Why Is Sprouts Farmers (SFM) Up 5.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Sprouts Farmers (SFM). Shares have added about 5.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sprouts Farmers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its latest earnings report in order to get a better handle on the important drivers.

Sprouts Farmers Q1 Earnings Top Estimates on New Stores and E-commerce

Sprouts Farmers Market, Inc. reported first-quarter 2026 results, wherein both top and bottom lines beat the Zacks Consensus Estimate. The company benefited from solid new-store productivity, continued strength in private-label offerings and growth in e-commerce sales despite a challenging consumer backdrop and tough year-over-year comparisons.

SFM’s Sales Mix Leans on Digital and New Stores

Sprouts Farmers reported quarterly earnings of $1.71 per share, surpassing the Zacks Consensus Estimate of $1.67. The bottom line rose from $1.81 in the same period last year. Net sales of this Phoenix, AZ-based natural and organic grocery retailer were $2,329.2 million, coming marginally ahead of the Zacks Consensus Estimate of $2,326 million. The figure increased 4% year over year, driven by strong new-store contributions, partially offset by lower comparable-store sales.

Comparable store sales declined 1.7% during the quarter, reflecting tough comparisons and a cautious consumer environment. Traffic remained soft, while basket size was modestly positive. E-commerce sales rose 10% and accounted for nearly 16% of total sales, highlighting continued omnichannel momentum. Sprouts’ private-label products also remained a key growth driver, contributing more than 26% of total sales.

Sprouts Farmers leaned into its differentiation playbook, highlighting a robust pipeline of emerging brands and a fast-scaling loyalty program. Management said that it has already launched 1,500 new items this year, reinforcing the chain’s role as a preferred launch partner for health-and-wellness innovation.

Taking a Sneak Peek Into SFM’s Margins

Gross profit increased to $917.3 million from $886.4 million in the year-ago quarter. However, the gross margin contracted 20 basis points to 39.4%, mainly due to loyalty program investments and higher shrink, partially offset by benefits from self-distribution initiatives. 

Operating income came in at $215.3 million, down from $226.3 million last year, while operating margin declined to 9.2% from 10.1% in the prior-year period, in line with our expectations.

SG&A expenses increased 5.7% year over year to $658.8 million. As a percentage of net sales, the metric deleveraged 42 basis points to 28.3% owing to fixed-cost deleverage from lower comparable-store sales, partially offset by cost discipline.

Sprouts Farmers’ Store Update

Sprouts Farmers opened six new stores during the quarter, ending with 483 stores across 25 states, including entry into New York. Management highlighted strong performance from newer stores and a robust pipeline, with plans to open 40-plus new stores in 2026. The company also made progress in its supply-chain transformation, with self-distribution of meat nearly complete, which is expected to support margins over time.

Sprouts Farmers Keeps Balance Sheet Flexible

Sprouts Farmers’ cash generation continued to support self-funded growth and shareholder returns. Operating cash flow was $235.3 million in the quarter, funding $98 million of capital expenditures (net of landlord reimbursement) while still allowing meaningful buybacks.

The company repurchased 1.9 million shares for $140 million (excluding excise tax) and ended the quarter with $252.2 million in cash and cash equivalents. Sprouts Farmers had no balance on its $600 million revolving credit facility, while long-term debt and other finance obligations stood at $97 million.

SFM Raises 2026 Earnings View, Maintains Sales Outlook

Management maintained its full-year 2026 outlook on a 52-week basis, calling for net sales growth of 4.5% to 6.5% and comparable-store sales between down 1% and up 1%. Earnings before interest and taxes are still expected between $675 million and $695 million, while capital expenditures (net of landlord reimbursements) are projected within $280 million to $310 million.

The company now anticipates full-year earnings between $5.32 and $5.48 per share, up from the prior guided range of $5.28-$5.44, and assumes at least $300 million in share repurchases. 

For second-quarter 2026, SFM expects comparable store sales in the range of down 2% to flat. Management guided earnings in the band of $1.32-$1.36 per share for the quarter. The company anticipates roughly 75 basis points of EBIT margin pressure in the second quarter, driven by fixed-cost deleverage on lower comps, annualizing the loyalty points investment, and higher fuel costs.

Management also reiterated that 2026 will be a 53-week year, with the extra week expected to add about $200 million in sales and 21 cents to earnings per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Sprouts Farmers has a average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a score of B on the value side, putting it in the top 40% for value investors.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sprouts Farmers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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This article originally published on Zacks Investment Research (zacks.com).

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