Good day, ladies and gentlemen and welcome to the Sprouts Farmers Market second-quarter 2014 earnings conference call. [Operator Instructions] As reminder this call is being recorded. I would now like to introduce your host for today's conference Susannah Livingston, Vice President of Investor Relations. Please go ahead.

Thank you operator, and good afternoon everyone. We are pleased you have taken the time to join Sprouts on our second-quarter 2014 earnings call. Doug Sanders, President, Chief Executive Officer; Amin Maredia, Chief Financial Officer and Jim Nielsen, Chief Operating Officer are also on the call with me today. Sprouts' form 10-Q and the earnings release announcing our second quarter 2014 results and the webcast of this call can be assessed through the Investor Relations section of our website at sprouts.com. During this call management may make certain forward-looking statements, including statements regarding our future performance and growth, product expansion, new store openings, and 2014 expectations and guidance. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For more information please refer to the risk factors discussed in our filings with the Securities and Exchange Commission along with the commentary on forward-looking statements at the end of our earnings release filed today. In addition, our remarks today include reference to non-GAAP measures. For reconciliation of our non-GAAP measures to GAAP figures, please see the schedules in our earnings release. We believe these adjusted results provide a good basis to assess the operating and financial results of the Company year-over-year. For the second quarter ended June 29, 2014 we reported diluted and adjusted diluted EPS of $0.20. Adjusted diluted earnings per share increased 43% from $0.14 in the same period in 2013. With that, let me hand it over to Doug.

Thank you, Susannah. Good afternoon, everyone and thanks for joining us today. 2014 continues to be an exciting year for Sprouts as the broad appeal of our healthy living for less strategy continues to win new customers and create opportunities for growth. With the opening of our first stores east of the Mississippi in Atlanta, Georgia we're now operating stores in ten states from coast to coast. All of this excitement continues to produce strong top line and bottom line growth and we are very pleased report another quarter of strong financial results. Our net sales grew to $744 million for the quarter, up 20% from 2013, thanks to the strong performance of our new stores and approve comp store sales. The second quarter represents our 29th consecutive quarter of positive comp store sales growth ending with comps of 9.5% and 20.3% on a two-year static basis, as Sprouts continued to outperform the grocery industry. Before I share some thoughts around the business drivers for the second quarter, let me reiterate what we see clearly distinguishes Sprouts from our competitors. As many of you know, Sprouts attracts the everyday grocery shopper by offering fresh high-quality produce at the best prices in town. Why produce? It's because produces a healthy product the everyday grocery shopper understands and buys every week. With approximately 25% of our revenue coming from the produce department we continue to benefit the consumers growing interest in improving their diet by making healthier food choices. In addition, Sprouts promotional approach and our ability to communicate our competitive prices week in and week out through our distributed ad circulars and social networks, continue to drive traffic to our fresh, natural and organic offerings across the store. This differentiated model has created a broad appeal that continues to separate Sprouts…

Thank you. [Operator Instructions] Our first question comes from Kate Wendt from Wells Fargo Securities. Kate Wendt – Wells Fargo Securities: Yes. Thanks so much. So I would've expected maybe some level of deceleration in your comp trend this quarter, given what we've seen from literally almost every other retailer and given industry weakness in supplements. So I'm wondering if maybe you can talk to what you did differently this quarter, if anything? What – you talked a little bit about what categories maybe performed well – maybe which ones perform better than you expected? And what do you think is driving your continued momentum?

Good afternoon, Kate, this is Doug. I think what you're seeing is really reflects the strength of our model and our ability to connect with the everyday shopper. We've always talked about the broad appeal of the Sprouts concept. And as I noted earlier the fastest adoption in healthy eating is coming from that middle-income consumer, who is target customer for Sprouts. Connecting with that customer goes into everything we do from where we place our stores, to how we market our products. And I think our customers are seeing the value of shopping at Sprouts and really appreciate the effort we put into making sure healthy eating is affordable for them. For a little bit more detail, Jim, you can put more detail in that?

