Good day, ladies and gentlemen. Welcome to the Sprouts Farmers Markets Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I'd now like to turn the conference over to Susannah Livingston. You may begin.

Thank you and good morning everyone. We are pleased you have taken the time to join Sprouts on our second quarter 2016 earnings call. Amin Maredia, Chief Executive Officer; Jim Nielsen, President and Chief Operating Officer and Brad Lukow, Chief Financial Officer are also on the call with me today. Sprouts'10-Q, the earnings release announcing our second quarter 2016 results, and the webcast of this call can be accessed 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 2016 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 a commentary on forward-looking statements at the end of our earnings release issued today. In addition, our remarks today include references to non-GAAP measures. For a reconciliation of our non-GAAP measures to the GAAP figures, please see the tables in our earnings release. For 2015, we have presented adjusted income, adjusted earnings per share and adjusted EBITDA with adjusted measures stated in the reconciliation tables in our earnings release. For the second quarter of 2016 such adjustments would be immaterial as such we have presented net income, earnings per share and EBITDA without adjustments. For the second quarter, diluted earnings per share of $0.25 increased 14% from adjusted diluted earnings per share of $0.22 in the same period in 2015. With that, let me now hand it over to Amin.

Thank you, Susannah. Good morning, everyone, and thanks for joining us today. We're pleased to report solid top-line sales growth and bottom line results in the second quarter. For the quarter, Sprouts net sales grew to $1 billion up 14% compared to the prior year. Comp store sales for the quarter were 4.1% led by traffic of 3.5% during the quarter and higher tonnage. Comp store sales and overall sales were impacted by deflation of 1% during the quarter. Our team remains laser focused on managing the business during this deflationary environment and is equally focused on our strategic priorities around product innovation, customer engagement and building an organization for scale and long-term growth. I'm very proud of our sales operations and store teams who continue to focus on driving top-line sales and traffic to our stores. All departments within the store experienced positive comp store sales growth despite significant deflation in proteins and recent deflation in certain other categories. To briefly expand on deflation during the quarter dairy and bulk became progressively more deflationary, protein remained at similar deflationary rates to the first quarter and produce became less inflationary in the back half of the quarter. This resulted in 1% deflation for the entire quarter, which was slightly worse off than our original expectation. We expect the deflationary environment to continue through the back half of the year and Brad will cover this in detail. The competitive environment for the second quarter was more promotional. As we noted on our last call, during a period of sustained deflation, it's not uncommon for grocers to start beginning more promotions to drive sales. We have managed through these deflationary environments before and have seen the business rebound strong coming out of these periods in the past. The entire team is collectively…

Thank you, Amin. Let me spend a few minutes discussing some of the business drivers for the second quarter and guidance for the remainder of the year. As Amin stated, we are pleased with our top and bottom line results for the second quarter of 2016 and in particular with our comp sales growth of 4.1% with overall deflation coming in at 1%. For the second quarter, gross profit increased by 16% to $306 million and our gross margin rate improved 40 basis points to 29.6% compared to the same period in 2015. This leverage was primarily due to deflation in certain categories including protein, driving higher margins as well as improvements from shrink. Direct store expense was $207 million for the quarter and as a percentage of sales was 20.1%, an increase of 40 basis points compared to the same period in 2015. This was primarily due to higher payroll expense from planned wage increases and training costs implemented at the beginning of the year as we continue to invest in our team members in 2016. SG&A totaled $31 million for the quarter and as a percentage of sales was 3%, an increase of 40 basis points compared to the same period last year. This was primarily due to higher stock-based compensation expense due to executive changes made in the third quarter of 2015, higher bonus expense compared to the prior year, and higher corporate overhead as we continue to build the foundation to support our growth. The second quarter was the heaviest investment quarter for 2016. The implementation of our new HRIS and labor management systems together with the formation and development of our business intelligence team position us well to improve operations and leverage our data in order to better serve our customers and sustain our growth.…

Thank you. Our first question comes from the line of Edward Kelly of Credit Suisse. Your line is now open. Again, Edward Kelly, your line is now open.

