SFM’s Updated Guidance Triggers a Slide for Supermarket Stocks



SFM’s stock battered after guidance update

Sprouts Farmers Market’s (SFM) guidance revision ahead of the Goldman Sachs 23rd Annual Global Retailing Conference resulted in a stock price crash for the company on September 7.

SFM’s stock plummeted 16.7% during the day and touched its 52-week low of $19.00. The stock finally settled at $19.68, 13.7% below the previous day’s closing. The company is now sitting at YTD (year-to-date) losses of 26.5%.

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Wall Street’s view on SFM

SFM is covered by 20 Wall Street analysts who have jointly rated the stock a 2.2 where one is a strong buy, and five is a strong sell. 12 analysts have recommended a “buy,” and six have recommended a “hold.” There have been no rating changes since the company’s guidance update.

While talking about the SFM’s guidance revision, Stephen Tanal of Goldman Sachs commented, “The deflationary environment likely worsened on deeper retail promotional activity as grocers work to drive traffic/tonnage to their stores. We had viewed SFM as an aggressor in this regard, starting from a fiercely competitive price position in produce, and competitive prices across the rest of the store. Struggles driving traffic, as indicated by the company’s comments, suggest it may be more exposed than we had thought.”

Stocks of supermarket peers also go downhill

SFM’s supermarket peers had to bear the brunt of SFM’s bleaker guidance as the market took it as an indicator of a deterioration in the overall health of the grocery segment. Shares of Whole Foods Market (SFM), Kroger (KR), and Supervalu (SVU) were down 5.3%, 4.1%, and 3.9%, respectively, during the day.

Why this supermarket slump?

Continuous deflation has been hitting grocers hard and eating up their margins. The rise in competition from other supermarkets as well as from big box retailers has resulted in a highly promotional environment, resulting in lower traffic and margins.  

SFM, KR, SVU, and WFM are included in the holdings of the SPDR S&P Retail ETF (XRT). Together these companies account for approximately 4.4% of the fund’s total portfolio.


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