Why Is Sprouts Farmers (SFM) Up 9.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Sprouts Farmers (SFM). Shares have added about 9.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sprouts Farmers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Sprouts Farmers Q1 Earnings Beat, Comps Up 4% Y/Y

Sprouts Farmers Market, Inc. came up with first-quarter 2024 results, wherein the top and bottom lines not only increased year over year but also beat their respective Zacks Consensus Estimate. The company's results were favorably impacted by decent comparable sales, positive traffic trends, accelerating unit growth and increasing customer engagement.

Q1 in Details

The renowned grocery retailer delivered quarterly earnings of $1.12 cents a share, which beat the Zacks Consensus Estimate of $1.00. Impressively, the bottom line increased 14.3% from 98 cents reported in the year-ago period.

Net sales of this Phoenix, AZ-based company came in at $1,883.8 million, which came ahead of the Zacks Consensus Estimate of $1,840 million. The metric increased 9% on a year-over-year basis. The growth was driven by sales from the new stores and a jump in comparable store sales.

Comparable store sales increased 4% during the quarter under review. We note that e-commerce sales grew 25% and represented 14% of total sales in the quarter.

Margins

The gross profit rose 11.1% year over year to $722.3 million in the quarter, while the gross margin expanded 80 basis points to 38.3% from the prior-year quarter.

Sprouts Farmers reported an adjusted operating income of $148.3 million, up from $137 million reported in the year-ago period. The adjusted operating margin remained flat at 7.9%.

SG&A expenses increased 11% year over year to $539.8 million due to higher e-commerce fees and incentive compensation. As a percentage of net sales, the metric deleveraged 60 basis points to 28.7%.

Store Update

During the quarter, Sprouts Farmers opened seven new stores, thereby taking the total count to 414 stores in 23 states as of Mar 31, 2024. Sprouts Farmers Market is strategically expanding its store footprint, particularly focusing on smaller prototype formats, aiming to enhance accessibility to its differentiated assortment. It plans to open 35 new stores in 2024.

Other Financial Aspects

Sprouts Farmers ended the first quarter with cash and cash equivalents of $312.3 million, long-term debt and finance lease liabilities of roughly $133.4 million and stockholders’ equity of $1,211 million. The company repurchased 958 thousand shares for a total investment of $60 million in the quarter.

Sprouts Farmers generated cash from operations of $219.7 million and spent $46 million on capital expenditures, net of landlord reimbursement, year to date through Mar 31, 2024. Management anticipates capital expenditures (net of landlord reimbursements) in the range of $225-$245 million for 2024.

Outlook

For the second quarter of 2024, Sprouts Farmers expects comparable store sales growth between 3% and 4% and adjusted earnings in the band of 75-79 cents a share compared with 71 cents reported in the year-ago period.

Sprouts Farmers expects net sales growth of 7-8% and comparable store sales growth of 2.5% to 3.5% in 2024.

Sprouts Farmers guided adjusted earnings before interest and taxes between $415 million and $425 million for 2024. While the company anticipates an improvement in the gross margin, it foresees pressure on SG&A due to ongoing wage increases and strategic investments. Despite this, it expects full-year adjusted earnings in the range of $3.05-$3.13 per share, reflecting an increase from the $2.84 reported in 2023.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 6.19% due to these changes.

VGM Scores

Currently, Sprouts Farmers has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Sprouts Farmers has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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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.

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