管理層發言
Hello, and welcome to Sprouts Farmers Market Second Quarter 2026 Earnings Conference Call. I would now like to hand the conference over to Susannah Livingston. You may begin.
Thank you, and good afternoon, everyone. We are pleased you are joining Sprouts on our second quarter 2026 earnings call. Jack Sinclair, Chief Executive Officer; Curtis Valentine, Chief Financial Officer; and Nick Konat, President and Chief Operating Officer, are with me today. The earnings release announcing our second quarter 2026 results, the webcast of this call and financial slides can be accessed through the Investor Relations section of our website at investors.sprouts.com. During this call, management may make certain forward-looking statements, including statements regarding our expectations for 2026 and beyond. These statements involve several risks and uncertainties that could cause results to differ materially from those described in the forward-looking statements. For more information, please refer to the risk factors discussed in our SEC filings and the commentary on forward-looking statements at the end of our earnings release. Our remarks today include references to non-GAAP financial measures. Please see the tables in our earnings release for a reconciliation of our non-GAAP financial measures to the comparable GAAP figures. With that, let me hand it over to Jack.
Thanks, Susannah, and good afternoon, everyone. Our second quarter results were in line with our expectations, and the core elements of our strategy remain strong. New stores continue to perform well. Our differentiated and attribute-based assortment continues to resonate and our teams are moving with urgency to sharpen value, improve communication and support customers in the areas that matter most. The consumer environment remained challenging, with customers continuing to make thoughtful choices around healthy grocery spend, and we continue to face difficult year-on-year comparisons. With that said, our most difficult prior year comparisons are behind us and become more manageable as the year progresses. We continue to see opportunities to improve our business in the short, medium and long term. In the short term, we are taking a balanced approach, investing to strengthen support for customers today while building capabilities to support our proposition for the long term, ensuring sustainable growth into the future. In a moment, Curtis will review our second quarter results and our updated outlook. After that, I'll come back to discuss the key business priorities we are advancing across affordability, loyalty and personalization, innovation, real estate, supply chain and our teams. Curtis?
Thanks, Jack, and good afternoon, everyone. In the second quarter, our results played out in line with our outlook as we continue to lap outsized growth from the prior year and help our customers navigate the affordability challenges that they face in the current environment. Total sales were $2.3 billion, up $105 million or 5% compared to the same period last year. This growth was driven by strong new store performance, partially offset by a 1% decline in comparable store sales. We saw sequential comp improvement through May. June, as expected, was our lowest comp of the quarter as we lapped strong last year produce performance and the disruption in the natural and organic supply chain that sent more customers to our stores. Starting in July, the business has improved in line with expectations. The sequential improvement has been driven by modest improvements in both traffic and units in the basket. E-commerce sales grew more than 12% and represented approximately 16% of total quarterly sales. Sprouts brand also continued to perform better than the rest of the business, representing 26% of total sales. Our second quarter gross margin was 38.7%, a decrease of 12 basis points compared to the same period last year. This primarily reflects our loyalty investment and elevated fuel costs. These headwinds were partially offset by benefits from self-distribution and vendor participation to help support customer value. SG&A for the quarter totaled $683 million, an increase of $38 million and 30 basis points of deleverage compared to the same period last year. This was primarily driven by fixed cost deleverage from lower comparable store sales and investments in the business, partially offset by disciplined cost management and lower incentive compensation. Depreciation and amortization, excluding depreciation included in the cost of sales, was $43 million. For the second quarter, our earnings before interest and taxes were $174 million. Interest income was approximately $68,000 and our effective tax rate was 26%. Net income was $129 million and diluted earnings per share were $1.37, an increase of 1% compared to the same period last year. Turning to unit growth. We opened seven new stores, ending the quarter with 490 stores across 25 states. Our pipeline remains robust with more than 110 executed leases and 155 approved new stores, giving us confidence in our ability to continue expanding access to Sprouts over the long term. Our balance sheet and cash generation remain strong and provide flexibility. Year-to-date, we have generated $369 million in operating cash flow, which enabled self-funding of our investments in capital expenditures of $186 million, net of landlord reimbursement. Through the second quarter, we also returned $210 million to our shareholders by repurchasing 2.8 million shares and have $626 