Hello, thank you for standing by, and welcome to Sprouts' Q1 2022 earnings conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Susannah Livingston, Vice President, Investor Relations and Treasury. Please go ahead. Thank you, and good afternoon, everyone. We are pleased you have taken the time to join Sprouts on our Q1 2022 earnings call. Jack Sinclair, Chief Executive Officer, and Chip Molloy, Chief Financial Officer, are with me today. The earnings release announcing our Q1 2022 results, the webcast of this call and quarterly 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 2022 and beyond. 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 SEC filings, along with the commentary on forward-looking statements at the end of our earnings release issued today. Our remarks today include references to non-GAAP measures. For a reconciliation of our non-GAAP measures to the comparable GAAP figures, please see the tables in our earnings release. With that, let me hand it over to Jack. Thank you, Susanna, and good afternoon, everyone. We are pleased with solid Q1 results and believe it is a sign that many of the strategic changes we've made over the past couple of years are beginning to materialize. The turn to positive comp sales, supported by positive comp transactions, while at the same time maintaining stable gross margins, was extremely encouraging. During the quarter, we successfully attracted new health enthusiasts and innovation-seeking customers by continuing to focus on providing both the freshest produce at great prices, along with a wide variety of differentiated attribute-based products. This was especially important during the all-important New Year's resolution season. Our earnings for the quarter benefited as our pricing caught up with inflationary trends, leading to better than expected gross margins. We also made good strides in our unit growth objective with the addition of six new stores that spanned across Colorado, Texas, and Florida. One of the stores that opened during the quarter and the majority of the remaining stores opening this year will be in our new format. All of this was possible due to the resilient Sprouts team. Many thanks to them as they remain diligent in keeping our fresh supply chain running and our shelves stocked, while at the same time caring for our customers by providing friendly service and product knowledge. While we are pleased with our strategic changes and the positive impact they have had on the business, the near-term landscape has changed a bit since our last conversation with you, which is slightly impacting our outlook for the remainder of the year. Chip will provide details relating to our financial performance and our current outlook, and then I will follow up with more details relating to our focus for the remainder of 2022, and how we're navigating the current environment. With that, I would like to turn it over to Chip. Thanks, Jack, and good afternoon, everyone. For the Q1, total sales were $1.64 billion, up $66 million from the same period in 2021, driven by comparable store sales of 1.6%, supported by positive comp transactions and new stores. We did benefit early in the quarter from the King Soopers strike in Colorado and the height of the Omicron variant. That said, we experienced both positive comp transactions and positive comp sales each month during the quarter. We are encouraged by our top line growth while simultaneously maintaining our gross margins. e-commerce sales were 11.5% of total sales, which was also slightly elevated during the early part of the quarter due to the Omicron surge. We continue to experience strength in our deli business as consumers search for both healthy and easy meal options. We also experienced strength in those areas with our greatest breadth of differentiated product, such as grocery, dairy, and vitamins. We are particularly proud of our merchandising, supply chain, and operations teams as they managed to keep our shelves stocked with both perishable and non-perishables in a challenging sourcing environment. We continued to see our customer engagement grow from a digital standpoint with increases in account sign-ups, active email users, and text subscriptions. We also saw positive trends in customer retention rates, while our customer satisfaction scores remain very high. Our Q1 gross margin was 37.3%, essentially flat when compared to the Q1 of last year, and better than we originally expected. We passed through inflationary costs and are closely monitoring price elasticity. We continue to test promotional strategies to drive both positive traffic without sacrificing overall gross margin. That said, we are continuing to experience slightly fewer units in the basket when compared to the same period last year. SG&A for the quarter totaled $460 million, or $20 million higher when compared to the same period last year. Increases were predominantly driven by new stores and higher in-store labor and supply costs. We also spent approximately $2 million relating to California's 2022 supplemental sick leave law that provides paid time off for COVID issues. We now expect the total cost to be approximately $3 million by the time the law expires in September 2022, unless there is another variant outbreak. Total SG&A increases were partially offset by timing of a portion of our marketing spend that will shift to the remaining Q3 of the year. For the quarter, our earnings before interest and taxes were $120 million. Interest expense was $3 million, and our effective tax rate was 24%. Q1 Diluted earnings per share was $0.79, an increase of 13% over the same period last year. During the quarter, we opened six new stores, spent $22 million in capital expenditures, net of landlord reimbursements, and repurchased 1.5 million shares for an investment of $46 million. Our strong cash flow from operations of $153 million continues to fully support our ongoing capital needs. Turning to the balance sheet highlights. We ended the quarter with $324 million in cash and cash equivalents, $250 million outstanding on our revolver, $25 million of outstanding letters of credit, and a net debt-to-EBITDA ratio less than zero. As you probably saw, on March 25th, we closed a $700 million revolving credit facility which replaced our previously existing $700 million revolver. The terms and conditions are substantially similar to our previous agreement, with a new expiration date of March 2027, as well as the addition of ESG-linked pricing terms. While we plan to continue to fund operations and unit growth through our robust cash flow generation, this facility provides Sprouts with greater financial flexibility as we grow. As for our outlook, our view today is slightly different than it was at the beginning of the year. We believe we could drive slightly positive comp transactions, our proxy for traffic, throughout the year. More importantly, we believe year-over-year inflation would begin to dissipate as the year progressed and the declines in units per basket would slowly stabilize. However, inflation is not slowing and customers continue to put 1-2 fewer items in their basket this year than last. We can speculate a variety of reasons as to why the fewer units. Rising gas and utility prices, increases