Sprouts Farmers Market (SFM, Financial) is focused on one of its main driving factors, which include its vast array of product assortment including private label and specialty products. Currently, it has more than 1,600 private label products throughout the store, with another 150 items in the pipeline for the rest of this year. Moreover, these new additions have high quality standards with more than 50% of its private label packaged foods certified as non-GMO or organic. This would provide the company an edge over its peers while competing for market share.
Making the right moves
In addition, it has revamped its deli offerings with new features such as salad bar with ready-to-eat salads along with prepared protein side dishes. Although it’s in the test phase, the early response was positive and the company will introduce these expanded offerings into a select group of new and existing stores this year. During the test phase, if the results are positive, Sprouts would incorporate them into a greater number of stores in 2016 and beyond.
Apart from this increasing store base is yet another important driving factor. The company intends to grow its business organically with the help of new store additions. During the quarter, the organic retailer added ten new stores. Interestingly its new store productivity came around 90% for the quarter, topping its 2015 forecast of 85%. This is quite encouraging and reflects the potential it has by expanding its store base.
In fact growing its store base is one of the biggest advantages it has at the moment. If we look at the map below and exclude the existing markets, midterm expansion markets and the ones marked coming soon, it still has immense potential to add many more in the days to come. Therefore this would be one of the key factors driving its business forward.
Conclusion
Also, we could see some positive numbers in the valuations as well. The company currently has a forward P/E of 27.72 compared to a trailing P/E of 43.16, which indicates of improved earnings in the days ahead. Moreover, its interest expense for 2014 has declined to $25.06 million compared to $37.2 million in 2013, which is a significant improvement indicating reduced debt levels. This will in turn help the company to use its future cash flow for other profitable investment purposes. Therefore, considering the above factors Sprouts seems to be a good long term bet.
