Sprouts Farmers Market, Inc. ($SFM)

All right. We're going to go ahead and get started. My name is Kelly Bania. I'm the food retail analyst here at BMO. Really happy to have Sprouts Farmers Market join us this year. We have CEO, Jack Sinclair; and CFO, Curtis Valentine, up here. We also have Susannah Livingston and Nick Konat. Susannah runs the IR team, and Nick is the President and COO, over here. But we're just going to do a fireside chat for the next 40 minutes. For those of you that don't know, Sprouts operates over 480 stores across the country. They generate almost $9 billion in sales, $1.4 billion of which is digital. The company is on pace to open 40 stores per year and has really become a trusted partner for innovative product launches in the natural and organic space.

So where I wanted to start was just on the loyalty program. That's been a big initiative over the last year, kind of rolled out, I think, really in earnest in late Q4. Just wondering if you can just start with what are some of the key insights that you've learned so far? It's maybe early days, but are there any surprises or key learnings that you're getting from this as you get to know your customer better?

Sure. Yes. I think since launch in November, I think 3 things. On the first side, really good response from the customer. And credit to our store teams, a really incredible job they did talking up the program, engaging customers in the program. And so we saw a better-than-expected response from a sign-ups perspective. It was a really good start and really encouraging. I think what we've seen -- on the positive front, we've also seen as members -- folks have jumped into the membership, we can see that they were customers with us through credit card data once we get their first-party data, and we've seen a really nice response from that cohort, spending more, coming in more often. We're seeing them step change their annual spend at Sprouts. We're seeing the existing kind of customers, the core customer of Sprouts really solid as well, right, spending about the same coming in about the same amount of time. And then we're also able to more clearly see now a little bit of this challenge with the less engaged customer. That has been a piece that we haven't been able to move quite as well and has been a bit more of a challenge, and we've kind of talked about that on our last couple of calls of the challenge of getting somebody new into the program or somebody that's been a low-frequency customer before, trying to get them to spend a little bit more with us has been a challenge. Some of that may be affordability. And then some of that, I just think we have opportunity to continue to get better in this space as far as how we stimulate demand. And we're doing a lot of test and learn right now around the ways we can do that, and we've seen some really encouraging pieces in that as well. Things like, hey, at 10:00 in the morning, send the right customer a notification talking about our $5 sandwiches, our $5 sushi, our $10 wellness bowls, and we see an immediate response at lunchtime that day of folks coming in and transacting with us. So some encouraging signs early, and now we've just got to keep that flywheel moving, and we've got to get those programs to scale, and we've just got to go a little bit faster in that test and learn cycle to find more and more winning programs. I'd also just add, Kelly, if this is a fireside chat, crank up that fire, because...

It's very cold in here.

Yes. Looking around, like, we could get the fire going any minute now. That would be outstanding.

I agree.

On the loyalty thing, I think surprise on the upside to the number of sign-ups. So we got the store did a really good job of getting sign-ups to it. So we've got more and more data than we ever thought we were going to get. I think this is the opportunity now for us, and we've got more opportunity ahead of loyalty we're sitting on at the moment. We're excited by some of the tests that we've been doing and those tests and scaling those tests, maybe the surprise on the downside has been the challenge of scaling, how to get yourself to the point where you can automate the scale of the responses, so you can get to more customers quickly. And that's going to be 1 of the upsides for us going forward. We do believe that the long term, there's going to be some fairly significant opportunities for us to engage with our target customers better than we've ever done before. and understanding when we launch new products, how we can introduce them to the right customer in a personalized way. This personalization journey, we're only just getting started. And that's something that's going to drive, I think, a lot of upside for us in the future.

Okay. A couple of follow-ups there. I guess on that low-frequency customer, have you developed kind of a profile about who that is and what they're looking for more? I think it was a couple of quarters ago, you talked about there were maybe a little bit of a younger cohort. What else have you kind of identified as you kind of drill down on that cohort?

Yes. I think the early learnings were a little bit younger, a little bit lower income and a little bit Hispanic was the other piece that kind of demographically, we saw a little bit over-indexed with the group that we were kind of struggling to move around a bit. I think now the benefit of the first-party data is being able to get a little bit more into the basket, what are they buying -- what are others that are maybe moving up the ladder buying versus the ones that are just coming in a couple of times a year, a couple of times a quarter. I think those are the pieces we're still kind of sifting through and trying to learn from now that we can connect the old credit card data we had with the individual first-party person and have a little bit more clarity on frequency and engagement. So continuing to learn really in real time about what they buy, what stimulates demand, running a battery of those tests around trying to get them to engage a little bit more deeply and winners, losers and trying to find different options to kind of move that customer.

