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SFM’s Management Looks for More than a 20% Earnings Jump in 2018

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Feb. 27 2018, Updated 9:02 a.m. ET

2018 guidance

After delivering a 15% YoY (year-over-year) rise in 2017, Sprouts Farmers Market’s (SFM) management now expects an 11.5%–12.5% YoY rise in its 2018 net sales. This growth is expected to be driven by solid ongoing momentum in the company’s business and new store growth.

SFM’s sales comps are expected to improve 2.5%–3.5% during 2018. The first half of the year is likely to have stronger comps due to easier comparisons to the previous year.

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The company plans to enter four new markets in the United States during 2018, expanding its total footprint to 19 states. It’s looking to open 30 new stores during the year. Management expects a slight deleverage in SFM’s 2018 gross margin compared to the previous year. It’s also looking to continue with price investments in order to drive traffic and stay competitive.

Sprouts’ diluted EPS (earnings per share) are expected to lie in the $1.22–$1.28 range, reflecting growth of 21%–27% for the full year.

Impact of tax change

Sprouts Farmers Market has paid an effective tax rate of more than 37% over the last three years. The new US tax reforms will be a net positive for SFM and will result in a lower effective tax rate of between 24% and 25% for the company. This change should enhance the company’s cash flow by ~$30 million during 2018. SFM plans to invest $10 million, or about one-third of the tax savings, in its employees.

Those looking to invest in SFM through ETFs can choose to invest in the PowerShares Dynamic Food & Beverage ETF (PBJ). SFM has a weight of ~3.2% in PBJ.

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