I was going to say, Ed, we can't hear you. Maybe we can move on to the next question operator since we can't.

Our next question comes from the line of Scott Mushkin of Wolfe Research. Your line is now open.

Hey, guys. Thanks for taking my question. So, it's interesting to hear you guys talk about the competitive environment and the deflation. The outlook at the back half of the year, we've been down in Atlanta, and seen Walmart getting pretty aggressive. On produce pricing down there, now, clearly they're not a direct competitor but they have competitors react to them, I guess, what is your plan if you see that? Have you seen it in other markets? And what's the plan if we get more competitive as we go – in the back half of the year?

Hi, Scott. Good morning. I think that customers are demanding more fresh product today, so it doesn't surprise us to see grocers being more promotional in these areas. I think it's a pretty competitive environment, but as an organization, we've had longstanding pricing promotional strategies to work with this. And I think on a broader point over the last several years, anticipating that over time that the fresh movement will continue, we've set our priorities to expand focus in other areas of the store as well to drive sales and margin to help offset any margin compression that could come over time. And these are things like private-label, deli, logo program, meat and seafood enhancements that we're making. So we've had initiatives now well underway for 12-plus months, in some case almost two years to drive other areas of the store to really at the end of the day – we started off being a specialty store I think. Several years ago I would have said that we're a healthy grocery store today and tomorrow we're trying to become a everyday health and food destination. So, I think we've made good progress and our top line sales is really what we're focused on to continue to outrun any type of competitive pressures that we see over time.

And so, I mean, just to follow-up a little bit, I guess, from my perspective as an analyst, it's getting hard to see kind of the light at the end of the tunnel. You guys, I think, talked about your store productivity coming in a little bit in the mid-70s I think is what you said and we have seen that measure come down. It just looks like we're getting too many assets generally chasing 2Q sales. Kind of take us forward and maybe even into next year and the year out like – what's the path to the environment getting better in your mind? And then I will yield. Thank you.

Yeah. I do think that we've seen a little bit of an uptick on new unit count and I think that from our perspective there's players who do a good job and those are the ones that we're really focused on competing against. But at the same time, Scott, I would tell you that there is a lot of retailers out there, food retailers out there who are average and we're continuing to see them struggle. And so the share gains in our minds is not – it's coming from the softer players who are not investing, who are not looking forward into trends, et cetera. So back to my earlier point is we're focused on what we can control and we can anticipate other areas where it can get competitive. So, in short, could we see more competitive intrusion? We're seeing a little bit of an uptick, not meaningful, not meaningful enough and the likes of ALDIs coming into Southern California, we've been watching them very carefully. We now have 13 stores within 3 miles of our store and we've not seen any material impact from ALDIs but we watch all competitors, we're in their stores all the time and we have good strategies to react to different competitors and different markets to ensure that we can keep as much of our share volume that we can. So, I think it's continuing to drive sales and continuing to drive productivity and productivity in each of our boxes. So, I think, over time there will be some headwinds but I think there is also – will continue to be shakeout of who is bringing the share back to the market and that's the bottom tier players. I don't know if that's helpful but it's more competitive which is just making the weaker players even weaker frankly.

So we're just kind of waiting for a little bit of a washout hopefully in the next 12 months to 18 months, I guess, is kind of just to summarize it a little bit.

Yeah, I don't know think it's 12 month, 18 month...

Thank you, guys. Appreciate it.

Yeah. Scott, I don't think it's a 12 month to 18 month game. I think it's just going to continue to happen over time. And we've seen consolidation, we'll continue to see consolidation. We'll continue to see a slow leak of softer players. So I don't think it's a 3 month, 6 month, 12 month game. I think it will continue to happen over the next 5 years, 10 years.

Perfect. Thank you very much.

Thank you. And our next question comes from the line of Edward Kelly of Credit Suisse. Your line is now open. Edward J. Kelly - Credit Suisse Securities (USA) LLC (Broker): Hi, guys. Can you hear me now?

