Sprouts affordability actions mixed; emphasis on assortment drives 2H 2026 earnings

Sprouts (SFM) affordability actions: performance, what the “adjustments” imply, and impact on the outlook

1) How affordability actions have performed (what’s working vs. what’s mixed)

Sprouts describes its affordability work as three pillars: assortment, price/promotion, and personalization/loyalty. ¹

A. Assortment actions: showing the most growth

Management says the assortment lever is “showing the most growth,” supported by momentum in healthy meal solutions and continued increases in health-driven, attribute-based meal offerings. ¹

Concrete examples cited include:

• New $29.99 family meals. ¹
• Fresh-made salads in-store under $9. ¹
• Sprouts brand innovation in healthy essentials, including seed-oil-free frozen potatoes (described as a top seller) and a $4 fresh baked organic sourdough bread just launched. ¹

Interpretation: These actions appear to be gaining traction with customers in terms of product/offer attractiveness (more “value” and relevance), even if they are occurring alongside a weak traffic backdrop overall. ¹²

B. Price and promotion: mixed results and harder to drive traffic

Management states that on the price and promotion piece it has been “a little tougher to move the customer” in the current environment. ¹

They also emphasize a key pattern from the tests:

• Good basket and unit velocities from some price/promotion efforts, but
• slower-than-expected traffic response (i.e., fewer/less frequent store visits than hoped). ¹³

Management links this difficulty to macro conditions and evolving customer behavior:

• It’s “challenging to move the customer in this environment,” and “things that worked last year aren’t working as well this year.” ⁴
• They note broader impacts from elevated fuel and challenging macro conditions. ⁵

C. Personalization and loyalty: active testing in a tough customer environment

The third pillar—personal and loyalty / personalization—is described as an area where they are continuing to accelerate learnings (from earlier in the year and through Q3 planning). ¹

But they also explain that customer groups most in need of affordability are not responding as strongly. Specifically, they identify “less engaged, lower income” customers as harder to move, including in cohort/loyalty performance discussions. ⁶

They also describe that customer engagement/trips are lagging because the market is tougher overall and because of difficult prior-year comparisons/lapping dynamics. ⁷⁶

Overall performance characterization: Management explicitly calls the affordability test results mixed, with assortment showing stronger momentum while price/promotion is generating some sales velocity benefits but not enough traffic lift. ¹³

---

2) Do the adjustments imply intensified pricing, or changes in spend allocation?

In the Q&A, management is asked whether affordability adjustments mean “intensifying pricing effort” versus simply how they spend the dollars. ⁸

What management says (directly addressing the meaning of adjustments)

Management does not frame the adjustments as “intensifying pricing across the board.” Instead, it frames the approach as:

• Staying focused on customers on the items that matter most. ⁹
• Having tests that are mixed and different departments/items performing differently, requiring them to ensure everything fits their operating model. ⁹
• Relying on analysis of what to invest in, what it costs, and what to do going forward. ⁹

They also add that they will remain prudent in pricing and messaging as they learn how to move the customer. ¹

Price intensity is implicitly constrained by macro/fuel pressure

A key statement clarifies what they are not doing:

• They state it’s “not the right time … to be pushing through price where the customer is and where the macro is” with the affordability work. ⁵

They attribute a fuel piece as an “incremental pressure” that was not contemplated when the year began and that they are dealing with accordingly. ⁵

Interpretation: The “adjustments” appear to mean reallocating investment toward the most responsive components (e.g., assortment and targeted value/communication/personalization) rather than escalating broad price cuts. ⁹¹

At the same time, management acknowledges there are cost/pressure items (fuel, and later noted Cyclospora impact timing) that affect margins and therefore shape the affordability strategy’s feasibility. ⁵

---

3) Expected impact on the outlook (traffic, margins, and timing in 2H)

A. Traffic is expected to improve, but not because of higher AUR

Management explicitly links the expected recovery in shopping behavior to traffic, not to average unit retail price (AUR):

• They expect sequential improvement in traffic. ¹⁰
• Units and traffic should get better as compares get easier, while units should improve as they continue working on the affordability piece. ¹⁰
• They state the improvement is “not going to come from AUR” and that traffic was the key driver when things were going well but moderated as conditions softened. ¹⁰

This aligns with earlier comments that price/promotion affected unit/basket velocity but traffic response lagged. ¹³

B. Margin outlook: fuel is a major driver of near-term pressure; price is not positioned as the offset

On the margin question, management ties EBIT/Gross margin dynamics heavily to fuel rather than to price offsets:

• They discuss margin pressure expectations in the context of fixed-cost deleverage from lower comp sales and impacts from new store openings (for Q3 EBIT margin pressure). ¹¹
• Separately, in a margin discussion they state “the fuel piece” is a challenge and is directly referenced as the incremental pressure that affects the P&L. ⁵
• They also quantify fuel embedding: $2.5 million per quarter in the second half for fuel. ¹²

Additionally, they describe Q3/Q4 planning around fuel and timing of other items:

• They state within Q3 there will be “just a little bit of an impact” from fuel and also “a little bit of Cyclospora,” and that in the fourth quarter fuel is “embedded in” where they’re going. ⁵
• They expect fourth quarter margin to be up slightly, attributing part of that to the loyalty program run-rate change ($2 level vs. $1 in prior year period). ⁵

Interpretation: Affordability actions are expected to help units/traffic, but near-term margin guidance is primarily constrained by fuel and structural costs (fixed-cost deleverage/new stores), not by a strategy of intensified pricing cuts designed to regain traffic immediately. ^5111012

C. Full-year algorithm confidence is maintained despite affordability “mixed” outcomes

Management states they feel confident about guidance going forward and that if comparisons play out as expected they should get back to their algorithm “in due course.” ¹³

They repeatedly cite macro difficulty as a core reason customers are harder to move and that lower-income/less engaged cohorts are the hardest segment to drive into trips. ⁴¹³⁶

---

Bottom line: what the affordability adjustments imply and what to expect

• Performance: Affordability efforts are mixed—assortment is showing the strongest momentum (healthy meal solutions, under-$9 salads, new family meals, and “healthy essentials” Sprouts brand innovation), while price/promotion has improved unit/basket velocity but not traffic enough. ¹³
• Meaning of “adjustments”: The commentary points toward reallocation and targeted optimization of spending (and learning) rather than an across-the-board intensification of pricing; management explicitly says it’s not the right time to be pushing through price given the macro/customer backdrop and added fuel pressure. ⁹¹⁵
• Outlook impact: Management expects sequential traffic improvement and better units as comps get easier and as affordability work continues, but AUR is not expected to be the lever for traffic. ¹⁰ Margin impacts are expected to remain influenced mainly by fuel and cost deleverage/new stores, with some Q4 margin improvement expected partly from the loyalty program run-rate cycle. ⁵¹¹¹²