2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 92 SHUTTERFLY PROXYSUMMARY DIRECTORNOMINEESANDOTHERDIRECTORS ThefollowingaretheClassIIIDirectorswhoarethenomineesforthe2018AnnualMeeting.ForadditionalinformationregardingtheShutterflyBoardofDirectors, pleasereadtheirbiographieswhichbeginonpage9. AGE TITLE DIRECTOR SINCE TERM EXPIRATION INDEPENDENT AUDIT COMPENSATION GOVERNANCE ThomasD.Hughes 58 Director 2015 2018 Yes EvaManolis 54 Director 2016 2018 Yes ElizabethSartain 63 Director 2016 2018 Yes ThefollowingaretheClassIandClassIIDirectorswhowillcontinueontheBoardofDirectorsafterthe2018AnnualMeeting. AGE TITLE DIRECTOR SINCE TERM EXPIRATION INDEPENDENT AUDIT COMPENSATION GOVERNANCE ChristopherNorth 47 PresidentandChiefExecutive Officer,Director 2016 2019 WilliamLansing 59 ChairmanoftheBoard,Director 2017 2019 Yes AnnMather 58 Director 2013 2020 Yes ElizabethS.Rafael 56 Director 2016 2019 Yes H.TayloeStansbury 56 Director 2016 2020 Yes BrianT.Swette 64 Director 2009 2020 Yes MichaelP.Zeisser 53 Director 2013 2019 Yes –Chairperson –Member DIRECTORDASHBOARD 9 independent directors Independence 90% INDEPENDENT 1 not independent 40% DIVERSE 4 women 6 men Gender Tenure 0-3 yrs 4-6 yrs 7+ yrs 7 2 1 3 YRS. AVERAGE TENURE Age 56.8 AVERAGE AGE 3 40-55 yrs 2 60+yrs 5 56-59 yrs 2018PROXYSTATEMENTSUMMARY 3 Total of 04 pages in section PROXYSUMMARY BUSINESS STRATEGY UPDATE AND 2017 BUSINESS RESULTS Atthebeginningof2017,werefinedourbusiness strategyaroundfourkeyareasoffocus: 1) simplifyingtheprocessofcreatingand purchasingpersonalizedproducts 2)expandingtherangeofproducts, 3)pivotingtomobile,and 4)leveragingourmanufacturingplatformfor businesscustomers. Asthefirststepofourlong-termstrategy,we madethedecisiontorestructureourConsumer business,simplifyingourbrandportfolioand shiftingcustomerstoourflagshipShutterfly.com website.Webelievedeffectivelyexecutingour strategywouldpositiontheCompanytodeliver sustainable,profitablegrowthandcreatevaluefor ourstockholders.Wedeliveredstrongresults during2017,settingusupforsuccessin2018and beyond(see“2017BusinessResults”). Undertheleadershipofourexecutiveteam,we exceededourplanfor2017,delivering5%growth innetrevenuesand12%growthinAdjusted EBITDA.Inaddition,afterthecloseof2017,we announcedouragreementtoacquireLifetouch,a nationalleaderinschoolphotography.Weare targetingaminimumof$450millioninAdjusted EBITDAby2020,throughthestrengthofeach other’scorebusinessesaswellasourrealization ofuniquerevenueandcostsynergiesavailable fromcombiningourtwocomplementary companies.Byexecutingourlong-termstrategy, wedeliveredstrongfinancialperformanceand createdvalueforourstockholdersoverthepast year.Our1-yeartotalstockholderr turn(TSR) overcalendaryear2017was-0.9%.However,we believeitisalsorelevanttoevaluateTSRfromthe dayafterthereleaseofour2016FourthQuarter Earnings(February2,2017)thr ughthedayafter thereleaseofour2017FourthQuarterEarnings andLifetouchacquisitionannouncement(January 31,2018).Overthisperiodreflectingwhenour 2017financialresultswerepublicly-disclosed,our totalstockholderreturnwas55.9%comparedto 16.0%fortheRussell2000index.Foradditional information,seepages25to27. NetRevenue ($Millions) $1,134 $1,190 2016 +5% 2017 AdjustedEbitda ($Millions) $208.5 $234.1 +12% 2016 2017 TotalStockholderReturn -0.9% +55.9% +13.1% +16.0% Calendar 2017 Feb 2-17 to Jan31-18 SFLY Russell 2000 2 PROXY SUMMARY YOUR VOTE MATTERS ThissummaryhighlightsinformationdescribedinmoredetailelsewhereinthisProxyStatement.WerecommendthatyoureadtheentireProxyStatement