Just add a little color on that. From the fresh side of the business, we obliviously got a very strong benefit in the fresh side, which really speaks to customers' demand for fresh, healthy products. Kate Wendt – Wells Fargo Securities: Great. Thanks, to both of you. And then in terms of the comps in the converted Sunflower stores, it sounds like they're still out comping and providing a slight tailwind. Originally, you expected that to moderate in the third quarter. Just wanted to check in with what you thinking there? And what is encapsulated in your guidance?

Sure. As you've seen, the Sunflower acquisition has proven to be very successful. And for the second quarter, as we talked about and as we expected, the Sunflower comps had started come in line with our Company averages. We cycle a lot of the improvements we made during the rebranding of last year. During the first quarter, Sunflower benefited. We benefited from the Sunflower comps for about 160 basis points of our total comp, and in the second quarter it's been reduced to about 80 basis points. Again throughout the back half of the year, we continue to expect the Sunflower comps to come closer in line with the Company average. Kate Wendt – Wells Fargo Securities: Great. That's helpful. One last quick one. New store productivity beat what we had factored in given that some of your stores open later in the quarter. Wondering if you could provide it as you calculated on the weighted basis in the quarter, adjusted for the timing of openings?

Yes, Kate. If you do it based on exactly the date the stores opened, we calculate new store productivity for this quarter was very strong it was at 105% of the quarter. Which is fairly consistent between 100% and 110% that we've seen over the past few quarters. Some a very strong openings happen towards the end of the quarter, so we think that will continue to provide us momentum in our new store productivity in the next several quarters. Kate Wendt – Wells Fargo Securities: Great. Congrats and thanks again.

Thanks, Kate.

Thank you. Our next question comes from Scott Mushkin from Wolfe Research. Scott Mushkin – Wolfe Research: Hey, guys. Thanks for taking my questions. I wanted to talk about the competitive climate – you talking about investing in price. Other people are talking about investing in price. So I guess where does this go? How does it end? I think the fear in the market is that everyone is doing the exact same thing and while you guys are clearly the cream of the crop here, that you will not be immune to what's going on in the marketplace. And so maybe take us through how you think you don't suffer, if everyone starts pushing on that price dynamic?

Sure. Hi, Scott, this is Doug. We look at competition in a couple different ways. Really looking at it from standpoint of access to natural foods and then pricing, kind of in a different bucket, if you will. From the access side, obviously you can find natural foods in far more places today, and retailers have been increasing their offering of natural and organic foods probably 5 plus years. That's really nothing new. But it is obliviously creating greater access to natural foods on that side. And then on the price side, we've spent a lot of time and a lot of resources doing a lot of competitive price checks, making sure we're up to speed on what all the competition is doing. And we really haven't seen a very material shift on the competitive pricing side of natural foods. So again, a couple different ways to look at it. Both from greater access to natural foods and then from a pricing perspective. And I'll let Jim give a little bit more color on the pricing side.

Scott, how you doing? This is Jim. For the non-produce side of the business when you look at Q2 – Q1 versus Q2, we can see material shift. We hear a lot of talk about we haven't seen a material shift in the market. What we have seen is a low but more investment in the protein and produce side of the business from our conventional players. We're obviously very aware of it. As you know, we continue to stay true to our pricing strategies and pricing disciplines. And good news is that we're getting good continuous unit lift off of our investments.

I think the only thing I would add, Scott, to that would be, again as more traditional retailers and other format continue to add natural and organic offerings, at Sprouts again focus on a broader breadth of offerings. From specialty to gluten-free to organic. So very wide breadth of offerings. And also that product knowledge and authentic offering that we have at Sprouts. Again, our consumer being that middle-income consumer, where the growth is, is in natural and organic. Coming into the stores wanted to learn more about natural foods, so expecting to see a broader offering. And then also having that engaging customer service to teach them how to eat healthier and what the benefits of natural and organic products would be. Scott Mushkin – Wolfe Research: If I could paraphrase, it sounds like it's more of an offensive strategy where you are trying to drive value, kind of accentuated to your core customers or your potential customers, what you guys stand for, rather than of reactionary strategy. Is that fair?

