Why has the number of sprout farmers (SFM) increased by 9.8% since the last earnings report?

It’s been about a month since Sprouts Farmers’ (SFM) last earnings report. Shares have risen about 9.8% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sprouts Farmers set to decline? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

Sprouts Farmers beat earnings in the first quarter, up 4% YoY

Sprouts Farmers Market, Inc. reported first-quarter 2024 results where the top and bottom lines not only improved year over year, but also surpassed the corresponding Zacks Consensus Estimate. The company’s results were positively influenced by good comparable sales, positive traffic trends, accelerated unit development and growing customer engagement.

Q1 in details

The well-known grocery retailer posted quarterly earnings of 1.12 cents per share, topping the Zacks Consensus Estimate of $1.00. Impressively, the bottom line increased by 14.3% from 98 cents recorded in the year-ago period.

The Phoenix, Arizona-based company had net sales of $1,883.8 million, surpassing the Zacks Consensus Estimate of $1,840 million. Year-on-year, this indicator increased by 9%. Growth was driven by new store sales and comparable store sales growth.

Comparable store sales increased 4% in the quarter. We note that e-commerce sales increased by 25% and accounted for 14% of total sales in the quarter.

Margins

Gross profit increased 11.1% year-over-year to $722.3 million in the quarter, while gross margin increased 80 basis points to 38.3% compared to the prior-year quarter.

Sprouts Farmers reported adjusted operating income of $148.3 million, up from $137 million reported in the same period a year ago. Adjusted operating margin remained unchanged at 7.9%.

Selling, general and administrative expenses increased 11% year-over-year to $539.8 million due to higher e-commerce fees and incentive compensation. As a percentage of net sales, the metric deleveraged by 60 basis points to 28.7%.

Store update

Sprouts Farmers opened seven new stores during the quarter, bringing its total store count to 414 in 23 states as of March 31, 2024. Sprouts Farmers Market is strategically expanding its store footprint, particularly focusing on smaller prototype formats, with the goal of improving availability of a diverse range of products. In 2024, it plans to open 35 new stores.

Other financial aspects

Sprouts Farmers ended the first quarter with cash and cash equivalents of $312.3 million, long-term debt and finance lease obligations of approximately $133.4 million and equity of $1,211 million. In this quarter, the company purchased 958 thousand. shares for a total investment amount of USD 60 million.

Sprouts Farmers generated cash from operations of $219.7 million and spent $46 million on capital expenditures, net of landlord reimbursements, for the year to date through March 31, 2024. Management anticipates that capital expenditures (excluding landlord reimbursements) will range from USD 225 to USD 245 million in 2024.

The story continues

Perspectives

For the second quarter of 2024, Sprouts Farmers expects comparable store sales growth of 3% to 4% and adjusted earnings in the range of 75 to 79 cents per share, compared to 71 cents reported in the year-ago period.

Sprouts Farmers expects net sales growth of 7-8% and comparable store sales growth of 2.5% to 3.5% in 2024.

Sprouts Farmers forecast adjusted earnings before interest and taxes of $415 million to $425 million for 2024. While the company anticipates improved gross margin, it anticipates pressure on selling, general and administrative expenses due to continued wage increases and strategic investments. Still, it expects full-year adjusted earnings in the range of $3.05 to $3.13 per share, reflecting an increase from the $2.84 reported in 2023.

How have estimates changed since then?

It turns out that new estimates have been trending upwards over the past month.

As a result of these changes, the consensus estimate moved by 6.19%.

VGM results

Sprouts Farmers currently has a great Growth Score of A, although it lags significantly behind its Momentum Score of C. Following the exact same trajectory, the stock is rated C for Value, placing it in the mid-20s for this investment strategy.

Overall, the stock has a Total VGM Score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending upwards, and the scale of these revisions looks promising. This is no surprise. Sprouts Farmers carries a Zacks Rank #1 (Strong Buy). We expect an above-average rate of return on shares in the coming months.

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