million remaining under our $1 billion share repurchase authorization. We ended the second quarter with $224 million in cash and cash equivalents and $22 million of outstanding letters of credit. As we look to the balance of 2026, we are beginning to move past the most difficult compares and seeing early progress, though the operating environment remains uneven. We believe our initiatives in affordability, innovation, personalization, marketing and supply chain will strengthen engagement over time. Customer behavior is evolving gradually, and we recognize it will take time for our actions to fully gain traction in this macro environment. The lower engaged customer remains an opportunity, and all customers are managing units in the basket. Given that context, we continue to take a disciplined view of the back half while investing in the actions we believe will support engagement and long-term growth. As a reminder, 2026 will be a 53-week year, with the extra week falling at the end of the fourth quarter. For the full year, on a 52-week basis, our outlook for total sales growth is between 5.5% to 6.5%, with comp sales between negative 0.5% to positive 0.5%. We now plan to open 42 net new stores in 2026. This accounts for 43 new openings as well as closure of an underperforming store with an expiring lease. Earnings before interest and taxes is expected to be between $675 million and $685 million. We expect our corporate tax rate to be approximately 25.5%, and we expect capital expenditures net of landlord reimbursements to be approximately $310 million. Our diluted earnings per share outlook is expected to be between $5.32 and $5.40, assuming at least $300 million in share repurchases. This updated outlook also reflects the current consumer backdrop, our continued efforts around affordability, ongoing fuel surcharges and disciplined cost management. It also incorporates the expected one-time year-over-year gross margin benefit in the fourth quarter as we cycle an easier shrink comparison and the loyalty program changes we made earlier this year. We believe this outlook gives us the flexibility to continue investing in customer value while managing the business with discipline. For the third quarter, we expect comp sales to be in the range of negative 0.5% to positive 1.5%, and diluted earnings per share to be between $1.20 and $1.24. EBIT margin pressure is expected to be approximately 50 basis points due to fixed cost deleverage from lower comp sales and the impact of more new store openings when compared to the third quarter last year. And with that, I'll turn it back to Jack.
Thanks, Curtis. Against an uneven near-term backdrop, we remain focused on the areas we can control: sharpening value, strengthening merchandising, improving how we engage with customers and providing them a great in-store experience, advancing supply chain capabilities and executing against a strong new store pipeline. We're using data to better support our customers on their health journey. Our customers care about what they eat, and we are committed to making healthy, clean food more affordable and accessible, which is particularly important during these challenging times. Our teams are proud to rise to this challenge. That commitment is directly connected to our top priority, serving our target customer. They continue to value the Sprouts experience, the quality of our assortment and the discovery we bring to health and wellness while also looking for practical ways to make healthy living fit their budgets. We are responding in a way that is consistent with who we are by bringing together innovation, quality and targeted value in the areas that matter most. In the second quarter, our fresh deli meals, vitamin sale and $9.99 wellness bowls were examples of how this approach resonated with customers. Our first half affordability test produced mixed results. Most actions drove better unit movement, while broader traffic response developed more gradually than expected. We're using those learnings to refine our second half approach, focusing on the items that matter most to customers and where targeted price and affordability actions can have the greatest impact on engagement. Merchandising and innovation remain key strengths, and they continue to outperform overall company growth. They help differentiate the assortment and focus our space, promotions and new item activity around the products customers value most. During the second quarter, we launched approximately 1,300 new items, with an emphasis on attributes that we believe matter to our customers, including organic, seed oil-free, fiber, gut health and protein solutions. These products help reinforce why customers choose Sprouts. With our exclusive partnership, Pasturebird chicken is now available nationwide at Sprouts and products like Better Than Pop and Better Soup Salt Shots are resonating with customers. Our organic offerings continue to gain traction across departments, now representing more than 30% of total sales, including more than half of sales in dairy and produce. Loyalty and personalization remain important long-term enablers for the business as consumer behavior evolves against this uneven macroeconomic backdrop, we continue to see progress. Our acceleration efforts have identified new tactics to drive sales that should benefit us in the second half. And the data we are building is increasingly useful across the business with more in-depth customer behavior and preferences. Building our first-party data