Stock Story -
Grocery store chain Sprouts Farmers Market (NASDAQ:SFM) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 7.7% year on year to $1.70 billion. It made a non-GAAP profit of $0.49 per share, improving from its profit of $0.42 per share in the same quarter last year.
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Sprouts (SFM) Q4 FY2023 Highlights:
- Revenue: $1.70 billion vs analyst estimates of $1.69 billion (small beat)
- EPS (non-GAAP): $0.49 vs analyst estimates of $0.45 (8.4% beat)
- EPS (non-GAAP) Guidance for Q1 2024 is $1 at the midpoint, above analyst estimates of $0.97
- Free Cash Flow was -$4.25 million, down from $21.28 million in the same quarter last year
- Gross Margin (GAAP): 36.5%, down from 37.1% in the same quarter last year
- Same-Store Sales were up 3.3% year on year
- Store Locations: 407 at quarter end, increasing by 21 over the last 12 months
- Market Capitalization: $5.35 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% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was weak , but to its credit, it opened new stores and grew sales at existing, established stores.
This quarter, Sprouts grew its revenue by 7.7% year on year, and its $1.70 billion in revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 6.9% over the next 12 months, a deceleration from this quarter.
Same-Store SalesSame-store sales growth is an important metric that tracks demand for a retailer's established brick-and-mortar stores and e-commerce platform.
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 2.8% 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 3.3% year on year. This performance was more or less in line with the same quarter last year.
Key Takeaways from Sprouts's Q4 Results It was great to see Sprouts beat analysts' EPS forecasts this quarter despite posting revenue in line with expectations. The company's higher profitability was driven by its better-than-expected same-store sales growth (less capital-intensive incremental revenue) and lower-than-expected new store openings (capital-intensive incremental revenue). Furthermore, its same-store sales growth and earnings forecast for the full year exceeded Wall Street's forecasts. Overall, we think this was a good quarter that should please shareholders. The stock is up 3.3% after reporting and currently trades at $55.51 per share.
