Evaluating Sprouts Farmers Market’s top-line growth
After recording more than 20% growth in fiscal 2014 and 2015, Sprouts Farmers Market’s (SFM) sales rose around 15% in the first nine months of 2016. This slowdown was a result of deteriorating same-store sales, which came down from about 10% in fiscal 2014 to 1.3% in 3Q16.
What’s behind slowing sales comps?
As discussed, SFM has witnessed tempered sales comps in fiscal 2016. The decline has been drastic and continuous as comps fell from 7.4% in 4Q15 to 4.8% in 1Q16, 4.1% in 2Q16, and 1.3% in 3Q16. Lower sales comps are a result of persistent deflation and a highly promotional environment in the retail food space.
Food prices fell throughout 2016, making it the first year since 1967 to witness annual deflation in food prices. Falling food prices resulted in a highly promotional environment as grocers entered a “price deflation war” to gain market share.
How bad was SFM’s performance?
While there’s no doubt that SFM hasn’t been able to match its past performance, the company has done better than peers.
Supermarket giant Kroger (KR) recently reported one of its slowest comp growth quarters. Its identical supermarket sales (ex-fuel) grew 0.1% as compared to an average growth of 4.3% in the last 24 quarters.
Premium organic food chain Whole Foods Market (WFM) reported its sixth consecutive drop in comps when it reported results in early February. Supervalu’s (SVU) retail business also saw its seven consecutive quarters of negative sales comps.
On the other hand, Sprouts Farmers has managed to stay in positive territory and has witnessed 38 consecutive quarters of positive sales comps.
Investors who want to invest in SFM through ETFs can choose the First Trust Consumer Staples AlphaDEX Fund (FXG). SFM makes up ~0.81% in FXG.
Read the next section to learn about SFM’s profitability and margins in fiscal 2016.