capability will continue to support our long-term strategy by unlocking value for our customers and Sprouts across the enterprise. Marketing is one area where our new data can help us more effectively engage customers in the second half of the year and beyond. We're using these insights to better target media across both existing and new customers while also refreshing our creative to more clearly communicate Sprouts' unique position and bring the brand to life. We'll continue to tailor our messaging to highlight health, discovery, the unique products that distinguish Sprouts and compelling value on the healthy essentials our customers need. Our supply chain work is also advancing. Our Northern California distribution center is open and operating smoothly, and nearly 85% of our stores are now supported with fresh meat through Sprouts distribution centers. This gives us greater control over our freshness, service levels and shrink, and the financial benefits from this transition will continue to support our efforts on affordability. We also are continuing to advance our self-distribution journey with targeted investments in our existing space, beginning with select Sprouts brand SKUs as we look beyond produce and meat to the next phase of this work. New stores remain one of the clearest proof points of the strength of our model. Performance continues to be strong, and our teams are selecting great sites, opening stores efficiently and bringing Sprouts to more communities. We are pleased with the progress across both high-volume existing markets and newer markets that are continuing to build awareness and momentum. Our construction team has done a great job improving our processes and shortening our time to build stores. Given these improvements, along with our strong pipeline, we will be opening 42 net new stores this year, slightly ahead of our original guidance. We will open at least 15 stores in the third quarter, which represents our largest quarterly opening cadence to date. Lastly, the Sprouts team remains the heart of the organization. Our team members bring the Sprouts experience to life every day from the quality and freshness in our stores to the service and education they provide our customers. Their commitment to our purpose, our team and our customers remains a key advantage for our business. In summary, we are operating with discipline against a dynamic near-term backdrop while staying focused on the actions that strengthen engagement, reinforce the Sprouts value proposition and position the business for sustainable growth. We appreciate your continued interest in Sprouts and look forward to keeping you updated on our progress in the quarters to come. And with that, I'd like to turn over for questions. Operator?
分析師問答
Our first question comes from the line of Ed Kelly with Wells Fargo.
Could we maybe just start with comp cadence? And I'm specifically interested in July. You talked about July being in line. Could you provide a little bit more color around the month versus the Q3 guide? The Q3 guide leaves the possibility of a negative comp. I'm not sure if you saw that in July? And was there any impact from Cyclospora? And then just remind us of the compares by month moving forward now.
Sure. Yes. Ed, lots in that. So comp cadence sequentially improved through May, as we said in the script, June was a tough month. That was really the end of the challenging last year compares in June: a really strong produce season and disruption to the natural and organic supply chain that sent customers our way. And so those are behind us now. As far as the second half of the year, there were no major disruptions or benefits last year that we're up against. So the comp will sequentially get easier from a comparison perspective month-to-month as we go forward. Within July, we're within our guidance range, just slightly negative for July is where we landed. And then on Cyclospora, it's really live right now. It's been the last two weeks where we've seen a bit of impact on the business. We're dealing with that in real time. First and foremost, food safety is our number one priority. The team really does a great job with that. They're watching all the news and the regulatory updates closely. We haven't had any product recall impact in our stores to date. But it's impacting customers and how they shop. It's really isolated to lettuce, salads and salad-related items where we've seen an impact. So it's a shift from fresh to frozen.
So we're watching this pretty closely, just to see where it's going to go and the customer reaction to this. It's difficult to know exactly how this is going to play out, but we're focused on food safety.
Okay. And maybe just a quick follow-up, Jack. You mentioned affordability results of the effort being mixed and maybe some adjustments that you're making. Could you talk a bit more about that? And are those adjustments meaning intensifying pricing efforts? Is it more about how you're spending the dollars?
We're being very focused on trying to look after our customers on those items that matter most. The tests we've done, as we said, have been mixed and different departments and items have performed differently. The challenge for us is making sure that everything we're doing fits within the model that we're working on. Nick and his team have been doing a lot of work analyzing the specific detail of what we're investing in. I think we've got a pretty good handle on what it's going to cost and what we're going to do going forward.