Okay. Another big focus area for investors, I know, has been just the vendor participation in this program. So maybe you can help us understand where you are on that journey? And is a lot of your suppliers are kind of small innovative brands. Are they used to this kind of program where they might need to kind of participate in funding some of these promotions? Is Sprouts kind of bringing this and educating them? Or how familiar are they with this and the uptake? I guess there's a lot of questions on that.

Well, as you identify these vendors that we work with tend to be much smaller, and it's not the traditional retail media network dialogue that's going on from the big players switching marketing spend from one space to the other and working. We've got this opportunity of this personalized health enthusiast customer who we can bring to whether it be gluten-free or grass-fed or the vegan vegetarian, we can take the information about the customer and join the dots with the individual with a smaller vendor. And it actually gives them an access to be able to spend some money in marketing at a level that allows them to really target the customer they've got the best opportunity of engaging with. And we're at very early stages in this technology, we put the technology in place to get this done now. And I'm excited actually the reaction to it. Increasingly, the vendors that we are working with and the smaller vendors that we're working with are looking for ways to get to the target customers. And this is the first time we've been able to really put in front of them, not just have a promotion across the board. Let's have a promotion that really works directly, introducing new products to people that's appropriate to them. Because we're doing 7,500 new products every year, pretty remarkable number of products. Majority of these are new products from small suppliers and increasingly, the personalization journey from loyalty. I'll be able to join the dots from 7,500 vendors, 7,500 products to the individual customers. And from a financial point of view, we think it will actually help us not spend as much money on big across-the-board promotions and start to spend much more targeted. So it's better for the vendor, better for the loyalty customer and probably better for us in terms of how the economics work.

Okay. I wanted to just talk about kind of trends. I mean you guys are typically at the forefront of the trends that are happening in food. I think protein and fiber is a big one. What are you seeing there? But also you mentioned some new trends in vitamins and supplements. So can you educate us on what you're seeing across the board maybe and what will be coming down the pipeline?

Well, you alluded to it, proteins, if someone had said to me 5 years ago, we'd be excited about launching a protein soda people would have said you must be crazy. The world has changed fast in terms of protein. GLP-1s had a big influence on that. The Maha agenda is having a big influence on how people think about what's in their food and how they eat and what's in the ingredients. And I think we're pretty well placed in terms of being clean product that's not got additives and colorings in the middle of the product. That's something that we've always been strong at and other people are chasing after it, but we've kind of got the reputation with our customer of being clean. And then as you get into all individuals, certainly, gut health has become a huge thing. The whole drought, the whole -- and you allude to how important vitamins and supplements are to our customer. Wellness health and wellness, the wellness agenda is straying into sleep and how brain health and the health of well-being and a lot of our supplement people, the people we've got working in our supplement department, Kelly, really inspire me in terms of if you go and talk to them and ask them for advice about sleep and if you ask them for advice about how to get your mental well-being where they're really, really strong in terms of new ingredients coming through, new vendors coming through. And increasingly, it's a world where it's very difficult to be good online at this. It's a world that we've got that differentiation by having talent inside the store who can guide customers to different solutions in terms of how they're thinking about what they eat and how they eat and thinking about how their well-being goes forward. So lots of trends going on behind the scenes in this. seed oil is a big thing that we're getting ahead of, lots of trends on ingredients that are making a big difference for our customers.

I think aging and longevity is another one. So you just up and down the age spectrum across income spectrums. There's a lot of people focusing on all those different topics in a variety of ways.

Is there -- I remember last year, there was -- I had to look it up, the CBOS, there's these trends that go viral. Is comping any of those? Were some of those just bigger last year that drove some outsized comp...

Do you want to do the baseball -- do you want to do the...

Yes. So we had a little fun with the last couple of days because we've been out -- we were in Boston yesterday and having some of these similar conversations. And so actually, one of the gentlemen had a good analogy he was talking about baseball, and I hope this -- we had some baseball fans that will land for that crowd, but...

It's over in my head. We had our Scottish CEO who's trying to catch up with all this, but they're talking about batting average versus slugging percentage. The difference being a hit is a hit and that counts to your batting average, but a home run is worth more to the slug percentage, what we had.