in wages, a flight of precious discretionary dollars to more experiential offerings such as travel or restaurants, et cetera. The good news is that our comp traffic is continuing to be positive, and in many ways, driving more units in the basket is a bit more within our control. Jack will not only address progress towards many of our multiyear initiatives, including those that attract more customers, but also near-term tactics to stimulate demand while in the store. With all that said, we now believe it is prudent to expect total sales growth, comparable store sales growth, and earnings per share to be at the low end of the outlook we provided during our last earnings call in February. As a reminder, that outlook included 4%-6% total sales growth, 0%-2% comparable store sales growth, and $2.14-$2.24 earnings per share. We are still on track to open 15-20 new stores and invest $150 million-$170 million in capital expenditures net of landlord reimbursements. For the Q1, comparable sales should be close to flat, and earnings per share is expected to be between $0.49 and $0.53. With that, I'll turn it over to Jack. Thanks, Chip. Despite the current environment, the company remains laser-focused on delivering the long-term vision for Sprouts and an immediate focus on building a stronger basket. Our relentless focus on product differentiation in partnership with our vendors is what sets us apart as a specialty grocer. We believe this is one of the primary reasons our target customers love to shop at Sprouts. Considering this is so important to Sprouts, we just recently promoted Kim Coffin to Chief Forager to oversee innovation nationally across all departments. Kim and her team will build on the very strong foundations that we have with regard to product innovation in the health and attribute space. Our merchandising teams are constantly in pursuit of new products based on healthy trends, taste, and uniqueness. We conduct product tastings constantly, and while category reviews happen a few times a year, new cut-ins occur regularly to keep our shelves full of interesting new products. Our organization and small-market farmers' market stores are built to be flexible, allowing us to insert new products in every store in a week, which our vendors love. It is this passion and our healthy product focus that drives new innovators and vendors to Sprouts, allowing us many exclusives and first-to-market. In the Q1 alone, we released over 1,000 new items to the store. We've recently restructured our produce department and reorganized to improve freshness, seasonality, locally sourced products, and unique and exclusive varietals. A clear differentiation for Sprouts is our dedicated local produce team, not seen at other grocers. With our local produce sales growing steadily, these teams are developing ever stronger relationships with smaller local farmers. We're giving long-term commitments to these growers, which provides fresher products and cost benefits that we are proud to pass on to our customers in better pricing, all of this reflecting our farmers' markets heritage. Building an advantaged supply chain closer to our stores was an integral part of our strategy to improve produce freshness and ties in nicely to support local farmers. With two new distribution centers behind us in 2021, this year we're focused on optimizing these new centers in Colorado and Florida, especially with more local produce and systems at all DCs. We also plan to move our Southern California distribution center into a larger facility in 2023 to support our ongoing growth in that region. We've already begun the work on this facility, which will include ripening rooms to present fresher product to our customers and will be solar-enabled, LEED certified, and planned to support electric charging for commercial trucks. Switching gears to our new stores, the pipeline remains strong, and with 6 new stores under our belt in the Q1 and a few more already opened this quarter, based on our progress to date, we're confident we will be able to open 15-20 stores this year. Supply chains remain tight, but we're getting the necessary equipment for our builds this year. Moving on, our journey in marketing continues. Data tells us that awareness is still an opportunity, and as it increases, so do our customer counts. As well, data also reinforces that produce value and product attributes drive customers to our stores. You will see us hyper-focused by reinforcing these two areas in our messaging, our merchandising, and through our media investments. I'm excited to have Nick Konat, our new President and Chief Operating Officer, on board to lead this endeavor. His experience in both merchandising and digital marketing are invaluable. Recent consumer data shows us that our current Sprouts customers give us credit for providing great value on produce. Our opportunity is the non-Sprouts shopper who may not be aware of Sprouts' low prices on produce and actually perceive us as being more expensive in this category. By overtly telling non-Sprouts shoppers what our customers already know, we have great prices on the freshest produce, we expect to drive incremental traffic. Sprouts is unique as we intersect fresh, value, and discovery like no other grocers. We have always held strong equities in fresh, and we're well-positioned to grow perceptions in produce value and discovery of healthy new products across the store. These messages are being integrated across our marketing efforts to reach customers in our various trade areas. Fresh and value are reinforced through owned and paid media channels, and we're stepping up the healthy discovery by focusing on influencers, customer experience, vendor partnerships, and new product spotlights. Just this past month, we exclusively launched Mananalu Pure Drinking Water, founded by Jason Momoa, who filmed a promotional video in one of our stores for his sustainable movement campaign. This one video post received over 13 times the views we typically see and was the most engaged post in the past 12 months. We also partnered with Broadway star and TikToker sensation Kevin Chamberlin, who sang a catchy jingle on social media promoting the unique products shoppers can discover in store. Overarching the entire campaign will be our ongoing messaging, highlighted by differentiation, seasonal focus, and of course, value and produce. I've been particularly pleased with our rollout of our new values. We care, love being different, and owning it. I'm sure this will have a significant impact to drive customer engagement and sales in our stores. Our community support continues to grow. Since its inception in 2015, the Sprouts Healthy Communities Foundation has granted $15 million to more than 300 nonprofit partners, which have brought hands-on garden-based learning to 1.5 million children. In April, to strengthen and expand school garden-based education, the foundation hosted an inaugural Growing School Gardens Summit in Denver, Colorado. As the first-ever national gathering focused entirely on school gardens, the summit united over 400 educators and leaders from across the country working to sustain school garden programs. These educators and the nonprofit organizations they represent operate learning