The retail environment is weak and consumer spending has been on a decline in the U.S. However, there are some industries which are doing well despite all the headwinds prevailing in the environment. The organic food business is one of them. Organic food retailers are seeing better days since people are shifting to healthier food.
Sprouts Farmers Market (SFM, Financial) is a comparatively new player in this industry. However, it has managed to register great results since it went public in 2013. The retailer specializes in providing natural and healthy food at affordable prices, which attracts most of the customers. It has been beating the analysts’ estimates from the last four quarters and continued with this momentum in the third quarter also. Sprouts Farmers’ first quarter numbers were ahead of the Street’s expectations, sending its share price north.
Into the numbers
Net revenue for the quarter jumped 21% to $766.4 million, as compared to the previous year. This was higher than the estimates and was driven by comparable store sales growth of 9%. The key reason for the growth in comp sales was higher demand for its products as people get increasingly health conscious.
Moreover, it opened 14 new stores during the quarter, which added to the revenue base. The company has added a large number of stores in order to expand its presence in the U.S. However, there are no new stores planned to be opened in the fourth quarter. Ten new stores will be opened in the first quarter of the year 2015.
The bottom line, too, was interesting enough. Earnings surged a whopping 38% over the prior year, clocking in at $0.18 per share, beating the analysts’ estimate by $0.02 per share. Hence, the company is able to manage its costs quite efficiently. However, gross margin is being pressured as input costs increased slightly.
At the other end
Peer Whole Foods Market (WFM, Financial) also reported a great quarter recently. Its top line grew 9% as comp sales grew 3.1% during the quarter. Its earnings also jumped 9.4% to $0.35 per share despite measures such as lowering the price of the products in order to attract customers. Whole Foods Market is an upscale organic food retailer and therefore caters to the affluent customers only. However, because of increased competition and other players, providing similar products at lower prices, the retailer had to cut its prices too. Its efforts such as in-store wine bars and loyalty programs have been instrumental in attracting customers.
The future
Sprouts Farmers paid its debt of $50 million during the quarter, which lowered its debt burden to a large extent. Also, it is making a large number of moves to make itself attractive to investors.
It plans to expand its assortment of products for the peak holiday season in order to lure more and more customers to its stores. The items would include special as well as private label items, which should resonate with customers. It has a range of private label pumpkin items which has already become popular among customers.
The takeaway
These efforts are probably the reason why the company is optimistic about its future. It raised its outlook for the year since it expects higher sales in the future. Moreover, it has been expanding its store network, which should help in the future growth of the company. Thus, investors should take note of this company.
