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Sprouts Farmers (SFM) Q2 Earnings Beat Estimates, Comps Up
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Sprouts Farmers Market, Inc. (SFM - Free Report) reported second-quarter 2020 results, wherein both earnings and revenues not only improved year over year but also surpassed the Zacks Consensus Estimate for the fourth straight quarter. Further, the company sustained its positive comparable store sales trend. Management highlighted that strategic changes undertaken and coronavirus-induced demand spike contributed to the company’s performance. With people largely staying at home, thanks to rising number of coronavirus cases, demand for grocery is here to stay for now.
The renowned grocery retailer reported adjusted quarterly earnings of 59 cents a share that surpassed the Zacks Consensus Estimate of 40 cents, and improved considerably from 30 cents in the year-ago period. Notably, higher net sales and reduced net interest expense drove the bottom line.
Net sales of this Phoenix, AZ-based company were $1,642.8 million, up 16% from the prior-year quarter on account of comparable store sales growth of 9.1% and sturdy performance in new stores opened. Further, net sales outpaced the Zacks Consensus Estimate of $1,608 million. For the quarter, e-commerce accounted for 12% of sales, and soared more than 500% compared with the last year.
Notably, consumers continued to spend more on groceries. Moreover, as social distancing becomes the “new normal” they have been opting more for e-commerce services. Sprouts Farmers indicated that comparable store sales are estimate to have increased approximately 9% for the month of July, and e-commerce sales are anticipated to represent roughly 11% of net sales.
Impressively, shares of this Zacks Rank #2 (Buy) stock have gained roughly 29.1% compared with the industry’s rally of 15% over the past three months.
Sprouts Farmers Market, Inc. Price, Consensus and EPS Surprise
Gross profit jumped 32% to $613 million during the quarter, while gross margin expanded 450 basis points to 37.3%. This can be attributed to strategic changes in promotional activities, outsized shrink improvement from operational efficiencies and positive leverage from additional sales.
Adjusted operating income came at $96.2 million, up from $51.3 million reported in the year-ago period. Further, adjusted operating margin increased 230 basis points to 5.9%. We also note that adjusted EBITDA surged 56% to $127.4 million, while adjusted EBITDA margin grew 200 basis points to 7.8%.
SG&A expenses rose 28% to $488.9 million, while as a percentage of net sales the same increased 270 basis points to 29.8%. The deleverage in SG&A expenses was due to increased bonuses and rise in store operating expenses on account of the pandemic and incremental e-commerce costs. These were partly offset by decline in marketing expense as the company spend more on digital than print. Management informed that additional costs related to COVID-19 were about $47 million during the quarter under review.
Store Update
During the quarter, Sprouts Farmers opened six new outlets, taking the total count to 350 stores in 23 states as of Jun 28, 2020. The company remains on track with its plan to open about 20 new stores this year.
Other Financial Aspects
Sprouts Farmers ended the quarter with cash and cash equivalents of $328.1 million, long-term debt and finance lease liabilities of $461.9 million and stockholders’ equity of $743.3 million.
The company generated cash flow from operations of $393.3 million during 26-week period ended on Jun 28, 2020 and incurred capital expenditures (net of landlord reimbursements) of $48 million. The company ended the quarter with $451 million in loans and $34 million of letters of credit outstanding under its revolving credit facility. Subsequent to the end of the quarter, the company paid down $76 million of its revolving credit facility.
Kroger (KR - Free Report) , with a Zacks Rank #1, has an estimated long-term earnings growth rate of 5.5%.
Dollar General (DG - Free Report) , with a Zacks Rank #2, has an estimated long-term earnings growth rate of 12.5%.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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Sprouts Farmers (SFM) Q2 Earnings Beat Estimates, Comps Up
Sprouts Farmers Market, Inc. (SFM - Free Report) reported second-quarter 2020 results, wherein both earnings and revenues not only improved year over year but also surpassed the Zacks Consensus Estimate for the fourth straight quarter. Further, the company sustained its positive comparable store sales trend. Management highlighted that strategic changes undertaken and coronavirus-induced demand spike contributed to the company’s performance. With people largely staying at home, thanks to rising number of coronavirus cases, demand for grocery is here to stay for now.
The renowned grocery retailer reported adjusted quarterly earnings of 59 cents a share that surpassed the Zacks Consensus Estimate of 40 cents, and improved considerably from 30 cents in the year-ago period. Notably, higher net sales and reduced net interest expense drove the bottom line.
Net sales of this Phoenix, AZ-based company were $1,642.8 million, up 16% from the prior-year quarter on account of comparable store sales growth of 9.1% and sturdy performance in new stores opened. Further, net sales outpaced the Zacks Consensus Estimate of $1,608 million. For the quarter, e-commerce accounted for 12% of sales, and soared more than 500% compared with the last year.
Notably, consumers continued to spend more on groceries. Moreover, as social distancing becomes the “new normal” they have been opting more for e-commerce services. Sprouts Farmers indicated that comparable store sales are estimate to have increased approximately 9% for the month of July, and e-commerce sales are anticipated to represent roughly 11% of net sales.
Impressively, shares of this Zacks Rank #2 (Buy) stock have gained roughly 29.1% compared with the industry’s rally of 15% over the past three months.
Sprouts Farmers Market, Inc. Price, Consensus and EPS Surprise
Sprouts Farmers Market, Inc. price-consensus-eps-surprise-chart | Sprouts Farmers Market, Inc. Quote
Margins
Gross profit jumped 32% to $613 million during the quarter, while gross margin expanded 450 basis points to 37.3%. This can be attributed to strategic changes in promotional activities, outsized shrink improvement from operational efficiencies and positive leverage from additional sales.
Adjusted operating income came at $96.2 million, up from $51.3 million reported in the year-ago period. Further, adjusted operating margin increased 230 basis points to 5.9%. We also note that adjusted EBITDA surged 56% to $127.4 million, while adjusted EBITDA margin grew 200 basis points to 7.8%.
SG&A expenses rose 28% to $488.9 million, while as a percentage of net sales the same increased 270 basis points to 29.8%. The deleverage in SG&A expenses was due to increased bonuses and rise in store operating expenses on account of the pandemic and incremental e-commerce costs. These were partly offset by decline in marketing expense as the company spend more on digital than print. Management informed that additional costs related to COVID-19 were about $47 million during the quarter under review.
Store Update
During the quarter, Sprouts Farmers opened six new outlets, taking the total count to 350 stores in 23 states as of Jun 28, 2020. The company remains on track with its plan to open about 20 new stores this year.
Other Financial Aspects
Sprouts Farmers ended the quarter with cash and cash equivalents of $328.1 million, long-term debt and finance lease liabilities of $461.9 million and stockholders’ equity of $743.3 million.
The company generated cash flow from operations of $393.3 million during 26-week period ended on Jun 28, 2020 and incurred capital expenditures (net of landlord reimbursements) of $48 million. The company ended the quarter with $451 million in loans and $34 million of letters of credit outstanding under its revolving credit facility. Subsequent to the end of the quarter, the company paid down $76 million of its revolving credit facility.
Stocks to Consider
SpartanNash Company (SPTN - Free Report) has a trailing four-quarter earnings surprise of 17.1%, on average. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kroger (KR - Free Report) , with a Zacks Rank #1, has an estimated long-term earnings growth rate of 5.5%.
Dollar General (DG - Free Report) , with a Zacks Rank #2, has an estimated long-term earnings growth rate of 12.5%.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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