue expanding access to Sprouts over the long term. Our balance sheet and cash generation remain strong and provide flexibility. Year to date, we have generated $369 million in operating cash flow, which enabled self funding of our investments in capital expenditures of $186 million net of landlord reimbursement. Through the second quarter, we also returned $210 million to our shareholders by repurchasing 2.8 million shares and have $626 million remaining under our $1 billion share repurchase authorization. We ended the second quarter with $224 million in cash and cash equivalents $22 million of outstanding letters of credit. As we look to the balance of 2026, we are beginning to move past the most difficult compares and seeing early progress. Though the operating environment remains uneven. We believe our initiatives in affordability, innovation, personalization, marketing, and supply chain will strengthen engagement over time. Customer behavior is evolving gradually. And we recognize it will take time for our actions to fully gain traction in this macro environment. The lower engaged customer remains an opportunity, and all customers are managing units in the basket. Given that context, we continue to take a disciplined view of the back half while investing in the actions we believe will support engagement and long term growth. As a reminder, 2026 will be a 53-week year. With the extra week falling at the end of the fourth quarter. For the full year, on a 52-week basis, our outlook for total sales growth is between 5.5 to 6.5%. With comp sales between negative 0.5% to positive 0.5%. We now plan to open 42 net new stores in 2026. This accounts for 43 new openings, as well as 1 closure of an underperforming store with an expiring lease. Earnings before interest and taxes is expected to be between $675 million and $685 million We expect our corporate tax rate to be approximately 25.5% and we expect capital expenditures net of landlord reimbursements to be approximately $310 million. Our diluted earnings per share outlook is expected to be between $5.32 and $5.40 assuming at least $300 million in share repurchases. This updated outlook also reflects the current consumer backdrop our continued efforts around affordability ongoing fuel surcharges, disciplined cost management. It also incorporates the expected onetime year over year gross margin benefit in the fourth quarter as we cycle an easier shrink comparison and the loyalty program changes we made earlier this year. We believe this outlook gives us the flexibility to continue investing in customer value managing the business with discipline. For the third quarter, we expect comp sales to be in the range of negative 0.5 to positive 1.5%, and diluted earnings per share to be between $1.20 and $1.24 EBIT margin pressure is expected to be approximately 50 basis points due to fixed cost deleverage from lower comp sales and the impact of more new store openings when compared to the third quarter last year. And with that, I will turn it back to Jack.

