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Is the Organic Grocery Stock Boom Over? SFM, WFM & More
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The market runs on sentiment and any unprecedented event in a particular sector has a rippling effect on the others. The case is more or less the same for specific sectors that often see good or bad performance by one player influencing the performance of others. Yesterday, shares of grocery chains came under pressure, after Sprouts Farmers Market, Inc. (SFM - Free Report) trimmed its forecast citing a tough retail environment, thus triggering a debate whether the organic stock boom is over.
Stiff competition, food price deflation, an aggressive promotional environment and waning store traffic are the headwinds with which the sector is grappling. Analysts believe that that there is an industry-wide weakness, as deflationary pressure in commodities such as dairy, beef and eggs are hurting the margins of food companies. A clear reflection of this was evident when Sprouts Farmers Market lowered its sales and earnings outlook, ahead of its participation in the Global Retailing Conference.
Sprouts Farmers Market now expects third-quarter comparable-store sales (comps) to be flat, down from the previous forecast of 3–4% growth. For full-year 2016, the company now predicts earnings in the band of 83–86 cents a share against 92–94 cents projected earlier. Further, the company significantly lowered its comps growth guidance for the year to a range of 1.5–2.5% from the previous forecast of 3.5–4.5%.
Investors also did not wait to punish the Sprouts Farmers Market stock that nosedived 13.7% yesterday. Had the impact of Sprouts Farmers Market’s guidance cut remained confined at its own stock level, it would have pinched less. But it took a toll on the other grocery stocks, as investors turned dubious about the sector’s performance in the near term.
Among the stocks that that bore the brunt, SUPERVALU Inc. , Whole Foods Market, Inc. , United Natural Foods, Inc. (UNFI - Free Report) and The Kroger Co. (KR - Free Report) drew attention with a 3.9%, 5.3%, 4.3% and 4.1% decline, respectively.
The grocery business is highly competitive and fragmented. And as more companies are entering as well as expanding their presence, it is becoming tough for the existing players to retain their market share.
Whole Foods saw its comps decline 2.6% in third-quarter fiscal 2016. During the first three weeks of the fourth quarter, comps dropped 2.4%. Comps had fallen 3% and 1.8% in the second and first quarters of fiscal 2016, respectively, and 0.2% in the final quarter of fiscal 2015. SUPERVALU also commenced fiscal 2017 on a soft note with both top and bottom lines declining year over year and falling short of expectations. However, investors will keep a close watch on United Natural Foods’ fourth-quarter fiscal 2016 results slated on Sep 12.
Market experts believe that short-term investors should shift their focus from grocery stocks at least for the time being and bet their bucks on other lucrative counters.
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>
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Is the Organic Grocery Stock Boom Over? SFM, WFM & More
The market runs on sentiment and any unprecedented event in a particular sector has a rippling effect on the others. The case is more or less the same for specific sectors that often see good or bad performance by one player influencing the performance of others. Yesterday, shares of grocery chains came under pressure, after Sprouts Farmers Market, Inc. (SFM - Free Report) trimmed its forecast citing a tough retail environment, thus triggering a debate whether the organic stock boom is over.
Stiff competition, food price deflation, an aggressive promotional environment and waning store traffic are the headwinds with which the sector is grappling. Analysts believe that that there is an industry-wide weakness, as deflationary pressure in commodities such as dairy, beef and eggs are hurting the margins of food companies. A clear reflection of this was evident when Sprouts Farmers Market lowered its sales and earnings outlook, ahead of its participation in the Global Retailing Conference.
Sprouts Farmers Market now expects third-quarter comparable-store sales (comps) to be flat, down from the previous forecast of 3–4% growth. For full-year 2016, the company now predicts earnings in the band of 83–86 cents a share against 92–94 cents projected earlier. Further, the company significantly lowered its comps growth guidance for the year to a range of 1.5–2.5% from the previous forecast of 3.5–4.5%.
Investors also did not wait to punish the Sprouts Farmers Market stock that nosedived 13.7% yesterday. Had the impact of Sprouts Farmers Market’s guidance cut remained confined at its own stock level, it would have pinched less. But it took a toll on the other grocery stocks, as investors turned dubious about the sector’s performance in the near term.
Among the stocks that that bore the brunt, SUPERVALU Inc. , Whole Foods Market, Inc. , United Natural Foods, Inc. (UNFI - Free Report) and The Kroger Co. (KR - Free Report) drew attention with a 3.9%, 5.3%, 4.3% and 4.1% decline, respectively.
The grocery business is highly competitive and fragmented. And as more companies are entering as well as expanding their presence, it is becoming tough for the existing players to retain their market share.
Whole Foods saw its comps decline 2.6% in third-quarter fiscal 2016. During the first three weeks of the fourth quarter, comps dropped 2.4%. Comps had fallen 3% and 1.8% in the second and first quarters of fiscal 2016, respectively, and 0.2% in the final quarter of fiscal 2015. SUPERVALU also commenced fiscal 2017 on a soft note with both top and bottom lines declining year over year and falling short of expectations. However, investors will keep a close watch on United Natural Foods’ fourth-quarter fiscal 2016 results slated on Sep 12.
Market experts believe that short-term investors should shift their focus from grocery stocks at least for the time being and bet their bucks on other lucrative counters.
Currently, Sprouts Farmers Market carries a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>