We can hear you. Edward J. Kelly - Credit Suisse Securities (USA) LLC (Broker): Good morning. So, the first question for you, I guess, is on the comps. You expect some slowdown in the back half of the year and it seems justifiable given your expectation around deflation. My question really for you is around the fourth quarter though. In the fourth quarter you have a tougher comparison. If we look at the two-year stack, I think, that your guidance would imply some acceleration into your stack in Q4. So just wondering what your thoughts are on cycling that quarter this year?

Yeah. If you – good morning, Ed. If you recall last year we've continued to build our holiday program really well over the last two to three years and we've got an exciting program again this year. I think we're continuing to build on that momentum. Certainly, a bigger hurdle was the 7.4% from last year, but we've got good programs. I think the other thing that might be a little bit of a benefit is we will start cycling some – on the cost deflation side, cycling some of the poultry deflation, would start it in the September-October timeframe. Now, the offset to that is we're continuing to see deflation in other categories. So we'll see how that component goes. So I think the fourth quarter will be one of where do we – will be made of two primary things in my mind. It is where are we sitting on deflation at that point in time, and second, our ability to continue to draw more customers to a healthy holiday program and we've had good success for the last couple of years. And as you build the program, clearly, your hurdle becomes higher and higher. And so, we're confident in the program that we've built. It would be hard to imagine a 7.4% in this deflationary environment but we're pretty focused right now in making sure that we can build sales in that holiday environment. Jim, do you want to add anything here?

Yeah. I think, Ed, the other benefit we're going to get is the sales initiatives that we had for 2016, they'll be full flight come Q4. So we'll be getting the benefit from all the deli and private labels. So that will benefit us absolutely in the fourth quarter. Edward J. Kelly - Credit Suisse Securities (USA) LLC (Broker): And then, just a quick follow-up for you. I mean, last year you gave mid-term guidance and obviously this year you've got deflationary issues. But is there anything that you see at this point that doesn't lead you to believe that that intermediate term outlook is just not good anymore. And I'm specifically interested in what you would say about EBITDA margins over time?

Yeah. What I would say is that clearly, you just made one point is the deflationary environment doesn't help. If you look at last year, we were deflationary in the middle of the year and we lowered our guidance and as it turned out by year-end we were at the top end of our original guidance at the beginning of the year, so we are at 17% top-line growth. I think that in a narrow margin business, if you sort of think about our midpoint of our revised guidance today, its $10 million on a $4 billion-plus business. So it's a quite small number when you talk about growth rate. So the deflation certainly flows right through to the bottom. Flow through when you have this type of deflationary environment and competitive landscape. Fundamentally, I would comment that coming out of deflationary environment, Sprouts has historically done very well in the last two big deflationary environments back in 2009, 2005 and then to a lesser degree in 2012. But, if deflationary environment sustain for a period of time, it does get very competitive out there and that's what we're seeing somewhat today. But it doesn't change structurally or fundamentally what we're doing in the business and what we believe we can deliver at Sprouts over a mid to long-term period. So this year, as Brad stated, we're adjusting our guidance to 10% to 12% EPS growth, which is about a 4% adjustment, not small but not significant in context of our sales. But we're just focused on the controllables, as we talked about earlier. Jim, do you want add anything?

No.

Okay. Edward J. Kelly - Credit Suisse Securities (USA) LLC (Broker): Thank you.

Thank you. Our next question comes from the line of Joe Edelstein of Stephens. Your line is now open.

Hi. Good morning, everyone.

Good morning.

Good morning.

Good morning.

Yes, Joe.

Okay. So just the last couple of quarters, you have been able to hang on to some margin there, even with the deflationary environment. Can you just help me square that against the comments of it being a more promotional competitive environment? And I think you did say that the guidance assumes that you'll still see some leverage yet in the back half of the year but just a magnitude there would be helpful, if you could help us clarify that? Thank you.