Yes. Ed, kind of a three-pillar approach to the affordability work we outlined. The one that I think is showing the most growth and that I'm really happy with is our assortment efforts. We see strong momentum in our healthy meal solutions, and we're continuing to increase that offering with health-driven, attribute-driven meals. We talked about our new $29.99 family meals. We now have all of our fresh-made salads in store under $9. So that's been strong for us. The second lever of that assortment has been in Sprouts brand with innovation in the healthy essentials. For example, we're launching seed oil-free frozen potatoes that are now a top seller in the category. We also launched a $4 fresh baked organic sourdough bread. So you see us investing in the areas that are important for our customer and the assortment. On the price and promotion piece, as Jack mentioned, it's been a little tougher to move the customer in this environment. We are seeing good basket and unit velocities from some of the price and promotion efforts we're doing, but we're continuing to test and learn both how we price and also how we message. We're going to continue to be prudent about how we do that as we learn how to move the customer. And then the third pillar of that work is personalization and loyalty: our personalization efforts and the acceleration of the learnings we've had in the first half of the year and into the third quarter to help continue to move our existing customer.
Our next question comes from the line of Leah Jordan with Goldman Sachs.
I just wanted to follow up on Ed's first question around the comp. In the prepared remarks, you talked about July improving in line with your expectation, but you still narrowed the comp guidance for the year. I'm trying to get a sense of what's making you maybe less optimistic in terms of getting to the top end now. Is it really around the macro increasing competition? Or is it simply a softer start to July and tied to the lettuce concern you mentioned? Any color there? And ultimately, maybe frame your confidence on getting back on to algorithm by the fourth quarter.
I think regarding getting back to our algorithm, we're feeling pretty confident about our guidance going forward in terms of what we're projecting. In terms of specifics, the macro environment is difficult to put a handle on. Grocery prices and gas prices have moved, and they're putting pressure on customers. We can see it in units, which are not as strong as they were because of inflation. We're trying to anticipate how this will play out. But our guidance is something we feel confident about. If the comparisons go the way we expect, we should be back on our algorithm in due course.
Okay. That's helpful. Maybe a quick follow-up on the comp drivers: how are you thinking about traffic versus units versus AUR as we move through the back half? It sounded like traffic and units were getting better in July. Just trying to think about the underlying drivers for your comp outlook into the fourth quarter.
Yes. I think we expect sequential improvement in traffic for sure. Units and traffic should get better. It's not going to come from AUR. Traffic was the thing that rose when we were doing well and has moderated and been the driver as we've softened here. So we expect that to continue to get better as the compares get easier, and then units should improve as we continue to work on the affordability piece.
Our next question comes from the line of Tom Palmer with JPMorgan.
Maybe I could first clarify the guidance revision. Comps were narrowed around the midpoint. The second quarter earnings came in a little ahead of what you'd guided. I wanted to understand the narrowing to the bottom half when we look at the EBIT outlook. Are there incremental investments contemplated? I know there was reference to some deleverage. I know the extra couple of stores could be the difference, but anything else on top of that?
Tom, it's Curtis. The EBIT midpoint-to-midpoint $5 million change is really fuel. As we spoke about last time, we covered it off in Q2 but said we didn't have it covered in the second half. It's remained elevated and volatile. We're embedding $2.5 million a quarter in the second half for fuel.
Great. Also, you called out vendor participation and accelerating personalization. With the loyalty rollout, are you starting to drive increased vendor support? I know the goal was it might take time working with vendors. Are we hitting a point where that's becoming more of a factor?
Tom, it's Nick. We're still in the early stages. We just started opening up vendor participation in the program at the beginning of this year, so we're nascent. The idea is vendors have unique customers and needs, and we help them find their audience in their market because we have the health enthusiasts many of these new brands want. I'm confident in that strategy. We're starting to see more vendors participate and benefit from the program. We're ramping, but it's early stages. As we build out the capability and invest in technology, that will be something we continue to push over the next several years.
Our next question comes from the line of Kelly Bania with BMO Capital Markets.
I wanted to double-click on the comment about all customers managing units per basket. Looking at sales across perishables and nonperishables, it looks relatively stable. So what's happening underneath with units per basket? I thought it was more isolated to produce, but maybe you can help us understand if anything has changed on units per basket and what the plan is to address that. It sounded like the focus is on traffic for now, but as you look out further on units per basket, what's the remedy?
