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Sprouts Farmers (SFM) Q4 Earnings Beat, Sales Decline Y/Y

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Sprouts Farmers Market, Inc. SFM maintained its positive earnings surprise streak in fourth-quarter 2021. The renowned grocery retailer posted quarterly earnings of 32 cents a share that beat the Zacks Consensus Estimate by a penny, thus marking the 10th straight beat. However, the bottom line decreased from 59 cents reported in the year-ago period.

Net sales of this Phoenix, AZ-based company were $1,492.8 million, down 7% from the prior-year quarter. The decline can be attributed to sales of $122 million generated during the extra week of fourth-quarter 2020. Markedly, net sales grew 9% from the same period in 2019. The top line came ahead of the Zacks Consensus Estimate of $1,462 million, following a miss in the preceding three quarters.

We note that comparable store sales declined 1.1% during the quarter under review against an increase 3.7% registered in the year-ago period. However, two-year comparable store sales increased 2.7%. Comp transactions were slightly positive for the quarter.

Shares of this Zacks Rank #2 (Buy) company have risen roughly 13.2% in the past six months compared with the industry’s growth of 1.7%.

Margins

Gross profit fell 9.3% to $533.2 million, while gross margin shrunk 100 basis points to 35.7%. The contraction in gross margin was primarily due to a slight lag in price increases relative to the rate of cost increases.

Adjusted EBIT was $51.4 million, down 45.8% from the year-ago period. Adjusted EBIT margin shrunk 250 basis points to 3.4%. Meanwhile, adjusted EBITDA fell 34.9% to $82.5 million, while adjusted EBITDA margin contracted 240 basis points to 5.5%.

SG&A expenses declined 3.2% year over year to $448.7 million, while the same, as a percentage of net sales, increased 120 basis points to 30.1%.

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

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

Sprouts Farmers Market, Inc. price-consensus-eps-surprise-chart | Sprouts Farmers Market, Inc. Quote

Store Update

Sprouts Farmers opened two new fresh Distribution Centers as well as 12 new stores and one relocation in 2021. The company launched four new format stores, including one remodel and introduced more than 5,700 new products. During the fourth quarter, the company opened eight new stores, taking the total count to 374 stores in 23 states as of Jan 2, 2022.

In the financial year 2022, the company plans to open 15 to 20 new stores. This is down from the company’s prior forecast of 25-30 stores due to the ongoing permitting and supply chain bottlenecks associated with sourcing materials and equipment.

Other Financial Aspects

Sprouts Farmers ended the quarter with cash and cash equivalents of $245.3 million, long-term debt and finance lease liabilities of $259.7 million and stockholders’ equity of $959.9 million. The company ended the quarter with a $250 million balance on its revolving credit facility, $28 million of letters of credit outstanding under the facility and $112 million available under the current share buyback program. The company repurchased 7.4 million shares for a total investment of $188 million in 2021.

In the final quarter of 2021, management spent $28 million in capital expenditures (net of landlord reimbursements) and repurchased two million shares.

During 2021, the company generated cash from operations of $365 million and incurred capital expenditures (net of landlord reimbursements) of $81 million, principally for new stores. Management projects capital expenditures (net of landlord reimbursements) to be $150-$170 million for 2022.

Outlook

Sprouts Farmers envisions first-quarter 2022 comparable stores sales growth in the band of 0-2%. It expects adjusted earnings between 69 cents and 73 cents a share in the quarter versus 70 cents reported in the year-ago period.

For 2022, management forecast net sales growth of 4-6% and comparable store sales growth in the range of 0-2%. It anticipates the gross margin rate to be relatively flat when compared with 2021 and SG&A to grow approximately 4% to 6%.

The company guided adjusted EBIT between $330 million and $345 million for 2022 compared with $334.1 million reported last year. It projected earnings in the band of $2.14-$2.24 per share, which suggests an increase from earnings of $2.10 per share reported in 2021.

3 More Hot Stocks

Some other top-ranked stocks are Tyson Foods TSN, Pilgrim’s Pride PPC and Medifast MED.

Tyson Foods, a renowned meat products company, carries a Zacks Rank #1 (Strong Buy) at present. The company has an expected EPS growth rate of 7.5% for three-five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tyson Foods’ current financial-year sales and EPS suggests growth of 9.5% and 2.9%, respectively, from the year-ago reported number. TSN has a trailing four-quarter earnings surprise of 32.2%, on average.

Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, carries a Zacks Rank #2. The company has an expected EPS growth rate of 9.1% for three-five years.

The Zacks Consensus Estimate for Pilgrim’s Pride’s current financial-year EPS suggests growth of 16.2% from the year-ago reported number. PPC has a trailing four-quarter earnings surprise of 24.9%, on average.

Medifast, the manufacturer and distributor of weight loss, weight management, healthy living products, and other consumable health and nutritional products, currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for Medifast’s current financial-year EPS suggests growth of about 16.6%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 19.5%, on average.


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