Why Sprouts Farmers Market, Inc. Stock Lost 13% Last Month

What happened

Shares of Sprouts Farmers Market, Inc. (NASDAQ: SFM) headed lower last month as the health food grocer reported first-quarter earnings and cut its sales guidance for the full year. As a result, the stock finished May down 13%, according to data from S&P Global Market Intelligence.

As you can see from the chart below, the stock tumbled early in the month after Sprouts released its first-quarter earnings report.

SFM data by YCharts.

So what

Sprouts shares fell 13.3% on May 3 even as the company posted solid overall results. Comparable-store sales were up 2.7%, and total revenue increased 14% to $1.29 billion, in line with estimates, as the company continues to aggressively open new stores, growing its base by about 10% a year.

Image source: Sprouts Farmers Market.

Operating income in the quarter increased by 10% to $79.7 million, but earnings per share jumped 52% to $0.50 due to a sharply lower tax rate. That result topped estimates by a penny.

CEO Amin Maredia sounded optimistic, saying, “Our strong new store openings in both existing and new markets demonstrate our appeal to a broad base of consumers looking for healthy products at affordable prices. Our strategic initiatives remain on track and are setting the foundation for future success.”

Also, on May 1, Sprouts ended its partnership with Amazon Prime Now as the Whole Foods parent ramps up delivery from Whole Foods, competing directly with Sprouts. Sprouts began working with Instacart at the beginning of the year.

Now what

Sprouts trimmed its revenue guidance for the year, calling for top-line growth of 10.5%-11.5%, down from 11.5%-12.5%, and comparable sales growth of 1.5%-2.5%, down from 2.5%-3.5%.

It maintained its full-year EPS expectation of $1.22-$1.28, but the top-line cut seemed to scare the market as investors are already wary of supermarket stocks due to Amazon’s entry into the sector. While Sprouts continues to outperform its peers, lowering comparable sales guidance will generally disappoint investors. Given that, this sell-off is not surprising.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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