Yes. Good morning. It's Brad. As you see in the progression from the first quarter through the second, obviously, the 80 basis point expansion that we had in the first quarter we called out that we expected it to be a little bit less. What's creating the additional margin leverage, of course, is the deflationary environment but that has been offset by increased promotional activity, which brought the 80 basis points down to 40 basis points. Of course, the other element that's helping us is the non-perishable departments have been performing very well through the first half of the year. But I think when we look at the back half of the year, as Amin pointed out, we're going to be lapping poultry deflation in the September-October time period. So that will reduce some upside with regards to margin. But it's more the promotional environment that will basically have us more flat to last year on gross margin for the back half of the year. And as Amin pointed out, we're really fixated on delivering to our customer and making sure that value proposition is strong. And we monitor competitive pricing by market by week to ensure that we're priced at the right level. So that's sort of how we're thinking about margin for the balance of the year.

That's helpful, Brad. I appreciate that. And moving down on the P&L, just from the gross margin side, I mean, at this point, in terms of the growth of the business, I'd be interested to hear if you feel like there would be some inefficiencies kind of running through the system that you might start targeting more so for cost savings. I realize this year has got a little bit of the wage pressures, the training cost that you are implementing, but do you feel like there would be some larger buckets that you could start looking at to protect the bottom-line profitability just in the event things do get more competitive in the next 12 months or so?

Yeah. I think if you look at the performance in the first half of the year, as we pointed out earlier, a number of investments were made at the beginning of the year with regards to strategic increases in wages to make sure we're competitive as well as a big focus on training to make sure that we're able to have the leadership in place to fill the pipeline of stores going forward. Having said that, as you saw in the second quarter, we pointed out improvements in shrink performance. Certainly there's a big focus in the operations to improve all elements of ordering and inventory management and that has resulted in some performance improvement in shrink in the quarter. But also, the other elements of the P&L, the SG&A we pointed out that we were experiencing the heaviest investment in the second quarter of this year with the implementation of the HRIS and labor scheduling systems. That obviously will bode well for us, going forward, as we leverage those technologies, as well as I'd point out that we're at the early stages with the formation of our business intelligence group that I think will provide us great insights into promotional effectiveness and how to really direct market to our customers that are on our digital platform. So I think those are the areas that we're going to continue to focus on going forward.

Okay. That's helpful. And if I could just squeeze in one more, maybe one for Jim. The last couple of years we've seen the store sizes just creep a little bit higher year-to-year. And are you finding that, say, the 30,000 square foot stores are really the right size for today's assortment? Is that kind of what we should expect going forward with this new store leases that you have in the pipeline and ultimately are you still comfortable with the cash and cash return metrics that you've talked to in the past? Thank you.

We'll stand behind the cash and cash returns that we've given in prior calls and guidance. As it relates to the 30,000 square foot, we feel like that's the sweet spot. It's a comfortable shopping experience for our consumers and it gives us the ability to expand in the deli department, which we've talked about, organic offering and produce, as well as the ability to grow the SKU count in grocery. So 30,000 square feet is still our target and I am very comfortable with it and it provides the right experience for not only our customers but also a very operational efficient box for our team members.

Okay. Thanks for the comments and good luck the rest of the year.

Thank you. Our next question comes from the line of Karen Short of Barclays. Your line is now open.

Hi, thanks for taking my question. Just one guidance on the top line. I guess, the change in your total top-line guidance is obviously greater or wider than your change to your comp and it doesn't sound like that's a function of weaker new store productivity although I do calculate new store productivity to be a little lower than what you stated just now. So maybe just any color there and then I sort of have another follow-up.

Yes. I think of part of – beyond the deflation we've seen some slippage in the opening dates on the back half of the year on some of the stores that has also weighed on the top-line reduction that we set out today.

And, Karen, the only other thing I would mention is when you are looking at new store productivity we calculated to the exact – to the date of opening, we did have somewhat of a back-loaded new store schedule in the second quarter. So depending on how you're doing the math or precise math on date of opening and exact numbers that we have puts us in the mid-70s. So we're not seeing any slippage on that front and we do have some stores that are, I'll call it, existing market heavy in the back half of the year. So, I think, it will continue to round out well for the full year in the mid-70s.