Hey, Scott, this is Amin. I would say we remain focused. We've always remain focused on our core strategy of value. And in an inflationary period like what we're seeing today, we've been passing on inflation in certain areas and invested in certain of the departments, our products, where competition remains highly promotional. We've always also invested in other areas where we don't want to go past a certain price points to preserve the value to our customers. The method that we have is, with a tailwind in our sector and the growth of the natural and organic sector, Doug talked about the full product set of natural and organic, clearly puts us in that offensive position to stay sharp in pricing to the marketplace but also be able to keep driving that value equation and leverage in other lines of the P&L. I think part of that offense strategy is really inherent in our business model.

One last thing to add, is the customer themselves is transitioning as well. We're getting a benefit from that. Not just buying add products, and coming in as an add vehicle, but also shopping our regular retail, shopping our TPRs, and we're getting a better full basket of not just add items. Scott Mushkin – Wolfe Research: That's perfect. I actually have one more, but it's been a long question. So I appreciate your answers. Thanks, guys.

Thanks.

And next question comes from Joe Edelstein from Stephens Inc. Joe Edelstein – Stephens Inc.: Hi, good afternoon. We heard you talked in the past about ramping up the advertising, particularly as you get closer to those Atlanta store openings. It really does seem like you are benefiting from being aggressive with that marketing campaign. Is the spending something that you'll need to continue at these elevated levels, particularly as you consider that one of your larger natural and organic competitors is thinking about this brand campaign this fall?

Joe, I'll say two things, as far as getting into the market is really our new store marketing strategy, so really new markets is where we get into the market early, through not only our Facebook promotions, but also the grassroots and customer engagement activities. So, what I would say is as we go to new markets and large new markets you'll see a rotation of spend from – it might Atlanta today and some other market next quarter or early next year. So I think that would remain consistent, as we go from market to market. The nice thing we've also seen is, including this quarter last quarter is, in our existing markets where we're continuing to see good comp growth, we are able to leverage on our advertising costs because we are not really expanding the advertising zip codes any further. So you get a nice leverage in that area as well.

We're also seeing a level of, as Doug mentioned in the call, is a level of anticipation in markets that we've never seen before. As you mentioned, 30,000 Facebook fans before we open just Dunwoody, specifically – excuse me, Snellville. So just the anticipation of coming to that market is much different than we'd seen a year or year and a half ago. Joe Edelstein – Stephens Inc.: That's great to hear. If I could maybe come back to the new store productivity metrics that you spoke about earlier. Is it too early to say that these strong levels are sustainable? And then kind of a follow-up to that, is the implications for your same store sales growth, with the store starting out at such high levels. Is it getting to a point that you actually need to rethink the economic store model in any way, and kind of how that would flow into your longer-term growth rate an the targets that you set, perhaps that's moving up?

Yes. That's a good question. I think again couple of things there is we started this more robust a program improve merchandising assortment and new store marketing strategy at the beginning of 2013. And those stores are starting to get into the comp base to as they come in with 61 weeks. I think what we're seeing is – one thing we are seeing – it is a little bit early to tell, but the one thing we are seeing is that the stores are settling in at higher volumes, so irregardless of the impact to comp sales of that particular store in future years, the early signs is that the sales level are higher, the gross profit dollar levels are higher, and the profitability of the stores are ramping faster than 3 or 4 years, depending on how mature the market is. And so as we expand unit growth we'll continue to see – to the extent that we continue to see that benefit accelerate in, I think that just bodes well for overall profitability and overall EPS for the business. Joe Edelstein – Stephens Inc.: Thanks for taking my questions.

Thank you.

Our next question comes from Stephen Grambling from Goldman Sachs. Stephen Grambling – Goldman Sachs: Hey, good afternoon. Thanks for taking my questions. I guess, keeping of the new stores in the Southeast – I mean what has surprised you and we how are you adjusting the approach, if at all, as you continue to ramp up in the area? And have you seen any competitive reaction at this point?

Hi, Stephen, this is Doug. Our approach to Atlanta was fairly consistent with our approach to new markets that we've entered in the past. We get into the market early. We start to establish our brand early before the first stores open. We had a few more pieces to the offering, if you will, because obviously really leveraged social media. We really leveraged the grassroots, getting in the market, getting kind of well-established with the brand with the potential consumers in the area. So I think really what you saw with Atlanta was just a really harder push up front through social and grassroots to get our brand in there. And obliviously you've seen the reaction from it. From a Facebook perspective we had north of 40,000 Facebook fans before we even opened our first store. So obviously being able to connect with that consumer via social media and then having our on the ground grassroots marketing team out there for 2or 3 months before the stores open, really connecting with the consumer at the grassroots level was very, very beneficial. What was the second half of your question? Stephen Grambling – Goldman Sachs: Just if you've seen any competitive reaction at this point.