Thanks, Curtis. Against an uneven near term backdrop, we remain focused on the areas we can control. Sharpening value, strengthening foraging, improving how we engage with customers, and providing them a great in store experience. Advancing supply chain capabilities, and executing against a strong new store pipeline. We are using data to better support our customers on their health journey. Our customers care about what they eat, we are committed to making healthy, clean food more affordable and accessible. Which is particularly important during these challenging times. Our teams are proud to rise to this challenge. That commitment is directly connected to our top priority, serving our target customer. They continue to value the Sprouts experience the quality of our assortment, and the discovery we bring to health and wellness. While also looking for practical ways to make healthy living. Fit their budgets. We are responding in a way that is consistent with who we are. By bringing together innovation, quality, and targeted value in the areas that matter most. In the second quarter, our fresh deli meals vitamin sale and $9.99 wellness bowls are examples of how this approach resonated with customers. Our first half affordability test produced mixed results, Most actions drove better unit movement, while broader traffic response developed more gradually than expected. We are using those learnings to refine our second half approach focusing on the items that matter most to customers. And where targeted price and affordability actions can have the greatest impact on engagement. Foraging and innovation remain key strengths. And they continue to outperform overall company growth. They help differentiate the assortment and focus our space, promotions, and new item activity around the products customers value most. During the second quarter, we launched approximately 1.3 thousand new items. With an emphasis on attributes that we believe matter to our customers. Including organic, seed oil free, fiber, gut health, and protein solutions. These products help reinforce why customers choose Sprouts. With our exclusive partnership, pasture bird chicken is now available nationwide at Sprouts. And products like Better Pop and Betty's Soup Co. shorts are resonating with customers. Our organic offerings continue to gain traction across departments. Now representing more than 30% of total sales. Including more than half of sales in dairy and produce. Loyalty and personalization remain important long term enablers for the business. As consumer behavior evolves, against this uneven macroeconomic backdrop. We continue to see progress. Our acceleration efforts have identified new tactics to drive sales that should benefit us in the second half. And the data we are building is increasingly useful across the business with more in-depth customer behavior and preferences. Building our first party data capabilities will continue to support our long term strategy by unlocking value for our customers and Sprouts across the enterprise. Marketing is 1 area where our new data can help us more effectively engage customers in the second half of the year and beyond. We are using these insights to better target media across both existing and new customers. While also refreshing our creative to more clearly communicate Sprouts' unique position. And bring the brand to life. We will continue to tailor our messaging to highlight health, discovery, the unique products that distinguish Sprouts and compelling value on the healthy essentials our customers need. Our supply chain work is also advancing. Our Northern California distribution center is open and operating smoothly. And nearly 85% of our stores are now supported with fresh meat through Sprouts distribution centers. This gives us greater control over freshness, service level, and shrink. And the financial benefits from this transition will continue to support our efforts on affordability. We also are continuing to advance our self distribution journey with targeted investments in our existing space. Beginning with select Sprouts brand SKUs as we look beyond produce and meat to the next phase of this work. New stores remain 1 of the clearest proof points of the strength of our model. Performance continues to be strong. And our teams are selecting great sites opening stores efficiently. And bringing Sprouts to more communities. We are pleased with the progress across both high volume existing markets and newer markets that are continuing to build awareness and momentum. Our construction team have done a great job improving our processes and shortening our time to build stores. Given these improvements, along with our strong pipeline, we will be opening 42 net new stores this year. Slightly ahead of our original guidance. We will open at least 15 stores in the third quarter, which represents our largest quarterly opening cadence to date. Lastly, the Sprouts team remains the heart of the organization. Our team members bring the Sprouts experience to life every day. From the quality and presence in our stores to the service and education they provide our customers. Their commitment to our purpose, our team, and our customers. Remains a key advantage for our business. In summary, we are operating with discipline against the dynamic near term backdrop while staying focused on the actions that strengthen engagement. Reinforce the Sprouts value proposition and position the business for sustainable growth. We appreciate your continued interest in Sprouts. And look forward to keeping you updated on our progress. In the quarters to come. And with that, I would like to turn over for questions. Operator?

Thank you. To withdraw your question, please press 11 again. Our first question comes from the line of Edward Kelly with Wells Fargo. Your line is open.

Hi, good morning. Good afternoon, everyone. Could we maybe just start with comp cadence? And I am specifically interested in July. You talked about July being in line. Could you provide a little bit more color around the month versus the Q3 guide? You know, the Q3 guide leaves the possibility of a negative comp. I am not sure if, you know, you saw that in July, and was there any impact from Cyclospora. And then just remind us of the compares, by month moving forward now.

Sure. Hey, Edward. This is Curtis. Lots in that. So comp cadence sequentially, you know, improved through May, as we said in the script. June was a tough month. That was really the end of kind of the challenging last year compares last year in June. You know, really strong produce season. Disruption of the natural and organic supply chain that sent customers our way. And so those, you know, those are behind us now as far as the second half of the year, there were no major you know, disruptions or benefits last year that we are up against. So the comp will sequentially get easier. From a comparison perspective month to month as we go forward. Within July, we are we are within our guidance range. Just slightly negative for July is where we landed. And then on cyclospora, you know, it is it is really live right now. it is been really the last 2 weeks where we have seen a bit of impact on the business. And so we are really just kinda deal with that real time. I mean, first and foremost, food safety is our number 1 priority. The team really does a great job with that. They are watching all the news and the regulatory updates closely. And we have not had any product recall impact in our stores to date. But it is, you know, it is impacting the customers and how they shop. it is really isolated to kinda lettuces, salads, and salad related items is where we are seeing a bit of an impact. So it is shifting from fresh to frozen. So we are watching this pretty closely. I-- just to see where it is going to how the customer reaction to this. Difficult to know exactly how this is gonna play out. But we are focused on food safety. Okay.

