Sprouts Farmers Market, Inc.SFM
Sprouts Farmers Market, Inc. Income Taxes Disclosure
Income Taxes
Income Tax Provision
The income tax provision consists of the following:
| Year Ended | |||||||||||||||||
| December 28, 2025 | December 29, 2024 | December 31, 2023 | |||||||||||||||
| U.S. Federal—current | $ | 118,558 | $ | 87,601 | $ | 67,898 | |||||||||||
| U.S. Federal—deferred | 6,062 | 8,501 | (5,927) | ||||||||||||||
| U.S. Federal—total | 124,620 | 96,102 | 61,971 | ||||||||||||||
| State—current | 39,136 | 27,805 | 21,902 | ||||||||||||||
| State—deferred | 1,358 | 2,190 | 1,011 | ||||||||||||||
| State—total | 40,494 | 29,995 | 22,913 | ||||||||||||||
| Total provision | $ | 165,114 | $ | 126,097 | $ | 84,884 | |||||||||||
Tax Rate Reconciliation
Income tax provision differed from the amounts computed by applying the U.S. federal income tax rate to pre-tax income as a result of the following:
The table below provides the updated requirements of ASU no. 2023-09 for 2025. See Note 3. Significant Accounting Policies—Recently adopted accounting pronouncements for additional details on the adoption of ASU no. 2023-09.
| Year Ended | |||||||||||
| December 28, 2025 | |||||||||||
| Federal statutory rate | $ | 144,645 | 21.0 | % | |||||||
| Increase (decrease) in income taxes resulting from: | |||||||||||
State income taxes, net of federal benefit (1) | $ | 32,336 | 4.7 | % | |||||||
| Nontaxable or nondeductible items: | |||||||||||
| Enhanced charitable contribution impact | $ | (6,133) | (0.9) | % | |||||||
| Non-deductible Executive Compensation | $ | 11,657 | 1.7 | % | |||||||
| Excess tax benefits from share based payments | $ | (13,123) | (1.9) | % | |||||||
| Other | $ | 207 | — | % | |||||||
| Tax Credits: | |||||||||||
| Benefit of federal tax credit | $ | (1,649) | (0.2) | % | |||||||
| Transferable Tax Credit Benefit | $ | (3,506) | (0.5) | % | |||||||
Other, net(2) | $ | 680 | 0.1 | % | |||||||
| Effective income tax rate | $ | 165,114 | 24.0 | % | |||||||
(1) State taxes in California made up the majority (greater than 50%) of the tax effect in this category.
(2) Includes valuation allowance, uncertain tax position, and other items that are all immaterial individually.
| Year Ended | |||||||||||
| December 29, 2024 | December 31, 2023 | ||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | |||||||
| Increase (decrease) in income taxes resulting from: | |||||||||||
| State income taxes, net of federal benefit | 4.8 | 5.4 | |||||||||
| Enhanced charitable contribution impact | (0.9) | (1.0) | |||||||||
| Non-deductible Executive Compensation | 1.4 | 1.4 | |||||||||
| Benefit of federal tax credit | (0.3) | (0.7) | |||||||||
| Excess tax benefits from share based payments | (1.1) | (1.2) | |||||||||
| Other, net | — | (0.2) | |||||||||
| Effective income tax rate | 24.9 | % | 24.7 | % | |||||||
The effective income tax rate decreased to 24.0% in 2025 from 24.9% in 2024 primarily due to an increased benefit for stock-based compensation in the current year and benefit for purchase discount on tax credits partially offset by an increase in nondeductible officer compensation and the rate benefit in prior year due to receipt of interest related to the 2017 amended federal return refund. The effective income tax rate increased to 24.9% in 2024 from 24.7% in 2023 primarily due to a reduction in federal credits and reduced impact of other permanent items due to higher pre-tax income, offset by a reduction in state taxes due to a state valuation allowance recorded in the prior year.
Excess tax benefits or detriments associated with share-based payment awards are recognized as income tax benefits or expense in the income statement. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. The total income tax benefit resulting from
share-based awards was $16.1 million, $7.0 million and $5.0 million for 2025, 2024 and 2023, respectively, and is reflected as a reduction to the 2025, 2024 and 2023 income tax provision.