At this point we haven't seen a lot of competitive changes. And again, it's been – the competitive response is been very similar to the competitive response we've had a new markets over the past 12 years and we've entered new markets in Texas, in Colorado, and parts of California. Nothing really new from a competitive standpoint. Again, I think from our research we did – the couple of years of research we did in the Southeast before going into the market, we were well prepared for what we were walking into both from a customer standpoint and from a competitive standpoint. I think the research we and the investment we made in really understanding the customer in that region and the way we went and attacked the customer and attacked the right products – I mentioned the local products that we brought in – really, really gained us a lot credibility with that Atlanta customer. And again you're seeing the benefit of that in the initial numbers coming out of the store. Stephen Grambling – Goldman Sachs: I was going have a follow-up for Amin, which was just as you continue to grow the business and grow cash, what is the appropriate capital structure in your mind?

I think we're obviously – as I mentioned, the investment priorities are one, new stores; two, sales initiatives, which have been returning very well; and make sure that we keep a superior store conditions and continue our remodel programs on a disciplined basis. So outside of the capital structure – sorry, outside of the CapEx plan we are looking to, at this point continue to pay down some debt at a time. And we will revisit capital structure towards the end of the year and probably guide a little bit more to it on our year-end call for 2015 and beyond. Stephen Grambling – Goldman Sachs: Thanks for taking the questions.

Thank you. Our next question comes from Jason DeRise from UBS. Jason DeRise – UBS: Thanks for taking the questions. Can you talk about some of the new classes of stores and maybe compared to the older classes of stores, how the trade up process is going? If you are still finding as customers become familiar with Sprouts and they lead with the produce at the attractive prices, if you're finding you're still trading up throughout the store, including the vitamin section?

This is Jim. Overall, what we're seeing is a better basket size in the new stores, which is really been driven by the improved assortment and all the sales initiatives that we had put together in the past. From a maturity standpoint, it's fractionally better. It's really too early to tell how much improvement we're going to get. We're really pleased with the overall basket size.

One thing I would just add is, is we're continuing to see, Jason, good momentum in sales of specialty categories in our store, non-GMO, gluten-free, raw foods, vegan. We're definitely seeing customers expand to more and more sections, going from the traditional produce, bulk, meat, seafood – is kind of where people start and they continue to work around the store, and so we're continuing to see the specialty categories grow. As of the last few quarters, we've also seen organic produce continue to grow quite nicely, and we'll continue to expand assortment in organic produce to more number of stores, and all of our new stores, of course.

Consumers a giving us more credit than just being a produce store. They're giving us credit for being a value oriented grocery store. Jason DeRise – UBS: Great. And also asked bigger picture, now that you are over 180 stores. Where do you think the biggest opportunity is for scale benefits, going forward?

I think overall from a scale benefit perspective, our focus is on continuing to be really disciplined and focused around the customer. We do continuous planning around the customer, and say what is the customer want from a product standpoint, from a service standpoint, from an education standpoint? So we think our big opportunities are really in that area and continuing to get better and better. We think we are good today, but continue to get better by listening to our customers, and we're spending a lot of time and effort right now in going through the process of saying: what are the next things that we want to achieve over the next several years to be even better? With a focus on two things, health and value.

Jim, I don't know if you want to add anything to that?

No, I think that's it. Jason DeRise – UBS: Thank you.

Our next question comes from Karen Short with Deutsche Bank. Karen Short – Deutsche Bank: Hi there. A couple questions. First starting with the gross margin. I'm just wondering, can you quantify the impact of inflation on the gross margin? And was it an issue where it was a lag on passing on inflation, which should abate? Or was that a conscious decision not to pass on inflation to gain share maybe? Just a little color there?