carefullyandconsiderallinformationbeforevoting.Pagereferencesaresuppliedtohelpyoufindfurtherinformationinthisproxystatement. VOTING MATTERS, VOTE RECOMMENDATIONS AND RATIONALE PROPOSAL BOARDRECOMMENDS Proposal1:ElectionofDirectors(page7) TheCorporateGovernanceCommitteeandtheBoardbelievethattheDirectornomineesandtheentireBoardprovide ShutterflywithadiverserangeofperspectivesandbusinessacumenandallowourDirectorstoeffectivelyengageeach otherandmanagementtoeffectivelyaddressourevolvingneedsandrepresentthebestinterestsofourstockholders. FOREachN inee Proposal2:AdvisoryVoteonFrequencyofVoteonCompensationofNamedExecutiveOfficers(page24) Asdescribedindetailundertheheading“CompensationDiscussionandAnalysis,”theobjectiveofourexecutive compensationprogramistoattract,motivateandretaintheexceptionalleadersweneedtodrivestockholdervalue, fulfillourvisionandmission,upholdourcompanyvaluesandachieveourcorporategoals.Weaccomplishthesegoalsin amannerconsistentwithourstrategy,competitivepractice,soundcorporategovernanceprinciples,andstockholder interestsandconcerns.WebelievethecompensationprogramfortheNamedExecutiveOfficerswasstronglyaligned withthelong-terminterestsofourstockholdersandwasinstrumentalinhelpingusachievestrongfinancialperformance in2017. FOR Proposal3:Amendmentof2016EquityIncentivePlan(pages50to58) OurBoardbelievestheCompany’ssuccessisduetoitshighlytalentedemployeebaseandthatfuturesuccessdepends onourabilitytocontinueattractingandretaininghigh-caliberemployees.OuroperationsareprimarilylocatedinSilicon Valley,wherewecompetewithmanytechnologycompanies,includinghighprofilestart-ups,foralimitedpoolof talentedpeople.Ourabilitytograntequityawardsisanecessaryandpowerfulrecruitingandretentiontooltomaintain andcreatestockholdervalue.Non-approvalofthePlanAmendmentmaycompelustoincreasethecashcomponentof employeecompensationbecausetheCompanywouldneedtoreplacecomponentsofcompensationpreviously deliveredinequityawards. FOR Proposal4:RatificationofSelectionofIndependentRegisteredPublicAccountingFirm(pages59to60) TheBoardandtheAuditCommitteebelievethatthecontinuedretentionofPricewaterhouseCoopersLLPforthefiscal yearendingDecember31,2018isinthebestinterestsoftheCompanyanditsstockholders.Asamatterofgood corporategovernance,stockholdersarebeingaskedtoratifytheAuditCommittee’sselectionoftheindependent registeredpublicaccountingfirm. FOR 2018 PROXY STATEMENT SUMMARY 1 SPROUTS FARMERS MARKET BusinessSummary BUSINESSSUMMARY SproutsFarmersMarketoperatesasahealthygrocerystorethatspecializesinfresh, natural andorganicproductsatpricesthatappealtoeverydaygroceryshoppers.Basedonthebeliefthat healthyfoodshouldbeaffordable,Sprouts’welcomingenvironment andknowledgeableteammembers continuetodriveitsgrowth.Sproutsoffersacompleteshoppingexperience thatincludesanarrayof freshproduceintheheartofthestore,adeliwith preparedentrees andsidedishes, TheButcherShop, TheFish Market,anexpansive vitaminsandsupplementsdepartmentandmore.Sinceourfoundingin 2002, wehavegrownrapidly,significantly increasing oursales,storecountandprofitability.With 285 storesin15statesasofDecember31, 2017, weareoneofthelargesthealthygrocerystores sellingfresh, naturalandorganicfoodintheUnited States.AsofMarch19, 2018, wehavegrownto 293 storesin15statesandcontinuetobeguidedbyourpassion: WE BELIEVE HEALTHY LIVING IS A JOURNEY AND EVERY MEAL IS A CHOICE. WE LOVE TO INSPIRE, EDUCATE AND EMPOWER EVERY PERSON TO EAT HEALTHIER AND LIVE A BETTER LIFE. 2017 wasadynamicyearintheretailindustryandprovedtobeaverystrongyearforSprouts, includingthefollowingbusiness highlights: • Grewannualrevenue to$4.7 billion,representing 