Does Sprouts Have the Recipe for Continued Outperformance?
Guidance for 2015
Sprouts Farmers Market (SFM) is expecting strong 4Q15 and 2015 results. The company has retained its earlier guidance of solid top line growth between 19% and 21% for 2015. It’s looking for same-store sales growth of between 5% and 5.5%.
Coming to the bottom line, SFM’s management is expecting net income to grow between 16% and 18% for 2015 and EPS (earnings per share) to range between $0.83 and $0.84. This brings 4Q15 adjusted earnings to around $0.14–$0.15 per share.
SFM’s management has also provided mid-term financial guidance for the company. It expects the company’s strong performance to continue in the coming years and is anticipating Sprouts’ sales to grow by more than 15% in the mid-term.
The company’s sales growth estimate is based on 14% growth in store units and mid-single-digit growth in comparable store sales. The company, however, has adjusted and broadened its EBITDA (earnings before interest, tax, depreciation, and amortization) and EPS (earnings per share) targets, which are in the 12%–16% range for EBITDA and the 14% -18% range for diluted EPS.
Those looking to invest in SFM through ETFs can choose to invest in the SPDR S&P Retail ETF (XRT), the Fidelity MSCI Consumer Staples ETF (FSTA), and the Guggenheim S&P MidCap 400 Pure Growth ETF (RFG). SFM has weights of approximately 1.1%, 0.11%, and 1.8%, respectively, in the above-mentioned ETFs.
Store expansion and growth
SFM continues to remain upbeat about its expansion plans. The company feels that it has enough room for expansion and anticipates its store count to increase six-fold to reach 1,200 in its domestic market. The company plans to achieve 14% annual new store growth over the next five years.
Sprouts versus other supermarket peers
Sprouts is a relatively small player compared to other supermarket chains. As of November 5, 2015, Sprouts Farmers Market operated 216 stores in thirteen US states.
Whole Foods Market (WFM), America’s dominant organic and natural foods company, operates more than 430 stores in the country. Kroger (KR), the largest supermarket chain in the United States, operates more than 2,600 supermarkets in the United States. SuperValu (SVU) operates 194 retail stores and more than 1,300 Save-A-lot stores.
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