A little color is, as far as inflation and the passing of inflation, we were able to do it mostly on regular retails. But when it came to promotions, most specifically on the protein and produce side of the business, we did take a little bit of margin compression. It was about 10 basis points. But obviously, it was conscious effort. We have strict pricing strategies and we adhere to them. Karen Short – Deutsche Bank: Okay. And then turning to direct store expenses, those came in obviously a little bit better than expected. Is that the new – was there anything unusual there that isn't sustainable going forward? Or any color you could point to there? I did drop off for second, because I got cut off so apologies if you covered that.

No, Karen. On direct store expenses this quarter we saw a couple of things, of course with the 9.5% comp for the quarter that gives quite a bit of leverage. And the 3 areas of really leveraging DSE is – the big ones are in all of our insurance, workman's comp, GO, claims et cetera. R&M expenses and depreciation, and those are sort of the big leverage points and, as you know, once you get past 4%, 4.5% in comps, some of these areas which tend to be a little bit more fixed nature, provide good depreciation – sorry, leverage in the business. What we are seeing is, as we are getting bigger and all the work we've done around training and working with our stores on the claim side, is we're starting to see – not only getting improve rates – not only getting improve rates from our insurance companies but also getting benefit of lesser claims for the self-insurance portion. So we're starting to leverage well on the GL workman's comp side of the house. Karen Short – Deutsche Bank: Any way to quantify that – the insurance and the workers comp component of the benefit in direct store expenses?

It's fairly even – the 50 basis points this quarter between the 3, insurance is slightly higher, but it's fairly even across the 3 of insurance, R&M, and depreciation. And we just got – we just finished negotiating our policies for the rest of this year and next year, and we're really, really pleased at what we're seeing on that front. We're really focused on, again, being disciplined about driving improvements in all lines because as you know, every 5 or 10 basis points matters. Karen Short – Deutsche Bank: Okay. And then just a last question. Obviously, you've been very vocal about cycling the Sunflower benefit to your comp, but I think – and when that ends. And obviously, you just talked to that of the call. But you also have started seeing very significant strength in several markets. I think you previously called out Texas, California, Nevada in previous calls, and I think you started calling – goes out as being outsized in terms of strength. I think was on third quarter call last year – might have been the second quarter. Can you give a little color on when you started seeing that? And whether there is any cycling to think about?

I think a couple of years ago, if we kind of look back on what we've seen cycle wise is, a couple of years ago we saw a really good strength in Colorado and Texas and going into 2014 – late 2013 and 2014, we continued to see strong strength in California. We saw – in Nevada, as well as in Arizona, we're continuing to see very strong comps. What I would say right now is no region is really lagging too far behind. I think all of our areas are performing pretty well, so we feel pretty good about where we are. Of course where our brand's getting recognition as leading Arizona is fantastic, California's very good, Texas is continuing to come along. The brand is continuing to get established in Houston. So we're looking forward to keep building there, going forward. Karen Short – Deutsche Bank: Great. Thanks very much.

Thanks.

Our next question comes from John Heinbockel from Guggenheim Securities. John Heinbockel – Guggenheim Securities: Thanks. So two things. Let me start with real estate. I know you guys have thought that there was a big opportunity, as hard lines retail got recycled here. Particularly in some sub-sectors. Do you have any more concrete thoughts on that? As that whole process has progressed. And what was your thought on how much you would be willing to flex up in any one year, in new openings or unit growth, to take advantage of those opportunities that come along?

Hi, John, it's Doug. So we're still seeing and hoping for some opportunity in some of those industries that are in transition. We talked about books and electronics and office supplies. It's been a little slow going, but obviously we're still working with some of the developers and some of the other companies that are in transition. Not a whole lot new to report on that front. Again, we're still working in close contact with those entities. John Heinbockel – Guggenheim Securities: You would flex up – if you had an opportunity to do a certain number of units, you we temporally go above 13 or 14% unit growth. Is that fair?

That's fair. Obviously, we are very committed to that 14%, obviously being from a consistent growth plan. But given the opportunity, yes, absolutely. We would flex up to take advantage of an opportunity that came our way.

