Shares of Sprouts Farmers Market, Inc. SFM have gained 8.6% in the past three months, outperforming the industry’s growth of 2.6%. Solid third-quarter 2019 results contributed to the stock’s bullish run.
The company’s top and bottom lines surpassed the Zacks Consensus Estimate. Net sales continued to increase year over year on comparable store sales growth and robust performance in new outlets. For the fourth quarter, management envisions net sales growth of 6.5-7.5%, with comparable store sales between flat and up 1%.
The company’s better-than-expected performance prompted management to earnings guidance for the year. Management now expects 2019 earnings of $1.10-$1.13 per share compared with $1.05-$1.09 mentioned earlier.
Moreover, impressive performance triggered an upward revision in the Zacks Consensus Estimate. Estimates for earnings per share for the current quarter and year have been raised by 0.9% and 50% to 14 cents and $1.12, respectively, in the past 30 days.
Sprout Farmers’ focus on product innovation, emphasis on e-commerce, expansion of private label assortment and enhancement of technology bode well. The company is lowering operational complexity, optimizing production and improving in-stock position.
This Zacks Rank #3 (Hold) company launched a mobile app to help customers experience hassle-free shopping. Moreover, the company partnered with Instacart to offer same-day delivery to customers. The home delivery business, which is now available in more than 200 stores, will be offered in all markets by the end of 2019. Additionally, the company is trying all means to provide ready-to-eat, ready-to-heat and ready-to-cook items to customers.
However, deleverage in SG&A expenses, owing to investments in new outlets and expansion of the home delivery program, kept its operating margin under pressure. Operating margin contracted 130 basis points to 2.7% in the third quarter. Nonetheless, the company implemented Workday Financials, which will likely help streamline the finance process, integrate with operational systems, and offer in time, actionable financial information throughout the store network.
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