Sprouts Farmers Well Positioned To Gain Market Share In Various Macro Backdrops - Analyst Sees 'Solid Beat' In Q2

Goldman Sachs analyst Leah Jordan reiterated a Buy rating on Sprouts Farmers Market, Inc. SFM, raising the price forecast to $89 from $78 due to higher estimates.

The company said it would issue financial results for the second quarter after the market closes on July 29, 2024. 

The analyst anticipates a solid beat for Sprouts Farmers in the second quarter.

Given its differentiated assortment across the natural and organic grocery landscape, Sprouts Farmers is well positioned to continue gaining market share in a variety of macro backdrops. Its customer base should be more resilient, as they are committed to specific diets and skew, the analyst writes.

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The analyst raised second-quarter EPS estimates to $0.81 from $0.79.

Jordan highlights the company’s ramp of new stores (~1pp contribution), modest traffic gains, and typical grocery inflation at ~2%.

Per the analyst, the volume recovery within grocery stores will continue into FY25, while Sprouts Farmers could generate incremental top-line momentum from a bigger effort in loyalty (currently in pilot).

Underscoring the company’s differentiation, the analyst highlights strong private label sales penetration of 21%, recognizing these are mostly innovative products rather than cheaper alternatives, and solid ecommerce engagement with 14% sales penetration as consumers proactively seek out Sprouts Farmers amid a variety of options from third party providers.

Jordan also highlighted the company’s price gaps have remained relatively stable through the latest pricing study.

Furthermore, Sprouts Farmers has various gross margin tailwinds that could offset potential increases in promotional activity, including shrink improvements (related to spoilage), sourcing opportunities, mix, ongoing promo optimization, and leverage of its DC expansions beginning in 2H24.

Jordan increased FY24 EPS estimates to $3.16 from $3.13.

Price Action: SFM shares are trading lower by 0.48% to $80.19 at last check Wednesday.

Image via Unsplash

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