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Sprouts Farmers Market, Inc. SFM maintained its positive earnings surprise streak in second-quarter 2021. The renowned grocery retailer posted quarterly earnings of 52 cents a share that surpassed the Zacks Consensus Estimate of 45 cents, thus marking the eighth straight beat. However, the bottom line declined from 59 cents a share reported in the year-ago period. Lower net sales and unfavorable margin hurt the bottom line.
Net sales of this Phoenix, AZ-based company were $1,522 million, down 7% from the prior-year quarter. The drop in sales was primarily due to a 10% decline in comparable store sales as a result of cycling the impact of the ongoing pandemic, partly offset by sales contribution from new stores opened. The top line fell short of the Zacks Consensus Estimate of $1,597 million, thus marking the second straight miss. For the quarter, e-commerce accounted for 10.1% of sales.
Shares of this Zacks Rank #3 (Hold) stock have gained roughly 8.4% in the past six months against the industry’s decline of 10.6%.
Gross profit fell 10.2% to $550.1 million due to lower sales volume. Gross margin shrunk 115 basis points to 36.1%. The contraction in gross margin was primarily related to lapping opportunistic produce buys and exceptionally low shrink from heightened demand witnessed last year due to the pandemic.
Adjusted EBIT came in at $83.7 million, down from $96.2 million reported in the year-ago period. Adjusted EBIT margin decreased 40 basis points to 5.5%. We note that adjusted EBITDA fell 9.7% to $115 million, while adjusted EBITDA margin shriveled 20 basis points to 7.6%.
Sprouts Farmers Market, Inc. Price, Consensus and EPS Surprise
Sprouts Farmers Market, Inc. price-consensus-eps-surprise-chart | Sprouts Farmers Market, Inc. Quote
SG&A expenses declined 11% to $436.4 million, while the same, as a percentage of net sales, leveraged 108 basis points to 28.7%. The decline in the metric was predominantly driven by lower COVID-related costs including payroll and bonus expense coupled with lower e-commerce fees, partly offset by sales deleverage.
During the quarter under review, Sprouts Farmers opened one new outlet, taking the total count to 363 stores in 23 states as of Jul 4, 2021. Management informed that due to sustained challenges in procuring essential equipment from third parties because of supply chain delays, roughly seven planned new store openings in the final quarter of 2021 may be delayed until 2022. The company plans to open 13-20 news store in 2021, subject to equipment delays.
Other Financial Aspects
Sprouts Farmers ended the quarter with cash and cash equivalents of $220.9 million, long-term debt and finance lease liabilities of $260.1 million and stockholders’ equity of $949.1 million. The company ended the quarter with a $250 million balance on its revolving credit facility, $39 million of letters of credit outstanding under the facility and $213 million available under the current share buyback program.
The company generated cash from operations of $177 million year-to-date through Jul 4, 2021 and incurred capital expenditures (net of landlord reimbursements) of $27 million, principally for new stores. Management projects capital expenditures (net of landlord reimbursements) to be $110-$125 million for 2021.
Through Jul 4, the company has repurchased 3.3 million shares for a total of $87 million. Year-to-date through Aug 2, it has repurchased 4.3 million shares for a total investment of $112 million.
Sprouts Farmers envisions full-year 2021 net sales to be down low single digits and comparable stores sales to decline between 5% and 7%.
Management anticipates adjusted EBIT for 2021 in the range of $305 million to $325 million, down from $400.5 million reported in 2020.
The company expects adjusted earnings in the band of $1.90-$2.02 per share for 2021. This reflects year-over-year decline from adjusted earnings of $2.49 reported in 2020.
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