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Factors Shaping the Fate of Sprouts Farmers (SFM) Q2 Earnings

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Sprouts Farmers Market, Inc. (SFM - Free Report) is likely to register an increase in the top line when it reports second-quarter 2020 results on Jul 29, after the closing bell. The Zacks Consensus Estimate for revenues is pegged at $1,590 million, indicating an improvement of 12.3% from the prior-year reported figure. The company is likely to have gained from coronavirus-led demand spike, as dining at home and maintaining social distancing become the “new normal.”

Further, the bottom line of this provider of fresh, natural, and organic food products is also expected to improve year over year. We note that the Zacks Consensus Estimate for earnings for the quarter under review has moved up by a penny over the past 30 days to 38 cents. The figure suggests growth of 26.7% from the prior-year quarter.

Notably, the company has a trailing four-quarter earnings surprise of 37.2%, on average. In the last reported quarter, this Phoenix, AZ-based company surpassed the Zacks Consensus Estimate by a significant margin.

Factors to Note

Sprouts Farmers’ focus on better-for-you products, enhancement of e-commerce capabilities and a network of fresh distribution centers bodes well. Notably, the company has been providing hassle-free shopping through Sprouts.com website and mobile app. Additionally, the company’s initiative to offer same-day delivery is likely to have expanded customer base.

The company has been expanding ready-to-eat, ready-to-heat and ready-to-cook items. Apart from these, it has been expanding private-label offerings in departments under the Sprouts Market Corner Deli, The Butcher Shop at Sprouts and Sprouts Fish Market brands. Moreover, the company has been lowering operational complexity, optimizing production and improving in-stock position. All these endeavors might get reflected in the to-be-reported quarter’s top line.

However, management had earlier cautioned that the level of operating margin expansion attained in the first quarter may not sustain in the second quarter. Sprouts Farmers had highlighted that while higher sales and other strategic endeavors have been benefiting operating margin, investments to increase team’s pay and benefits, and expenses on additional safety and cleansing measures on account of the coronavirus pandemic will weigh more in the second quarter compared with the first quarter.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Sprouts Farmers this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Sprouts Farmers has a Zacks Rank #2 and an Earnings ESP of +2.63%.

3 More Stocks With a Favorable Combination

Here are three other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Kroger (KR - Free Report) has an Earnings ESP of +7.20% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

SpartanNash Company (SPTN - Free Report) has an Earnings ESP of +4.84% and a Zacks Rank #1.

Costco (COST - Free Report) has an Earnings ESP of +0.76% and a Zacks Rank #3.

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