Sprouts is showing Whole Foods how it's done

NOVEMBER 6, 2015 | BY GINA ACOSTA

While Whole Foods Market and The Fresh Market struggle to eke out sales growth and profit, Sprouts Farmers Market is quietly emerging as a perennial winner in the grocery sector.

Sprouts reported its third quarter results this week, and the company's financials exceeded company guidance and even Wall Street estimates.

The grocery chain reported results for the 13-week third quarter ended Sept. 27 that inlcuded:

• Net sales of $903.1 million, an 18% increase from the same period in 2014
• Same store sales growth of 5.8% and two-year same store store sales growth of 14.9%
• Net income of $32 million and diluted earnings per share of 21 cents
• Adjusted diluted earnings per share of 21 cents, a 17% increase from the same period in 2014

"Sprouts' commitment to health and value continues to resonate with customers seeking fresh, natural and organic products at great prices, driving 34 consecutive quarters of positive comparable store sales growth," said Amin Maredia, chief executive officer of Sprouts Farmers Market. "Top-line sales increased through strong promotions and operational execution which drove increased customer traffic trends. Looking ahead, we continue to focus on product innovation, private label growth, great operational execution and 14% unit growth coast-to-coast."

While Sprouts has been growing, its rivals have been foundering as Walmart, Kroger, Target and other retailers increase their natural and organic assortments. Given the thin margins in the grocery sector, these larger chains can offer just enough key organic items to cause shoppers not to make the extra trip to Whole Foods, which reported weak fourth quarter comps this week. Comps at Whole Foods declined 0.2% following a meager 1.3% increase in the third quarter. Net income declined to $56 million, or 16 cents a share, from $128 million, or 35 cents a share, in the fourth quarter the prior year.

But shoppers are still flocking to Sprouts.

During the third quarter, the company opened eight new stores: one each in Colorado, Kansas, New Mexico, and Tennessee, and two each in Georgia and Texas. This brings 2015 new store openings to 26, for a total of 216 stores in 13 states. The company expects to open one additional store in the fourth quarter for a total of 27 stores in 2015.

For the fourth quarter, Sprouts expects same store sales growth of 5% to 6%.

Sprouts Farmers Market, Inc. is headquartered in Phoenix and operates more than 200 stores in 13 states.