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Grocery store chain Sprouts Farmers Market (NASDAQ:SFM) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue up 8.7% year on year to $1.88 billion. It made a non-GAAP profit of $1.12 per share, improving from its profit of $0.98 per share in the same quarter last year.
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Sprouts (SFM) Q1 CY2024 Highlights:
- Revenue: $1.88 billion vs analyst estimates of $1.85 billion (1.9% beat)
- EPS (non-GAAP): $1.12 vs analyst estimates of $1.01 (11.3% beat)
- EPS (non-GAAP) Guidance for Q2 CY2024 is $0.77 at the midpoint, above analyst estimates of $0.72
- EPS (non-GAAP) Guidance for full year 2024 is $3.09 at the midpoint, above analyst estimates of $2.95 (4.7% beat)
- Gross Margin (GAAP): 38.3%, up from 37.5% in the same quarter last year
- Free Cash Flow of $168.5 million, up 26.9% from the same quarter last year
- Same-Store Sales were up 4% year on year
- Store Locations: 414 at quarter end, increasing by 19 over the last 12 months
- Market Capitalization: $6.66 billion
Playing on the secular trend of healthier living, Sprouts Farmers Market (NASDAQ:SFM) is a grocery store chain emphasizing natural and organic products.
Grocery StoreGrocery stores are non-discretionary because they sell food, an essential staple for life (maybe not that ice cream?). Selling food, however, is a notoriously tough business as grocers must deal with the costs of procuring and transporting oftentimes perishable products. Plus, the costs of operating stores to sell everything from raw meat to ice cream and fresh fruit are high. Competition is also fierce because grocers and other peers such as wholesale clubs tend to sell very similar brands and products. On the bright side, grocery is one of the least penetrated categories in e-commerce because customers prefer to buy their food in person. Still, the online threat exists and will likely increase over time rather than dwindle.
Sales GrowthSprouts is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.
As you can see below, the company's annualized revenue growth rate of 5.5% over the last five years was weak , but to its credit, it opened new stores and grew sales at existing, established stores.
This quarter, Sprouts reported solid year-on-year revenue growth of 8.7%, and its $1.88 billion in revenue outperformed Wall Street's estimates by 1.9%. Looking ahead, Wall Street expects sales to grow 7.2% over the next 12 months, a deceleration from this quarter.
Same-Store SalesSame-store sales growth is a key performance indicator used to measure organic growth and demand for retailers.
Sprouts's demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company's same-store sales have grown by 3.1% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Sprouts is reaching more customers and growing sales.
In the latest quarter, Sprouts's same-store sales rose 4% year on year. This performance was more or less in line with the same quarter last year.
Key Takeaways from Sprouts's Q1 Results The company reported same store sales above expectations, leading to a revenue and ultimately an EPS beat. We were also impressed by Sprouts's optimistic earnings forecast for next quarter and the full year, which beat analysts' expectations. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock is up 4.5% after reporting and currently trades at $67.15 per share.