No different than in 2009 – 2008, 2009, when the economy started softening, and we started to see opportunities in places and markets which are hard to get into, like Los Angeles or parts of Southern California. We took the opportunity at that time to flex up and get into those leases. And again, this comes back to the discipline. We're seeing very aggressive rates in certain parts of the country, certain parts of California, and that's where we just have to be patient and not get outside – get too aggressive in rate, and just be patient because cycles to come in and out. There plenty of saw opportunities in our ten states currently, so to the extent that we have to be patient in one market, we will do that and stay extremely disciplined about our business model and growth.

John, I think we'd be remiss to not bring up the new store opening teams that we have, have really perfected what they do and are able to open those stores very seamlessly, and in the operations team has been able to transfer the culture and improve the operations of the new store openings. John Heinbockel – Guggenheim Securities: And let me ask you conceptually, when you think about sale out at the older stores that you have, or somewhat older stores – what do you think – how much incremental volume could some of those stores, or a lot of them, handle without service deteriorations? So I sort of wonder, could you do 40%, 50%, 60% more volume before you kind of tap out in terms of capacity? Have you ever thought about what the opportunity is there?

Sure, John. If you look at the average volume of a Sprouts store today, we have stores which do almost 2X that volume, certainly 70%, 80% higher. Those stores are tight on peak days like a Saturday or a Wednesday, but we'll continue to add registers and do all the things to can to drive. In addition to that, we also look to bring density into that market, potentially looking for new sites. And what we've experienced here in Arizona, as an example, is when we put another site 4 or 5 miles away, you make some cannibalization, but those core stores, over 1, 2, 2.5 years have built right back up to their original volumes. And then we've done it all over again. There's several stores here in Arizona we could look to, where we've done it a couple of times. In short, we have stores which are 70%, 80% above our 300 volume. John Heinbockel – Guggenheim Securities: Okay. Thank you.

Our next question comes from the Rupesh Parikh from Oppenheimer. Rupesh Parikh – Oppenheimer & Co.: Thanks for taking my question. The area I wanted to delve into further, is online. In the past week or two, we've heard from some of your competitors that they're making more investments online. So I just want understand how you guys are thinking about, whether it's home delivery, or investing in your website going forward?

Hi, this is Doug. We obviously keep that under review. Couple things to remember is, 50% of our revenue comes out of fresh produce and from our dialogue with our consumers, it's an area that they obviously choose to really want to be able to pick themselves and so that's something we take into consideration. And keeping in mind that we do have a really robust dialogue with our consumers through social and through a lot of the consumer insight that we do. Our goal really is to find a solution that best fits our customer, which is the everyday grocery shopper middle income consumer. So the goal is to find a solution that best fits our customer and that best represents our brand, as well, so we keep those things under review. We really haven't found a solution yet that we feel like best fits our customer and best represents our brand. But again, those are things we're keeping under review.

And I was just going to add in. We've talked to nearly all of the companies that do online and home delivery included and we understand what the value proposition is and we look to see how that can be best tied. We do have some urban stores, but most of our stores are in the suburbs and the customer preferences there still haven't shifted as much as if you were in San Francisco – in the middle of San Francisco or the middle of New York City. For us, where can we get our greatest – again the discipline, where can we get the greatest bang for the buck by investing resources. And we think for our customer base and what they're telling us today, it's not an investment priority. That doesn't mean that we won't do tests to see how these models work, and if they add significant benefit to the business, then we would expand on that.

I guess the only thing I would add to that is, again customer engagement is a big piece of our business, because remember that our customer is that middle-income consumer. Where the growth in natural and organic is today, but many of those customer are starting to embrace the need for healthier diet and need a lot of education and a lot of direction and a lot of understanding of how to shop for the products that we sell. Again, we keep the opportunities under review. We've met with a lot them, but just haven't quite found the right one that fits our customer and represents our brand as well we want it to. Rupesh Parikh – Oppenheimer & Co.: Great. If I can just touch on just the commentary about the Q3 guidance. There's going to be an elevated level of store openings. So you think about the operating margins in Q3, do you think they can still expand in Q3?