gardens at over 6,000 school campuses throughout the United States, providing hands-on nutrition, science, and academic instruction to an estimated 2.5 million students every year. Our community involvement doesn't stop at the foundation. Sprouts is committed to focusing on women's athletics by partnering with the Angel City Football Club as the team's founding backup jersey sponsor, making our first commitment to women's professional soccer and enhancing our support of the broader Los Angeles community. We were thrilled to support Angel City's inaugural soccer match last month, as well as we look to expand our women's sports platforms in the coming months. One of the ESG topics we're always proud of is our food waste recovery, which increased to 78% in 2021, mainly driven by the donation of an equivalent 26 million meals to over 400 food rescue organizations across the country. These and many other stats can be seen in our 2021 ESG report that we just published this week. As you can see, we're feeling good about the progress we're making against the strategic objectives we outlined over two years ago. As we highlighted earlier, our traffic to our stores is positive, while customers are putting 1-2 fewer items in their basket. It is important for us to control what we can control and focus efforts not only on incremental traffic, but also building basket, especially as the consumer's wallets get squeezed. A few of our focus areas include in-stocks, bringing back a selling culture to our stores, key merchandising solutions, and basket level promotions. Starting with in-stocks. Sprouts has historically been somewhat challenged in this area due to unsophisticated systems and processes that make it extremely difficult for our stores and our merchants, resulting in less than optimum in-stock positions. To improve this, last year, we embarked on implementing a new system that supports perpetual inventory and computer-assisted ordering, or PI & CAO. This system and associated processes provide greater visibility and accountability to inventory levels and shifts store responsibilities from estimating and ordering to just counting. We're extremely confident this will improve our in-stocks across the chain. We recently started the implementation by department and will soon have dairy and frozen completed across the chain. All departments will be completed by early next year, and at the same time, we're building out a true replenishment team. Turning to selling culture, we wanna bring more buzz to our stores. The pandemic restricted the opportunities to drive excitement in our stores. Our team members had to spend an inordinate amount of time on sanitizing versus being able to engage with our customers. We're bringing back assertive sampling in a big way, allowing our customers to taste and experience new products. Beginning in Q2, for the first time in Sprouts history, we have true labor standards in our stores and a system to support it. This will provide efficiencies by weeding out unnecessary and duplicative tasks and allows us to shift those hours towards more customer engagement across the store, similar to our vitamin department today. In addition to our store bonus programs, we're providing our stores more visibility to actual units in the basket and implementing cost-out contests within the regions relative to their associated performance. As it relates to merchandising, the front ends of our stores are becoming more basket-building with key seasonal impulse items. We're also rolling out innovation centers and more prepared meal fixtures in many of our stores. The innovation centers help create the ongoing treasure hunt and highlight new products in our stores. Our customers are telling us that they like the convenience of prepared, so we're stepping up our exposure to heat and eat deli meals and prepared one-pan meals as time becomes a more precious commodity for our consumers. Finally, as it relates to basket promotions, we're having some success shifting towards house or department discounts as opposed to specific items. We find these programs not only drive incremental traffic, but also deliver baskets that are 2x the average. I hope our comments today are helping you understand what we are building at Sprouts, a specialty grocer focused on wellness with differentiated product and the freshest produce at great prices. At the same time, I hope you believe we're working diligently, controlling what we control as we navigate the current economic environment. At this time, we're happy to take your questions. Operator? Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Our first question comes from Mark Carden with UBS. Please go ahead. Good afternoon. Thank you. Good afternoon, and thanks a lot for taking my questions. I wanted to start by digging into the comp a bit more. We've seen some pretty strong top-line results at grocers like Publix in recent days with inflation, presumably acting as a bit of a tailwind there. What do you think is driving the pressure in the other direction for Sprouts in your view, really when you're thinking about your forward guidance? Are competitors investing more in price? Is trip consolidation at larger grocers maybe capping your transaction growth from being even higher than it is today? You also mentioned of course that the fewer items per basket or is there something else that's really, kind of driving the differential there? Yeah. Thanks, Mark. First of all, we're pretty encouraged by the transaction growth. Then the fact that transactions are going up is something that's encouraging us over the last couple of quarters, and we think that's likely to continue. The issue is, as you say, units per basket. What we're not seeing is any real intense promotional activity from other people that's influencing that. We think it's some of the macroeconomic environment that's existing out there. Inflation is clearly affecting people's ability to spend as much or to buy as many items as they come into our stores. We think consumers are spending a little bit more on travel. If you look at the TSA data, it's pretty clear the number of people, the increase in travel that's going on. Disposable income on that, I think, is probably going, is restricting our basket a little bit. As I said in the remarks, we do believe there's a lot in our command, in our control that we can drive it through. We're excited by some of the new merchandising activities we're putting into store. We're excited about using some of the techniques to get our in-stocks even better than it's been over the last little while. We're focusing on the things that can grow our basket. I'm not seeing any intense promotion pricing activity elsewhere. I think this is in our own command, in our own control, and we're focusing on controlling what we can control to drive that basket forward. Okay, great. That's helpful. Just as a related follow-up to that, it sounds like competitors are largely acting rational across the board with respect to passing through your price, even these last couple months where inflation has really picked up. Yeah. I'm certainly seeing rational. You know, margins are not. There's nobody's investing a huge amount of margin to try and drive business, you know. I'm