Okay, that's helpful. And then, I guess, this year was a little bit of a perfect storm in terms of investments you're making in labor, DSE and things like that, and coupled with deflation. So I guess putting the question slightly differently, I mean, assuming we return to more normalized inflationary environment in 2017 is there any reason that the components of your mid-term guidance would change because we – I'm assuming you kind of by next year will your cycle the investments that you're making this year?

Yeah. I think that's correct. I think there's – on the labor side, as we said we made some position in that going through the stores that we felt that were critical. The only other component, Karen, is that a couple of parts of the country, Northern California is a good example where we continue to increase wages to make sure that we can get the right talent and retain the right talent in what's a very expensive environment to live in. I think we'll be much flatter in terms of incremental investments in terms of on a basis point basis certainly that we're making out in our stores. It should be flatter next year compared to the big uptick this year, and I don't want to say in hindsight, but we're absolutely glad we've been making these investments because it's showing our stores are looking a lot sharper and a lot better from probably 6 months to 12 months ago.

Karen, the other thing I would point out is that when you look at our 10-Q disclosure, clearly, on the SG&A line of the 40 basis point deleverage in the quarter, 24 basis points relates to the uptick in stock-based compensation expense, which I would view as a one-time step up related to executive changes in the third quarter of last year. So if you think about the impact on that in full-year 2016 will be about 17 basis points. So, that's sort of a one-time incremental charge on the SG&A line. So that's how I would think about it this year.

Okay, great. That's helpful. Thanks.

Thank you. Our next question comes from the line of Rupesh Parikh of Oppenheimer. Your line is now open. Erica Eiler - Oppenheimer & Co., Inc. (Broker): Hi, it's actually Erica Eiler on for Rupesh. Thanks for taking our questions. I also just wanted to quickly touch on the comp guidance. If you look at the comp guidance reduction, is it all driven by deflation or is there anything else we should be thinking about? And then also just curious how traffic trends have played out versus your expectations? Thanks.

Yeah. The guidance of the 3% to 4% in the rest of year is related to what we're seeing in our expectations on deflation. I think how you should think about it, we finished the second quarter at a minus 1% overall deflation, but it accelerated as we moved through the quarter. And so that played into our going forward guidance. And for sure our guidance for the third quarter reflects our current experience in Q3. Erica Eiler - Oppenheimer & Co., Inc. (Broker): Okay. Great. Thank you.

You're welcome.

Thank you. Our next question comes from the line of Alvin Concepcion of Citi. Your line is now open.

Thank you. Thanks for taking my question. Just another question on the competitive environment, which you mentioned got more intense, I just wanted to clarify did retail prices come down more than deflation or did the promotional environment intensify above and beyond that and did it get more intense from what you saw last quarter beyond the lower sales from deflation.

Yeah. I think as we said, it's been more promotional. So one can anticipate directionally that it's little bit more than the cost deflation rate? But what we like to do is this is an area that we don't like to talk about a whole lot purely for competitive reasons. But directionally, I would say, that's correct. That retail is a little bit more than cost in the current environment.

And was that more than what you saw maybe a quarter ago?

Yes. It's a slight uptick. That's correct.

Okay. And then my follow-up question is just on the deflation. Just wanted to get a little more cadence on your guidance for the back half of the year. It sounded like in the fourth quarter or September, I guess, it sounded like there might be some similar tailwinds on protein. I'm wondering as you get into the fourth quarter, do you expect this to be at the lower end of that 1% to 2% decline or would you be better than that?

I think, you know, when we look at the back half of the year, clearly, we have greater visibility into the third quarter than the fourth. And what we're seeing now is in the 1% to 2% overall deflation range for the third quarter. As we pointed out earlier, we do our poultry deflation in the September-October timeframe and depends on what happens with bulk and dairy from a deflationary standpoint as to whether or not that improved slightly in the fourth quarter. We could see the fourth quarter being closer to the 1% than the 2%. But I think in the near-term there's more pressure in Q3 than Q4 in terms of our line of sight at this point.

Great. Thank you very much.

You're welcome.

Thank you. Our next question comes from the line of John Heinbockel of Guggenheim Securities. Your line is now open.