Kelly, it's Curtis. Units in the basket—produce is a lead because there's a larger unit count in our average basket. During times of pressure, customers tend to manage that last item in the basket. So it's an impact across the business, with produce having a larger impact simply because there are more produce units in our basket. As for what we're doing: loyalty and personalization should help on the unit front, and affordability efforts should help. We're seeing good progress on units in the tests we've been doing. We'd like to see a broader impact on traffic, but the unit piece has been positive so far.
Curtis, when you think about items that matter most to customers, some examples sounded like fresh. How do you balance fresh price investments versus new innovation and new items that are critical to the Sprouts merchandising strategy? How do you balance where to invest?
Kelly, we start with our customer and think less about fresh versus nonperishables and more about what's in the customer's basket and what's most important for them. For us, healthy essentials include organic cheese, organic bread, organic meat and organic produce. It's across perishable and nonperishable where we're focused, and we look at what's most important to the customer and where we can make these things more accessible. That's where you see us innovate with Sprouts brand and make selective investments to improve accessibility. We look at it holistically. Fresh is performing well now because it's a good driver for meals and meal solutions, but we look across the entire store.
Our next question comes from the line of John Heinbockel with Guggenheim.
Can you address cohort performance demographically? You've talked about the emerging health enthusiast perhaps having more affordability issues. How is that group performing? And when you distinguish between shelf price reductions and loyalty promotions like 3x and 5x points, what's working and what's not from a pricing standpoint?
John, two headlines: one, the macro is tough, and it's tougher to move customers overall. Efforts aren't performing as in a more stable market. Two, we're seeing our less engaged, lower-income customers are harder to move. Some of that is a lapping story. If you look at our cohorts and loyalty customers, it's the less engaged, lower-income group where it's been tougher to drive trips and extra items. Our core customer has remained pretty resilient.
Maybe a follow-up: because of the product introductions, there's an opportunity to reach attribute-oriented, higher-income customers with the 1,300 new items. To what degree are you doing that now? Are there prompts or calls to action about these items?
Yes. We are doing that. Our new products launched in the last year are significantly outperforming the overall box. Innovation continues to be strong and customers continue to buy new items. That's a combination of the merchandising work and our forging pipeline and innovation. We're also introducing new products via loyalty personalization, social media and marketing. I'm happy with how newness continues to perform; we have aspiration to drive it further.
Our next question comes from the line of Krisztina Katai with Deutsche Bank.
I wanted to follow up on the affordability test. You've noted improving unit movement but a slower-than-expected traffic response. Can you help quantify the gap? What have you learned about elasticity and customer response that's shaping second half investments?
Krisztina, I won't get too specific on quantifying exact expectations, but again, it's challenging to move the customer in this environment. The longer we've gone with elevated fuel and the challenging macro, it's harder. Things that worked last year aren't working as well this year. There's been a lot of learning and readjusting to the current environment for how we go to market, whether in personalization or price and promotion.
One macro challenge is affecting our ability to move traffic. The comparison to last year is significant in some categories. The lower engaged customers who came to us last year under unique circumstances are the group we're seeing the biggest challenge with traffic. When the lapping rolls off, we're confident in the link to Nick's team's work on giving value to customers on items that matter most. We're seeing some progress, but traffic will take a little longer.
That's helpful. You called out the lower engaged customer as the largest opportunity. Can you provide a framework for thinking about that? How much of comp pressure is coming from these shoppers? What percentage of your customer base is lower engaged? And how are behaviors changing as loyalty and personalization efforts gain traction?
Krisztina, I won't quantify precisely, but the biggest challenges are with the lower engaged customer. It's a smaller portion of our spend and customer base—not our core customer. Behaviorally, we're seeing them spread trips out more and reduce frequency. That's driven by macro pressures. The core customer remains resilient. Some price activity is good for units but tougher on traffic. We're seeing customers respond to strong assortment and newness, which highlights who our customer is and who we stay focused on.
Our next question comes from the line of Rupesh Parikh with Oppenheimer & Company.
Given a number of players highlighting price investments, how do you feel about your price gaps and what you're seeing on the competitive promotional front?
