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Here's Why Sprouts Farmers Market Was Up 21% in May

By Jon Quast – Jun 3, 2020 at 2:08PM

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Surging grocery sales boosted profitability and sent this stock flying, but don't expect the good times to continue much longer.

What happened

Shares of Sprouts Farmers Market (SFM) climbed 20.9% during May, according to data provided by S&P Global Market Intelligence. The company kicked off the month by reporting earnings for the first quarter of 2020 and giving a quarter-to-date update for the upcoming second quarter.

These positive results have fueled Sprouts Farmers Market's market-beating returns in 2020.

SFM Chart

SFM data by YCharts.

So what

Sprouts Farmers Market ended 2019 by giving unimpressive guidance for 2020. It expected revenue to grow 1% at best. And for most of Q1, it was on pace for those pedestrian results. However, once the COVID-19 pandemic closed restaurants, consumers shopped at the grocery store more, boosting the company's results dramatically.

Comparable-store sales at Sprouts grew 10.6% in Q1. Of that, management attributed 9.6% of the gain to the coronavirus. This unexpected surge had an added benefit: The company gained operating leverage and delivered net income of $92 million. That was a 64% year-over-year increase.

Sprouts' surging revenue is consistent with grocery retail in general. According to the Census Bureau, grocery-retail sales in March increased 30.9% from March 2019, and April sales posted a 13.2% year-over-year gain.

A brown bag full of fresh produce is displayed against a gray background.

Image source: Getty Images.

Now what

The Census Bureau data showed slowing grocery-sales growth in April, and that's true of Sprouts too. Comp sales were only up 7.2% in April. That's still very good for this company, but it's down from late March. Furthermore, profitability shouldn't be as good in Q2 as it was in Q1. The company is paying out employee bonuses, which will weigh on Q2 net-income results for this mid-cap stock.

 

Jon Quast 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.

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Stocks Mentioned

Sprouts Farmers Market, Inc. Stock Quote
Sprouts Farmers Market, Inc.
SFM
$27.75 (%)

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