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#<UNK>, it's <UNK>.
What we've set out in our guidance was we're going to remain in the 1.2 to 1.5 times leverage, net debt to EBITDA.
That's our intent going forward, so you can do the math on that.
We ended the year 2016 around 1.3.
Yes.
I would say the biggest components were the holidays as we had talked about in our script.
Holiday programs is our national organic program, our meals.
The team did a fantastic job of executing and what we're seeing is more and more customers are filling up the entire basket for the holidays, just not single or unique items from Sprouts.
So that's exciting for us and that's a program we've build over the last really three, four years.
And as always, we had a handful of learnings this year that we'll deploy next year and get even better.
So those weeks were really strong this year to help offset some of the unanticipated deflation that started in December.
<UNK>, I don't know if you would add anything.
(multiple speakers).
I'll just give you to what <UNK> said, one small anecdote.
I was at our first store opening in Florida yesterday and I spoke to several customers in the VMS department and one of them as an example told me that they used to shop three, four different places to find all the items and then also try to figure out what all they need to buy and they truly found a one-stop shop with Sprouts.
And actually, that was our biggest basket that we had for the day.
So I think it's both the depth and breadth of product as well as the great service from our really knowledgeable team members in that department that have continued to give us tail winds actually for the last five years in that department.
That's for the entire year.
To the extent that produce gets ---+ It would really be a combination of produce and ---+ where produce and bulk sit in the back half of the year will be the driver behind it.
We think that some of the other categories will lap and turn positive.
And so really depend on produce and bulk, how that settles in as we go into the summer and the fall.
And to the extent that they're better, don't necessarily need to be inflationary, but just being close to flat, then I would expect that we could see inflation in the back half of the year.
Sure, <UNK>, it's <UNK>.
From a gross profit perspective, we were down 70 basis points in total but excluding the impact of the 53rd week in the prior year we were down 50 basis points.
That compares to down 60 in the third quarter.
Of that 50 in the fourth quarter, about 20 basis points of that decline related to occupancy.
So a step up in the number of stores, the average square footage is now closer to our average prototypical store of 30,000 square feet.
So really I would say the merch margin component of that was only about 30 basis points.
As it relates to DSE.
Again, we've seen similar performance that we've seen year to date, about 50 basis points of the 120 decline after, again, the 53rd week is stripped out, is related to the wage increases that we put in place at the beginning of the year and the increased training.
So that leaves about 70 basis points of year over year to leverage, which about ten of that was related to the step up in depreciation as you know, the number of stores increased significantly from 27 to 36 from 2015 to 2016.
We've made adjustments as we moved throughout 2016, as we do our review market by market and make adjustments.
Clearly, we've made investments in infrastructure and technology.
As we have spoken about before, we have put in a labor scheduling system into the stores in 2016 mid year for the non production departments.
And it's our intent to expand that to the production departments in 2018.
We're starting to see some early wins on putting those systems in place.
So we fully anticipate getting some productivity improvements on an ongoing basis that will help offset wage pressures in various markets.
Yeah.
I think it just depends on what the environment looks like when category by category as that inflation resumes.
At times there is a little bit of a lag in passing the prices through and more so it can tend to be by market and more competitive market.
It can tend to be a little bit longer and in lesser competitive markets it can come back pretty fast.
So on average, I would say that it takes a few months, but people do tend to pull up and I think when leverage starts kicking back in, everybody gets back to a less stressful, more normal environment sooner rather than later.
And as you know, when deflation persists, people just get antsy and upset and in the past we tend to see the food fights resume.
And so hopefully as we see some turn, as we go through the year that will really settle everybody down.
I think that in certain areas (inaudible) we actually do weekly price checks.
In other areas we do a monthly.
So we have our pulse on the market.
(inaudible) on certain of the perishable departments really closely.
As <UNK> said, we use a pricing model.
And in terms of trying to pick up tonnage to your earlier question, you can try to do that to some degree, but at some point then you're just creating a more competitive environment overall and over time, we found that's disruptive for cumulatively the industry.
Just depends on market by market how competitive the set looks is where it ends up at the end of the day on the ground.
As I mentioned earlier, as it relates to competition on the promo side, again, it's produce and meat.
It's fairly in line with Q4.
You could say it's slightly more promotional, but that's only in one or two markets.
But we are experiencing a high rate of deflation in produce on the first part of the quarter.
Which again as I allude to do earlier, with the recent rains, the heavy rains in northern California, some of that could change very quickly.
So we'll wait and see.
Yes, <UNK>.
It's a great question.
Really at the end of the day it's balance between near term and long-term, right.
So, as Ed mentioned that it's certainly the near term it helps improve cannibalization.
It reduced margin pressure.
With that said, when we look at our IC model, and our cash on cash return model, it's still superior in fact or cash on cash returns is similar or higher than it was three, four years ago.
So what that would tell you is every unit you could open, you would.
And so the framework is simply around operations, great execution and consistency and making sure we're executing well.
I think what's different today from a Sprouts business model versus three, four, five years ago is we have more initiatives that we're pushing which are somewhat resource intensive like deli, Amazon, real focus on meat and seafood.
It's not simply putting items on the shelf.
There are service components to them.
So I think it's a balance and we feel that now that we have 17 regions, to be 18 soon across the country, it's still fairly manageable when you have 17, 18 regions to grow 30, 32 stores a year.
It's pretty manageable if you have good, strong execution on the ground.
Yeah.
I think that as we've gotten started at the year, we've actually seen a couple of abnormal weeks kind of bump around.
We had some real tough weather in some of our markets on the west coast particularly, and California doesn't seem to be seeing much sun right now.
If you look at especially the month of January.
So, we've kind of moved around in the quarter.
Certainly produce deflation has not helped the overall comp, but tonnage is still strong.
Our execution is very strong and in recent weeks, it looks like our execution continues to get stronger and stronger.
So we feel good around where we sit.
But we don't want to try to pinpoint comps within half a percent or 1% in this deflationary ---+ when you have deflation bumping around.
It's more of a ---+ when we look at the business and how do you pinpoint comps, it's as much of trying to pin down deflation as much as it's to pin down tonnage or traffic.
So that's where really the comment comes from is that we don't ---+ sitting here today, we don't see much deviation from the range.
But if we see bump around in deflation, then it can sneak to be upwards or down.
Yeah.
As <UNK> and I both are in stores all the time and we\
We'd like to thank everybody for joining us today and I look forward to speaking to many of you on the road in the coming weeks.
Thank you very much.
