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Why Sprouts Farmers Market, Inc. Stock Popped Today

By Jeremy Bowman – Aug 2, 2018 at 2:11PM

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Shares of the natural-food grocer jumped on a solid earnings report.

What happened

Shares of Sprouts Farmers Market, Inc. (SFM 0.75%) were moving higher today after the organic supermarket chain posted solid second-quarter results and raised its full-year earnings guidance. The stock was up 8.9% as of 1:30 p.m. EDT.

The entrance to a Sprouts supermarket

Image source: Sprouts Farmers Market.

So what

At a time when many investors are wary of supermarket stocks following Amazon's acquisition of Whole Foods, Sprouts turned in another round of growth, showing the durability of its model. Comparable-store sales increased 2% and overall revenue rose 12% to $1.32 billion, in line with estimates. Operating profit fell slightly due to investments in wages, but earnings per share increased 10% to $0.32 due to a lower tax rate and fewer shares outstanding, which also matched estimates.

CEO Amin Maredia summed up the company's position, saying: "Double-digit sales and EPS growth in our second quarter reflects the strength of Sprouts' differentiated business model and our solid execution across new and existing markets. Our planned 2018 investments in our team members and technology, which increased this quarter, will strengthen our customer service, generate operational efficiencies and support our long-term growth."

Now what

Sprouts bumped up the lower end of its full-year earnings guidance, from a range of $1.22 to $1.28 to one of $1.24 to $1.28, and maintained guidance for comparable-sales growth of 1.5% to 2.5%, 30 new stores for the year, and overall revenue growth of 10.5% to 11.5%.

Though it may be surprising to see the stock gain nearly 10% after essentially matching estimates, this report may have reassured investors after the slide that followed the company's first-quarter earnings report. Despite the pressures in retail and in the grocery industry, Sprouts' growth strategy remains on track.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AMZN. The Motley Fool has a disclosure policy.

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