With Sprouts Farmers Market, Inc. SFM set to announce its third-quarter 2024 earnings results on Oct. 30 after the market closes, investors are faced with a crucial decision: Should you add SFM to your portfolio, hold your position or consider a new investment? Whether you're a long-term shareholder or a potential investor looking to capitalize on upcoming opportunities, assessing the stock’s potential ahead of its earnings release is key to making well-informed investment decisions.
Sprouts Farmers has been capitalizing on the growing demand for organic and natural products, positioning itself as a strong player in the grocery space. In the first half of 2024, the company delivered decent revenue growth and improved margins. However, macroeconomic factors such as underlying inflationary pressure and shifting consumer spending habits may impact performance.
Analysts are optimistic about Sprouts Farmers' upcoming earnings. The Zacks Consensus Estimate for third-quarter revenues stands at $1,866 million, which indicates an increase of 8.9% from the prior-year reported figure. On the earnings front, the consensus estimate has been stable at 75 cents a share over the past 30 days, implying a 15.4% year-over-year rise.
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Sprouts Farmers has a trailing four-quarter earnings surprise of 12%, on average. In the last reported quarter, this Phoenix, AZ-based company surpassed the Zacks Consensus Estimate by a margin of 22.1%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Sprouts Farmers Market, Inc. Price, Consensus and EPS Surprise
Sprouts Farmers Market, Inc. price-consensus-eps-surprise-chart | Sprouts Farmers Market, Inc. Quote
What the Zacks Model Indicates for SFM’s Q3 Earnings
As investors prepare for Sprouts Farmers’ third-quarter results, the question looms regarding earnings beat or miss. Our proven model doesn’t conclusively predict an earnings beat for Sprouts Farmers this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. However, that’s not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sprouts Farmers currently has a Zacks Rank #3 but an Earnings ESP of 0.00%, making the surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping Sprouts Farmers' Q3 Outcome
Sprouts Farmers’ emphasis on product innovation, technology and targeted marketing with everyday competitive pricing bodes well. The company has been steadily increasing its footprint in the natural and organic space, driven by strong demand in this segment. The introduction of unique and health-oriented products attracts a diverse customer base and drives sales growth.
From plant-based proteins to gluten-free snacks and keto-friendly foods, Sprouts Farmers ensures that its shelves are stocked with the latest and most sought-after health products. The company’s commitment to developing innovative products under its private label has resonated well with consumers, contributing to higher profit margins.
The aforementioned factors are likely to have favorably impacted the top line. We expect comparable store sales growth of 4% for the quarter under review.
Sprouts Farmers has made substantial investments in its digital infrastructure, resulting in a robust omnichannel shopping experience. The company reported impressive growth in e-commerce sales, which surged 30% in the second quarter of 2024. As consumers increasingly prefer shopping online for convenience, SFM’s commitment to enhancing its digital capabilities positions it to capture market share.
However, the company faces challenges in the selling, general and administrative expenses (SG&A) domain. We anticipate SG&A expenses to increase 11.3% year over year in the third quarter. As a percentage of net sales, we expect the metric to deleverage 80 basis points to 30.1%. With ongoing wage hikes and strategic investments expected to persist, Sprouts Farmers foresees pressure on SG&A.
SFM's Recent Stock Gains Leave Rivals Behind
Sprouts Farmers has witnessed an impressive surge in its stock price over the past three months, with the stock rallying 42.2%, outpacing the industry’s growth of 33.2%.
SFM has outperformed its competitors, including The Chefs' Warehouse, Inc. CHEF, Grocery Outlet Holding Corp. GO and SpartanNash Company SPTN.
While SPTN shares have climbed 6.3% during the said time frame, CHEF and GO shares have seen declines of 2.9% and 11.3%, respectively.
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Does SFM Present a Strong Case for Value Investing?
From a valuation standpoint, Sprouts Farmers currently trades at a premium relative to its industry peers. The company’s forward 12-month price-to-earnings (P/E) ratio is 32.61, higher than the industry average of 19.13 and the S&P 500’s 22.22. The stock is also trading above its median P/E level of 21.65, observed over the past year. This elevated valuation suggests that investors might be paying a premium relative to the company's anticipated earnings growth.
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Sprouts Farmers Stock Analysis: Best Moves for Investors Now
Sprouts Farmers’ strong sales growth, margin expansion and disciplined financial management position the company as a compelling investment opportunity. Its focus on health-conscious consumers, omnichannel capabilities and strategic expansion plans set it apart in a competitive retail landscape. With a robust pipeline of new stores, innovative customer engagement strategies and a commitment to operational efficiency, SFM is poised for sustained long-term growth. Current stakeholders should maintain their position, while potential shareholders should tread cautiously, given the stock's premium valuation.
SFM’s Strategic Moves Signal Promising Q3 Outcome
As Sprouts Farmers prepares to release its third-quarter earnings, investors are at a pivotal juncture. The company's proactive approach to capturing the health-conscious consumer market, alongside its advancements in e-commerce and product innovation, offers a compelling narrative for potential growth. However, rising operational costs and broader economic uncertainties introduce a layer of risk that cannot be overlooked. Given these dynamics, current shareholders should consider maintaining their current positions in SFM while closely monitoring the earnings results.
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Free: See Our Top Stock And 4 Runners UpThe Chefs' Warehouse, Inc. (CHEF) : Free Stock Analysis Report
SpartanNash Company (SPTN) : Free Stock Analysis Report
Sprouts Farmers Market, Inc. (SFM) : Free Stock Analysis Report
Grocery Outlet Holding Corp. (GO) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