I hope you're listening to cups is when he's explaining that because...

Jack turned that into the next meeting. He said, I like that. I like that analogy and he said, well, last year, we had more sluggers. And everybody kind of looked around and, sure I know what that means. So -- but yes, to your point, to your question, we had a few home runs last year. CMOS took off, went viral. And we had it on the shelf already. And so people come flooding in and we're out of CMOS for a week or 2, but we've got the relationship in place, and we're quickly back in stock. Same thing with coconut C on our shelves takes off on TikTok, and we're well suited to kind of capture those trends. Haven't had as many of those this year as we had going in that window of time. There's some other one-timers in there. Eggs was another big factor at the time. Conventional eggs were $1 a dozen because of our relationships, because of our sourcing, we had cage-free eggs at $5.99 a dozen, chose not to gouge from a consumer perspective, and we saw a lot of traffic come our way and extra trips and extra items in the basket as the customer was just trying to figure out how to get eggs. There was a strike at a competitor at a regional competitor. There was a cyber incident with one of the bigger distributors that we have less exposure to. And so we had a few things going on all in that kind of 9-month window, Q4 of '24 to Q2 of '25 that gave us even outsized gains above and beyond the things that we were doing well from a strategy and from a from a health and wellness tailwind perspective.

And specifically to the CMOS, the kind of the viral when Kim Kardashian said something, it's kind of amazing how the viral impact just dramatic changes in sales very, very quickly. And the fact that we had it in stock and available and everyone else didn't, that gives us confidence. If something like that happens, I think it's hard for us to manipulate those things, they happen. But if you're launching 7,500 new products every year, you've probably got a good chance of catching whatever comes virally going forward, however it comes to the market. We think we're well placed to take advantage of when these opportunities come along. We've got a lot of new different products in front of the customer.

And that should be the kind of plus opportunity above and beyond a 2 to 4 algorithm that we're thinking about on a kind of a quarter-to-quarter basis. And those are the items that hopefully will add to what we can deliver on a regular basis.

I never thought Kim Kardashian would come up in a fireside chat, but...

Here we are.

Here we are. So in terms of kind of customer traffic, so that kind of less engaged customer, what do you think is happening to them right now? Are they just cutting their basket size? Are they replacing that at a conventional and finding maybe -- I think it's often a produce item. Do you have a sense or are you getting a sense more with the data of like what's really happening?

Yes. I think -- well, one is I think we really look back at last year, there was an extra trip, right? There was an extra item in the basket. And so just repeating that, certainly, the eggs example is the easiest one. If they have eggs at a regular price everywhere, then there's going to be -- it's easier access to those eggs and maybe a couple of less trips to Sprouts as a result. And what we are seeing pretty clearly even up and down into the core and existing customers is that last item in the basket. As the macro changes, as fuel prices go up, as the consumer is challenged. So what we saw pretty clearly in '22 and '23 when inflation was a big storyline and what we've started to see a little bit again late last year, early this year is a little bit of pressure on units per basket. For us, that tends to be a produce item because that's a big part of our basket and a lot of units in our 10-unit basket. And the customer starts thinking about whether they can really get through 3 or 4 units worth of fresh produce or whether they're going to have to throw it away, they start thinking about their household shrink and whether they should buy that last unit. And so we typically see our customer manage around the end of the basket. We don't see a lot of trade down or trade out around the attributes. They continue to buy the attributes, continue to come to the store to look for their dietary needs. It's really that last item in the basket that you can tell they're managing a little bit.

Okay. That's helpful. I remember last summer, you explained to me that you guys have a differentiation score that you track, which I thought was very interesting and something maybe we could just touch on -- what is the methodology that goes into kind of tracking that and creating that? What are you seeing? Are you seeing conventional kind of react any differently as they're kind of searching for growth in this backdrop? Or is that pretty steady and there's no change? I feel like that's a big investor question, just kind of what's happening.

