Why Sprouts Farmers Market Stock Was Climbing Today

What happened

Shares of Sprouts Farmers Market (NASDAQ:SFM) were climbing today after the natural-foods-focused grocery chain posted better-than-expected results in its fourth-quarter earnings report.

As of 10:54 a.m. EST, the stock was up 6% after opening up 12.6%. 

Image source: Sprouts Farmers Market.

So what

Sprouts delivered another round of solid results as supermarket chains have enjoyed an uptick in demand during the pandemic as consumers have avoided other options like restaurants. Comparable sales rose 3.7%, driving overall revenue up 17% to $1.6 billion in the 14-week quarter, which edged out expectations of $1.58 billion.

Profits also soared during the quarter with gross margin expanding from 34.3% to 36.7%, benefiting from lapping promotional activities in the quarter a year ago, initiatives to reduce inventory loss, and gains in leverage from the increase in comparable sales. Selling, general, and administrative expenses were up modestly on a percentage basis due to increasing e-commerce sales and higher performance bonuses. Thanks to the improvements in gross margin and the extra week, operating profits doubled in the quarter to $92.9 million.

On a comparable 13-week basis, adjusted earnings per share jumped from $0.27 to $0.49, which easily beat estimates at $0.39.

“In 2020, we generated record earnings and cash flow from a 15% increase in sales while absorbing costs associated with a 340% increase in e-commerce sales, paying record bonuses to our frontline team members, and opening 22 new stores,” CEO Jack Sinclair said. “Executing our strategic initiatives at a more rapid pace than we originally planned is fueling these encouraging results and establishing a solid base from which we can invest and grow.”

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Now what

Sprouts will be lapping a strong 2020, which included comparable-sales growth of 6.9% and near-doubling of adjusted EPS, and expects some retracement of that growth. 

For 2021, the company called for a low- to mid-single-digit decline in comparable sales and for adjusted EPS of $1.78 to $1.91, which compares to a 2020 mark of $2.39. That EPS forecast was actually better than the analyst consensus of $1.76 and represents significant growth from 2019 adjusted EPS of $1.25. 

Given the strong results and the solid guidance for 2021, it’s not surprising to see the stock gaining today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


View more information: https://www.fool.com/investing/2021/02/26/why-sprouts-farmers-market-stock-was-climbing-toda/

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