And it is maybe just a quick follow-up, Jack. You mentioned a affordability results of the effort kind of being mixed and maybe some adjustments that you are making. Could you talk a bit more about that? And are those adjustments, meaning, like, intensifying pricing effort? Is it just sort of, like, how you are spending the dollars?

We are being very focused on trying to look after our customers on those items that matter most, and the tests that we have done, as we said, have been mixed in different departments, have done different items have performed differently. And the challenge for us is making sure that everything we are doing fits in within the model that we are working on. So I will maybe let Nick and his team have been doing a lot of work analyzing the specific detail of what we are investing in. Think we have got a pretty good handle on what it is going to cost and what we are gonna do going forward.

Hey, Edward. it is kind of a 3-pillar approach to the affordability work. We love we outlined. The 1 that I think is showing the most growth and really happy with what the team's doing is in our assortment efforts. So we see really strong momentum in our healthy meal solutions we are continuing to increase that offering with the health driven, attribute driven meals talked about our new $9.99 family meals. We now have all of our fresh made salads in store. Under $9. So that is been really strong for us. The second lever of that assortment has been in Sprouts brand. With innovation in the healthy essentials. So I will give you a couple examples. You know, we are launching seed oil free frozen potatoes that are now top sales in the category. We are just about to launch a $4, actually, we did just launch a $4 fresh baked organic sourdough bread. So you see us investing in the areas what is important for our customer in the assortment. On the price and promotion piece, Jack mentioned it is been it is been a little tougher to move the customer in this environment. We are seeing good basket in unit. Velocities from some of the price and promotion efforts we are doing but we are continuing to test and learn both the how we price and also how we message. We are going to continue to be prudent about how we do that. As we learn how to move the customer. And then the third pillar of that work is on personal loyalty and our personalization efforts. And the acceleration of the learnings we have had in the first half of the year and the third quarter to help continue to move our existing customer. Great.

Thanks, guys. Thanks, Edward.

Our next question comes from the line of Leo Jordan with Goldman Sachs. Your line is open.

Good afternoon. Thank you for taking my question. I just wanted to follow-up on Edward's first question around the comp. So in the prepared remarks, talked about July improved in line with your expectation, but you still narrowed the comp guidance for the year. So I am just trying to get a sense of what is making you maybe less optimistic in terms of getting to that top end now Is it really around the macro increasing competition? Or is it simply just, hey, we have had a softer start to July and maybe some of this is tied to the lettuce concern that you talked about? Any color there? And then just ultimately, maybe frame your confidence on getting back on to algo by the fourth quarter? Thank you.

I think the questions are with regard to getting back to-- what we are feeling for-- for going forward in terms of what we are what we are projecting. In terms of the specifics, there is a macroenvironment that is kind of difficult to really put your handle on. Clearly, grocery pricing's going up, gas prices have gone up and down, and they are they are clearly putting pressure on. We can see it in the units, and it is not across grocery units are not as strong as they were because of the inflation. So we are trying to second guess exactly where this is gonna play out. But our guidance is our guidance is something that we feel pretty confident about, and certainly, if the comparisons that we have got going forward play out the way we expect them to do, we should be back on our algorithm in due course.

Okay.

that is helpful. Maybe just a quick follow-up on that. We will stick with the comp here. I mean, maybe more color on the drivers how you are thinking about traffic versus units versus AUR kind of as we move through the back half? It sounded like traffic and units were getting better in July. Just trying to think about the underlying drivers for your comp outlook as we go through the fourth quarter.

I think we expect to sequential improvement in traffic for sure.

Units and traffic should get better. it is not gonna come from AUR. Traffic was the thing that went up really well when we were doing well and has been moderated and been the driver as we have softened here. So I think we would expect that to continue to get better as the compares get easier. And then units should get a little bit better as we continue to work on the affordability piece. Okay. Thank you. Thanks, Leah.

Please stand by for our next question. Our next question comes from the line of Tom Palmer with JPMorgan. Your line is open.