So, a question for either Amin or Jim. When you think about deflation and elasticity and how that varies by category. Maybe how they behave differently and are you seeing a lot of elasticity where you're getting the uptick in tonnage? And then, secondly, when you think about – we're not at a point yet right where we've been starting to think about secular deflation. The idea is still that supply will normalize and maybe it's not much inflation but it's not secular deflation, fair?

Fair.

Okay.

Hey, John, this is Jim, as it relates to what are we passing through and what are we not, obviously produce is critical to our business.

Yeah.

So both produce and meat are huge traffic drivers for us. So that's being passed through from a retail basis. And just to a little bit of a smaller extent, the dairy and the bulk and you would see in a inflation/deflation environment on the nonperishable side, it would be less elastic and we would probably be able to hold on to some merchant dollars in a deflationary environment.

Well, I was also thinking from a customer standpoint, right, and I've always sort of been of the mind that it doesn't really create that much. Maybe it creates – if you've got a lot of deflation in beans, maybe people buy that and not chicken. But overall it doesn't create a lot of incremental demand in most categories. Is that fair?

Yeah. I think, John, what tends to happen – generally that's probably fair that people don't end up eating a lot more in most categories, right. But what tends to happen is that during deflationary periods, particularly if they are extended like this one has been in a couple of categories, retailers get more competitive and everyone's trying to find either share or comps, right. And so in that environment the customer is winning. And so, we've seen this before and you kind of managed through it and what I always remind people is when things sort of normalize from deflation back to a normalized environment, most grocery retailers, Sprouts included, tend to do quite well in that bounce back because you've almost over invested in a deflationary environment. So you really are squeezing yourself and it tends to be temporary.

All right. And then, lastly, you talked about that real estate conference you were at. So when you think about supply/demand for the boxes you are looking for, right? So, Office Depot announced a bunch of more closures. When you look at that dynamic, would it be your idea that quality sites will continue to be available at around the current price that you're paying or are you seeing or do you think there's an upward push on rent expense because of demand for those locations?

Yes. So it's a little bit bifurcated John. What I was saying in suburban environments, which is our primary business model, we see pretty good availability in existing sites coming from the likes of the Office as well as the recent announcement from Sporting Goods, which is also right in that 30,000 square foot box, kind of little 30,000 square foot, 35,000 square foot box range. And so, in suburban environments we're seeing great opportunities of existing properties. The only areas that I would say is we're seeing tick-up is in urban environments and semi-urban environments and that doesn't impact us a lot because we don't build a lot of stores in urban environments. But as we're visiting these ground-up residential above projects, I think, are just high today and we have a very disciplined approach and no different than we've done in the past is the only place I would say that in urban environments like a Los Angeles is it's just gotten expensive and we'll be disciplined and step away and grow elsewhere. And when it adjusts, we did this back in 2008 and 2009, when it adjusted downward significantly we took advantage of that and signed a lot of leases in a short period of time in those types of situations. So we remain very disciplined from a business model standpoint, make sure that this low-cap rate, real estate environment we don't get carried away in that environment and impact our business model and our stores for the long-term.

Okay. Thank you.

But we're seeing good. We're seeing a good pipeline right now. You know obviously our 2017 pipeline is full and we're well into 2018 at this point.

Okay. Thanks, guys.

Thank you. Our next question comes from the line of Robby Ohmes of Bank of America Merrill Lynch. Your line is now open.

Hey, guys. Thanks for taking my question. Actually two questions. The first one, the environment sounds tough and deflation, everything, but you guys did come up with an acceleration in your traffic comp. So the question is maybe highlight for us what's supporting that. And then also in the guidance for comps for the back half, are you – I understand the deflation part of it. Is there any change in your thinking about what your traffic comp momentum will look like relative to the second quarter? And then, sorry, my other question, and if you forget it, I'll repeat it after you do the first question. But related to new store productivity levels, in new markets or in new stores, are you seeing any differences in the mix of business versus the existing stores, just curious? Thanks.

