Why Is Sprouts Farmers (SFM) Up 2.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Sprouts Farmers (SFM). Shares have added about 2.6% in that time frame, underperforming 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 Q3 Earnings Beat, Comps Up 3.9% Y/Y
Sprouts Farmers Market, Inc. came up with third-quarter 2023 results, wherein the top and bottom lines not only increased year over year but also beat their respective Zacks Consensus Estimate. Following the results, management raised the full-year view.
Q3 in Details
The renowned grocery retailer delivered adjusted quarterly earnings of 65 cents a share, which cruised past the Zacks Consensus Estimate of 62 cents. Impressively, the bottom line increased 6.6% from the 61 cents reported in the year-ago period.
Net sales came in at $1,713.3 million, which came ahead of the Zacks Consensus Estimate of $1,681 million. The metric increased 7.6% 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 3.9% during the quarter under review. We note that e-commerce sales grew 16% and represented 12.1% of total sales in the quarter.
Margins
The adjusted gross profit rose 7.4% year over year to $626.7 million in the quarter. The adjusted gross margin contracted about 10 basis points to 36.6% from the prior-year quarter.
Sprouts Farmers reported an adjusted operating income of $90 million, marginally down from the $90.4 million reported in the year-ago period. The adjusted operating margin decreased 40 basis points to 5.3%.
SG&A expenses increased 9.1% year over year to $502.8 million. Excluding the impact of special items, adjusted SG&A expenses totaled $502 million, an increase of $41 million from the year-ago period and representing roughly 30 basis points of deleverage due to new store openings, wage increases and labor investments in the Store Sampling program.
Store Update
During the quarter, Sprouts Farmers opened 10 new stores, thereby taking the total count to 401 stores in 23 states as of Oct 1, 2023. The company plans to open 30 new stores in 2023.
Other Financial Aspects
Sprouts Farmers ended the year with cash and cash equivalents of $251.8 million, long-term debt and finance lease liabilities of roughly $158.9 million and stockholders’ equity of $1,115 million. The company repurchased 831 thousand shares for a total investment of $32 million in the quarter.
Sprouts Farmers generated cash from operations of $409 million and spent $157 million on capital expenditures, net of landlord reimbursement, year to date through Oct 1, 2023. Management anticipates capital expenditures (net of landlord reimbursements) in the range of $190-$210 million for 2023.
Outlook
Sprouts Farmers expects net sales growth of 6.5-7% and comparable store sales growth of 3% in 2023. The company earlier projected a net sales increase of 5-6% and comparable store sales growth of 2-3%.
Sprouts Farmers guided adjusted earnings before interest and taxes between $387 million and $393 million for 2023, up from its prior projection of $378 million to $390 million. It now foresees full-year adjusted earnings in the band of $2.77-$2.81 per share, up from the $2.39 reported in 2022, assuming no additional share repurchases. The company had earlier guided earnings between $2.68 and $2.76 per share.
For the fourth quarter, Sprouts Farmers expects comparable store sales growth of approximately 3% and adjusted earnings in the band of 42-46 cents a share compared with 42 cents reported in the year-ago period.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
At this time, Sprouts Farmers has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Sprouts Farmers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Sprouts Farmers Market, Inc. (SFM) : Free Stock Analysis Report