Maybe I could just first clarify on the guidance revision. So comps were narrowed around the mid midpoint. The second quarter earnings came in a little bit ahead of, I think, what you would guided for. So I just wanted to understand maybe some of the narrowing to kind of the bottom half when we look at that EBIT outlook, if there are maybe incremental investments that are contemplated I know there was the reference to you know, some deleverage. And so maybe the extra couple stores is the difference, but, anything else, on top of that? Thanks.

Hey, Tom. it is Curtis. I mean, really, the EBIT midpoint to midpoint $5 million change is really fuel. We are just looking as we as we spoke about last time, we covered it off in Q2. And but we said we did not have it covered in the in the second half, and we were not we are gonna wait and see how that played out. Obviously, it remains elevated. And then it is been pretty volatile. And so we are we are embedding 2.5 million a quarter in the second half for fuel. Great.

Thanks for that. And I also wanted to ask on some of the I guess, vendor participation that was noted. And then in 1 of the earlier answers, you noted focus on accelerating personalization. With the loyalty rollout, are you starting to drive increased support? I think that is 1 of the goals, and the belief was it might take a little bit of time working with vendors. But I am curious if we are hitting a point where that is becoming more of a factor just given the callouts earlier?

Hey, Tom. it is Nick. I would say we are still early stages in that. I mean, we just started opening it up, you know, vendor participation, the program at the beginning of this year. And so we were we are nascent in that. And the idea is always, hey. You have these really unique vendors with unique customers with unique needs, and how do you tie them all together to help them find their audience and their market? Because we have the health enthusiast that a lot of these, new brands want. And so I think I feel really good about that strategy. We are starting to see more and more vendors participate and see benefit from participating in the program. So we are we are certainly ramping, but it is it is early stages. And I think we have got certainly you know, as we build out the capability, as we continue to invest in technology, that will be something we continue to push over the next number of years. Got it. Thank you.

Thank you. Our next question comes from the line of Kelly Bania with BMO Capital Markets.

Hi. Thanks for taking our question. Wanted to just double click on the comment about kind of all customers are managing units per basket. As we look at your sales across the 2 categories between perishables and nonperishables, it looks relatively stable. So just wondering, you know, what is really happening underneath the hood there with units per basket? I thought that was a little bit more isolated to produce, but maybe you can just help us understand, you know, if anything is changed on the units per basket and what the plan is there to address that. It sounded like, you know, the focus is on traffic for now, but just as you look out further on the units per basket, what is the remedy for that?

Hey, Kelly. it is Curtis. I think units in the produce is always a lead because it is it is 1 of the larger it is the largest unit count in our in our average basket. But we you know, in these times, we saw it back in 2022 and 2023, and again here when the prices are up or there is an inflation environment or the customer's under pressure, for us, they tend to manage that last item in the basket. And so it is a little bit of an impact across the entire business and then produce usually has a little bit larger impact just simply because there is more produce units in our basket. Say, than the average conventional. And so as far as what we are doing, I mean, I think things that we are doing, you know, from a loyalty and personalization perspective, certainly, should help. The unit front. And from an affordability perspective, that will help on the unit front. And we are seeing, you know, some good progress on units in the in the in the tests that we are doing as we alluded to earlier. We would like to see a little bit of a broader impact from a traffic perspective, but the unit piece has been positive so far.

Okay. And Curtis, when you talk about kinda thinking about the items that matter most to your customers, that some of the examples, I think, sounded like they were in fresh Maybe correct me if I am wrong, but are you how do you think about kind of balancing the fresh kind of price investments or affordability versus kind of the new innovation and the new items, you know, seems so critical to the Sprouts merchandising strategy? How do you balance that, or are you trying to figure out, you know, where to put more or less investment between those categories?

Hey, Kelly. I will I will take that. it is Nick. We start with our customer and less think about it less around fresh and non and nonperishables and more around what is in the customer's basket. what is most important for them. And for us, you know, I think you have heard me talk about the healthy essentials. it is you know, it is organic cheese. it is organic bread. it is organic meat and it is obviously organic produce. So it is across the board. Nonperishable and perishable that we are focused on. And then looking at what is most important to them and where can we help make some of these things more accessible to them. that is where you see us both innovating with assortment, especially in Sprouts brand, then making the selective investments to ensure that they are more accessible. So we look at it from a total customer standpoint, and, you know, we have seen good success in fresh right now because I think that is a good driver for the customer on meals and meal solutions. But look at it holistically across the store. Thank you.

