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Why Is Sprouts Farmers (SFM) Up 36.3% Since Last Earnings Report?
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A month has gone by since the last earnings report for Sprouts Farmers (SFM - Free Report) . Shares have added about 36.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Sprouts Farmers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Sprouts Farmers Q4 Earnings Top Estimates, Surge Y/Y
Sprouts Farmers Market, Inc. sustained its positive earnings surprise streak in fourth-quarter 2020. Notably, both the top and the bottom lines continued to improve year over year. Further, the company maintained its comparable store sales growth trend. Clearly, strategic endeavors undertaken and coronavirus-induced demand spike contributed to the company’s impressive performance.
The renowned grocery retailer posted adjusted quarterly earnings of 59 cents a share that surpassed the Zacks Consensus Estimate of 39 cents, thus marking the sixth straight beat. The bottom line also improved significantly from 27 cents reported in the year-ago period. We note that higher net sales and reduced net interest expense drove the bottom line.
Net sales of this Phoenix, AZ-based company were $1,601.8 million, up 17% from the prior-year quarter on account of comparable store sales growth of 3.7%, sturdy performance in new stores opened and sustained demand owing to the COVID-19 pandemic. The top line also outpaced the Zacks Consensus Estimate of $1,580.9 million, after missing the same in the preceding quarter.
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. For the quarter, e-commerce accounted for 11% of sales, and soared more than 290% compared with the last year.
Margins
Gross profit jumped 25% to $588 million owing to higher sales volume. We note that gross margin expanded 235 basis points to 36.7%. This can be attributed to strategic changes in promotional activities, efforts to lower shrink, and positive leverage from increase in sales due to the ongoing pandemic.
Adjusted EBIT came in at $94.7 million, up from $46.9 million reported in the year-ago period. Further, adjusted EBIT margin increased 250 basis points to 5.9%. We also note that adjusted EBITDA surged 62% to $126.8 million, while adjusted EBITDA margin grew 220 basis points to 7.9%.
SG&A expenses rose 20% to $463.6 million, while the same, as a percentage of net sales, deleveraged 56 basis points to 28.9%. The deleverage in SG&A expenses was due to increased bonuses and higher e-commerce fees as more customers opted for home delivery and curbside pickup. Management informed that store operational expenses from COVID-19 were approximately $36 million for the quarter under review.
Store Update
During the quarter under review, Sprouts Farmers opened six new outlets, taking the total count to 362 stores in 23 states as of Jan 3, 2021. The company opened 22 stores in 2020. It now plans to open roughly 20 stores in 2021, marginally below the targeted 10-plus percent growth owing to the pandemic related challenges. For 2022, the company is aiming for 10-plus percent unit growth.
Other Financial Aspects
Sprouts Farmers ended the fourth quarter with cash and cash equivalents of $169.7 million, long-term debt and finance lease liabilities of $260.5 million and stockholders’ equity of $881.3 million. During 2020, the company paid down $288 million of outstanding debt. The company ended the year with $250 million in loans and $34 million of letters of credit under revolving credit facility.
The company generated cash flow from operations of $494 million during 53-week period ended on Jan 3, 2021, and incurred capital expenditures (net of landlord reimbursements) of $96 million, principally for new stores. Management projects capital expenditures to be $140-$160 million for 2021.
Outlook
Sprouts Farmers envisions full-year 2021 net sales to be flat to up slightly, and comparable stores sales to be down in low to mid-single digits. On its earnings call management said, “Underpinning our assumptions are negative comps in the first and second quarter as we lap the height of COVID with an improving two-year comp sales stack each quarter.”
Management anticipates adjusted EBIT for 2021 in the range of $295 million to $315 million, down from $400.5 million reported in 2020. The company anticipates adjusted earnings between $1.78 and $1.91 per share for 2021. This reflects year-over-year decline from adjusted earnings of $2.49 reported in 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
At this time, Sprouts Farmers has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Sprouts Farmers has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is Sprouts Farmers (SFM) Up 36.3% Since Last Earnings Report?
