Sprouts Farmers Market (SFM, Financial) is moving in the right direction. In the recently reported quarter, Sprouts sustained its momentum by posting strong results. The main reason behind the robust growth is its focus on providing high-quality, fresh, natural and organic products. Looking ahead, Sprouts is expected see strong top line and bottom line growth.
Attracting new customers
This strong position of the company in the market is also attracting new customers as consumers seek healthier alternatives to traditional super markets. As a result of this Sprouts saw an amazing 21% increase in the sales in the competitive environment. For the 2015 as well, Sprouts is putting efforts to ramp up its sales such as by putting more affordable options to the speciality store which will again attract many customers, driving its sales.
Sprouts is pleased to see the change in the consumer behaviour. Now the consumers are more health conscious and they desire for healthier food. This is helping Sprouts to win new customers by providing healthy eating at affordable price. With these fast growing speciality categories, Sprouts is expecting to see a strong sales momentum with extensive product offering.
Making smart moves
Sprouts is focusing on various aspects to improve its profitability. It is largely focusing on accelerating the promotional campaigns for its quality products which will drive traffic to its stores, further supporting its sales. This will strengthen Sprouts’ position in both the existing and new markets. The company had been investing in various ventures which are paying off for it as it saw robust returns on investment in the recently reported quarter.
This led Sprouts to maintain a strong balance sheet with good cash and liquidity position and we all know that an attractive balance sheet is a key attraction to the investors. This will also lead the company to gain market share in upcoming quarters. This is not all for Sprouts as the company is looking for further investments in its expansion initiatives under which it will be opening new stores and continue enhancing its business with innovative sales initiatives.
Moving ahead, Sprouts is looking at maintaining profitable cost structure. This will be a key element of its core strategy as in the past the company was affected through the price increase in categories with higher levels of inflation such as produce, dairy and nuts. To get over it, Sprouts is investing largely in the price sensitive items to maintain its value proposition. This will again help the company to stick to the current price points and price range which will also drive its EBITDA in the upcoming quarters.
To attract customers in this, it is planning to carry out good holiday programs and under this, Sprouts will be adding attractive range of grocery items that the customer might need during the holiday season. It has already seen marvellous attraction with its private labels such as pumpkin seeds tortilla chips and pumpkin gelato.
Conclusion
With a trailing P/E of 59.74 the stock looks slightly over valued but the forward P/E of 41.75 shows good earnings growth in the near term. In the long term as well the stock is appearing to be a strong long term holding as its earnings are growing at a CAGR of 28.57% which is more than the industry average of 13.18%. All these facts reveal that Sprouts is a good pick both in the near term as well as for the long term.
