Will Higher Revenues Drive Sprouts Farmers' (SFM) Q4 Earnings?

Sprouts Farmers Market, Inc.SFM is scheduled to report fourth-quarter 2018 results on Feb 21. In the trailing four quarters, this provider of fresh, natural, and organic food products has outperformed the Zacks Consensus Estimate by average of 3.1%. In the las t report ed quarter, the company reported positive earnings surprise of 3.9%.

How Are Estimates Shaping Up for Q4?

After registering a bottom-line increase of about 17.4% in the third quarter of 2018, Sprouts Farmers is likely to record year-over-year growth of roughly 12.5% in the fourth quarter. This is quite evident from the Zacks Consensus Estimate for the quarter under review, which is pegged at 18 cents compared with 16 cents reported in the year-ago quarter. We note that the Zacks Consensus Estimate has been stable in the last 30 days.

The Zacks Consensus Estimate for revenues is $1,265 million, up approximately 10.6% from the year-ago quarter. We note that total revenue of this Phoenix, AZ-based company had increased 10.2% in the last reported quarter on account of comparable store sales growth of 1.5% and robust performance in new outlets. The consensus mark for comparable store sales indicates an increase of 1.5%.

Sprouts Farmers Market, Inc. Price, Consensus and EPS Surprise

Sprouts Farmers Market, Inc. Price, Consensus and EPS Surprise | Sprouts Farmers Market, Inc. Quote

Factors Holding Key

In an effort to expand customer base, management has been taking several initiatives. The company launched website and mobile app to aid customers experience hassle-free shopping. Moreover, the company has partnered with Instacart to offer same-day delivery to customers.

Further, the company is trying all means to provide ready-to-eat, ready-to-heat, and ready-to-cook items to customers. Apart from these, the company is trying to expand private-label offerings in departments under the Sprouts Market Corner Deli, The Butcher Shop at Sprouts and Sprouts Fish Market brands.

All these endeavors are likely to have a favorable impact on the quarter under review. Sprouts Farmers had earlier projected full-year earnings in the band of $1.28-$1.30 per share and net sales growth to 11-11.5%.

However, any deleverage in SG&A and direct store expenses may hurt margins. During the fourth quarter of 2018, direct store expense rose 12.5% due to planned wage investments, rise in healthcare costs and higher depreciation charges. Meanwhile, SG&A expenses rose 10% on account of higher advertising expenses and strategic investments in technology. Management had earlier guided direct store expenses to increase by roughly 35 basis points for the full year.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Sprouts Farmers is likely to beat estimates this quarter. A stock needs to have both - a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP - for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Sprouts Farmers has a Zacks Rank #3 but an Earnings ESP of 0.00%, which makes surprise prediction difficult. You can see the complete list of today's Zacks #1 Rank stocks here .

3 Stocks With Favorable Combination

Here are three companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Nomad Foods Limited NOMD has an Earnings ESP of +1.45% and a Zacks Rank #2.

Kroger KR has an Earnings ESP of +3.42% and a Zacks Rank #2.

Walmart WMT has an Earnings ESP of +5.55% and a Zacks Rank #3.

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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.

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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