For our next question. Our next question comes from the line of John Heinbockel with Guggenheim. Your line is open.

Hey. Can you guys address cohort performance demographically. Right? I am thinking you have talked in the past about the emerging health enthusiasts. Right? You know, perhaps having more affordability issues. So how is that group performing And then when you distinguish between right? So you had some waves of shelf price reductions and then you have also done some stuff with the loyalty program in know, 3x, 5x points. When you think about what is working, what is not working, from a pricing standpoint, how would you how would you assess that?

Hey, John. it is Nick. I think the broader headline the 2 headlines for me on the question of working, not working, I think 1 is the macro's tough, and it is it is tough. The customer is proving out tougher to move overall. So efforts you know, are not quite the same as they may have been in a in a more stable market. We do not have the level of inflation that we are seeing in the market. So that has an impact overall. And I think the second thing is we are seeing as we mentioned before, our less engaged lower income customer is the 1 that is been harder for us to move. Some of that is a lapping story, John. You know, we are we are obviously still lapping some of that. But if you look at our cohorts and our loyalty customers, it is those that are a little less engaged, lower income where it is been tougher to drive that trip and then to extra it in the basket.

Maybe as a as a follow-up to that, I know the other opportunity, right, because of the sheer amount of product introductions, is to reach out to folks right, that are attribute oriented. To let them know the 1.3 thousand items came in and maybe that maybe that is the opportunity is bigger with higher income customers. But to what degree are you doing that? Now, or is that still to come, right, where there is you know, there is these prompts, calls to action, about these items?

We are, we are we are definitely doing that. We are seeing it in the numbers. Our innovation, the products that we are you know, the new products we have launched in the last year are significantly outperforming the overall box. We are seeing the innovation continue to be strong and the customer continue to be willing to buy the new items, the unique items they see with us. So I think that is a combination of the foraging work that we continue to do. The strong pipeline innovation that our merchants and foraging team has built, and then we are continuing to introduce it to our customers. Not just through loyalty, which has been personalization, but also through social media and our marketing. And so I am I am actually very happy with how our newness continues to perform. Certainly have aspiration to continue to drive it even further, but, that is been good for us. Thank you.

Bye for our next question. Next question comes from the line of Christina Katai with Deutsche Bank. Your line is open.

For taking the question. So I wanted to follow-up on the affordability test. You have you have noted that you are seeing improving unit movement it is generating a slower than expected traffic response. So can you help us quantify the gap there? And you call these tests having mixed results, What have you learned about elasticity and just overall customer response that is shaping your second half investment?

Hey, Christina. it is Curtis. I do not I will not and Nick or Jack may jump in as well, but I do not think I will get too specific on quantifying the exact expectations there or what is where we have been. I will just say I think the 1 thing we would again, it is going to go back to its challenging to move the customer in this environment. And the longer we have gone with elevated fuel and the challenging macro, you know, it is just a little bit harder Things that worked last year are not working as well this year. Things that we think should work that we try. Do not work quite as well. And so it is been a lot of learning and kind of readjusting to the current environment for how we go to market, and that is really kinda how it is playing out as we think about the tests whether it is in personalization or whether it is in price and promotion.

And I And I think 1 of the macro challenges is 1 of the biggest things that I think is affecting the-- the ability for us to move traffic And the comparison to last year is pretty significant. On some of the things that happened last year. And those lower engaged customers that came to us last year in some unique circumstances. that is the 1 that is the group that we are seeing the biggest challenge on growing the traffic. But when that lapping grows out, we are feeling pretty confident about that linking to all the work that Nick's team is doing in terms of how do you give value to the customer and how do you give value on those items that matter most to the customer. We are seeing some progress on that. I think the traffic will take a little bit longer. that is helpful.

