Please ensure Javascript is enabled for purposes of website accessibility

Why Smart & Final Stores Inc. Stock Popped on Thursday

By Daniel Sparks – Nov 15, 2018 at 3:16PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

An improved gross profit margin is helping this food retailer's profitability.

What happened

Shares of food retailer Smart & Final (SFS) jumped on Thursday, rising as much as 37.9%. As of 2:42 p.m. EST, the stock was up about 37.1%.

The stock's rise follows Smart & Final's third-quarter earnings release, which featured better-than-expected earnings per share and an improved outlook from management for full-year 2018 profitability. 

A chart showing a stock price moving higher

Image source: Getty Images.

So what

Smart & Final reported third-quarter net sales of about $1.5 billion, in line with the consensus analyst estimate for the quarter. These sales were up 2.8% from the year-ago quarter. Smart & Final's non-GAAP earnings per share for the quarter came in at $0.23, up from $0.17 in the year-ago period. This beat analysts' average forecast for earnings per share of $0.17.

Helping profitability was a higher gross profit margin. The company's overall gross profit margin improved from 14.7% in the year-ago quarter to 15.5%. "Gross margin rate in the quarter was supported by the company's strategic sourcing, merchandising, and pricing initiatives," management said in the company's third-quarter earnings release.

Now what

Looking ahead, the company lowered its guidance for full-year sales growth. Management now expects sales to rise 3.5% to 3.75% year over year in 2018 compared to 2017. Previously, management expected sales to rise 4% to 5% during this period.

But management now has higher expectations for profitability, guiding for net income and earnings per share to be in the ranges of $34 million to $36 million and $0.46 to $0.48, respectively. These ranges are up from previous forecasts of $31 million to $35 million and $0.42 to $0.47, respectively.

Daniel Sparks 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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.