certainly not seeing that that's putting us under pressure in terms of we're passing on pricing. There's timing issues on that, but we're passing on pricing against the cost increases that continue, as you're all very well aware of, as it continues to keep pushing on the inflation rate. We're passing that on in pricing as is everybody else. Great. Thanks so much, and good luck. Thanks. Thanks, Mark. Thank you. Our next question comes from Scott Mushkin from R5 Capital. Please proceed. Hey, guys. I had a couple questions, one clarification first. I think it was said that marketing spend timing was some of it wasn't done in the Q1 and it's going into the second and Q3. Did I get that right, A? And is it material? I'll let Chip talk about the materiality of it, but it's certainly a significant. We've been working really hard at getting the right messaging and marketing as we've been talking about fairly consistently over the course of the last few quarters. The messaging that we're trying to get out is very clearly to those customers that don't know us, how is our produce pricing and our produce freshness is much better than our competition in most markets, and we're trying to emphasize that message alongside the scale of differentiation that we have as a grocer. That treasure hunt in the healthy experiential kind of space, putting those two messages together, we're just trying to get that, hone that message and get it where we need to get it. We delayed some of our marketing because we felt we weren't quite where we needed it to be. Certainly in terms of the timing of that, it's a timing issue as opposed to materiality and numbers. Chip, I don't know if you wanna- Yeah. Hey, Scott. It's just $2 million, and it's associated, as Jack said. There's the creative side of that we thought would be finished in Q1, and that's tracking its way into Q2 and some in Q3. Okay, that's great. Then kinda to my real question here. I mean, obviously, you guys have done a lot of work with the company. You know, we go in a lot of stores. Your execution is good. But you also are having, you know, a very different experience than most people in your industry over the last, say, 12 months on the comp line. It's obviously run out. The time will run out where you can comp at 0 and still have good numbers. You're gonna start to de-lever eventually here. I guess, you know, number one is, you know, do you need to do something more radical to kinda get this business moving? You get a lot of cash, your financial performance is good. The second thing is like, is it ever kinda thought of as, you know, Albertsons said, we gotta, you know, do strategic alternatives here. Like, do you need to start thinking about that kind of stuff, you know, with shareholders in mind, given that we're really struggling to comp and eventually it's gonna catch up and bite you in the butt? Hey, Scott. We've always gotta be taking shareholders in mind in terms of how we think about things going forward, but that's not part of our thinking at the moment. We're very clearly focused on getting this business where it needs to be. I'm really encouraged by the traffic growth that we've had in the last 2. You know, that's the difference in terms of what we've been talking about over the last 12, 18 months or so. We've got ourselves in the last Q2 into seeing our traffic growing. I do think there's some uncertainty in the consumer space that's kind of probably restricted the comp that we would have got, we would have expected to get going forward, and I think that's reflected in the basket. We're talking a different story here this time than we have been maybe two or Q3 ago, in that we're talking about a traffic growth, which we hadn't been talking about before, and we're now talking about units in baskets not being where we would like it to be, and I think there's some factors that are driving that. We're pretty confident that as that plays through and the uncertainty unravels, that what we've got is a proposition in terms of outstanding fresh foods, as you say, great execution in the stores, and that combined with really telling, getting the message through, that you'll start to see the kinda comp growth that we're gonna have to get to over the next little while. All right, guys. Thanks for taking the questions. Appreciate it. Thanks, Scott. Thanks, Chip. Thank you. Our next question comes from Chuck Grom with Gordon Haskett. Please proceed. Hey, thank you. My question's on the basket again, and I'm just wondering if you could remind us where your average basket stands today versus pre-COVID levels, and if you think you can hold on to that level or if you think you have to give some back here over the next couple of years. Hey, this is Chip, Chuck. I don't know if we've ever actually disclosed the total. We have? Yes. Total dollars in the basket? Yeah. We've said before it's been 31. Oh. Our average dollars in the basket are north of 40 today. A lot of that over the last couple years has been on price. You think about just average units, average cost or price per unit is running in the mid-$3. You're talking 11-12 units. A unit makes a difference for us. Losing one unit makes a difference on the downside, but gaining that one unit back and controlling it helps on the upside. Okay. That's helpful. I guess maybe we could talk about the interplay between that 1-2 decline in UPT, which would be at, I guess, about $3-$6 versus The changes in your AUR that you're seeing at retail, can we talk about that interplay? Well, I mean, the changes in retail is in line with inflation over the last couple of years generally. We're looking at, you know, you've been seeing double-digit inflation over the last two years. Got it. Okay. Good. Then just last question, just, you know, on the gross margins. Your prior guidance, I believe, was for gross margins for the year to hold. Just wondering how we should think about the gross margin line over the next couple of quarters, you know, given the slight change of guidance that you just provided. Yeah, the margins are pretty steady. As Jack indicated, you know, even playing around with price at the item level isn't really driving a reduction or an increase. There isn't a big, huge investment in margin. We think it's gonna be relatively flat year-over-year. Could actually, with some shrink savings, have just a hair up year-over-year, but generally flat. As we've been talking about around margins over again the last few quarters, we're fairly confident that the improvements that we made in our margins over the course of the last couple of years are kind of embedded into the model going forward. Certainly the inflationary environment means we've got to be paying a lot more attention to how we manage our pricing. We're pretty confident that where we're at in our margins is something that we can be confident about going forward. Okay, great. Thanks so much. Thanks, Chuck. Thank you. Our next question comes from Karen Short with Barclays. You may proceed with your question. Hi. Thanks very much. I'm actually wondering, first question, can you just give us a sense of what actual inflation is as you measure it on cost and retail? It's generally low double digits. Karen? Okay. Both at cost and