Sprouts Farmers Market, Inc. ( SFM Quick Quote SFM - Free Report) came up with first-quarter 2023 results, wherein the top and bottom lines not only increased year over year but also beat their respective Zacks Consensus Estimate. Q1 in Details
The renowned grocery retailer delivered adjusted quarterly earnings of 98 cents a share, which cruised past both the Zacks Consensus Estimate and our estimate of 85 cents. Impressively, the bottom line increased 24% from the 79 cents reported in the year-ago period.
Net sales of this Phoenix, AZ-based company came in at $1,733.3 million, which came ahead of the Zacks Consensus Estimate of $1,722 million and our estimate of $1,716.8 million. The metric increased 6% on a year-on-year basis. The growth was driven by sales from the new stores and a jump in comparable store sales. Comparable store sales increased 3.1% during the quarter under review, backed by higher traffic and a net increase in the basket due to retail inflation. We note that e-commerce sales grew in double digits and represented 12.2% of total sales in the quarter. Margins
The gross profit rose 6% to $650.1 million in the quarter. The gross margin expanded approximately 20 basis points to 37.5%.
Sprouts Farmers reported an adjusted operating income of $137 million, up from the $119.6 million reported in the year-ago period. The adjusted operating margin expanded 60 basis points to 7.9%. SG&A expenses increased 6% year over year to $486.2 million due to new stores, higher wages, utility costs and increased e-commerce fees. Excluding the impact of special items, adjusted SG&A expenses totaled $483 million, an increase of $23 million from the year-ago period. Store Update
During the quarter, Sprouts Farmers opened eight new stores, closed one and acquired two previously licensed stores, thereby taking the total count to 395 stores in 23 states as of Apr 2, 2023. The company plans to open 30 new stores and close 11 stores in 2023.
Other Financial Aspects
Sprouts Farmers ended the year with cash and cash equivalents of $294.9 million, long-term debt and finance lease liabilities of roughly $233.7 million and stockholders’ equity of $1,050.9 million. The company had $700 million in its revolving credit facility as of the quarter end.
Sprouts Farmers repurchased 3 million shares for a total investment of $98 million in the first quarter. As of Apr 2, 2023, the company still has $314 million remaining under the current share repurchase authorization. Sprouts Farmers generated cash from operations of $180 million and spent $45 million on capital expenditures, net of landlord reimbursement, year to date through Apr 2, 2023. Management anticipates capital expenditures (net of landlord reimbursements) in the $210-$230 million band for 2023. Outlook
Sprouts Farmers now expects net sales growth of 5-6% and comparable store sales growth of 2-3% in 2023. Management expects the gross margin to be flat to slightly up and anticipates marginal deleverage in SG&A expenses.
It guided adjusted earnings before interest and taxes between $370 million and $385 million for 2023. It foresees full-year adjusted earnings in the band of $2.58-$2.68 per share, up from the $2.39 reported in 2022, assuming no additional share repurchases. For the second quarter, the company expects comparable store sales growth of about 3% and adjusted earnings in the band of 61-65 cents a share, up from the 57 cents reported in the year-ago period. This Zacks Rank #2 (Buy) stock has risen 20.7% in the past six months compared with the industry’s growth of 20.5%. Other Stocks to Consider
Here we have highlighted three other top-ranked stocks, namely
Kroger ( KR Quick Quote KR - Free Report) , BJ's Wholesale Club ( BJ Quick Quote BJ - Free Report) and General Mills ( GIS Quick Quote GIS - Free Report) . Kroger, which operates supermarkets and multi-department stores, currently sports a Zacks Rank #1 (Strong Buy). The expected EPS growth rate for three to five years is 6%. You can see . the complete list of today’s Zacks #1 Rank stocks here The Zacks Consensus Estimate for Kroger’s current financial-year revenues and EPS suggests growth of 2.5% and 6.6%, respectively, from the year-ago reported figure. Kroger has a trailing four-quarter earnings surprise of 9.8%, on average. BJ's Wholesale Club, a leading operator of membership warehouse clubs, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 9.3%. The Zacks Consensus Estimate for BJ's Wholesale Club’s current financial-year sales and earnings suggests growth of 7.3% and 0.8% from the year-ago period. BJ has a trailing four-quarter earnings surprise of 19.6%, on average. General Mills, which manufactures and markets branded consumer foods, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 7.5%. The Zacks Consensus Estimate for General Mills’ current financial-year sales and earnings suggests growth of 6.3% and 7.4% from the year-ago period. GIS has a trailing four-quarter earnings surprise of 8.1%, on average.