Why Sprouts Farmers Market Stock Crashed Today
Key Points
Sprouts continues to expand its store base.
Sales at existing stores are slowing.
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Shares of Sprouts Farmers Market (NASDAQ: SFM) plunged 26% on Thursday after the natural and organic grocer warned of a slowdown in its same-store sales growth.
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Store-count expansion is driving profit growth
Sprouts' net sales grew by 13% year over year to $2.2 billion in the third quarter, driven by new store launches and higher sales at existing locations. The grocery chain opened 9 stores during the quarter, bringing its store count to 464 locations across 24 states as of Sep. 28.
"We are opening stores nationwide, and our strategy continues to resonate with our target customers," CEO Jack Sinclair said in a press release.
Moreover, Sprouts' profit margins improved as it scaled its business. The grocer's net income increased by 31% to $120 million, while its earnings per share -- aided by stock buybacks -- jumped 34% to $1.22.
Same-store sales are slowing as consumers cut back
However, management warned that Sprouts' same-store sales would grow by 2% or less in Q4, as increasingly price-conscious shoppers pull back on spending.
"While it was a solid third quarter, it fell short of our top line expectations," Sinclair said during a conference call with analysts. "As the quarter progressed, our comp sales moderated faster than expected as we came up against challenging year-on-year comparisons as well as signs of a softening consumer."
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Sprouts Farmers Market. The Motley Fool has a disclosure policy.
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