Does Sprouts Have the Recipe for Continued Outperformance?
What sets Sprouts apart?
Sprouts Farmers Market has positioned itself as a value player in the natural and organic food segment. The company markets its products using the tagline, “Healthy Living for Less.” Its products are similar to those offered by Whole Foods Market (WFM), but its prices are lower than Whole Foods’ prices and comparable to supermarket giant Kroger’s (KR) prices.
SFM offers heavy discounts and typically has about 25% of its products on sale at any given time. SFM has been successful in attracting traffic in times when other organic players have failed miserably.
The above chart is not completely comparable, as the companies included have different year and quarter ends. The last-reported quarter ends for the above-mentioned companies are as follows:
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Sprouts Farmers Market: September 27, 2015
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The Fresh Market: October 25, 2015
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Whole Foods: January 17, 2016
Sprouts boasts industry-leading same-store sales
Sprouts achieved 34 consecutive quarters of positive same-store sales. The company reported comps (comparable store sales) of 5.8% in 3Q15. On the other hand, Whole Foods reported same-store sales of -1.8%, while The Fresh Market’s (TFM) same-store sales were -3.7% during its last-reported quarter. Kroger, however, has been quite consistent in its comparable store sales numbers and recently achieved its 48th consecutive quarter of positive same-store sales.
Those looking to invest in SFM through ETFs can choose to invest in the SPDR S&P Retail ETF (XRT), the Fidelity MSCI Consumer Staples ETF (FSTA), and the iShares S&P Mid-Cap 400 Growth ETF (IJK). SFM makes up approximately 1.1%, 0.11%, and 0.54%, respectively, of the above-mentioned ETFs.
Strong private label portfolio a key advantage
While lower prices attract traffic and boost Sprouts’ top line, a vast offering of private label brands help to preserve its margins. Private label products enhance the company’s value proposition and generate higher gross margins. Sprouts has a strong portfolio of private brands, with more than 1,700 private-label items on its menu. The company has been continually expanding its private label offerings by introducing new and innovative products.
SFM’s low prices and appealing products are winning over customers, and the company remains positive about delivering a strong performance in the future. Read the next section to know more about the company’s near-term and mid-term guidance.
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