Sprouts Is a Rising Star Among Grocers

Sprouts Is a Rising Star Among Grocers

When organic grocer Sprouts Farmers Market (SFM) announced its healthy first-quarter earnings results last week, we were already waiting in the checkout line with a very bullish LikeFolio Earnings Score of +58.

Thanks to our real-time data tracking capabilities, we could see Purchase Intent (PI) mentions of consumers talking about spending money at a Sprouts store were way up – by 92% year-to-date (YTD).

That demand growth has historically correlated well with SFM financials.

And when we noted Sprouts Consumer Happiness increasing toward the 80% level, we knew we had a winner.

On May 2, the register rang up an 8% pop in share price for SFM following a glowing report that included same-store sales growth of 3% and a 24% increase in profits, with strong results in both physical retail and e-commerce.

And LikeFolio data shows that if Sprouts’ earnings data was this strong, its winning streak could continue…

The More Affordable Whole Foods

Like Amazon’s (AMZN) Whole Foods, Sprouts largely caters to more affluent households. But where Sprouts deviates – and becomes the better opportunity – is that it also hits home with lower-income shoppers by offering quality at more affordable prices.

Aligned with Better-for-You Consumer Trends

With brands you won’t find anywhere else and a wide assortment of in-house items, Sprouts’ better-for-you products are perfectly in sync with current health and wellness trends.

LikeFolio trend data is logging significant upticks in consumer chatter around natural ingredients, following an organic diet, and taking greens supplements, to name a few.

Shoppers can find products to fit each of those needs at Sprouts’ 380 stores – and then some.

Compared to competitors that place their produce sections at one end of their stores, Sprouts prominently showcases its produce at the center of its footprint… Meaning that customer traffic naturally revolves around a wide selection of organic, plant-based, and gluten-free items.

But make no mistake: You’ll find plenty of indulgences at Sprouts too, with a full bakery, deli, and even alcohol selection in states where it’s allowed.

Stocked with Fresh Seasonal Finds

To keep customers coming back for more, Sprouts took a page out of the Costco playbook. It continually rolls out new, seasonal, and limited time items that attract repeat adventure seekers — but more importantly, newbies.

Consumers head to Sprouts to discover innovative products in a treasure-hunt-like shopping atmosphere.

That savvy strategy is paying off with a growing, happy customer base and healthy store growth to go along with it.

Sprouts management plans to add approximately 20 new stores to its roster this year to bring its total store count above 400 across 23 states.

And like its assortment of organic produce, responsibly sourced meats, and better-for-you treats, Sprouts’ social media buzz is growing nicely – up 8% year-over-year and 7% quarter-over-quarter.

Closing the Gap on the Supermarkets

Last week’s jump in SFM shares marks the company’s fourth-consecutive post-earnings boost for Sprouts.

History tells us that if LikeFolio consumer data around Sprouts continues to look this strong, its earnings streak could continue. And with it, the potential for grabbing share from the supermarket chains.

In its forward-looking guidance for 2023, Sprouts expects 10% earnings-per-share (EPS) growth at the midpoint. But given the 24% growth in Q1, macro tailwinds, and increasing brand awareness, the outlook may prove overly conservative.

Bottom line: Despite elevated food costs and persistent inflation, Sprouts’ results prove that consumers are willing to pay more for quality… but price still matters. And the companies like Sprouts finding a middle ground of offering unusual products at reasonable prices are winning over premium and value shoppers alike.

We’ll be tracking the macro trends and consumer sentiment in the grocery aisle for more tasty investing ideas to add to your shopping cart.

Until next time,

Andy Swan

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