And then if I could just follow-up on that, obviously, you called out the lower engaged customer remains the largest opportunity. So if you could just sort of give us any framework around how to think about that, just how much of the comp pressure today is coming from these shoppers? What percentage of your customer base would you characterize as lower engaged today? If you could just maybe tie that in terms of what behavioral changes are you seeing as the loyalty and personalization efforts gain traction. Thank you.

Hey, Christina. it is Nick. I probably will not quantify it, but I would tell you that where we are seeing the biggest challenges I mentioned on in John's question was with the lower engaged customer. it is certainly a smaller portion of our spend and a smaller portion of our customer base, So it is it is not our core customer, but we are certainly seeing that in the behavior question was about is we are just seeing them spread the trips out a bit more. You know? We are not seeing them take the same low frequency maybe if they have in the past. I think that is what is driven by in the macro, right, and that people manage their are managing their wallet right now, what they can spend. So that is that is kind of what we are we are seeing from the less engaged cohort. And the good news is our core customer has remained pretty resilient. Know, I think part of what we are seeing in some of the price activity, it is it is been good for you at the-- a little bit tougher on traffic, but we are seeing the customer respond to this great assortment that is at a great value in some of the newness and things that we have launched. I think that are-- that kind of highlights the type of customer we have. And who we really stay focused on, as we continue to work in the second half. Okay. that is great color. Thanks. Best of luck.

Thank you. Thanks, Christina.

Our next question comes from the line of Rupesh Parikh with Oppenheimer and Company.

Good afternoon. Thanks for taking my questions. Just given a number of players highlighting price investments out there, just curious, you know, how you guys feel about your price gaps and just overall what you are seeing on the competitive front. Thank you.

Specifics in terms of price, we have talked fairly consistently, Rupesh, about that in terms of the important pricing the way we have got direct comparisons with the with other guys is in our produce, so we continue to pay a lot of attention in our produce. We are very pleased with where we are on our organic produce. And it is a fairly volatile market as we alluded to earlier. So produce pricing we feel we are in pretty good place in terms of relative to the competition in that space. And with regard to other activities that is gone in the marketplace, and clearly, a lot of people are talking about things that are going on in the marketplace. We are pretty confident that the assortment and product we are putting together are differentiated enough that we have to focus on the value of those items that matter most to our customers and our customers being a health enthusiast customer. And as Nick alluded to earlier, just picking the right items at the right price is something we can do because our products are differentiated. And we do that in a in the context of making sure we have got the right value for the customer going forward. And that is been our pricing model for a long time now. Great.

And then my follow-up question, just on new stores. Commentary suggests that they are still performing really well. But just your just curious, just given the more difficult backdrop, have you guys seen any challenges in how these stores ramp or any anything else to highlight just given the weaker backdrop?

Hey, Rupesh. it is Curtis. No. Actually, I mean, that is 1 of the things we are really pleased about and kinda continues to give us confidence in the go forward and in the strategy overall as the new stores continue to open well. And then it is really across the country, and we have opened them in New York and in Florida and across to California. And so new stores open everywhere. They are all generally performing the way we would like them to. We see the typical nuances of new markets versus more established markets, but all of them kinda performing ahead of our expectations and in line with the last couple of years of performance. And then the other encouraging proof point is the recent vintages are comping positive. So as the core is a bit challenged, the those last 4 vintages are all positive and again, just continues to point to that this is a this is an offer. This is a format This is a model that the customer is looking for. So been really pleased with the new stores. Great. Thank you.

Thanks, Rupesh.

Our next question comes from the line of Mark Carden with UBS. Your line is open.

Good afternoon. Thanks so much for taking the questions. So this 1, this builds on the last 1 a bit. It sounds like you are seeing good momentum on your new stores. As you look to your stores in newer markets, are you customer mix is mirroring what you see across the broader footprint, Is it any tougher to bring in customers that are closer to the lower end of income spectrum in markets? Where you are still building up your name recognition? Does the excitement of the new concept offset this? Just what are you seeing on that front? Thanks.

