SFM’s earnings growth is best in class
As discussed in the previous section, Sprouts Farmers Market’s (SFM) top-line growth has dwarfed other major food retailers. Looking at the bottom line, the company has been equally strong. Its earnings per share rose at a CAGR of 20% between fiscal 2013 and 2016. In comparison, retail giant Walmart (WMT) reported a decline of 5.4% in earnings during the same period. Supermarket chain Kroger (KR) also reported solid earnings growth of 14% between fiscal 2013 and 2016.
Looking at the YTD earnings performance
During the first six months of 2017, SFM’s EPS rose 12.7% YoY. This improvement was driven by an increase in sales, stock buybacks, and a lower tax rate. The company’s operating margin, however, plunged 111 basis points during 1H17 due to gross margin pressure and higher employee costs. SFM’s gross margin has fallen during the last four consecutive quarters, mainly due to the persistent competition in the food retail space.
For the third quarter, Wall Street has projected a flat gross margin of 28% for SFM, mainly due to flat previous year comparisons. The operating margin is, however, expected to fall another 36 basis points to 3.6% during the quarter. Third quarter earnings per share are likely to improve 12.5% YoY to 18 cents per share.
Investors looking to invest in SFM through ETFs can choose to invest in the SPDR S&P Retail ETF (XRT). SFM accounts for 1.3% in XRT.
Read the next section to know about Sprouts’ year-to-date performance in the stock market.