The grocery business is tough. Full disclosure: Getting food distributed to the masses is not my favorite investment. Nevertheless, there's a little money to be made in grocery retail, especially these days when consumers are all about fresh and organic choices.

And that's what makes Sprouts Farmers Market (SFM 1.54%) such a head-scratcher. Since the chain went public in 2013, the stock has done nothing but decline -- all the while posting modest revenue and profit gains.

Granted, shares were way overpriced in the past, with investors overly optimistic about the fresh grocer's ability to move into new markets. But with a new CEO and national expansion chugging along at a decent pace, things aren't all that bad.

New stores sprout, share prices wilt

Sprouts is a small chain with the bulk of its stores in its home state of Arizona and in California. New openings have been occurring at about 30 a year, and the grand total was 322 at the end of the first quarter of 2019. Those new stores account for the bulk of Sprouts' growth of late.


Q1 2019

Q1 2018



$1.414 billion

$1.287 billion


Operating income

$79.6 million

$79.7 million


Earnings per share




Data source: Sprouts Farmers Market.

Same-store sales (a combination of foot traffic and ticket size per visit) also grew 1.4% during the quarter. Over the last two years, the metric has increased a total of 4.1% -- a respectable number given that peers like Kroger can't seem to gain any real traction and are only boosting sales via digital orders. Sprouts is losing some steam here, though, as comps were up 5.3% in the trailing two-year stretch that ended in 2017 and 5% in the trailing two years that ended in 2018.

In spite of top-line gains for the grocer, operating income was flat and earnings were down during the first quarter. The blame lies with higher general and administrative expenses, as well as some extra costs associated with a few store closures. Toss in a higher provision for taxes, and it all added up to an underwhelming bottom-line performance. As of this writing, shares are down 16% in the last 12 months.

A woman standing in the produce aisle at a grocery store.

Image source: Getty Images.

What comes next?

Shortly after the first-quarter release, Sprouts also announced some executive changes. Jack Sinclair -- former CEO of 99 Cents Only Stores and previously an executive at Walmart's U.S. grocery division -- was made CEO effective June 24. Former interim co-CEO and CFO Brad Lukow left the company, so the CFO position is in flux for the time being. The situation with the company's top brass could be another reason for investors' salty mood.

At the end of the day, though, it's all about the bottom line, and Sprouts hasn't delivered the kind of growth shareholders were looking for. Even though sales are expected to increase 9% to 10.5% for full-year 2019, management has forecast earnings to be flat to slightly down from 2018. Maybe Sinclair and whoever joins him can get things back into growth mode, but that remains to be seen.

Even with the uncertainty, Sprouts might be a decent buy right now. Trailing-12-month P/E puts the stock at 15.8. That's far cheaper than the recently gone-public West Coast peer Grocery Outlet, which trades for a whopping 165 times 12-month earnings as of this writing.

And though earnings growth has been nonexistent for Sprouts as of late, free cash flow (money left over after basic operating expenses and capital expenditures) has been trending up in the last couple of years. In short, things may not look great on the surface at Sprouts Farmers Market, but investors could do far worse in the grocery department.