Mark, this is Curtis. I think-- you know, I think it is in newer markets, it is just challenging generally. Because the awareness is not there. And that is really the big difference. I do not think it is any you know, materially different from a cohort perspective We watch mix and what they shop from a department perspective. there is no dramatic differences there. I just think it takes a minute for people to figure out who we are, figure out that we are different, and, you know, how they can how they can incorporate us into their share of wallet from a grocery perspective. And so those stores, as we have talked about over the years, tend to build a little bit slower. Or sorry, build a little faster. They start a little bit lower and then they build a little bit faster as customers figure us out. And it is definitely clear. When you go to Long Island, you are not as well known as the room we open stores in Los Angeles. So we see that very specifically in our numbers, but the mix of our customer base I do not think it is significantly different from where we are everywhere.

Great. That makes sense. And then you guys alluded to some other opportunities from a self distribution perspective. How would you think about timing as to as to when it is right to in source additional categories? Has your experience with meat and seafood pull up the timeline at all there?

Hey, Mark. it is Nick. You know, we are we are really happy with the work of the supply chain teams have done and the merchants have done in completing the meat rollout that we wrapped up with our NorCal DC in Q2. They have done a phenomenal job across the board. And I think what it is proven to us is, hey, there is potential for us to continue to learn and look for more ways to control the key products that are really important to us and our customer. And as Jack mentioned, we are starting to dip our toe in the water a little bit there with some a couple of Sprouts brand items that we are bringing in using the capacity we have in our existing distribution centers. To, again, take ownership and try to improve service levels and profitability in the business. We are gonna continue to, you know, take it 1 step at a time, learn, see how that is working. And assess, but We are going to continue to look for ways we can, you know, take more control where it makes sense for us, but we are taking a measured approach. Over the next couple of years, and we will look at that as we look at our long term plan on our network as well.

And we are investing appropriate in supply chain. We have built, I think, it is 4 distribution centers in the last few years, we have got more to come going forward in terms of building capacity to support our store base as we grow into different marketplaces. So it is been a strong evolution of our supply chain over the last few years, this idea of getting more control over things like Sprouts brand and some of the core categories is going to be really important to us, and we are investing in appropriately. Great. Thanks so much. Good luck, guys. Thanks, Mark. Thanks.

Please standby for our next question. Our next question comes from the line of Scott Marks with Jefferies. Your line is open.

Hey, good afternoon, guys. Thanks very much for taking our questions. Wanted to just hit on a comment you made in the prepared remarks about EBIT margin pressure being about 50-bps in Q3. I think you called out a few different components of that with more new store openings, fixed cost deleverage, lower comp sales. You called out the some of the fuel headwinds. So just wondering if you can kind of help us bucket each of those components in terms of contribution from each as it relates to that expected pressure. Thanks.

Hey, Scott. it is Curtis. I think probably the easiest way to say it is it will be pretty similar to what we experienced in Q2. So if you go up and down the P&L in Q2, the shape of it is gonna look pretty similar. So slightly negative gross margins slightly negative SG and A, a little bit of pressure in DNA. And then the new stores piece really kind of folds into SG and A pressure. Okay.

Clear on that. And then previously, you had also called out a cannibalization factor in existing markets where you are rolling out new stores Wondering if you can just give us an update on that and what you are seeing now relative to what you had been seeing previously. And that is all. Thank you.

Yep. Scott, Curtis again. We have talked about 100 to 150 is kind of the range we would typically expect to see, and that will depend on mix of, you know, new versus existing markets and etcetera, etcetera. Right now, we are we are towards the lower end of the range. 1 piece is we have a fewer store openings in the first half, and we will ramp that up here in the second half. But through Q2, it is kind of towards the low end of that range, and that is slightly better than what it was last year, but we have been pretty consistently in that range.

I think 1 of the things that is encouraging for us is that the calculations on cannibalization, the model, the guys are doing a really good job at predicting exactly what that cannibalization is, so we can really understand it. We have got much better handle of that over the last few years. Thank you.

Please standby for our next question. Our next question comes from the line of Scott Mushkin with R5 Capital.

Hey, guys. Thanks for taking my questions. So I wanted to go back to the pricing thing for a second. Because we have seen some interesting, you know, pricing at you guys. The example I would give is