retail? Yeah. Yes. Okay. You're passing on cost inflation to retail? Yes, we are. Just to clarify. Yes, we are. Yeah, we're passing on the cost and inflation. Okay. Wondering if you could just give a little color in terms of what your actual mature stores are doing from a comp basis. You know, we talked about this before, but obviously, you have a waterfall benefit on your comp and with your unit growth. That doesn't seem to be flowing into your comp currently. Wondering if you could just give a little color on how your mature stores are comping versus your newer and an update on the waterfall benefit. Yeah, I can provide some. We actually in the Q1 started to see some more material benefits from our vintages of stores. You know, I go back to call it 2020. We're getting double-digit comps from our 2020 V sixes vintage. We're getting, call it mid-single digits from our 2019 and then 2018 and before, you know, it kind of mixes into the comp. 2021, of course, they're not comping yet. Okay. Then last question just for me. You're basically you are seeing pushback from customers on inflation. That's fair to say, right? Because you're seeing that in, I guess, average unit volume. I think that's. How do you see that playing out, I guess? I would say that we're yes, we are seeing less units going into the basket. Is it because they're pushing back because they don't like the price of the unit? Are they pushing back because they're spending their discretionary dollars somewhere else, such as restaurants, experiential places that we see happening between restaurants, travel, et cetera? But at the end of the day, they are deciding that I only wanna spend so much on a basket, and we play with testing. I mean, play with pricing all the time and test it, and it's not driving incremental demand just through price. If you look at, you know, when we look at it, we're looking at survey data too that would suggest that others are having the same unit in the basket issues or challenges, maybe different magnitudes. When we look at comp, even comp guidance in the industry, and you look at double-digit inflation, and you look at single digit comps, either the industry is experiencing less traffic or less units in the basket. It has to be one or the other. How do you see that playing out throughout the year as it relates to your updated guidance? Yeah. It's in our guidance. As we said at the beginning, you know, we were gonna get to a place where we were comping that from a year-over-year perspective, and our expectations were as inflation would start to subside beginning in the Q2, just from a year-over-year perspective, and the unit stabilized. What we're seeing is inflation is continuing to quarter- quarter- quarter is still higher year-over-year. With that, the industry is seeing less units going in the basket. Okay. Thank you. That's helpful. Yep. Thank you. Our next question comes from Edward Kelly with Wells Fargo. You may proceed with your question. Yeah. Hi. Good morning, guys. I guess my first question really is probably, you know, sort of similar to, you know, what you've heard from others here. I'm just trying to, you know, better understand, you know, the momentum of your business versus sort of like what we're seeing in, you know, at some of your conventional peers. Because I understand this debate around, you know, they're seeing less, you know, items in the basket. But, you know, the reality is, like, if we sit here and we look at sort of like, you know, comp sales versus 2019 in your business versus others, I mean, it's dramatically different. And now you're talking about elasticity, and we're not, you know, picking up, and we're not really hearing that from others. Do you think that there's, you know, something incrementally specific that's happening to your business, you know, in Q1 that's causing, you know, this underlying deceleration? Or do you think you're just, you know, one of the first to really kind of start to sound the alarm bell on, you know, just too much pressure out there on consumer? Well, I don't know how to characterize what everyone else is going through, but we know exactly what's happening in our business. We've seen double digit cost inflation, we're passing that on in double digit retail inflation. You've clearly got a lot of pressure on the consumer right the way across the economy, whether it be gas prices or spending money on restaurants or spending money in transportation as people emerge from the pandemic. The uncertainty of supply chain and costs and inflation is clearly playing. It's having an impact on the economy. What is that doing to our business? We're really confident about the fact that our traffic is growing in the context of this environment. That's something that we've been talking to you all about and talking to the community about fairly consistently. We're encouraged by that to see positive transactions in our business. We actually think that'll continue. We think the proposition that we have, we're not a conventional grocer. We're not trading from a conventional grocer to a specialty grocer. We're doubling down on being a specialty grocer that has exceptional fresh foods at exceptional pricing and very differentiated product that focuses in on attributes, whether it be keto or paleo or vegan or vegetarian. All of that is coming together really strongly, and I think that's one of the reasons traffic's getting a little bit better and I think as we continue to get that message. In that context, when people are coming into the stores, what we are seeing is that they're buying one or two units less. We think we can do a lot about that within our own control, despite the world that's going on around us. We think there's things we can do, whether it be improving in-stocks, getting a bit more of a buzz inside our stores. I think grocers did an amazing job through the pandemic, as we did, but we inevitably became less farmer's market feel because people aren't able to drive excitement in the store when you come in and do sampling and taste some of the products and get some of the new products in, into people's mouths. We see that as a significant opportunity for us to drive that basket back. We don't need much for this thing to come right when you're operating on positive traffic. That's why we're confident about our own business. It's difficult for me to characterize what's happening elsewhere, Ed, but clearly there's pressure and it looks to me like there's less units going into everybody's baskets. Maybe just a follow-up, and I guess it's kind of related, but, you know, Jack, you talked about how, you know, you're confident that the margin sort of stays, you know, where it is currently, and obviously, that's the way you're guiding this year. You know, the eye test on, you know, gross margins up a lot, you know, over the last few years and the comp where it is today is not great. So I'm just kinda curious as to, you know, where the confidence around that comes from because I think, you know, my concern, probably a lot of others, is just around sort of like the over-earning argument on the margin. Just kinda curious as to updated thoughts there. Yeah. Well, again, we believe there's traffic opportunities. We know exactly the number of customers that