Deferred Taxes
Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows:
| As Of | |||||||||||
| December 28, 2025 | December 29, 2024 | ||||||||||
| Deferred tax assets | |||||||||||
| Employee benefits | $ | 23,233 | $ | 22,163 | |||||||
| Operating leases | 477,940 | 429,362 | |||||||||
| Other lease related | 25,486 | 5,946 | |||||||||
| Other accrued liabilities | 7,943 | 5,411 | |||||||||
| Charitable contribution carryforward | 4,463 | 4,522 | |||||||||
| Inventories and other | 4,961 | 2,881 | |||||||||
| Total gross deferred tax assets | 544,026 | 470,285 | |||||||||
| Less: Valuation Allowance | (4,463) | (4,522) | |||||||||
| Total deferred tax assets, net of valuation allowance | 539,563 | 465,763 | |||||||||
| Deferred tax liabilities | |||||||||||
| Depreciation and amortization | (116,992) | (89,974) | |||||||||
| Intangible assets | (77,491) | (70,978) | |||||||||
| Operating leases | (424,752) | (376,994) | |||||||||
| Asset retirement obligations | (807) | (876) | |||||||||
| Total gross deferred tax liabilities | (620,042) | (538,822) | |||||||||
| Net deferred tax liability | $ | (80,479) | $ | (73,059) | |||||||
A valuation allowance is established for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits, or that the realization of future deductions is uncertain.
Management performs an assessment over future taxable income to analyze whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
The valuation allowance was $4.5 million as of December 28, 2025 and December 29, 2024, related to contribution carryforwards that management does not believe will ultimately be realized.
The Company has evaluated all available positive and negative evidence and believes it is probable that all other the deferred tax assets will be realized and has not recorded any other valuation allowance against the Company’s deferred tax assets as of December 28, 2025 and December 29, 2024.
The Company applies the authoritative accounting guidance under ASC 740 for the recognition, measurement, classification and disclosure of uncertain tax positions taken or expected to be taken in a tax return.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| As Of | |||||||||||||||||
| December 28, 2025 | December 29, 2024 | December 31, 2023 | |||||||||||||||
| Beginning balance | $ | 232 | $ | 477 | $ | 1,119 | |||||||||||
| Additions based on tax positions related to the current year | — | — | 58 | ||||||||||||||
| Reduction due to lapse of applicable statute of limitations | (232) | (245) | (700) | ||||||||||||||
| Ending balance | $ | — | $ | 232 | $ | 477 | |||||||||||
The Company had no unrecognized tax benefits as of December 28, 2025. The Company had unrecognized tax benefits (tax effected) of $0.2 million as of December 29, 2024.
The Company’s policy is to recognize accrued interest and penalties as a component of income tax expense.
The Company files income tax returns with federal and state tax authorities within the United States. The general statute of limitations for income tax examinations remains open for federal tax returns for tax years 2022 through 2024 and state tax returns for the tax years 2021 through 2024 with few exceptions.
Total Income taxes paid (net of refunds):
| Year Ended | |||||
| December 28, 2025 | |||||
| Federal | $ | 82,000 | |||
| State | 38,076 | ||||
| Total | $ | 120,076 | |||
Income taxes paid (net of refunds) exceeded five percent of total income taxes paid (net of refunds) in the following jurisdiction:
| Year Ended | |||||
| December 28, 2025 | |||||
| State | |||||
| California | $ | 23,150 | |||
On July 4, 2025, the legislation commonly referred to as the One Big Beautiful Bill Act ("OBBBA") was enacted. The OBBBA includes significant provisions that could have income tax implications. The Company has evaluated the potential impact on its consolidated financial statements and disclosures and has determined that no material impact is expected pending further guidance that may be issued by the Internal Revenue Service.
Pursuant to provisions under the Inflation Reduction Act (“IRA”), the Company executed agreements to purchase transferable federal tax credits of $63.8 million. Such federal tax credits are purchased at negotiated discounts, allowing the Company to reduce its 2025 federal income taxes payable by the amount of credits it expects to claim on its 2025 tax return. The Company has included a tax benefit of $3.5 million in its effective tax rate for the year ended December 28, 2025 for the difference between the tax credit and negotiated price for expected current year tax credits.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.