Yes, I think what I would say is our existing stores – our core stores are pre-2013 vintages will continue – we would expect 8.5% to 9.5% comp sales continue to expand margin in those core stores. You do – when you and 14 stores, and particularly we have significant contraction in the first quarter or first couple of quarters of opening new stores, and this share of 14 stores that we're adding this year in the quarter is going to bring in quite a bit of compression. So our current expectation is that we would see compression in margin in the third quarter. And part of it also depends on the competition in the marketplace and how the core stores behave, in terms of planning, but overall we would expect a slight compression in the quarter over last year. But from a dollars perspective, we expect very solid numbers, from a growth perspective. Rupesh Parikh – Oppenheimer & Co.: Thank you.

Thank you.

Our next question comes from Vincent Sinisi from Morgan Stanley. Vincent Sinisi – Morgan Stanley: Very good afternoon. Thanks very much for taking my questions. Wanted to ask a bit about the store remodels. I know that you guys had said that in some of the new stores you're seeing that better basket size because of the enhanced assortment. Can you talk a little bit more detail about what specifically you are doing with the assortments or anything else with remodels? What type of maybe directional lift that you are getting? And if we could be – I know 13 are done so far this year – maybe would be above that 10, 15 annual rate going forward?

This is Jim. As far as the remodels, we've seen a range of anywhere from 2% to 5%. On the 2% side, it's areas that have some of the sales initiatives that we've launched. And the 5% side, it's adding all the new elements, so it's a more dated store. Some of the things that we do in a remodel is our bringing on Boarshead, expanded refrigeration and deli, soup juice bars, expanded frozen and our meat selection, expanded offering in the organics. We raised the gondola heights in our grocery departments, which gives us ability to bring on about 1,200 extras SKUs. So a wide variety, but every store is a little bit different. Some have those elements, that's why you see the range of 2% to 5%.

And when thing I would comment is, the way we started to look at those is, stores that need remodeling because they don't meet our goal of superior store conditions, those are the stores that we would remodel and – however, we still have sales initiatives for other stores to continuing to add on some of the things that Jim talked about. So our approach is really twofold, if the store does look tired or needs a remodel then we would go fully remodel it, but if it doesn't then we'd still look to expand on the sales initiatives.

Another driver of some of our remodel selections, if we are going to experience a potential competitive intrusions. Vincent Sinisi – Morgan Stanley: Right. That makes sense. Just for this current year, current expectations for number of remodels?

We've pretty much completed our remodel program for the year. So we did 12 last year and 13 this year, and we're done for the rest of the year. We have 2more that are almost of that are in progress to round it out, but most of our effort this quarter is really focused on our new store openings. Vincent Sinisi – Morgan Stanley: Okay. That make sense. And if I could slide one more quick question in there. On private label, I know you said over 1,500 SKUs now. Has there been any notable change in terms of percent of sales, or maybe new categories that you've started or have thought about entering from a private label standpoint?

Doug mentioned it earlier, as we're obviously for us, we're seeing a 30% comp growth – in raw growth of roughly 40%, just excess of 40%, so obviously pleased with the performance. It's a good balance of grocery, as well as from the fresh departments that we've launched. We've seen some nice growth there. And in terms of overall penetration, it is slightly up, but we're really looking forward to the back half of the year. The first half of the year we launched just around 50 items, back half we are looking at 170 items. Even more exciting, we've got 20 unique quality items coming in this year that will be new to us. Just continuing expansion and improve sourcing, so we can continue to grow the brand, and it's really obviously resonating with our customer. Just the quality and value they can trust. Vincent Sinisi – Morgan Stanley: Great. Thanks very much and good luck.

Thank you.

Our next question comes from Edward Kelly from Credit Suisse. Edward Kelly – Credit Suisse: Hi guys. Nice quarter. I have a bigger picture question for you. When you think about the stores and the merchandising in the stores, the product, the spacing, the look and feel – where are the stores today relative to where you think they can ultimately be? And I guess, I ask this question because obviously you're doing a great job at driving traffic, you've seen increase in the basket. But it seems like with all the traffic, the basket is the big opportunity, long term, especially related to that middle income consumer. I'm just curious as to where you think you are versus what you think the concept really can be at some point?