Specifics on price gaps: we talk a lot about that, especially in produce. We continue to pay attention to produce pricing and are pleased with our position on organic produce, though it's a volatile market. Regarding other market activities, a lot of competitors are talking about various initiatives; we are confident our assortment and products are differentiated. We focus on value for the items that matter most to our health enthusiast customer. Picking the right items at the right price is something we can do because our products are differentiated, and we do that within our pricing model.
Great. On new stores: they still seem to perform well. Given the more difficult backdrop, have you seen any challenges in how these stores ramp?
Rupesh, no. New stores continue to open well across the country, in New York, Florida and California. They generally perform the way we'd like. We see the typical nuances of new markets versus established markets, but they generally perform ahead of expectations and in line with the last couple years. Recent vintages are comping positive. This continues to show the strength of the format and model. I'm really pleased with new stores.
Our next question comes from the line of Mark Carden with UBS.
As you look at stores in newer markets, is your customer mix mirroring the broader footprint? Is it tougher to bring in lower-income customers in markets where you're building name recognition? Does the excitement of a new concept offset this?
Mark, in newer markets awareness isn't there, and that's the big difference. I don't think it's materially different from a cohort perspective. We watch mix and department shopping; there's no dramatic difference. It takes time for people to figure out who we are and how to incorporate us into their grocery spend. Those stores tend to start a little lower and build faster as customers figure us out.
When we go to Long Island, we're not as well known as in Los Angeles, and we see that in our numbers. But the mix of our customer base isn't significantly different from our other markets.
Great. On other opportunities from self-distribution: how do you think about timing to insource additional categories? Does your experience with meat and seafood accelerate that timeline?
Mark, we're happy with the supply chain work and the merchants' execution completing the meat rollout, including our Northern California DC in Q2. It's proven potential for us to control products important to our customer. We're starting with a few Sprouts brand items using capacity in our existing distribution centers to improve service levels and profitability. We'll continue one step at a time, learn, assess, and take a measured approach over the next couple of years as we consider our long-term network plan.
We're investing appropriately in supply chain. We've built four distribution centers in recent years and will continue to build capacity to support store growth into different markets. Gaining more control over Sprouts brand and core categories is important and we're investing accordingly.
Our next question comes from the line of Scott Marks with Jefferies.
You called out EBIT margin pressure of about 50 basis points in Q3, listing components like more new store openings, fixed cost deleverage, lower comp sales and fuel headwinds. Can you help bucket the contribution from each component to the expected pressure?
Scott, the easiest way is it's similar to what we experienced in Q2. If you go up and down the P&L in Q2, the shape will look similar: slightly negative gross margins, slightly negative SG&A, some pressure in D&A, and the new stores piece folds into SG&A pressure.
Okay, clear on that. Previously you called out cannibalization in existing markets when rolling out new stores. Any update on what you're seeing now relative to previous expectations?
Scott, we previously discussed 100 to 150 basis points range of cannibalization we typically expect depending on mix of new versus existing markets, etc. Right now, we're towards the lower end of that range. We had fewer openings in the first half and will ramp up in the second half. Through Q2, it's toward the low end of the range, which is slightly better than last year.
One encouraging point is our modeling on cannibalization has improved; our teams are good at predicting cannibalization so we can understand it better.
Our next question comes from the line of Scott Mushkin with R5 Capital.
On pricing, we see FAGE yogurt priced well at times but Rao's tomato sauce priced significantly above market. How deep do you get into understanding market pricing on different items to ensure you're priced right, and are there times you can price up?
We will dig into those specifics and understand where they are. We pay attention to how other retailers price brands. It's a combination of category dynamics and how important the category is for us. We'll get better at that approach going forward.
Scott, our intent is to bring in brands that don't have the same level of competition and to introduce innovation that customers want. When we carry the same mainstream items, we intend to be everyday competitive. There are opportunities to tighten execution, but that's our overall approach.
On execution and staffing: as you open many stores, how are you ensuring consistent execution across the fleet, getting the right store managers and not draining existing stores when you staff new ones?
This is an important point. We're thinking hard about how we develop talent as we grow. Promoting internally has been important, and we're pleased with our assistant manager programs and progress in developing leaders. Creating and growing Sprouties is key. Our HR team is working closely with operations.