And the scale of what's -- clearly, people are getting more interested in the space that we are in this health and wellness space. And there's clearly a lot of really interesting entrepreneurs. America is a great place for having entrepreneurial spirit, bringing products and new products to the fore. And that's clearly having a lot of dialogue, not just with us across the world. We use spins we've got a percentage on spins that shows if something is being sold somewhere else. And what we do is we pick products. Our forging team pick products for the innovation center that haven't been sold anywhere else in the country. So if you go into our store now, there's something called a forger fines table, which has got 20 or 30 items, which rotates every month or so. And those products are not being sold anywhere else. So they're totally unique to our business. And we've been finding that, that has become more and more productive as every quarter goes by, as our customers get more excited about. Our customers are very discerning. When you look at customers in our stores, they pick products up and read the labels and read the ingredients, more so than you would see in a traditional grocery store where people are kind of pretty mechanical about how they buy and what they buy. So we've got certainly those customers who are interested in it. We're putting in front -- certainly, we had 65,000 applications for products to sell in our store. So picking 7,500 from those 65,000 has been 1 of the challenges for us. Challenges and can we get enough our challenges, how do we pick the right ones? And how do we do that? The methodology, Kelly, to your question is how do we ascertain that these products haven't been sold anywhere else. And we've been pretty consistent about working that 1 through. And the fact that we're doing so many products, 7,500 gives us the right and I think the credibility with the small vendors to say, this is where I should start my product journey. If I'm going to move from DTC or my idea and I want to get into a store, we're certainly feeling that Sprouts has been seen as a place where it would be a good place to start. And we've seen products when you think of what happened to Ali Port, which started with us and ends up everywhere, a lot of our products migrate through the channels they go into the conventional and they're going to mass. And it's something that we're positioning ourselves as the place to launch innovative different products. So we'll be as good as we are at that, and it will be a very big determinant in our success going forward, being really good. The 1 thing I do know is that whatever else, whoever else is doing, they're not going to launch 7,500, because it's really difficult to launch. It creates a load of challenges. Operationally, we've got people that have worked in other places like myself. The idea of launching 7,500 exiting 7,500 creates so many problems for your planograms, our replenishment, your backroom replenishment from the back to the front of the store. Those challenges make us a little inefficient, but they give us that differentiation. And that inefficiency is something that people are reluctant despite the point that you're making that other people are looking at the opportunity there. So we've got the way of understanding that nobody else is selling it. We're trying to position ourselves as a place to come if you've got any of it. And anyone in the room that's got innovative different products come and talk to us because we'll be the best place to launch it. And as we evolve, develop this that muscle. That's going to be an important part of our business. The grocery industry is changing fast, and the big old monolithic CPG companies, if I can say that politely, are got themselves in a place where they haven't to move fast and they're finding it difficult to do that, and we certainly see ourselves as a pioneer in that movement.

So a couple of questions on that. So 65,000 new products are trying to get in your stores. You're getting about 7,500. So what are those other brands doing? Are they going to third-party marketplaces and launching on that? And has that become a different area where your customer can find kind of even those super niche brands? Or is that not really a competitive ? Do you see that as a competitive?

Well, I think they will. They'll clearly try and find a way into the marketplace and marketplaces. The challenge when you've got products that people don't know about, they don't know about it, it's hard to go -- if you don't know what you don't know. So the opportunity we've got is that when we launch it in our products, people can get access and try it. If you just go on a marketplace, you've got to do pretty hard work to get people to understand it.

How challenging is that? Because you have presumably customers that like those products. Maybe they're not the most popular, but you've got to pull them out and you have a customer that comes back and says, I have this brand here that I was just getting accustomed to. It's not here anymore. So how do you -- how hard is that to manage?

It's kind of a great question to ask someone that's been a grocer for as long as I am because it's the big kind of dilemma that you have in changing your assortment for any grocer, you take it out, somebody is going to be upset. The reality for our customer and why our customers are so different, they kind of accept whereas they wouldn't accept it at many places. They kind of accept that if they've taken something out, they brought something in. And that's something in that will replace what I would have and they're comfortable in navigating their way through, they brought new things in. And that's something very unique about ours. We always talk one of our values is loving being different. Our customer base is different. And it's in that limited space. And increasingly, as we've done this, as I said earlier, these forging tables that we've got just continue to do better and better. And the migration, it's interesting, the migration from the forging table, only 30% of them make it on to the main 70% fail, but that opportunity of customers seeing things, trying things and then something new comes in seems to be accepted by our customers.

