Wall Street came out of the weekend on an uncertain note, and although stocks initially posted solid gains, most major indexes finished the day down marginally. The declines for the Nasdaq Composite (^IXIC +1.64%), Dow Jones Industrial Average (^DJI +0.69%), and S&P 500 (^GSPC +1.05%) were quite modest, though, as most investors seemed poised to wait for more guidance from the Federal Reserve later in the week.
|
Index |
Daily Percentage Change |
Daily Point Change |
|---|---|---|
|
Dow |
(0.14%) |
(46) |
|
S&P 500 |
(0.04%) |
(2) |
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Nasdaq |
(0.11%) |
(14) |
Data source: Yahoo! Finance.
A pair of companies reported financial results immediately after the closing bell, and their shares promptly moved in opposite directions. Sprouts Farmers Market (SFM 0.40%) got a nice bounce, but Arista Networks (ANET +2.86%) wasn't as fortunate. Read on to see why these two companies might have investors drawing inferences that could affect their views of the broader market.
Sprouting higher
Shares of Sprouts Farmers Market climbed by more than 4% in early after-hours trading Monday. The organic grocery store company reported first-quarter financial results that showed that its customers remain resilient even in the face of macroeconomic pressure.
The numbers from Sprouts looked good to most shareholders. Revenue climbed 6% year over year to $1.7 billion, with comparable-store sales posting growth of 3.1%. Adjusted earnings rose by an even steeper 24% to $0.98 per share. Sprouts was able to keep expanding its network, opening eight new stores while closing just a single location. That brought the number of stores it runs to 395.
NASDAQ: SFM
Key Data Points
Some investors have been concerned about the state of Sprouts' finances, but the company sought to put those worries to rest in its report. It finished the quarter with $295 million in cash on its balance sheet, and it still has $475 million available on its $700 million revolving credit facility to meet any liquidity needs that might arise. That made Sprouts confident enough that it spent nearly $100 million buying back 3 million shares of its stock during the first quarter.
Management expects the business to hold up well throughout the year, projecting sales growth of 5% to 6% on comparable-store sales gains of between 2% and 3%. Its adjusted earnings per share guidance range of $2.58 to $2.68 suggests a reasonable valuation of less than 15 times forward estimates, and that's a big part of what's making shareholders more confident in the grocery chain's future.
Arista falls back
Meanwhile, shares of Arista Networks moved lower immediately after the release of its first-quarter financial results. The tech stock was down by around 6% as of 5 p.m. ET.
Growth at Arista still looked quite strong. The cloud networking solutions specialist's revenue was up 54% year over year to $1.35 billion. Adjusted net income climbed at an even faster 69% rate to $453 million. That worked out to adjusted earnings of $1.43 per share.
NYSE: ANET
Key Data Points
However, some investors were concerned by a couple of less encouraging trends. Adjusted gross margin dropped by 3.6 percentage points to 60.3%, suggesting that the company has a bit less pricing power amid more elastic demand from customers. In addition, Arista called for relatively little sequential growth in the second quarter, projecting sales of between $1.35 billion and $1.4 billion.
There's no doubt that Arista's products remain must-have items for businesses of all sizes. But even Arista is vulnerable to broader economic downswings, and shareholders still have concerns that a cyclical slowdown could bring the stock down further from its all-time highs set in late March.