are out there in the country that look like the customers that love Sprouts. If we can attract them, there's plenty of traffic to drive what we need to drive in terms of our numbers. Then with regard to our margins, we've tried a little while. We've done various things. When I came in, we were doing very aggressive pricing. That context, when you're a specialty grocer, you've got a proposition that's relevant for the customers. If all you're doing is attracting people who are coupon clippers, who are gonna trade with you because you've got a lower price than someone else, it's a transient thing. You don't build long-term loyalty behind it. We've tried it, we've tried pricing. It doesn't actually work for us. The elasticity that comes with it takes margin out. Actually, in some ways, takes some of your top line sales away as well. We're very much on the path of creating a better return specialty grocer, the kind of comp sales that's gonna drive very long-term success for our shareholders and our team. Okay. Thank you, guys. Good luck. Thanks. Thank you. Our next question comes from Krisztina Katai with Deutsche Bank. You may proceed with your question. Hey, guys. Thanks a lot. I just wanted to follow up on that same topic as it relates to unit elasticity. Could you maybe elaborate on that, if there's any specific categories where the decline is happening? I think your average consumer is slightly higher end than conventional grocers, but I guess you're the first one to really see this. I guess my question is, have you noticed any changes in patterns within your various income demographics that would point to trade-down happening? We haven't really got a perspective on that directly. As we look through the categories, we're seeing certainly in prepared meals, we're seeing a strength for us. Vitamins, we're seeing a strength for us. Grocery has been quite strong given the proposition that we're putting in place. By dint of that, the other parts of the grocery have not been as strong as that going forward. Maybe our core meat and produce business isn't as strong as some of the other parts of our proposition at the moment. That might, certainly in our meat business, maybe there's an element of the price, the value of that. You're seeing some trading down in that space as people look to kinda try and conserve some of their dollars as they go into the center and bulk kind of purchases. I don't know if you've got another perspective on that, but that would be our perspective. I don't think we're seeing a dramatic change in trade down. Again, we're seeing some positive traffic, which is quite encouraging in the middle of all of this. Got it. That's helpful. I guess I just wanted to circle up on pricing. Maybe if you could just talk about your assortment, how that is resonating in the current environment. If you think there's any changes that you might need to make to drive positive comps, the traffic is there, but you know, just to get the total comp to be positive in this environment. I guess if you could just talk about your current price gaps in key categories like produce, meat- Sure. Frozen. Thank you. Yeah. Well, we've talked a lot about pricing. Produce pricing is very important to our business. We look to have against most major conventional competitors, which is the only place we can compare. Produce is really the only place where we sell the same things as other people. We're looking for a 10%-15% price gap against most conventional competitors. You won't see the same thing against Walmart, but we are looking at a price gap even against Walmart in our produce business. When you look at the other categories, we look at meat. Our meat business, we tend to skew to higher specification products in our meat, so we're not directly comparing when you've got grass-fed and you've got antibiotic-free and those kind of things. We're not directly comparing in meat. We don't look at that quite as much as a direct comparison because we don't operate the OPP, as they call it in that space, to the same extent as the other players. When it comes to our frozen business, I think 96% of what we sell in frozen, you can't find in a conventional supermarket. This whole range of plant-based and keto and paleo and dairy-free. That category, we look at elasticity. We look at what's happening to pricing, and we've got a model that says, what happens to volume when we change prices in that? The same is true across our grocery business. Maybe the areas on pricing that I've got some kind of concern as we look at it is the vitamin space. Is our vitamin pricing against people like Costco and Amazon where it needs to be? We're looking at that. There's certainly some good margin in that space that might allow us some little bit of space. Across the board, produce gaps are the ones that are the most important one. The rest of the business, we look at elasticity. Got it. Thank you, and best of luck. Thank you. Thank you. Our next question comes from Rupesh Parikh with Oppenheimer. You may proceed with your question. Good afternoon. Thanks for taking my question. I just wanted to go back to the full year comp guidance, which I believe it now implies flat comp guidance for the full year. I think based on all the commentary you guys provide so far, inflation plus transactions plus the comp waterfall, I think would be more than offset by fewer units in the basket, and I think that gets you to negative territory. Is that the right way to think about that? Yes. This is absolutely correct, Rupesh. It's I mean, it's plus or minus, right? We got it to the low end zero for the year. We had a 1.6% in the Q1. Right now, going forward, it could be slightly negative, slightly positive. That's why we're kind of pushing towards the low end of our guidance. Okay. You've got the makeup. Okay. Our assumptions on the makeup are exactly what you just said. Okay. Quarter to date, I think the 0% comp is that essentially what you're seeing right now in your business? Well, considering our guidance, we would take into account how we're doing quarter to date. How about that? Okay. That's helpful. Maybe my last question, just on in terms of the new store format, you've opened more locations. You've seen your new store format test, I guess, continue to ramp. How do those stores continue to perform versus your expectations? Well, we can't declare victory yet because we've only really got 5 of them on the ground. We've got one in Florida, one in Georgia, one in Texas, one in California, and one in Arizona, and some more mature than others. We're very encouraged by the first 2 that we've done, and they've been there on the ground longest. The next 2 are encouraging. It's too early to say. The program going forward, the great thing about it for us is we're seeing higher sales per sq ft, fairly significant higher sales per sq ft than what we call the V5. The sales per square foot that we're getting in the V sixes, which are 23,000 sq ft, as opposed to the V fives, which we were building at 32,000 sq ft, is seeing a very significant increase. We're so really encouraged by categories like deli, which we've taken the space and the cost down fairly substantially, and we're getting exactly the same sales from them. That's encouraging