Yes. On the financial side of it, Kelly, it's embedded in our business, right? It's been the way we've always operated. So we can just make it better by getting more efficient in the way we manage the in and out of SKUs, the way we manage inventory. And some of the conversation we've had over the last couple of years around shrink reductions, markdown improvements, that inventory management conversation we've been having has been -- that's been one of the pieces. And it's one of the reasons we still feel like we have room to go and room to get better as we continue to improve the end-to-end supply chain, the relationship with the suppliers, the tools and the analytics and the process that we go about moving those 7,000 products through, that's where our upside is because it's inherently embedded, and it creates a challenge for someone else trying to figure out how to get into it because it's an investment for them. For us, it's an opportunity from a financial perspective.

Does this cycle of products in and out, does that happen any -- to a greater degree at any time in the year? Or is it just kind of always happening?

Probably just seasonally, like some of that is the in and out natural seasonal programming we run. So maybe the holiday time frame would be certainly a heavier time of year. Around that, though, it's a pretty consistent. We've got mechanisms, be it the innovation center, which turns over on a regular cadence, our category release program, which is on an annual cadence. And then the teams have also done a nice job developing speed-to-shelf processes where something really great is out there, you don't have to wait for your next category release, you just cut it in and bring in a smaller piece of the set. And so they've got -- the category managers have multiple options for how to bring that innovation in, and we try to be pretty nimble in how we think about it for obvious reasons when there's so many options and so many SKUs that we're moving through.

And the private brand team have done a really nice job around seasonal events to try and get ahead of the seasonal event, holiday events. We've done a summer sweet and heat event across all other categories that are under the Sprouts brand. We've done lemon events, which try to straddle across different categories linked to seasons, and that's been quite in and out process around some private brand work as well.

I'm glad you mentioned the private brands because -- so your private brand penetration has continued to go up, but you started talking about this affordability kind of dynamic in the past couple of quarters. And you would kind of think the private label really is a solution to that. So how do we think about private label's role in kind of addressing the affordability dynamics that you want to address versus anything else that you're doing on that front in terms of tests? Is it mostly a private label thing? Or is it a broader?

It's much broader than the private label thing. Just specifically to the private label, Kelly, or the way we think about private brand is very different to how you would traditionally take a branded product to replace it, sell it much cheaper and try and match the quality. We're trying to differentiate ourselves. So all of our private brand growth, which has gone from 16% to 26%. Without any -- we don't start off is, let's get a higher percentage of private brand. And our margins on private brands are in line with the category. So it's not a margin enhancing. What we're trying to do is reinforce those opportunities in the marketplace around attributes. So a lot of strength in put-free and organic and those kind of initiatives. So -- and that's part of bringing people value in terms of giving them attribute-based products at the right price. The broader affordability initiatives are around our customers our customers tend to say they really like us. The feedback we've had from a lot of customers is, look, can you just help us a little bit in the current scenario where we're at with gas pricing and the pressure on health care costs and the pressure on rent costs. So that broader affordability challenge that everybody is facing. Our customers are saying, we want to continue to eat healthy. We want to continue to access your products. Can you help us make it a little bit more affordable. So we've looked at some of those items that are prevalent in our basket. And our basket is different to our traditional grocery basket and looked at those items, whether it be organic or do bread or whether it be organic coffee, whether it be frozen organic fruit. Those items are prevalent in our basket. We've looked at doing some specific tests on those kind of products to see what kind of elasticity we can get from that. We're not looking at other people's prices. We're looking at our own prices and saying how can we help our customers a little bit more in this affordability journey and how that's going to play out over the next few months, who knows. But the reality for us is we've got to take care of trying to be as effective as we are passing a portability. So initiatives going on. That broader initiative has been important. And then going back to what Curtis was talking about on loyalty and personalization, it does give us an opportunity to pick out how we can support particular issues for particular customers, and we're doing some tests on that as well.

And that will reshape how we think about promotions, obviously, with the loyalty personalization. One place private label can play a role. The other piece that we're thinking about from an affordability perspective is the assortment itself. So we talk about wellness bowls, which we've touched on in the last couple of calls, phenomenal ingredients, NAE chicken, grass-fed beef, really good flavors, unique flavors. We have a chef in-house that's part of our forging team that develops these recipes and we've got that bowl priced under $10. So meal-time solution, it's a good, healthy portion, and it's been great. We've seen it when we get it right, healthy attributes, great price point, like our targeted customer and what they're looking for, it flies off the shelves. And so that we would consider kind of Sprouts brand too and some of the organic offerings we have. I mean, those are places where it can absolutely play a role in developing the type of products that our customer responds to and also show great value. And we've already got the $5 sushi, the $5 sandwiches. We just launched some yogurt parfaits, which are right on trend, again, with some really good ingredients that are doing well. So those are the places that when we get it right, the customer responds, and we're looking to do more of that as we look ahead and we think about how we build out that private label road map where we can find more of those types of solutions.