I'll add detail: we focus on culture and values to drive the unique store experience. We've put time into recruiting and bringing people internally before placing them in stores, letting them work side-by-side with assistant managers and managers to build a pipeline. We're investing in putting more ASMs and store managers in stores early to prepare them for new stores, and that helps maintain execution in existing stores. The teams have been great and we've been impressed with results. We'll continue investing in the pipeline as we grow.
Our next question comes from the line of Robert Ohmes with Bank of America.
A couple quick follow-ups. First, what's your sense of like-for-like inflation and trends in the first half, and into the back half? Is inflation accelerating into the back half and coming through from suppliers?
Robert, the second quarter was consistent with the first quarter. On like-for-like SKUs, inflation is in line with CPI. We do have mix effects from newer products and premium innovation that can drive AUR up a bit. A handful of categories like coffee and beef are elevated.
There has been commentary that the West Coast is weaker for traditional grocers. What's your exposure to the West Coast and have you seen significant differences regionally?
We have many stores on the West Coast. We're not seeing any meaningful difference in our performance in the West versus the rest of the country, though we've heard that from others.
When you go to Long Island and markets like Hartsdale and Boston, are these higher average store volume markets for you or would you not expect that in early days?
Robert, we have high hopes for those markets and expect them to be strong over time. Early days for new markets typically start a bit lighter than our average opening due to lower awareness and density, and then they ramp quickly. We're getting our foundation teams and marketing on the ground early to build community. We expect them to start a bit slower and accelerate.
They are denser markets ultimately and should be great stores once awareness is established.
Our next question comes from the line of Michael Montani with Evercore ISI.
On the lettuce impact from Cyclospora, some estimates suggested an 80 to 120 basis point impact moderating to 30 to 50 basis points for the quarter. Any commentary if that's consistent with what you're seeing? And what initiatives give you confidence you can drive comp units and stabilize traffic?
Mike, it's really live. The impact has been over the last two weeks and we're watching it closely. Thus far the impact has been small over the last two weeks. I won't speculate on forward impact; we'll monitor closely and see how it plays out.
Mike, on initiatives: assortment work around meals and healthy essentials, innovation, continued testing and learning on price and promotion, and personalization and loyalty are the levers. I'm also pleased with our new Chief Customer Officer and the marketing team's work using first-party data to better target media and messaging. You'll see improved messaging and communication highlighting health, innovation, quality and value in the back half.
I'll clarify: the number you quoted on impact was a little high compared to what we're seeing for the last couple of weeks, but we will continue to monitor.
Our next question comes from the line of Seth Sigman with Barclays.
E-commerce growth accelerated this quarter and was a big driver of the comp improvement. With the new data you have on customers, can you share what you're learning about the e-commerce customer? Where are they coming from, how do they shop across channels, and how valuable are they?
Seth, e-commerce growth was very good. Our partners Instacart, DoorDash and Uber Eats have been great. Customers order what they want and need that they can't find elsewhere; when they may not make a trip, they order online or use pickup. We see both delivery and pickup performing well. The e-commerce customer is primarily omni-channel; the vast majority shop both channels and are our highest-value customers. The basket and mix in e-commerce look similar to brick-and-mortar, with a high amount of produce and fresh. The customer trusts our fresh business, and that's reflected in e-commerce.
Seth, another proof point for the model: e-commerce continues to perform well despite a challenged macro. It highlights our assortment and that we want to be wherever customers need us. We expect e-commerce to continue growing.
That's helpful. One follow-up on margins: you expect gross margin slightly down in Q3. The original expectation was flat to up slightly in the second half. Is the delta just higher fuel? Any assumption that price would help offset that?
Yes, the difference is the fuel piece, which lands in gross margin and has been a challenge. It's not the right time to push through price given the macro and our affordability work. The fuel piece is an incremental pressure we didn't fully contemplate at the start of the year. In Q3, specifically, there will also be a small impact from Cyclospora. In the fourth quarter, we expect gross margin to be up slightly due to the one-time benefit cycling the loyalty change: last year the program was $2 and we moved to $1 this year, so Q4 has a favorable year-over-year comparison.
Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Jack Sinclair for closing remarks.
Well, thanks again for your attention. We appreciate you taking the time to listen to our quarter call, and we look forward to updating you in the future. Take care, everyone. Thank you.
That concludes today's conference call. Thank you for your participation. You may now disconnect.