in terms of the returns. The risk to the returns is that we've got significantly lower costs, and I'm glad we did it, given all the pressures that we've had on cost of building stores over the last year. I'm really glad we did that because we'd be in a difficult position if we hadn't done that. So far, we're very encouraged. There's gonna be some tweaks that we're gonna make to try and get it right because it's always an iterative process when you're developing new formats. We're encouraged by where it's at, and it's certainly something that we are doubling down on this year. Great. Thank you. Thanks. Thank you. Our next question comes from Ken Goldman with J.P. Morgan. You may proceed with your question. Hi, it's Tom Palmer on for Ken. Thanks for the questions. I think you mentioned fresh categories as being a bit weaker than some others when talking about the basket composition. For me, you know, maybe it's the inflation. What about for produce? I mean, we do have a drought coming on pretty severely in California. Is that having any bearing on produce availability or quality? Would you attribute the relative produce weakness to something else? I think our challenge on produce is actually more about in-stocks, not so much sourcing. It's about we flow the goods into the store, which I think we said in Chip's remarks or my remarks, we talked a lot about how we're investing in technology to try and make it easier for the stores to get in-stock the way we want to do. There has been some supply challenges, but we're doubling down on putting the investment in to make sure we're in stock of the right quality product as fresh as we can be. We're seeing better performance, for example, in our Colorado business, where we've built our distribution center closer to the stores. We're seeing a little bit better performance in our Florida business because we've built the distribution center closer to the stores. Our focus very much is on freshness and in-stock in our produce business, and we anticipate that that's gonna help us drive through. Certainly the pricing's had an impact there as it's gone up, as pricing's gone up in that space. We're having to watch that carefully at the moment. Okay. Thank you. Just wanted to ask on the store pipeline that you're seeing. Had some latter 2022 projects delayed into 2023. Are you starting to get enough visibility for 2023 to say that's gonna be an organic growth year in terms of units? We have line of sight now. I think it's gonna be pretty close. We should be able to get close to the high single digit, maybe double-digit growth next year as we get there. You know, we had this bubble that we were trying to catch up to, and then right about the time as supply chains got challenged. By pushing some of those stores out of 2022 into 2023 and just the way we were catching up, I think we're gonna be in a pretty good place by 2023 to be close to our 10% target. We're very encouraged by the pipeline of stores that we've got coming for 2024, 2025. There's a lot of confidence that this thing will sort itself out, but we've had clearly some construction challenges and permitting challenges this year. I'm pretty clear 2023, 2024 is gonna be back on track. One other added item in 2023 to focus, too, is to really try to get to a place where we're consistently building or opening by quarter as opposed to it all being shoved towards the end of the year. It's much better for operations. We're getting ahead of that now, so I think we're gonna be in good shape in 2023 from a new store perspective. Great. Thank you. Thank you. Our next question comes from Robert Ohmes with Bank of America. You may proceed with your question. Oh, hey, guys. Thanks for taking my questions. I've got just a few quick follow-ups. You know, the first one just you mentioned the gross margin being stable. Anything on labor costs or SG&A that we should be thinking about to get to the low end of your guidance range for the year? No. I mean, labor costs, obviously, are creeping up. We have been able to manage through that. We just recently, we've put a system in place and process in place. We went through labor standards, so we're really good from a labor standards perspective. So the cost, you know, I'm anticipating the full year cost to be probably all in for SG&A will probably be up around, call it 6%-ish for the full year. So it's still a little bit lower than our top line total growth. I mean, it's a little bit higher, so there's a little bit of deleverage there, which is to the point earlier that someone made about trying to get the comps higher. That's helpful. Can you remind us, Easter is not so important for you guys, right? There's no real Easter shift between quarters? No, not really. I mean, the Easter, we're open on Easter, so that's, for starters, certainly it was like a one-week move, so we had a little bit better business in this year when it wasn't Easter and a little less business on Easter than we had year over year, but it's not material. My last question is just, inflation has been surprising you. What are you guys thinking inflation is? Would you think it could run double-digit for the rest of the year? Yeah, we think so. I mean, everything seems to be pointing in that direction, not what we thought early in the year. We thought we'd start to year-over-year when you just looked at it, you started to think that you'd start to by this quarter, you know, around this time, you start to see it trailing off 'cause you're comping against big numbers the year before. You'd probably be in the high single digits. By the time we got to the back end of the year, we expected inflation to be pretty normalized year-over-year and be, call it lower than mid-single digits. What we're seeing now is we're continuing to see cost increases flow through. Our line of sight right now would suggest that as you think about the full year, it's probably gonna be minimum high single digits%, if not low double digits%. I don't think the Fed are thinking there's gonna be any significant reduction in inflation really through the end of the year, especially with some of the pressures on food pricing that's gonna come from the conflict, the Russia and Ukraine thing, which I think will have an impact on fertilizers, impact on food pricing. I think it's appropriate for us not to think inflation's gonna get much better. Thank you, guys. It's very helpful. Thank you. Our next question comes from John Heinbockel with Guggenheim. You may proceed with your question. Jack, what do you think you need to do to improve the selling culture that you referenced? Well, I was gonna say as a part of that, what's happened to department manager and employee turnover? Has that been a part of that? No, I think what happened, and I think it was logical what happened in our business in that through the two years of the pandemic, we actually turned off a lot of the magic that really got Sprouts moving in the first place. We're back to the early days, this idea of creating a selling culture inside the store. I think that was part of the DNA of the company. I think the pandemic kind of took a bit of that away simply because we were spending all our time worrying about cleaning things and protecting people and wearing gloves