And the deli team have done a really nice job within the context of a marketplace where potentially with gas pricing and people are more like a home and eat out of home. Is that a positive opportunity for us. Certainly, the alignment of our -- next has been working on around the marketing the operations and the merchandising team to bring to the market, the kind of things that Curtis was talking about, and we'll do more of that as we double down on our deli. And that requires some investment as well in product, but also investment in people and having the right hours in place to produce the right products at the right time. .

Of course. You've had a lot of success in deli. You have seen the family meals, too, just add for that looks really interesting. But in light of all that, you've had a lot of progress on shrink. And you touched on that a little bit, Curtis, but you've kind of suggested there's still more upside on the shrink front. So help me understand kind of where are you? Do you have a -- can you share a benchmark or anything? Because it's kind of amazing that the more opportunity on shrink, Yes.

Well, I think, yes, the lion's share, we've gotten big gains over the last 4 or 5 years, and I don't know that we've got another kind of step change that way left to go. I see my CEO nodding his disapproval there, and he'll have a higher aspiration. But I do think there is -- again, the inventory complexity, the supply chain complexity, the in and out of the SKU base, I mean, those are still opportunities for us. There's an inherent cost of the business shrink in the business from those things, and we still have room to get better there. And so that's where our kind of belief comes from. Is it going to be 50 and 100 from a basis point perspective? No. But I think is there another 10 every year that we could go get in that space. Certainly, that's something we think we can do. And our Head of Operations believes it as well. And we're putting technology and process and data investments into place this year to kind of continue to take that next step in the journey and continue to figure that out. So I think the way we order -- I mean, right up and down the line, we've made step changes, but we're by no means at Walmart levels of productivity as it relates to how we move product through the ecosystem. So there's just still room to grow and mature as a company, and that's kind of where we -- that's where that kind of statement comes from about continued opportunity.

Okay. I should have mentioned, too, there is an app. If you want to submit questions, I can try to loop it in. I have like 1 million. So we'll just keep going. But if you want to submit, go ahead. I guess let's switch maybe to real estate. You've really been ramping up the square footage growth over the years. We should be at 40 stores this year. That's a lot of stores. How is the organization handling this ramp? And can you just talk about the quality of the locations that you feel like you're getting, which is obviously going to be important as we move through the next couple of years?

Yes. Well, tons of white space, right? So as we think about where we're going, the last 5 years, Florida, the Mid-Atlantic kind of East Coast has been our newer markets that we've gone into. And now as we look ahead, those markets are performing well. we kind of consider them graduated at this point into a more established market. And now we look ahead to the Midwest, Chicago is the center point, the Greater New York area where we've just opened in Long Island recently and then ultimately up into Boston and New England to kind of complete the Northeast. And so quality of locations, I mean, it's a complete blank slate, right? We get to go in and choose the absolute best of the best. We use our real estate process where it's analytically driven at the start where we have pins in the map, it's that cross street level, not just 3-mile ring level, and that's been a change that's been really helpful for dialing in. The further our teams get away from that cross street, the lower the sales projection they get, which makes it hard for our directors of real estate to pencil a pro forma. So they're incentivized to get tight to that optimal location that we've kind of determined through the math of it. And then we've got our operators engaged in that process, too. So if we say we were going to do 300 a week at a certain location, the operators there are going, well, the site is down in a hole, it's buying a tree. You can't turn right into the site, like I don't -- you can't do 300 in this location and on they go to the next one, right? And so there's a real healthy tension in the process that kind of eliminates the quality concern around it. And you've seen where we've tried to get -- we've been chasing 10% unit growth since the beginning of the strategy. And as we have, as we always will, we'll choose quality over quantity. So we've definitely yet to sign off a lousy site in real estate committee, one that we said this isn't going to go well, and we've signed off anyways. We continue to reject those. So I think the quality is going to continue to be good. And what we've seen in the last few years is really good results, better than we anticipated. and that's continued here into '26 with the early openings so far. The '24 and '25 vintages continue to comp well. They are positive comps even though the broader business is struggling. And it's a piece that gives us confidence as we look about -- as we look ahead and talk about the return to the algorithm from a comp perspective, that's a proof point for sure that we look at and go, while there's still -- the proposition is still resonating when we open a new community, we get a great response. And so we're building a lot of confidence around the new store program and excited to get to hopefully get to 10% next year as we start thinking about '27.

