Share prices of organic grocer
Sprouts Farmers Market, Inc
) more than doubled after the company debuted on NASDAQ on Aug 1
as investors rushed for a stake in the fast-growing health food
industry. The share price soared 122.8% and eventually closed at
$40.11 on Aug 1.
The surge in share prices came after the company raised $333
million from its initial public offering (IPO) by offering 18.5
million shares at a price of $18 per share, well above the
expected range of $14-$16 per share.
Based in Arizona, Sprouts Farmers Market is a specialty
retailer of natural and organic food and operates more than 160
stores across the U.S. As per other media reports, Sprouts was
acquired by a private equity firm Apollo Global Management in
2011 and merged with another Apollo holding Henry's Farmers
Sprouts was again merged with grocer Sunflower Farmers Market
last year. Post-IPO, Apollo's stake in Sprouts has been diluted
to 45.4% from 51.8%.
We believe that the big gain of Sprouts Farmers Market comes
from the rising demand of healthy and organic food products.
Demand for healthy, nutritious and natural foods has grown in
recent years as people are more concerned about obesity and other
health problems. The rising health problems have boosted sales of
healthy food options and organic food.
The demand for specialty and organic food has increased
despite the pullback in consumer spending. This is evident from
the strong third quarter results of one of the leaders in the
natural foods sector
Whole Foods Market, Inc
On Thursday, Whole Foods reported a 20% jump in third-quarter
earnings to 38 cents a share, beating the Zacks Consensus
Estimate by a penny. Sales climbed 12% to $3.06 billion.
Moreover, the grocer has posted double-digit revenue and earnings
per share growth every quarter since Mar 2009, on the back of
growing demand of organic food. Currently, the company has 355
stores and plans to open 1,000 stores in the long run, as the
company envisions increased consumer demand for natural and
In order to tap the growing demand for organic and health
foods, other grocers are also beefing up their organic offerings.
While retail giant
Wal-Mart Stores Inc
) has increased its fruit and veggie offerings, traditional
) have boosted their specialty food products with more vegan and
gluten-free products. Last month, Kroger agreed to buy grocer
Harris Teeter Supermarkets
) to expand in the health food business.
We believe that the changing consumer preference toward health
and wellness and "good-for-you" products is here to stay.
Consumers have now become conscious regarding obesity and other
weight related problems.
The American Heart Association estimates that currently about
one-third of U.S. adults are obese. If the current obesity growth
trends continue, total healthcare costs attributable to obesity
could account for as high as 16% to 18% of US health expenditure.
As a result, Americans are gradually spending more toward
high-priced organic and specialty food products despite overall
decline in consumer spending.
HARRIS TEETER (HTSI): Free Stock Analysis
KROGER CO (KR): Free Stock Analysis Report
SAFEWAY INC (SWY): Free Stock Analysis Report
WHOLE FOODS MKT (WFM): Free Stock Analysis
WAL-MART STORES (WMT): Free Stock Analysis
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