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Sprouts Farmers (SFM) Q1 Earnings Top Estimates, Fall Y/Y

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Sprouts Farmers Market, Inc. (SFM - Free Report) sustained its positive earnings surprise streak in first-quarter 2021. The renowned grocery retailer posted adjusted quarterly earnings of 70 cents a share that surpassed the Zacks Consensus Estimate of 62 cents, thus marking the seventh straight beat. However, the bottom line plunged 13.4% from 79 cents reported in the year-ago period.

Net sales of this Phoenix, AZ-based company were $1,575.4 million, down 4% from the prior-year quarter. The decline was on account of comparable store sales decrease of 9.4%, offset by sturdy performance in new stores opened. We note that the quarterly top line lagged the Zacks Consensus Estimate of $1,622 million. On a two-year basis, net sales increased 11% comparable store sales rose 2.2%.

For the quarter, e-commerce accounted for 12.5% of sales and soared 221% from last year.

Margins

Gross profit dipped 1.3% to $586.2 million owing to lower sales volume. However, gross margin expanded 114 basis points (bps) to 37.2%, driven by strategic changes, including promotional activities and shrink efforts.

Adjusted EBIT came in at $113.2 million, down 12.1% from the year-ago period. Further, adjusted EBIT margin contracted 60 bps to 7.2%. We also note that adjusted EBITDA dropped 9.5% to $145.1 million.

SG&A expenses rose 0.8% to $439.7 million, while the same, as a percentage of net sales, deleveraged 141 bps to 27.9%. The deleverage in SG&A expenses was due to lower sales deleverage and higher e-commerce fees as more customers opted for home delivery and curbside pickup, partly compensated by lower bonus expense due to the pandemic in the prior-year period.

Other Financial Aspects

Sprouts Farmers ended the first quarter with cash and cash equivalents of $256 million, long-term debt and finance lease liabilities of $260.3 million and stockholders’ equity of $966.9 million. The company ended the quarter with $250 million balance on its revolving credit facility and $39 million outstanding under the facility.

The company generated cash flow from operations of $105.4 million during the first quarter ended on Apr 4, 2021, and incurred capital expenditures (net of landlord reimbursements) of $9 million, principally for new stores. Management projects capital expenditures at $140-$160 million for 2021.

Through Apr 4, 2021, management repurchased 130,000 shares for $3 million. At the end of the reported quarter, it had $297 million available under its current share buyback authorization.

Sprouts Farmers did not open any store in the reported quarter, thus ending the quarter with roughly 362 stores across 23 states. It now plans to open roughly 20 stores in 2021.

Outlook

As the pandemic impacts the U.S. economy and the company’s results remain uncertain, management adjusted its 2021 outlook based on the year-to-date performance and expectations for the rest of the year. Sprouts Farmers envisions 2021 net sales to be flat to up slightly, and comparable stores sales to be down in low to mid-single digits.

Management anticipates adjusted EBIT for 2021 in the range of $305-$325 million versus $295-$315 million predicted earlier. We note that the company reported adjusted EBIT of $400.5 million in 2020.

The Zacks Rank #3 (Hold) company anticipates adjusted earnings between $1.87 and $2.00 per share for 2021, up from $1.78-$1.91 per share anticipated previously. The revised view reflects year-over-year decline from adjusted earnings of $2.49 reported in 2020. We note that the Zacks Consensus Estimate for 2021 earnings is pegged at $1.86, which is likely to witness higher revisions in the coming days.

Stocks to Consider

Grocery Outlet (GO - Free Report) has a trailing four-quarter earnings surprise of 54.2%, on average. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Target (TGT - Free Report) , with a Zacks Rank #2, has an estimated long-term earnings growth rate of 10.2%.

Albertsons Companies (ACI - Free Report) , with a Zacks Rank #2, has an estimated long-term earnings growth rate of 12%.

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