And the thing that gives us a lot of confidence that the format seems to be in really well. The format was very intentional. One of the strengths of what the guys that created Sprouts was having low-profile stores that you could see produce at the back of the store, a very unique grocery store in terms of how it comes together, low profile, you can see the whole store when you walk into the store, and you can see produce is the main feature at the back of the store. And at 23,000 square feet, we were drifting to bigger stores at 32,000 square feet with a lot of investment. The cost of building a store at 23,000 is a lot less than 3,000. The cost of running the store is a lot less than 32,000. The cost of rent and -- so the economics that we envisaged here was let's sell the same as we would in a 32,000 square foot store in a 23,000 square foot store. And that's giving us a lot of confidence as this plays out in terms of the returns that Curtis would talk about, but also in terms of the way the customer is reacting to it. They like the format. kind of excited by the idea of something new.

Well, same for our team members, too, the opportunity ahead. You know you can come into Sprouts and really grow a career and grow it rapidly. We're promoting north of 20% of our team members in the last several years just on the back of all the store growth. And it's not -- yes, you've got to staff the store, but you've also got to go backwards and staff the replacements because we're trying to move Sprouties from stores that have existed into especially these new markets, it's going to be really important that we open with folks that have been in Sprouts and other locations that understand our customer, understand our assortment, understand how we operate differently so that they can provide that experience to the target customer in those new markets. And Dustin and Timmy, our Head of Stores and our Head of HR have been working, again, years out, thinking about Chicago and how are we going to staff there, how are we preparing the next level of leaders. We've invested in training and development. and our talent engine, as we call it, to make sure that we're ready when we get there. And we're already talking about who's willing to move to Chicago and help us open those stores when we get there. And the teams are fired up because they see the opportunity, and they're excited about all the things that Jack just mentioned and the customer response and being a part of what we're doing. So it's a fun place to be. Lots to do, lots to work on, lots to get better at, but it's certainly a lot of fun.

We have 1 minute left. Two questions that I wanted to fit in. I'm running out of time. I wanted to touch on e-commerce because the growth has been huge there. And I guess, what do you -- are you able to kind of loop in your data with that and really learn more about what's driving that? Is that a new customer? Is that penetration? Are you getting smarter with kind of your data to integrate that and go, here's what -- here's where we're really growing in e-commerce and what the potential is from here?

A much better linking with the Instacart, DoorDash and Uber Eats solution, which is what we use. Our e-com business is now 16% of our sales. It went up to that level in COVID. It's kind of stayed the same, which is unusual. a lot of grocers, it went back down again. We believe -- and we know that our customers are omnichannel customers. Most of the customers that are operating in that e-com space are also in our stores, so they kind of understand both of it. We like e-com because the basket is bigger. So the cash profit, the margin is down -- rate is a little bit lower, but the cash profit is much higher, and we've got very close relationships with the with our partners to make sure that we're getting better at that data question that you're asking.

And it's an access point for our customer. They don't -- if they can't get to the store because maybe they're 25, 30 minutes away and a 50-, 60-minute round trip is too much for a handful of their items, they've got an option now. So when we open up a trade area, 10 to 15 minutes brick-and-mortar, but 30 minutes from an e-com perspective, and we know that, that helps with frequency and engagement and access for the target customer.

There was one more question. I've run out of time.

We're out of time, but I was going to ask just how you -- how -- based on what you're seeing in the data, comparisons changed dramatically in the back half. How confident are you in the back half outlook?

Yes. I'll let you build on that. The numbers are pretty clear in terms of math thing. It's a relative we're not sitting here waiting for the lapping to come through. The lapping will come through just with the math, if you're looking at unless something macro happens, which is clearly an opportunity for us. We're doubling down on what we can do. Curtis is creating the space for us in terms of not be compromising our margin and do the right things on affordability, the right things, the right things in terms of loyalty and personalization, the right things on data, the right things on our marketing investment around space, around media. So there's a lot of really good things happening that would be on top of just the math number. So I think what we talked about, we're really confident in our business, partly because the new stores have been so successful. In the midst of all these ups and downs, we've had real success in our new stores, that gives us a lot of confidence.

Okay. Perfect. We have to wrap it up there, but thank you so much.