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Sprouts Farmers Market Likely to Post Flat Comps in 4Q16

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Feb. 16 2017, Updated 7:36 a.m. ET

Comps to remain flat in 4Q16

As discussed in the previous two parts of the series, Sprouts Farmers Market’s (SFM) top and bottom lines were hampered by ongoing deflation and competitive headwinds in the retail food space.

The company doesn’t anticipate any improvement in the coming quarter. It thinks that the deflationary environment could impact its fourth quarter results and is expecting cost deflation of around 1% in the fourth quarter.

Sales comps are likely to remain flat in the fourth quarter, which would imply a 2%–2.5% growth for full fiscal 2016. The company recorded comps growth of 7.4% in 4Q15.

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Sprouts Farmers Market aims to open a total of 36 new stores during the year, representing a 17% jump in total store count. The company had opened 35 stores when it reported its third-quarter results in November. For the full fiscal 2016, SFM expects a top line increase of 14.5% to 15%. In comparison, Wall Street has predicted a 12.3% jump in sales to $4 billion.

Margins likely to remain flat as SFM continues to make price investments

Coming to margins, management has predicted a flat gross margin for fiscal 2016 as the company continues to make price investments to stay competitive. Earnings per share (or EPS) are expected to land in the $0.83 to $0.86 range for fiscal 2016, reflecting a change between -3.5% to 0% as compared to the last year.

Wall Street estimates are in line with the company’s guidance. Analysts are looking for an EPS decline of 2% to $0.84 in fiscal 2016. For the fourth quarter, earnings are forecasted to drop 33% to 12 cents per share.

Whole Foods Market (WFM), which reported results in early February, witnessed a 15% decline in EPS. Supervalu’s (SVU) EPS fell a whopping 68% when it reported quarterly results in January.

Investors looking to invest in SFM through ETFs can choose to invest in the First Trust Consumer Staples AlphaDEX Fund (FXG). SFM has a weight of approximately 0.81% in FXG.

Read the next section for a look at SFM’s stock market performance.

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