Evaluating Sprouts Farmers Market’s top-line growth
After reporting top-line growth of over 20% in fiscal 2014 and 2015, Sprouts Farmers Market’s (SFM) sales rose 13% in fiscal 2016. This relative slowdown was the result of continuous pressure on the grocer’s sales comps.
Comps worsened with each quarter in 2016
The sales comps slowdown was a result of persistent deflation and a highly promotional environment. Comps were down to a 2.7% growth in 2016 as compared to a 10% rise in fiscal 2014. Sales comps deteriorated with each quarter of 2016. The company’s sales comps were 4.8% in 1Q16, 4.1% in 2Q16, 1.3% in 3Q16, and 0.7% in 4Q16.
However, SFM’s performance continued to be among the best in the grocery industry. Its larger organic rival Whole Foods Market (WFM) has seen negative same-store sales for the last six quarters. Even Kroger’s (KR) sales comps (ex-fuel) turned negative recently, breaking its 52-week positive comps spree.
What was behind the fall in comps?
2016 was the only year since 1967 that witnessed annual deflation in food prices. The continuous decline in food prices resulted in grocers getting engaged in a “price deflation war,” which ended up in a highly promotional retail environment, thereby tapering grocers’ comps and margins.
The company expects these headwinds to continue into the next year. To learn about expected top-line growth in 2017, read the next section. Investors looking to invest in SFM through ETFs can choose to invest in the First Trust Consumer Staples AlphaDEX Fund (FXG). SFM makes up approximately 3.2% of FXG.