Sure. I'll do that sequentially there. First, from a traffic perspective, it's obviously a top priority for Sprouts and always has been a top priority. And this is where the extension of what Jim mentioned earlier, some of our innovation in deli and private label and some of our other programs that we're continuing to work on is continuing to aid in that area. The only comment I would make is, in prolonged deflationary environments, there can be a short-term ability to keep taking share from others in the short term because everyone is super aggressive in price. But it remains a priority for us. We've always been a top line and traffic driven company. So we're continuing on that path. As far as new markets are concerned, overall, our 2016 portfolio is doing well. And as far as our new markets, we have gotten some questions on the Southeast. So let me just expand on that. When I look at our average weekly sales in the Southeast, we're ahead of where we started in the second year in our last three new major markets that we opened in over the last four or five years. But we know in the Southeast, we have an opportunity. Our operations are running well there now. They're stabilizing. We've been doing a lot of training. So, now, we're going into the market. We know we can ramp it faster and try to bring it back closer to the system average faster. And so we're increasing our efforts around local programs there as well as grassroots community engagement programs to deepen the brand awareness. But, overall, the market is slightly ahead of where our other new markets historically have been when we first have gone in. And so, we feel good about that.

That sounds great. Thank you very much.

Thank you. Our next question comes from the line of Kelly Bania of BMO Capital. Your line is now open.

Hi. Good morning. Thanks for taking my questions. Just curious on the promotions. Lots of promotions last year, I believe, in produce, and you're seeing an uptick now. I was just curious if you could talk about which categories you're seeing those in? Is it produce or is it more confined to the deflationary categories? And, I guess related to that, with your outlook for flattish gross margins in the second half, how much of an acceleration in promotions are you planning for in the second half?

Hi, Kelly. It's Jim. As far as pricing and really promotion in terms of the perishable departments, we are seeing a bit of an uptick in activity around produce and meat. But I was extremely pleased with the group and our promotional plan that we had on the perishable side, which drove strong tonnage gains from Q1 to Q2. And as far as the back half of our promotional plan, it's going to be fairly in line with the major of promotions. They will be tailored a little bit differently and enhanced in order to improve overall performance but there's not going to be a material shift from the overall number of promotions. They'll just be just deeper and wider, quite frankly.

Great. That's helpful. And then can you talk a little bit just about the vitamins and supplements category. Are you still seeing the transition to that category and any of the products or innovations or trends that you are seeing in vitamin supplements, right now?

Yeah. I don't want to call specific categories. I mean, you can pull syndicated data, multis, digestive, pre- and probiotics specifically. But overall, we're extremely pleased, as Brad mentioned, with our nonperishable department performance, which would include vitamins. And I continue to – our growth in vitamins – as they release GNC and Vitamin Cottage as well as Vitamin Shop, I can only say that our comps are well exceeding the comps that have been released. So, just pleased with the overall mix, the assortment, the knowledge we continue to invest in our team members and then the promotions, the relevant promotions the teams have put together for our consumer.

Great. Thank you.

Thank you. Our next question comes from the line of Vincent Sinisi of Morgan Stanley. Your line is now open. Vincent J. Sinisi - Morgan Stanley & Co. LLC: Hey, great. Hi, guys. Thanks very much for taking my question. I wanted to ask – when you kind of, more big picture, think around your comp build going forward, obviously, as we've all talked about deflation impacting kind of the rest of this year but if you think back to some of the past language you folks have had, it was kind of like normalized comps of kind of a percent inflation or percent in-store initiatives and the rest kind of from space growth. So, assuming, we hopefully, get back to a more normalized environment next year, is that kind of still the basic way we should think about how you are kind of building up to your mid-single digit comp guidance?