and wearing masks, and people were frightened to kind of you know, approach people with some of the fresh products that we have. That culture when you walk around a farmer's market of tasting things and having people walking around the store, we had a few people in our stores who are great at that, and I think we can reignite that. It's only now that we're able to even have that conversation. That's not been something that we've been comfortable with. We were talking about it, and then Omicron hit, and we kind of had to put a lot of that stuff on hold. The big thing for me on this is reigniting that kind of DNA that exists in our company. If we can get the store managers thinking about just selling a few more units. I had a really good experience in a store yesterday where the store manager and his team were just bombarding me with ideas as to how they were gonna sell more units of this and more units of that and getting that culture into the organization. We've been just trying to serve our customers and serve our communities over the last couple of years, and I think if you're interested in your health, that's been a good thing for us. So to me, it's very much, John, about just reigniting that DNA. We're appropriate for that. We're appropriate to be able to do that, and I'm encouraged by even the way people are talking about it already. John, I would add on to follow on a little bit is I think in this industry for starters, but even specifically here, we've thought about basket in dollars, and we think about, you know, sales. When you start to talk about the actual makeup and you start to talk about the units, it's such a more tangible thing to try to coach your store associates to get that extra unit, drive the extra unit. It's much more tangible than saying basket because they don't have immediate visibility to what the basket is. They can kinda look at what you got in your basket. This is just, it's much more tangible. It's a selling culture that Jack and I, as we've talked to other, call it, smaller businesses across the country who are in similar spaces, some of them are really good at that, and it creates it where the associate knows exactly how many units are coming off a certain fixture. That's the culture shift. It's not just going from where we were in 2019 or 2020 pre-pandemic to getting back to that. On top of that, there are other opportunities, we think, to drive up more units in the basket culturally. Just maybe as a follow-up to that, do you think not having fuel rewards hurts you, right, relative to others? Is that just something you're gonna have to live with, right? Is there a way to address that, maybe partnerships with fuel providers? We've never had it, so I don't know if it's hurting us not having it or having it. It's certainly a legitimate question in terms of the context of what's happening with gas pricing in the marketplace. I think I'd like to take that one away and have a really good think about it. Okay, thank you. Thanks. Thank you. Our next question comes from Chuck Cerankosky with Northcoast Research. You may proceed with your question. Good afternoon, everyone. I've got a question with regard to the unit sales, and I sense perhaps a conundrum here. You've got a supply chain that sometimes is not allowing you to get product on the shelf, but you've also mentioned you wanna do a better job of ordering and managing what's on the shelf, plus a lot of new products. Are you fighting your own objectives here by changing too much when you're not ordering as optimally as you'd like, while at the same time, it's just tough to get the products that were already in the catalog? Hey, Chuck. It's Chuck. When we talk about in-stocks, you know, the company historically has been what I would call less than optimal. There's always kind of been this hanging opportunity from in-stocks. Did COVID complicate it a little bit more? Yeah, it has. Not nearly as material as it has affected some of the conventionals over time, we believe. This opportunity to improve our in-stocks, you know, 400 or 500 basis points is one that we've gotten more laser focused on in the last year because we've decided to make that investment in a system. We've decided to make that investment in the training of that system in our stores. It's something that it's not like an immediate thing we just started because we wanna just drive units in the basket. That's been an ongoing effort. We've made the investment. We're doing the training. We're implementing it now, and it's we think that that's very critical for us as it relates. When you ask the question, well, is that a lot of things going on when we're bringing in more products? Yeah, we're gonna challenge ourselves. We're challenging ourselves now on the number of products we bring in all the time and just making sure that we don't wanna lose that innovation. We're not gonna lose that innovation. We're gonna continue to bring in great products. Some of our products have a long tail on that, so we have to be better about how to manage that longer tail, and we're working on that as well. In-stocks is probably one of the It's one of the more critical, if not the most critical thing we're working on behind the scenes to help run a better business and not give up innovation at all. Hopefully, that answers your question. I'll just double down on it. The key to our business is being appropriately differentiated for health enthusiast customers and innovation seekers. That's what we've set out. It's our real estate strategy, it's our merchandising strategy, it's our marketing strategy. It's how do we target those customers. Innovation is the key to that going forward. I think it's within our capabilities to manage the differentiation and manage the change that that brings because that's ultimately what's gonna make us win long term. As part of that, Jack and Chip, doing better in the meat and produce, we call it the protein and produce categories than the rest of the store. Yeah. I think it's really interesting to me that the local business in produce is so important to us, where you actually source and buy product locally, and the DC network allow us to do that. That's part of differentiation, getting that right. Building varietals of product that take us to a level of taste and quality that's different. Produce has got huge opportunity, and we're doubling down on that. Our organic produce business is now 35% of our overall produce business. That's pretty substantial. That whole context of being different is kind of coming alive, even in categories like produce. In the meat department, it's very much about how do you create different attributes that are different to what other people are selling in the conventional space. You know, that every department we're looking at, we're doubling down on that. All right. Thank you very much. Thanks, Charles. Thank you. That concludes our Q&A session. I would now like to turn the call back over to Jack Sinclair for any closing remarks. Well, thanks, everyone, for your interest in our business and your questions. They help us think about our business, so I appreciate those questions. Stay safe, everyone. It's nice to spend some time with you. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.