Yes. I think if you look at the overall customer bases, we've got a broad range of customer base. We've got a customer who is – a portion of our customer is very educated in terms of product knowledge and knows exactly what they want. We have customers who have – they have certain conditions or diets that they're trying to follow, whether it's celiac or they're following a vegan diet. And then we've got a lot of customers who are, as Doug talked about earlier, are looking to eat healthy and they have a lot of questions and opportunities. Those are the customers that tend to over time convert into more departments in the store. So what we've seen is twofold, is an opportunity to continue to educate that customer and move them to more departments through trial and other promotions that we do. But then for the customers who are already very knowledgeable about the products, it's really bringing them more variety and a deeper variety than anyone else, to continue to drive their interest in buying new products, trying new products, and I'll give it to Jim to see if he wants to add anything else. But we have customers in multiple stages of sort of shopping lifecycles at Sprouts.

Yes we define those as kind of the want to be healthys and at some of the new stores, I think as people go in our store they view us as a full shop. And some of our older stores, while they have maturated into the vitamin side, there's still part of that discovery that we need to help them and help them educate them from moving just to produce into the other departments. So this definitely upside. It's going to take efforts on our part to be engaged with the customers, and help them and educate them on the other products we sell within the store. Edward Kelly – Credit Suisse: And just from a merchandising perspective, I know you guys have done some things like shelf heights and adding some share foods, Boarshead, Borshe and that type of stuff. Is there more to be done there? I guess what inning do you think you're in, in terms of – from a merchandising perspective on where you want the store base to be?

What inning are we in, is that what you said? Edward Kelly – Credit Suisse: Correct.

I would say we're in the 7th inning. We are kind of confined to a 25,000 square-foot box. What we're continuing to be focused on, in certain areas of the building improving our ingredient dex and our offerings, mostly on the deli side and the bakery side. Where we've already seen fantastic results. But major launches, we've obviously started juice bars and started testing in some of the stores and we've had a great response to that. But we're going to stay true to that 28,000 square feet.

And we're going to continue to innovate. Obviously, the natural and organic industry is still in it's probably second inning, or maybe even third inning, so there's a lot of innovation out there in front of us. And we're going to continue to make sure we stay ahead of the game, staying up on the upcoming trends, and making sure we're staying relevant with the customer. So it's a combination of innovation, sticking to our core base of value and health, and really growing and continuing to reach that middle income consumer, where the growth is and continues to be. Edward Kelly – Credit Suisse: Great. Thank you.

Our last question comes from Kelly Bania from BMO Capital Markets. Kelly Bania – BMO Capital Markets: Hi. Thanks for taking my question and squeezing me in. Just a question on customer analytics. Just curious where you stand with customer analytics and any data on your customer? I think I'd read you guys were looking to get a little bit deeper into that. So I was just curious if that's true and what the potential opportunity may be there? Thanks.

Yes. We obviously – Kelly, we do a lot of basket analysis today. And what customers are buying and looking at opportunities from a cross-selling perspective and merchandising perspective, and where we have the greatest opportunities in the store. In terms of, as you know, we don't have customer level data in terms of what they're buying today versus what they're buying next week, et cetera. But overall, I think we get a pretty good feel and are able to bifurcate and analyze the different type of customers and kind of the buying behavior from just the basket analysis. That actually drives a lot of what we do in our review cycle. We have – every department goes through a department reviews – and Jim can talk a little bit more about that, and what's trending and what's coming up as a trend, what the customer is buying more of, what they're not buying. And so we're continuing to use that process to really innovate and try to stay ahead of the cycle of purchasing pattern or product patterns.

Yes, we utilize third-party data, spends data, to make sure we have the right items. As Amin mentioned, we go through a very strict category review schedule. And one benefit we have, obliviously, being centralized, our execution level at store level to get those products out there and be first to market, I'd say is one of the best in the industry. We've got promotional planning tools that will be rolled out here towards the tail end and the first part of next year which will help us put together ads a little bit better using technology. And one of the things we do is we always do third-party consumer research. So really talks about what our strengths are as we continue to capitalize on those, and what are some of the needs of the customers that may not be completely met, so we can continue to focus on those.

That concludes the Q&A session for today's call. I would now like to turn the call back to Doug Sanders for any further remarks.

Okay. Well thank you for your time, everybody, and your interest in Sprouts. And look forward to speaking with you in the coming months. Have a great evening.

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