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Deteriorating Health of SFM: Wall Street’s View, Company Guidance

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Oct. 28 2016, Updated 4:04 p.m. ET

SFM’s guidance update for fiscal 2016

Sprouts Farmers Market (SFM) has delivered industry-leading comps (comparables) and earnings in the past. Its EPS (earnings per share) rose 50.0% in fiscal 2014 and 19.0% in fiscal 2015. However, the company, like its peers, has started to feel the heat from persistent deflation, a promotional environment, and rising competition. All these factors recently forced SFM to revise its guidance downward.

SFM now expects its third-quarter sales comps to stay flat compared to the 3.5%–4.5% growth guidance provided earlier. For fiscal 2016, it expects same-store sales to rise 1.5%–2.5%. This compares to an average 9.0% comps achieved in the last four fiscal years.

EPS is expected to be $0.83–$0.86 in fiscal 2016 compared to the earlier outlook of $0.92–$0.94. So the company expects its earnings to see a change of -3.5%–0.0% in fiscal 2016 compared to last year.

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Wall Street’s outlook on SFM

Wall Street’s outlook on SFM is in line with the company’s guidance. Analysts are looking for EPS to fall 1.2%, to $0.85, in fiscal 2016. For the third quarter, they forecast earnings to fall 19.0% YoY (year-over-year) to $0.17 per share.

However, despite an expected slowdown in earnings, Wall Street is bullish on SFM. The company, which is rated by 19 analysts, hasn’t received a “sell” recommendation yet. About 68.0% of the analysts recommend a “buy” for the stock.

In comparison, only 23.0% of the analysts recommend a “buy” for Whole Foods Market (WFM), and only 25.0% recommend a “buy” for Supervalu (SVU). Kroger (KR), on the other hand, is a Wall Street favorite, with 60.0% “buy” recommendations.

Investors looking to invest in SFM through ETFs can choose to invest in the First Trust Consumer Staples AlphaDEX ETF (FXG). SFM makes up ~0.88% of FXG.

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