SFM’s 2Q17 earnings beat estimates
As we discussed earlier in this series, Sprouts Farmers Market (SFM) reported its 2Q17 results on August 3, 2017. The company reported quarterly earnings per share (or EPS) of $0.29, outdoing Wall Street expectations by $0.04.
SFM’s earnings per share increased 16% YoY (year-over-year) driven by higher sales, its stock repurchase plan, and a lower tax rate. However, the company’s margins were lower than 2Q16.
Why did SFM’s margins take a hit?
SFM’s 2Q17 gross margin declined 70 basis points to 28.9% of sales. The company’s management attributed this decline to persistent competition, modest cost inflation, and higher occupancy costs.
The company’s operating margin was down 80 basis points to 5.4% of sales, reflecting gross margin pressure and higher employee costs.
Sprouts Farmers Market’s (SFM) management raised its fiscal 2017 guidance along with its 2Q17 results. It now expects its fiscal 2017 earnings per share to range from $0.88 to $0.92 (+8.4% at its midpoint) compared to the prior guidance of $0.87–$0.91.
SFM’s top line is expected to grow 13%–14% based on its sales comp growth of 1.5%–2.0% and 32 new store openings.
How have competitors fared recently?
Comparing with the recent performances of grocery players, SFM has done a solid job. Whole Foods Market (WFM) posted a 2.7% YoY decline in EPS to $0.39. However, it did better than Wall Street’s expectations during the quarter.
Kroger (KR) reported a 17% decline in EPS to $0.48. The supermarket giant was in line with Wall Street expectations.
Investors looking for diversified exposure to SFM can choose to invest in the PowerShares Dynamic Food & Beverage Portfolio ETF (PBJ). SFM comprises ~2.9% in PRJ.