A month has gone by since the last earnings report for Sprouts Farmers (SFM - Free Report) . Shares have added about 36.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Sprouts Farmers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Sprouts Farmers Q4 Earnings Top Estimates, Surge Y/Y
Sprouts Farmers Market, Inc. sustained its positive earnings surprise streak in fourth-quarter 2020. Notably, both the top and the bottom lines continued to improve year over year. Further, the company maintained its comparable store sales growth trend. Clearly, strategic endeavors undertaken and coronavirus-induced demand spike contributed to the company’s impressive performance.
The renowned grocery retailer posted adjusted quarterly earnings of 59 cents a share that surpassed the Zacks Consensus Estimate of 39 cents, thus marking the sixth straight beat. The bottom line also improved significantly from 27 cents reported in the year-ago period. We note that higher net sales and reduced net interest expense drove the bottom line.
Net sales of this Phoenix, AZ-based company were $1,601.8 million, up 17% from the prior-year quarter on account of comparable store sales growth of 3.7%, sturdy performance in new stores opened and sustained demand owing to the COVID-19 pandemic. The top line also outpaced the Zacks Consensus Estimate of $1,580.9 million, after missing the same in the preceding quarter.
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. For the quarter, e-commerce accounted for 11% of sales, and soared more than 290% compared with the last year.
Margins
Gross profit jumped 25% to $588 million owing to higher sales volume. We note that gross margin expanded 235 basis points to 36.7%. This can be attributed to strategic changes in promotional activities, efforts to lower shrink, and positive leverage from increase in sales due to the ongoing pandemic.
Adjusted EBIT came in at $94.7 million, up from $46.9 million reported in the year-ago period. Further, adjusted EBIT margin increased 250 basis points to 5.9%. We also note that adjusted EBITDA surged 62% to $126.8 million, while adjusted EBITDA margin grew 220 basis points to 7.9%.
SG&A expenses rose 20% to $463.6 million, while the same, as a percentage of net sales, deleveraged 56 basis points to 28.9%. The deleverage in SG&A expenses was due to increased bonuses and higher e-commerce fees as more customers opted for home delivery and curbside pickup. Management informed that store operational expenses from COVID-19 were approximately $36 million for the quarter under review.
Store Update
During the quarter under review, Sprouts Farmers opened six new outlets, taking the total count to 362 stores in 23 states as of Jan 3, 2021. The company opened 22 stores in 2020. It now plans to open roughly 20 stores in 2021, marginally below the targeted 10-plus percent growth owing to the pandemic related challenges. For 2022, the company is aiming for 10-plus percent unit growth.
Other Financial Aspects
Sprouts Farmers ended the fourth quarter with cash and cash equivalents of $169.7 million, long-term debt and finance lease liabilities of $260.5 million and stockholders’ equity of $881.3 million. During 2020, the company paid down $288 million of outstanding debt. The company ended the year with $250 million in loans and $34 million of letters of credit under revolving credit facility.
The company generated cash flow from operations of $494 million during 53-week period ended on Jan 3, 2021, and incurred capital expenditures (net of landlord reimbursements) of $96 million, principally for new stores. Management projects capital expenditures to be $140-$160 million for 2021.
Outlook
Sprouts Farmers envisions full-year 2021 net sales to be flat to up slightly, and comparable stores sales to be down in low to mid-single digits. On its earnings call management said, “Underpinning our assumptions are negative comps in the first and second quarter as we lap the height of COVID with an improving two-year comp sales stack each quarter.”
Management anticipates adjusted EBIT for 2021 in the range of $295 million to $315 million, down from $400.5 million reported in 2020. The company anticipates adjusted earnings between $1.78 and $1.91 per share for 2021. This reflects year-over-year decline from adjusted earnings of $2.49 reported in 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
At this time, Sprouts Farmers has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Sprouts Farmers has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.