Last Wednesday September 7, shares plunged nearly 14% to close below $20 as the organic grocery retailer delivered a profit warning and lowered guidance for the third-quarter and full-year 2016.
The news not only impacted SFM stock, but rippled throughout the supermarket industry, sending Whole Foods Market (WFM – Analyst Report) , SuperValu (SVU – Analyst Report) and Kroger (KR – Analyst Report) shares all down between 4% and 5%.
Behind the Guidance Cut
Sprouts drastically slashed its third-quarter comparable sales (comps) guidance to come in flat with last year from the previous forecast of 3–4% growth.
The company also slashed its earnings and comps view for full-year 2016. The company now anticipates earnings per share in the range of 83–86 cents against 92–94 cents projected earlier. Further, the company’s comps growth guidance for the year was substantially lowered to 1.5–2.5% from the earlier forecast of 3.5–4.5%.
The drastic guidance cut was due to a lingering deflationary environment, increased competition and industry dynamics that have led to more promotions throughout the grocery business.
Deflation at the Grocery Store?
It’s odd for consumers to hear about “deflation” causing problems for food retailers when it seems the shopping cart bill is always getting harder to keep under control. But the day after Sprouts warned, we heard the same message from SuperValu and Kroger, including cuts in their guidance.
Sprouts may be a quality up-and-coming contender to Whole Foods in the natural/healthy grocery space.
But until the Zacks Rank turns around for it, and the industry, best to shop for other stocks.
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