Brief

Sprouts sales surge 14% in Q1

Dive Brief:

  • Sprouts Farmers Market posted net sales of $1.1 billion during Q1 2017, a 14% increase from $993 million in the same period in 2016, the company said in a statement. Net income of $46 million was flat from a year earlier.
  • The natural and organic foods retailer upped its guidance for the year, forecasting net sales growth between 12.5% and 13.5% while predicting stronger comparable store growth of 0.5% to 1.5%. The grocer maintained its earlier plans to open 32 new stores.
  • “In an industry with continued deflationary challenges, I am extremely proud of the Sprouts team for delivering our 40th consecutive quarter of positive comps, strong new store productivity and new market entries in Florida and North Carolina,” said Amin Maredia, chief executive officer of Sprouts. “Our focus remains on our strategic priorities of category innovation, developing team members, enhancing the customer experience and investing in infrastructure to support our long-term growth.”

Dive Insight:

For the most part, Sprouts remains a strong growth story in the maturing natural and organics space. Its success is evident in the announcement that the grocery retailer is increasing its sales and earnings projections for the year. But there are downsides: During its most recent quarter, Sprouts said direct store expenses increased 18% to $229 million, or 20.3% of sales, compared to 19.5% in the same period in 2016 — a reflection of higher payroll and benefit costs tied to lower comparable store sales growth and an increase in depreciation expenses from higher unit growth in 2016.

Still, Sprouts' favorable position in the industry overall has prompted rumors that the company could be a prime acquisition target. Bloomberg reported in March that Albertsons Cos., the grocery chain operator backed by Cerberus Capital Management, held preliminary talks to merge with Sprouts. Since then, embattled Whole Foods has faced pressure to sell itself, which could change how other grocers look at Sprouts. 

A purchase of Sprouts would give Albertsons a major presence in the lucrative natural and organic space, allowing the company to reduce costs and boost profitability through greater economies of scale — potentially leading to lower prices for shoppers. It also would enable the grocer to keep up with its rival Kroger, which invested in Sprouts rival Lucy’s Market last year. For its part, Sprouts also could benefit from Albertsons’ deeper pockets and nationwide reach as competition in the natural organic foods sector intensifies.

Sprouts is methodically moving forward with measured growth as it plans to open 32 locations this year. The largest farmers’ market-style food retailer recorded $4 billion in sales last year and operated 256 stores in 14 states as of February. Sprouts is focused on its "strategic priorities of category innovation, enhancing the customer experience and investing in infrastructure to support our long-term growth,” according to Amin Maredia, chief executive officer of Sprouts. Whether its days as an independent company are coming to an end or not, Sprouts appears to be on the right track in an otherwise challenging grocery space.

Filed Under: Manufacturing Grocery Corporate
Top image credit: Littletung