Yeah. Vinnie, that's a great question. So if I can build up, there's really sort of three stacks to this. This has been mid to long-term guidance when we talk about a 4% to 6% comp range. That 4% to 6% is foundationally based on 0% to 2% inflation, right. So 4% comp at 0% inflation and 6% comp at 2% inflation is sort of the foundation of the model. The second piece is, when we look at our vintages, our vintages are doing quite well. If we look at our 2015, 2014, 2013 vintages, they're performing as we've always expected our second, third, fourth year to do. The only call out, I will make a small callout is our 2013 vintage was extremely – it was less heavy, right, so it started off with great new store productivity, if you recall, north of 100%, we were running for several quarters. So that vintage is probably slightly lower but we'll take that. It just matured faster. So the profitability of the 2013 vintage matured a lot faster but the 2014 and 2015 vintages continued to comp well. And then the third element of our comp is the business priorities that we talk about in deli and private label. Jim alluded to private label well outpacing – Jim and Brad alluded to this, well outpacing our overall comp growth. So while we're seeing SKU count growth in private label, our comp is outpacing even our SKU count. So we feel really good about the strategic priorities and how that's building up sales, margin, as well as giving us more tailwinds to our overall comp. So, again, to summarize it's foundational 0% to 2% inflation-based. We're feeling good about our maturity model in second, third, fourth years and third element is it is continuing to innovate to keep gaining some share into the traffic and ticket for our new stores and existing stores. Vincent J. Sinisi - Morgan Stanley & Co. LLC: Okay. That's super helpful, I mean, thank you. And just a quick follow-up. You mentioned about Amazon Prime going into, of course, the Dallas market and continuing to expand that. Can you just give us any color with what you're seeing so far in terms of maybe how Dallas has done versus some of the California markets where you're seeing from an in-store performance in those areas and then expansion thoughts going forward, whether that's number of markets number and/or geographies?

Yes you know we've seen good lifts in the markets, in all of the markets, the lifts have been very consistent. So it's been a good productive activity and we're in discussions with Amazon, they have been a great partner, in discussions with them on how we can expand this partnership that's mutually beneficial to both of us. So we're in those discussions now. And so, I'll leave it at that. And perhaps once we're done with those discussions we will give you an update on a future call on our plans there. Vincent J. Sinisi - Morgan Stanley & Co. LLC: All right. Fair enough. Good luck.

Thank you. Our next question comes from the line of Stephen Tanal of Goldman Sachs. Your line is now open. Stephen Tanal - Goldman Sachs & Co.: Thanks, guys. Good morning. Just to start, can I ask if you could clarify the comment on produce. Did it become less deflationary or more deflationary through the quarter and the outlook for produce in the back half specifically?

So from Q1 to Q2 produce was the mid-single digits inflation in Q1. And so it became less inflationary in Q2 and ramp down to low-single digits and we're continuing to see sort of that kind of range flat-to-low single digits at this point. It's really staying at flat today. Stephen Tanal - Goldman Sachs & Co.: Got it. That's helpful. And related to the back half, kind of the outlook on deflation being a bit tougher, could you parse out what your outlook would be on the input cost side versus the retail price side. It sounds like it's more price driven, but I would love to understand how you are seeing both through the back half.

Our comments with regards to inflation/deflation were specifically in relation to input cost. From a selling price perspective, that's driven by the competitive marketplace. Stephen Tanal - Goldman Sachs & Co.: Got it. And just lastly just sort of parsing through some of the comments on the comp, it sounds like if you had about 100 bps of deflation, UPTs are probably up about 1.6% or so, somewhere in that neighborhood. Can you talk about what's may be driving that if it's the elasticity kind of related to deflation or maybe some of the price investments you made or what categories your seeing kind of helping to grow that basket?

I think as we've said earlier in the call, we're seeing tremendous sales performance in the non-fresh categories. And those are areas that we're continuing to focus in on in terms of private label but also in the deli area of the business we've been quite active in expanding the number of stores that have the full service offering including the salad bar, the service case, sandwich bar and the like. And we are seeing great feedback from customers and while it's early, we're extremely pleased with the performance and the loyalty build that's coming out of those investments. Stephen Tanal - Goldman Sachs & Co.: Got it. Thank you.

You are welcome.

Thank you. And that is all the time we have for questions today. I'll now like to hand the call back over to Amin for any closing remarks.

Okay. Well, thank you everybody for joining the call today. And we're pretty excited on how the second quarter turned out, and we look forward to continuing the momentum, and giving you updates through the course of the year. Thanks a lot for joining on the call.

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