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Sprouts Guides to Steeper Store Sales Drop: Rapid Earnings Reaction
Key Points
Sprouts’ EPS barely moved, but net income fell about 6%.
Buybacks are doing a lot of the work, and the fourth-quarter guide points to lower prices ahead.
Sprouts Farmers Market (NASDAQ:SFM) expects its existing stores to shrink faster, guiding fourth-quarter comparable store sales down 2% to 4% after a 0.9% decline in the third quarter. Shares fell about 19% in regular trading Thursday morning. New stores now supply all of Sprouts' growth, and management plans to spend margin on lower prices to win shoppers back.
Key Numbers
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- Net sales: about $2.3 billion, up 5% year over year
- Comparable store sales: down 0.9%
- Gross margin: 38.2%, down from 38.7% a year ago
- Diluted EPS: $1.21, versus $1.22 a year ago
What It Means
A record 15 openings did the lifting while the existing base slipped. The profit damage came from gross margin, not overhead, which held steady as a share of sales. For a produce-heavy grocer, soft sales mean more spoiled inventory, and the cyclospora disruption the CEO cited hit fresh food directly. Operating income fell about 3%.
EPS understates the slide. Net income dropped about 6%, but buybacks cut the diluted share count by roughly 5%. Year to date, Sprouts spent more on buybacks than it generated after capital spending, drawing down cash to keep per-share results near flat.
The fourth-quarter guide, with EPS of $0.47 to $0.51 on a 13-week basis, shows management choosing to pay for traffic. Lower prices hit margin immediately, while shoppers respond slowly. Unit growth still looks healthy, but a shrinking core store base is a real change to the story if it lasts beyond a quarter or two.
What to Watch Next
Watch whether comparable store sales turn positive in 2027 as the price investments mature. Also track whether gross margin stabilizes or keeps falling with each round of cuts.
David Kretzmann has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Sprouts Farmers Market. The Motley Fool recommends the following options: long January 2028 $75 calls on Sprouts Farmers Market and short January 2028 $85 calls on Sprouts Farmers Market. The Motley Fool has a disclosure policy.