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Is Sprouts Geared Up for a Solid Start to Fiscal 2016?

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What to expect from SFM in fiscal 2016?

The management of Sprouts Farmers Market (SFM) is optimistic about the company’s performance in fiscal 2016. It has predicted the company’s top line to grow in the range of 16%–19%, driven by same-store sales growth of 4%–6% and an addition of 36 new stores during the year.

The company plans to open 70% of the new stores in existing markets. As a result, it expects cannibalization of 125–150 basis points.

Sprouts Farmers Market (SFM) does not expect any gross margin improvement as it plans to drive sales by making necessary price investments. It is looking for EBITDA margin compression by around 40–50 basis points on higher direct stores expenses and operating expenses.

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Mid-term guidance by SFM

Sprouts Farmers Market’s management expects the company’s strong performance to continue in the coming years. It is anticipating Sprouts’ sales to grow by more than 15% in the medium term.

The company’s sales growth is likely to be fueled by mid-single-digit growth in comparable store sales and about 14% growth in store units. SFM expects a six-fold expansion in its store count to reach 1,200 in its domestic market in the medium term.

Sprouts versus other supermarket peers

Sprouts Farmers Market (SFM) is a relatively small player when compared to other supermarket chains. As of December 31, 2015, the company operated 217 stores in 13 US states. In comparison, Whole Foods Market (WFM) operates more than 430 stores in the country. Kroger (KR), the largest supermarket chain in the US, operates more than 2,600 supermarkets in the US. SuperValu (SVU), the owner of Save-A-Lot, operates 194 retail stores and more than 1,300 Save-A-Lot stores.

Investors looking for exposure to Sprouts Farmers Market (SFM) through ETFs can invest in the Guggenheim S&P MidCap 400 Pure Growth ETF (RFG). SFM has a weight of ~1.8% in RFG.

Please read the final article for Wall Street’s view on the company, SFM’s stock market performance, and its current valuations versus peers.

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