15% growthyearoveryear • Increasedcomparablestoresalesby2.9% • Increaseddilutedearnings pershareby39% to$1.15 • Excludingthenon-cashbenefit relatedtothelegislationcommonlyreferredtoastheTax CutsandJobsAct,increaseddilutedearnings pershareby22% to$1.01 1 • Repurchased$203 millionofourshares • Newstoreproductivityoutpacingourhistoricalaverage • Continuedtoself-fundourgrowththroughexceptionaloperatingcashflows • Opened 32new stores,andexpandedtotwonew states:FloridaandNorthCarolina • Highest annualForesee customerservicescoresincompanyhistory Aswecontinuetogrowanddeliverstockholdervalue,wedosoinamannerthatimprovesour relationshipwith theenvironment andstrengthens oursocialresponsibility endeavors. Oursustainability andsocialresponsibility highlights for2017 included: • Donated23millionpoundsoffoodtolocalfoodbanks,equatingto19millionmeals, throughourFoodRescueprogram • Diverted30millionadditionalpoundsoffoodfromlandfillsthroughourcompostingand cattlefeedprograms • Donatedmorethan$2.2 milliontolocalnonprofitorganizationsinourcommunities • Supportedmorethan830communityevents throughvolunteeringandin-kinddonations, reachingmorethan2.75 millionresidents inourcommunities • Promoted23percentofourteammembersanddedicated35,000 hourstoleadership developmentprogramsforourteammembers 1 SeeAppendixAforareconciliationofdilutedearningspersharetodilutedearningspershareexcludingtheimpactoftheTax CutsandJobsAct. 2 2018 ProxyStatement SproutsFarmersMarket ProxyStatementSummary PROXY STATEMENT SUMMARY This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should review all of the information contained in the proxy statement before voting. Annual Meeting of Stockholders Date: Wednesday, May 2, 2018 Time: 8:00 a.m. , local time Location: Sprouts Farmers Market Store Support Office, 5455 East High Street, Suite 111, Phoenix, Arizona 85054 RecordDate: March 5, 2018 Voting: Stockholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote. Proposals and Voting Recommendations Board Recommendation Page Election of Directors Joseph Fortunato For 18 Lawrence P. Molloy For 18 Joseph O’Leary For 18 Advisory vote on the compensation paid to our named executive officers for fiscal 2017 For 50 Ratification of our independent registered public accounting firm For 52 Voting Methods You can vote in one of four ways: Visit www.proxyvote.com to vote VIA THE INTERNET Call 1-800-690-6903 to vote BY TELEPHONE Sign, date and return your proxy card in the prepaid enclosed envelope to vote BY MAIL Attend the meeting to vote IN PERSON To reduce our administrative and postage costs and the environmental impact of the Annual Meeting, we encourage stockholders to vote via the Internet or by telephone, both of which are available 24 hours a day, seven days a week, until 11:59 p.m. Eastern Time on May 1, 2018. Stockholders may revoke their proxies at the times and in the manners described on page 5 of this proxy statement. If your shares are held in “street name” through a bank, broker, or other holder of record, you will receive voting instructions from the holder of record that you must follow in order for your shares to be voted. If you wish to vote in person at the meeting, you must obtain a legal proxy from the bank, broker or other holder of record that holds your shares. As used in this Proxy Statement, unless the context otherwise requires, references to the “company,” “Sprouts,” “we,” “us” and “our” refer to Sprouts Farmers Market, Inc. and, where appropriate, its subsidiaries. Sprouts Farmers Market 2018 Proxy Statement 1